[GTALUG] OT: How Superstar Companies Like Apple Are Killing America’s High-Tech Future

[D. Hugh Redelmeier]

[Warning: long off-topic posting.]

[I would welcome challenges to what I write.]

| From: Ivan Avery Frey <ivan.avery.frey at gmail.com>

| Might be of interest to people on this mailing list.
| 
| http://ineteconomics.org/institute-blog/william-lazonick-how-superstar-companies-apple-are-killing-america-s-high-tech-future

My impression is that he's got some points but his over-all point is
unconvincing.

1. share buy-backs are questionable
===================================

Share-buy-backs do seem to be incentivized by stock options.  That
seems really really goofy.  When shares are bought back by the
company, the share price rises.  So stock options become more
valuable.  It might have US tax advantages (I don't understand the US
tax system).

The straight-forward approach would be to issue dividends.  But the
current business culture reads an increase of a dividend to be a
commitment to continue paying that dividend until the company cannot
prudently do so (which, in turn, is taken as a very bad sign).
There's a simple cure:  declare an extraordinary dividend.  But
dividends don't get paid to holders of stock options.

Bingo: management (which holds stock options) wants share buy-backs.
For its own reasons, not those of the owners of the company.


2. companies should retain their earnings
=========================================

This is the real point he is trying to make.  He claims this will lead
to long-term employment, investment in employees, and cumulative
incremental R&D.

I don't see the connection.

If a company can see how to use (invest) money well, it should keep
it.  If it cannot, it should pay it out to shareholders.

I don't see any way that Apple can usefully invest $100 billion.  So
paying out a large chunk of it makes sense.

Back in the golden era that Lazonick harks back to, Bell Canada
generated pots and pots of money.  Rather than paying it out to
shareholders, it bought a bunch of businesses and proceeded to kill
them.  Shareholders would have been much better served by receiving
larger dividends that they could choose to invest more wisely than
Bell Canada.

Stable monopolies are the businesses that most closely match what
Lazonick wants.  Such monopolies are generally a bad thing for the
obvious reasons.  They do have pleasant side-effects: nothing has
matched Bell Research Labs, IBM Research Labs, or Microsoft Research.
And the job security is kind of nice.

I don't imagine that Microsoft or Bell management felt they got their
money's worth out of their labs in terms of new business lines.  They
got it in prestige, if anything.


3. R&D needs stable employment
==============================

See Bell Labs and Microsoft Research, above.

Yet those were always the exception.

Why have a screwed up phone system or a screwed up software ecosystem
just to nurture those exceptions.  Seems like a bad tradeoff.

I find Christensen's "Innovators Dilemma" pretty convincing.  Routine
improvements can and do come from within companies but breakthroughs
are better exploited by new companies.

Bell Labs invented the transistor.  Who exploited it?  Sony, at first.
Then everyone.  Including, but not especially, Bell.

Unix is the same.

The Bell Labs discovery that the universe is about 3 degrees?  I don't
know of a product there.

IBM Research arguably invented RISC.  Yet IBM's RISC products were
kind of late and kind of messy.  They are one of the last RISCs
standing so that says something.

I don't know of blockbusters from Microsoft Research.  There certainly
are good people there.


2.  What innovations matter?
============================

The most rewarding innovations are creating or destroying busness
models and monopolies.  Hardly technical in the TLUG sense.

"Intellectual Property" (I hate that term) seems to be key.  Apple
wins here.

Monopoly platform: iTunes, App Store, iOS, ...  EBay, Uber, ...

Monopoly service: google search + ads, Microsoft Windows, Microsoft
Office.  Facebook, ...

Destroying business models: Red Hat (eats Sun etc.).  Netflix (eats
many players).  Amazon (eats book stores and store fronts in general),
...

Maybe all those are exceptional, like lottery wins.  They are what gets 
the most ink.  Where do the important but less spectacular innovations 
come from?  What nurtures them?