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Transcript
William Lazonick:
So, there was this downward mobility, but it became really ugly, I think-
It became really ugly, I think, because of race and, and, and then there’s also, ultimately it is, it is, it’s related to the different ways in which companies were governed. And so all the work I’ve done on financialization, which is really about not just how the rich get richer, but the fact that if you’re going to get a strong middle class, you have to share the gains with your employees and you have to, that comes through employment stability, better jobs over time. When you have productivity increases, you have pay increases. And of course, there’s this chart, which I’ve used for some time that EPI has put out on that gap between productivity.
Rob Johnson:
Oh yeah. I’m on their board.
William Lazonick:
Of course the timing, all the timing is the same. It’s the same.
Rob Johnson:
Yeah.
William Lazonick:
It all starts in late seventies, early eighties, and the gap grows bigger. And you know, when I see those wages tracking productivity growth in terms of percentages in the first 46 to the late seventies in their chart, that’s because companies were keeping people employed. I, actually EPI doesn’t focus on that, but that’s what it was about. They focus on the unions, but they don’t focus on that central part of that appointment relation, and the gap comes when companies say it’s not our responsibility. And basically they started looking for reasons why it was not their responsibility before the people in the business school started saying companies should maximize shareholder value. So, so we’ve been doing a lot of the history of rise of this ideology of shareholder value. And it’s really part and parcel of companies saying, and being pushed to have more responsibility and this case more responsibility in terms of hiring black workers.
What we found from the study is like the racial policy of American industry and other, other stuff that was done, many of the companies welcomed this because they wanted to get, you know, the hardworking black workers, like the hard-working white workers moving up and being their more permanent employees. And so it gave supervisors and managers a way of saying to their white workers, “Look it, you can’t tell me I can’t do this. This is required by law.” And so it began, and once you start doing that, you start having the role models and you start having the mixing of blacks and whites and breaking down the racial animosity, I think at many of those plants, as long as the jobs are expanding. And now it, it didn’t just evaporate because of the decline of US manufacturing. It evaporated because, in the process of decline, major companies said, “We just don’t have responsibility to keeping workers employed.”
And, you know, the CEO who took the lead on that was Jack Welch at GE himself from a white working class background. And he never actually, in his 20 years as being the CEO of GE, he never used, they never used the annual report, well, we have to create value for our shareholders. And, and he had an interview in 2009 where he said, “Shareholder value. That’s not a strategy. That’s just, you know, if you, you do the stuff for your workers, for your products, et cetera.” To some extent it was bullshit, but if coming from him, but what he really did, in 1981, is he said, we’re only going to be in industries in which we’re number one or number two. Now, by that time, GE had become a totally unwieldy conglomerate in dozens and dozens of different industries. And that had no relation to one another.
And where they were number one, or number two, with aircraft engines, medical equipment and power systems where it’s so, you know, number one or number two, and those went back decades. And so he just started laying people off dramatically. And, and that really, I mean, that’s why he was lionized, you know, when he was called Neutron Jack, as you got rid of the people, you know, the buildings are there and the people disappeared because that really said to corporate America, you know, this norm of keeping people employed, which is quite strong coming into the 1980s, you no longer have to abide by that.
Rob Johnson:
Yeah. I sense that after the second world war and soldiers come back and we feel like we’re all in this together with that ethic somehow evaporated.
William Lazonick:
Yeah, and, and by the way, on that, you know, the GI bill and it’s been well-documented by a number of scholars, that was a very important in terms of intergenerational upward mobility for whites. Blacks were not able to take advantage of it mainly because basically, and I studied this in quite detail at one point, basically what the evolution of education in United States was, it created the primary system before, and you put the higher education system through the land grant college structure in place before there was actually a theater from the secondary system. So it really was only after starting in the 1930s, but, and after war two, you really started filling that in. And so there were, there were enough whites who had a high school education, and they could apply to get the GI bill to go to college and something.
