Shareholder capitalism on trial

THE latest rap against big corporations is that they are returning too much money to shareholders through dividends and stock repurchases. What they should be doing, the complaint goes, is using that money to build new factories, create new products and increase research. Their stinginess, the argument continues, is one reason for the lacklustre recovery. Worse, the stock buybacks are driven by executive greed. When companies buy their own stock, share prices tend to rise - a boon to top executives whose compensation packages are linked to higher prices.

Put simply, so-called "shareholder capitalism" is a flop. It serves the interests of rich executives and investors, not the larger public.

As with many economic indictments, this one has some truth - and much exaggeration. Let's see why. It is true that dividends and stock buybacks have become more popular. Among the companies in the Standard & Poor's 500 index, dividends in 2014 totalled US$350 billion and buybacks US$553 billion, notes S&P's Howard Silverblatt. The US$903 billion total equals almost all of the S&P companies' reported 2014 profits of US$917 billion.