The idea that ruined USA industrial muscle

I have been writing since the 1980s that there has been no idea more pernicious than the one the postulates that there is no legitimate criticism of any strategy that results in increased cash flow to the rent-seekers that supposedly "own" the company.  So long as shareholder "value" was maximized, everything—including putting the company out of business—was considered a good idea.  All other claimants to having a stake in such a company—the workers, the suppliers, the local community, etc.—were supposed to stand in line behind folks who had gained control of the the company's financial instruments.  It didn't matter how long they had owned these shares.  It didn't matter how they got their hands on them.  They were supposed to come first in all economic decisions.

The result of such thinking was already obvious by 1982.  The destruction of USA economic muscle was assured every time some clown muttered that something was good for shareholder value.  It was finance capitalism at its most extreme.  It was idiots who couldn't describe how to build a birdhouse being allowed to pull on the operating levers of an industrial economy.  It was vandals destroying things of value beyond their comprehension in their snatch and grab operations.

So now the Washington Post has decided to write about the economic elephant in the room—the de-industrialization of a nation by thieves.  This story was written but a few days ago—way to be on top of something important oh paper of record for the nation's capital.

Maximizing shareholder value: The goal that changed corporate America

By Jia Lynn Yang, Published: August 26 2013

ENDICOTT, N.Y. — This town in the hills of Upstate New York is best known as the birthplace of IBM, one of the country’s most iconic companies. But there remain only hints of that storied past.

The main street, once swarming with International Business Machines employees in their signature white shirts and dark suits, is dotted with empty storefronts. During the 1980s, there were 10,000 IBM workers in Endicott. Now, after years of layoffs and jobs shipped overseas, about 700 employees are left.

Investors in IBM’s shares, by contrast, have fared much better. IBM makes up the biggest portion of the benchmark Dow Jones industrial average and has helped drive that index to record highs. Someone who spent about $16,000 buying 1,000 shares of IBM in 1980 would now be sitting on more than $400,000 worth of stock, a 25-fold return.

It used to be a given that the interests of corporations and communities such as Endicott were closely aligned. But no more. Across the United States, as companies continue posting record profits, workers face high unemployment and stagnant wages.

Driving this change is a deep-seated belief that took hold in corporate America a few decades ago and has come to define today’s economy — that a company’s primary purpose is to maximize shareholder value.

The belief that shareholders come first is not codified by statute. Rather, it was introduced by a handful of free-market academics in the 1970s and then picked up by business leaders and the media until it became an oft-repeated mantra in the corporate world.

Together with new competition overseas, the pressure to respond to the short-term demands of Wall Street has paved the way for an economy in which companies are increasingly disconnected from the state of the nation, laying off workers in huge waves, keeping average wages low and threatening to move operations abroad in the face of regulations and taxes.

This all presents a quandary for policymakers trying to combat joblessness and raise the fortunes of lower- and middle-class Americans. Proposals by President Obama and lawmakers on Capitol Hill to change corporate tax policy, for instance, are aimed at the margins of company behavior when compared with the overwhelming drive to maximize shareholder wealth.

“The shift in what employers think of as their role not just in the community but [relative] to their workforce is quite radical, and I think it has led to the last two jobless recoveries,” said Ron Hira, an associate professor of public policy at the Rochester Institute of Technology.

The change can be seen in statements from IBM’s leaders over the years. When he was IBM’s president and chief executive, Thomas J. Watson Jr., son of the company’s founder, spoke explicitly about balancing a company’s interests with the country’s. Current chief executive Virginia Rometty has pledged to follow a plan called the “2015 Road Map” in which the primary goal is to dramatically raise the company’s earnings-per-share figure, a metric favored by Wall Street.

Job cuts have come this summer — the biggest wave in years at the company. In Essex Junction, Vt., about 450 workers were axed in June. In Dutchess County, N.Y., 700 jobs were lost. At Endicott, at least 15 workers were told to leave. more