But for blacks, there was, there was this barrier. And, and so they actually, it’s been well-documented, fell further behind at that point, because of that, but I come across, you know, I’ll give an example with one of my people. I work with Matt Hopkins, he’s doing a really a great study, which will appear as an INET paper at some point, on a year ago, the ventilator issues were in the news; and we discovered this company that was now part of Phillips that was supposed to deliver ventilators to the strategic national stockpile called Resperonics, it’s based near Pittsburgh. And it had been acquired by Phillips, which was the one Dutch company from who in the United States had bought the ventilators who wasn’t really delivering them, but they had been acquired in 2008. And we started looking at the history of this company, and we found that it was a company guy built up who had worked at Westinghouse, and then had left Westinghouse in his forties, started his own company, built it from scratch to about 5,000 employees, a leading company in making ventilators, respiratory equipment.
And we located him, he’s in his late eighties now. And when Matt went to do the first interview, we knew that he was his age, that he had gone to college, I think university of Illinois in the early 1950s before going to work at Westinghouse. And I said to Matt, I said, “Matt, he’s going to tell us two things. He’s going to tell us he’s the first person in his family that went to college and he’s going to say that he went on the GI bill” And both of those were true, and even more so, he told us that he enlisted for the Korean war to get access to the GI bill. Yeah. So, you know, and that was the military industrial complex era, but there was, you know, all this stuff going on for upward mobility and, you know, and blacks were starting to move into it, but access was denied.
And so we then just trace how this continued, nothing was done about it. And to this day, nothing’s really been done about it. And because when people say, “let’s create jobs,” if you can’t create jobs that are going to keep people stably employed for a few decades, all those people don’t have good jobs. And if you’re not looking out to see, you know, who’s losing those jobs, and when, you know, then the society isn’t making sure that you’re going to have jobs. And actually, a lot of the people who lose those good jobs are university educated people who are in their forties and fifties and companies lay off. And I said, “Okay, we need younger people. We are globalizing. We can get people from other parts of the world, et cetera. And even though they’re expanding, they’re laying off people now.” That became the norm.
As I said, with these old economy companies, but then what really cemented it was, in which I look at in this book I wrote in 2009 on the rise of new economy business model, the rise of companies like Oracle, Apple, Cisco, et cetera, because they didn’t do manufacturing by and large. Intel did, of course, as fabrications, but, and of course, the CEO of Apple, his claim to fame, Tim Cook, is that he told Steve jobs, “Here’s how you can get China to do our mass manufacturing of our devices” and created, you know, made Foxconn into a world leader. And also, by the way, made TSMC, the semiconductor company, a world leader by outsourcing.
And so those companies didn’t care about blue collar workers, and they could be employed anywhere, and increasingly they were employed in Asia and they did care about white collar workers. But one of the things that they had to do is get them to actually take up employment in a company like, let’s say, Cisco, which was founded in two people in 1984 and had 250 people in 1990 in Silicon Valley. But at that time, if you wanted to get a good engineer, and that engineer was working at Hewlett Packard, they were getting what we call this career with one system employment relations. They were getting, you know, the defined benefit pension. They were getting the healthcare. They would never be laid off. This was written up in a book called The HP Way by David Packard in 1995, a year before he died. So you couldn’t say to them, “Oh, we’re going to give you, you know, this career employment.” Because you don’t know if you’re going to be around next year or the year after.
So they gave them stock options and actually the rise of stock options, I mean, there’s a whole other history with Matt Hopkins in particular, I’ve written about this, the rise of stock options as a mode of compensation really didn’t come at the CEO level. Primarily in the eighties, it was broad based stock options to try to attract employees away from secure employment with the old economy companies to come to the new economy companies. And as those companies grew bigger, supporting their stock price was very important. So when they started having a lot of profits, they didn’t pay dividends, but they started doing buybacks, originally to support the stock price, and then that just became a disease. And Apple, you know, has done 436 billion, a report of 26 billion of buyback since 2013, it’s a crime. And it’s just paying people to sell their stock and boost the stock price.
