Missing Hatchlings of the Rentier Firm

Investment is the foundation for future economic growth under capitalism, but public company investment isn’t what it used to be. This is measurable. US public companies have, in aggregate, reduced their level of investment since 1985 by about 10% [1], while increasing cash disbursements to shareholders. That’s roughly USD $100 billion per year.

Where did 10% of the US jetpack future fund money go? Was the shareholder revolution simply an excuse to give up innovation and use public companies as cash machines for shareholders? Was it linked, as JW Mason and others argue, to institutional and ideological changes promoting a more short-term outlook, such as the theory that a firm’s purpose is to maximize shareholder value? Or did the money get reinvested in private firms, in world-changing tech startups and failing legacy companies rebuilt with private equity tough love?

On the specific question of whether the money taken out of public companies went into private investment, a decent estimate, explained below, is that at most half went to venture capital, and the rest went on the economic investment equivalent of beer and hookers. (Or perhaps painkillers and football tickets. But not cancer research and bridges.)

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