Louis Woodhill, here:
Put simply, a Tobin Q ratio higher than 100% means that a company is creating economic value, and a Tobin Q below 100% means that a company is destroying value. The most fundamental social responsibility of a company is to add value to the capital it employs, so the most fundamental job responsibility of a corporate CEO is to keep the Tobin Q ratio of the company he or she leads above 100%.
Writing for The New Republic, progressive David Dayen argues:
“There’s proven evidence that this model of corporate governance [Warren's] can work. “Co- determination,” the term for worker representation on corporate boards, has created a form of capitalism in Germany where workers are far more equitably compensated and decisions are made with an eye toward long-term goals.”
The problem with this argument is that Piketty’s data shows that, since 1995, America’s Tobin Q ratio has averaged more than 100%, while Germany’s Tobin Q ratio has averaged about 55%. In other words, America’s evil, rapacious corporations are creating economic value, while Germany’s enlightened companies are doing the equivalent of burning 45% of the euros entrusted to them.
