Dear Yang,
Here are my answers to your questions. I hope they are not too long. I’ve tried to summarize my basic approach.
Michael Hudson
1. China emphasizes long-term economic planning and policy continuity, which has allowed stable growth even under external shocks. In contrast, Western economies often focus on short-term financial returns. How do you assess the impact of this short-term orientation on economic resilience and societal well-being?
MH: Finance always has lived in the short run. And in contrast to the traditional industrial capitalism, finance capitalism aims at making capital gains by debt leveraging and “financial engineering,” not industrial engineering. It extracts interest from labor by driving it – and its corporate employers – into debt, and by banks organizing monopolies in their role as “the mother of trusts.”
U.S. firms in recent years have spent 92% of their cash flow (overall profits) on stock buybacks and dividend payouts aimed at increasing the price of their common stock. That leaves only 8% of their returns to be reinvested in building new factories and employing more labor to expand their production. The effect of financializing Western industry has thus been to cannibalize it to make purely financial gains.
Financial managers aim at the short-term, because that is how their salaries and bonuses are based. Investing in research and development or even building a new electric utility or other long-term projects will benefit future managers, not the present ones. IBM is one example. It was known for spending $10 billion on stock buybacks instead of undertaking R&D. The result is that it missed out on the computer revolution, whose gains it left to other companies.
General Electric and Boeing are other once-great engineering companies that were cannibalized to provide short-tern revenue to increase their stock prices. They became a model of how to manage a business, not what to avoid.......