William Lazonick on How The Stock Market Killed Tech

Recorded live at Web Summit Lisbon, Ed Zitron is joined by William Lazonick, professor emeritus of economics at the University of Massachusetts, who is also the co-founder and president of the Academic-Industry Research Network, to talk about how the incentives of shareholder capitalism and stock buybacks are destroying innovation. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at https://discord.com/invite/QUUQUP9szv Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/zitron.bsky.social https://www.threads.net/@edzitron See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  This is an iHeart Podcast. Guaranteed Human.

• 0:04Speaker 01

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• 1:08Speaker 03

  Call Zone Media.

• 1:11Ed Zitron?

  Hello and welcome to Better Offline. I am, of course, your host, Ed Zitron.

• 1:26Ed Zitron?

  And, know a lot of people have been asking, hundreds of thousands of people, in fact, I will be submitting myself at the next DNC as the left is Joe Rogan. I am two or three inches taller as well. But today I'm joined by Professor William Lazonick. He's a professor emeritus of economics over at University of Massachusetts and the co-founder of the Academic Industry Research Network. William, thank you so much for coming. Pleasure to be here. All right, so... If you look at the tech industry right now, it's probably the most, well, it's definitely the most profitable it's ever been, and probably the worst. It feels like the furthest it's been from really innovating, and it's moved to value extraction, I think, and you know a great deal about that. How did we get here? And I mean historically, how did we get here?

• 2:08Speaker 05

  Well, first of all, you have to understand that the United States has the most formidable developmental state in history. A lot of people think that Japan in the 80s invented the developmental state.

• 2:24Ed Zitron?

  Right.

• 2:25Speaker 05

  But actually, the United States was Japan developmental state from the point of view of technology. So I won't go into the whole history of that, but it goes back to the 19th century, building of land-grant colleges, railroads, and going into aviation, the computer industry, etc.

• 2:40Ed Zitron?

  Lovely.

• 2:41Speaker 05

  So, tech was provided with all kinds of resources. Those resources were originally used by large corporations that actually gave people lifetime employment. So that's something else. When people discovered Japanese competition in the 1980s, they said, "Oh, a secret to Japan's success is they give people permanent employment, lifetime employment." US companies were doing that, particularly post-World War II. Iconic company that did that, which became a totally shareholder value company, and that's where I'm going, was IBM. You had a job for life.

• 3:22Speaker 05

  You had a defined benefit pension, you had all your medical expenses paid, etc. Those companies were highly innovative, a lot of them connected to what was called the military-industrial complex. And in the early, late 50s, early 60s, some companies started setting off, spinning off of that, companies that would have been like companies here today, that were, and they went, they went public and they were called glamour stocks. But they were thinly traded. So the Security and Exchange Commission, which was set up in the mid-30s- To get rid of manipulation and fraud on, on, on markets.

• 4:04Ed Zitron?

  Right.

• 4:05Speaker 05

  Uh, they, uh, had a, what was called a special study that created NASDAQ, which you all know about. But you probably don't know the origins of it. So NASDAQ was really backed by the US government to create a liquid market in a spec, highly speculative stocks. And so the National Association Dealers Automated Quotation System came online in April nineteen seventy-one. And it wasn't actually a trading market. It was just a quotation system. So the security dealers were all working on their phones and Rolodexes, uh, in isolation and never knowing what the price of a stock would be. All of a sudden, this is really the first use of internet working.

• 4:45Ed Zitron?

  Right.

• 4:45Speaker 05

  Because two computers mainframes had just come in the, in the sixties. So, so you now have NASDAQ. One of the first companies that listed on NASDAQ was Intel.

• 4:54Ed Zitron?

  Right.

• 4:54Speaker 05

  Three years afterwards founded. That would never have been possible, uh, with the New York Stock Exchange. They could have gone the over counter market because the New York Stock Exchange had listing requirements in terms of capitalization profitability.

• 5:08Ed Zitron?

  Mm-hmm.

• 5:09Speaker 05

  That would require ten, fifteen years at least.

• 5:11Ed Zitron?

  Right.

• 5:11Speaker 05

  Okay. Uh, but now you could get companies going public. They didn't even have a product. Uh, that really was

• 5:19Ed Zitron?

  Oh.

• 5:20Speaker 05

  The thing that brought venture capital into the picture. There was no well-defined venture capital industry until nineteen seventy-two, a year after NASDAQ was created, and it came out of Silicon Valley, which by the way, was dubbed Silicon Valley in nineteen seventy-one by a journalist because there were so many startups, uh, producing silicon chips.

• 5:40Ed Zitron?

  Before this point, going public required you to be a good company.

• 5:43Speaker 05

  Uh, you had to, yeah. So often you went over the counter and then graduated to what they called the big board, the New York Stock Exchange.

• 5:50Ed Zitron?

  By being a profitable.

• 5:51Speaker 05

  Yeah, and you had to have a lot of different shareholders, et cetera. Yeah. So.

• 5:55Ed Zitron?

  Well, thank God we got rid of that.

• 5:56Speaker 05

  And, and, and, well, those companies, uh, tended to, uh, pay dividends, but they didn't do something which I'm going to talk about today, which is the way the predatory value extraction is working in the US economy, particularly in the tech. Sector and that's the phenomenon of companies buying back their stock. Right. Okay, but before we get to that, we basically have to see that in the 1970s, there was a change in the institutions of the stock market, particularly around NASDAQ and venture capital, that made it possible all of a sudden to get funding from, from, uh, for startups that couldn't get funding before. Right.

• 6:39Speaker 05

  Now, a big change was, and it was really under the radar, uh, was in 1979, July of 1979, when the Department of Labor in the US said that pension funds could put some of their money into risky assets. Okay. Uh, there had been some legislation earlier in the decade which said that if pension fund managers put their money into companies like the companies on show here, uh, that they're trying to go public, that they could get into trouble or companies to come up. Immediately from that point of, point in time on, there was no shortage of money in the US economy for venture capital, for new firms. There was really always, since then, it's been a shortage of good firms

• 7:23Speaker 05

  and a lot of money chasing.

• 7:25Ed Zitron?

