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> In the 20th century, U.S. companies put their excess profits into corporate research labs. Basic research in the U.S. was done in at Dupont, Bell Labs, IBM, A

> In the 20th century, U.S. companies put their excess profits into corporate research labs. Basic research in the U.S. was done in at Dupont, Bell Labs, IBM, AT&T, Xerox, Kodak, GE, et al. This changed in 1982, when the Securities and Exchange Commission ruled that it was legal for companies to buy their own stock (reducing the number of shares available to the public and inflating their stock price.) Very quickly Basic Science in corporate research all but disappeared. Companies focused on Applied Research to maximize shareholder value. In its place, Theory and Basic research is now done in research universities. I'm not seeing how you get from share buybacks to a shift in priorities in corporate research. If there's a fundamental reason why it can't be done now how it was before the 80's it's not that.

hiddencost 1y ago
Why not? Suddenly they had a more lucrative was to spend their money, so they did.
- computerphage 1y ago
  Because before buybacks there were dividends. Did the difference between buybacks and dividends really make the difference between doing basic research and not?
  - Retric 1y ago
    It’s likely, dividends provide higher levels of exponential growth long term for an otherwise steady state company. It makes them more compelling than many long term investments. Convert X% of a stocks value into a dividend and you pay taxes on that before you can buy more stock, but someone who keeps buying stock sees an exponential return. (Higher percentage of the company = larger dividends) A company buys back X% of its stock functions like a dividend w/ stock purchase, but without that tax on dividends you’re effectively buying more stock. Adding a tax on stock buybacks could eliminate such bias, but it’s unlikely to happen any time soon.
- 7thaccount 1y ago
  On one hand, sure. They're able to make an informed decision to maximize return to shareholders. On the other hand, a ton of amazing inventions came out of that system which created entire industries that went on to turbocharge the economy and create millions of jobs. I can see how someone may feel that a company being able to inflate it's stock price more is less useful to humanity and not worth the trade. There may have been other reasons as well for the collapse of corporate research like changing tax rates, or maybe we were just in a golden age (1940s-1980s) as new advancements in physics and materials science allowed for a rapid amount of discoveries and now we're back in a slower period.
  - dexwiz 1y ago
    Science takes years to decades to see a return. Much too long for the quarterly returns folks.
    - 7thaccount 1y ago
      I wonder if Milton Friedman regrets going out and popularizing that and saying the board has a duty to maximize shareholder profit and all that.
7thaccount 1y ago
Nothing against research universities as good stuff does occur there, but it just seems like it was such a a huge loss seeing those corporate labs disappear. I think it helps to have scientists and engineers closer to the problem and who don't have to spend a huge amount of their time writing grants and training grad students.
- terminalshort 1y ago
  And you can have a career track that normal people will actually want. The whole phd -> postdoc -> (maybe) tenured professor thing is such misery that I never even gave it a thought as a career.
- cjbgkagh 1y ago
  Having worked in corporate labs they really were great and it's a shame they're disappearing. It's not only share buybacks, I would include offshoring, DEI, and a consolidation of management power as major factors in the destruction these labs. The pipeline has been so bad for so long now that it would take a miracle to get things started again. The last org I worked at offshored the most promising work to China. Due to some high up international agreement the company had to spend $X on offshored workers so not only were they considered cheap they were considered free because the money had to be spent anyway and was coming out of someone else's budget. I was working at a Research Org when the DEI push came through and it was a absolute disaster. A lot of projects ended their internship programs and avoided hiring in order to minimize the exposure. The bargain was always, you can have 6 seats but 50% need to be women and 50% need to be minorities, and since everyone got the push at the same time it meant that due to the intense competition for the same people you'd end up really having to scrape the bottom of the barrel. That made a lot of initiatives unviable. I wasn't working at Yahoo Research but as I heard it was canned following a management rift. They were already bleeding talent for a while but had retained some good people that stayed out of comfort and inertia. The smart people cultivated in research orgs tend to be a competing source of power and management hates that.
  - fkyoureadthedoc 1y ago
    I'm not really seeing how the blacks and women ruined corporate research, can you expand on that more? Are you saying they were all retarded and without enough white, Asian, and Indian men nothing could be accomplished?
deleted 1y ago
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empath75 1y ago
You're not missing anything, it's just completely wrong.
photochemsyn 1y ago
The article doesn't mention that Bayh-Dole made it legal for a university to exclusively license a patent generated by a government-financed researcher to a corporation. Prior to this, if a corporation wanted to have exclusive rights to basic patents, they'd have to run their own private research labs to generate those patents. Prior to Bayh-Dole, university inventions were patented but there were no exclusive licensing deals. This means no competitive advantage; anyone can use license the patents (I believe any US citizen) before Bayh-Dole. So corporations largely stopped funding private research labs like Bell and instead entered into public-private partnerships; on the academic side we saw the rise of the shady enterpreneurial researcher whose business plan was to use government funds to generate patents (not uncommonly based on fraudulent research) which formed the basis of a start-up which was sold to a major corporation. The fix is simple: patents generated with taxpayer dollars at American universities should be available to any American citizen for a small licensing fee; if people want exclusive rights to patents, they need to put up the capital for the research institution themselves, as was the case with Bell Labs. Practically, this starts with a repeal of Bayh-Dole.
