Last week, an in-depth analysis of what’s gone wrong with the American economy was released, chockfull of arguments that Prospect readers and others who’ve followed the work of progressive scholars would find very familiar. Its basic contention is that our corporations no longer invest in the domestic economy as they once did, electing instead either to sit on their profits or distribute them to shareholders. The corporate sector, the report reads, “has gone from a system marked by free enterprise to one that is more broadly ‘enterprise-free.’”
Not surprisingly, the report relies heavily on the work of William Lazonick, who, in articles for the Prospect and numerous other publications, has outlined how shareholders came to extract money from corporations rather than fund their increasingly few investments. It cites other authorities on this shift in corporate purpose—Andy Grove and Marianna Mazzucato, among others—who have either written for or been written about in the Prospect.
The original sin that the paper identifies as the root of this evil is, not surprisingly, the primacy of shareholder value. It explicitly rebuts a Wall Street Journal editorial that argued that share buybacks were fine because the shareholders would then re-invest their take into more productive enterprises. The paper argues, as I once did in a Trickle-Downers column, that the shareholders are more likely to invest in another corporation in the expectation that it, too, will buy back their shares.
So what’s so remarkable about this paper? Only its authorship. The paper came out under the name of one Marco Rubio, Republican senator from Florida, who personally authored its Introduction, and whose unnamed staffers then produced its 40 pages of analysis. In his Introduction, Rubio writes, “We need to build an economy that can see past the pressure to understand value-creation in narrow and short-run financial terms, and instead envision a future worth investing in for the long-term.” Arguing for investment over buybacks, he writes,
Shareholder primacy theory is a driving cause behind this shift of American business away from the traditional role expected of it in our economy. … This theory tilts business decision-making towards returning money quickly and predictably to investors rather than building long-term corporate capabilities, reduces investment in research and innovation, and undervalues American workers’ contribution to production.
Marco, we hardly knew ye.
So how does this paper differ from what we might call standard Prospect fare? First, it completely omits the issue of offshoring—that U.S. corporations do plenty of investing abroad—lest, I suppose, Rubio have to confront his belief in “free trade.” Second, while it extols corporate practices of the mid-20th century—long-term investment in research, plants, productivity, and workers—it offers no analysis of whence this system arose, omitting the role that public investment (Eisenhower’s highways, defense spending) played in bolstering production, and that unions and New Deal programs like Social Security played in bolstering consumption. And third, it doesn’t really offer any suggestions as to how to kick-start domestic investment again, other than that businesses should return to their pre-financialization ways. Nothing on raising taxes on capital, on financial transaction taxes, or, God forbid, on public investment that could take up the slack in private investment that the report so ably documents. Indeed, the report dismisses the Green New Deal in passing, even while its analysis of the private sector’s refusal to invest makes a convincing, if implicit, case for just such a program.
But if the problem is business, the report argues, the solution must be business, too. “Instead of outsourcing investment decisions to financial markets based upon the false promises of rational capital decisions,” the report concludes, “private businesses should be relied upon once more to be the main driver of economic development.”
To which the only reasoned response must be: Huh?
For all its shortcomings, however, historians will one day cite this report as evidence of how deeply dysfunctional American capitalism had become in 2019—so dysfunctional that even a standard-issue Republican senator nailed much of what ailed it, even as he failed to come up with a plausible cure.