  Well, pushing back on that, well, actually agreeing, but isn't the problem also that venture capital no longer really works, it isn't really taking risks, it's just

• 7:35Speaker 05

  Yeah, okay.

• 7:35Ed Zitron?

  Doing more value extraction.

• 7:36Speaker 05

  Yeah, now venture capital at that point, where it was really dominated by people who came out of the industries in which they were invested. Right. So there were individuals who decided to be a, like Don Valentine who backed Cisco and, uh, and other companies, he, he came out of National Semiconductor, had been in the semiconductor industry. There were a whole number of them. And so they understood the industries in which they were investing. Some of them were better, some of them were worse. Right. But really what, what, what put it venture capital, made it a, something that people would now say, hey, let's go after this stuff. Uh, were two IPOs in 1980. One was Apple and the other was Genentech.

• 8:19Speaker 05

  Uh, it's one in tech and one in biotech. Right. And from then on, there was, well, in the early eighties, there was a whole bunch of investing in venture capital. Here's your point comes up. There was a very good book written in 1985 by a Businessweek journalist, I think the name was John Wilson, called The New Ventures. It was the first real good book out there on venture capital. And the last chapter was vulture capital. So it was basically the bad venture capitalists coming in and just hyping companies and the whole thing falling apart. And then, so you always, you have these cycles of good venture capital

• 9:02Speaker 05

  and then, you know, in the dot com period, you have the boom and bust, et cetera.

• 9:05Ed Zitron?

  Well, I think, I think what I'm thinking is, the way venture capital is today is strange because after 2021, the collapse of the zero interest free era, you're kind of seeing that a lot of venture capitalists did not exactly know how to invest in companies at all. They knew how to invest in concepts, in things that they could take public or things that they could flog to another company. And that's, venture capital is falling off quite a lot now. Is that something that reflects the larger market conditions of the tech industry? Because it feels like the same problem in that Meta makes their, Facebook sucks now. If you, I'm sure you all use Instagram and Facebook. If you don't think it's bad, please go on the app, take a look. It feels like they're all following the same thing

• 9:46Ed Zitron?

  of, they have all fallen into Jack Welch's shareholder value system of bigger, more money, as much as we can squeeze from our users as, as possible, which only appears to work in the public market. So, how did, how did we really get here though? Like, how did, how did, how did we get to the shareholder supremacy?

• 10:06Speaker 05

  Okay, so, so now, what you had with venture capital, with NASDAQ being part of it, with, with a shift actually of Wall Street itself from investing in, in these older companies and doing their bond issues to trading in stocks. That also occurred in the 1970s, when the stock market actually was not doing very well.

• 10:29Ed Zitron?

  Right.

• 10:30Speaker 05

  But you then had a whole situation where you had

• 10:35Speaker 05

  I mean, this really did unleash innovation. Uh, the older economy companies, they were good at doing some things, but a lot of them became conglomeratized, became sclerotic, etc. Um, the, there was a demand coming out of, uh, basically conservative economics led by a guy named Michael Jensen to discourage the free cash flow, as they called it. It actually invented the term free cash flow, which every company used. Now, free cash flow, by the way, means that if you gotta lay off 5,000 workers to create free cash flow, well, that's fine. You know, as long as, anything that, that isn't nailed down is, is, is free cash flow. Right. And this prioritized, uh, uh, shareholder value ideology.

• 11:20Speaker 05

  That I witnessed firsthand, uh, when I was at Harvard Business School in the mid 1980s, and they hired this guy, Michael Jensen, I'm not sure if you've heard of him, but he was, died recently, the guru of maximizing shareholder value. Son in hell. And, and once he did that, uh, you start getting hits in the Wall Street Journal, Financial Times, etc., shareholder value. Okay, then they start, uh, with executive pay, stock-based pay. That was already, it's a longer history of that, but that comes in in the 1980s. That's aligning the top executives, uh, with shareholder value. And then, how do you, how do you, uh, create, I use create in quotes, value for shareholders?

• 12:02Speaker 05

  Uh, not only do you pay dividends, but you buy back the company's stock, the stock buyback. You tell your broker, go into the market, buy back our stock. You're giving their money away to get the stock price up. And you're actually not benefiting shareholders who get dividends, you're benefiting share sellers who are using the opportunity to sell their shares, including the top executives who, whose pay is stock-based, stock options. Right. Now, it's more, more stock awards. But also corporate raiders who wanna come in and say, get the stock price up, uh, do the buybacks, then we'll sell the shares. Uh, so, this becomes a matter... Massive phenomenon.

• 12:46Speaker 05

  Now, this was enabled by, in 1982, again, the Securities Exchange Commission, which as I said, was set up to get rid of manipulation and fraud in the market. It went from being a regulator of the stock market to being a promoter of the stock market. And to this day, that's what the Securities Exchange Commission is. It is not a regulator of the stock markets, a promoter of the stock market.

• 13:14Ed Zitron?

  Right.

• 13:15Speaker 05

  And what they did is it was really under the radar. Usually in the US, you have public comment on these issues. They said, any company on any single trading day can buy back 25% of their average daily trading volume over the previous four weeks without being charged with manipulation. It was a safe harbor. So it didn't say if you went over that, you would be charged. It just said, if you want to be sure that you won't be charged with manipulation, that's how much you can do in buybacks.

• 13:48Ed Zitron?

  Now. So how does this lead to where we are today, which is a death of innovation?

• 13:53Speaker 05

  Yeah, okay. So what that means is that a company like Apple, I looked at the figures, they change a bit from year to year, or sometimes quite a bit. They could do about $4 billion a day in buybacks, day after day after day. They, Apple just came out with its 2024 annual report. They did $95 billion in buybacks. They had $94 billion in profits, hugely profitable, but $95 billion in buybacks. Apple has done $726 billion in stock buybacks over the previous 12 years, plus about 200 billion in dividends.

• 14:35Ed Zitron?

  Right.

• 14:36Speaker 05

  The buybacks are about 93% of its profits. Now, Apple's hugely profitable.

