> 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.
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.
> Share buybacks allow companies to reward executives directly as their compensation is tied to stock price.
To be fair share owners also like the stock price to go higher, they also like dividends (and higher dividends would tend to drive the stock price higher too), but an X% increase in share price caused by buybacks is favoured over an X% dividend because it isn’t immediately taxed.
If companies want to reward executives directly they can cut out shareholders entirely and pay salaries and bonuses. If companies want to reward shareholders (including executives) they can pay dividends (which Apple did do under Jobs). Nothing about the priorities of companies changed with share buybacks.
Here's what you said:
"If companies want to reward executives directly they can cut out shareholders entirely and pay salaries and bonuses. If companies want to reward shareholders (including executives) they can pay dividends (which Apple did do under Jobs). Nothing about the priorities of companies changed with share buybacks."
My response (and the whole thread) is pointing out that buybacks are another way to reward executives who have received shares as compensation. Buybacks are not reported as an expense. They are reported as an investment.
This is all boilerplate, very far from "what does that even mean?" territory.
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.
It seems like your assumption is that a stock buyback is a short term gain.
One of your arguments is that the strike price for options is set based on a certain amount of stock in circulation, and decreasing that amount will “artificially” raise the stock price, making the options more valuable. I agree that higher stock price benefits those with options, and I would even agree that it is possible that when those strike prices were valued, the valuation did not take into account the possible global change in the amount of stock (although a market would have included this valuation).
I suppose the other part of the argument could be that R&D is good for the stock in the long term in a way that stock buybacks are not… the buybacks pumping up the price of the stock before it is driven into the dirt by competitors who do invest in R&D.
There, I’ve done my best for your argument but I still don’t really believe that increased stock prices for everyone is not benefiting everyone more or less equally.
> It seems like your assumption is that a stock buyback is a short term gain.
My argument is a stock buyback isn't a gain for a long-term, buy-and-hold investor. Unless
a) they sell some of the stock or
b) it pays dividends
they don't see the benefit of a higher stock price or reduced share count.
Qualified dividends and long term capital gains are taxed at the same rate. So anyone who says "buybacks are more tax-advantaged" is leaving out the second part: "because you can borrow against a higher stock price without paying taxes". Since most (non-rich) people don't do that stock buybacks have the same tax (dis)advantage as dividends. If you know of a way to get tax-free money out of a higher stock price other than borrowing on margin, please tell me. I'd love to learn.
> decreasing that amount will “artificially” raise the stock price
It isn't "artificial". There are fewer shares in circulation/more demand for the shares. That legitimately translates into a higher price. But stock options and grants are generally given to employees and especially executives. So a reduced share count and higher share price is particularly good for them.
> One of your arguments is that the strike price for options is set based on a certain amount of stock in circulation
My argument was more that when employees are paid a significant portion of their compensation in stock they tend to sell much of it upon vest (sensibly) in order to diversify or even just to pay their bills. Ergo, being frequent sellers, they benefit from the higher stock price more than they would from regular dividend payments. A higher stock price directly translates into higher compensation. Wouldn't this be a powerful incentive for company management to prefer buybacks over dividends?
> I suppose the other part of the argument could be that R&D is good for the stock in the long term
I didn't say anything about R&D spending. A company should return as much profit to shareholders as it sees fit.
I was rebutting the common, I believe simple-minded, argument that buybacks and dividends are completely equivalent. Even though the company spends the same amount of money, I think they are different in some very significant ways.
I think I'm mostly agreeing. Anyway here's my story.
Buybacks can be good or bad for shareholders, depending on the buyback price.
Example. I take $1000 and securitize it as 1000 shares. The company sells the shares for $1 each. This is a no-fee closed fund, whatever. I'm the "CEO". I personally buy 1 share.
Anyway, one day the stock trades at $0.90 and the company buys back 500 shares at that price. (How $0.90? Maybe the largest shareholder was distressed and needed cash, maybe somebody didn't read the SEC filings. Maybe "the ticker tells the whole story" and the ticker told $0.90 for a few days. It doesn't matter.) Now the company holds $550 and has 500 shares outstanding. Each share owns $1.10 of USD. Expenses are zero. I kindly volunteer my services as CEO and sole employee.
Pretty soon the stock might trade around $1.10. (Why $1.10? wHo knows?) The people who sold for $0.90 might regret that decision now. Continuing shareholders make money if they sell now. Was this "good for shareholders"? Depends on which shareholder.
Now I (the CEO) decide the company will do a buyback. The company offers $2 a share. I sell my own share for $2. To make it simple, say the company buys back 275 shares at $2. Now it's broke. The remaining shares trade for ... whatever. Somewhere between $3 and $0? ($3 because growth rate!)
I personally doubled my investment. Anybody who sold at $2 also did well.
That's not a valid example of things that can happen in the market. You're making up ridiculously unrealistic numbers and clearly don't understand the basics of how the process works.
Share buybacks are always executed at the current market price. The company doesn't offer a higher price. A large buyback order might move the share price up a tiny bit but triggering an increase from $1 to $2 is impossible for any company traded on a major US exchange.
Well there you go again, lying and making things up. No stock buyback has ever caused a doubling in share prices. Going through intermediate prices is irrelevant.
Yes, it was a made-up example. I feel that was obvious.
If your point [about share price jumping suddenly] was irrelevant, then maybe you shouldn't have mentioned it. How is this my problem?
I see that you edited your previous comment before replying. Very clever. Now (12:03 Pacific) you have a company worth $1000 trading on a major stock exchange. Ok.
Maybe you can make a spreadsheet similar to what I described in words, but using more believable numbers. If so, you can see the kind of effects I'm talking about. Buybacks are good for some shareholders and bad for others. Buybacks can be used to reward management, though others will be affected (+ or -) at the same time.
Or maybe you won't/can't make that spreadsheet. Again not my problem.
This is a nonsensical example because companies aren't just barrels of cash, stock buybacks do not occur above market price, and companies never spend themselves broke to buyback shares because that would be retarded. You might try learning how corporate finance actually works before posting like you are an expert on it.
Hard to say for sure. I don't know either of them.
But I'm not casting aspersions on the commenter. I'm responding directly to his implication that if he doesn't understand X then X is false. That's not a thing.
4. Those who intend to re-invest all returns in to the stock, who avoid a taxable event when their ownership of the company goes up without having to first pay tax for the dividend.
A stock buyback rewards all stockholders equally. Those who sell, get their reward in cash. Those who do not sell, get their reward in the proportion of their ownership of the company going up.
> Those who intend to re-invest all returns in to the stock
Sell the stock then use the gains to buy the stock? I'm very confused by this.
> without having to first pay tax for the dividend
Long term capital gains and dividends are taxed at the same rate. The only tax-free way to benefit from a higher share price (that I know of) is to borrow against it.
> get their reward in the proportion of their ownership of the company going up.
Which only matters if the company pays dividends, or the shareholders eventually sell.
The company has some money. They choose to return it to shareholders. There are two legal ways to do so: Buy back some stock, or issue a dividend.
Now assume I am a long-term investor, who invested money into a company, and wants to keep all that money in the company, instead of taking money out.
If the company pays a dividend, I can put the money they paid me back into the company, but I have to pay capital income tax on the money in between. If they buy back some stock, I have essentially fully reinvested my money to grow my share of ownership in that company, but I have not paid any tax on this, and will only have to do so at the end. As I get to grow compound interest on my money, I will come out much better in the long term.
There is supply and demand to consider. Buybacks create a tendency toward higher share prices, but only while they continue. That demand cuts off when the buybacks stop.
If the buybacks are at a discount to whatever the stock turns out to have been worth at the time, then that benefits all the shareholders. That can be a great use of money for all shareholders.
But buybacks at inflated prices benefit only exiting shareholders. Exiting shareholders tend to include hired management. Of course nobody really knows the valuation that well, so obviously there's a guessing game.
This is pretty hard to argue against for anybody who agrees that valuation is a thing at all.
> Those who do not sell, get their reward in the proportion of their ownership of the company going up.