- terminalshort 1y ago
  This sounds like a much more reasonable explanation for the fall of the corporate labs.
- wbl 1y ago
  Repealing Bayh-Dole is a terrible idea. A lot of research produces enough to get a patent but still requires a lot more development to get a product. Drugs are probably the best example.
  - terribleperson 1y ago
    Wouldn't a company still be able to patent the additional development they did to turn the original research into a product? E.g. delivery method patents are very common. I don't see why they need to own the original research.
    - 1y ago
cratermoon 1y ago
Note the "maximize shareholder value" aspect. That's the essential driving force behind business since then: The Friedman doctrine. Now consider the choices a company makes when executives hold the Friedman doctrine as orthodoxy. Put money into basic research that might generate shareholder value in some unknown time, or buy their own stock back and pump up the price?
- terminalshort 1y ago
  Why would companies not want to maximize their value before share buybacks?
  - UncleMeat 1y ago
    Loads of reasons. The shareholder theory of corporate governance is actually not very old.
    - terminalshort 1y ago
      And what other theory is there? The only two I know of are the shareholder theory and the vague "Capitalism bad. Shareholder bad." theory, which isn't actually a theory, but a complaint.
  - cratermoon 1y ago
    Your question is a reflection of just how engrained the Friedman doctrine has become in business. Milton Friedman introduced his theory in 1970, but it really got a boost in the 80s. First in 1981 when President Reagan named him to his Economic Policy Advisory Board and again in 1988, when Reagan gave him the Presidential Medal of Freedom and the National Medal of Science. There are still many competing theories of business ethics, but the Friedman doctrine is what drives corporations today.
    - marcosdumay 1y ago
      Was anything form Friedman actually proven correct or worked on practice? I don't understand how he became such a big name. EDIT: Hum... Do the people downvoting have some answer?
dkyc 1y ago
It's not even clear that the premise is true. There's lots of 'research' done in the big tech companies. The biggest reason why companies don't seek to emulate "Dupont, Bell Labs, IBM, AT&T, Xerox, Kodak, GE", is probably that it reads like a list of textbox examples of "companies that failed to execute on their research findings", so clearly there was something wrong with this approach.
- graycat 1y ago
  It can appear that some famous companies pursue pure research as a source of public luster.
- _aavaa_ 1y ago
  That isn’t what they’re textbooks examples of. GE (under Jack Welch specifically) is a textbook example of how financialization and focusing on numbers at the expense of products destroys companies. Kodak is a textbook example of disruption. Yes they failed to capitalize on digital cameras specifically, but their research in all other areas was very much acted upon.
- oblio 1y ago
  Xerox and Kodak, at least, stumbled into the future and then refused it. The same thing will happen to Google & co. And DuPont is very much alive doing DuPont things.
  - bayindirh 1y ago
    ...and there's 3M and Würth.
    - wombatpm 1y ago
      The story with 3M and PostIt Notes is that the idea was originally rejected my management. The inventors created a batch and distributed them to all the executive admin assistants. When they went back a second time, they had the assistants speak up otherwise there would not be any more.
Eridrus 1y ago
Yeah, it's nonsense. I think the core problem is that innovators typically only capture low single digit percent of the value they generate for society. Bell Labs existed in an anomalous environment where their monopoly allowed them to capture more of the value of R&D, so they invested more into it. This is the typical argument for public subsidy of R&D across both public and private settings because this low capture rate means that it is underprovisioned for society's benefit.
- kevindamm 1y ago
  Something I haven't seen mentioned in this thread or TFA is just how high corporate taxes were (and even personal investment taxes) in the 50s and 60s, and this influenced spending on R&D immensely because that investment wasn't considered taxable income. Tax rates were over 50% for much of the era of Bell Labs and Xerox PARC.
twobitshifter 1y ago
Not why it can’t be done so much as why it isn’t done. Share buybacks allow companies to reward executives directly as their compensation is tied to stock price. If we started not doing that, the priorities might shift, but those executives like things the way they are. Before Tim Cook Apple had never done a buyback - Jobs was always thinking Apple could do better with the money in R&D than paying off shareholders. Wall Street did not approve of this position, but Jobs wasn’t one to listen to anybody, so it did not matter. Most CEOs are not going to take such a strong position when they, the stockholders, and every other executive can be guaranteed a financial reward through a buyback.
- bulletsvshumans 1y ago
  But dividends also result in a concrete financial reward for all shareholders, yes?
  - triceratops 1y ago
    > all shareholders That's the key phrase, they benefit all shareholders. Buybacks on the other hand only benefit the following shareholders: 1. those with regularly vesting stock options and stock grants - basically employees. For non-tech companies especially, this only means high-ranking employees 2. those who intend to sell - that is, soon-to-be-ex shareholders 3. those who borrow against their stock - typically high-net-worth individuals who own a lot of the stock Stock buybacks are thus a non-egalitarian way to return profits. To reward all shareholders equally, pay dividends.
    - saulpw 1y ago
      Can't group #2 sell 4% of their holdings, thereby remaining shareholders, and delivering to themselves the tax-advantaged equivalent of a 4% dividend?
      - nyeah 1y ago
        If I'm reading it right, group #2 plan to sell 100% of their holdings during times of heavy buybacks. I think they intend to benefit as much as possible from whatever price increase might be driven by the buyback demand.
HardCodedBias 1y ago
Of course the relation is minimal if it exists at all. Stock buybacks are simply a more tax efficient dividend.
- _DeadFred_ 1y ago