• 14:43Speaker 05

  But there are costs to doing that. Now, by the way, if you look on Apple's website, they call this program of paying out dividends and doing buybacks, which really only got go... There's a longer history to this. When Steve Jobs left in 1985, or was pushed out of Apple, the executives there started doing dividend buyback, almost drove the company into bankruptcy. Jobs came back in 1997, said, "We're not doing that. We're doing what I call retaining and reinvesting." And we know the history of that. They have the iPod, iPhone, iPad, etc. Steve Jobs died in 2011.

• 15:25Speaker 05

  Shortly before he died, he gave the CEO position to Tim Cook, who's claim to fame there was outsourcing their manufacturing to China and virtually everything to China.

• 15:37Ed Zitron?

  Operations guy.

• 15:38Speaker 05

  Yeah, operations guy. And he got pressured by the hedge fund activists, starting in 2012, 2013, including Carl Icahn. And they started doing the buybacks. And once they started doing them, they just kept doing more and more of them, as I said, an average of 60 billion a year over the last 12 years. Now, they call it their capital return program. But the only time Apple ever got money from the stock market was in 1980 in its IPO. So who is it returning capital to?

• 16:12Ed Zitron?

  I understand this is bad because it's basically just money going into the corporation's mouth from its hands, but how does this fuck up the innovation economy? How does this stop people actually building more cool stuff?

• 16:24Speaker 05

  All right.

• 16:24Ed Zitron?

  Or useful things, I guess. Or at least, how does it enable the bad habits?

• 16:27Speaker 05

  Yeah, okay. So first of all, again, sticking with a company like Apple, they could be paying people in the Apple stores maybe 20% more, maybe 25% more, making those... Even though they can... Might be able to substitute a lot of those people fairly easily, but they could have made those the best jobs that anybody could have in the economy. It wouldn't just be in the US all over the place. And that would have pulled up wages for the kinds of people who work in the Apple stores by other competitors.

• 16:57Ed Zitron?

  Right.

• 16:58Speaker 05

  You know, and this is not just Apple. There's a whole... All the big companies are doing this stuff. Okay.

• 17:05Speaker 05

  They could have invested in innovation that was not immediately profitable or commercially profitable, but for public good, like for disabilities, things like this.

• 17:21Speaker 05

  They did hardly any of that.

• 17:23Ed Zitron?

  This is over ninety billion dollars.

• 17:26Speaker 05

  When they did try to move into new technology, and I use all the Apple products, you know, out there, but the ones they didn't produce, you know, AI, self-driving cars, etc., they spent billions and failed. But it's worse than that.

• 17:41Speaker 05

  The US is now engaged in what some people call the chip war with Samsung and TSMC. Intel turned down the contract for Apple's processors after the iPhone was launched in 2007. That's because Intel was doing massive buybacks at the time, and they had a financial guy running the company. But then they gave the contract to Samsung. Samsung became a high-end producer, fabricator of chips, the highest end, by doing the products for Apple. Then they became a competitor, so they switched to TSMC.

• 18:23Ed Zitron?

  Right.

• 18:24Speaker 05

  And so, basically, the US, this is from a US point of view, does not have a leading-edge producer, fabricator of chips now.

• 18:35Ed Zitron?

  Sure.

• 18:35Speaker 05

  Because, in fact, it was outsourced by one of the leading companies that could have, actually, sixty billion dollars would build a state-of-the-art plant. That's what TSMC is spending in Arizona now. And that's just one year, which Apple's spent on average.

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• 19:33Speaker 02

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• 21:40Ed Zitron?

  Maybe I want to take a step further out because while stock buybacks are a major problem, there is a much larger one as well with the growth at all costs, raw economy, as I call it. The idea that every single company, I mentioned Meta earlier. The reason I bag on Meta is because the average Instagram, Facebook experience is horrible. Interfered with, it's full of AI slop. In fact, Mark Zuckerberg literally just said he wants to have a channel just for AI slop. Makes me want to channel a gun in my mouth. And the thing is, we are seeing tech getting worse. And it's not just these buybacks. It's if they had that money to spend, they probably wouldn't spend it on innovation, if we're honest. They're not incentivized to innovate. So how do we change this? How do we actually unfuck this system?

• 22:22Ed Zitron?

  Because right now, if you look at Google, you look at Microsoft, these products are getting worse as they get more profitable. How do you write this? And what can be done to them to change them?

• 22:32Speaker 05

  Okay, well, yeah. So first, companies that prioritize getting their stock price up over investing in innovation. And by the way, that doesn't mean just spending money on R and D. It means employing people, integrating them, getting the learning going, and actually maintaining a stable labor force so that you can actually produce those products, serve as those products once in a market. But companies that prioritize shareholder value get involved in other kinds of mis- all kinds of misbehavior.

• 23:06Ed Zitron?

  It feels like every tech company.

• 23:07Speaker 05

  They price gouge, they tax, avoid taxes. They'll lay off lots of workers when they're profitable. They'll basically...

• 23:16Speaker 05

  Shareholder value takes over everything. Okay, so how do you deal with that?

• 23:21Ed Zitron?

  Yes.

• 23:22Speaker 05

  Okay. Here's part of the problem, that the people, a lot of people understand that this is a problem, at least the work I've done on this, on stock buybacks, I had an article in Harvard Business Review 10 years ago, which was just an article I wrote, but because of where it appeared, and because it had, it was called "Profits Without Prosperity," the subtitle was the best part, "How Stock Buybacks Manipulate the Market and Leaves Most Americans Worse Off." It shocked me that Harvard Business Review actually published that article.

• 23:55Ed Zitron?

  Yeah, they usually rope cheerleaders.

• 23:57Speaker 05

  Yeah, okay, so, but, the fact is that it did get a lot of attention.

• 24:01Ed Zitron?

  Right.

• 24:02Speaker 05

  But, if you are in power, as the Democrats were for the last four years, they gave it a lot of attention when Trump was in power, but...

• 24:13Ed Zitron?

  I got a pushback on that, I'm sorry, did they?

• 24:16Speaker 05

  Oh, no, yeah, they did.

• 24:19Ed Zitron?

  How?

• 24:20Speaker 05

  Okay, around the Trump tax cuts, they had what was called #GOPTaxScam, it was all about stock buybacks.

• 24:28Ed Zitron?

  I know, but here's the thing.