This is incorrect. If the company buys back say $100m worth of its stock, it's true that the individual shares remaining represent a larger fraction of the company, BUT the company itself is worth $100m less after the transaction (because it has spent that $100m on purchase of something that can't be added to the balance sheet - basically incinerated that money from company's point of view, similarly to how paying out dividends is "destroying" money). These two factors cancel out perfectly, and the book value per share remains unchanged.
You're right, I missed that! But, essentially this makes the case for buybacks even worse - paying over book value for shares means that the company is reducing its book value via the buyback. So, it's worth less after the buyback.
Yes. Book value is just one metric for value, but let's keep using it. I could also say that paying less than book value is increasing the book value, so the company is worth more after the buyback. As you say, it depends on the purchase price.
Yes. This is correct. Share buybacks are financially equivalent to a dividend from the company's perspective, and slightly better from the shareholder's perspective because they can choose when to take the dividend and pay capital gains tax instead of income tax on it.
The tax advantage of stock buybacks is that investors aren't forced to immediately realize gains. They have the freedom to time sales to minimize overall income tax liability, for example by harvesting losses in other investments in a future year.
This is true. I'd still file tax-loss harvesting under "advanced maneuvers employed by high net worth people".
At a societal level, and I understand this is a completely different point, I also question whether it's prudent to allow tax dodging this way. We already tax labor heavily and at the same time we incentivize companies to improve productivity (read: use less labor). How do we pay for society without taxing some of the productivity (read: profits) or taxing labor even more? You can only cut so many services.
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.
Because if I don't intend to sell right now, and the company is otherwise a healthy, going concern that can pay sustainable dividends, the actual share price is irrelevant to me. If anything, given my belief in the company, a lower share price is better. I can buy more shares!
But you now own a larger percentage of the company because you own the same number of a smaller total number of shares outstanding, so you benefit whether you are a seller or a holder. If you intend to buy more it is neutral because the price per share goes up, but each share represents proportionally more.
If you ever want to sell, getting in the limit nothing for the shares might matter, no? There are other things: for example, share based M&A or compensation or other investors with different preferences - no relevance or interaction?
All fair points. Share-based M&A can be good for investors. But if the stock price is going up because the company spent money on buybacks, then the company could also just pay cash for M&A and skip the buybacks.
Higher compensation is good for employees who get paid stock and for upper management, who are nearly always paid largely in stock. There's an argument that's good for shareholders because of better retention. But if that were the case, why not just pay employees more cash?
This is just nonsense. Anyone can sell the stock if they wish, there is no privilege for the high-net worth. Additionally, shareholders benefit from reduced share count because it increases their claim on future profits thereby increasing compounding.
Buybacks are still better if you want to hold forever and don't care about share price. With a dividend distribution you must pay taxes and reinvest the diminished proceeds. You end up with a smaller share of the company than in the buyback scenario. Example:
A: Hold $10 of stock. Buyback of 1$ per share. You're left with $10 of stock.
B: Hold $10 of stock. Dividend of 1$ per share. You're left with 9$ of stock and $1 cash - taxes payed. Once reinvested you have $9 + (1 * tax rate) in stock.
You're making two mistakes: One is thinking that dividends are magic money that do not cause share prices to fall in exact accordance with the distribution and the other is that buybacks lift the share price somehow (they do not, see Modigliani-Miller).
Companies are controlled by shareholders who appoint the board who appoint the CEO. If the CEO decides to pay employees more, the board will change him because shareholder put money to get money out, not to give to employees.
Companies can give "shares" to employees, which means excess profits can be made dividends out of which employees "touch a bit".
If you would have your own company (privately own and full control) you are of course free to share the excess profit as you see fit.
Edit: and of course, share buy back avoids some taxes that you must pay, which in other schemes would have to be paid.
> Why couldn’t the companies with excess profits just pay they employees more in salaries?
They could, but why should they? Which advantage get the shareholders from this?
The only reason why a company with excess profits "should" pay the employees more is if
i) for a given role, the expected results of potential applicants varies a lot (i.e. the company has an incentive "to hire the best of the best")
ii) the market for these exceptional talents is tough (i.e. if the company does not hire the best, someone else will; additionally, if the company does not pay the employees really well, they will be poached)
The only people who matter are shareholders. Employees are a means to the end of making money for the owners of the company whether through stocks or other kinds of ownership.
Having an industrial policy has been disastrous for most countries that have tried it. Works fine for a few years and then everything falls apart as the grifting builds up and disruptive innovations destroy the underlying reasons for the original policy goals.
That would not make the share price number go up, which in turn means it doesn't make the leadership's net worth number go up, which means the leadership won't make that choice.
The leadership’s net worth is going up based on their compensation plan including stock options, regardless. If you are more explicit about your assumptions it might be easier to believe or refute the argument.
They could, but then they'd have to report lower profits by the same amount. I want to actually defend this though: Corporate profit is a very narrow measure, by design. It was never intended to capture how well the nation is doing.
the purpose of a company is to deliver maximum return to shareholders; if they're not doing that, then they're failing their fiduciary duty and the shareholders might try to force the company to change its ways
the shareholders want the money coming to them, not to the employees
(this is why the Public Benefit Corporation, "B-Corp" structure was invented, so that the company's stated purpose can be something other than simply generating value for its shareholders)
Unfortunately CEOs have to do buybacks at every opportunity, because otherwise shareholders will sue them for failing to maximize shareholder value.
> 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.
(Head spins) wait what?! No! You’re not supposed to do that! If you fail to always maximize short term profits, people might start thinking CEOs actually have agency, and they won’t be able to hide behind the “maximizing shareholder value” excuse!
I don't think it's typically this explicit or direct, but it can definitely flow more like 1. company is not doing buybacks, 2. performance is judged against comparables in the short (quarterly) term using metrics that prioritize the affects of buybacks, 3. major stakeholders (big stock holders, institutions, funds, etc) put pressure on the board, 4. CEO pushes back and is dismissed for performance or "not hitting targets". Functionally a lot of players in power positions prefer buy backs, optics are better for a surging stock vs. modest increase in dividends, and it favours short-term metrics.
A lot of this comes back to Dodge v Ford. The Dodge brothers sued the Ford Motor Company because Ford wanted to cut prices and invest in the company while removing dividends to shareholders. The Dodges disagreed with this and sued. The courts found in favor of them.
Ford was an egregious case though. The court's judgement was surely correct but it also hardly matters for the real world. CEOs usually don't publicly announce they plan to literally and deliberately burn all their profits, even if it in reality they absolutely plan to spend it on vanity projects or whatever.
The reality seems to be that only the genius founder is allowed to do any unorthodox moves as the CEO. Once he's out, the board selects a CEO that will basically continue business as usual without rocking the boat. The new CEO essentially won't have a mandate to use any controversial or original approach.
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.
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.
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.
Yeah if you go check almost any major scientific breakthrough of the past century it usually starts with "some guy was working in a corporate lab with an unlimited budget". We're stagnating as a species a lot more, but at least the shareholders got a payout for their hard work of doing literally nothing. Rent seeking at its worst.
> it was such a a huge loss seeing those corporate labs disappear.
A loss for whom? Society? Of course, and that's exactly why they don't happen anymore -- because while they were a boon for society they were a terrible bet for the company. And when a company has a choice between doing good for their bottom line or doing good for society, 100% of the time they choose their bottom line.
I mean, look at the legacy of Xerox Parc from Xerox's perspective. They invited this guy in, Steve Jobs, and he commercialized their ideas. Today Xerox is worth pennies on the dollar compared to their height, doing none of what Xerox Parc researched. Apple ate their lunch. The ROI for Xerox Parc was terrible for Xerox.
For all the amazing stuff they did, they were not rewarded by the marketplace for it, they didn't produce better products for themselves, they just did other companies' R&D.
That's where universities come in, and where they are vital. If you take them out, their role will not be filled by corporations, because corpos can't stomach the kind of dollars needed to do fundamental research. Only the government can stomach that, and if somehow the voters are convinced all this isn't worth funding, it just won't happen at any level.
The corps won't stomach it anymore at the scale they formerly did, but at one point they did. It could happen again some day...just a lot would have to change.
