Why the CHIPS Are Down: Stock Buybacks and Subsidies in the U.S. Semiconductor Industry

The Semiconductor Industry Association (SIA) is promoting the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act, introduced in Congress in June 2020. An SIA press release describes the bill as “bipartisan legislation that would invest tens of billions of dollars in semiconductor manufacturing incentives and research initiatives over the next 5-10 years to strengthen and sustain American leadership in chip technology, which is essential to our country’s economy and national security.” On June 8, 2021, the Senate approved $52 billion for the CHIPS for America Act, dedicated to supporting the U.S. semiconductor industry over the next decade. As of this writing, the Act awaits approval in the House of Representatives. This paper highlights a curious paradox: Most of the SIA corporate members now lobbying for the CHIPS for America Act have squandered past support that the U.S. semiconductor industry has received from the U.S. government for decades by using their corporate cash to do buybacks to boost their own companies’ stock prices. Among the SIA corporate signatories of the letter to President Biden, the five largest stock repurchasers—Intel, IBM, Qualcomm, Texas Instruments, and Broadcom—did a combined $249 billion in buybacks over the decade 2011-2020, equal to 71 percent of their profits and almost five times the subsidies over the next decade for which the SIA is lobbying. In addition, among the members of the Semiconductors in America Coalition (SIAC), formed specifically in May 2021 to lobby Congress for the passage of the CHIPS for America Act, are Apple, Microsoft, Cisco, and Google. These firms spent a combined $633 billion on buybacks during 2011-2020. That is about 12 times the government subsidies provided under the CHIPS for America Act to support semiconductor fabrication in the United States in the upcoming decade. If the Congress wants to achieve the legislation’s stated purpose of promoting major new investments in semiconductors, it needs to deal with this paradox. It could, for example, require the SIA and SIAC to extract pledges from its member corporations that they will cease doing stock buybacks as open-market repurchases over the next ten years. Such regulation could be a first step in rescinding Securities and Exchange Commission Rule 10b-18, which has since 1982 been a major cause of extreme income inequality and loss of global industrial competitiveness in the United States.

How “Maximizing Shareholder Value” Minimized the Strategic National Stockpile: The $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco

With just 4.2 percent of the world’s population, the United States had, as of July 21, 2020, 26.0 percent of its confirmed Covid-19 cases and 23.1 percent of its deaths. The magnitude of the tragedy raises the critically important counterfactual question of how the United States as a nation would have fared had there been competent and committed political leadership in place when, during January 2020, intelligence indicating the severity of the unfolding pandemic became available. A partial answer to this question lies in identifying the organizational and technological capabilities to develop, produce, and deliver “countermeasures”—personal protective equipment (PPE), ventilators, diagnostic tests, therapies, and vaccines—that a prepared federal administration would have been able to mobilize to respond to the pandemic. Main repositories of the necessary capabilities are government agencies and business firms, with the development, production, and delivery of countermeasures heavily reliant on government-business collaborations (GBCs). We contend that the success of projects for pandemic preparedness and response depends on the strength of GBCs. In this essay, we focus on the particular case of ventilators for the Strategic National Stockpile (SNS). We trace the historical evolution within the federal government of the current system of pandemic preparedness for and response through the end of the Obama administration. We then analyze the particular GBCs to develop ventilators for the SNS initiated and implemented by the Biomedical Research and Development Authority (BARDA), under the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS). BARDA initiated two successive GBCs, one beginning in 2010 and the second in 2014, with two different business firms, for the purpose of developing portable, easy-to-use, and affordable ventilators for the SNS. We show that the strength of these collaborations lay with the innovative ventilator manufacturers with which BARDA contracted. The weakness of these GBCs appeared when these innovative manufacturers fell under the control of business corporations committed to the ideology of “maximizing shareholder value” (MSV). In each case, the financialized business corporation undermined development and delivery of ventilators to the SNS. We then explain why, in general, we should expect that business firms driven by MSV will be unreliable partners in GBCs—at the expense of the nation’s preparedness for and response to an emergency such as the Covid-19 pandemic. This lack of reliability is rooted in the strategic orientation of corporations which have put stock-market valuation of the company ahead of its innovative performance in producing goods and services. The Covid-19 crisis has already revealed the extent to which, in the U.S. economy, the stock market functions not to support value creation but rather as the prime means of value extraction. The most overt form of value extraction is the corporate practice of open-market repurchases of the company’s own shares—aka stock buybacks—typically done in addition to copious distributions to shareholders in the form of cash dividends. In the decade 2010-2019, companies in the S&P 500 Index spent $5.3 trillion on buybacks, representing 54 percent of net income, in addition to $3.8 trillion (39 percent of net income) distributed to shareholders as dividends. In view of this “predatory value extraction,” we conclude this essay with the “$5.3 trillion” question for executives and directors of corporations who, in their embrace of MSV ideology, must bear significant responsibility for the failure of the United States to respond to not only the Covid-19 pandemic but also climate change and income inequity. The question: Why does the company that you head do stock buybacks? In particular, we direct this question to the executives and directors of three corporations that, as of the year 2020, are the biggest repurchasers of their own stock in history: Microsoft at number three, ExxonMobil at number two, and Apple at number one. We also pose this question to the senior executives and board members of any company engaged in the practice who, in August 2019, signed the Business Roundtable (BRT) Statement of the Purpose of a Corporation, which explicitly rejected the BRT’s 1997 pronouncement that “corporations exist principally to serve shareholders,” replacing it with a redefinition of “the purpose of the corporation to promote ‘an economy that serves all Americans’.”

