As a rule takeover usually comes after bad management has already done its damage to the profitability of the business, but direct intervention by active shareholders as it is done in Japan and Germany can deal with the trouble before too much damage has occurred. Also I would like to note that takeovers because of the market overreaction can oftentimes become very expensive. Some economists even consider the mergers and acquisitions to be only beneficial for the investment banks which act as advisers. I would also add that if a company borrows funds to acquire the target company it usually places that debt on the balance sheet of that company, and thus makes it repay the debts that oftentimes if very expensive. The threat of short term ism is the result of such merger and acquisition activities because, the corporate managers strive to stuff the channels, boost the short term profits in order to appear useful to the companies and remain in their position, while resisting the hostile takeovers. Also the company may decide not to spend on the long term research but rather but back a significant portion of its own stock, and thus tie up the capital in the short time frame that otherwise couldnt have caused short-term ism and had been invested long-term (Maxam, 2002).

If managers are always looking over their shoulders, watching for the next hostile bid and planning their defences, it distracts them from looking ahead and planning the future of the company. They may devote all their efforts to safeguarding their own jobs by bidding for other companies themselves, or devising stratagems like "poison pills" and "golden parachutes", which do nothing to make a company more efficient but rather more defensive and oriented only for the short term results that are represented by the top management interests, not shareholders. When a company constantly changes the owners, it does not have any time for long-term planning because almost every time the new management would think about their own goals that first of all would be to safeguard their position as the top management and prevent others from hostile takeover of the given company instead of investing long-term (Berman, 2002). 2. The effects of heavy Taxation. It is a common fact that if a company effectively invest in its own R&D its share price should also grow, because of the expectations that the R&D investment would yield higher profits over the rivals that do not invest in long term R&D.

But when the corporate capital gains are heavily taxed then there is no motivation to invest in long-term R&D to watch the growing stock price being heavily taxed by the governments. The British capital gains taxes are the highest in the pack (USA, Germany, and Japan) thus there is no wonder that the investors are reluctant to put their monies into something they will have to give to the government. At the same time the British government revenues from Capital gains taxes is solely 3% and if the tax was abolished all together, then the organizational motivation to increase the stock price would be much higher. Yet this time, the income tax also gets into effect.

The modern day tax system in Great Britain does attempt to encourage the investors to invest long-term by taxing them on the realized gains and on the net income, while removing the tax should the investors reinvest the profits. As a result the investors indeed reinvest yet they strive to reinvest in famous large companies, completely neglecting the small ventures encouraging investment in long-established companies at the expense of newly launched companies (Berman, 2002). If reinvested profits are exempt from income tax, and if capital gains tax does not exist, or if it is less than income tax then shareholders who want income for consumption will get more money if they receive it in the form of capital gains than in the form of dividends. Also If a company decides to reinvest its profits, it raises the price of its shares, thus enabling investors to sell at a profit, and this profit will be higher than the dividend which they could have received if the company had distributed its earnings. However, the quickest way for a company to raise its share price is not by investing in research and development, which only increases profits in the long term, by creating new productive assets, but by spending the money on taking over other companies, which increases profits immediately by acquiring assets which are already productive (Berman, 2002). Takeovers therefore reduce competition, make the companies defensive and unproductive as well as unwilling to contribute to the creation of the extra productive assets but rather engage in predatory buy-sell techniques that encourage short-term ism (Maxam, 2002).

Thus I personally believe that if the investors had to pay the same taxes on reinvested profits that would equal to the taxes on dividends or capital gains. Conclusion on short term ism in Britain. For some it may appear that indeed the short term ism is not the problem for Great Britain because its economy is growing now compared to the declining economies of Germany and Japan. I would only note that the reason why the numeric figures of Great Britain are much larger than that of Germany of Japan.

The GDP of Japan is four times the GDP of Great Britain, while the GDP of Germany is twice the GDP of Great Britain. Thus if British GDP increased by $1 and the German GDP grew by $1. 5 numerically the British GDP grew faster because mathematically the German GDP has to grow by $2 to be equal in percentage terms to the British while in real terms it is already superior. I believe that unless the Great Britain undertakes some competitive program aimed at reducing short-term ism, it is doomed to seeing the Germany, Japan and the USA taking over in percentage terms as well.