Parc just didn't capitalize on what they had. I know the Alto was expensive, but still seems like a huge shame.
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.
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.
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.
My mental model as an outsider, is the vibe out of Google is that they push the most talented folks out via process / politics. Not intentionally, just the reality of squeezing the creative type employee / work. Replacing creative smarts which is difficult or impossible to measure, with operational smarts, more easily measured. Those creative smart people mostly go on to start up other companies.
Its worked out ok for Google and others, because there's little teeth to anti monopoly, so all the big tech players can just buy the successes, which is safer than trying to grow them (esp. once the talent left). I really have no idea if this is an accurate take as its mostly vibes, sans for a few of said smart Google folks I've met in startup land(s). Yet Google is so big, they could bleed all kinds of employees telling all kinds of stories and it could all be simply random. Yet at the same time I can't help but think about every aging tech companies biggest / best products being via acquisition.
While I think monopoly is bad, I don't know if ^ otherwise is so bad. Maybe its just creative type folks _should_ avoid big tech, and build their own labs. Capital and compute are readily available to people who can demonstrate success, and its easier than ever to build and experiment in some fields. i.e. if we had stricter capital accumulation associated taxes, maybe the ills of this process wouldn't be so bad.
The bigger problem today is that there is simply nothing more left to research. Everything that is being worked on are at most optimizations, which allways have a dollar spent vs dollar returned amount on them.
LLMs are just better google. In the past, you used to google shit, and copy paste from stack overflow, now you just skip the middle man and go directly to Chat GPT. Anyone that has been programming for a while can attest to that the answers aren't any better, its just more efficient to iterate on them now.
AI hasn't even begun to be solved yet. Everyone is focused on feedforward transformer architecture that is never going to replace the imperative processing of actual intelligence.
Smartphones are pretty much solved, as they have replaced a lot of the need for in person interaction (which by extension means transportation). The last decade has been all about monetizing smartphones.
Wearables aren't transforming society at all.
3d printing and home fab is still too niche and expensive for most people, and you can't really make it cheaper and more accessible.
Electric vehicles largely suck. Self driving is mediocre.
We literally went through a pandemic and people got richer because they had to stay at home and not spend money on things like daycare or gas or car maintenance, without losing any productivity.
Hell, the state the US is in currently is largely explained by the fact that most all the problems in society have been solved to the extent that people have to invent bogeymen and elect a demented felon into office on the promise of solving those problems.
This is a very surface level analysis like saying that the automobile was just an iterative improvement over a horse. Or a computer is just a better abacus. Fundamental research is all about diving into the weeds and finding new problems to solve. It's true that some of the "low hanging fruit" no longer exists (you won't see someone like Euler or Newton who's names pop up all over the place), but I can promise you that real gains are being made on a lower level. These small gains in fundamental research snowball into bigger advancements. As an example, the transformer architecture used by LLMs was first published in 2017.
Automobile was improvement over the horse because things needed to get places. To improve on current automobile will require either massive government investment and regulation in the sense of flying cars, or full electrification with paradigm shifts in transportation, like induction charging roads or battery hot swaps or whatever else. The modern Corolla Hybrid is pretry much the peak optimal point of transportation.
What do humans need right now to improve their lives substantially?
oh, I was thinking about science. material science is doing some pretty cool things. quantum is getting interesting. we're just starting to really get a handle on reverse engineering the cell. battery chemistry. whether or not we're going to see practical fusion it seems likely that we'll see knockoffs. I just saw an ad yesterday that Avalanche is planning on selling waste (I mean useful quasi-stable elements). not just that but the non-sexy science (I met a guy yesterday and we talked about how a lot of his colleagues got the axe. he's working on characterizing the response of skin tissue to uv damage. that doesn't sound that sexy, but wouldn't it be nice to know?)
yeah, mostly forget about computers, we're still just coming to grips with the fact that we stopped doing largely innovative work decades ago. my bet is its going to go back to being interesting pretty soon. we are having a lot of interesting discussion about cognition though :)
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.
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.
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.
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.
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.
The obvious retort would be, if the situation were so favorable for corporations before Bayh-Dole, why were so few licensing deals in place before the passage of Bayh-Dole (fewer than 5% of technologies were licensed)?
> So corporations largely stopped funding private research labs like Bell and instead entered into public-private partnerships
They didn't though. Bayh-Dole was 1980. All the big tech firms have invested massively in R&D since then, and I think it's also true for many non-tech industries or tech-adjacent (e.g. chip manufacturing, oil and gas).
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.
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.
All else being equal, it's most straightforward to demonstrate infringement of a composition of matter claim (which tends to be the earliest for pharma) and so these are more valuable. Also, they tend to be the earliest to issue and possibly litigate over, which also increases value.
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.
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.
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.
> 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
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?
Where do you think the capital being returned is going? If it's not being consumed but instead is mostly getting reinvested somewhere else than what is the problem? Capital markets are working as intended to move capital out of a firm that cannot generate high returns with it into ones that can.
Buying back stock is just as a way to distribute money to shareholders. It's neutral when it comes to "shareholder value". It's the same as paying dividends and having some shareholders reinvest it.
It just saves an extra step and doesn't trigger tax event. It also makes more sense. If you prefer cash you sell it on the market to the company. If you prefer holding shares you don't do anything. You get a choice when it cash out instead of being forced to on regular basis.
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.
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.
Because before buybacks there were dividends. Did the difference between buybacks and dividends really make the difference between doing basic research and not?
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.
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.
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.
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.
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.
There's something odd in this argument. If you come at it from a Canadian perspective Canada seriously spent on neural network computer science when almost no one else did (many in AI considered the entire thing discredited and impossible), now the (financial) gains from that are almost entirely in a foreign country.
The US science establishment was all about buying and utilizing Russian rocket engines until he-that-shall-not-be-named came along. SpaceX took the breakthroughs that existed in the US in things like control theory, which the same science establishment had failed to value appropriately.
It doesn't look like the science establishments of any country are actually successfully feeding their innovation machines, or have done so for decades. Switching a non functioning system off does at least allow it to be replaced by something that risks doing things when something comes back.
Of course many pure scientists will, legitimately, argue that innovation isn't the point in the first place, and that is a far more solid point, but real academic diversity has been so destroyed by the global consensus making peer review process that much of their progress has effectively stalled.
I’m blind, and participate in a lot of research projects to create accessible technology, which are mostly done by universities. What I have noticed as a foreigner participating with US based universities is that, a lot of this research while very high-quality and very well done does not actually result in anything that the intended audience gets to use or experience. And a lot of this is due to the amount of red tape, as well as a lack of risk taking. This means that without trying to go commercial a lot of these projects end up shelved and many potential users simply never see the benefits.
Because talent and ideas move so easily between the US and Canada, any useful basic science that Canada comes up with will ultimately be monetized in the country with 10x the population, 15x the GDP, and 100x the stock market and VC funding depth.
This could start to change if present US hostility towards all things foreign results in a shift in investment and migration.
Research is necessary but not sufficient. Also need access to capital (and eventually capital markets) and a sufficiently sophisticated legal framework/safety framework so you can enforce contracts at least most the time. Good research is just a vehicle for producing knowledge and talent.
Not only did SpaceX make breakthroughs considered impossible by the "experts" in the industry, they did it by hiring a guy who literally built rocket engines in his garage to design the engines. The key here is personality. And the type of person who actually wants to build things and get things done absolutely recoils at bureaucracy and the type of people who like it.
When you build something to the point where there is a bureaucratic "establishment" in control you can be sure that innovation slows to a crawl. You may still have a few individual scientists doing great work, but you can be sure that some miserable bureaucrat will pat him on the back and stick it in a drawer somewhere never to see the light of day again. The same is true whether that bureaucratic establishment is at a government or in universities, or any other type of bureaucratic organization.
Notably China is a big country and Canada is a small country. If there is some innovation that is going to improve productivity globally by %X the amount of benefit that goes to China is always going to be bigger than the benefit that goes to Canada.
China are certainly better at turning the results of research into products, whether that research was them or anyone else.
The canonical example here is 5G. Once again the US science establishment had the guy, he ends up doing the breakthroughs for polar coding, they failed to appreciate him, he left and ended up being funded by Huawei.
