William Lazonick

[2]

In 1975 Lazonick was hired as an assistant professor in the Harvard Economics Department,[3] where he taught comparative economic development, economic history, and the history of economic analysis, all from a perspective that was critical of neoclassical economics. In 1980 he was promoted to associate professor of economics. In 1982-83 he was a visiting professor of economics at the University of Toronto. In 1984-85 Lazonick held the Harvard-Newcomen Fellowship in Business History at Harvard Business School (HBS) and became an initial member of the HBS "Business History Group", working with Alfred D. Chandler, Jr. He remained as a research fellow at HBS in 1985-86 with funding from the German Marshall Fund of the United States and the National Science Foundation.

In 1985 Lazonick was appointed to a tenured professorship of economics at Barnard College of Columbia University. He was also a member of the Graduate Faculty of Columbia University, teaching a PhD course in economic history in the Columbia Economics Department and running a research seminar on national institutions and economic performance with Richard R. Nelson at the Columbia School of International and Public Affairs. In 1989-90, Lazonick was a visiting member in social sciences at the Institute for Advanced Study at Princeton University, where Albert Hirschman was the resident economist. In 1990-91 Lazonick was president of the Business History Conference, the leading association of business historians in the United States. Also in 1991 he received an honorary doctorate from Uppsala University[4] for his work on the theory and history of economic development. In 1992 he was a visiting professor of economics at Harvard University.

In 1993, after the publication of three books in the three previous years,[5] Lazonick made the unusual academic move of leaving a tenured position at an elite private university for a tenured position at a regional public institution, University of Massachusetts Lowell. The lure was the opportunity provided, under the administration of Chancellor William T. Hogan, to build an interdisciplinary graduate program in regional economic and social development at an engineering school that had deep historical roots in local industry and was now in the midst of a leading high-tech district, "Route 128". Over the next 17 years at UMass Lowell, Lazonick participated in the construction of a world-class Master's program in regional development, run by UMass Lowell's Department of Regional Economic and Social Development (RESD), which he co-founded.

From 1996-2007 Lazonick was also on the faculty of INSEAD, the international business school in France, where he held an appointment as distinguished research professor. Additionally, he was a professor of economics at the University of Tokyo (1996-1997) and a visiting professor at the BI Norwegian Business School (2002-2005). In recent years, he has also held visiting positions at the University of Bordeaux and the University of Toulouse.

Although RESD no longer exists,[6] Lazonick remains a professor at UMass Lowell, where he co-directs the Center for Industrial Competitiveness. Lazonick is also visiting professor at the University of Ljubljana, where he teaches a PhD course, The Theory of Innovative Enterprise, and at the Telecom Business School, Paris, where he engages in collaborative work on innovation and competition in the global communication technology industries.

In 2010, Lazonick started a 501(c)(3) organization called the Academic-Industry Research Network, also known as AIRnet, which publishes research from Lazonick and other academics.[7][8] The organization seeks to foster research regarding economic development,[7] and ways it can become more sustainable and inclusive.[8] Lazonick appointed himself president of the organization, which evolved from a European Commission project on corporate governance, innovation, and economic performance that Lazonick ran at INSEAD in collaboration with Mary O'Sullivan (now a professor at the University of Geneva), and subsequent work on innovation and competition in the global communication technology industry with Marie Carpenter (Télécom Ecole de Management, Paris), Henrik Glimstedt (Stockholm School of Economics), and Edward March (formerly Lucent Technologies, now at Dartmouth College).

Lazonick has been a leading critic of the neoclassical theory of the market economy that dominates the thinking and teaching of academic economists. Whereas neoclassical economists see well-developed markets as causes of economic prosperity, Lazonick's research argues that organizations that engage in collective and cumulative learning drive the process of economic development, with well-developed markets in land, labor, finance, and products as outcomes. He contends that when these markets gain a preponderant influence in directing the allocation of resources in the economy, they undermine the organizations – family households, government agencies, and business enterprises – upon which we depend for the investments in productive capabilities that underpin stable and equitable economic growth. This perspective on the relation between organizations and markets in determining economic performance provides an analytical framework for formulating policies that support innovative enterprise and regulate hyperactive markets.

Lazonick's work on the theory of innovative enterprise builds on the intellectual legacies of Karl Marx, Alfred Marshall, Joseph A. Schumpeter, Edith Penrose, and Alfred D. Chandler, Jr. In 2012, with David Teece, Lazonick edited the volume Management Innovation: Essays in the Spirit of Alfred D. Chandler, Jr. (Oxford University Press). Lazonick is co-organizer of the Edith Penrose Centenary Conference to be held at SOAS, University of London, on November 14–15, 2014.[10] Currently Lazonick is completing a book, The Theory of Innovative Enterprise, to be published by Oxford University Press, in which he lays out his theoretical framework and explains how, making use of it, business decision-makers can build innovative companies and government policy-makers can support prosperous economies.