• 24:29Speaker 05

  Okay.

• 24:30Ed Zitron?

  The larger economic conditions are the problem here, the tax thing, sure, it's a part of it, but the problem is that the incentive is that your company grows and continues providing shareholder value, which, as my listeners will know, and to the audience here, literally just means, "What will increase stock price and increase dividends?" Very basic, Jack Welch bullshit. How do you change those incentives? Because I don't think the, and this is not even a political statement, I don't think there's any movement to stop that, other than maybe Lena Khan, and RIP very soon, probably, sadly, an attempt to move away from the monopolies. How do you actually break this machine? Because the machine is breaking everything else.

• 25:10Speaker 05

  There is actually legislation.

• 25:13Ed Zitron?

  Okay.

• 25:14Speaker 05

  Influenced by the work, first introduced by Senator Tammy Baldwin, who won by a whisker in Wisconsin, was re-elected, called the Reward Work Act, and it would...

• 25:26Speaker 05

  Ban buybacks, it would get rid of this rule from nineteen eighty-two that allows companies to do it without being charged with manipulation. So in effect, it would say that if you do buybacks on the scale that you're doing them now, ban.

• 25:38Ed Zitron?

  Right.

• 25:39Speaker 05

  The, it also, the other side of it, uh, which, uh, is that you would put worker representatives on boards. Uh, I think you ha- you have to put representatives on boards. I think they actually, I want to be as a taxpayer representative on boards. If they're using my money, if Elon Musk is using my money of apples.

• 25:59Ed Zitron?

  They should just have a random low-level worker out there.

• 26:01Speaker 05

  Yeah. I mean, the boards, boards, boards are a joke. I mean, the notion of independent board members and given, given the money that board members are making, uh, when, from shareholder value.

• 26:12Ed Zitron?

  Yeah.

• 26:13Speaker 05

  We just wrote a, a, a, a, an article on Elon Musk two thousand eighteen pay package. Uh, uh, the so-called independent, uh, uh, directors have made hundreds of millions of dollars, uh, on, on, on, uh, giving him that pay pa- or being around, giving him that, and staying on the board. Interestingly enough, there was one board member, her name was Linda Johnson Rice, who actually made a hundred and thirty-five thousand dollars from her stock-based pay because they didn't renew her, her board seat after two thousand nineteen, and she left a hu- we calculate a hundred and seventy-three million dollars of options on the table. So that's what hap- then it came out that she had spoken out against Musk.

• 26:58Speaker 05

  Anyway, that's part of the problem is you have a totally corrupt governance system.

• 27:04Ed Zitron?

  It's, it's that, but it's also bigger. The market is incentivized for growth. You can, these are pieces of the puzzle, but how do, I realize that what I am suggesting would destroy the markets, which is, the markets are focused on growth. They have, buybacks are just one part of this machine, and as long as that happens, innovation is going to be stymied because

• 27:24Speaker 05

  Yeah.

• 27:25Ed Zitron?

  if you're just trying to make more money, and, well, not even more profit, just trying to grow the stock value, you're not trying to make

• 27:31Speaker 05

  Yeah.

• 27:32Ed Zitron?

  better things.

• 27:32Speaker 05

  A, a, a company is successful by producing A higher quality, lower cost product.

• 27:38Ed Zitron?

  No, they're not. I'm sorry, look at me, and I have to hate to disagree there. Look at Meta. Look at Microsoft. And Microsoft 365 is a product, I realize I'm going a little niche here. It's become a worse product.

• 27:49Speaker 05

  Oh, no, I'm not, I'm not saying that it, I said it becomes, it gets into that position now. What you call a higher quality product, you know, different people can have.

• 27:58Ed Zitron?

  Oh, do you mean as in a higher quality selling product that makes more money?

• 28:02Speaker 05

  It's one that can get customers. Okay.

• 28:05Ed Zitron?

  Ah.

• 28:05Speaker 05

  All right. All right. And now, there is a problem. I call it, okay. Companies retain and reinvest when they, when they are doing this. They retain their money, they reinvest in, in, in the company. Uh, the other side of that is they, what I call downsize and distribute. They downsize the labor force and distribute cash to shareholders.

• 28:24Ed Zitron?

  Right.

• 28:25Speaker 05

  There's, most tech that are doing the big buybacks are in between. I call them dominate and distribute. That's where Microsoft comes in.

• 28:31Ed Zitron?

  Yes.

• 28:32Speaker 05

  So they have a dominant product. No one can get in there now. That's where, there's an element of monopoly there. Uh, and, but, but basically, they, they're, they're pulling in the cash from, from, from that product, uh, from their, their, their, their software suite. And, uh, they're using it to pump up the stock price.

• 28:50Ed Zitron?

  Right. And crushing, crushing all competition.

• 28:52Speaker 05

  Yeah. And so, a- and not investing in things like Apple, not investing in Fab. Uh, Apple outsourced all its, its rechargeable batteries to, to China and.

• 29:03Ed Zitron?

  Which is so ironic, because Apple, one of their best moves was when they invested in their own silicon. It's probably been one of the best, the smartest moves.

• 29:10Speaker 05

  Well, of course, they put Tim Cook, that was the guy they put in charge, you know, uh, he, he outsourced to Foxconn, et cetera, and. Okay. Now, but I think the bigger issue maybe that you're getting at, uh, is, uh, where did this whole idea of shareholder value come from?

• 29:28Ed Zitron?

  Right.

• 29:28Speaker 05

  And, you know, uh, people often cite an article by Milton Friedman, uh, a Chicago economist, uh, who, uh, in 1970, wrote an article in the New York Times called, "The, so, the only responsibility, or social responsibility of a, uh, of a company is to increase its profits."

• 29:49Ed Zitron?

  This man is one of the most evil people alive. Well, he's dead, now he's burning in hell, but he, just to be clear, he is like.

• 29:55Speaker 05

  Yeah.

• 29:55Ed Zitron?

  Next page to grade.

• 29:56Speaker 05

  Now, okay, what's, what's interesting about that and often overlooked when people read the articles, two things. Uh, one is he wrote that in the context of a, what was called Campaign GM, again, General Motors, uh, to put three public interest people on the board.