Eh, China is better at directing massive state level resources at incrementally improving technology. Nothing truly revolutionary has come out of China. The West is still ahead in that sort of stuff.
Universities spend ~$109 billion a year on research. ~$60 billion of that $109 billion comes from the National Institutes for Health (NIH) for biomedical research, National Science Foundation (NSF) for basic science, Department of War (DoW), Department of Energy (DOE), for energy/physics/nuclear, DARPA, NASA.
Let's talk about the other $49B.
I read or heard someplace that at many universities tuition paid by students in the social sciences is effectively subsidizing the STEM fields, as the history department or psychology professors are unlikely to require huge investments in new buildings, specialized equipment, etc., yet they pay the same tuition fees as STEM majors. Families/students paying full freight at a private university are looking at undergraduate degrees that cost $250k-$400k all in.
That can't be the whole picture, as money also flows from rich donors, corporate partnerships of various types, and at some schools such as MIT licensing fees.
It doesn't seem like tuition can keep growing at the rates that it has to make up the shortfall from government research cuts, but what about the other areas?
Raising (already record high) tuitions that have far, far outpaced wages and inflation should be a last resort. You can start by cutting bloated admin, reduce fraudulent procurement/graft (e.g. the $700k Berkeley Chancellor's fence: https://www.cbsnews.com/sanfrancisco/news/700k-iron-fence-co...), vanity construction, study abroad admin budgets that dwarf actual student grants, and the executive compensation/perks by admin.
And this is just mentioning a sample of admin bloat, never mind the other areas.
Schools do not need amenities to attract students. They need lower tuition. You could teach students out of a tent and do away with all the flashy health spas and do a better job at the core mission of empowering students.
No new buildings, no land acquisitions, no taking over facilities from the state for millions of dollars.
University leadership does not need to make $300k, $600k salaries. They should make what the median professor makes.
Universities will tell you they need all of this to compete with other universities. So to get the ball started, tax all of this as a negative externality and give it to the universities that do not spend in this way. Or turn it into scholarships.
Speaking of scholarships, stop putting a cap on admissions. Let everyone that wants to come in do so if they meet academic thresholds. Let them stay if they maintain a good GPA.
And make student loan debt dischargable. That might mean not everyone qualifies for a loan, but by making the system an "infinite money glitch", universities have grown into gluttons for tuition. They've taken this "free, unlimited money" to grow to obscene proportions. It's malinvestment propped up by an artificial quirk of economics.
> tuition paid by students in the social sciences is effectively subsidizing the STEM fields
This is not true at my state flagship R1 institution. Tuition and fees make up a little over 10% of the institution's total revenue. General funding provided in our state budget provides a larger percentage of the total revenue to the university and federal research funding provides an even larger percentage than the state.
The essential takeaway here is that our state taxes subsidize the actual cost of providing education to in-state students. In-state students are mandated to be at least 80%-ish of students.
The professors in the STEM fields are required to raise a significant percentage of their salary via research grants ("soft" money), teaching, and service work. The non-STEM professors are more often funded via "hard" money - eg, the institution has committed to pay the salary of history professors.
I googled and apparently a little more than 70% of undergraduate students in the US attend public schools. I don't know much about how funding works at the private universities that have the other 30% of undergraduate students.
> I read or heard someplace that at many universities tuition paid by students in the social sciences is effectively subsidizing the STEM fields
Diploma mill universities in my state are consolidating the smaller STEM universities and trade schools to build football and sports programs, gyms, and "lifestyle" amenities.
This university in particular [1] mints basket weaving degrees and has used consolidation to build sports programs [2] and lavish facilities for sports.
It's also been a revolving door of politician to high-ranking, high-compensation executive staff positions.
This university [3] has used funding to acquire properties from the state, such as the 1996 Olympic Stadium [4].
Neither of these universities does real, impactful research. The latter is ranked as an R1, but everyone at the "real" R1s in our state will tell you this is a fabrication. They're diploma mills and extract six figures from their student body. They turn this money into sports facilities and upper level faculty pay.
Georgia State has an average SAT score of 1070. Nobody with a brain goes there. Just a societally sanctioned diploma scam for people who would be much better served by starting work right out of HS.
> Engineers design and build things on top of the discoveries of scientists
I agree with a lot in this post, but I think it's also worth mentioning how this is a two-way street. Practical considerations often drive theory research as much as the other way around.
It feels like in the past 20-ish years, maybe longer, game-changing innovations have become rarer, making science lower ROI.
If that’s true (maybe it’s not? all I have is vibes!), if it is indeed true, and science is becoming less able to convert into invention- it stands to reason that at some point it becomes rational for a country to direct resources elsewhere. Political will becomes strained, and politicians decide it’ll be popular to defund and discourage science.
When dealing with patents, public interest, and their consequences, Bell Labs should be treated separately imo. My vague recollection of the book The Idea Factory [1] and a brief search indicate that AT&T was always treated as a special case due to its status as a regulated monopoly. This status at least culminated in the 1956 Consent Decree [2], which required making all prior patents royalty-free and (as I read elsewhere) mandated that all future patents be licensed on reasonable terms. Given Bell Labs' well-known portfolio-including the transistor, laser, CCD, DSP, and fiber-optic-related patents, this shows a significant exception to how other companies might have innovated and monetized their innovations.
You can't stop innovation across the planet, you will lose control over time as adversaries continue to innovate and subsume antiquated control structures.
I dunno about the last part. Rich people under 60 seem to be under the impression they might live forever, either biologically or digitally. Within our lifetime we see people trying to make their digital twin their legal heir.
I get the longevity angle (even if I think it’s not possible or even desirable) but digital twin I don’t understand.
It’s like a different person altogether. Even if it was possible to completely clone a persona digitally it would not be you but someone else.
I totally agree with the ridiculousness of it, but that's not going to stop people with outsized egos from trying. Or companies that are trying to ride the coattails of a cult of personality.
Nah it’s more complicated than that. They need to lie to themselves first. They need to build a scaffold of logic that proves and justifies there actions before they do it.
Hitler for example thought he was justified. And so do all the people who claim global warming isn’t real.
Which is exactly what our system encourages. You don’t need to think beyond the next quarter / election cycle. You’re only in it to extract as much wealth in the short-term as possible and secure your chair before the music stops playing.
Currently the biggest US companies are throwing hundreds of billions into an uncertain bet that may pay off in a decade or so while everyone around is screaming "bubble" at them.
It looks like long term risky bet on new technology to me - exactly what you want those rich capitalist do.
Yet it’s a mistake companies and societies repeatedly make, because human brains are wired for zero sum games and paranoia. When you have it, the instinct is to clutch and guard and hoard not grow and expand.
When a company or a society is threatened the usual response is to double down on things that accelerate decline like killing novelty and innovation.
These things worked when we were small primates fighting over limited food sources on the savannah. Our brain stems don’t know what millennium they are in and still run those programs.
The people who should read this article and won't are actually an anti-growth movement. The silicon valley bros I work with are lapping up the sabotage because they want a lower standard of living in America and less science and innovation because they are already comfortable enough. Their sites are set only on the short-term gains of anti-Muslim and anti-abortion sentiment and "though talk" on immigration. Results are not that important. They claim that there would be enough funding if universities funded it with their endowments.
The anti-government sentiment is frankly anti-American. Even the ones who are naturalized don't know the basics about how ballots are validated ("If my wife vote with a provisional ballot, couldn't just anybody?"). I thought there was some testing for naturalization but it must be easy to cheat.
Anyone who convinced themselves that "economic anxiety" was actually a thing should talk to any MAGA or "centrists" about the present state of the economy.
> Countries that neglect science become dependent on those that don’t. U.S. post-WWII dominance came from basic science investments (OSRD, NSF, NIH, DOE labs). After WWII ended, the UK slashed science investment which allowed the U.S. to commercialize the British inventions made during the war.
> The Soviet Union’s collapse partly reflected failure to convert science into sustained innovation, during the same time that U.S. universities, startups and venture capital created Silicon Valley. Long-term military and economic advantage (nuclear weapons, GPS, AI) trace back to scientific research ecosystems.
