On its glittering surface, America’s corporate economy appears to be in fantastic shape. The stock markets recently reached record highs, even if they dipped and bobbed after reaching those heights. Profits are soaring. Financing is cheap. The corporate tax rate has been cut. The unemployment rate is near a fifty-year low, with little inflation.
But look under the hood, and you will find that all is not well. Those stock prices have little, if anything, to do with underlying value creation; those profits owe little to increased productivity; that cheap financing seldom goes to investment. Despite the record profits and unusually favorable terms for borrowers, the rate of corporate investment is down—by historical standards for such conditions, way down. Productivity growth is down. Wages, adjusted for inflation, have remained largely flat since the 1970s, despite all of labor’s subsequent productivity gains. As a proportion of corporate income, wage expenditure today is at a historic low, even with profits at or near historic highs. Profits that used to be allocated to wage increases, training, research, and expansion are instead being disgorged to stockholders in the form of increased dividends and stock buybacks (which helps explain those rising stock prices). The windfall from the 2017 corporate tax cut went almost entirely to such buybacks, not wages or investment. The number of listed companies is actually declining, in part because entrepreneurs who wish to grow their companies dare not place them under Wall Street’s care, to be bled out for the pleasure of today’s short-term–focused stockholders.
Today’s stockholder is fat and happy from cannibalizing the corporate body. Yet the feast is unlikely to last. There is only so much dining to be done on a host that is not allowed to feed itself. These may be flush times for the American corporation, but the bounty is not being translated into a prosperity that is sustainable or broad. How has the corporation’s vision become so foreshortened? Its largess so narrowly bestowed? Its malfeasance so widespread? Viewed from the perspective of history, the American business corporation has lost its way.