It may seem disconnected from the black employment argument, but it’s totally connected. It was just a total reversal in norms and also the rise of shareholder value ideology, before it actually started getting annunciated, you can see it, there’s articles where the look, the hits in the Wall Street Journal and New York Times, other places, only from about 85. I think it has a lot to do with Harvard university business school hiring this guy, Michael Jensen, who I call the, you know, the academic cheerleader for shareholder value ideology. He really put it on the map.
Rob Johnson:
Who the gentleman that wrote the book, The Golden Pair of Shoes? I remember … about Harvard business school.
William Lazonick:
Oh, The Golden Passport. Duff McDonald
Rob Johnson:
Golden Passport. I’m sorry, yes.
William Lazonick:
Yeah, yeah, yeah. I.
Rob Johnson:
remember some of your objections were featured in the text as well.
William Lazonick:
He actually, I told him the story, which he wrote about more or less correctly. It was in also in a Newsweek article about how I was banned from Harvard business school by Michael Jensen in 1992, which actually happened. But any case, it was pretty well entrenched. The notion that they had to ban me from Harvard business school from coming to seminars. I was at Barnard at the time. It was a longer story. But the thing is that that really, but really what changed was this obscure rule that Ken Jacobson and I we’re trying to finish our paper on this, and a colleague, Lenore Paladino has written a lot on this as well, Will 10 be 18 by the SCC, which was captured by the Chicago economists in 1982, which allowed these large-scale buybacks.
We call it a license to loot, and now everybody talks about it because we’ve got it out there and there’s a debate about it. And there’s a lot of defenders of buybacks that are constantly out there as well. But basically, no one was saying at that time, really, there wasn’t really much discussion of companies should be run for shareholders. But in fact, they gave them a tool to do this, a critical tool, the SCC. And it was done basically because, actually, fundamentally, it’s related to this whole story as well. Again, people might not see the direct connection. The critical issue, and it’s a reason why liberals have not responded to this problem of what we call the looting of the industrial corporation, is that if you ask 99.9% of economists, “How to conduct companies get funded?” they’d say the stock market, and it’s not true.
The stock market is a way of taking money out of companies, not putting money into the company. It doesn’t mean you can never raise money on the stock market and biotech companies do it when they’re very speculative, but for venture capitalists, which is private equity, it’s an exit strategy. And it’s the liquidity of the stock market that allows you to take money out. And the primary role of the stock market has always been to allow a separation of ownership control to take money out, not to put money in. Capital formation, the fundamental source of capital formation, which was understood coming into the 1980s, is the profits that a successful company retains. And it’s important because it’s those profits that allow it, not only to have the revenues to employ the labor force it had before, but to give them higher wages and to invest in the next generation of products, because all those products you have, or some point going to, even if you have a dominant position, there’s going to be competition for them.
And that was what was understood in business schools as the foundation of capital formation, and what happened in the seventies with the rise of trading on wall street, rather than investing. And there’s this whole transformation of wall street that had took place in the 1970s. People started seeing all that money sloshing around in financial markets as being somehow capital formation. And that’s the way the SCC sees it now. And that’s the way almost all economists see. More money has gone around. It’s going to end up somewhere as capital formation. Well, that is not how capital gets formed. It’s not just the investments. You have to make the billions of dollars in a semiconductor plant, which of course it can be Birgitta it’s, even when you do the semiconductor plant, there’s billions of dollars in people who you need to employ to make that plant work.
And you need people at all levels to make these companies function. And you’re investing in people who are basically your human assets, except you can’t declare them on your balance sheet because we, unlike slaver, we don’t own people anymore. So that was actually a divide that was occurring in, that informed what the SCC did, informed. And it wasn’t just, you know, right wing economists, it was liberal economists and progressive economists, you know, imperfect market, let the market work and it’s not going to work that way. It’s the companies and their growth that’s important. Now looking at it at this point in time, one thing I advocate, getting rid of buybacks, it’s just a complete kind of looting that’s going on, totally unnecessary, and totally you can pay people dividends for holding shares, give people that are fortunate enough to have shares but not everybody, at least a stream of retirement income.