The US has an extremely entrepreneurial culture, which is why Americans are so good at building innovative businesses. In the UK, money is seen as grubby and the class system has consistently placed barriers between those with ideas and those with money. Similarly, the Soviet Union struggled to make use of its innovators due to the strictures of central planning. Australia punches well above its weight in scientific research but is unwilling to engage in any economic activity other than digging rocks out of the ground and selling them to China.
So the idea that scientific research is a limiting factor in economic growth is not general; it's specific to the US and countries with that same entrepreneurial culture.
If you want new disease treatments and cures, you need to fund applied science (using the aforementioned definitions). Follow-on compounds can almost be engineered, but finding novel targets and coming up with candidates is a research problem. And dealing with the side-effects that appear can flip back from engineering to science. The Ozempic class of compounds has done wonders driving research in obesity and (I think) addictive behaviours.
Bringing it to market requires money and management and luck. Many/most of the promising candidates fall out along the way.
This is a really important topic. The argument that the shift from corporate research labs (Bell Labs, Xerox PARC, etc.) to stock buybacks killed basic science investment is compelling.
If the US is increasingly relying on universities for foundational research, and corporate R&D is only focused on short-term, applied projects, we're definitely running the innovation engine on fumes.
It’s hard to build the next trillion-dollar company if the core science wasn't funded 20 years ago.
>The argument that the shift from corporate research labs (Bell Labs, Xerox PARC, etc.) to stock buybacks killed basic science investment is compelling.
It is not compelling at all. The difference between dividends and share buybacks are not big enough to explain this at all. The argument is totally absurd, companies could always reward their shareholders with their profits.
Bell Labs did not end because of share buybacks, it ended because Bell was broken up and their free money printer did no longer exist.
>If the US is increasingly relying on universities for foundational research, and corporate R&D is only focused on short-term, applied projects, we're definitely running the innovation engine on fumes.
Why? This is just total nonsense. The only difference is the physical location of basic researchers. And that the government decides what to fund. That is literally it.
Basic university research is still funded by corporations. Only they are paying the money to the government, which then decides what to fund.
This seems quite adjacent to today's Nobel Prize announcement that sustained growth comes from understanding why an innovation works, so we can apply it in new domains.
That would depend on how the funding is controlled. If funding approvals had to go through partisan bureaucrats in the White House for approval, yes, that's a planned economy. Historically it's been disparate groups of scientists who decide how block grants from Congress get divided. I've had colleagues who go and work at the NSF just for that role. I wouldn't say that guy making decisions about what kind of programming languages research gets funding is planning the economy.
I also wouldn't say Congress allocating this or that block grants toward broad areas is planning the economy either. Usually planned economies are bad because it's one guy or one committee doing the planning, and they're really just a dysfunctional and doesn't incorporate evidence to make decisions. You get better decisions when you spread the planning across groups of loosely affiliated experts in their field.
The difference between a planned and unplanned economy isn't whether the bureaucrats claim to be politically neutral, scientists or anything else. The first head of GOSPLAN was a scientist and its members were academics.
Academic funding is absolutely a planned economy. No way around that. It's literally committees of people allocating money requisitioned through tax and deciding what to spend it on, whilst having no skin in the game themselves.
Then maybe I don't understand what you mean by a planned economy, because I understand them to be characterized by centralized decision-making, not distributed decision-making across committees.
It's about independence. Academic funding committees are not distributed or independent in any meaningful way. They might appear to be physically spread around the country, but look at what happened once the Trump admin came in. Academic funding policies changed over night.
In an unplanned economy, people make decisions about how to allocate their own resources, in the hope of earning a profit. There are not institutes setting policy frameworks that they have to follow, or committees arguing about how to give away money that they didn't earn to begin with.
Funding approvals do have to go through partisan bureaucrats. Until recently when the Trump administration killed it, NIH grant proposals had to contain a "diversity statement."
>Engineers design and build things on top of the discoveries of scientists.
In the last 80 or so years, this has been the case, but I don't think it's historically the norm. It just so happens that through whatever accident of scientific history, we were set up perfectly for a series of discoveries in basic theory that lent themselves well to immediate implementation and productization. We had a "science cycle" to match the business cycle that looked like this: Come up with a theory -> works? (yes: proceed, no: start again) -> publicize result -> collect huge sums of money -> plow that into new experiments -> find a problem with current theory -> start again. I don't think there is much disagreement that this cycle has slowed down considerably over the last 30-40 years.
Science by its nature is descriptive. As a discipline, it isn't actually geared towards discovering maxima in a space of design possibilities. No scientist invented the automobile or the airplane or the steam engine. A more typical mode is that engineers demonstrate that something is possible, and scientists recapitulate/integrate it into theory.
Tenured academia, sure, burn it to the ground, no survivors, mostly a temple of mean girls and enablers of those mean girls. Adjunct and other non-tenure track professors, however, not so much. They do the real work along with the postdocs and grad students. And they get the least recognition. And oh the bellyaching when they leave academia with no hope of a tenured position and 10x their salary by pivoting to industry.
I understand why academia might be a racket. But why do you think they are actively hostile to technological progress? Are we including all the premier institutions in that claim?
Ok, then why do they get affected by funding? The truth is, today there is not a scientist, artist, researcher or writer who is not driven by funding. The era for curiosity-driven science is was over a long time ago.
The direction of research or science is all driven by funding.
if scientists are so curious, why do they have to eat??? checkmate atheists
Less snarky: getting funding and making a living in academia, which is the most accessible way to be a scientist, has been cutthroat since long before this administration. If it were more accessible, or if staying alive weren't so damn expensive, I think we'd see more curiosity-driven science being performed.
Also, I don't believe one negates the other. As an engineer, my work satisfies my curiosity / desire to build, and I would do it for $50k, but I'm not gonna take a pay cut to prove how curious I am.
Lets say the scientist takes $0 home (which is ridiculous btw). even then you would need the almighty "funding" to setup a lab, recruit participants, etc.
Anybody doing science at a University is definitely doing it at a significant discount to their salary (phds are paid ~$50K at the high end) at a private company.
I believe that most scientists start out being driven by curiosity. Just like most politicians start out being driven by ideology.
Unfortunately, we've created a system that wears them down to being driven largely by self-preservation.
Many people eager to better the world come of age every second. It's just that once they've amassed enough power to make a dent, most of them have been worn down.
Here we have someone who clearly practices little real science, as evident by the ease with which they speak absolute statements that apply extremely broadly.
I'm sure you are a Scientist. I worked as a Scientist (not a data scientist etc), worked on pure science projects that ran under grants from government, spoke at international conferences presenting the findings etc. Believe me. Every single move in this "science" work was guided by funding. Not just my projects, but all of them.
Yes, I agree there is a funding requirement for academic science. Hell, even attending a conference you've been accepted to is prohibitively expensive if out of your own pocket.
But your original statement was far too broad:
> there is not a scientist, artist, researcher or writer who is not driven by funding.
There are absolutely members from every one of those subsets driven by curiousity.
(In my own life, I have reached out to labs in completely different fields than my own to help publish out of nothing more than pure curiosity.)
Nope. The grants were always sort of 5-year projects. They just keep on going. We were employees, doing the work we were asked to do, not doing something we were curious about. For example, do this experiment, get field measurements, correlate them to some factors and publish a report. Ensure it takes 5 years and nothing less.
Everything in the world is driven by money. There was never such a thing as curiosity driven science.
What pays for your leisure time so you can be alive and not starve? Money. Nobody on the face of the earth can just be curious and do science and not starve.
> 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.
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.
> Share buybacks allow companies to reward executives directly as their compensation is tied to stock price.
To be fair share owners also like the stock price to go higher, they also like dividends (and higher dividends would tend to drive the stock price higher too), but an X% increase in share price caused by buybacks is favoured over an X% dividend because it isn’t immediately taxed.
Also, I believe in the US ordinary dividends are taxed at the income tax rate which is much higher than the capital gains rate.
