One of my most loyal readers has a beef with The Challenge Dividend. He asks: "If followed, doesn't this theory decrease long-term investment?" In other words, constant challenge from competitors and shareholders could drive a focus on only short-term results for companies. A government that is pressured to improve is unable to justify dollars for long-term projects. In a world of pure Challenge Dividend, maybe companies like Bell Labs would never have invented the transistor and the Department of Defense would not have launched the Internet.
This is not a bad push back, and there is not an easy, single answer. But this week I came across a piece of evidence that long-term investment is alive and well, and powered by challenge. Rather than corporations and government, universities around the world now have the task of driving unprecedented levels of core research and key discoveries.
Today there are hundreds of major research universities around the world, ranging from long-term leaders like Harvard and Princeton to relative new comers in the Western U.S. and China. Together, these research institutions have many key elements required for a Challenge Dividend:
- A large number and diversity of university competitors.
- The challenge to win Nobel Prizes, make discoveries, and attract students who are future long-term assets.
- "Customers" (students and alumni) are in the market for long-term, softer benefits like status and pride.
- Competition to employ top researchers; and competition among researchers to be rewarded (tenure, financing, management posts).
Universities are more successful than government in such long-term investments, because they have a built in competitive environment that governments lack. And universities are better able to make long-term investments than corporations because most investors are only looking for short-term results.
The great news is that governments and corporations now routinely "outsource" long-term investments to this more efficient and productive university marketplace. Government sends tax dollars to universities for research based on their results, selecting among several competitors. Corporations license patents and hire researchers once their work is proven.
In the end, every group gets what they want through a dynamic, competitive market. The dividends include new discoveries for government, companies, and the citizens and consumers they serve.
(Thanks to Marginal Revolution for the topic idea.)
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