Much of Lazonick's research has been devoted to stock buybacks and the alleged financialization of economies. This began during his time at Harvard in the 1980's, where he took note of his colleague Michael C. Jensen, who became a major proponent of mass stock buybacks. Since then, Lazonick has publicly advocated against such buybacks through various research papers and articles, becoming a major voice regarding the matter.[8]

Lazonick began this line of research in the late 1980s, becoming an early critic of the belief that companies should be run to maximize shareholder value.[11] In collaboration with Mary O'Sullivan, he continued this work in the 1990s at STEP Group, a research organization directed by Keith Smith in Oslo, Norway, and in the last half of the 1990s and early 2000s at INSEAD, where he directed the European Commission project Corporate Governance, Innovation, and Economic Performance.[12]

Over the past several years, with funding from the Ford Foundation and the Institute for New Economic Thinking, Lazonick has elaborated his thesis that the financialized U.S. corporation is substantially responsible for employment instability and income inequity in the U.S. economy. He argues that, since the 1980s, three structural changes in employment—one related to plant closings, the second to the end of the norm of a career with one company, and the last to offshoring of employment to low-wage nations—have eroded the availability of middle-class jobs in the U.S. economy. Initially, Lazonick argues, these changes in employment were corporate reactions to changes in externally imposed industrial conditions, but, subsequently, many major U.S. corporations have implemented these employment practices purely for financial gain. He contends that these increased profits have been distributed to shareholders as huge stock repurchases on top of generous dividend payments. Lazonick argues that U.S.-style stock-based compensation gives top corporate executives a vested interest in this financialized mode of corporate resource allocation.

Lazonick pins poor economic performance on the financialized business enterprise in a number of papers: "Taking Stock: How Executive Pay Results in an Unstable and Inequitable Economy," published by the Roosevelt Institute in 2014; "Labor in the Twenty-First Century: The Top 0.1 Percent and the Disappearing Middle Class", published by the Institute for New Economic Thinking in February 2015;[13] with Christian Weller, Financial Market Developments and Labor Relations, Labor and Employment Relations Association, forthcoming; and "Profits Without Prosperity", published in the Harvard Business Review in September 2014.[14]

In recent years, this research has made Lazonick a sought-after adviser to various United States politicians.[8] Lazonick advised both Hillary Clinton's 2016 Presidential Campaign, and Bernie Sander's 2016 Presidential Campaign, as well as Marco Rubio.[8]

One early article Lazonick wrote arguing the impact of financialization on innovation was "Innovative Business Models and Varieties of Capitalism: Financialization of the U.S. Corporation", which compares the United States and Japan, arguing that the persistence in the 1990s and 2000s of the Japanese institutions of stable shareholding, permanent employment, and main-bank lending, even in diminished form, imparted employment stability and income equity to the Japanese economy.[15] Lazonick argues that while what he calls the "New-Economy Model" historically enabled rapid product development, the financialization of such model undermined the innovative capability of U.S. industrial enterprises, and contributed to employment instability and income inequity in the United States.[15]

In the mid-2000s, with funding from the Upjohn Institute for Employment Research, Lazonick did an in-depth study of the transformation from innovation to financialization in the information-and-communication technology industries in the context of the rise to dominance in the United States of the "New Economy business model" emanating from Silicon Valley.

Lazonick's 2009 book Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States, published by the Upjohn Institute for Employment Research, won the 2010 Schumpeter Prize, awarded by the International Joseph A. Schumpeter Society.[16] In this book, Lazonick contrasts what he calls "Old Economy" firms, such as AT&T, General Electric, and IBM, with "New Economy" firms, such as Intel, Dell, and Microsoft.[17] He argues that these "New Economy" companies used stock buybacks and stock option plans to increase stock prices, and to promote "speculative" stock buying.[18] These "New Economy" companies, Lazonick argues, used said stock option plans to attract labor, which would then be partially compensated with them, therefore aiding the companies in attracting large workforces to innovative in product development.[18] When they became profitable, these companies became obsessed with boosting their stock prices through massive stock repurchases. Meanwhile, Lazonick suggests that many "Old Economy" firms, transitioned to a "New Economy" business model, increasing stock compensation.[18] In the process, Lazonick believes these firms severely compromised, and in some cases destroyed, their innovative capabilities.

In a 2016 working paper for the Institute for New Economic Thinking, Lazonick argued that stock-based pay harms investment in a firms productive and innovative capabilities by prioritizing financial investment go to stock buybacks instead.[19]