Buybacks, Boeing, and Broken Promises

Published on
January 2nd, 2020
Duration
79 minutes


Buybacks, Boeing, and Broken Promises

The Interview ·
Featuring Dr. William Lazonick

Published on: January 2nd, 2020 • Duration: 79 minutes

Dr. William Lazonick, co-founder and president of The Academic-Industry Research Network, sits down with Real Vision's Max Wiethe to dissect the evolution of the stock market and the modern American economic system. Citing Boeing as an example, he contends that the stock market is being used to loot previously innovative corporations as insiders and outsiders alike are incentivized to push stock prices higher. He also argues that American competitiveness is being sapped as companies prioritize stock buybacks over investing in research and development, building new infrastructure, and paying off debt. Lazonick explains how this focus on short-term profits has led to unstable employment, sagging productivity growth and a loss of international competitiveness. Filmed on December 6, 2019 in New York.

Comments

Transcript

  • FB
    Floyd B.
    18 January 2020 @ 19:18
    I gave the interview a thumbs up for a couple of reasons...excellent history lesson on the regulatory ,governmental and economic issues that lead to the growth in buy backs and his grasp of interesting points in time that comprise the development of business during 1900's. However,the speaker's analysis is a bit naive. NOT once does he mention that there are three decisions to make in a management's obligation to make capital allocation(in fact he never even mentions the term capital allocation) ,dividends,capital spending and stock buy backs. While claiming that he deviates from other economists in understanding how businesses function would seem to not be correct. Also,claiming that in effect that he knows better how Apple should have made that capital allocation decision (investing in green technology while seeming to ignore Al. Gore's advice) borders on arrogance. Here I am afraid he does sound like an out of touch academic.
  • CC
    Charles C.
    17 January 2020 @ 00:34
    this is an excellent interview and very thought provoking. it happens to parallel many of the points Ben Hunt has been making on Epsilon Theory. Ben's work and this interview open our eyes to the perversion of capitalism that has occurred over the last 50 years.
  • AK
    Ado K.
    4 January 2020 @ 01:21
    Me and William have very very different political views. I would say that he is a pseudo Marxist at best, but nonetheless I am grateful for his time and for experiencing the viewpoint of someone who thinks quite different from me. When it comes to share buybacks the entire fault is on the shareholders, if you do not like the board of directors or CEO running a buyback program just vote them out of the company, it is quite simple honestly. The idea that businesses should accrue value to arbitrary parts of society instead of shareholders or at the expense of shareholders, is a political view that if enforced will lead to utterly horrific consequences for the economy as a whole.
    • DS
      David S.
      5 January 2020 @ 17:13
      Voting out the board of directors or ceo is overwhelmingly difficult. A single focused strategy like maximize shareholder value works when the corporation is being liquidated. DLS
    • AK
      Ado K.
      5 January 2020 @ 22:22
      Hey David it is as difficult as it should be, usually it requires 50 % of the votes. I understand that it can be very hard to have to convince you fellow shareholders, but to enforce something through physical violence should perhaps not be a alternative in a free society.
    • WG
      Wade G.
      15 January 2020 @ 23:58
      Ado, so is it "quite simple honestly" and "as difficult as it should be"? What a happy coincidence: the status quo is perfect. Sorry, but I'm with DLS. Also, does your "physical violence" reference apply only to enforced changes to the status quo, or also to the enforced preservation of it, in all it's arbitrary glory? How about we acknowledge the present market structure entails overwhelming participation in indexation, rendering solutions that require shareholder awareness, let alone action, nearly moot? I'll sign up for your libertarian utopia when we revoke legal tender laws, disband the Fed, and can choose to use and save sound money. Until then, anyone with a few nickles to rub together is practically forced to invest in markets. As a result, the playing field is grossly tilted to Wall Street, financiers, and the executive suite.
  • IH
    Iain H.
    13 January 2020 @ 07:45
    A very timely interview, those who's comments below describe Lazonick as a Marxist have a very unworkable idea of capitalism, which is not the operational system we have today. For a sustainable capitalism system to operate we need to get rid of cronyism, to big to fail, subsidies lending errors via the Fed and corporate funding of politicians and regulators. A lopsided society will end in civil war.
  • JC
    Justin C.
    7 January 2020 @ 22:45
    Brilliant. Put a lot of things into perspective. I think he has valid arguments which need wider recognition and debate.
  • KS
    Kashyap S.
    7 January 2020 @ 12:03
