In yesterday’s Washington
Post, the main article on page 1 was “Companies Pour Cash Into Buybacks of
Their Own Stock: A Boon for Shareholders, Executives.” Not unexpectedly, the article did not exactly
conform to the principles of the Just Third Way. What was surprising, however (at least from
the Just Third Way perspective), was the rather blithe assumption that allowing
shareholders to make a one-time profit on selling their shares to the company
they (formerly) owned is somehow a good thing.
Think about it. The
earnings of a corporation belong by the natural right of private property to
the shareholders, i.e., the people
who own shares, and who thus own the corporation.
Everything that the corporation owns is owned in reality by the
shareholders.
This means that the cash that the company uses to
purchase shares from existing shareholders already belongs to the
shareholders. The company in a “buyback” is, therefore (to all intents and purposes), using the shareholders’ money
to pay for the shareholders’ shares that the company then keeps for itself.
This is a little like the pickpocket who takes $10 out of
your back pocket, and uses it to purchase the $5 watch you have in your front
pocket. You made $5 on the deal, right?
No. Do the math. The pickpocket
made $5 on the deal. You lost $5. And were late for work because you lost track of the time drinking up your profits down at the tavern.
That’s not the worst thing, however. True, the company gets shares by giving
existing shareholders money that is already theirs to begin with to purchase
their shares. The company loses nothing
on the deal.
The shareholders not only lose their shares, however, they
also lose any future profits from ownership.
Whether or not those profits are paid out, they belong to the
shareholders. When they cease being
shareholders, they lose all rights to those profits.
A share buy back is thus a win-win for a corporation, and a
lose-lose for a shareholder.
Of course, there are a number of much deeper problems
involved that we could cover, but that’s enough for one day. After all, do you really feel right now like discussing
the problems implied by the assumptions that a corporation is not run for the
benefit of the shareholders, but of the corporation, which then becomes a
self-realized and self-justifying entity . . . which is one way of
characterizing God?
What about the implications suggested by the emphasis on
capital gains instead of dividends? The
former implies gambling and speculation, the latter, productive activity.
But we can look at that another day. We’ve probably depressed you enough for now.
#30#