By William Lazonick, The prevailing stock market ideology enriches value extractors, not value creators. Conventional wisdom holds that the primary function of the stock market is to raise cash that companies use to invest in productive capabilities. The conventional wisdom is wrong. Academic research on corporate finance shows that, compared with other sources of funds, […]
A short but lively debate between right and left on executive pay. The Adam Smith Institute’s Sam Bowman and Professor Mariana Mazzucato of UCL argue over whether it has become excessive relative to the pay of the rest of the workforce.
The Adam Smith Institute is proudly neoliberal (formerly libertarian), while Mazzucato believes strongly in state industrial and technology policy, as well as in the benefits of ‘stakeholder capitalism‘ as opposed to shareholder capitalism.
The stakeholder approach aims to balance the interests of different groups affected by the operations of firms, from CEOs to trade unions and customers, via particular forms of corporate governance. The aim of such a framework is to achieve both greater efficiency and a more equitable society.
A thought-provoking quote from Ha-Joon Chang’s 23 Things They Don’t Tell You About Capitalism (p.190-191), part of my occasional series of brief excerpts from his bestselling book:
“Despite the importance of the corporate sector, allowing firms the maximum degree of freedom may not even be good for the firms themselves, let alone the national economy. In fact, not all regulations are bad for business. Sometimes, it is in the long-run interest of the business sector to restrict the freedom of individual firms so that they do not destroy the common pool of resources that all of them need, such as natural resources or the labour force. Regulations can also help businesses by making them do things that may be costly to them individually in the short run but raise their collective productivity in the long run – such as the provision of worker training. In the end, what matters is not the quantity but the quality of business regulation.”
This video tells the story of how a relatively equitable capitalist growth model in the 1950s and 60s gave way to rising inequality and weaker investment. For Professor William Lazonick, the economy of the US (and other advanced nations) currently generates “profits without prosperity”.
After World War II, average wages across the economy tended to increase in line with productivity, so that ordinary workers shared in rising economic efficiency over time. However, since the 1970s, the link has been broken as productivity continued to rise, while wages stagnated. This trend has been largely sustained to the present day.
The video discusses these changes in the US economy, and focuses on the phenomenon of stock buybacks, which shift firm resources away from productivity-raising investment in new technology and a more highly-skilled workforce towards short-term financial gains for CEOs and investors. Lazonick discusses possible solutions to these problems.
William Lazonick, professor at University of Massachusetts Lowell, explains how rationalization, marketization, and globalization characterize the U.S. economy during the past 50 years, and how the behavior of companies and fate of American workers have changed during this process.
A new Prime Minister is on her way, starting tomorrow. This is the latest chapter in the political turmoil that has engulfed the UK since the vote for Brexit a few weeks ago. Theresa May, formerly the Home Secretary, is to become the UK’s second female PM. Now I am not a great supporter of things Tory, at least from the perspective of economic policy, but I was interested to read some excerpts from May’s speech which formally launched her campaign to become the next leader of her party. Of course, this was before the dramatic withdrawal of her only remaining opponent in the contest, Andrea Leadsom.
Some of the details of the speech can be found here. I know that skilled politicians are good at making the right noises to attract voters and ultimately win power. Her bid was to unite her party and the country in the aftermath of Brexit, which will be hard going. But some of the quotes from her speech could have been taken from speeches by Ed Miliband, the former Labour leader. Miliband championed a ‘One Nation’ Labour party, and policies which would aim to promote his centre left, social democratic vision of Britain. Continue reading