Neera brings to the table a powerful perspective on the intersection of economics and public policy. Her leadership on long term R&D and infrastructure investment, and on what has been called “Middle Out Economics,” has consistently pushed government toward well-rounded policies that spur national competitiveness while also taking the broader needs of society into account.
— Tim O’Reilly
The U.S. economy is decades into the shareholder value revolution that has swept equities markets and boardrooms alike. Predicated on the idea that maximizing a firm’s share price should be managers’ top priority, this movement holds the promise of making corporations more productive and efficient while making investors wealthier. Yet for all its success in driving wealth and making companies more competitive, there remains an important, unresolved tension in this thesis that is usually glossed over: it does not explain how short-term equity market incentives will necessarily deliver optimal long-term decisions…
Companies know that over time, success depends on the development of their people, processes, and products. Economists have long suggested that a large problem inside firms is a simple principal-agent problem: investors own a company and benefit when profitability is maximized, but a manager controls the firm day to day and may have different priorities. Companies have sought to align the interests of managers and shareholders by tying decision-making within the firm to share price, as well as other financial and business metrics. So long as both investors and managers have the same payoff horizon in mind, this arrangement does align incentives, but the assumption that a single time horizon is shared is a strong one. Investors can differ drastically in the payback periods over which investments make sense to them.
A recent study assessing growth among the 500 largest companies in the world found that investors realize outsized rewards when their companies invest aggressively in R&D and lose value when R&D spending is low. The fastest growing quartile of companies has increased in value by an average of 251 percent since 2012, versus an average of 69 percent for the next quartile. This significant increase in value was supported by substantially higher investment in R&D by companies in the top quartile compared with their peers. The corporate tax code currently tries to encourage this investment. But the R&D tax credit—which generated $6 billion in tax expenditures in 2012, according to CBO—is ripe for reform. Currently, the credit subsidizes R&D at older firms at higher rates than at start-ups, and it remains a temporary program, even as its 35th anniversary approaches. It needs to be permanent, simpler, and more available to the newer companies that are likely to need it more. The goal of the program should be to make older, larger firms innovate more and to help new innovators become viable long-term companies.
Conservative dogma holds that the economy grows from the top down—that if you allow the rich to get richer, they will use their gains to invest in job creation. But the data on income inequality puts the lie to that story. That’s why progressives believe we ought to grow the economy from the middle out, rather than from the top down. It’s the only way to reverse the rise in income inequality and build broad, long-term prosperity.
Neera Tanden is the president of the Center for American Progress and counselor to the Center for American Progress Action Fund. Tanden has served in both the Obama and Clinton administrations, as well as presidential campaigns and think tanks. Most recently, Tanden served as the chief operating officer for the Center, where she oversaw strategic planning, operations, and fundraising.
Tanden previously served as senior advisor for health reform at the Department of Health and Human Services, working on President Barack Obama’s health reform team in the White House. In that role, she developed policies around reform and worked with Congress and stakeholders on particular provisions of the legislation.
Prior to that, Tanden was the director of domestic policy for the Obama-Biden presidential campaign, where she managed all domestic policy proposals. Tanden had also served as policy director for the Hillary Clinton presidential campaign, where she directed all policy work, ranging from domestic policy to the economy to foreign affairs, and managed day-to-day policy announcements. In that role, she also oversaw the debate preparation process for then-Sen. Clinton (D-NY).
Before the presidential campaign, Tanden was senior vice president for academic affairs at CAP. Prior to that, she was one of the first senior staff members at the Center, joining as senior vice president for domestic policy when CAP first opened its doors. In between, Tanden was legislative director for Sen. Clinton, where she oversaw all policy and legislation in the Senate office. In 2000, she was Hillary Clinton’s deputy campaign manager and issues director for her Senate campaign in New York. Tanden also served as associate director for domestic policy in the Clinton White House and senior policy advisor to the first lady.
Tanden has appeared on NBC’s “Meet the Press,” ABC’s “This Week,” CBS’s “Face the Nation,” “The NewsHour with Jim Lehrer,” MSNBC, CNN, and Fox. She was named one of the “Most Influential Women in Washington” by National Journal and received the India Abroad Publisher’s Award for Excellence in 2011. Tanden was recently included on Elle magazine’s “Women in Washington Power List” and recognized as one of Fortune magazine’s “Most Powerful Women in Politics.” She received her bachelor of science from UCLA and her law degree from Yale Law School.
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