Wednesday, March 18, 2015

(#166-1) March 18 2015. The idea that a corporation should be run solely for the benefit of the shareholders is a distortion of the American Business Model—and has proved to be disastrous (except for a few).



THE FOLLOWING CONCERNS THE NOTION THAT A CORPORATION SHOULD BE RUN SOLELY TO BENEFIT THE SHAREHOLDERS (and, as a consequence, the CEO and senior management—who are paid mostly in share options).

From a Washington Post story.

As Elise Gould of the Economic Policy Institute has shown, real wages fell for virtually every American in 2014, save only the poorest, and presumably least credentialed, workers. Wages for people at the 10th income percentile actually increased by 1.3 percent, chiefly due to minimum-wage increases enacted by cities and states. But wages for workers at the 95th percentile — presumably, those with some of the best educations – fell by 1 percent. For workers at the 90th percentile, they fell by 0.7 percent, and at the 80th, by 1 percent. So education isn’t the great explainer after all.

For a more plausible explanation, we must, as the great leaker Mark Felt once told two Post reporters, follow the money. When we do, we find that the funds corporations earmarked for their own investment, research, technology and raises during the 20th century have been redirected to shareholders in the 21st. Over the past decade, more than 90 percent of Fortune 500 corporations’ net earnings have been funneled to investors. The great shareholder shift has affected more than employees’ incomes. As Luke A. Stewart and Robert D. Atkinson noted in a 2013 report for the Information Technology and Innovation Foundation, business investment in equipment, software and buildings increased by just 0.5 percent per year between 2000 and 2011 — “less than a fifth that of the 1980s and less than one-tenth that of the 1990s.”

The power of major shareholders to appropriate corporate revenue has grown as the power of workers to win raise increases has dwindled — even though the actual commitment of shareholders to any one corporation has diminished. (In 1960, the average length of time an investor held a stock was eight years; today, it’s four months, and when computerized high-frequency trading is factored in, it’s 22 seconds.) The decimation of private-sector unions has flatly eliminated the ability of large numbers of U.S. workers to bargain collectively for better pay or working conditions. But the ability of financiers to threaten the jobs of corporate managers unless they fork over more cash to shareholders has greatly increased.

A pattern of financialization is that it is ever ingenious and ever greedier. As the above makes clear, not only have workers lost their bargaining position, but business investment in the future is suffering badly. We are underinvesting—in lay terms “eating our seed corn.”

The health of the economy as a whole is being is being systematically undermined This is manifestly disastrous —and bodes ill for the future.

Wall Street, which was originally meant to serve the economy, both through raising capital and by allocating it most efficiently through trading, has morphed into becoming a financial extraction machine playing on the real economy and unstable because it is inherently speculative and overly reliant on debt.

The recent Great Recession demonstrated the consequences of a financial system that is predatory, deliberately too complex for most of us to understand, and out of control.

We seem to have learned little from it. Where lessons have been learned, they have been largely brushed aside by financial special interests backed by politicians who have—quite simply—been bought.

It is now only a matter of time—and not much at that—before we have a repeat recession.

The booming stock market, and falling unemployment and gas prices are distracting us from vastly more serious issues.

  • The stock market is a bubble inflated through speculation and share buybacks. The scale of share buybacks is vast and its significance is not generally understood.
  • We are underinvesting in both business and infrastructure. These deficits are huge and ever increasing.
  • Pay, in real terms, is declining.
  • Most of the new jobs being created pay badly
  • As a consequence, demand, in real terms, is declining.
  • Areas of market growth—like cars and education—are primarily fueled by unsustainable debt.
  • Low gas prices are perpetuating energy inefficiency.
  • The strong dollar is undermining international competitiveness.
  • The rise in health costs may have slowed—but they are still rising.
  • Productivity, traditionally an American strength, is in trouble. Problems in this sector stem from chronic underinvestment in plant and equipment, an unwillingness to invest in training, and the innate deficiencies of our educational system. In addition, leading talent from our best universities is being siphoned off by financial institutions.

At the root of all this is the lack of a moral core. If CEOs and senior executives have no regard for anything other than shareholder returns, and attach no importance to employees, suppliers, customers, the community, and the National Interest, then fairly unpleasant human behavior is an inevitable result—and that is exactly what we are getting in all too many corporations.

It raises the stress level and lowers the quality of life of tens of millions of Americans. It makes the U.S. as a whole a less pleasant country to live in.

Is that really what we want? In all too many case, it is exactly what we’ve got.

Are we better than this? Based upon our acceptance of such behavior, it would appear not.

I live in hopes.

Well, I hope I do!

VOR words c.890.

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