OT: How Superstar Companies Like Apple Are Killing America’s High-Tech Future
Might be of interest to people on this mailing list. http://ineteconomics.org/institute-blog/william-lazonick-how-superstar-compa...
[Warning: long off-topic posting.] [I would welcome challenges to what I write.] | From: Ivan Avery Frey <ivan.avery.frey@gmail.com> | Might be of interest to people on this mailing list. | | http://ineteconomics.org/institute-blog/william-lazonick-how-superstar-compa... My impression is that he's got some points but his over-all point is unconvincing. 1. share buy-backs are questionable =================================== Share-buy-backs do seem to be incentivized by stock options. That seems really really goofy. When shares are bought back by the company, the share price rises. So stock options become more valuable. It might have US tax advantages (I don't understand the US tax system). The straight-forward approach would be to issue dividends. But the current business culture reads an increase of a dividend to be a commitment to continue paying that dividend until the company cannot prudently do so (which, in turn, is taken as a very bad sign). There's a simple cure: declare an extraordinary dividend. But dividends don't get paid to holders of stock options. Bingo: management (which holds stock options) wants share buy-backs. For its own reasons, not those of the owners of the company. 2. companies should retain their earnings ========================================= This is the real point he is trying to make. He claims this will lead to long-term employment, investment in employees, and cumulative incremental R&D. I don't see the connection. If a company can see how to use (invest) money well, it should keep it. If it cannot, it should pay it out to shareholders. I don't see any way that Apple can usefully invest $100 billion. So paying out a large chunk of it makes sense. Back in the golden era that Lazonick harks back to, Bell Canada generated pots and pots of money. Rather than paying it out to shareholders, it bought a bunch of businesses and proceeded to kill them. Shareholders would have been much better served by receiving larger dividends that they could choose to invest more wisely than Bell Canada. Stable monopolies are the businesses that most closely match what Lazonick wants. Such monopolies are generally a bad thing for the obvious reasons. They do have pleasant side-effects: nothing has matched Bell Research Labs, IBM Research Labs, or Microsoft Research. And the job security is kind of nice. I don't imagine that Microsoft or Bell management felt they got their money's worth out of their labs in terms of new business lines. They got it in prestige, if anything. 3. R&D needs stable employment ============================== See Bell Labs and Microsoft Research, above. Yet those were always the exception. Why have a screwed up phone system or a screwed up software ecosystem just to nurture those exceptions. Seems like a bad tradeoff. I find Christensen's "Innovators Dilemma" pretty convincing. Routine improvements can and do come from within companies but breakthroughs are better exploited by new companies. Bell Labs invented the transistor. Who exploited it? Sony, at first. Then everyone. Including, but not especially, Bell. Unix is the same. The Bell Labs discovery that the universe is about 3 degrees? I don't know of a product there. IBM Research arguably invented RISC. Yet IBM's RISC products were kind of late and kind of messy. They are one of the last RISCs standing so that says something. I don't know of blockbusters from Microsoft Research. There certainly are good people there. 2. What innovations matter? ============================ The most rewarding innovations are creating or destroying busness models and monopolies. Hardly technical in the TLUG sense. "Intellectual Property" (I hate that term) seems to be key. Apple wins here. Monopoly platform: iTunes, App Store, iOS, ... EBay, Uber, ... Monopoly service: google search + ads, Microsoft Windows, Microsoft Office. Facebook, ... Destroying business models: Red Hat (eats Sun etc.). Netflix (eats many players). Amazon (eats book stores and store fronts in general), ... Maybe all those are exceptional, like lottery wins. They are what gets the most ink. Where do the important but less spectacular innovations come from? What nurtures them?
Hi Hugh, [Warning: long off-topic posting.] [I would welcome challenges to what I write.] | From: Ivan Avery Frey <ivan.avery.frey@gmail.com> | Might be of interest to people on this mailing list. | | http://ineteconomics.org/institute-blog/william-lazonick-how-superstar-compa... My impression is that he's got some points but his over-all point is unconvincing. Your analysis is quite good and totally agree with what you say. I do however feel you ignored most of the argument and concentrated on last paragraph a little. In my opinion, his argument is apple and the like are bad for the ecosystem because they take advantage of US and to be frank other countries without giving back. There is another reason why apple can't give dividends, it would trigger tax against that dividend. That is very questionable for a company that's based close to university of California, a school that used to get a lot of taxes and responsible to lot of law research that apple is currently using. To me, that was his main argument and in my opinion the biggest drive of the current problems. Regards, William
| From: William Muriithi <william.muriithi@gmail.com> Thanks for the feedback. I wrote a long reply but I think that it was more for my benefit than the readers so I've spiked it. | In my opinion, his argument is apple and the like are bad for the | ecosystem because they take advantage of US and to be frank other | countries without giving back. There is another reason why apple can't | give dividends, it would trigger tax against that dividend. That is very | questionable for a company that's based close to university of | California, a school that used to get a lot of taxes and responsible to | lot of law research that apple is currently using. | | To me, that was his main argument and in my opinion the biggest drive of | the current problems. He doesn't come up with a way forward that would fix any of these problems. Fair enough. But we're in the current situation due to a certain regulatory and market regime. This regime, in my opinion, is largely better than the good old days. Some observations seem to call out for fixes but that doesn't mean that there are do-able fixes that solve the fundamental problem. The obvious fixes often have unintended consequences. The good old days depended on stable corporations. They were, in many ways, oppresive. Much of what most of the big corporations did no longer needs doing. And we don't remember the many small corporations.
On March 17, 2015 4:11:43 PM EDT, "D. Hugh Redelmeier" <hugh@mimosa.com> wrote:
[Warning: long off-topic posting.]
[I would welcome challenges to what I write.]
| From: Ivan Avery Frey <ivan.avery.frey@gmail.com>
| Might be of interest to people on this mailing list. <snips follow>
3. R&D needs stable employment ============================== 2. What innovations matter? ======================== Where do the important but less spectacular innovations come from? What nurtures them?
I always think of Post It notes. The task was find a superior glue. What was discovered was a reusable tacky substance which official product development channels within 3M would not authorize. An unofficial "bootleg" channel developed and the product eventually passed back into the corporate development stream. I guess this was the middle management, who knew more about their staffs capacities and abilities than did the corporate bean counters who's main duties are reporting profits to the board and shareholders. The willingness to take risks with other peoples money and the checks and balances of the enterprise constructs of risk and reward are the foundation of capitalism. Even in the early days of communism Trotsky acknowledged the need for a class of venture capitalists. He just felt the reward limits for investors be capped in favor of spreading the profits among the workers more equitably. I always say the real rewards come from thinking outside the box. However there are real and practical circumstances where you don't let some stuff out of the box, or even open it at all.
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participants (4)
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D. Hugh Redelmeier -
Ivan Avery Frey -
R Russell Reiter -
William Muriithi