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Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 1992

Abstract

The U.S. system of allocating investment capital is failing, putting American companies at a serious disadvantage and threatening the long- term growth of the nation''s economy. The problem involves the external capital allocation system by which capital is provided to companies, as well as the system by which companies allocate capital internally. In global competition, where investment increasingly determines a company''s capacity to upgrade and innovate, the U.S. system does not measure up. Reforms that can make the U.S. capital allocation system work include: 1) Improve the macroeconomic environment; 2) Expand true ownership throughout the system so that directors, managers, employees, and even customers and suppliers hold positions as owners; 3) Align the goals of capital providers, corporations, directors, managers, employees, customers, suppliers, and society; 4) Improve the information used in decision making; and 5) Foster more productive modes of interaction and influence among capital providers, corporations, and business units.

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Abstract

The U.S. system of allocating investment capital is failing, putting American companies at a serious disadvantage and threatening the long- term growth of the nation''s economy. The problem involves the external capital allocation system by which capital is provided to companies, as well as the system by which companies allocate capital internally. In global competition, where investment increasingly determines a company''s capacity to upgrade and innovate, the U.S. system does not measure up. Reforms that can make the U.S. capital allocation system work include: 1) Improve the macroeconomic environment; 2) Expand true ownership throughout the system so that directors, managers, employees, and even customers and suppliers hold positions as owners; 3) Align the goals of capital providers, corporations, directors, managers, employees, customers, suppliers, and society; 4) Improve the information used in decision making; and 5) Foster more productive modes of interaction and influence among capital providers, corporations, and business units.

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