Category Archives: Economy

The Dumbest Business Idea Ever. The Myth of Maximizing Shareholder Value

Lynn Stout | March 15 2016 | evonomics 

The dominant business philosophy debunked

By the end of the 20th century, a broad consensus had emerged in the Anglo-American business world that corporations should be governed according to the philosophy often called shareholder primacy. Shareholder primacy theory taught that corporations were owned by their shareholders; that directors and executives should do what the company’s owners/shareholders wanted them to do; and that what shareholders generally wanted managers to do was to maximize “shareholder value,” measured by share price.

Today this consensus is crumbling. As just one example, in the past year no fewer than three prominent New York Times columnists have published articles questioning shareholder value thinking.[1]  Shareholder primacy theory is suffering a crisis of confidence. This is happening in large part because it is becoming clear that shareholder value thinking doesn’t seem to work, even for most shareholders.

Consider the example of the United States. The idea that corporations should be managed to maximize shareholder value has led over the past two decades to dramatic shifts in U.S. corporate law and practice. Executive compensation rules, governance practices, and federal securities laws, have all been “reformed” to give shareholders more influence over boards and to make managers more attentive to share price.[2]  The results are disappointing at best. Shareholders are suffering their worst investment returns since the Great Depression;[3] the population of publicly-listed companies has declined by 40%;[4] and the life expectancy of Fortune 500 firms has plunged from 75 years in the early 20th century to only 15 years today.[5]

Correlation does not prove causation, of course. But in my book The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public,[6] I explore the logical connections between the rise of shareholder value thinking and subsequent declines in investor returns, numbers of public companies, and corporate life expectancy. I also show that shareholder primacy is an abstract economic theory that lacks support from history, law, or the empirical evidence. In fact, the idea of a single shareholder value is intellectually incoherent. No wonder the shift to shareholder value thinking doesn’t seem to be turning out well — especially for shareholders.

Debunking the Shareholder Value Myth: History

Although many contemporary business experts take shareholder primacy as a given, the rise of shareholder primacy as dominant business philosophy is a relatively recent phenomenon. For most of the twentieth century, large public companies followed a philosophy called managerial capitalism. Boards of directors in managerial companies operated largely as self-selecting and autonomous decision-making bodies, with dispersed shareholders playing a passive role. What’s more, directors viewed themselves not as shareholders’ servants, but as trustees for great institutions that should serve not only shareholders but other corporate stakeholders as well, including customers, creditors, employees, and the community. Equity investors were treated as an important corporate constituency, but not the only constituency that mattered. Nor was share price assumed to be the best proxy for corporate performance.[7]

Continue reading The Dumbest Business Idea Ever. The Myth of Maximizing Shareholder Value

‘People Have Had Enough of Experts’

Shelia Dow | February 06 2017 | Instititute for New Economic Thinking

As part of our ongoing symposium “Experts on Trial”, Professor Sheila Dow argues that if voters have grown contemptuous of economists’ expertise, that’s because economics has been misrepresented as a technical subject separate from politics and moral judgments

“People in this country have had enough of experts.” Thus the response of key ‘Brexit’ campaigner Michael Gove when confronted with the long list of expert bodies, such as the IMF, that were making the economic case for Britain to remain in the EU.

This is a shocking statement, particularly coming from a highly-educated former Minister of Education. As professional economists, we see ourselves as contributing to society precisely through our expertise. Yet, Gove was picking up on a trend in public discourse that gained further momentum during the US presidential election campaign, of disregarding expert opinion. Nor is it a transitory phenomenon. Empirical evidence of the gulf between expert and lay opinion on economic policy in the US has been provided by Sapienza and Zingales (2013), a gulf which was not affected when the lay subjects were made aware of expert opinion.

Out of the discourse on expertise have emerged two sequential characterisations of the zeitgeist: a “post-democratic” era which begat a “post-truth” era.