It doesn’t make sense to compare ordinary dividends to capital gains - either compare ordinary to short term gains or qualified to long term gains.
with everything at record highs we'll see if we continue to prefer inflated share price over reinvestment in the business or increased dividends.
If companies want to reward executives directly they can cut out shareholders entirely and pay salaries and bonuses. If companies want to reward shareholders (including executives) they can pay dividends (which Apple did do under Jobs). Nothing about the priorities of companies changed with share buybacks.
For one thing, buybacks aren't charged against profits. Compensation is.
What does that even mean? Both stock buybacks and dividends are the distribution of profit.
Compensation expenses (such as stock options, RSUs, etc) are accounted as expenses, which of course reduces profit.
Here's what you said: "If companies want to reward executives directly they can cut out shareholders entirely and pay salaries and bonuses. If companies want to reward shareholders (including executives) they can pay dividends (which Apple did do under Jobs). Nothing about the priorities of companies changed with share buybacks."
My response (and the whole thread) is pointing out that buybacks are another way to reward executives who have received shares as compensation. Buybacks are not reported as an expense. They are reported as an investment.
This is all boilerplate, very far from "what does that even mean?" territory.
Dividends work as well for executives rewarded with stock (unless it's options).
Buybacks are sort of pay-in-kind dividends, sure. Nobody really loves returning actual money to investors. It's contrary to nature.
But dividends also result in a concrete financial reward for all shareholders, yes?
> 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.
Can you make this argument more rigorous?
I’m just not following the connections here.
It seems like your assumption is that a stock buyback is a short term gain.
One of your arguments is that the strike price for options is set based on a certain amount of stock in circulation, and decreasing that amount will “artificially” raise the stock price, making the options more valuable. I agree that higher stock price benefits those with options, and I would even agree that it is possible that when those strike prices were valued, the valuation did not take into account the possible global change in the amount of stock (although a market would have included this valuation).
I suppose the other part of the argument could be that R&D is good for the stock in the long term in a way that stock buybacks are not… the buybacks pumping up the price of the stock before it is driven into the dirt by competitors who do invest in R&D.
There, I’ve done my best for your argument but I still don’t really believe that increased stock prices for everyone is not benefiting everyone more or less equally.
> It seems like your assumption is that a stock buyback is a short term gain.
My argument is a stock buyback isn't a gain for a long-term, buy-and-hold investor. Unless
a) they sell some of the stock or
b) it pays dividends
they don't see the benefit of a higher stock price or reduced share count.
Qualified dividends and long term capital gains are taxed at the same rate. So anyone who says "buybacks are more tax-advantaged" is leaving out the second part: "because you can borrow against a higher stock price without paying taxes". Since most (non-rich) people don't do that stock buybacks have the same tax (dis)advantage as dividends. If you know of a way to get tax-free money out of a higher stock price other than borrowing on margin, please tell me. I'd love to learn.
> decreasing that amount will “artificially” raise the stock price
It isn't "artificial". There are fewer shares in circulation/more demand for the shares. That legitimately translates into a higher price. But stock options and grants are generally given to employees and especially executives. So a reduced share count and higher share price is particularly good for them.
> One of your arguments is that the strike price for options is set based on a certain amount of stock in circulation
My argument was more that when employees are paid a significant portion of their compensation in stock they tend to sell much of it upon vest (sensibly) in order to diversify or even just to pay their bills. Ergo, being frequent sellers, they benefit from the higher stock price more than they would from regular dividend payments. A higher stock price directly translates into higher compensation. Wouldn't this be a powerful incentive for company management to prefer buybacks over dividends?
> I suppose the other part of the argument could be that R&D is good for the stock in the long term
I didn't say anything about R&D spending. A company should return as much profit to shareholders as it sees fit.
I was rebutting the common, I believe simple-minded, argument that buybacks and dividends are completely equivalent. Even though the company spends the same amount of money, I think they are different in some very significant ways.
I think I'm mostly agreeing. Anyway here's my story.
Buybacks can be good or bad for shareholders, depending on the buyback price.
Example. I take $1000 and securitize it as 1000 shares. The company sells the shares for $1 each. This is a no-fee closed fund, whatever. I'm the "CEO". I personally buy 1 share.
Anyway, one day the stock trades at $0.90 and the company buys back 500 shares at that price. (How $0.90? Maybe the largest shareholder was distressed and needed cash, maybe somebody didn't read the SEC filings. Maybe "the ticker tells the whole story" and the ticker told $0.90 for a few days. It doesn't matter.) Now the company holds $550 and has 500 shares outstanding. Each share owns $1.10 of USD. Expenses are zero. I kindly volunteer my services as CEO and sole employee.
Pretty soon the stock might trade around $1.10. (Why $1.10? wHo knows?) The people who sold for $0.90 might regret that decision now. Continuing shareholders make money if they sell now. Was this "good for shareholders"? Depends on which shareholder.
Now I (the CEO) decide the company will do a buyback. The company offers $2 a share. I sell my own share for $2. To make it simple, say the company buys back 275 shares at $2. Now it's broke. The remaining shares trade for ... whatever. Somewhere between $3 and $0? ($3 because growth rate!)
I personally doubled my investment. Anybody who sold at $2 also did well.
Buybacks can be good or bad for shareholders.
That's not a valid example of things that can happen in the market. You're making up ridiculously unrealistic numbers and clearly don't understand the basics of how the process works.
Share buybacks are always executed at the current market price. The company doesn't offer a higher price. A large buyback order might move the share price up a tiny bit but triggering an increase from $1 to $2 is impossible for any company traded on a major US exchange.
Pardon my bluntness, but you apparently don't understand how the process works.
I'm not claiming the price jumped from $1.10 to $2 without hitting any intermediate prices. That's your idea.
Well there you go again, lying and making things up. No stock buyback has ever caused a doubling in share prices. Going through intermediate prices is irrelevant.
Yes, it was a made-up example. I feel that was obvious.
If your point [about share price jumping suddenly] was irrelevant, then maybe you shouldn't have mentioned it. How is this my problem?
I see that you edited your previous comment before replying. Very clever. Now (12:03 Pacific) you have a company worth $1000 trading on a major stock exchange. Ok.
Maybe you can make a spreadsheet similar to what I described in words, but using more believable numbers. If so, you can see the kind of effects I'm talking about. Buybacks are good for some shareholders and bad for others. Buybacks can be used to reward management, though others will be affected (+ or -) at the same time.
Or maybe you won't/can't make that spreadsheet. Again not my problem.
Well there you go again, lying and making things up. I didn't edit my previous comment in the way you claimed. Perhaps you are hallucinating.
This is a nonsensical example because companies aren't just barrels of cash, stock buybacks do not occur above market price, and companies never spend themselves broke to buyback shares because that would be retarded. You might try learning how corporate finance actually works before posting like you are an expert on it.
If you can't follow a simple textbook example, good luck with the real thing.
Be well.
It's perfectly ok not to understand corporate finance. It's a boring (and nightmarishly complicated) subject.
NOTE: The commenter is explicitly basing his/her argument on his/her lack of understanding. That's what brought the subject into discussion.
He understands it quite a bit better than the person he is replying to
Hard to say for sure. I don't know either of them.
But I'm not casting aspersions on the commenter. I'm responding directly to his implication that if he doesn't understand X then X is false. That's not a thing.
4. Those who intend to re-invest all returns in to the stock, who avoid a taxable event when their ownership of the company goes up without having to first pay tax for the dividend.
A stock buyback rewards all stockholders equally. Those who sell, get their reward in cash. Those who do not sell, get their reward in the proportion of their ownership of the company going up.
> Those who intend to re-invest all returns in to the stock
Sell the stock then use the gains to buy the stock? I'm very confused by this.
> without having to first pay tax for the dividend
Long term capital gains and dividends are taxed at the same rate. The only tax-free way to benefit from a higher share price (that I know of) is to borrow against it.
> get their reward in the proportion of their ownership of the company going up.
Which only matters if the company pays dividends, or the shareholders eventually sell.
The company has some money. They choose to return it to shareholders. There are two legal ways to do so: Buy back some stock, or issue a dividend.
Now assume I am a long-term investor, who invested money into a company, and wants to keep all that money in the company, instead of taking money out.