  Of course, I forgot how management's compensation used to be 'dividend options'.
intalentive 1y ago
I read "stock buybacks in 1982" as shorthand for "financialization and short-term thinking at the expense of long-term gains", which certainly happened across corporate America and Britain starting with Reagan and Thatcher.
- terminalshort 1y ago
  You state that as if it is a fact, but from what I see the tech industry has engaged in the longest term corporate strategies I have ever seen. Amazon took losses for the better part of two decades before it showed a profit, and public markets would never even fund a venture like SpaceX.
  - _DeadFred_ 1y ago
    Amazon is a dystopian nightmare of a company. Amazon took losses in order to decimate their competition. Their business model you hype is evil af. They have to have people planning for when they run out of local workers their warehouses are so bad. They allow in fake fuses and tons of other fake products because they are cool with the risk to peoples lives. Instead of giving you decent search results they sell ad spots. So yes, Amazon represents 'good management thinking' post 2010. But not corporate thinking pre 1980s that, you know, build the US/UK to the positions they were able to cost on up until now.
  - Yoric 1y ago
    Good point. And both Google and Apple used to reinvest all benefits in R&D. My impression is that as they calcify into money-printing machines, this stopped. An example being Google's famed 20% that are apparently a long dead memory.
- TheOtherHobbes 1y ago
  In tech it was the switch from creative corporatism, which is focused on opportunities, invention, and infrastructure, to extractive corporatism and oligarchy, which are focused on scams, exploitation, and the creation of rigid hierarchies of privilege. We're now in the end stage of the latter in the US. The US still plays at invention - or rather a few of its oligarchs do - but it's far, far behind what's happening in other countries.
tehjoker 1y ago
Ma Bell actually was regulated and mandated to put profits into research. It wasn’t a choice though they could go above the minimums I presume.
dzonga 1y ago
share buybacks are sort of a voting mechanism - it shows the company has no other uses for the money than to reward shareholders - hence pumping stock price up. if the company has a vision - then reinvesting that money into research or what else is better. it might reap the benefits, it might not. companies use buybacks if they can't do anything productive with the money - Apple is a recent example.
- terminalshort 1y ago
  And before buybacks they used distributions, which have always been allowed, so there has been no change there.
- astrange 1y ago
  The buybacks also compensate for dilution from paying employees in shares.
insane_dreamer 1y ago
> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research. pretty easily: stock buybacks allow you to directly reward executives and funnel profits back to shareholders (by increasing share prices), making the company appear more valuable (further driving investment) research brings long-term benefits, and immediate outcomes don't show up in 10-Qs
constantcrying 1y ago
It is a totally delusional argument. Companies always could reward their shareholders, stock buybacks aren't fundamentally different from paying dividends to shareholders. The idea that stock buybacks are what caused a decrease in company funded basic science is ridiculous. Only in very rare cases is doing basic science anything but a total waste of money, viewed from a commercial perspective. Companies should seek to be commercial entities, which operate for profit. Anything else is just self destruction. Look at Bell Labs, it could only exist because some company decided it could use a money shredder. Bell Labs could not survive the dismantling of the Bell telephone monopoly, because ending that monopoly ended the prerequisite that was needed to allow it to exist.
- _DeadFred_ 1y ago
  Yes yes, companies used to compensate management with 'dividend options' so switching to stock options totally didn't pervert management's incentives. And management doesn't manipulate the stock using stock buybacks. Why would they? Their performance and compensation are only completely tied to stock price. But no, stock buybacks don't allow perverse incentives that lead to short term thinking different than dividends. Totally the same.
  - constantcrying 1y ago
    If you write something which is more than pure sarcasm it might become readable and form into a coherent argument. Do you genuinely believe that the breakup of the Bell monopoly had a smaller effect on Bell Labs than stock buybacks? Stock buybacks also are not stock manipulation and managers aren't rewarded because they buy back stocks. The board understand what a stock buyback is, they reward managers for being able to buy back stocks, in other words, they reward them for profits, which are then paid in buybacks or dividends. Stock buy backs are a tool corporations use to reward shareholders, they have no fundamental difference to dividends. Dividends have the exact same short term incentives. Do you think that a manager can not be rewarded for his paying out dividends, which leads him to cut R&D spending to increase short term profits? It is just delusional to think that there is a difference and certainly in the scientific literature about corporate finance it would be a fringe belief to separate those two as you do. To be honest it is a bit upsetting to read a comment with so little understanding of the subject and so little imagination. Do you truly believe that managers can not have short term dividend goals? How uninformed are you.
m463 1y ago
> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research seems to me investing in your own company: before: use funds actively for research and development after: use funds passively to "invest" in your company by buying stock seems like that old parable where someone buries their investment. EDIT: parable of the talents https://en.wikipedia.org/wiki/Parable_of_the_Talents https://en.wikipedia.org/wiki/Parable_of_the_Talents
cameldrv 1y ago
At least for AT&T, Kodak, and IBM, what was funding their research divisions was monopoly profits. When those dried up, the research dried up as well. The modern equivalent to AT&T is Google.
nobodyandproud 1y ago
This is disingenuous. The driver behind the buybacks was also the motive to shift from research and manufacturing and into profits. The massive failure is in inaccurately quantifying the true value of these labs.
aurareturn 1y ago
