How American Corporations Transformed From Producers to PredatorsPosted: 04/ 3/2012
Director, University of Massachusetts Center for Industrial Competitiveness
Corporations are not working for the 99 percent. But this wasn’t always the case. In a special five-part series, William Lazonick, professor at UMass, president of the Academic-Industry Research Network, and a leading expert on the business corporation, along with journalist Ken Jacobson and AlterNet’s Lynn Parramore, will examine the foundations, history and purpose of the corporation to answer this vital question: How can the public take control of the business corporation and make it work for the real economy?
In 2010, the top 500 U.S. corporations -- the Fortune 500-- generated $10.7 trillion in sales, reaped a whopping $702 billion in profits, and employed 24.9 million people around the globe. Historically, when these corporations have invested in the productive capabilities of their American employees, we’ve had lots of well-paid and stable jobs.
Unfortunately, it’s not the case today. For the past three decades, top executives have been rewarding themselves with mega-million dollar compensation packages while American workers have suffered an unrelenting disappearance of middle-class jobs. Since the 1990s, this hollowing out of the middle class has even affected people with lots of education and work experience. As the Occupy Wall Street movement has recognized, concentration of income and wealth of the top “1 percent” leaves the rest of us high and dry.
What went wrong? A fundamental transformation in the investment strategies of major U.S. corporations is a big part of the story.
A generation or two ago, corporate leaders considered the interests of their companies to be aligned with those of the broader society. In 1953, at his congressional confirmation hearing to be Secretary of Defense, General Motors CEO Charles E. Wilson was asked whether he would be able to make a decision that conflicted with the interests of his company. His famous reply: “For years I thought what was good for the country was good for General Motors and vice versa.”
Wilson had good reason to think so. In 1956, under the Federal-Aid Highway Act of 1956, the U.S. government committed to pay for 90 percent of the cost of building 41,000 miles of interstate highways. The Eisenhower administration argued that we needed them in case of a military attack (the same justification that would be used in the 1960s for government funding of what would become the Internet). Of course, the interstate highway system also gave businesses and households a fundamental physical infrastructure for civilian purposes -- from zipping products around the country to family road trips in the station wagon.
And it was also good for GM. Sales shot up and employment soared. GM's managers, engineers and other male white-collar employees could look forward to careers with one company, along with defined-benefit pensions and health benefits in retirement. GM’s blue-collar employees, represented by the United Auto Workers (UAW), did well, too. In business downturns, such as those of 1958, 1961 and 1970, GM laid off its most junior blue-collar workers, but the UAW paid them supplemental unemployment benefits on top of their unemployment insurance. When business picked up, GM rehired these workers on a seniority basis.
Such opportunities and employment security were typical of most Fortune 500 firms in the 1950s, '60s and '70s. A career with one company was the norm, while mass layoffs simply for the sake of boosting profits were viewed as bad not only for the country, but for the company, too.
What a difference three decades makes! Now mass layoffs to boost profits are the norm, while the expectation of a career with one company is long gone. This transformation happened because the U.S. business corporation has become in a (rather ugly) word “financialized.” It means that executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices. Other concerns -- economic, social and political -- took a backseat. From the 1980s, the talk in boardrooms and business schools changed. Instead of running corporations to create wealth for all, leaders should think only of “maximizing shareholder value.” more
Finally, we have a clip from the appearance of Robert Lutz who was on the Colbert Report Monday night to push his book Car Guys and Bean Counters. I happen to love this topic because it is so obvious when a car company is in the hands of Car Guys (Producers who worry most about the quality of the cars produced) or Bean Counters (the Predators who worry most about wringing the last tiny bit of profitability out of every sale.) Donald Petersen at Ford who led their renaissance in the 1980s was a classic car guy. Roger Smith at GM, the guy who led them on their great decline from over half the total market to less that 30%—the target of Michael Moore's first big hit "Roger and Me"—was a classic bean counter. Car companies are so large that it is indeed quite possible to have whole departments of Predators (advertising, accounting, legal, etc) within a Producer enterprise. The tragedy occurs when they get to run the place.
3 Corporate Myths that Threaten the Wealth of the NationIt’s time to restore corporate power to the people by blasting through the myths about how corporations should be run, and for whom.
April 5, 2012 | AlterNet / By William Lazonick and Ken Jacobson and Lynn Parramore
The wealth of the American nation depends on the productive power of our major business corporations. In 2008 there were 981 companies in the United States with 10,000 or more employees. Although they were less than two percent of all U.S. firms, they employed 27 percent of the labor force and accounted for 31 percent of all payrolls. Literally millions of smaller businesses depend, directly or indirectly, on the productivity of these big businesses and the disposable incomes of their employees.
When the executives who control big-business investment decisions place a high priority on innovation and job creation, then we all have a chance for a prosperous tomorrow. Unfortunately, over the past few decades, the top executives of our major corporations have turned the productive power of the people into massive and concentrated financial wealth for themselves. Indeed the very emergence of “the 1%” is largely the result of this usurpation of corporate power. And executives’ use of this power to benefit themselves often undermines investment in innovation and job creation.
These corporations do not belong to them. They belong to us. We need to confront some powerful myths of corporate governance as part of a movement to make corporations work for the 99%. To start, we have to recognize these corporations for what they are not.
• They are not “private enterprise.”
• They should not be run to “maximize shareholder value.”
• The mega-millions in remuneration paid to top corporate executives are not determined by the “market forces” of supply and demand. more
Lutz was always a car guy. He is what I call Producer Royalty. He likes high-end machinery so much, he once owned and flew a flawlessly restored Cold War era Czech jet fighter plane. And yes, he is still very competitive—watch how he upstages Colbert at the end.