Lazonick and O’Sullivan have posed two important questions that ought to stop everyone in their tracks and cause them to think about the economy as a practical activity rather than as a Monopoly game with paper money. “What does ‘maximizing shareholder value’ mean?” and “Is it an appropriate principle for the governance of corporations in the advanced economies in the twenty-first century?” (Lazonick & O’Sullivan, 14)
For about twenty five years the US has become a cheerleader for using ‘shareholder value’ as a measure of success for corporations. They have convinced other countries that their rhetoric is true. The Organization for Economic Co-operation and Development even championed the idea in a 1999 document that shareholders are the most important part of any corporations; their interests should be of the highest priority.
The only problem is that the above assumptions leave a lot of people out of the calculation. Four groups that are left out are workers, their families, consumers, and the developing world. The 1980s were great financially profitable years from one point of view but millions of workers lost their jobs. Not only did workers lose their jobs, they lost their means of maintaining their health care insurance and retirement savings. Many Wall Street wizards have lauded layoffs as an indispensible part of the successful takeover trend. They call the millions of worker layoffs downsizing
Unlike in the past when two years of unemployment wage was enough to help a worker find another job, 35 percent of workers (1997 numbers) are still unemployed after two years. (Lazonick & O’Sullivan, 20)
What does this mean for the world’s developing countries? The US is thought of as a country in the rich North while Africa, Southeast Asia, and Latin America are thought of as having the poor, developing countries. When workers in the US have money to spend they are great consumers and keep the factories of the world busy. Now there is not as much demand for products made in developing countries; whether it is clothing, school supplies, tools or household gadgets - buying power has decreased and so has shopping.
Meanwhile the income divide between North and South has been diverging, become greater rather than lessening, since the 1990s. After reading Lazonick’s and O’Sullivan’s evaluation I realized that the US corporate governance ideology must be a major ingredient of the increasing North-South income divide.
Works Cited
Lazonick, William & O’Sullivan, Mary. “Maximizing shareholder value: A new ideology for corporate governance.” Economy and Society. 29(1) pp. 13-35. 2000 Feb. Print.