• 30:15Ed Zitron?

  Right.

• 30:16Speaker 05

  Okay, uh, they wanted one person to be, uh, they wanted to deal with pollution.

• 30:23Ed Zitron?

  Mm-hmm.

• 30:24Speaker 05

  They wanted to deal with safety, and they wanted an African American on the board. They, they, okay, okay. Uh, that came out of the consumer movement that was launched in 1965 by Ralph Nader's book, Unsafe at Any Speed. Um, Ralph Nader's still around with his podcast.

• 30:40Ed Zitron?

  Still going.

• 30:41Speaker 05

  Yeah, okay. Uh, that, uh, actually, many corporate executives, top level, they wanted to do some of those things. But people like Milton Friedman came along and said, this is, what he called it, is pure and unadulterated socialism. Okay, to put, uh, those people on the board. Now, we know the history of what's happened in the auto industry since then.

• 31:06Ed Zitron?

  Right.

• 31:07Speaker 05

  Okay, if you didn't produce safer cars, you lost market share. If you didn't produce more fuel-efficient cars, you lost market share. Actually, what happened in the US automobile industry, that African Americans became a very important source of, of semi-skilled and skilled, blue-collar workers during the 60s and 70s when immigration was low. So that was important for them, in terms of, uh, being competitive, having, um, a blue-collar labor force. They should have put those people on the board.

• 31:34Ed Zitron?

  Absolutely.

• 31:35Speaker 05

  And, and they might have done better. So you, you get back to this notion that it's shareholders who basically own the company, all those profits belong to them. And that was what shareholder value kind of legitimized. And it came out of academia, uh, I mean, Milton Friedman won this so-called Nobel Prize in Economics. It's really a Swedish central bank prize in economics. But basically, uh, and...

• 32:02Speaker 05

  It was also, in many ways, that whole movement was racist, sexist, etc. Why? Because the world that I described of secure employment that existed up to that time, and I think this had a lot to do with it, was a white man's world.

• 32:22Ed Zitron?

  Yeah.

• 32:23Speaker 05

  And what happened is the labor force was changing. Women were getting into the labor force, African Americans, both because of demand and equal opportunity.

• 32:32Ed Zitron?

  Yes.

• 32:33Speaker 05

  Okay, and this was a backlash against it. It was a backlash against Nader and a backlash against the civil rights movement. So it has to be seen in that context, although it was often disguised as, you know, mainstream economics, legitimate economics.

• 32:48Ed Zitron?

  Big-brained economics versus just racist and sexist.

• 32:52Speaker 05

  And by the way, you know, of course, it's called liberal and conservative in the US. You know, the liberal counterpart of that was a guy named Paul Samuelson. There was no difference really ultimately between Paul Samuelson and Milton Friedman in terms of their fundamental economics. They thought, just let the market work and everything will be fine. If it fails, then Paul Samuelson said, okay, the government should intervene a little bit. But basically, what they missed was the role of the corporation, for better or for worse, in the economy. I mean, basically, right now, there's about 2,000 companies in the US that employ 5,000 or more people, it's an average of about 20,000, 22,000, that account for about 35% of total business sector employment in the US.

• 33:37Speaker 05

  And those are the most profitable companies. They pay higher wages. The investment decisions that they make drive the economy. They determine what kind of jobs are available in the economy. They determine what kind of education we get. They determine what kind of resources go to the government.

• 33:53Ed Zitron?

  So if they decided to not be evil...

• 33:55Speaker 05

  Yeah, and so, yeah, and so, once those companies changed their purpose, they became a big problem.

• 34:06Ed Zitron?

  And so Friedman was successful in influencing...

• 34:10Speaker 05

  Yeah, it took time, but he was successful, and he was successful... Now, here's where the tech industry comes in.

• 34:16Ed Zitron?

  Right.

• 34:17Speaker 05

  Because... The tech industry was much more dependent on the stock market than those old economy companies. Okay, the old economy companies, there's five functions of the stock market for a company. What I call creation, which is inducing venture capital to come in. You create companies because you can exit on the stock market. There's control that is separating ownership and control, which a lot of the shareholder value people see as the original sin of American industry, but it's actually necessary because once you have owner entrepreneurs who want to pass on the company, what they did in the United States, they passed on to professional managers.

• 34:57Ed Zitron?

  Yes.

• 34:58Speaker 05

  And this actually opened up the growth of the company.

• 35:01Ed Zitron?

  And when did that start happening? When did the managers come into power?

• 35:04Speaker 05

  That was already by the 1920s.

• 35:06Ed Zitron?

  And how do we get rid of them is the thing? Because if you look at most major tech companies, Apple included, MBAs, these people are everywhere now.

• 35:13Speaker 05

  Yeah, but that's the problem. That's the way MBAs are educated now. Basically, the people who are running companies in the 20s and 30s were basic engineers. The 30s, even though the Great Depression, that was incredibly important.

• 35:30Ed Zitron?

  But the value multipliers were so much smaller though.

• 35:32Speaker 05

  Yeah, yeah. But these companies, for the US, and this is true globally, these large companies in critical industries dominated, and you had to be, they had to be run professionally. And basically, you got this separation. So that's the second thing, control. The third is what I call combination. You can use your stock to acquire other companies.

• 35:55Ed Zitron?

  Right.

• 35:56Speaker 05

  The fourth is compensation. You can use your stock to pay people. And the fifth is cash. Most people think that the role of the stock market is raise cash for companies. That is not necessarily true, and it certainly wasn't true historically. Okay, now what happened with the rise of these, what I call the new economy companies coming up basically out of Silicon Valley, is they started using cash, the stock market, to induce venture capital. They started using it to acquire other companies. They started using it to compensate people, deep down in terms of stock options, and...

• 36:32Speaker 05

  Particularly in the biotech industry where companies go public on a product, they raise tons of money on the stock.

• 36:38Ed Zitron?

  So they effectively tied everything to stock value down to how they paid people and bought things.