How “Maximizing Shareholder Value” Minimized the Strategic National Stockpile: The $5.3 Trillion Question for Pandemic Preparedness Raised by the Ventilator Fiasco

With just 4.2 percent of the world’s population, the United States had, as of July 21, 2020, 26.0 percent of its confirmed Covid-19 cases and 23.1 percent of its deaths. The magnitude of the tragedy raises the critically important counterfactual question of how the United States as a nation would have fared had there been competent and committed political leadership in place when, during January 2020, intelligence indicating the severity of the unfolding pandemic became available. A partial answer to this question lies in identifying the organizational and technological capabilities to develop, produce, and deliver “countermeasures”—personal protective equipment (PPE), ventilators, diagnostic tests, therapies, and vaccines—that a prepared federal administration would have been able to mobilize to respond to the pandemic. Main repositories of the necessary capabilities are government agencies and business firms, with the development, production, and delivery of countermeasures heavily reliant on government-business collaborations (GBCs). We contend that the success of projects for pandemic preparedness and response depends on the strength of GBCs. In this essay, we focus on the particular case of ventilators for the Strategic National Stockpile (SNS). We trace the historical evolution within the federal government of the current system of pandemic preparedness for and response through the end of the Obama administration. We then analyze the particular GBCs to develop ventilators for the SNS initiated and implemented by the Biomedical Research and Development Authority (BARDA), under the Assistant Secretary for Preparedness and Response (ASPR) within the U.S. Department of Health and Human Services (HHS). BARDA initiated two successive GBCs, one beginning in 2010 and the second in 2014, with two different business firms, for the purpose of developing portable, easy-to-use, and affordable ventilators for the SNS. We show that the strength of these collaborations lay with the innovative ventilator manufacturers with which BARDA contracted. The weakness of these GBCs appeared when these innovative manufacturers fell under the control of business corporations committed to the ideology of “maximizing shareholder value” (MSV). In each case, the financialized business corporation undermined development and delivery of ventilators to the SNS. We then explain why, in general, we should expect that business firms driven by MSV will be unreliable partners in GBCs—at the expense of the nation’s preparedness for and response to an emergency such as the Covid-19 pandemic. This lack of reliability is rooted in the strategic orientation of corporations which have put stock-market valuation of the company ahead of its innovative performance in producing goods and services. The Covid-19 crisis has already revealed the extent to which, in the U.S. economy, the stock market functions not to support value creation but rather as the prime means of value extraction. The most overt form of value extraction is the corporate practice of open-market repurchases of the company’s own shares—aka stock buybacks—typically done in addition to copious distributions to shareholders in the form of cash dividends. In the decade 2010-2019, companies in the S&P 500 Index spent $5.3 trillion on buybacks, representing 54 percent of net income, in addition to $3.8 trillion (39 percent of net income) distributed to shareholders as dividends. In view of this “predatory value extraction,” we conclude this essay with the “$5.3 trillion” question for executives and directors of corporations who, in their embrace of MSV ideology, must bear significant responsibility for the failure of the United States to respond to not only the Covid-19 pandemic but also climate change and income inequity. The question: Why does the company that you head do stock buybacks? In particular, we direct this question to the executives and directors of three corporations that, as of the year 2020, are the biggest repurchasers of their own stock in history: Microsoft at number three, ExxonMobil at number two, and Apple at number one. We also pose this question to the senior executives and board members of any company engaged in the practice who, in August 2019, signed the Business Roundtable (BRT) Statement of the Purpose of a Corporation, which explicitly rejected the BRT’s 1997 pronouncement that “corporations exist principally to serve shareholders,” replacing it with a redefinition of “the purpose of the corporation to promote ‘an economy that serves all Americans’.”

Financialization at work: Shareholder primacy and stagnant wages in the United States

Financialization has been ‘at work’ in the United States for nearly half of a century, as corporate executives have increasingly prioritized shareholder payments over other productive uses of corporate resources. Over the same period, employee bargaining power has fallen and wages for non-executive workers have stagnated across sectors. This article examines the effects of shareholder primacy on labour compensation in the United States in the neoliberal era at the aggregate, sectoral and firm level. Specifically, the article analyses changes in the relationships between rising profits, shareholder payments, and wages over the past four decades, finding evidence that shareholders’ gains come at the expense of employees in publicly traded corporations. The growing power of shareholders has been neglected compared to traditional arguments for wage stagnation, including globalization, de-unionization, rising market power and changes in industry composition. To disincentivize corporate behavior that prioritizes shareholders, a policy agenda is proposed that ends the practice of stock buybacks and institutes a stakeholder approach to corporate governance.