They’re better off if the companies are well managed when they want to sell the shares later, if they’re not doing buyback. But the other side of it, that is this notion of a career with one company, having done this project and having look at the whole globalization project process. I wouldn’t say, “Well, we can recreate that now.” We can’t because we did that in a particular context where in that, and it wasn’t just done in the United States, but where it was really closed economies building themselves up behind tariff barriers or behind, or the United States having this lead in terms of the military industrial complex, and really goes back to all the research that companies had done, as well as government, particularly companies, the 1930s it was the greatest decade. One of the greatest decades for research in the history of the United States. Companies were laying off their blue collar workers, but they were doing all this research, which positioned the United States for world war two and then for the endless frontier after that.
Okay, we can’t go back to that. So what it means is that a government policy has an even bigger role to play in ensuring these careers of people over time. And they have to be careers if you’re going to have an advanced economy. Now, you can’t also create those blue collar jobs where basically they can be done anywhere around the world. They have to be careers where people have more and more experienced expertise. Not everybody’s going to get them, and so you’d have to have minimum wages and things like that. I’m totally for that. But you have to have a lower and lower proportion of the population or smaller and smaller proportion dependent on, you know, on those low wages. And of course it shouldn’t just the opposite. People have been pushed out of the decent paying jobs into low wage jobs, low wage to decent paying jobs, been made low wage jobs. But the other side is you can’t just do that with government. It has to have a collaboration of business. And so you have to have this change in business norm. And it’s-
Rob Johnson:
Is it norms, is it norms or is it laws and regulations that induce them to shift their norms?
William Lazonick:
I think it’s norms because it’s just so unchallenged, even when, okay, this is looking at the buyback phenomenon and I’ve written about this in some INET papers of various types, I mean I, virtually, I got Apple all over the place here. Like my kids just gave me an Apple watch, so I’m even more dug into the Apple ecosystem. So, you know, the other daughter gave me an Apple ear AirPods and all this stuff. Okay, that’s fine. But the fact is that that company is evil and wait for an INET paper that I have coming out on the semiconductor industry, because as I said, TSMC, which is now by far the world leader in semiconductor fabrication, got there because of its Apple contracts from 2015. But 25% of their revenues are Apple, from Apple. And they killed the Walway smartphones through US government policies, which I think Apple had a role in as well.
Okay. Apple, back in 2010, there was a guy named mark Lapidus, I’ve never met the guy, but he is a very well known writer in digital, electronic news magazines and stuff like this. He wrote an article that said that what Steve jobs should do, now that they were so profitable, was invest in a FAB. And Apple, which as I said, has spent $426 billion dollars or something like that in buyback since 2013, cheerleadered most recently by Warren Buffet. They could have spent, at that point, 4 billion, 5 billion, now it’s 10 or 15 billion, but it would have still been a fraction of what it’s spending on buybacks. It could have done it at a separate company and had their own fabrication facilities. And you would not have Taiwan being a world leader in that industry. No, actually, Taiwan’s now going to build TSMC because the pressure is going to build a big plant in Arizona, but it’s still, you know, geopolitical politics of it as that’s where the action is.
And at Samsung. They could have done that. Now, why didn’t they do it? It wasn’t that they had to start spending as much as $73 billion a year and buying back their stock. And it wasn’t simply that on their board, which I point out all the time and I’m always happy to point out, but no journalists seem to want to take this up, that they have people who can’t think about better uses they could have put to that money because the longest serving board member is a guy named Arthur Levinson, who was the head of Genentech, which is, of course, a hugely successful American company that was protected by the stock market, from the stock market, by being owned by Roche, a Swiss company. And it’s a highly innovative company. It’s executives are going to other companies, pharmaceutical companies around the world. He then became the head of Google’s pharmaceutical arms.
