AI Boom Built on Shareholder Value Ideology, Warns Economist William Lazonick

In a detailed analysis published on Naked Capitalism, economist William Lazonick argues that the AI boom is being built on a corporate governance model that prioritizes shareholder value above all else, a system he has critiqued for decades. The article, written by Lynn Parramore of the Institute for New Economic Thinking, traces the historical shift from stakeholder capitalism to shareholder primacy, highlighting key moments such as the SEC's adoption of Rule 10b-18 in 1982, which legalized stock buybacks, and the influence of economists like Michael Jensen and Kevin Murphy in promoting stock-based executive pay. Lazonick's research shows that buybacks consumed 62% of corporate earnings by the late 2000s, diverting funds from wages, benefits, and innovation. He cites examples like Boeing, which spent $43 billion on buybacks from 2013 to 2019, contributing to safety lapses that led to two fatal 737 MAX crashes. The article also notes that Thomas Ferguson, Servaas Storm, and Jie Chen identified an unexpected drop in labor's share of GDP in 1999, predating the China shock, which they attribute to the shareholder value revolution. Lazonick warns that without serious corporate governance reform, AI will exacerbate inequality and undermine innovation, as the technology is being integrated into a system designed to extract value for shareholders at the expense of workers.