How Managerialism Changed Everything

In a debate on inequality and how workers should be given more, the question was asked, "Why would businesses invest in equipment to increase productivity if it all went to workers and not profit for the owners and investors of the company?"

This is exactly the point that divides people with different ideals/personalities. Some view workers as just tools the business pays for to operate. Others view the employees as having a larger, fair stake in the company because they're the ones actually running it day to day. They wouldn't have a job without the company, company wouldn't exist without people working the jobs.

Just like anything, you can pay for cheap quality and not maintain it, but it can still run and you should save money if it runs well enough, or you can pay top dollar and maintain the parts well. Maybe it'll run better, maybe it'll run the same.

I think this type of managing is why, in America at least, we have growing inequality with a shrinking middle class (source1, source2). Rising inequality can lead to rising crime, social unrest, and political extremism. It makes sense from a capitalism perspective to only reward the owners and investors, but it also seems short-sighted as there are long-term consequences in a society from this where the owners and investors become an increasingly exclusive class of people.

I blame Managerialism as the source for what kick-started the trend to growing inequality problems, then aided by various government policies that rewarded and encouraged this practice. Managerialism is belief in the value of professional management and practicing ruthless economic efficiency with control, accountability, and measurement. Decision making is done based on number reports only, about maximizing returns for owners and investors only. From a business perspective, it makes sense, but it also takes a negative toll on society.

Family-owned businesses grew into giant, impersonal corporations. Managerialism ruined communities and human relationships. The boomer advice of pounding the pavement and getting a job with just a firm handshake and some gumption is almost entirely an artifact of history. Under managerialism, costs are cut everywhere, so money flows directly to the top as much as possible. Jobs are outsourced and processes are automated, including hiring processes done with computer software sorting resumes. We also now deal with annoying automated phone relays when trying to call offices, having to shout, "Speak to a representative" into the phone over and over. The need for human attendants has been and continues to be removed as much as possible. There is less community support from local businesses as they've gone under or been bought out by larger companies. Little league and high school teams have less sponsors because big companies don't care about that stuff. It's just another cost that's easy to cut.
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Some argue that this is good practice because it lowers the costs of goods. Combined with the development of technology, I concede that it has - in some cases; but when jobs are cut and wages stagnant from long-term managerial practices, the low prices don't matter when there's no discretionary spending money left. Owners and investors are heavily rewarded for their risks and investment, but in the long-term it's getting harder and harder for more people to become owners and investors themselves. It's becoming an exclusive class in society. Besides, is there really risk when companies are considered too big to fail and get bailed out by government anyway?
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Another argument is that boosting the stock market is good for everyone's retirement accounts. Money in the stock market is good if you own a LOT of stock, but the vast majority of people don't. They have some retirement accounts invested so it's good if the accounts grow safely, sure; but improving wages is far more beneficial in the long term than people's 401K savings. They can use that money to spur the economy, save even more, and upgrade their quality of life. 

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I was surprised by this Fox News piece from 2019. It sounds like a very progressive concept for them as it discusses the negatives of how certain hedge funds and "vulture capitalism" is bad: https://www.youtube.com/watch?v=IdwH066g5lQ 

Again, it's this practice of ruthless economic efficiency. Outsource jobs, liquidate valuable assets, operate on a bare minimum of employees needed and pay them as low as possible while maintaining adequate, necessary staffing. Then lobby congress and buy politicians to set policies in your favor. 

I blame these managerialism practices and the rise of hedge fund "vulture capitalism" for destroying everything by depressing wages, killing jobs, and creating the terrible hiring practices we have today. The managers hired to cut costs and increase profits for owners and investors is peak capitalism, but destroyed the human and community connection.

Another financial game being played that is important to note is with stock buybacks. Watch this Vox piece, also from 2019, titled, How American CEOs Got So Rich:
https://www.youtube.com/watch?v=ylLTMYt24lA&list=WL&index=6

CEOs and executives could get a sweet bonus if the stock price goes up to reward investors. The quickest way to increase their stock price is to use corporate profits to buy their own stock. The Securities Exchange Act of 1934 cracked down on stock manipulation and insider trading, which also, in a way, forced corporate profits to be reinvested in growing/upgrading the company, raising wages and bonuses, and/or pay dividend profits to investors directly.

Laws changed in the early 80s, bringing back buybacks. Companies spend majority of profits buying their own stock. It's not being reinvested nearly as much. Money in the stock market is good if you own a LOT of stock, but the vast majority of people don't. They have some retirement accounts invested, sure, but I already covered how improving wages and bonuses are more beneficial to the majority. 