Share buyback is the same as giving dividends - except the share holder doesn’t have to pay taxes until they sell. To the company, they spend the same amount on share buyback vs giving dividends. I don’t see how this argument holds up. Further more, while some might argue that corporate R&D is better due to being closer to the problem but it is private research and not shared with the world like university research is.
- kristianp 1y ago
  It's not exactly the same: if the company does buybacks and then loses value or goes bankrupt, shareholders never get the benefit of those buybacks.
  - wordpad 1y ago
    Shareholder prefer buybacks for tax reasons. He didn't say it was exactly same, only that in principle it's the same - company returning money to shareholders. Such an action has no effect on company valuation.
  - vpribish 1y ago
    depends how sophisticated the investor in the story is. it thay are perfect homo economicus they would have been selling some of those inflated shares to do what they would have done with the dividends
  - dehrmann 1y ago
    If they really wanted that dividend, they could see that the company is doing $X in buybacks, figure out what percent of its market cap that works out to, sell a corresponding amount, and pretend it's a dividend. A lot of shareholders also DRIP, but they should prefer buybacks for tax reasons.
queuebert 1y ago
Corporate R&D dies under the short-term thinking of quarterly profits. The best pure R&D seems to be coming from private companies that are able to sustain losses for long periods of time until a significant breakthrough is achieved (e.g. SpaceX, OpenAI, etc.).
matwood 1y ago
Ah yes. The share buyback boogie man. If only companies couldn’t buy back shares then all that extra money would flow into research, except not. Shareholders would be demanding dividends.
hlfshell 1y ago
What's missing from this explanation is that the corporate tax rate was also much higher, but R&D dramatically cut down profit that would be taxed and was taxed lower. So large corporations like Bell Labs and co would basically say "do we give the government X in taxes, or do we spend X on research?". They chose research, so we got the technology that powers our world. That, combined with stock buybacks and the general take over of Friedman-economics resulted in a far more focused short term thinking and outsourcing research as much as possible due to uncertain horizon risks.
- potato3732842 1y ago
  Exactly. These days you're better off giving it to a university with strings attached. Sure, they might piss a bunch of it away, but when you account for the dollars on the subject you care about after taxes are leeched out it's still more efficient than building out research within the confines of a for-profit entity that gets taxed at such. This is why we no longer have corporate research labs and damn near every university is bristling with BigCo funded stuff.
nobodywillobsrv 1y ago
A few points that seem to be going unstated here: a) allowing share buy-backs might be good or bad. But it isn't good or bad unconditionally! The restrictions on the buyback policy should matter. Ideally, buybacks should make prices boring not create ultra thin books with hefty valuations that are cheaper to manipulate. But it seems the regulations around buybacks are in line with incentivizing growth and not stabilizing real prices. b) to some extent putting uncertain/opaque research inside corporations is a defense against getting into regimes where it becomes easier to manipulate prices. I hadn't thought of it before, but if if important public companies become beholden to traded price and it becomes easy enough for large foreign entities to move markets, then it is simply a matter of "pricing" short term market punishment of a company for any policy you don't like. Yes, this might seem a bit far fetched, but remember that this kind of incremental worsening of outcomes is precisely what people say is hapenning via regulation and legal challenge in key industries. Just some interesting thought legs spun off from the discussions here.
philipallstar 1y ago
> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research. Share buybacks are just the new go-to thing to blame. Economics students (at least "development economics") are memorising this concept all over the globe, so you can expect it more and more.
- modo_mario 1y ago
  New? It's been blamed for a long time now. And it makes sense on this front. You make tax optimising by dumping profits on R&D less attractive (and around the same time change patenting law with bayh-dole) and make it more attractive to spend it on stock buybacks to directly benefit shareholders Results seen in the real world line up as less is spent on the former and more on the later so i'm not sure how the blame is unfounded
RcouF1uZ4gsC 1y ago
I would agree the anti-monopoly action had far more to do with that. Basically, if you you think you can leverage your R&D into maintaining your monopoly and extending it to other areas it makes sense if for nothing else to keep the smart people who might otherwise disrupt your monopoly connected to you. But if you are going to get broken up, just take as much short term profits as soon as you can
notfromhere 1y ago
New Deal-era regulations on financial flows made it painful tax-wise to remove cash from a company. So you either had to pay it as dividends, or you invest it in R&D, wages, or benefits for employees (this is why companies used to have very plush benefits even for lower level managers). When combined with pretty aggressive anti-trust, it also funneled cash into business expansion via conglomerates. Companies were asset rich (which is the seam of valuable companies that private equity has been strip mining for 40 years, but even those are running out now). Share buybacks are more symbolic that the Reagan era made it easy to take cash out of companies, which led to a race to the bottom of extracting as much cash as possible while leaving little for operations, wages, or expansion.
advisedwang 1y ago
Previously a company could: 1. Re-invest profits in R&D. Benefit to shareholder: potentially grow the value of their shares dramatically. 2. Make a dividend. Benefit to shareholder: cash that they can re-invest or use, LESS capital gains tax. Ending stock buybacks creates another option: 3. Buyback stock. Benefit to shareholder: increased share value, and they can control when it is realized. If there are boards that believe (3) > (1) > (2), then allowing stock buybacks will result in those companies shifting R&D investment into buybacks.