The “post-democratic” label described the trend for important policy decisions to be made on the basis of expert opinion rather than any democratic process. It refers to institutional arrangements that explicitly put executive power in the hands of experts, such as independent central banks and the European Fiscal Compact (see further Pühringer, forthcoming). The democratic deficit is further compounded by the extent to which policy-making institutions have been captured by vested interests (Morgan 2017). Seen in this light, some of the political developments of 2016 can be seen as attempts to reassert democracy.

But out of that effort has also arisen what is characterised as a “post-truth” era, implying that truth is popularly regarded as irrelevant to shaping the outcome of the democratic process. Assertions which “feel right” but have no basis in fact are accepted as valid on the grounds that they challenge the elite and its vested interests. Of course, this raises the question of what truth is, with a potential conflict between the understanding of experts and the understanding of the individual voter based on experience. Thus, for example,economists may claim that an economy is strong while individual experience is of economic vulnerability and hardship. If economic expertise is to contribute to policy debate, then the scope for different understandings needs to be addressed. But far from implying that any assertion is legitimate, this scope underlines the importance of justification of understanding, by reason and experience.

Where does this leave the economist as expert?

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Living in Switzerland ruined me for America and its lousy work culture

Chantal Panozzo | February 1, 2016 | Vox

I was halfway through a job interview when I realized I was wrinkling my nose. I couldn’t help myself. A full-time freelance position with a long commute, no benefits, and a quarter of my old pay was the best they could do? I couldn’t hide how I felt about that, and the 25-year-old conducting the interview noticed.

“Are you interested in permanent jobs instead?” she asked.

“I could consider a permanent job if it was part-time,” I said.

She looked at me like I was speaking a foreign language and went right back to her pitch: long commute, full-time, no benefits. No way, I thought. Who would want to do that? And then it hit me: Either I had become a completely privileged jerk or my own country was not as amazing as I had once thought it to be. This wasn’t an unusually bad offer: It was just American Reality.

Now that I’m back, I’m angry that my own country isn’t providing more for its people

Before I moved to Switzerland for almost a decade, American Reality was all I knew. I was living in a two-bedroom apartment making $30,000 a year in a job where I worked almost seven days a week with no overtime pay and received 10 days of paid time off a year.

In other words, for the hours worked, I was making minimum wage, if that. The glamour of this job was supposed to make up for the hours, but in reality, working every weekend is a ticket to burnout — not success.

My husband and I were so accustomed to American Reality that when he was offered an opportunity to work in Switzerland, we both thought about travel and adventure — not about improving our quality of life. It hadn’t occurred to us that we could improve our quality of life simply by moving.

But without realizing it, or even asking for it, a better life quality came to us. And this is why, now that I’m back, I’m angry that my own country isn’t providing more for its people. I will never regret living abroad. It taught me to understand another culture. And it taught me to see my own. But it also taught me something else — to lose touch with the American version of reality.

Here are seven ways living abroad made it hard to return to American life.

1) I had work-life balance

The Swiss work hard, but they have a strong work-life balance. According to data from the Organisation for Economic Co-operation and Development, the average Swiss worker earned the equivalent of $91,574 a year in 2013, while the average American worker earned only $55,708. But the real story is that the average American had to work 219 hours more per year for this lesser salary.

Which brings us to lunch. In Switzerland, you don’t arrive to a meeting late, but you also don’t leave for your lunch break a second past noon. If it’s summer, jumping into the lake to swim with the swans is an acceptable way to spend your lunch hour. If you eat a sandwich at your desk, people will scold you. I learned this the hard way.

“Ugh,” said Tom, a Swiss art director I shared an office with at a Zurich ad agency. “It smells like someone ate their lunch in here.” He threw open the windows and fanned the air.

“They did. I ate a sandwich here,” I said.

Tom looked at me like I was crazy.

“No. Tomorrow you’re having a proper lunch. With me,” he said.

