ABSTRACT
In international comparisons, British manufacturing firms do not perform well in terms of R&D spending, patenting rates, market shares and product innovation. The results of the most recent studies and surveys provide statistical evidence for the poor state of British manufacturing firms (for example see Innovation Advisory Board 1990; House of Lords 1991; Patel and Pavitt 1992; Centre for Exploitation of Science and Technology 1991; and Demirag and Tonkin 1991 and 1992). It is often argued that this poor performance is mainly the result of ‘short-term’ pressures in the UK. Porter (1992) and Jacobs (1991) also provide some support for this prognosis in the US economy. So, what is meant by short-termism and what factors cause short-term pressures? Many authors writing on short-termism have defined the term differently. The most common definition of short-termism adopted by many authors is ‘a propensity for short-term gains taken at the expense of longer term benefits’. Demirag and Tylecote (1992) define short-termism, at the level of the firm, as the application of a time rate of discount which exceeds the firm’s opportunity cost of capital, and/or the foreshortening of the time horizon to exclude relatively distant revenues. This definition of short-termism is clearly distinct in principle, though perhaps similar in its practical effects, from a shortage or high price of capital such as might be produced generally by tight monetary policy or specifically by negative cash flows.