hiddencost 1y ago

Why not? Suddenly they had a more lucrative was to spend their money, so they did.

computerphage 1y ago
Because before buybacks there were dividends. Did the difference between buybacks and dividends really make the difference between doing basic research and not?
- Retric 1y ago
  It’s likely, dividends provide higher levels of exponential growth long term for an otherwise steady state company. It makes them more compelling than many long term investments. Convert X% of a stocks value into a dividend and you pay taxes on that before you can buy more stock, but someone who keeps buying stock sees an exponential return. (Higher percentage of the company = larger dividends) A company buys back X% of its stock functions like a dividend w/ stock purchase, but without that tax on dividends you’re effectively buying more stock. Adding a tax on stock buybacks could eliminate such bias, but it’s unlikely to happen any time soon.
7thaccount 1y ago
On one hand, sure. They're able to make an informed decision to maximize return to shareholders. On the other hand, a ton of amazing inventions came out of that system which created entire industries that went on to turbocharge the economy and create millions of jobs. I can see how someone may feel that a company being able to inflate it's stock price more is less useful to humanity and not worth the trade. There may have been other reasons as well for the collapse of corporate research like changing tax rates, or maybe we were just in a golden age (1940s-1980s) as new advancements in physics and materials science allowed for a rapid amount of discoveries and now we're back in a slower period.
- dexwiz 1y ago
  Science takes years to decades to see a return. Much too long for the quarterly returns folks.
  - 7thaccount 1y ago
    I wonder if Milton Friedman regrets going out and popularizing that and saying the board has a duty to maximize shareholder profit and all that.

7thaccount 1y ago

Nothing against research universities as good stuff does occur there, but it just seems like it was such a a huge loss seeing those corporate labs disappear. I think it helps to have scientists and engineers closer to the problem and who don't have to spend a huge amount of their time writing grants and training grad students.

terminalshort 1y ago
And you can have a career track that normal people will actually want. The whole phd -> postdoc -> (maybe) tenured professor thing is such misery that I never even gave it a thought as a career.
cjbgkagh 1y ago
Having worked in corporate labs they really were great and it's a shame they're disappearing. It's not only share buybacks, I would include offshoring, DEI, and a consolidation of management power as major factors in the destruction these labs. The pipeline has been so bad for so long now that it would take a miracle to get things started again. The last org I worked at offshored the most promising work to China. Due to some high up international agreement the company had to spend $X on offshored workers so not only were they considered cheap they were considered free because the money had to be spent anyway and was coming out of someone else's budget. I was working at a Research Org when the DEI push came through and it was a absolute disaster. A lot of projects ended their internship programs and avoided hiring in order to minimize the exposure. The bargain was always, you can have 6 seats but 50% need to be women and 50% need to be minorities, and since everyone got the push at the same time it meant that due to the intense competition for the same people you'd end up really having to scrape the bottom of the barrel. That made a lot of initiatives unviable. I wasn't working at Yahoo Research but as I heard it was canned following a management rift. They were already bleeding talent for a while but had retained some good people that stayed out of comfort and inertia. The smart people cultivated in research orgs tend to be a competing source of power and management hates that.
- fkyoureadthedoc 1y ago
  I'm not really seeing how the blacks and women ruined corporate research, can you expand on that more? Are you saying they were all retarded and without enough white, Asian, and Indian men nothing could be accomplished?

deleted 1y ago

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empath75 1y ago

You're not missing anything, it's just completely wrong.

photochemsyn 1y ago

The article doesn't mention that Bayh-Dole made it legal for a university to exclusively license a patent generated by a government-financed researcher to a corporation. Prior to this, if a corporation wanted to have exclusive rights to basic patents, they'd have to run their own private research labs to generate those patents. Prior to Bayh-Dole, university inventions were patented but there were no exclusive licensing deals. This means no competitive advantage; anyone can use license the patents (I believe any US citizen) before Bayh-Dole. So corporations largely stopped funding private research labs like Bell and instead entered into public-private partnerships; on the academic side we saw the rise of the shady enterpreneurial researcher whose business plan was to use government funds to generate patents (not uncommonly based on fraudulent research) which formed the basis of a start-up which was sold to a major corporation. The fix is simple: patents generated with taxpayer dollars at American universities should be available to any American citizen for a small licensing fee; if people want exclusive rights to patents, they need to put up the capital for the research institution themselves, as was the case with Bell Labs. Practically, this starts with a repeal of Bayh-Dole.

