Week 42, 2020
The LTSE: Financial Dilemmas, Perverse Incentives, and Long-Term Thinking
Each week I share three ideas for how to make work better. And this week, those ideas all serve to introduce the Long-Term Stock Exchange (LTSE).
Why am I writing about this? The LTSE officially opened for business on September 9th, 2020. Its mission: to reform the financial system and usher in Capitalism 2.0. Here’s why:
1. Financial Dilemmas
Have you watched The Social Dilemma, Netflix’s dystopian docudrama about the influence that social media has on our lives? If so, you’ve probably wondered how things could get so out of hand? Psychology is part of the answer. Financial incentives are another. Because while tech firms have used cognitive psychology to their advantage, one can argue that they’ve done so without malice but in blind pursuit of financial growth.
2. Perverse Incentives
When Eric Ries (yes, that Eric Ries) first conceived off the LTSE back in 2011, he wasn’t thinking about social media per se. But he was thinking about the perverse incentives that create such undesired consequences. Because while companies operating with long-term mindsets tend to outperform their peers, they are working within a financial system designed to encourage the complete opposite: short-term thinking and quarterly gains.
For more, see Finally, Evidence That Managing for the Long Term Pays Off
3. Long-Term Thinking
The hypothesis is simple yet profound: by redesigning the financial system in such a way that it encourages long-term thinking, we’ll be able to do away with the perverse incentives that lay at the heart of a number of wicker problems, ranging from the social dilemma on the one hand to climate change on the other. Companies listed on the LTSE must therefore maintain and publish long-term strategies, practices, and measures.
The LTSE will be the 14th stock exchange in the United States. And while it won’t be able to upset the NYSE or Nasdaq anytime soon, it’s fundamentally a step in the right direction. As Ries himself explains: “[If] we’re going to have a capitalism 2.0, it’s going to need a capital market to be listed on.”
As for the future of work: I’d venture that that, too, will benefit under this new system. Because what is command-and-control if not another hallmark of short-term thinking?! Treating people like resources is not a recipe for success. At least not the kind of success we ought to be concerned with.
Money isn’t the root of all evil. Short-term thinking is. Money is just a means to an end. And the LTSE is here to redefine what that end is.
That’s all for this week.
Until next time.
Go long.
/Andreas
