“Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality, promotion or dubious accounting – and often by all three – these managers drove a fledgling conglomerate’s stock to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so times earnings. They immediately applied “pooling” accounting to the acquisition, which – with not a dime’s worth of change in the underlying businesses – automatically increased per-share earnings, and used the rise as proof of managerial genius. They next explained to investors that this sort of talent justified the maintenance, or even the enhancement, of the acquirer’s p/e multiple. And, finally, they promised to endlessly repeat this procedure and thereby create ever-increasing per-share earnings.”
According to James Canton in his book Future Smart, “Economic theories that involve the redistribution of wealth through taxation may be politically popular in Europe but have little to do with driving new investment, producing jobs, stimulation authentic productivity, attracting capital, and – the largest factor inventing the future – transforming economics by investing in building technology-rich economies and Innovation Ecosystems that create value that generates wealth, jobs, and new business formation. Somebody just has to tell the truth here.
Sorry to tell my European friends who have been preaching the dystopian end of capitalism for ten years, but if there were a better way to grow an economy, lift up the fortunes of citizens, increase jobs and productivity, I don’t see it yet. And, in all fairness, the US model of capitalism needs a refresh as well if it is to shape a prosperous New Future of Economics.”