The Impulse Society: America in the Age of Instant Gratification by Paul Roberts

Author:Paul Roberts
Language: eng
Format: mobi
Publisher: BLOOMSBURY PUBLISHING
Published: 2014-09-01T16:00:00+00:00

And yet, while it’s clearly the case that the innovation-jobs machine is nowhere near tapped out, even positive trends such as reshoring and a biotech revolution will be hard-pressed to counter the larger trends now in motion without a much deeper shift in our impulsive approach to innovation. To quote another economist, John Maynard Keynes, “Markets can remain irrational a lot longer than you and I can remain solvent.” And there have been many developments in our emerging, impulsive economy that will forestall any sort of market correction to our myopic innovation strategies.

One development, clearly, is the tendency at many of today’s biggest technology firms to use financial engineering to effectively blunt the market’s corrective discipline. Take the case of Microsoft. Like many “mature” technology companies, it has amassed a large market share based on earlier breakthroughs—notably, the Windows operating system—and it uses that market share to generate huge piles of cash. A rational strategy would be to reinvest a large part of that cash in developing the next generation of technology. And yet, while Microsoft does spend billions of dollars each year on research and development, Lazonick says, the company fails to invest sufficiently in improving how the organization itself functions so that its workers can fully exploit that R&D investment. Instead, cash that might have gone toward organizational upgrades is “invested” in share buybacks: from 2003 to 2012, Microsoft spent $114 billion buying its own shares—or nearly one and half times what it spent on R&D. The results are classic Impulse Society. Microsoft milks the Windows franchise with a steady stream of mediocre, buggy upgrades, while efforts to create genuinely new products have largely fallen flat. Yet through massive share buybacks, the firm has kept share prices high and investors mollified—and, thus, has avoided the discipline of the efficient marketplace. Microsoft, Lazonick says, is a company that is “run to keep share prices high rather than to keep people engaged.”25

This myopic, financialized innovation strategy is endemic across American corporate culture. Many big American technology firms have found that when it comes to R&D spending and returns, it’s much more capitally efficient to live off of past innovation, cut investment in the organizational capacities for future innovation (including worker skills), and spend the “savings” on their own shares. The dot-com sector is a classic example. Without decades of heavy investment by the likes of IBM, Hewlett-Packard, and Xerox—on top of massive public investments—the Internet wouldn’t have happened as early or as spectacularly as it did.26 Yet it is precisely in the dot-com space today where companies, under rising Wall Street pressure, have been most likely to reallocate R&D money into buybacks. From 2003 to 2012, Intel, the inventor of the microprocessor, spent $59.7 billion on share buybacks, or just a few billion dollars less than it spent on R&D, according to Lazonick. Cisco, a key early creator of Internet architecture, spent nearly $75 billion, more than one and a half times its R&D budget, on buybacks. More and more,

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