The intense pressure on money managers for higher returns is due to the impatience and greediness of average investors. When results fall short of expectations, money is quickly removed.
"They are evaluated and paid based on their ability to retain old clients and attract new ones, and this means that they must produce strong performance numbers on a quarterly basis. So while the retirement savings that make up mutual funds and pension funds may have long-term investment horizons, the men and women who manage these funds often do not."
Chapter 2: Long-Term Money, Short-Term Behaviour/Short-Term Horizons And Herd Behaviour In Mutual Funds And Pension Funds
The people involved in financial markets build investor confidence by pressuring government administrators to cut the deficit and reduce spending. Corporations are following a similar path by creating a more flexible workforce through downsizing. Firms create jobs by selling products or services that benefit the economy and society. Others with unique views have reached an entirely different conclusion.
"Companies aren't put together to create jobs. The number one priority is creating shareholder wealth."
Bob Bertram, senior vice-president of the Ontario Teachers' Pension Plan.
The funds industry has grown so rapidly that government regulators have been left behind. Developed countries could create holding period taxes on capital inflows. This exit tax will help curb speculation and prevent large panicked withdrawals. Legislation could also be introduced that would limit the use of stock options. This would force managers to think up real business solutions instead of continually reducing the workforce. Inefficient capital markets have created a serious imbalance of power between Main Street and Wall Street. This is financially and politically unsustainable over the long-term.
Adam Harmes has a Ph.D in political science from York University and is now a fellow at the University of Toronto's Munk Center for International Studies.