Robots Don't Destroy Jobs; Rapacious Corporate Executives Do
Continued from previous page
Increasingly, moreover, in the age of nanotechnology, automation performs productive functions that no human being could ever have possibly done. Rather than destroy jobs, these automated processes make it possible for companies to produce all kinds of sophisticated goods and services. These products are the hallmark of an advanced economy, and open up all kinds of new employment opportunities in companies and countries in which these goods and services are produced.
Automation entails huge upfront investments. Companies that invest in automation have to build organizations to ensure steady supplies of high-quality materials, improve and maintain machinery, and capture sufficiently large market shares to achieve economies of scale. These investments in the development and utilization of automated facilities create lots of high-value-added jobs, especially for companies that, because of their investments, can grow large by producing higher quality, lower cost products than the competition.
To repeat, automation is not the problem. The three-decades long erosion of middle-class jobs in the United States is the result of, as stated earlier, permanent plant closings, layoffs of older employees, and the globalization of employment – none of which have been the result of automation. In the process, many US industrial corporations have become very profitable (for now, but by no means forever). The question that needs to be asked is why US corporations are failing to reinvest these profits in new products and processes that can create large numbers of new high value-added employment opportunities in the United States.
The problem lies in the ideology that corporations should be governed to “maximize shareholder value,” which became prevalent in boardrooms and business schools in the 1980s, and has become totally dominant since. In the name of shareholder value over the decade 2001-2010, the 500 corporations in the S&P 500 Index (representing about 75 percent of US stock-market capitalization) expended not only 40 percent of their profits on cash dividends – the normal mode of rewarding shareholders – but also another 54 percent on stock buybacks, the purpose of which is to give a manipulative boost to a company’s own stock price. Large established companies did hardly any buybacks in the early 1980s. Over the past decade, buybacks by S&P 500 companies totaled about $3 trillion, which has left scant corporate resources for investment in innovation and high-value-added job creation.
When companies do massive buybacks to boost their own stock prices, the big winners are the very same top executives who make these resource-allocation decisions. Why? Because the largest single component of top executive pay is the income from exercising stock options – which become more lucrative when the stock price goes up, even if for just a short period of time during which the options can be exercised and the acquired stock sold.
Many corporate executives justify buybacks by arguing that they represent the best corporate investments available. How about investments in innovation and job creation? Or how about corporate support for government investments in the national knowledge base, which typically provides the foundation for enterprise innovation and profits? If top executives have been the big winners of this financialized buybacks-options game, then the big losers have been erstwhile members of the US middle class as well as tens of millions of younger Americans who will never have the opportunity of entering the middle class.