He’s a scientist with a long experience in this industry. And why isn’t he saying to Apple, “Well, you know, we should really use our ability to hire people, all our software capabilities, et cetera, to, you know, you don’t need to do it as Apple to…”
… to… You don’t need to do it as Apple to spin off a company and invest in all this money in something that’s world changing. Now, they’re talking about doing with self-driving cars and that’s because the stock market’s booming for EV stocks and stuff like that. But they could have done that with a whole number of other areas. The second longest serving board member, and this is why I can’t… and say it’s not about laws. It’s really just about a failure of norms and a failure of norms, not just among conservatives, but I would say across the board. Second longest serving board member is Al Gore. He’s been there since 2003. So he’s been there for three years before he came up with his movie, An Inconvenient Truth.
In the years he was there, Apple went from being moderately profitable to being hugely profitable. We’ve written about this. They did not do buybacks. They did not pay dividends. When they started doing that, buybacks and dividends, after Steve Jobs left in 1985 to 1997, they almost went bankrupt. And when Steve Jobs came back, he stopped that stuff. It’s hard to say what Jobs would have done if he had still been there, if he hadn’t died in 2011. But they don’t say anything about these things. They don’t, “Well, why are we doing this?” They don’t give a reason for why they’re doing $73 billion in buybacks. They call it their capital return program. So I’ve often said the only time Apple ever got money from the stock market, was in its IPO in 1980 when it got $97 million. So who is it returning capital to? Warren Buffet who on paper doubled his money from 36 or 7 billion to about 74 billion in the run-up of Apple stock.
Well, since 2016, they’ve been doing $55 billion a year of buybacks. He’s never contributed one penny to Apple. He just bought Apple shares and he’s supposed to be our patient capitalist. He’s just cheerleading this stuff. So the people who should know better, and actually, if you hear Warren Buffet, when he starts talking about Berkshire Hathaway, he said, “Well, we actually just piled back our earnings. Berkshire Hathaway never paid a dividend.” Berkshire Hathaway employs 390,000 people, mainly because unlike Jack Welch, they’ve actually protected the companies that they brought into the conglomerate and they left the managers in place. And this has been enormously profitable because they didn’t try to squeeze those… they’ve left those, it’s actually almost in Berkshire Hathaway’s constitution, they leave the managers in place when you acquire the company. So they kind of protected that old economy model in a way.
I’m not sure that Buffet really understands that, but so that’s… I have a problem that people who should know better don’t seem to know better on these issues. And they will then come to the Black Lives Matter movement after George Floyd’s killed in plain sight. And we put it in one of our INET papers on the ventilators, that we put it into stuff about Apple coming up with $100 million for a racial justice program almost exactly a year ago. So a few weeks… when the black lives matter movement surged. But it was a tiny fraction of what it had spent on buybacks, even from August of 2019 when it signed the business round table statement about stakeholders and all this bullshit.
So they’re not walking the walk at all. They’ll come in and when need be, they’ll distance themselves from the people who say that Trump was elected for about two, three weeks in terms of their ads, in terms of support, et cetera, and then it’ll all come running back and they’ll forget about it. And of course, those are the people who are rich. Those are people who have influence and they’re about as far away as they can be, not just from a Black working class from the white working class at this point. Yeah. So I think… Now, obviously, the laws that end up being put in place reflect those, the…
Rob Johnson:
Well, as your and my friend, Tom Ferguson would say that the laws aren’t made independently from the concentration [crosstalk 01:16:46] and so they reflect, then, the regulatory appointments and the enforcement of laws all reflect this, where the power lies in relation to the political system, which is very dependent on money.
