In an Al Jazeera documentary “In Search of the Great American Job”, Institute scholar William Lazonick offers some arch insights into the relationship between financialization — particularly the “shareholder value” ideology in corporations, which drives the transfer of profits to shareholders through stock buybacks — and job creation and inequality. Lazonick’s work was recently cited by Vice President Joe Biden, in a Wall Street Journal op ed critiquing the short-term thinking guiding corporate decision-making.
Investing profits in your people and in productive capacity is the basis of a prosperous company and a prosperous economy. Buybacks are just the opposite of that. They are taking the money out of the companies, distributing it to shareholders, and these companies are being looted of trillions and trillions of dollars.
The buyback phenomenon, he argues, is eliminating middle class jobs.
Lazonick also pointed out that making stock options a high proportion of executive compensation creates an incentive for those executives to focus on short-term strategies to boost the stock price, often at the expense of long-term measures to grow the company.