This shows that the trend is ongoing, with plenty of room to grow from here. In conjunction, a shift from an Industrial Age economy to the economies of today has meant that our biggest businesses are less capital intensive and more dependent on investments in intangible assets, a trend that accounting has not been able to keep up with. Forcing these companies to reinvest their earnings, rather than letting them pay it out, will only put more more money into bad businesses and create what I call “walking dead” companies, tying up capital that could be used more productively, if it were paid out to shareholders, who then can find better businesses to invest in. A couple of boutiques s in a gold mining company can be bought by a group of small investors by putting together all their money. As economic data points to an economy that is gradually recovering from the worst effects of the coronavirus crisis, which has killed nearly 200,000 Americans and left millions jobless, investors are increasingly sensitive to anything that suggests this improvement could be derailed, or that a vaccine may not be forthcoming as quickly as they hope. However, the economy’s past performance suggests that they are likely to rebound after the challenges experienced in 2020. Therefore, investors who have purchased struggling companies this year may benefit from an upturn in their operating outlook in 2021 and beyond.
Since they will now be paying much higher wages than their competitors, my guess is that these same companies will be quicker to shift to automation and will have smaller workforces in the future, and that those at the low end of the pay scale will be most hurt by this substitution. Asia, Eastern Europe and Latin America remain holdouts, though it is unclear how much of the reluctance to buy back stock is due to poor corporate governance. It is true that stock buybacks, at least in the form that you see them today, as cash return to stockholders, had their origins in the United States in the 1980s and it is also true that for a long time after that, much of the rest of the world either stayed with dividends and many countries had severe constraints on the use of buybacks. The narrative about stock buybacks that its detractors tell is that US companies have borrowed money and used that debt to fund buybacks, creating, at least in the narrative, sky-high debt ratios and rising default risk. I believe that both sides are operating from a false premise, since investing money back into bad businesses can make both economies and workers worse off.