Treat the root cause not the symptoms

We believe that the root cause of the difficulties of contemporary capitalism in OECD countries is the abnormally high required return on equity for shareholders. It results in a number of problems: Underinvestment and a slowdown in capital accumulation; Excessive offshoring to countries with low labour costs; Tax competition between countries; The skewing of income distribution against wage earners; The formation of companies with dominant positions. Efforts to correct these problems will fail if the root cause of the harm ( shareholders’ abnormally high required return on equity) is not corrected. Without this correction: Expansionary monetary policies will not stimulate investment; Industrial reshoring cannot take place; Efforts to coordinate tax policies internationally will fail, as companies have to find ways to pay less tax; An increase in wages will drive up prices, as companies will try to maintain their profitability despite the increase in wages; Competition authorities will face the constant determination of companies to obtain the high profit margins provided by a dominant position. The priority should therefore be to obtain a reduction in shareholders’ required return on equity, which will require company managers to be able to stand up to some shareholders.