William Lazonick:
Yeah. So let me just give you one example related to what I just said. There’s a rule of 10B-18 which is obscure rule passed without public comment by the SEC by five commissioners with one person arguing against it, a guy named John Evans, who was a Nixon appointee, but an old school type guy who said, “This is going to allow companies to manipulate the stock market.” They got him to go along with it, ultimately, and then the chair of the SEC, Shad, kicked him off the commission the year later. They adopted this highly consequential rule until I wrote an article in Harvard Business Review in 2014 that got a lot of publicity. No one really had talked about that rule in Congress. There had been one discussion of buybacks by Schumer and Menendez and a few others in 2008 when the oil companies were doing lots of buybacks, the only case I can find, but they never really said, “Why are they allowed to do this?”
Now you have Tammy Baldwin has something called the Reward Work Act, which would rescind that rule. It recognized that it’s looting. Where that will go it’s hard to say, but at least we have that being debated. If people who were running the country back in the 1980s understood the importance of what I call the equal employment opportunity omission, that you had to give people secure jobs and if people are losing secure jobs, particularly people who are been disadvantaged and were moving up, you had to figure out how to deal with that, rather than just let the market work. And that front competes for shareholder value, rather than just go with that flow you have to say, “How are we really going to confront this problem?” I think they looked at the SEC and said, “No, that’s not a very good idea.”
So the timing of when the SEC did this as well is interesting, and it’s actually at the beginning of the longest stock market, boom, at least at that point in US history up until then. So I think this relationship between what these companies want and how they’re really changing what we do and changing what some of the agencies do even before at a point… It’s kind of astonishing, either this notion that companies spending trillions in money just trying to prop up their stock price so people can sell their shares. Either that doesn’t matter or if it matters, it’s kind of crazy that it’s a rule adopted under the radar in 1982 that that was revised once in 2003, but really that legislators had never objected to. No one said, “Hey, what’s going on here?”
Except somebody who just kind of has a screwed up view of the economy like me. Which came, I think going back full circle, to seeing that how important companies are in terms of people’s employment, how important that stability is over time, that what I call the retain and reinvest is over time. So that’s really where the action is and that’s, I think what we have to be able to say, these three white guys after all writing this book on Black employment, I think what we have to say is comes from that insight of the importance of that kind of employment relation to the rise of the white middle-class and how Blacks got to take part in it until they couldn’t take part in it and then nobody worried about it.
Rob Johnson:
Well, this is a major concern. A man named Arjun Jayadev and I wrote a paper about how if you look geographically at the variations in economic activity, meaning downturns, produce despair. Survey evidence when the economy goes down, despair goes up. But what we did was we mapped that in the geographic locations with indicators of racial animosity. And when despair goes up, racial animosity goes up. What we call otherness, they blame, they scapegoat. “Why don’t you and him go fight while the other guys make the money?” And I think that we’re in a place now… As you’re painting this portrait today, and you’re such a deep and thorough researcher, but it makes me understand, not the end game, but the attraction to electing Donald Trump. They were so despairing, they’re so despondent, the cauldron of racial animosity has been taken to the boil, that it feels like the wheels have come off the world, and power isn’t talking about a sustainable trajectory.
And I’m not saying he was the answer. You might say seduced and abandoned would be. But the system is rigged is what this man said to get elected. And in my hometown of Detroit, white collar people were saying, “This is the first guy who’s ever said anything about the big three management not producing jobs,” when he spoke to the Economic Club of Detroit, just after he had the nomination. These people, even though they’re doctors and lawyers and accountants and MBAs and executives, who are my childhood friends, are worried about their children being in that Rust Belt, that Michigan-like area, and not having a future. So what I guess I’m saying is through the lens of the people who were on the end of the whip, the Black people, it’s getting larger and larger and larger and then it feeds back into racial animosity, which I don’t know… I can understand the despair.
What I’m grappling with in guiding INET is how we realistically create solutions that put us back onto a healthy humanistic trajectory. What does it require in education reform? What does it require in policy reform, tax reform? I mean, I think Janet Yellen’s G7 gesture may not have gone as high a rate as you’d like to see as Joe Stiglitz has emphasized since it’s come out. But I think she was trying to turn the corner and I look at how far out of balance things are in listening to what you say. And I’m just curious, because we’ve got to close up here shortly, but if you were able to prescribe the remedy, the platform for the person running for president in light of what you see and what you know, what does the healing regime look like?
