One professor’s take on the financial crisis
www.uml.edu
UMass Lowell Professor William Lazonick has taken an in-depth look at the economy and the reasons why it is in a weak state. He has written a book on the subject, Sustainable Prosperity in the New Economy? Business Organization and High Tech Employment in the US, which will be published sometime in 2009. According to him, a lack of job security, a disappearing middle class, and companies buying back their stocks are the key factors in the weakened economy.
“I’ve been studying the economy for over 20 years,” said Lazonick. “I decided to go in-depth and look at people with degrees in science and technology who should be the most prosperous.”
One long term factor he said has contributed toward the weak economy is polarization, or the disappearance of the middle class.
“Over the past 30 years, the distribution of income has become unequal,” said Lazonick. He said a strong middle class is essential to having a strong economy, but that a lack of job security has contributed to the reduction of the middle class.
“Up until the 1980s, if you worked for a big company like GE or Hewlett Packard, you could count on that job for the whole of your career,” said Lazonick. “Now, nobody can expect that in 20 or 30 years you’ll still be there.”
Lazonick said that companies were laying people off even when they had high profits.
“Companies favor younger people. They can keep up with the software and technology better, and they are less expensive that older people,” said Lazonick. “They will work harder, and longer hours.”
He said globalization has also contributed to an unstable job market. People overseas in countries like China and India are getting educated and therefore can do jobs just as well as Americans.
Lazonick claims that corporate ideologies also led up to this weak economic state.
“Companies are run for the shareholder,” said Lazonick. “The theory behind it [is] that they are taking the biggest run by investing their money in that company … This allows them to get rid of their obligation to communities and allows managers to have free reign.”
Many managerial positions come with stock options—executives can buy share in their company for a certain price and then sell it whenever they want to. So they end up running the company for themselves, making more money with their stocks than with their salaries.
This ideology is one that is unique to the USA. As a result, it is important for companies to have high stock value. To drive up the price on stocks, they will spend a majority of their profits buying their own stocks back instead of spending the money on keeping jobs in the US, performing research, or letting people keep their jobs longer.
“The base of the problem is the loss of the middle class,” said Lazonick. “If more people had stable jobs, we wouldn’t have such a problem.”
A secure job is not something that this generation of college graduates can count on, said Lazonick. He said the best thing students can do is to question.
“Students need to criticize. They need to ask questions, and take on the current ideas. They need to ask, why can’t I have a secure creative job when companies are making huge profits?”
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