Between 2003 and 2007, [Harvard professor William] Lazonick noted that the number of stock buybacks among companies in the S. & P. 500 quadrupled. Then, when the financial crisis began, some of these same banks required billions of dollars in taxpayer bailouts to avoid collapse. In September, 2008, just after Lehman Brothers declared bankruptcy (after spending more than five billion dollars on buybacks in 2006 and 2007), Lazonick wrote an op-ed for the Financial Times titled “Everyone Is Paying Price for Share Buy-Backs.” He described how buybacks had left financial institutions in a vulnerable state, which made the crisis more severe when it arrived. “In the 1980s, executives learnt that greed is good,” he wrote. “Now, their mantra could be ‘in buy-backs we trust.’ ”
He also felt that the practice was slowing corporate innovation. Lazonick found that between 2008 and 2017, the largest pharmaceutical companies spent three hundred billion dollars on buybacks and another two hundred and ninety billion paying dividends, which was equivalent to a little more than a hundred per cent of their combined profits. He noted that both Merck and Pfizer, two of the largest pharmaceutical companies, had been spending heavily on buybacks, but had struggled to develop successful new drugs. The same was true in the tech sector. In the nineteen-nineties, the computer-networking-equipment manufacturer Cisco Systems was one of the fastest growing companies in the world. But between 2002 and 2019, it spent a hundred and twenty-nine billion dollars on stock buybacks—more than it spent on research and development, which Lazonick felt compromised its competitive position. He is currently co-writing a paper comparing Cisco unfavorably with Huawei, the giant Chinese company that is building a global 5G network, the next generation of Internet technology. “Huawei is one of the most innovative companies in the world, because it retains and invests its profits,” Lazonick told me. Today, he argues that Apple is falling prey to the same phenomenon as Cisco. Since the death of its founder, Steve Jobs, in 2011, the company has distributed three hundred and twenty-five billion dollars to its shareholders, while spending only fifty-eight billion on research and development. Lazonick believes that the company has fallen behind in creating revolutionary new products, like the iPhone, and has instead been relying on updates to existing ones.