If the company pays a dividend, I can put the money they paid me back into the company, but I have to pay capital income tax on the money in between. If they buy back some stock, I have essentially fully reinvested my money to grow my share of ownership in that company, but I have not paid any tax on this, and will only have to do so at the end. As I get to grow compound interest on my money, I will come out much better in the long term.
There is supply and demand to consider. Buybacks create a tendency toward higher share prices, but only while they continue. That demand cuts off when the buybacks stop.
If the buybacks are at a discount to whatever the stock turns out to have been worth at the time, then that benefits all the shareholders. That can be a great use of money for all shareholders.
But buybacks at inflated prices benefit only exiting shareholders. Exiting shareholders tend to include hired management. Of course nobody really knows the valuation that well, so obviously there's a guessing game.
This is pretty hard to argue against for anybody who agrees that valuation is a thing at all.
> Those who do not sell, get their reward in the proportion of their ownership of the company going up.
This is incorrect. If the company buys back say $100m worth of its stock, it's true that the individual shares remaining represent a larger fraction of the company, BUT the company itself is worth $100m less after the transaction (because it has spent that $100m on purchase of something that can't be added to the balance sheet - basically incinerated that money from company's point of view, similarly to how paying out dividends is "destroying" money). These two factors cancel out perfectly, and the book value per share remains unchanged.
That's only true if the company pays book value for the shares.
I'm upvoting because you're advancing the discussion for sure.
You're right, I missed that! But, essentially this makes the case for buybacks even worse - paying over book value for shares means that the company is reducing its book value via the buyback. So, it's worth less after the buyback.
Yes. Book value is just one metric for value, but let's keep using it. I could also say that paying less than book value is increasing the book value, so the company is worth more after the buyback. As you say, it depends on the purchase price.
Can't group #2 sell 4% of their holdings, thereby remaining shareholders, and delivering to themselves the tax-advantaged equivalent of a 4% dividend?
Yes. This is correct. Share buybacks are financially equivalent to a dividend from the company's perspective, and slightly better from the shareholder's perspective because they can choose when to take the dividend and pay capital gains tax instead of income tax on it.
Qualified dividends (stock held more than 60 days) and long term capital gains are taxed at the same rate.
> delivering to themselves the tax-advantaged equivalent of a 4% dividend?
Long-term gains and qualified dividends (shares held longer than 60 days) are taxed at the same rate. What's the tax advantage here?
The tax advantage of stock buybacks is that investors aren't forced to immediately realize gains. They have the freedom to time sales to minimize overall income tax liability, for example by harvesting losses in other investments in a future year.
This is true. I'd still file tax-loss harvesting under "advanced maneuvers employed by high net worth people".
At a societal level, and I understand this is a completely different point, I also question whether it's prudent to allow tax dodging this way. We already tax labor heavily and at the same time we incentivize companies to improve productivity (read: use less labor). How do we pay for society without taxing some of the productivity (read: profits) or taxing labor even more? You can only cut so many services.
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.
What is your definition of "benefit"? Assuming a buyback increases share prices, why would shareholders in general be indifferent?
Because if I don't intend to sell right now, and the company is otherwise a healthy, going concern that can pay sustainable dividends, the actual share price is irrelevant to me. If anything, given my belief in the company, a lower share price is better. I can buy more shares!
But you now own a larger percentage of the company because you own the same number of a smaller total number of shares outstanding, so you benefit whether you are a seller or a holder. If you intend to buy more it is neutral because the price per share goes up, but each share represents proportionally more.
If you ever want to sell, getting in the limit nothing for the shares might matter, no? There are other things: for example, share based M&A or compensation or other investors with different preferences - no relevance or interaction?
> If you ever want to sell
I already said that buybacks benefit sellers.
> share based M&A or compensation
All fair points. Share-based M&A can be good for investors. But if the stock price is going up because the company spent money on buybacks, then the company could also just pay cash for M&A and skip the buybacks.
Higher compensation is good for employees who get paid stock and for upper management, who are nearly always paid largely in stock. There's an argument that's good for shareholders because of better retention. But if that were the case, why not just pay employees more cash?
Are there many investors that are never sellers (that is different from selling soon-ish)?
Paying cash could be quite different than paying in shares for M&A.
If owning shares makes no difference ("pay in cash"), why not do buyback then if there is no difference between cash and shares anyway?
This is just nonsense. Anyone can sell the stock if they wish, there is no privilege for the high-net worth. Additionally, shareholders benefit from reduced share count because it increases their claim on future profits thereby increasing compounding.
You're mixing up points 2 and 3. Anyone can sell, but buybacks benefit mostly sellers.
Borrowing against stock is mostly something for HNW people.
> shareeholders benefit from reduced share count because it increases their claim on future profits
So...dividends? Or when they eventually sell? What if I never want to sell?
Buybacks are still better if you want to hold forever and don't care about share price. With a dividend distribution you must pay taxes and reinvest the diminished proceeds. You end up with a smaller share of the company than in the buyback scenario. Example:
A: Hold $10 of stock. Buyback of 1$ per share. You're left with $10 of stock. B: Hold $10 of stock. Dividend of 1$ per share. You're left with 9$ of stock and $1 cash - taxes payed. Once reinvested you have $9 + (1 * tax rate) in stock.
You're making two mistakes: One is thinking that dividends are magic money that do not cause share prices to fall in exact accordance with the distribution and the other is that buybacks lift the share price somehow (they do not, see Modigliani-Miller).
> But dividends also result in a concrete financial reward for all shareholders, yes?
Yes, but less because in many countries dividends are taxed more than selling shares after a share price increase.
dividends and capital gains are taxed differently
Dumb maybe question: Why couldn’t the companies with excess profits just pay they employees more in salaries?
Companies are controlled by shareholders who appoint the board who appoint the CEO. If the CEO decides to pay employees more, the board will change him because shareholder put money to get money out, not to give to employees.
Companies can give "shares" to employees, which means excess profits can be made dividends out of which employees "touch a bit".
If you would have your own company (privately own and full control) you are of course free to share the excess profit as you see fit.
Edit: and of course, share buy back avoids some taxes that you must pay, which in other schemes would have to be paid.
> Why couldn’t the companies with excess profits just pay they employees more in salaries?
They could, but why should they? Which advantage get the shareholders from this?
The only reason why a company with excess profits "should" pay the employees more is if
i) for a given role, the expected results of potential applicants varies a lot (i.e. the company has an incentive "to hire the best of the best")
ii) the market for these exceptional talents is tough (i.e. if the company does not hire the best, someone else will; additionally, if the company does not pay the employees really well, they will be poached)
That would set a precedent they don’t want. Investors and the Federal government have little interest in labor gaining power.
The only people who matter are shareholders. Employees are a means to the end of making money for the owners of the company whether through stocks or other kinds of ownership.
Why would they do that when they could pay shareholders and themselves?
Right now, in the US, we've given them no reason. But that's not a law of nature. For example a country might have an industrial policy.
Having an industrial policy has been disastrous for most countries that have tried it. Works fine for a few years and then everything falls apart as the grifting builds up and disruptive innovations destroy the underlying reasons for the original policy goals.
I don't doubt your sincerity. But there's a big difference between believing something very sincerely and actually knowing whether it's true or not.
I actually know it's true that having an industrial policy has been a net negative in the majority of countries where it was tried.
That would not make the share price number go up, which in turn means it doesn't make the leadership's net worth number go up, which means the leadership won't make that choice.
The leadership’s net worth is going up based on their compensation plan including stock options, regardless. If you are more explicit about your assumptions it might be easier to believe or refute the argument.
They could, but then they'd have to report lower profits by the same amount. I want to actually defend this though: Corporate profit is a very narrow measure, by design. It was never intended to capture how well the nation is doing.
For businesses, employees are a necessary evil and not company's beneficiaries.
they don't want to
the purpose of a company is to deliver maximum return to shareholders; if they're not doing that, then they're failing their fiduciary duty and the shareholders might try to force the company to change its ways
the shareholders want the money coming to them, not to the employees
(this is why the Public Benefit Corporation, "B-Corp" structure was invented, so that the company's stated purpose can be something other than simply generating value for its shareholders)
Unfortunately CEOs have to do buybacks at every opportunity, because otherwise shareholders will sue them for failing to maximize shareholder value.
