Ever heard that a corporation’s sole duty is to maximize value for shareholders? In the go-go ‘80s, business schools, government organizations, and most public companies took up this mantra. It stuck around. William Lazonick, emeritus professor of economics at the University of Massachusetts Lowell, has long held that idea to be not only wrong, but disastrous to society — a cause of ills ranging from a vanishing middle class to stymied innovation. Finally America is listening, including the New Yorker magazine, which hails him as “The Economist Who Put Stock Buybacks in Washington’s Crosshairs.” Lazonick speaks to the Institute for New Economic Thinking about how he managed to break through the fog of false consensus.
… “Most economists — whether they’re right-wing conservatives or progressives— have deeply misunderstood how firms produce things and the societal role they play. They pass that misunderstanding on to millions of students every year. A lot talk as if “the market” is supposed to magically allocate all the resources in the economy. They don’t see that in reality, business enterprises do this all the time, by investing in research to create new products, for example. Yet when most economists think of investments in the economy, they think of finance and what they call “capital flows” in the market. Through financial markets, money is supposed to flow to where it is needed. But that’s not the way things actually work! ” …
hbr.org/ 2014 Profits Without Prosperity by William Lazonick
Though corporate profits are high, and the stock market is booming, most Americans are not sharing in the economic recovery. While the top 0.1% of income recipients reap almost all the income gains, good jobs keep disappearing, and new ones tend to be insecure and underpaid.
One of the major causes: Instead of investing their profits in growth opportunities, corporations are using them for stock repurchases. Take the 449 firms in the S&P 500 that were publicly listed from 2003 through 2012. During that period, they used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock. Dividends absorbed an extra 37% of their earnings. That left little to fund productive capabilities or better incomes for workers.
Why are such massive resources dedicated to stock buybacks? Because stock-based instruments make up the majority of executives’ pay, and buybacks drive up short-term stock prices. Buybacks contribute to runaway executive compensation and economic inequality in a major way. Because they extract value rather than create it, their overuse undermines the economy’s health. To restore true prosperity to the country, government and business leaders must take steps to rein them in.
ineteconomics.org 2019 Financialization of the U.S. Pharmaceutical Industry – By William Lazonick, Öner Tulum, Matt Hopkins, Mustafa Erdem Sakinç, Ken Jacobson – Pharmaceutical drugs are often a matter of life or death. It should be a prime objective of government policy to rid the industry of financialization. read or download PDF here