20 June 2017
Dr Antonio Andreoni, Lecturer in Economics at SOAS University of London, has been awarded a Gatsby Foundation grant of £180,000 to lead a project on “Governing Financialisation, Innovation and Productivity in UK manufacturing” (GOFINPRO), with a specific focus on biopharma and aerospace.
Dr Andreoni will be co-investigating on the project with Professor William Lazonick (University of Massachusetts Lowell and SOAS) and Dr Marie Carpenter (Telecom Ecole de Management, Institut Mines-Telecom). The research team will also include two post-doctoral researchers working in SOAS and Telecom Ecole de Management respectively.
As a result of the widespread adoption of the ideology of “maximizing shareholder value” (MSV) in public US corporations since the 1980s, superior corporate performance has increasingly become defined as meeting Wall Street’s expectations for quarterly earnings per share. Through stock-based pay, senior management of these firms have been incentivized to focus, above all else, on boosting stock prices, and the result is trillions of dollars spent on stock buybacks that could have been invested in innovation in pursuit of increased productivity and long-term competitive advantage. Such financialised practices have clearly spread beyond the US, in particular in sectors such as biopharma where global competitive dynamics exert a powerful influence over strategic decisions related to investments in new technologies and markets.
Prof Lazonick said: “Our research on the United States demonstrates that the financialization of the business corporation, manifested by massive distributions to shareholders and exploding executive pay, has been central to the extreme concentration of income among the richest households and the decades-long erosion of middle-class employment opportunities. The financialization of the corporation has been less pronounced in the UK than in the US, but it has nonetheless been doing considerable damage to the achievement of stable and equitable growth in the UK. ".
The research addresses this challenge by developing a database of the financialisation of the UK corporations and collecting new evidence on its impact on innovation and productivity in key UK manufacturing sectors. The research on the financialisation of the UK corporations will include a comparison of the UK with the US and will be complemented by two sector-specific in-depth case studies to investigate the impact of financialisation on the manufacturing competitiveness – productivity growth and value addition – for two sectors in which the UK has traditionally had firms with significant competitive advantage. These are the bio-pharmaceutical and aerospace industries.
Dr Andreoni said: "The bio-pharmaceutical and aerospace industries are at the core of the UK high-value manufacturing system. The financialisation of leading companies in these sectors does not simply threaten their capacity to remain at the technological and innovation frontiers. It also affects the overall industrial ecosystem in which these companies operate, in particular the value creation and distribution dynamics involving global system integrators as well as specialised suppliers with critical manufacturing capabilities."
At the end of the two-year research programme in 2019, an international conference will be organised at SOAS to disseminate the results of the research among stakeholders in related corporate and policy fields. The project aims at informing corporate governance reforms, in particular employment relations and industrial finance, as well as the UK industrial strategy towards a path of sustainable and shared prosperity.