Monday, May 11, 2015
Killing the Future
A recent article in the Harvard Business review by William Lazonick points out that from 2003 to 2013, 88% of the earnings of those 449 companies in the S&P index that were publicly listed were used for stock buybacks (51%; $2.4 trillion) or dividends (37%). It's annoying for those of us trying to perform R&D. Pfizer, for example, spent 146% of its profits in those 10 years on buybacks and dividends. In other words, it dipped into its capital reserves to help fund them.
Buybacks drive up share prices artificially, thus lining the pockets of short-term investors and executives. Hence, the enormous recent stock market boom.
But this boom is artificially pumped up, based on thin air; an illusion. Crazy.
Corporations need to stop tying executive compensation to stock prices and stop open-market buybacks. Only when profits are turned into R&D investment will there be a future for the US economy.