Financialization of the U.S. corporation: what has been lost, and how it can be regained
The employment problems that the United States now faces are largely structural. The structural problem is not, however, as many economists have argued, a labor-market mismatch between the skills that prospective employers want and the skills that potential workers have. Rather the employment problem is rooted in changes in the ways that U.S. corporations employ workers as a result of "rationalization", "marketization", and "globalization". From the early 1980s rationalization, characterized by plant closings, eliminated the jobs of unionized blue-collar workers. From the early 1990s marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged and older white-collar workers in jeopardy. From the early 2000s globalization, characterized by the movement of employment offshore, left all members of the U.S. labor force, even those with advanced educational credentials and substantial work experience, vulnerable to displacement. Nevertheless, the disappearance of these existing middle-class jobs does not explain why, in a world of technological change, U.S. business corporations have failed to use their substantial profits to invest in new rounds of innovation that can create enough new high value-added jobs to replace those that have been lost. I attribute that organizational failure to the financialization of the U.S. corporation. The most obvious manifestation of financialization is the phenomenon of the stock buyback, with which major U.S. corporations seek to manipulate the market prices of their own shares. For the decade 2001-2010 the companies in the S&P 500 Index expended about $3 trillion on stock repurchases. The prime motivation for stock buybacks is the stock-based pay of the corporate executives who make these allocation decisions. The justification for stock buybacks is the erroneous ideology, inherited from the conventional theory of the market economy, that, for superior economic performance, companies should be run to "maximize shareholder value". In this essay I summarize the damage that this ideology is doing to the U.S. economy, and I lay out a policy agenda for restoring equitable and stable economic growth.
|Date of creation:||17 Jul 2012|
|Date of revision:||29 Oct 2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John M. Abowd & John Haltiwanger & Julia Lane & Kevin L. McKinney & Kristin Sandusky, 2007.
"Technology and the Demand for Skill:An Analysis of Within and Between Firm Differences,"
NBER Working Papers
13043, National Bureau of Economic Research, Inc.
- Abowd, John M. & Haltiwanger, John C. & Lane, Julia & McKinney, Kevin Lee & Sandusky, L. Kristin, 2007. "Technology and the Demand for Skill: An Analysis of Within and Between Firm Differences," IZA Discussion Papers 2707, Institute for the Study of Labor (IZA).
- Dhammika Dharmapala & C. Fritz Foley & Kristin J. Forbes, 2009.
"Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act,"
NBER Working Papers
15023, National Bureau of Economic Research, Inc.
- Dhammika Dharmapala & C. Fritz Foley & Kristin J. Forbes, 2011. "Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act," Journal of Finance, American Finance Association, vol. 66(3), pages 753-787, 06.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
- Louis, Henock & White, Hal, 2007. "Do managers intentionally use repurchase tender offers to signal private information? Evidence from firm financial reporting behavior," Journal of Financial Economics, Elsevier, vol. 85(1), pages 205-233, July.
- William Lazonick & Mariana Mazzucato, 2013. "The risk-reward nexus in the innovation-inequality relationship: who takes the risks? Who gets the rewards ?," Industrial and Corporate Change, Oxford University Press, vol. 22(4), pages 1093-1128, August.
- Fried, Jesse M, 2000. "Insider Signaling and Insider Trading with Repurchase Tender Offers," Berkeley Olin Program in Law & Economics, Working Paper Series qt74m8n14z, Berkeley Olin Program in Law & Economics.
- Frank Giarratani & Gene Gruver & Randall Jackson, 2007. "Clusters, Agglomeration, and Economic Development Potential: Empirical Evidence Based on the Advent of Slab Casting by U.S. Steel Minimills," Economic Development Quarterly, , vol. 21(2), pages 148-164, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.