Friday, July 8, 2016

Where business went wrong

See this article. Some edited excerpts:

"Something in the core teachings of business schools that ensures that firms do not give workers a fair shake. [...] Starting in the 1980s, business schools underwent a transformation in philosophy and orientation that reflected shifts in the economics discipline and in the economy at large. During that time, Wall Street was taking off and American businesses were becoming increasingly financialized —meaning that executives started to base all of their business decisions on the goal of boosting their firms’ stock prices. When corporations become financialized, executives turn their attention away from investing in the productive capabilities of employees, which is the basic building block for rising American living standards. [...] Instead, executives watch the stock market — in large part because their own compensation was increasingly based on the value of the company’s shares."

"Shareholder-value ideology provides a cover for destructive behavior that tends to heighten inequality in our society. For executives, focusing on shareholder value means that they stop concentrating on the actual work of running a business and creating useful things and services. It boosts their motivation to shirk taxes or lay off workers in the hope that demonstrably cutting costs in an already profitable corporation would boost the stock price in the short term. It also prompts them to allocate more of their profits to shareholders in the forms of dividends and stock buybacks rather than using it to give workers a raise or invest in the technology to improve productivity or create new products. [...] Shareholder value ideology lets executives argue that it is their duty to exclude workers and taxpayers and other stakeholders from sharing in the gains of innovative enterprise."

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