The next day, exactly at noon, we rode the funicular to a restaurant where we dined al fresco above Zurich. After lunch, we strolled down the hill. I felt guilty for being gone for an hour and a half. But no one had missed us at the office.

Lunchtime is sacred time in Switzerland. When I was on maternity leave, my husband came home for lunch to help me care for our daughter. This strengthened our marriage. Many families still reunite during weekdays over the lunch hour.

Weekends in Switzerland encourage leisure time, too. On Sundays, you can’t even shop — most stores are closed. You are semi-required to hike in the Alps with your family. It’s just what you do.

he author and her daughter in Urnaesch, Switzerland, watching the cows come home. (Brian Opyd)

2) I had time and money

The Swiss have a culture of professional part-time work, and as a result, part-time jobs include every benefit of a full-time job, including vacation time and payment into two Swiss pension systems. Salaries for part-time work are set as a percentage of a professional full-time salary­ because unlike in the United States, part-time jobs are not viewed as necessarily unskilled jobs with their attendant lower pay.

During my Swiss career, I was employed by various companies from 25 percent to 100 percent. When I worked 60 percent, for example, I worked three days a week. A job that is 50 percent could mean the employee works five mornings a week or, as I once did, two and a half days a week. The freedom to choose the amount of work that was right for me at varying points of my life was wonderful and kept me engaged and happy.

When I took only 10 days for a trip to Spain, my colleagues chastised me for taking so little time off

Often, jobs in Switzerland are advertised with the percentage of work that is expected. Other times, you can negotiate what percentage you would like to work or request to go from working five days a week to four days a week, for example. There is normally little risk involved in asking.

Continue reading Living in Switzerland ruined me for America and its lousy work culture

Alibaba founder Jack Ma has a brutal theory of how America went wrong over the past 30 years

Jim Edwards | January 19 2017 | Business Insider 

(Jack Ma.WEF)

DAVOS, Switzerland — Alibaba founder Jack Ma thinks America went wrong over the past 30 years by focusing too much on war and Wall Street. Speaking at the World Economic Forum on Wednesday, Ma was asked about globalisation and the reaction to it represented by the election of Donald Trump as US president.

He responded that back when Thomas Friedman published “The World Is Flat” in 2005, globalisation looked like “a perfect strategy” for the US: “We just want the technology, and the IP, and the brand, and we’ll leave the other jobs” to other countries like Mexico and China, he said.

“American international companies made millions and millions of dollars from globalisation,” Ma said.

As an example of just how much was available, Ma said, “When I graduated from university I tried to buy a beeper, and it cost me $250. My pay at the time was $10 a month.”

Continue reading Alibaba founder Jack Ma has a brutal theory of how America went wrong over the past 30 years

The World Map of Billionaires

howmuch.net |  September 13 2016

Billionaires are the richest of the rich. Many young entrepreneurs hope to one-day reach this ultimate financial milestone. But before these entrepreneurs are allowed to join this group, they first must ask how did billionaires acquire their wealth in the first place? Take a look at the map below to see the distribution of billionaires by country and type.

Click image for full size

The map above shows each country of the world separated by the percentage of billionaires into various types. The size of each country on the map is relative to its total number of the world’s billionaires. There are five categories of billionaires designated by the colors found in the legend: Inherited, Company Founders, Owners and Executives, Political Connections and Resource Related and the Financial Sector. The data was compiled from this report by the Peterson Institute for International Economics.

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By the numbers: Barack Obama’s contribution to the decline of US democracy

John Weeks | November 26 2016 | openDemocracy

How neoliberal doctrine undermined the Obama administration and ushered in the age of Trump
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Obama meets Trump. Press Association/Pablo Martinez Monsivais. All rights reserved.

Yes, we can!

The iconic slogan “Yes, we can!” inspired the wave of enthusiasm that swept up millions of Americans during the presidential election of 2008 and carried Barack Obama to the White House. If that slogan epitomized the beginning of the Obama presidency, he had an equally iconic ending: the first African-American president shaking hands with the first president-elect in at least 100 years endorsed by the Ku Klux Klan.

