Rent seeking behavior is widespread in financialized firms that increasingly

Rent seeking behavior is widespread in financialized

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and Williams 2007; Gospel, Pendleton, and Vitols 2014; Krippner 2011). Rent-seeking behavior is widespread in financialized firms that increasingly undertake finan- cial activities designed to enrich shareholders that have little to do with producing goods and services. The labor process, while important, is less central to the firm’s financial success. The need to invest in and retain employees with firm-specific skills or to pay wages that ensure labor’s cooperation has become less relevant. Cost containment via work intensification, subcon- tracting, and a range of low-wage alternative work arrangements has become more widespread. Labor contracts—explicit and implicit—have lost their moral content and, like any other con- tract, can be broken (Appelbaum, Batt, and Clark 2013). Management generates revenue that can be distributed to shareholders by selling off company assets, making greater use of debt, increas- ing the use of junk bonds, making strategic use of bankruptcy, increasing dividend payouts, engaging in share buybacks to manipulate share price, and aggressively using tax arbitrage/tax
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Appelbaum 515 avoidance to raise after-tax profits. Top management’s interests are aligned with those of share- holders by tying executive pay to share price. The result has been a dramatic rise in CEO pay (Davis and Mishel 2014). Share buybacks and dividend payouts are advantageous to sharehold- ers and to corporate executives, but they do nothing to increase the size of the economic pie. They have come to replace productivity-enhancing investments in equipment and workers as the main use of retained earnings (Lazonick 2014). Activist hedge funds that buy up blocks of shares in publicly traded companies and pressure management to sell off real estate assets and distribute the proceeds to shareholders are collecting rents (Appelbaum 2014). The same is true of private equity firms that take over companies, split them into a property company that owns the real estate and an operating company that operates the business, and then sell the real estate in a sale-lease back deal—pocketing the proceeds and putting the operating company at risk of bankruptcy (Appelbaum 2012). An entire industry has grown up around the aggressive pursuit of tax arbitrage and tax loopholes that allow corporations and the wealthy to avoid paying their fair share of taxes and to capture a larger slice of the eco- nomic pie at the expense of the tax-paying public. Thus, powerful companies use their dominant position in markets (Krugman 2013) or patent and copyright protections (Katari and Baker 2015) to earn monopoly rents at the expense of con- sumers, or they use their wealth to gain favorable regulations and tax breaks at the expense of taxpayers (Bessen 2016). The income share of the top 1 percent of households went from about 10 percent in 1980 to about 20 percent in the years 2010 to 2015, and is largely attributable to an increase in economic rents captured by these households (Baker 2016b; Mishel and Bivens 2013).
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  • Three '17
  • Test, Eileen Appelbaum, Radical Political Economics

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