Stock Buybacks Are the Wrong Target

A. Michael Spence

By A. Michael Spence

Achieving inclusive and sustainable growth patterns will require corporations and the financial sector to align their business models and strategies more closely with broadly shared economic and social objectives.

By A. Michael Spence

The surge in stock buybacks in the United States has sparked a high-stakes debate about what corporations can and should do with surpluses they have generated. It is a topic that raises fundamental questions about the role of the public and private sectors in securing inclusive growth patterns.

The debate kicked into high gear recently when US Senators Bernie Sanders and Chuck Schumer wrote an article arguing that corporations should be investing more in employees and the community, rather than buying back stock. They then declared their intention to introduce legislation that would prohibit corporations from buying back their own stock unless they invest in workers first, say, by raising their minimum wage to $15 per hour or offering paid sick leave.

Sanders and Schumer – and many others – are concerned that surpluses or rents are being allocated entirely to shareholders, who tend already to be among the top 10% of income earners. At a time of rising inequality and stagnant wages, investing more of that money in lower-earning workers seems a better option than lavishing more wealth on the wealthy.

Read the full Project Syndicate article.

A. Michael Spence is a William R. Berkley Professor in Economics & Business.