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Profit Without Prosperity

In: Business and Management

Submitted By charleshys
Words 5707
Pages 23


Profits Without
Stock buybacks manipulate the market and leave most Americans worse off. by William Lazonick


The Big Idea



STOCK BUYBACKS Five years after the official end of the Great Recession, corporate profits are high, and stock market
MANIPULATE THE booming. Yet most Americans the not sharing inis are the
MARKET AND LEAVE recovery. While the top 0.1% of income recipients—
MOST AMERICANS which include most of the highest-ranking corporate executives—reap almost all the income gains, good

jobs keep disappearing, and new employment opportunities tend to be insecure and underpaid.


September 2014 Harvard Business Review 3


Corporate profitability is not translating into widespread economic prosperity.
The allocation of corporate profits to stock buybacks deserves much of the blame. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market.
Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
The buyback wave has gotten so big, in fact, that even shareholders—the presumed beneficiaries of all this corporate largesse—are getting worried. “It concerns us that, in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies,” Laurence Fink,…...

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