By: Riley Williams, SFU Student
Capitalist economies have long since operated with short-term thinking, contributing to numerous negative social and environmental impacts. Short-termism and long-termism are two ends of a philosophical spectrum used to describe differing perspectives on which we base our decisions. Investigating our economic systems through this lens shows why companies prioritize short-term profits over long-term sustainability, and highlights areas for improvement.
Long-termism is “not a single, fully worked-out perspective.” Rather, it is a group of perspectives tied together by the importance of safeguarding and optimizing humanity’s long-term future. Alternatively, short-termism is “an excessive focus on short-term results at the expense of long-term interests.”
The vast majority of profit-motivated companies are heavily biased towards short-term gain. They do not consider limited resources or how to sustain them, because the market is a competition for infinite growth. This is enabled by the economic systems within which they operate, which also means that in order to stay afloat, non-profits or small businesses need to prioritize short-term gain to some degree. But could this system be better? What if these companies started considering pressing issues, such as climate change, while engaging in economic decisions?
When making decisions, a company’s CEO will have personal biases toward short-term gains. Shareholders invest in companies and gain partial ownership; they expect the company to operate to maximize their profits. If a company maximizes short-term profits, it is difficult to consider the long-term implications of decisions or align decisions with long-term strategy.
“Climate was not considered more important than capital at the dawn of industry, but with the abundant evidence of climate change’s detrimental impacts on society, it should be a key aspect.”
Companies often engage in employee layoffs to reach short-term target profits, negatively impacting employee morale, engagement, and productivity. For example, Google has been continuously cutting jobs in order to maintain corporate growth while increasing spending for artificial intelligence development. A business could retain the employees instead of engaging in layoffs if it didn’t need to meet quarterly targets.
The environmental degradation due to short-term thinking is profound; the continuous plundering of natural resources and the mass production of material waste shows the environment is often the last consideration when the bottom line is at risk. When businesses engage in short-term thinking, they disregard potentially permanent impacts on the ecological systems we depend on to survive.
A change is needed. We cannot allow companies to find success at our expense. Though it may seem unfeasible, there are business policies and shareholder investing systems that would reflect long-term incentives, even in the free market. These incentives would allow companies to operate on the long-term end of the spectrum, as their responsibility to their shareholders is based on long-term impacts. Scholars have recommended implementing long-term compensation systems for top executives to influence decision-making, or shifting investment systems to favour environmentally-friendly assets. With compensation structures for environmental metrics in combination with financial metrics, executives would be incentivized to prioritize sustainability and profit. However, as long as they are not held responsible for implementing these changes, it is ultimately up to the executive.
We need to work together as a society to improve our systems and persuade executives to consider long-term goals. It is a changing world. All systems are meant to work in their intended environment; when that environment evolves, it is no longer optimal, and our systems must adapt. Climate was not considered more important than capital at the dawn of industry, but with the abundant evidence of climate change’s detrimental impacts on society, it should be a key aspect.