terminalshort 1y ago
This sounds like a much more reasonable explanation for the fall of the corporate labs.
wbl 1y ago
Repealing Bayh-Dole is a terrible idea. A lot of research produces enough to get a patent but still requires a lot more development to get a product. Drugs are probably the best example.
- terribleperson 1y ago
  Wouldn't a company still be able to patent the additional development they did to turn the original research into a product? E.g. delivery method patents are very common. I don't see why they need to own the original research.
  - 1y ago

cratermoon 1y ago

Note the "maximize shareholder value" aspect. That's the essential driving force behind business since then: The Friedman doctrine. Now consider the choices a company makes when executives hold the Friedman doctrine as orthodoxy. Put money into basic research that might generate shareholder value in some unknown time, or buy their own stock back and pump up the price?

terminalshort 1y ago
Why would companies not want to maximize their value before share buybacks?
- UncleMeat 1y ago
  Loads of reasons. The shareholder theory of corporate governance is actually not very old.
  - terminalshort 1y ago
    And what other theory is there? The only two I know of are the shareholder theory and the vague "Capitalism bad. Shareholder bad." theory, which isn't actually a theory, but a complaint.
- cratermoon 1y ago
  Your question is a reflection of just how engrained the Friedman doctrine has become in business. Milton Friedman introduced his theory in 1970, but it really got a boost in the 80s. First in 1981 when President Reagan named him to his Economic Policy Advisory Board and again in 1988, when Reagan gave him the Presidential Medal of Freedom and the National Medal of Science. There are still many competing theories of business ethics, but the Friedman doctrine is what drives corporations today.
  - marcosdumay 1y ago
    Was anything form Friedman actually proven correct or worked on practice? I don't understand how he became such a big name. EDIT: Hum... Do the people downvoting have some answer?

dkyc 1y ago

It's not even clear that the premise is true. There's lots of 'research' done in the big tech companies. The biggest reason why companies don't seek to emulate "Dupont, Bell Labs, IBM, AT&T, Xerox, Kodak, GE", is probably that it reads like a list of textbox examples of "companies that failed to execute on their research findings", so clearly there was something wrong with this approach.

graycat 1y ago
It can appear that some famous companies pursue pure research as a source of public luster.
_aavaa_ 1y ago
That isn’t what they’re textbooks examples of. GE (under Jack Welch specifically) is a textbook example of how financialization and focusing on numbers at the expense of products destroys companies. Kodak is a textbook example of disruption. Yes they failed to capitalize on digital cameras specifically, but their research in all other areas was very much acted upon.
oblio 1y ago
Xerox and Kodak, at least, stumbled into the future and then refused it. The same thing will happen to Google & co. And DuPont is very much alive doing DuPont things.
- bayindirh 1y ago
  ...and there's 3M and Würth.
  - wombatpm 1y ago
    The story with 3M and PostIt Notes is that the idea was originally rejected my management. The inventors created a batch and distributed them to all the executive admin assistants. When they went back a second time, they had the assistants speak up otherwise there would not be any more.

Eridrus 1y ago

Yeah, it's nonsense. I think the core problem is that innovators typically only capture low single digit percent of the value they generate for society. Bell Labs existed in an anomalous environment where their monopoly allowed them to capture more of the value of R&D, so they invested more into it. This is the typical argument for public subsidy of R&D across both public and private settings because this low capture rate means that it is underprovisioned for society's benefit.

kevindamm 1y ago
Something I haven't seen mentioned in this thread or TFA is just how high corporate taxes were (and even personal investment taxes) in the 50s and 60s, and this influenced spending on R&D immensely because that investment wasn't considered taxable income. Tax rates were over 50% for much of the era of Bell Labs and Xerox PARC.

twobitshifter 1y ago

Not why it can’t be done so much as why it isn’t done. Share buybacks allow companies to reward executives directly as their compensation is tied to stock price. If we started not doing that, the priorities might shift, but those executives like things the way they are. Before Tim Cook Apple had never done a buyback - Jobs was always thinking Apple could do better with the money in R&D than paying off shareholders. Wall Street did not approve of this position, but Jobs wasn’t one to listen to anybody, so it did not matter. Most CEOs are not going to take such a strong position when they, the stockholders, and every other executive can be guaranteed a financial reward through a buyback.

bulletsvshumans 1y ago
But dividends also result in a concrete financial reward for all shareholders, yes?
- triceratops 1y ago
  > all shareholders That's the key phrase, they benefit all shareholders. Buybacks on the other hand only benefit the following shareholders: 1. those with regularly vesting stock options and stock grants - basically employees. For non-tech companies especially, this only means high-ranking employees 2. those who intend to sell - that is, soon-to-be-ex shareholders 3. those who borrow against their stock - typically high-net-worth individuals who own a lot of the stock Stock buybacks are thus a non-egalitarian way to return profits. To reward all shareholders equally, pay dividends.
  - saulpw 1y ago
    Can't group #2 sell 4% of their holdings, thereby remaining shareholders, and delivering to themselves the tax-advantaged equivalent of a 4% dividend?
    - nyeah 1y ago
      If I'm reading it right, group #2 plan to sell 100% of their holdings during times of heavy buybacks. I think they intend to benefit as much as possible from whatever price increase might be driven by the buyback demand.

HardCodedBias 1y ago

Of course the relation is minimal if it exists at all. Stock buybacks are simply a more tax efficient dividend.