In November 2008 Barack Obama won the presidency with almost 53% on a voter turnout of 58%. The winning percentage was the highest since 1988 and the turnout the largest for 50 years. The first non-white president took office on a surge of enthusiasm exceeding any since Franklin Roosevelt in 1932 (by comparison John Kennedy went to the presidency with less than half of total votes and a winning margin of 0.2 percentage points).

The enthusiasm for Obama arose from fervent hope for specific changes: 1) a universal, affordable health system; 2) the end of two disastrous wars (Afghanistan and Iraq); 3) economic recovery from the worst collapse in 80 years; and 4) action against banks and bankers to prevent a recurrence of the collapse.

To fulfil these hopes, Obama had majorities in both houses of Congress, 58 of 100 Senators (largest majority of any party in 30 years) and 257 seats in the House (most since 1992). By any measure the new president enjoyed an overwhelming majority.  Under some circumstances the Republican minority in the Senate could prevent voting, but a determined and bold president could force votes within the arcane Senate rules.

No he didn’t!

It quickly became obvious that Obama would be anything but determined and bold; on the contrary, avoiding conflict through compromise would guide his presidency. In face of a solidly right wing Republican opposition, attempting to compromise was recipe for failure, a disaster foretold and fulfilled.

Despite the large House and Senate majorities a litany of failure dogged the first two Obama years, some partial and others presented as success. Extension of the popular Medicare programme offered the obvious method of achieving a national health system (confusingly dubbed “single payer” by its adherents). Obama yielded before opposition from private “health care” corporations and drug companies.

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William K. Black — Hillary: The “Good News” is That China is “Forcing Down Wages”

William K. Black | October 24 2016 | Mike Norman Economics

Champion of the people, or slave driver? Sheriff Bill is on Hillary’s case.

The general media has been treating the WikiLeaks disclosures of the Clinton campaign documents, particularly the transcripts of her lucrative talks with Goldman Sachs as much ado about nothing. I have not found any article about the disclosures, however, that reported on the extraordinary statements she made in her talk with Goldman Sachs on June 4, 2013.

Hillary told the Vampire Squid that the “good news” was that China was removing workers’ (meager) legal protections so that their employers could “forc[e] down wages” in order to increase corporate profits. She used China’s (pathetically weak) legal protections for workers as her exemplar of China’s “structural economic problems.”

Thirdly, they seem to — and you all are the experts on this. They seem to be coming to grips with some of the structural economic problems that they are now facing. And look, they have them. There are limits to what enterprises can do, limits to forcing down wages to be competitive, all of which is coming to the forefront…

Clinton’s support for “forcing down wages” by removing China’s meager protections for workers reveals that her (leaked) admission that she is increasingly “far removed from the struggles of” the working and middle-class is a grave understatement. She is not simply “far removed” from their “struggles” – she continues when speaking secretly to Wall Street to attack workers’ interests.

Iowans on their wages: ‘I’m not stupid or lazy. It’s just not there’

Mike Kilen | October 21 2016 | Des Moines Register

FORT MADISON, Ia. — After being laid off from her factory job in 2008, Becky Haage took a job at Dollar General.

She started out making $8.50 an hour and moved up to $11 an hour as an assistant manager, but says she knew that was as much as she could make at the retail job.

“Retail is almost sickening to me, how much corporate America makes and throws peanuts to their workers, who are working so hard,” she said. “So you just have to fight for yourself, is what it’s come down to.”

The anemic rise in wages over the past five decades is one factor stirring unease among voters as the Nov. 8 election nears.

In Iowa, wages for low- and middle-income workers have not increased as much as for high-income earners.