William Lazonick:
Yeah, well, interestingly enough, Joe Biden, I think, does have a lot of empathy for the working class. I think there’s absolutely no doubt about that.
Rob Johnson:
Yes. It appears. Yeah.
William Lazonick:
But the question is, can he turn that into policies that really get to the kind of working class that he says he knew growing up? And of course, it can’t be done in the same way, and it can’t be done with the same type of jobs. In fact, the challenge is the educational challenge, the upgrading challenge. The roles for community colleges are huge, for example. I think there was that’s part of the funding of… There’s a lot of elements to it, but one of the things, which, again, I’m in the middle of writing a paper on this, so I’m not sure I got… Doing too many different things at once, but that’s all right.
But as I said with this buybacks issue, that actually became something that people started talking about. I can safely say it’s because, for some reason, Harvard Business Review published that article which had the subtitle, Stock buybacks manipulate the market and leave most Americans worse off, which was a subtitle I gave them and they kept it. And it was at a time in 2014 when it came out that you had had the recovery, but people were just being left out. And so it caught on, and he became a big fan of that article. I met with him twice about it. And he actually wrote an op-ed in the Wall Street Journal in September of 2016 called, it’s on short-termism, attacks the economy, something like that.
I don’t call it really short-termism. I call it value extraction, value creation, because I don’t think it’s a mindset of short, long-term. It’s who has the power, who creates value, workers and taxpayers who are putting all this stuff in, who takes it out. So we have this book, Predatory Value Extraction, which came out with the… Which, of course, INET had a book party for, which hasn’t really gotten any… it came up just before the pandemic. Really, it’s like it doesn’t exist, to tell you the truth. And I’m not sure exactly why, because the buyback stuff had way more discussion coming out of it in recognizing the work we were doing than I would have ever imagined, including Biden. Now, it’s strangely absent now. And for example, the corporate tax cut from 35% to 21%. It was recognized on both sides that that was going to be spent on buybacks, except on the Republican side.
And maybe to some extent on the Democratic side, but mainly the Republican side said, “So what? That’s going to be good. That boosts stock markets.” Democrats actually led by Schumer had, it was called #GOPTaxScam. It was all about don’t let them do buybacks. And that actually also resurfaced in March of 2020 when the airlines didn’t want buybacks to be done when they were… the union that don’t do buybacks were being bailed out. And Biden came out at that point and said, “Companies should not be allowed to do buybacks during the pandemic.” But it’s been strangely absent from policy. So it would be the easiest thing for them to say, “If we’re going to put the tax rate halfway back to 28%, we should do that because companies were just doing stock buybacks because that.” Somebody doesn’t want that to be said in this administration.
And it’s been manifested. I don’t know if Tom Ferguson who knows about this mentioned this to you, but it’s something that I find utterly bizarre. I mentioned this, and I’ll say it in a podcast, if you want to put it out there, because people can go and look and see. This article that Biden had in September of 2016, it mentioned one person’s research in article. Me. It says, “According to economist William Lazonick,” and then it gave data from that Harvard Business Review paper on buybacks. Okay. Someone was asking me about it. I said, “Oh yeah, Biden talked about it.” And I went to look at it. I found it online on, of course, Wall Street Journal. Someone had cut my name out. You go online, it says, “According to Lazonick,” and then there’s actually a space and a comma and my name’s disappeared. Now, how does that happen? I don’t know what the bigger picture is here. I wrote to the op-ed editor. I said, “What’s going on here?” I never heard back. But I think there is a problem that there are some things that the corporate donors don’t want to have touched.
Rob Johnson:
Yeah. And you have a legislative branch which is very dependent, it’s very close between Democrat and Republican. Both sides need to raise a lot of money. And it’s hard to imagine things that are the right thing to do being passed if it gets in the way of concentrated wealth and power. Sure.