    If you are torn between this or some other interview, I'll save you some time. The guy was part of Bernie Sanders' campaign, and thinks Whole Foods should have used their cash to employ more people instead of buying back stock. Not knocking on RV for airing different views, but this is a waste of your time if you believe in capitalism.
    • EF
      Eric F.
      7 January 2020 @ 19:23
      My friend, if you think the current system is capitalism and should be protected, then you’re deluded. This is an excellent interview and we need more ethics and values in business, or society will continue to rip itself apart. Riots in Paris & Hong Kong are not normal. A POTUS who pumps the markets daily - in direct contrast to his criticisms of similar behaviour over the last decade - is simply wrong as is the Fed in supplying the money to bid up stock markets. We have clear frauds such as Tesla and WeWork and companies that take more than they give from society - Facebook & Google etc. They’ll be blood on the streets if something is not done to reward just the few and not the many. It’s interesting how The Business Roundtable has now shifted their stance on shareholder value being the priority. Hopefully this is not too little, too late, but employees, customers and shareholders are all important. If Amazon keeps growing as it is and destroying traditional retail without paying its fair share of taxes, and replacing humans with robots, at some point it will have no one to sell to.
  • SW
    Simon W.
    7 January 2020 @ 08:02
    Felt very old when Max couldn't recall who Boeing had merged with in 1997....
  • DC
    Dan C.
    6 January 2020 @ 22:47
    The more Prof Lazonick spoke, the less I liked. I think he may have some good points but his ideology gets in the way of understanding the data. This might be my problem but I wish he'd toss the nuevo-Marxist points and focus more on the macroeconomic consequences of buybacks. It seems a perfectly rational case can be made against buybacks without veering into Bernieland.
    • DC
      Dan C.
      6 January 2020 @ 22:51
      And please get an older interviewer. The kid didn't blow the interview (which is good) but he didn't add much either. Get Danielle DiMartino Booth back or another experienced financial expert. Calling the interviewee "Bill" felt off. The interviewer might be richer and smarter than I'll ever be but when someone says "my dad thinks..." - ugh - stick with behind the scenes for a while, kid.
  • tW
    tgwtom W.
    3 January 2020 @ 16:52
    A tweet from 11/6/19 : Ben Hunt @EpsilonTheory When was I radicalized? When Boeing mgmt and directors pocketed $5.4 billion in stock option exercise while building a crappy plane that they’ll never be punished for. “Yay, stock buybacks!”
    • MZ
      Martin Z.
      6 January 2020 @ 05:56
      Sounds like that would have been almost enough to finance a "clean sheet" redesign of the 737 Max. Indirectly, then, you could say that the flying public paid for their bonuses. So: Golden parachutes for Boeing management, those useless life vests under your seat for their planes' hapless passengers. Boeing deserves a "landing on water" for this crime - with no Sully Sullenberger to save the day.
  • JC
    Jason C.
    5 January 2020 @ 08:20
    Great interview, great guest. People dismissing him as Marxist are short-sighted or narrow-minded. His comments on the stock market separating the ownership from the control of the company and his reference to The Managerial Revolution reminds me of James Burnham whom William Buckley called "the number one intellectual influence on National Review since the day of its founding." His comments on innovation are also poignant seeing as innovation is all the US economy has left to be able to compete with China, at least if you believe Peter Thiel - himself a fan of Milton Friedman. Unless, I suppose, we want to import a billion immigrants and then compete with the Chinese on regulatory standards. And I know they're not technically Marxists anymore, but do you see the irony? There's plenty to disagree with in this interview, but nothing to be dismissed out of hand.
  • JW
    Jason W.
    4 January 2020 @ 07:12
    RV your interviews just get better and better! I was glued to this conversation the whole way through!
  • JE
    James E.
    3 January 2020 @ 21:39
    I thank RV on the series of recession fears, gold, bitcoin, China, housing and other problems in the financial system today. I would very much appreciate a series on serious solutions to resolve the current mess politicians and civil servants have done to the debasement of fiat money. I believe this is the most serious problem we will all face in the next decade. Will it come to just forgiving debt? All theories should be covered, not matter how remote. Thank you for the fantastic insights.
  • FA
    Frank A.
    3 January 2020 @ 19:23
    Great interview. I'm glad this topic is getting wider exposure. Institutional investors who are the ultimate long-term holders of these assets should be pushing to resend Rule 10b-18. They are the one who will be owning companies that are worse off financially at higher prices all the while the managerial class is out sitting on the beach somewhere. Short-term thinking vs long-term wealth creation (or destruction).
  • AC
    Andrew C.
    3 January 2020 @ 05:04