• 36:42Speaker 05

  So once they start within that model, you basically are looking at your stock price all the time. And so it's hard to resist the shareholder value arguments, particularly when they're self-serving. Now, and once those companies became big, they all started saying, oh, we got to keep our stock price up. So I can trace when companies like Intel, Apple, Microsoft, et cetera, started going from just saying, all that money we're bringing in, we got to just put it back in the company, to, oh, no, that money can go out and just boost our stock price. And then you get a whole system of what I call

• 37:26Speaker 05

  results in predatory value extraction, which have to do with corporate raiders, institutional shareholders, pension funds. Everybody's trying to get their yields out of companies and basically support this. And this is, for the economy as a whole, this means a huge increase in income inequality, driven by the stock market, making money in the stock market, and then looking for other ways to make that money through private equity, et cetera. One figure, the top 1/10th of 1% of households in terms of net worth in the United States, about 15% of their assets were in the stock market in 1990. Now it's about 45% of their assets.

• 38:10Speaker 05

  So their wealth is very much tied up with the stock market. The stock market is very hard to crash now because there's so many, people are making so much money out of money that they have to put it somewhere. And actually, this number of listed companies are shrinking. And through buybacks, the shares out there are shrinking.

• 38:30Ed Zitron?

  At some point, this has to fall apart, though, because... Surely if everything is based on the value of the stock, every single large company is effectively at the will of the stock market, which will mean that the companies will eventually stop making things with the purpose of doing anything other than raising shareholder value. Does this not lead to death of innovation?

• 38:46Speaker 05

  Yeah, okay, yes, it does.

• 38:48Ed Zitron?

  Sick, great.

• 38:49Speaker 05

  But it doesn't happen overnight.

• 38:51Ed Zitron?

  We're watching it happen now.

• 38:52Speaker 05

  And so you start seeing China has a different model. They start out competing in the United States and you try to block China.

• 39:00Ed Zitron?

  Right.

• 39:00Speaker 05

  This is a big problem for the United States because tech companies are so...

• 39:04Ed Zitron?

  They just can't help their monopolies.

• 39:06Speaker 05

  They're so integrally related with trade with China and manufacturing and importing from China. This is a total disaster. And but but basically what has happened is companies, and I can name a whole bunch of them, have fallen behind global competitors in the US because they stuck with this shareholder value model. So the US is falling behind in a whole range of critical technologies. So the reason is there's no major EV battery produced in the United States. The problem of fabs, which I already mentioned. The problem, Boeing, they did $43 billion in buybacks from 2013 to the week before the second crash.

• 39:50Ed Zitron?

  Jack Welch poisoning.

• 39:51Speaker 05

  Yeah, and Boeing's Boeing stock price was at a record level in March 1, 2019, 10 days before the second crash. And there is no doubt, I wrote an article on this in May of 2019, that the Boeing crashes were the result of top management ignoring issues of safety because it would hurt the stock price.

• 40:18Ed Zitron?

  Right.

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• 43:01Ed Zitron?

  So I have a theory. I'd love to run it by you. It's called the Rockcom bubble. Right now, I think the tech industry is reckoning with the fact that there are no big ideas. Sure, the audience will love this. I do not think generative AI is the future. I think it is a giddy up software product based on desperation, but what happens if the tech industry stops coming up with hypergrowth markets because they haven't had one for a while? What happens? Like, what happens to these companies stop having new things?

• 43:29Speaker 05

  Well, first of all, we're reliant on on these things still.

• 43:35Ed Zitron?

  Yes.

• 43:35Speaker 05

  So even though they're not new things, we're still using the whole ecosystem. You know, again, I use the Apple products and so Apple is going to make money off of me because I'm stuck.

• 43:46Ed Zitron?

  And I buy every iPhone. I'm just saying, what if this is, I have the new iPhone with me because I'm a little pig and I owe him for Apple every time. What happens if this is about as good as it gets? If each version is more incremental, is just more and more incremental, if it's faster, but not that fast because we're hitting a wall on CPUs as well. Moore's law is falling apart.

• 44:07Speaker 05

  Well, we don't really have to. I mean, it's easy to answer that question. We get Donald Trump. I mean, basically.

• 44:14Ed Zitron?

  Well, we have Donald Trump now, but what happens after that?

• 44:16Speaker 05

  Okay, well, that will find out because, you know, this, you know.

• 44:21Ed Zitron?

  Wait, sorry, perhaps we wheel back. Are you saying that the death of innovation led to Trump?

• 44:26Speaker 05

  No, I'm saying the financialization of the economy.

• 44:29Ed Zitron?

  Oh.

• 44:29Speaker 05

  Yeah, so.

• 44:30Ed Zitron?

  Oh, yeah, also corporate authoritarian.

• 44:32Speaker 05

  So even, here's the problem, even when I put more stress on even when there is innovation. The wrong people are gonna grab it.

• 44:39Ed Zitron?

  Right.

• 44:40Speaker 05

  And, and the economy is gonna become more financialized.

• 44:45Ed Zitron?

  Sure.

• 44:46Speaker 05

  You know, the, the people who, uh, actually should be sharing it in the first instance, employees of those companies, they can be laid off in an instant. Elon Musk, 140,000 people at Tesla the end of last year, just like that, laid off 20,000 people.

• 45:03Ed Zitron?

  Yeah, he doesn't care.

• 45:04Speaker 05

  Yeah.

• 45:04Ed Zitron?

  But my point is, what if they have no other vehicles for growth? Because you look at Microsoft, for example, they are able to, they've had, I think, year-over-year growth of low 10 percent. You, these companies are slowing down.

• 45:16Speaker 05

  Well, yeah, well, first of all, I don't think that, that the companies themselves don't need to grow bigger and bigger. They could spin off, uh, other companies.

• 45:25Ed Zitron?

  Okay.

• 45:26Speaker 05

  And I think that, that's a model that, that works very well because you create incentives for people in those companies to become their own bosses, to become the head of other companies.

• 45:35Ed Zitron?

  What if that's not their culture, though? The reason I'm pushing so hard.

• 45:37Speaker 05

  Yeah, well, isn't, yeah.

• 45:38Ed Zitron?

  The reason I'm pushing on this is, I'm thinking Microsoft, I'm thinking Meta especially, I'm thinking, I mean, Cisco as well, and even Oracle. I mean, these companies don't have new innovations. Oracle's doing all right because Microsoft became their largest customer, they make data centers, fine. But what if they stop being able to grow revenue every year? Like, that is the real question. What happens?