And Iowa workers have seen even slower wage growth than their counterparts across the country. In the past 35 years, their wages dropped to 81 percent of the U.S. average, while the cost for Iowans to purchase all goods and services is roughly 90 percent of the U.S. average, said economist Dave Swenson of Iowa State University.

In other words, it’s cheaper to live in Iowa, but average wages of about $42,000, which have increased only $2,300 in seven years, don’t necessarily cover living costs

Presidential candidates Hillary Clinton and Donald Trump have both supported spending on infrastructure to create jobs and a boost in the minimum wage — Clinton to $15 an hour and Trump to $10 — but they differ on other strategies to boost wages. Trump, the Republican nominee, supports cutting taxes and reducing costly regulations, while Clinton, the Democratic nominee, has promoted plans to grow the economy through investment in manufacturing and clean energy.

Some economists see recent signs of improvement, including last month’s Census Bureau national data that showed a 3.8 percent gain in real median household income in 2015.

That’s little comfort to employees like Haage, who has struggled to find better-paying work since her layoff eight years ago, amid the Great Recession, and now makes $11.50-an-hour at a Fort Madison factory.

The factory worker

“I’m not a genius. I haven’t gone to college,” Haage said. “But I’m not stupid or lazy. It’s just not there. Used to be, you work at a factory, and you have it made. With two of us working factory jobs, we should have it made. We don’t. We’re paycheck to paycheck.”

Both Haage, 41, and her husband, Dan Haage, 47, were laid off from factories in Missouri during the recession. They moved to Fort Madison four years ago with their three children.

She eventually left Dollar General for a temporary job at Silgan Containers, slipping plastic sleeves over can lids in the canning factory, for $11.50 an hour. Her husband found a job at a nearby factory starting at $20 an hour, and with union backing has been able to move up to $25 in the last four years.

“It’s not like we are starving, but we could be better off,” Becky Haage said.

They have student loans from when her husband returned to college after his layoff and are trying to buy a house on contract. The house needs a new roof, windows and a bathroom remodel.

Continue reading Iowans on their wages: ‘I’m not stupid or lazy. It’s just not there’

Religion in US ‘worth more than Google and Apple combined’

Harriet Sherwood | September 15 2016 | The Guardian

Faith economy worth $1.2tn a year – more than combined revenues of 10 biggest tech firms in America, study shows

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St Patrick’s Cathedral, New York. More than 150 million Americans are members of faith congregations, according to the report. Photograph: Getty

Religion in the United States is worth $1.2tn a year, making it equivalent to the 15th largest national economy in the world, according to a study.

The faith economy has a higher value than the combined revenues of the top 10 technology companies in the US, including Apple, Amazon and Google, says the analysis from Georgetown University in Washington DC.

The Socioeconomic Contributions of Religion to American Society: An Empirical Analysis calculated the $1.2tn figure by estimating the value of religious institutions, including healthcare facilities, schools, daycare and charities; media; businesses with faith backgrounds; the kosher and halal food markets; social and philanthropic programmes; and staff and overheads for congregations.

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Where Median Incomes Have Fallen the Most

Justin Fox | August 19 2016 | Bloomberg View

Screen Shot 2016-08-30 at 11.56.27 AM

Of all the indicators describing the not-very-impressive U.S. economic performance of the first decade and a half of the 21st century, the least impressive is probably median household income. It hit an all-time high in 1999 of $57,843 (converted into 2014 dollars), and as of 2014 stood at $53,657 — a 7.2 percent decline. Monthly estimates by the former U.S. Census Bureau officials at Sentier Research indicate that median income made a big recovery in 2015 (the official 2015 numbers aren’t out yet), but as of this June was still below the 1999 level. The typical American household remains poorerthan it was 16 years ago.

In a nation as vast and diverse as the U.S., economic trouble like that tends not to be evenly distributed So I was curious: How does the Great Median Income Slide break down by state? Thanks to a Census Bureau spreadsheet that you can download right here, I have the answer. Here are the states where median household income has slid the most since 1999:

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