    Very interesting discussion. It seems this is another "skin in the game" discussion. The GM example probably shows they should've gone bankrupt instead of receiving a government payout back in 2009. They had the opportunity to be an electric vehicle manufacturer and the board killed it for whatever reason. Perhaps Boeing should go bankrupt for putting out an aeroplane that kills people: who wants to fly in the Boeing 737 Max? Should you trust the other aeroplanes that they manufacture? I disagree on his Apple example. As an IT company, could they really have started a completely new business in renewable energy?
  • CB
    Chris B.
    3 January 2020 @ 03:28
    Very interesting and nicely managed interview. I have not thought enough about the goodness or badness of buybacks. But I am not convinced that the problems at Boeing are related to buy backs per se. Maybe I need to read his book.......
  • AR
    Anthony R.
    3 January 2020 @ 02:30
    Some of the strong reactions to the piece are a bit reactionary, imho. I don't see a conflict between Milton Friedman's famous 'Job 1 is seek profits' vs this guy's observations. All he's pointing out is what I would suggest are the difference between 'enlightened self-interest' vs. 'unenlightened self-interest'. The Boeing example is a good one. Would anyone here say that their short term focus on bonuses/compensation has been good for profits? The answer is obvious. Now, can the focus on things other than profits go too far and far afield? Ya, sure, so that has to bee managed. But short sightedness will kill us in the long run. Part of good company leadership is the ability to say to shareholders, 'Listen, we're going to bite this or that bullet over the next period of time to get to better, more sustainable returns in the longer haul'. That's good for all the stakeholders, not only those with a more speculative view. One of the ways to better manage the risk of short-term thinking is to bonus exec staff and even employees on desired metrics over a 3 to 5 year basis, much as Markel does with their program. They get great returns, but their focus is on prudence/repeatability as well. But this is the responsibility of boards too. Ultimately, if you don't like the prudence or lack thereof of an incentive plan - don't own the stock. I see the 'don't rock the boat' mentality play out in the large enterprises I work with all day long. It works until it doesn't. One big point of disagreement I do have with the piece is this notion that we've not had innovation over the last 30 years. That's nuts. It's all around us. The point I 'think' he's trying to make is that it can be done with less drama and volatility with its concomitant effects on non-owner stakeholders. That's not necessarily a bad point and doesn't make him a 'Marxist' (nor does taking a call from a Bernie staffer, as much as I don't like leftist).
  • AC
    Antoine C.
    3 January 2020 @ 01:23
    so in simple words your an academic who has never earned a living and is very generous with other people's stuff....ok 👍
  • FG
    Flavio G.
    2 January 2020 @ 15:31
    "Shareholders are just buying and selling shares" ... "We as tax-payers have supported these companies with infrastructure and knowledge. We should get a decent tax rate back" So private capital being allocated to investment is worthless while taxes used in infrastructure are precious and require a tax rate back. How does that work? The guest's ideology, at its core, is Marxism. Nothing wrong with that. We just need to avoid rebranding things. Never thought of Marxists as good BSing marketers. We will sure have lots of that kind of marketing in the coming years from AOC and Co.
    • JK
      Josh K.
      2 January 2020 @ 18:51
      I think you are looking a tree and missing the forest here buddy.
    • JM
      John M.
      2 January 2020 @ 21:18
      He didn't say 'a 100% tax rate'. If corporations benefit from, even depend on social infrastructure and physical infrastructure should they not make some contribution to covering those costs?
  • CR
    Chris R.
    2 January 2020 @ 16:22
    Let's see a Real Vision interview with an academic who states: "I don't bet." (Go to 12:05 remaining in the video). I welcome the critiques of failed managements and boards, but this appears more like an "ivory tower intellectual" for traders, investors, and speculators who have to take risk. I.E. make a bet!
  • SW
    Scott W.
    2 January 2020 @ 15:30
    Dick Gephardt 2020!!!!
  • HK
    H K.
    2 January 2020 @ 13:54
    V. nice - perhaps the extra portion should have been recorded and put out as a part-2 in a different video.
  • BF
    Bret F.
    2 January 2020 @ 11:29
    This should be mandatory viewing for every Individual and family in america!!!
  • TE
    Tito E.
    2 January 2020 @ 11:09
    Financialisation as the inverse of innovation; i'd never gone so far as to think of it that way. Seems a pretty good rule of thumb to me! Appreciate this and learned alot.
  • PJ
    Peter J.
    2 January 2020 @ 10:45
    Great interview. Max did a great job in letting Bill speak, but obviously had done his research on Bill’s work. Will be interesting to see other comments Bill being an academic and NOT conforming to the current market TRADING based ethos and having a possibly more left leaning (in US terms) view / approach.