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Washington, D.C. — U.S. Senator Marco Rubio (R-FL), Chairman of the Senate Committee on Small Business and Entrepreneurship, today released a report titled “American Investment in the 21st Century.” Previewed in an op-ed yesterday, the report outlines how economic growth is now more driven by finance than innovation in the production of real assets, a fundamental shift in the U.S. economy that has occurred over the last four decades. The report argues that since the 1970s, changes made by American businesses and policymakers began prioritizing high returns to investors in the short-term, rather than investment in long-term capabilities. Rubio discussed the impacts of these changes in an interview with The Washington Post.
 
The report is the second product of Rubio’s Project for Strong Labor Markets and National Development. Earlier this year, Rubio released a report titled “Made in China 2025 and the Future of American Industry.” The report outlines the challenges posed by China’s whole-of-state industrial planning for America’s prosperity and productivity, including the jobs and wages of American workers and small businesses.
 
“American capitalism has produced more prosperity for more people than any economic system in the history of the world. That record of achievement is dependent upon capital investment,” Rubio said. “This report details a decline in domestic investment and makes the case that we must prioritize investment in long-term capabilities in order to ensure future prosperity for American workers and communities. Less investment in our own future productivity represents a lack of will to build an economy and country that can sustain and renew itself for generations to come.
 
“After a long economic malaise, we are finally seeing positive signs because of President Trump, his administration, and Republicans in Congress. The Trump boom in our economy has rewarded workers long overdue for a raise. However, short-term economic growth does not guarantee a strong and prosperous nation. If we do not change our public policies to reflect long-term investment as a priority, we will not be able to compete globally or build the America our values demand.”
 
Excerpts from “American Investment in the 21st Century” are below. A full copy of the report can be found here.
 

• “Developing productive, long-life capital assets is physically arduous and financially uncertain. It is also the primary task required of a successful economy.”

• “Business investment in the United States is decreasing…Net private domestic investment, or the total amount of private investment in fixed assets like equipment, machinery, or property after accounting for depreciation, fell from nearly a tenth of U.S. Gross Domestic Product (GDP) as late as the mid-1980s, to less than half of that amount by the end of 2018… The gap between the widely-shared goal of increasing business investment and its actual state is significant.”

• “Reduced business investment in recent years should not be understood as merely a shift toward a “new normal” or as the “natural” outcome of inevitable technological progress and globalization. A full accounting of the situation will demonstrate that reduced investment is part of a fundamental change in the understanding of what the proper goal of the business enterprise should be in our economic system.”

• “The decline in business investment represents a shift away from the traditional understanding of the role of capitalist businesses. In American capitalism, private business enterprise is the fundamental unit of economic production. Private business has historically provided the dominant source of investment spending in the American economy, and economic productivity has been the outcome of a high-investment private business sector. However corporate business enterprise increasingly does not fulfill this role. For the first time, the nonfinancial corporate business sector now consistently spends more on acquiring financial assets than on capital development.”

• “Shareholder primacy theory is a driving cause behind this shift of American business away from the traditional role expected of it in our economy. Rising out of the economic stagnation of the 1970s, shareholder primacy theory refocused corporate management’s understanding of economic value as financial return to shareholders.”

• “This theory…is not a law of nature, but a system of preferences…It is a theory based on a certain set of beliefs about what economic value is, how it is created, and who has what claims to it. Nothing about it guarantees that capital will be deployed to the [most] productive ends…In fact, it disrupts the ability to constructively discuss any such a function at all, by making equity returns the sole criterion for business performance.”

• “Shareholder primacy theory has tilted business decision-making toward delivering returns quickly and predictably to investors, rather than building long-term capabilities through investment and production…does not properly understand how businesses invest in innovation…and has resulted in a diminished understanding of the role workers play and the risk they undertake in the value creation process.”

• “Workers are dependent on the firms that employ them to make the kinds of business investments that will boost their own productivity and future economic well-being… Shareholder primacy theory, by failing to accurately understand the value-creation process as inherently collaborative and dependent on employee contribution, only serves to justify the view of workers as inputs only, which in turn promotes further arbitrage and failure to make investment decisions with long-term productivity in mind.”

• “An economy more oriented toward capital development by the private sector would be truer to the system of American capitalism that created great prosperity in prior generations. There is a public interest in the nonfinancial business sector, instead of the financial sector or the government, being the primary investor in our future productivity. Economic productivity orients public life towards dignified work and determines American living standards. Creating value it is at the heart of what it means to work and provide for families and communities. Ensuring that all American workers have the chance at a productive livelihood is among the most basic responsibilities of the American social contract. Changes to public policy should reflect this.”

• “Economic growth is built, not unlocked or managed. Productivity is a project. Decisions about ultimate value must be decided somewhere, or by someone. In the U.S., we have outsourced these decisions so fully to mere market preference that we have made it easy to deny that a decision must be made at all.”

• “One of the fundamental premises of market capitalism is that, properly defined, businesses will play the role of investor for the economy as a whole. Something is wrong with the institutional arrangement of the American economy if that is not happening. Instead of outsourcing investment decisions to financial markets based upon the false promises of rational capital decisions, or allowing paths of lesser resistance than physical investment to financial return, private businesses should be relied upon once more to be the main driver of economic development. Such an emphasis would understand capital investment, not portfolio allocation, as the main mechanism upon which businesses make their mark in the economy.”