Passage 15
Most large corporations in the United States were
once run by inpidual 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 anticipation1 of fluctuations2 in its value. A
minority shareholder3 is necessarily a short term trader.
As a result, United States productivity is unlikely to
improve unless shareholders4 and the managers of the
companies in which they invest are encouraged to
enhance long-term productivity , 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 investors5. The legal
limits that now prevent financial institutions from
acquiring a dominant6 shareholding7 position in a corpora-
tion 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 institu-
tion 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 plummet8 and, like the old-time capital-
ists, 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 propitious9 moment, but on increasing the produc-
tivity of the companies in which they invest.
88. In the passage, the author is primarily concerned with doing which of the following?
Comparing two different approaches to a problem
Describing a problem and proposing a solution
Defending an established method
Presenting data and drawing conclusions from the data
Comparing two different analyses of a current situation
89. It can be inferred from the passage that which of the following is true of majority shareholders in a corporation?
They make the corporation's operational management decisions.
They are not allowed to own more than fifty percent of the corporation's stock.
They cannot make quick profits by selling their stock in the corporation.
They are more interested in profits than in productivity.
They cannot sell any of their stock in the corporation without giving the public advance notic.
90. According to the passage, the purpose of the requirement suggested in lines 30-33 would be which of the following?
To encourage institutional stockholders to sell stock that they believe will decrease in value
To discourage institutional stockholders from intervening in the operation of a company whose stock they own
To discourage short-term profit-taking by institutional stockholders
To encourage a company's employees to take an active role in the ownership of stock in the company
To encourage investors to persify10 their stock holdings
91. The author suggests that which of the following is a true statement about people who typify the old style capitalist referred to in line 23?
They now rely on outdated11 management techniques.
They seldom engaged in short-term trading of the stock they owned.
They did not influence the investment policies of the corporations in which they invested.
They now play a much smaller role in the stock market as a result of antitrust legislation.
They were primarily concerned with maximizing the short-term profitability of the corporations in which they owned stock.
92. It can be inferred that the author makes which of the following assumptions about the businesses once controlled by inpidual capitalists?
These businesses were less profitable than are businesses today.
Improving long-term productivity led to increased profits.
Each business had only a few stockholders.
There was no short-term trading in the stock of these businesses.
Institutions owned no stock in these companies.
93. The author suggests that the role of large institutions as stockholders differs from that of the old-style capitalist in part because large institutions
invest in the stock of so many companies that they cannot focus attention on the affairs of any single corporation
are prohibited by law from owning a majority of a corporations stock
are influenced by brokers12 who advise against long-term ownership of stocks
are able to put large amounts of stock on the market without depressing the stocks value
are attracted to the stocks of corporations that demonstrate long-term gains in productivity
94. The primary function of the second paragraph of the passage is to
identify problems
warn of consequence
explain effects
evaluate solutions
recommend actions
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