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Department of Financial & Management Studies (DeFiMS)

Profits Without Prosperity: How Stock Buybacks Manipulate the Market, and Leave Most Americans Worse Off

THIS EVENT IS ARCHIVED
Professor William Lazonick (University of Massachusetts Lowell)

Date: 9 May 2014Time: 1:00 PM

Finishes: 9 May 2014Time: 3:00 PM

Venue: Russell Square: College BuildingsRoom: 116

Type of Event: Talk

Abstract

Five years after the end of the Great Recession, corporate profits are high and the stock market is booming. Yet most Americans are not sharing in the apparent prosperity. While the top 0.1% of income recipients, the highest--‐ranking corporate executives among them, reap almost all the income gains, good jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid. Corporate profitability is not translating into shared prosperity.

For this lack of shared prosperity, the allocation of corporate profits to stock buybacks bears considerable blame. From 2003 through 2012, 449 S&P 500 companies dispensed 54% of earnings, equal to $2.4 trillion, buying back their own stock, almost all through open--‐market repurchases. Dividends absorbed an additional 37% of earnings. Scant profits remained for investment in productive capabilities or higher incomes for hard-working, loyal employees.

Biography

William Lazonick is a Professor at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness Previously he was an Assistant and Associate Professor of Economics at Harvard University (1975–1984), Professor of Economics at Barnard College of Columbia University (1985–1993), and Visiting Scholar and then Distinguished Research Professor at INSEAD (1996–2007). He is currently a visiting professor at the University of Bordeaux and the University of Ljubljana. He has also been a visiting professor at the University of Technology Sydney, University of Toronto, University of Tokyo, University of Toulouse, Norwegian School of Management, and Telecom School of Management (Paris). In 1984-1986, he was a research fellow at Harvard Business School, and in 1989-1990 a visiting scholar at the Institute for Advanced Study in Princeton.

Among Lazonick's books are Competitive Advantage of the Shop Floor (Harvard University Press, 1990), Business Organization and the Myth of the Market Economy (Cambridge University Press, 1991), and Organization and Technology in Capitalist Development (Edward Elgar Publishers, 1992). His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (W.E. Upjohn Institute for Employment Research, 2009) was awarded the 2010 Schumpeter Prize by the International Joseph A. Schumpeter Society With David J. Teece, Lazonick has edited Management Innovation: Essays in the Spirit of Alfred D. Chandler, Jr. (Oxford University Press, 2012). Many of his books have been translated into Chinese as well as other foreign languages.

Lazonick is a critic of the financialized US corporation, with his criticism focusing on the highly negative impacts of stock buybacks and stock-based executive compensation on innovation and job creation in the United States. Harvard Business School awarded his article, "Innovative Business Models and Varieties of Capitalism: Financialization of the US Corporation," the Henrietta Larson Award for best article in Business History Review in 2010.