William Lazonick:
And I know I keep mentioning Al Gore only because he should know better. And there’s only seven people on the bloody Apple board. And so why are they doing this? And it’s not like when they do 73 billion a year, they say, “Oh, this is why we’re doing it.” They just call it their capital return program as if people who want to sell their shares deserve this. There is a big problem here about what these companies are responsible for. And it’s not just the buybacks because it’s all related. Why do you try to price gouge? If you’re the pharmaceutical industry, you price gouge because you get the profits up, and then you use those profits at Pfizer and Merck to spend 150% or 200% of your net income on dividends and buybacks and you get your stock price up.
They did that at Boeing. We wrote about that. So why do you avoid taxes? You avoid taxes not just because you want to have more profits to reinvest, you avoid them so you can actually just do more buybacks and pay dividends or boost your stock price. And unfortunately it’s nothing new, but the world’s become obsessed with the stock market. And even someone like Elizabeth Warren when she speaks out against this, she doesn’t really have a critique of the stock market, she never… She actually, if you look at what she says, she doesn’t say that, and the stock market doesn’t even fund these companies. Bernie Sanders doesn’t say that. That’s a major blockage to recognize the function of our institutions.
Rob Johnson:
What you might call an unconscious secular religion.
William Lazonick:
Yeah. And it is the other side of workers’ wages. And unfortunately, even EPI, which is been in the forefront of writing about inequality and they’ve written about executive pay, doesn’t write about [inaudible 01:32:04]. And we’ve talked to people there for years about it, but there’s some blockage in terms of… It’s not simply, I think, just the elite… It’s actually, when it comes to economists, there’s just a total miseducation about the firm. So there’s a paper. I have this paper, which came out a year ago, last January, called Is the Most Unproductive Firm the Foundation of the Most Efficient Economy? Which seems absurd, but that is what is taught in tertiary economics courses. And I show in the paper the smoking gun where Samuelson in his textbook was explaining that the more unproductive the workers are, the sooner the cost curve turns up and the smaller the firm is, the more firms are in industry, then you have perfect competition and this is the best of all possible worlds.
So then you realize what he was saying and so he cut out the explanation of why the cost curve turns up. And this is what everybody’s teaching students about the firm. Now, what it says is the firm is impotent and the markets are omnipotent and so the firm is… So that’s the way most of the economists and liberal economists and progressive economists think. So that’s a real blockage, I think, to see. So back to the question, yeah. It has to be reforms around corporate governance and it really that’s where the action is. That’s where the money is. And that’s where the income inequality’s being created and the jobs are being lost.
Rob Johnson:
Mm-hmm (affirmative). Well, I have to close here by referring people to a book that echoes, not as an economist, but a gentleman who studies theology named Eugene McCarraher, who I had on the podcast, and the title of his book is The Enchantments of Mammon. And I do believe that this… He’s talking about how, particularly in anxious and tumultuous times, people create false idols to alleviate their anxiety and they can be pretty resilient and cling to them. But alongside this now, there’s a whole lot of turbulence in the sea and it doesn’t look like the boat’s going to have smooth sailing until we have a wake up call. And Bill, you were talking about things keep getting stuck and this and that, well, I think in one of the ways, you’re one of the plumbers for the 21st century that’s going to get things flowing again. [crosstalk 01:34:35]. Thanks for being here.
William Lazonick:
Well, thanks.
Rob Johnson:
And let’s take another chapter again soon.
William Lazonick:
Yeah, and I should say thanks to INET, because INET, kind of this organization, the academic institute and research network and all these people I’ve working with have grown up with INET and we wouldn’t be doing this stuff without INET. I can say that for sure.
Rob Johnson:
Yeah. Thank you for that and we’re fortunate to have you there to do the things.
William Lazonick:
Okay, great.
Rob Johnson:
Talk again soon.