Here are some cases that make stock buybacks look bad:

• GM compared to Toyota and Volkswagon. GM was doing buybacks heavily, not reinvesting in their company. They declined. They earned record profits, yet cut their operations. Something else was probably going on, sure, but it's easy to see why so many people are upset to see the same headlines over and over of companies making record profits, but then increasing their costs and/or screwing over their employees. ​

• Southwest Airlines had a lot of trouble during the end of the year holidays in 2022. They previously received a $7billion federal bailout, spent $5.6billion on stock buybacks, gave their CEO a raise to $9.1 million, and spent $0 updating their software. Thousands of workers and travelers paid the price.
• In January 2023, Bed Bath & Beyond revealed that the company is considering filing for bankruptcy. In the previous year they spent $589 million on stock buybacks while reporting a $559 million loss. Shouldn't that money have been reinvested into improving their competitiveness and marketing, or covering debt obligations?
• In late 2022, Meta laid off about 11,000 employees, then right at the start of February 2023, announced a $40 BILLION stock buyback. With even half of that kind of money, they could've paid all 11,000 employees a salary of $200k for 9 years. The company probably needed to do some restructuring, I get that, but apparently they weren't strapped for cash...at all.
• Union Pacific was one of the rail companies that successfully fought off worker demands for paid sick days. They later announced a $1.7 billion PROFIT and spent $1.7 BILLION more on stock buybacks in 2022 than on pay and benefits for ALL employees.
• In 2018 alone, companies in the S&P 500 Index spent a combined $806 BILLION in buybacks. 

The Republican party often pushes for corporate tax cuts for companies to lower costs and keep more money to reinvest in their business and workforce. Instead, we got more record buybacks benefitting the same exclusive group. This is where we see this idea of supply side economics or trickle down economics fail. When corporations become flush with cash, they don't reinvest, grow, and boost employee pay as much as they want us to think they do. Instead...stock buyback to enrich investors.

Multiplier Effect: There is a chain of damage described and a real life example shown in the video. When a big plant closes, or a large employer of any kind that serves as an anchor for the community, so do some of the suppliers feeding into that company and businesses that serve the employees working there. When the big one closes down, it kills the whole community as jobs/income dry up. This was especially prevalent in manufacturing plants that all got relocated overseas. All that money saved by moving operations internationally went to executives and investors. Sometimes products got a little cheaper for those of us still with jobs to buy it, but many just boosted profits for the buybacks.

This is harsh capitalism, but I can't blame them when some companies genuinely go belly up. This is what happened to all the ghost towns when gold rush or other mining operations ended.

I blame the rising inequality problems and people's growing acceptance of "socialist" policies on managerialism and the attitude of people like Bob's boss from The Incredibles when he cried out, "We're supposed to help OUR PEOPLE! Starting with our stockholders, Bob. Who's helping them out, huh?"

Look, you can still make money, while also taking care of your own. It's possible. You'll keep less for yourself, but employee morale is good to keep up productivity and everyone will WANT to promote your business. ​

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Stock Buybacks Revisited

I've read some feed back for more information on this after making the original post. When discussing whether this practice should be a normal thing, I was given this response:

   "It should be no more or less illegal than issuing more stock to raise capital. If they no longer have the need for the capital, they should buy the shares back to gain more control of their company.

   Public company boards have done buybacks when they have a lot of surplus capital and the directors can't figure out a good way to invest it. Often what they want to do if they have a lot of extra cash is go buy more companies and grow their business, but sometimes they may have tapped out on that growth and don't want to go out of their industry range for a variety of reasons. Also, operating companies have to be careful about investing too much in actual securities because then they could be accidentally turning into an "investment company" which would be a legality disaster. However, directors are fiduciaries and have to do something profitable with the company's assets. They can't just let it sit there in a checking account."

One idea that went along with this comment was that most companies give Restricted Stock Units (RSUs) to employees. These stock are given using treasury stock which come from buybacks. If the government wanted to make a policy mandate on business, they could say for sufficiently large public companies they need to provide a certain percentage of stock to ALL employees equally. Salaries will still be different for different roles, but all will receive equal stock compensation, increasing worker ownership.

Another commenter stated that they view stock buybacks no different than, say, a restaurant with two owners. If one moves away, retires, sells his half to the other guy should it dissolve instead, or the business only allowed to be a partnership venture from then on? If it's ok for small companies to do that, where's the line and why is it different for large companies?

My response is that I don't know where the line is beside maybe a public vs private company, but I do view these cases differently. In the small business, one owner is taking more control. In big business buybacks, the ownership percentages mostly remain the same. Sure some people sell the stock to the company, but since the overall number of shares outstanding is now decreased, everyone ownership percentage generally remains the same.

Someone asked how stock buybacks are essentially dividends an organization doesn't have to pay tax on, so are dividends bad too? My response: No, dividends aren't bad. I can see why that would lead me to say buybacks shouldn't be bad either, but my argument is who is really benefitting the most from buybacks/dividends? If buybacks and dividends were paid out as better wages to employees instead of just stockholder growth, we'd see much less inequality and a stronger middle class. Additionally, executive compensation in stock options means executives have much more opportunity to profit from buybacks than regular dividends.

In the end, I think buybacks should still be allowed, but very limited in how often and how much is bought. Here's another article from Harvard Business Review on Why Stock Buybacks are Dangerous for the Economy.