_DeadFred_ 1y ago
Of course, I forgot how management's compensation used to be 'dividend options'.

intalentive 1y ago

I read "stock buybacks in 1982" as shorthand for "financialization and short-term thinking at the expense of long-term gains", which certainly happened across corporate America and Britain starting with Reagan and Thatcher.

terminalshort 1y ago
You state that as if it is a fact, but from what I see the tech industry has engaged in the longest term corporate strategies I have ever seen. Amazon took losses for the better part of two decades before it showed a profit, and public markets would never even fund a venture like SpaceX.
- _DeadFred_ 1y ago
  Amazon is a dystopian nightmare of a company. Amazon took losses in order to decimate their competition. Their business model you hype is evil af. They have to have people planning for when they run out of local workers their warehouses are so bad. They allow in fake fuses and tons of other fake products because they are cool with the risk to peoples lives. Instead of giving you decent search results they sell ad spots. So yes, Amazon represents 'good management thinking' post 2010. But not corporate thinking pre 1980s that, you know, build the US/UK to the positions they were able to cost on up until now.
- Yoric 1y ago
  Good point. And both Google and Apple used to reinvest all benefits in R&D. My impression is that as they calcify into money-printing machines, this stopped. An example being Google's famed 20% that are apparently a long dead memory.
TheOtherHobbes 1y ago
In tech it was the switch from creative corporatism, which is focused on opportunities, invention, and infrastructure, to extractive corporatism and oligarchy, which are focused on scams, exploitation, and the creation of rigid hierarchies of privilege. We're now in the end stage of the latter in the US. The US still plays at invention - or rather a few of its oligarchs do - but it's far, far behind what's happening in other countries.

tehjoker 1y ago

Ma Bell actually was regulated and mandated to put profits into research. It wasn’t a choice though they could go above the minimums I presume.

dzonga 1y ago

share buybacks are sort of a voting mechanism - it shows the company has no other uses for the money than to reward shareholders - hence pumping stock price up. if the company has a vision - then reinvesting that money into research or what else is better. it might reap the benefits, it might not. companies use buybacks if they can't do anything productive with the money - Apple is a recent example.

terminalshort 1y ago
And before buybacks they used distributions, which have always been allowed, so there has been no change there.
astrange 1y ago
The buybacks also compensate for dilution from paying employees in shares.

insane_dreamer 1y ago

> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research. pretty easily: stock buybacks allow you to directly reward executives and funnel profits back to shareholders (by increasing share prices), making the company appear more valuable (further driving investment) research brings long-term benefits, and immediate outcomes don't show up in 10-Qs

constantcrying 1y ago

It is a totally delusional argument. Companies always could reward their shareholders, stock buybacks aren't fundamentally different from paying dividends to shareholders. The idea that stock buybacks are what caused a decrease in company funded basic science is ridiculous. Only in very rare cases is doing basic science anything but a total waste of money, viewed from a commercial perspective. Companies should seek to be commercial entities, which operate for profit. Anything else is just self destruction. Look at Bell Labs, it could only exist because some company decided it could use a money shredder. Bell Labs could not survive the dismantling of the Bell telephone monopoly, because ending that monopoly ended the prerequisite that was needed to allow it to exist.

_DeadFred_ 1y ago
Yes yes, companies used to compensate management with 'dividend options' so switching to stock options totally didn't pervert management's incentives. And management doesn't manipulate the stock using stock buybacks. Why would they? Their performance and compensation are only completely tied to stock price. But no, stock buybacks don't allow perverse incentives that lead to short term thinking different than dividends. Totally the same.
- constantcrying 1y ago
  If you write something which is more than pure sarcasm it might become readable and form into a coherent argument. Do you genuinely believe that the breakup of the Bell monopoly had a smaller effect on Bell Labs than stock buybacks? Stock buybacks also are not stock manipulation and managers aren't rewarded because they buy back stocks. The board understand what a stock buyback is, they reward managers for being able to buy back stocks, in other words, they reward them for profits, which are then paid in buybacks or dividends. Stock buy backs are a tool corporations use to reward shareholders, they have no fundamental difference to dividends. Dividends have the exact same short term incentives. Do you think that a manager can not be rewarded for his paying out dividends, which leads him to cut R&D spending to increase short term profits? It is just delusional to think that there is a difference and certainly in the scientific literature about corporate finance it would be a fringe belief to separate those two as you do. To be honest it is a bit upsetting to read a comment with so little understanding of the subject and so little imagination. Do you truly believe that managers can not have short term dividend goals? How uninformed are you.

m463 1y ago

> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research seems to me investing in your own company: before: use funds actively for research and development after: use funds passively to "invest" in your company by buying stock seems like that old parable where someone buries their investment. EDIT: parable of the talents https://en.wikipedia.org/wiki/Parable_of_the_Talents https://en.wikipedia.org/wiki/Parable_of_the_Talents

cameldrv 1y ago

At least for AT&T, Kodak, and IBM, what was funding their research divisions was monopoly profits. When those dried up, the research dried up as well. The modern equivalent to AT&T is Google.

nobodyandproud 1y ago

This is disingenuous. The driver behind the buybacks was also the motive to shift from research and manufacturing and into profits. The massive failure is in inaccurately quantifying the true value of these labs.

