Most large corporations in the United States were once run by individual capitalists who owned enough stock to dominate the board of directors and dictate company policy. Because putting such large amounts of stock on the market would only depress its value, they could not sell out for a quick profit and instead had to concentrate on improving the long-term productivity of their companies. Today, with few exceptions, the stock of large United States corporations is held by large institutions—pension funds, for example—and because these institutions are prohibited by antitrust laws from owning a majority of a company’s stock and from actively influencing a company’s decision-making, they can enhance their wealth only by buying and selling stock in anticipation of fluctuations in its value. A minority shareholder is necessarily a short term trader. As a result, United States productivity is unlikely to improve unless shareholders and the managers of the companies in which they invest are encouraged to enhance long-term productivity (and hence long-term profitability), rather than simply to maximize short-term profits.

Since the return of the old-style capitalist is unlikely, today’s short-term traders must be remade into tomorrow’s long-term capitalistic investors. The legal limits that now prevent financial institutions from acquiring a dominant shareholding position in a corporation should be removed, and such institutions encouraged to take a more active role in the operations of the companies in which they invest. In addition, any institution that holds twenty percent or more of a company’s stock should be forced to give the public one day’s notice of the intent to sell those shares. Unless the announced sale could be explained to the public on grounds other than anticipated future losses, the value of the stock would plummet and, like the old-time capitalists, major investors could cut their losses only by helping to restore their companies’ productivity. Such measures would force financial institutions to become capitalists whose success depends not on trading shares at the propitious moment, but on increasing the productivity of the companies in which they invest.

1. In the passage, the author is primarily concerned with doing which of the following?

(A) Comparing two different approaches to a problem
(B) Describing a problem and proposing a solution
(C) Defending an established method
(D) Presenting data and drawing conclusions from the data
(E) Comparing two different analyses of a current situation

2. It can be inferred from the passage that which of the following is true of majority shareholders in a corporation?

(A) They make the corporation’s operational management decisions.
(B) They are not allowed to own more than fifty percent of the corporation’s stock.
(C) They cannot make quick profits by selling their stock in the corporation.
(D) They are more interested in profits than in productivity.
(E) They cannot sell any of their stock in the corporation without giving the public advance notice.

3. According to the passage, the purpose of the requirement suggested in lines 30-33 would be which of the following?

(A) To encourage institutional stockholders to sell stock that they believe will decrease in value
(B) To discourage institutional stockholders from intervening in the operation of a company whose stock they own
(C) To discourage short-term profit-taking by institutional stockholders
(D) To encourage a company’s employees to take an active role in the ownership of stock in the company
(E) To encourage investors to diversify their stock holdings

4. Which of the following best explains the author’s statement that “A minority shareholder is necessarily a short-term trader” ?

(A) The only way a minority shareholder can make money from stocks is to buy and sell stocks as prices fluctuate over short periods of time.
(B) Only a shareholder who owns a majority of a company’s stock can influence the trading price of the stock over a long period of time.
(C) A minority shareholder is prohibited by law from buying stock and holding it for long-term profits.
(D) Large institutions like pension funds cannot legally own a majority of any corporation’s stock.
(E) A minority shareholder rarely takes an interest in the decisions of a corporation’s board of directors.

5. The author suggests that which of the following is a true statement about people who typify the “old style capitalist” ?

(A) They now rely on outdated management techniques.
(B) They seldom engaged in short-term trading of the stock they owned.
(C) They did not influence the investment policies of the corporations in which they invested.
(D) They now play a much smaller role in the stock market as a result of antitrust legislation.
(E) They were primarily concerned with maximizing the short-term profitability of the corporations in which they owned stock.

Highlight to see answers: 1. B 2. D 3. C 4. A 5. B

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