• 46:01Speaker 05

  Well, they'll lay off some of their workers, you know, that's, that's the first thing.

• 46:05Ed Zitron?

  What if that is not enough?

• 46:07Speaker 05

  Well, then, they might, you know, they might go out of existence. I mean, this has happened to, to, to some companies, uh, who, uh, Sun, Sun Microsystems.

• 46:18Ed Zitron?

  Right.

• 46:18Speaker 05

  Yeah, okay, so, you know, there, there are companies that, that, that just don't make it. Uh, and, uh, you know, but, once, once you have made it, it's very hard to disappear in 10 years or 20 years.

• 46:32Ed Zitron?

  Of course.

• 46:33Speaker 05

  Because you have that, that, that demand base and, and, and you have the capabilities, you have, uh, basically the barriers to entry, you have a whole lot of advantages that allow you to dominate. Um, and... The question is, you know, and then if you take the global competitors and you try to just shut them out, then you have a problem. I mean, the...

• 46:58Ed Zitron?

  I think my bigger point is that in the last 10 years, the tech industry has categorically failed to find any hypergrowth movement that matches smartphones, that matches cloud software. They've not had any of them that create the level of value that those did. And they are squeezing everything. And my concern is, what happens if they don't have anything left to squeeze? Because they're all Microsoft, Meta, all these companies, they've laid off tens of thousands of people, they've tried that and they could lay off more. And now they're putting billions into a, 200 billion into CapEx into that, to lose money. I just feel like we're in a corporate psychosis.

• 47:38Speaker 05

  Well, see, the other, another way to answer this question is, is ultimately, what does the economy run for? The economy actually, this is, this is normative, in my view, should be run to provide services to people that are not profitable, like healthcare, education, uh, you know, caring for old people, whatever. There's, that's what a prosperous economy should do. Now, the, these goods-producing companies, these innovative companies, have a lot of capability produced through those markets. But that means the government becomes a big source. Or it's either governments or your well-paid employees

• 48:21Ed Zitron?

  Right.

• 48:22Speaker 05

  become sources of, of, uh, of demand for those products.

• 48:27Ed Zitron?

  Right.

• 48:27Speaker 05

  And that's the opportunity that's been missed.

• 48:31Ed Zitron?

  Now we have the literal inverse, I'd argue.

• 48:33Speaker 05

  Yeah, yeah. And, and what you have now is with all this financialization of the whole economy, with all this money being funneled out of these highly successful, good-producing companies, successful in the terms of profits. You have money looking to make more money and you have the whole, which has been written about a lot recently, private equity, moving into healthcare, for example, moving into areas which would not be for profit at all, buying up doctor's office, dentist's office, you know, basically nursing labor supply, what have you, a lot of stuff being written about that now, and a lot of it is kind of under the radar because you don't even know who owns these various companies, the corporate structures are so opaque.

• 49:17Speaker 05

  But basically, what should have been happening all along was that when you became prosperous, this was really taking some of those profits, not just paying your workers better, creating more stable employment, upward socioeconomic ability, we have downward socioeconomic ability for a lot of, a big proportion of the population, into more education, into more producing things that people need but aren't necessarily the next big profitable product. Actually, some of those would become profitable products if, in fact, you have enough government demand for them and you're the companies as in the military. So, that's what should have been happening, that's what's not been happening.

• 50:02Ed Zitron?

  So, how do we make it happen? How do we force them?

• 50:05Speaker 05

  Well, okay, so you have to change the whole way in which companies allocate resources.

• 50:10Ed Zitron?

  So, how do you do that?

• 50:11Speaker 05

  Well, so I'm, if you wanted to talk practically, you say, you cannot do buybacks anymore, you're manipulating the market. It should be, this is a phenomenon, buybacks surpassed dividends as a source of distribution of shareholders in 1997. They're much more volatile, but way bigger than dividends.

• 50:31Ed Zitron?

  But it's bigger than just buybacks as well.

• 50:33Speaker 05

  Well, okay, but that's a start.

• 50:34Ed Zitron?

  Right.

• 50:35Speaker 05

  Okay, you stop tying executive pay to the stock market, you tie executive pay to the success of the company in terms of employing people, keeping people employed, innovative products.

• 50:47Ed Zitron?

  Yes.

• 50:48Speaker 05

  You change corporate boards, okay, you put people on corporate boards who have a real interest in that company's position in the economy.

• 50:59Ed Zitron?

  Right.

• 51:00Speaker 05

  Okay, you change the tax system. The tax system rewards value extraction rather than value creation. And you basically, and this I think is the most important thing, you

• 51:14Speaker 05

  Figure out how to mobilize all the resources in the economy, the human resources in particular, for what I call collective and cumulative learning. When you get down to it, innovation is about people getting together collectively and learning cumulatively. That is, what you learned yesterday determines what you can learn today.

• 51:35Ed Zitron?

  Right.

• 51:35Speaker 05

  And what happens is when these companies stop retaining and reinvesting, you just have all kinds of people with capabilities who are not living up, you know, using those capabilities or in the end never even get those capabilities because money doesn't go back through the education system. I mean, the US at a point in time in the 1980s, when it was necessary to, everybody knew you had to really up the educational system. And the US was, absolutely and still is, ideally situated for that because of the history of higher education in the United States.

• 52:20Ed Zitron?

  Right.

• 52:20Speaker 05

  Which goes back to something called the land-grant colleges, which really came out in the late 19th century and were the bedrock of innovation in the US economy. At that point in time, the huge investments that should have been made were not made. Public education was virtually in every state free before then and became expensive. Student loans, the interest rates had extortionate in the US from the government. Basically, it was white people not wanting to fund other people for upward mobility.

• 52:52Ed Zitron?

  Thankfully, that's definitely changed.

• 52:54Speaker 05

  Yeah, and that's when you, now, how was that resolved? It was resolved through the fact that Asia, in particular in the tech industry, was educating people.

