Vice President warns that corporate stock buybacks restrict America’s long-term prosperity, citing the research of Institute grantee William Lazonick who has long argued the same
In an important Wall Street Journal op ed criticizing corporate America’s failure to invest profits in long-term growth, Vice President Joe Biden cited the work of Institute for New Economic Thinking scholar William Lazonick.
“Performance-based pay encourages executives to think in the short-term,” wrote Biden. “Ever since the Securities and Exchange Commission changed the buyback rules in 1982, there has been a proliferation in share repurchases. Today buybacks are the norm. According to economist William Lazonick, from 2003-12, companies on the S&P 500 spent 37% of their earnings on dividends and a full 54% on buybacks—leaving less than 10% for reinvestment.”
Lazonick’s work emphasizes the role of buybacks and the corporate ideology of “shareholder value” in deepening economic inequality — his research on buybacks shows how the allocation of profits largely towards major stockholders means that many successful corporations that between them employ hundreds of thousands of Americans produce prosperity only for a tiny fraction of the population.
He has made an extensive study of the impact of Apple’s stock buybacks to increase shareholder value, noting that they not only result in failure to generate wider prosperity in the economy, but also stifle innovation through lack of investment in research and development.
Citing Treasury Department action to prevent Pfizer’s attempted tax inversion through a merger, Lazonick has urged government to act against buybacks. Biden’s timely op ed is a sign that the message is being heard in the corridors of power.