aurareturn 1y ago

Share buyback is the same as giving dividends - except the share holder doesn’t have to pay taxes until they sell. To the company, they spend the same amount on share buyback vs giving dividends. I don’t see how this argument holds up. Further more, while some might argue that corporate R&D is better due to being closer to the problem but it is private research and not shared with the world like university research is.

kristianp 1y ago
It's not exactly the same: if the company does buybacks and then loses value or goes bankrupt, shareholders never get the benefit of those buybacks.
- wordpad 1y ago
  Shareholder prefer buybacks for tax reasons. He didn't say it was exactly same, only that in principle it's the same - company returning money to shareholders. Such an action has no effect on company valuation.
- vpribish 1y ago
  depends how sophisticated the investor in the story is. it thay are perfect homo economicus they would have been selling some of those inflated shares to do what they would have done with the dividends
- dehrmann 1y ago
  If they really wanted that dividend, they could see that the company is doing $X in buybacks, figure out what percent of its market cap that works out to, sell a corresponding amount, and pretend it's a dividend. A lot of shareholders also DRIP, but they should prefer buybacks for tax reasons.

queuebert 1y ago

Corporate R&D dies under the short-term thinking of quarterly profits. The best pure R&D seems to be coming from private companies that are able to sustain losses for long periods of time until a significant breakthrough is achieved (e.g. SpaceX, OpenAI, etc.).

matwood 1y ago

Ah yes. The share buyback boogie man. If only companies couldn’t buy back shares then all that extra money would flow into research, except not. Shareholders would be demanding dividends.

hlfshell 1y ago

What's missing from this explanation is that the corporate tax rate was also much higher, but R&D dramatically cut down profit that would be taxed and was taxed lower. So large corporations like Bell Labs and co would basically say "do we give the government X in taxes, or do we spend X on research?". They chose research, so we got the technology that powers our world. That, combined with stock buybacks and the general take over of Friedman-economics resulted in a far more focused short term thinking and outsourcing research as much as possible due to uncertain horizon risks.

potato3732842 1y ago
Exactly. These days you're better off giving it to a university with strings attached. Sure, they might piss a bunch of it away, but when you account for the dollars on the subject you care about after taxes are leeched out it's still more efficient than building out research within the confines of a for-profit entity that gets taxed at such. This is why we no longer have corporate research labs and damn near every university is bristling with BigCo funded stuff.

nobodywillobsrv 1y ago

A few points that seem to be going unstated here: a) allowing share buy-backs might be good or bad. But it isn't good or bad unconditionally! The restrictions on the buyback policy should matter. Ideally, buybacks should make prices boring not create ultra thin books with hefty valuations that are cheaper to manipulate. But it seems the regulations around buybacks are in line with incentivizing growth and not stabilizing real prices. b) to some extent putting uncertain/opaque research inside corporations is a defense against getting into regimes where it becomes easier to manipulate prices. I hadn't thought of it before, but if if important public companies become beholden to traded price and it becomes easy enough for large foreign entities to move markets, then it is simply a matter of "pricing" short term market punishment of a company for any policy you don't like. Yes, this might seem a bit far fetched, but remember that this kind of incremental worsening of outcomes is precisely what people say is hapenning via regulation and legal challenge in key industries. Just some interesting thought legs spun off from the discussions here.

philipallstar 1y ago

> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research. Share buybacks are just the new go-to thing to blame. Economics students (at least "development economics") are memorising this concept all over the globe, so you can expect it more and more.

modo_mario 1y ago
New? It's been blamed for a long time now. And it makes sense on this front. You make tax optimising by dumping profits on R&D less attractive (and around the same time change patenting law with bayh-dole) and make it more attractive to spend it on stock buybacks to directly benefit shareholders Results seen in the real world line up as less is spent on the former and more on the later so i'm not sure how the blame is unfounded

RcouF1uZ4gsC 1y ago

I would agree the anti-monopoly action had far more to do with that. Basically, if you you think you can leverage your R&D into maintaining your monopoly and extending it to other areas it makes sense if for nothing else to keep the smart people who might otherwise disrupt your monopoly connected to you. But if you are going to get broken up, just take as much short term profits as soon as you can

notfromhere 1y ago

New Deal-era regulations on financial flows made it painful tax-wise to remove cash from a company. So you either had to pay it as dividends, or you invest it in R&D, wages, or benefits for employees (this is why companies used to have very plush benefits even for lower level managers). When combined with pretty aggressive anti-trust, it also funneled cash into business expansion via conglomerates. Companies were asset rich (which is the seam of valuable companies that private equity has been strip mining for 40 years, but even those are running out now). Share buybacks are more symbolic that the Reagan era made it easy to take cash out of companies, which led to a race to the bottom of extracting as much cash as possible while leaving little for operations, wages, or expansion.

advisedwang 1y ago

Previously a company could: 1. Re-invest profits in R&D. Benefit to shareholder: potentially grow the value of their shares dramatically. 2. Make a dividend. Benefit to shareholder: cash that they can re-invest or use, LESS capital gains tax. Ending stock buybacks creates another option: 3. Buyback stock. Benefit to shareholder: increased share value, and they can control when it is realized. If there are boards that believe (3) > (1) > (2), then allowing stock buybacks will result in those companies shifting R&D investment into buybacks.