• 53:07Speaker 05

  And those people were invited in the United States, and I think to the benefit of them and benefit of the United States. So I'm not saying that Asians in some cases took any jobs away from anybody. They, but they became an available labor supply through what's called L1 visas, H1B visas, permanent visas, uh, employment preference visas. I've got all the data on this. This is all encapsulated in the Immigration Act of 1990. And for the tech industry, they were now off the hook for, in terms of the US economy, for saying, oh, we have to ensure that higher education is available for African Americans,

• 53:51Speaker 05

  available for white families who, who, who are coming out of low income, uh, that we have to be sure that this, this, uh, system is available to, for upward mobility. They took a walk on that.

• 54:06Ed Zitron?

  Yeah.

• 54:07Speaker 05

  Uh, and they were able to take a walk on that because they were part of the global system. That's why, I mean, it's very ironic now that United States is in this conflict with.

• 54:17Ed Zitron?

  It kind of feels like we've gone socially regressive.

• 54:19Speaker 05

  Absolutely, absolutely. And, and what you see is concentration of the top, downward socioeconomic mobility, uh, for people particularly who have no more than high school educations.

• 54:31Ed Zitron?

  Mm-hmm.

• 54:32Speaker 05

  And that's why I say, that's why it leads to Trump, basically. Uh, it's no big mystery, once you understand the, the concentration on the top, the money that will go.

• 54:41Ed Zitron?

  And I imagine to some extent, even if you don't understand it, you look at the system, you look at the current political apparatus, why would you trust authority? Even if Trump is a, like, um, he's obviously not going to do a whole bunch of stuff and he's going to do much worse. It's almost like you, I feel like people need to realize, everything you've discussed today is just describing how the system fucks regular people, how the system has, somehow we were more progressive in America in the seventies corporate wise, it's just, it's very worrying. So, I'm gonna end on a nice note. What actually should give people hope? Where can people find it right now, in your opinion?

• 55:20Speaker 05

  Ah, well, that's hard to say right now. I mean, because, because, I mean, they, you know, there was a notion that with, with all the opposition before the election, before, before Biden had that disastrous debate, okay, you know, he had tried to push policies in a much more progressive way, and I think it's true.

• 55:46Ed Zitron?

  Yeah.

• 55:46Speaker 05

  They were trying. They couldn't get any of the family stuff passed, but they were trying to do it. They got the infrastructure, infrastructure bills passed, etc. The Inflation Reduction Act, starting finally to, to try to negotiate healthcare prices, basically. They were trying to do some things. That got a resounding no from the electorate. And in fact, that part of the progressive policy was not part of the, the campaign. And you certainly, Joe Biden was a big fan of this stuff on mine on buybacks, back when he was vice president.

• 56:23Ed Zitron?

  Right.

• 56:23Speaker 05

  I'll tell you a little story about that, we can end on this, which is not, basically, in, in 2016, when he was still vice president, he wrote an op ed in the New York, in the Wall Street Journal, about stock buybacks, executive pay, and said, we have to rein all this stuff in, this is really screwing up the economy, the future of the economy depends on it. In that article, he named one person, that was me, it said, according to economist William Laszlo, comma, and then he had data from the article I mentioned in 2014. I looked at it a couple of years ago when journalists contacted me and I said, oh Biden, when he was vice president was, he really thought this was a problem. Now he's not saying

• 57:07Speaker 05

  anything about it. And I said, look at the article. I looked at the article again. It said, according to economists, blank space, comma. Someone had actually hacked out my name.

• 57:16Ed Zitron?

  Oh, well, that's the, that's, but it feels like we need a populist movement then, like a straight up pro, pro label one.

• 57:23Speaker 05

  No, but basically, basically, the, when the Democrats got into power, and this happened under Obama, it's happened, it was, happened under Clinton, uh, they have just cozied up to Wall Street, cozied up to rich people, basically, they do not have a critique of shareholder value. There is nothing coming out of the, of, from the Democrats when they are in power in particular, uh, and that, that is, that is confronting this. And I think it's now basically come full circle in terms of the people being affected by the lack of upward mobility, the lack of job security, living, people living paycheck to paycheck,

• 58:07Speaker 05

  while other people are getting richer and richer, finding, okay, we'll just take someone, uh, who, you know, with a hope that they're going to do something different. Of course they're not. So, yeah, so what's, what's the, where's the optimism? Of course, we need, we need a progressive movement. Uh, but, but it's, yeah.

• 58:25Ed Zitron?

  I feel like you can find hope in that fact, these ideas will become more prevalent because at some point, we mean, we need to review these systems. We need to also realize that worker power will make cooler shit, will make more innovation.

• 58:38Speaker 05

  Yeah.

• 58:38Ed Zitron?

  William, thank you so much for joining me. And everyone, thank you so much for joining us today for the first live episode of Better Offline from the beautiful country of Portugal Web Summit. Thank you, everyone.

• 58:48Speaker 05

  Thanks.

• 58:57Ed Zitron?

  Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matt Osowski. You can check out more of his music and audio projects at mattosowski.com. M A T T O S O W S K I dot com. You can email me at [email protected] or visit betteroffline.com to find more podcast links and of course my newsletter. I also really recommend you go to chat dot where's your ed dot at to visit the discord and go to r slash better offline to check out our reddit. Thank you so much for listening.

• 59:30Speaker 03

  Better Offline is a production of Cool Zone Media. For more from Cool Zone Media, visit our website, coolzonemedia.com or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.

• 1:00:02Speaker 02

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• 1:00:33Speaker 03

  Coca-Cola. For the big, for the small, the short, and the tall. Peacemakers, risk-takers. For the optimists, pessimists. For long-distance love. For introverts and extroverts. The thinkers and the doers. For old friends and new. Coca-Cola. For everyone. Pick up some Coca-Cola at a store near you.

• 1:01:03Speaker 06

  Small businesses are the pulse of every community. They bring people together, create opportunities, and drive growth. That's why Chase for Business helps small business owners like you by offering personalized guidance and digital tools that can help your business grow. With our guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com/business. Chase for Business: Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank, N.A., member FDIC. Copyright 2026 JPMorgan Chase and Company.

• 1:01:37Speaker 00

  This is an iHeart Podcast. Guaranteed human.