William Lazonick Profits Without Prosperity Summary

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Economic prosperity has had the tendency in the past few years to not be as high as the success of a multitude of corporations. In the article, “Profits Without Prosperity” by William Lazonick, the writer analyzes why this is the case in today’s world. Right off the get go, the author informs the readers that if the United States intends to accumulate growth that will allow for income equitably and also provide stable employment, then the government has no choice but to bring not only stock buybacks, but also executive pay under control. He strongly believes that the future of the nation’s economy is dependent on achieving this goal. The author then goes on to explain how this goal can be accomplished. First off, he examines the relationship between value creation and value extraction. Throughout the 70’s, resource allocation was accomplished through a retain-and-reinvest approach. However, towards the end of the 70’s, a downsize-and-distribute approach was implemented. This caused costs to reduce, while cash was then distributed to shareholders. This shows that by using …show more content…

The first being that signifying confidence in the company’s future can be accomplished through buybacks. However, the writer reveals that when this occurs the value of stock only decreases. The next reason given is that when employees exercise stock options, the dilution of earnings per share has to be offset by buybacks. Yet, the author depicts here that the company must wait on their incentives to work instead of using this method. The last reason provided is that the company needs to return its unneeded cash to shareholders, because the company is now matured, and does not foresee any future profitable investment opportunities. The author immediately disregards this reason by explaining this has not been the case since qualified dividends and tax-rates on long term capital gains became the

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