Short-Termism in Varieties of Capitalism Hridesh Gajurel Master of Research; Bachelor of Arts A thesis submitted for the degree of Doctor of Philosophy at The University of Queensland in 2020 School of Political Science and International Studies Abstract Short-termism seems to be a defining feature of contemporary capitalism. Studies have shown that public firms return most of their profits to shareholders in the form of dividends and share buybacks, leaving little for long-term investment in productive capacities and employees. Besides endangering the long-term future of the firm itself, such short-termism stifles innovation, threatens employment, exacerbates inequality, and hinders economic growth. Many scholars blame the stock market for corporate short-termism as it is associated with ‘impatient capital’ – i.e., footloose portfolio investors. However, anecdotal evidence from the ‘comparative capitalism’ literature indicates that publicly-listed firms in other ‘varieties of capitalism’ like Germany and Japan may not be as short-termist as their Anglo- American counterparts, even though they also face impatient capital in the stock market. Direct empirical comparisons of public firms to confirm national divergence on short- termism are, however, lacking in the literature. I thus set out to compare German and Japanese public firms to American and British public firms using firm-level financial data. I matched firms from different countries by size and industry before comparing them while also controlling for profitability and investment opportunities. What I find is that shareholder payouts (dividends plus share buybacks) are indeed substantially lower in German public firms and lower still in Japanese public firms compared to matched Anglo-American public firms. Although this does not translate into higher real investment in German and Japanese firms, it does nevertheless indicate greater concern for the long-term sustainability of the firm and for the protection of employment. The findings thus suggest that there is much more to short-termism than just the stock market and impatient capital. Although the structural features of the stock market such as high liquidity, ownership-control separation, real-time pricing, and openness (publicness) that make for impatient capital enable short-termism in public firms, I argue that they do not automatically cause short- termism. Short-termism, I argue, depends on institutions, which mediate the link between short-termism and the stock market. I show how the presence of certain institutions and the absence of others encourages short-termism in the Anglo-American system. On the other hand, I show how institutions in Germany and Japan impede stock-market-based short- termism. In this way, institutional differences help explain national differences in short- termism. A key question remains, however: Why do Anglo-American institutions promote short-termism while German and Japanese institutions restrict it in the first place? Institutions, I argue, are only the means to achieving ends. Ends are prescribed ultimately by 2 power relations and culture (values and beliefs). Power relations and culture together shape business ideology, which, in turn, shapes institutional logics. Institutional logics then determine distributional outcomes such as high shareholder payout (short-termism). In this way, national differences in short-termism may be ultimately explained by national differences in power relations and culture. From this perspective, the ‘shareholder value’ ideology that derives from the dominance of finance capital in Anglo-America and is rooted in a culture of liberalism and individualism ultimately explains why shareholder payout in Anglo-American public firms is substantially higher than in German public firms, which are instead embedded in an ideology of ‘social market economy’ that is shaped by a more even power relation between capital and labour and rooted in a long-standing culture of corporatism and consensus. Moreover, shareholder payout is lowest in Japanese public firms because managers, who tend to be the dominant players, are embedded in a culture of groupism and paternalism. They have little regard for (stock-market-based) shareholders – who they see as outsiders – and view themselves as the custodians of the ‘enterprise community’ charged with ensuring its permanence and protecting its members (mostly employees). My focus on relatively enduring factors like power relations and culture does not mean that I ignore institutional change, however. Firstly, I argue that institutional change is usually an adjustment of the means (institutions) to changing conditions to achieve the same ends. Ends can change too, however; although less often. Power relations, which shape ends, can change as a result of structural changes (e.g., globalisation) or political changes (e.g., change in government). As the dominant ideology – which expresses the ends – is rooted in both power relations and culture, it too is likely to change when power relations change, but the change in ideology will still have to be consistent with enduring cultural values and beliefs if it is to last. From this perspective, then, regardless of power relations, enduring cultural differences will ensure the continuance of at least some degree of divergence in the foreseeable future. Indeed, I find through my longitudinal empirical comparison of public firms that German and Japanese public firms continue to diverge from Anglo-American public firms, even as globalisation and neoliberalism have tilted power relations increasingly in favour of finance capital since the 1980s. 3 Declaration by author This thesis is composed of my original work, and contains no material previously published or written by another person except where due reference has been made in the text. I have clearly stated the contribution by others to jointly-authored works that I have included in my thesis. I have clearly stated the contribution of others to my thesis as a whole, including statistical assistance, survey design, data analysis, significant technical procedures, professional editorial advice, financial support and any other original research work used or reported in my thesis. The content of my thesis is the result of work I have carried out since the commencement of my higher degree by research candidature and does not include a substantial part of work that has been submitted to qualify for the award of any other degree or diploma in any university or other tertiary institution. I have clearly stated which parts of my thesis, if any, have been submitted to qualify for another award. I acknowledge that an electronic copy of my thesis must be lodged with the University Library and, subject to the policy and procedures of The University of Queensland, the thesis be made available for research and study in accordance with the Copyright Act 1968 unless a period of embargo has been approved by the Dean of the Graduate School. I acknowledge that copyright of all material contained in my thesis resides with the copyright holder(s) of that material. Where appropriate I have obtained copyright permission from the copyright holder to reproduce material in this thesis and have sought permission from co- authors for any jointly authored works included in the thesis. 4 Publications included in this thesis No publication included. Submitted manuscripts included in this thesis No manuscripts submitted for publication. Other publications during candidature No other publications. Contributions by others to the thesis No contributions by others. Contributions by others to the thesis No works submitted towards another degree have been included in this thesis. Research Involving Human or Animal Subjects No animal or human subjects were involved in this research. 5 Acknowledgements I am truly grateful to my principal supervisor, Professor Stephen Bell, for his invaluable advice, expert guidance, patience, and encouragement. I found my PhD experience to be intellectually stimulating and enjoyable, thanks in no small part to Stephen, who was also always approachable, friendly, and understanding. I would also like to thank my associate supervisor, Associate Professor Ryan Walter, who provided not only really useful and constructive feedback but also great encouragement. I am deeply indebted to my wife, Sadi, who not only supported me and our small family tremendously throughout my candidacy, especially after the birth of our daughter, but also provided valuable feedback to improve my work throughout. I really could not have done this without her. I would also like to thank her parents (my parents-in-law) for their kindness and support throughout my PhD studies. Lastly, I would like to thank my parents for always believing in me, supporting my decisions, and enabling my academic journey. 6 Financial support This research was supported by an Australian Government Research Training Program Scholarship. 7 Keywords Financialisation, short-termism, varieties of capitalism, shareholder payout, share buyback, real investment, dominant ideology, power relations, cultural values Australian and New Zealand Standard Research Classifications (ANZSRC) ANZSRC code: 940304 International Political Economy (excl. International Trade), 40% ANZSRC code: 150303 Corporate Governance and Stakeholder Engagement, 40% ANZSRC code: 160806 Social Theory, 20% Fields of Research (FoR) Classification FoR code: 1606, Political Science, 50% FoR code: 1608, Sociology, 30% FoR code: