Buybacks slow innovation and job creation

Reading time: 2 – 2 minutes

The August 13, 2009 issue of Business Week published an article, “The Buyback Boondoggle — Companies spend lavishly on share repurchases, slowing innovation and job creation”, by William Lazonick, a professor at the University of Massachusetts Lowell and director of the Center for Industrial Competitiveness.

The virus of stock buybacks is still alive, ready to ravage investors when easy credit returns

This article reaches similar conclusion regarding the evils of stock buybacks as numerous essays on this site.

It is encouraging to see that the topic of buybacks — which have amounted to more than $5.7 trillion since 1982 — are beginning to be noticed and condemned in academic circles.

Also encouraging was that two of the three comments on the Business Week article agreed with the professor.

The third comment, followed the pseudo-capitalist line, accusing the Professor of being a liberal socialist — as if the corporate executives (mere employees of the company) were is some manner “capitalists”, rather than agents of owners that they were ripping off — violating their fiduciary duties.

I publish this note in the hope that more lights will go on in academia and that, eventually, the nature of the buyback-executive option fraud may be more widely appreciated.

Of course, the problem with buybacks goes much deeper than slowing innovation and job creation.

Because of the multi-trillion dollar scale of the enterprise, buybacks represent a fraud against the retirement plans of a whole generation on a scale that makes Bernie Madoff look like a piker.