> 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.
(Head spins) wait what?! No! You’re not supposed to do that! If you fail to always maximize short term profits, people might start thinking CEOs actually have agency, and they won’t be able to hide behind the “maximizing shareholder value” excuse!
> shareholders will sue them for failing to maximize shareholder value
That's quite a bold claim. Do you have an example in which a company/CEO/board was sued specifically for not doing enough buybacks?
I don't think it's typically this explicit or direct, but it can definitely flow more like 1. company is not doing buybacks, 2. performance is judged against comparables in the short (quarterly) term using metrics that prioritize the affects of buybacks, 3. major stakeholders (big stock holders, institutions, funds, etc) put pressure on the board, 4. CEO pushes back and is dismissed for performance or "not hitting targets". Functionally a lot of players in power positions prefer buy backs, optics are better for a surging stock vs. modest increase in dividends, and it favours short-term metrics.
A lot of this comes back to Dodge v Ford. The Dodge brothers sued the Ford Motor Company because Ford wanted to cut prices and invest in the company while removing dividends to shareholders. The Dodges disagreed with this and sued. The courts found in favor of them.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
Ford was an egregious case though. The court's judgement was surely correct but it also hardly matters for the real world. CEOs usually don't publicly announce they plan to literally and deliberately burn all their profits, even if it in reality they absolutely plan to spend it on vanity projects or whatever.
Regardless of what the intention was, shareholder primacy has roots in that judgment.
The reality seems to be that only the genius founder is allowed to do any unorthodox moves as the CEO. Once he's out, the board selects a CEO that will basically continue business as usual without rocking the boat. The new CEO essentially won't have a mandate to use any controversial or original approach.
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.
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.
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.
Yeah if you go check almost any major scientific breakthrough of the past century it usually starts with "some guy was working in a corporate lab with an unlimited budget". We're stagnating as a species a lot more, but at least the shareholders got a payout for their hard work of doing literally nothing. Rent seeking at its worst.
Yes, let's not pay out the investors. That's how you get lots of funding.
You get funding by inventing and selling shit people need, not by pretending to be something people want.
At least in a sane world it would be.
> it was such a a huge loss seeing those corporate labs disappear.
A loss for whom? Society? Of course, and that's exactly why they don't happen anymore -- because while they were a boon for society they were a terrible bet for the company. And when a company has a choice between doing good for their bottom line or doing good for society, 100% of the time they choose their bottom line.
I mean, look at the legacy of Xerox Parc from Xerox's perspective. They invited this guy in, Steve Jobs, and he commercialized their ideas. Today Xerox is worth pennies on the dollar compared to their height, doing none of what Xerox Parc researched. Apple ate their lunch. The ROI for Xerox Parc was terrible for Xerox.
For all the amazing stuff they did, they were not rewarded by the marketplace for it, they didn't produce better products for themselves, they just did other companies' R&D.
That's where universities come in, and where they are vital. If you take them out, their role will not be filled by corporations, because corpos can't stomach the kind of dollars needed to do fundamental research. Only the government can stomach that, and if somehow the voters are convinced all this isn't worth funding, it just won't happen at any level.
The corps won't stomach it anymore at the scale they formerly did, but at one point they did. It could happen again some day...just a lot would have to change.
Parc just didn't capitalize on what they had. I know the Alto was expensive, but still seems like a huge shame.
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.
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.
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.
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.
My mental model as an outsider, is the vibe out of Google is that they push the most talented folks out via process / politics. Not intentionally, just the reality of squeezing the creative type employee / work. Replacing creative smarts which is difficult or impossible to measure, with operational smarts, more easily measured. Those creative smart people mostly go on to start up other companies.
Its worked out ok for Google and others, because there's little teeth to anti monopoly, so all the big tech players can just buy the successes, which is safer than trying to grow them (esp. once the talent left). I really have no idea if this is an accurate take as its mostly vibes, sans for a few of said smart Google folks I've met in startup land(s). Yet Google is so big, they could bleed all kinds of employees telling all kinds of stories and it could all be simply random. Yet at the same time I can't help but think about every aging tech companies biggest / best products being via acquisition.
While I think monopoly is bad, I don't know if ^ otherwise is so bad. Maybe its just creative type folks _should_ avoid big tech, and build their own labs. Capital and compute are readily available to people who can demonstrate success, and its easier than ever to build and experiment in some fields. i.e. if we had stricter capital accumulation associated taxes, maybe the ills of this process wouldn't be so bad.
...and there's 3M and Würth.
It can appear that some famous companies pursue pure research as a source of public luster.
The bigger problem today is that there is simply nothing more left to research. Everything that is being worked on are at most optimizations, which allways have a dollar spent vs dollar returned amount on them.
that patently ridiculous, we're just getting started
Really? What is so innovative?
LLMs are just better google. In the past, you used to google shit, and copy paste from stack overflow, now you just skip the middle man and go directly to Chat GPT. Anyone that has been programming for a while can attest to that the answers aren't any better, its just more efficient to iterate on them now.
AI hasn't even begun to be solved yet. Everyone is focused on feedforward transformer architecture that is never going to replace the imperative processing of actual intelligence.
Smartphones are pretty much solved, as they have replaced a lot of the need for in person interaction (which by extension means transportation). The last decade has been all about monetizing smartphones.
Wearables aren't transforming society at all.
3d printing and home fab is still too niche and expensive for most people, and you can't really make it cheaper and more accessible.
Electric vehicles largely suck. Self driving is mediocre.
We literally went through a pandemic and people got richer because they had to stay at home and not spend money on things like daycare or gas or car maintenance, without losing any productivity.
Hell, the state the US is in currently is largely explained by the fact that most all the problems in society have been solved to the extent that people have to invent bogeymen and elect a demented felon into office on the promise of solving those problems.
This is a very surface level analysis like saying that the automobile was just an iterative improvement over a horse. Or a computer is just a better abacus. Fundamental research is all about diving into the weeds and finding new problems to solve. It's true that some of the "low hanging fruit" no longer exists (you won't see someone like Euler or Newton who's names pop up all over the place), but I can promise you that real gains are being made on a lower level. These small gains in fundamental research snowball into bigger advancements. As an example, the transformer architecture used by LLMs was first published in 2017.
Automobile was improvement over the horse because things needed to get places. To improve on current automobile will require either massive government investment and regulation in the sense of flying cars, or full electrification with paradigm shifts in transportation, like induction charging roads or battery hot swaps or whatever else. The modern Corolla Hybrid is pretry much the peak optimal point of transportation.
What do humans need right now to improve their lives substantially?
oh, I was thinking about science. material science is doing some pretty cool things. quantum is getting interesting. we're just starting to really get a handle on reverse engineering the cell. battery chemistry. whether or not we're going to see practical fusion it seems likely that we'll see knockoffs. I just saw an ad yesterday that Avalanche is planning on selling waste (I mean useful quasi-stable elements). not just that but the non-sexy science (I met a guy yesterday and we talked about how a lot of his colleagues got the axe. he's working on characterizing the response of skin tissue to uv damage. that doesn't sound that sexy, but wouldn't it be nice to know?)
yeah, mostly forget about computers, we're still just coming to grips with the fact that we stopped doing largely innovative work decades ago. my bet is its going to go back to being interesting pretty soon. we are having a lot of interesting discussion about cognition though :)
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.
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.
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.
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.
Honestly this sounds like a narrative in your head a lot more than something that is happening in actual reality.
> 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
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.
This sounds like a much more reasonable explanation for the fall of the corporate labs.
The obvious retort would be, if the situation were so favorable for corporations before Bayh-Dole, why were so few licensing deals in place before the passage of Bayh-Dole (fewer than 5% of technologies were licensed)?
> So corporations largely stopped funding private research labs like Bell and instead entered into public-private partnerships
They didn't though. Bayh-Dole was 1980. All the big tech firms have invested massively in R&D since then, and I think it's also true for many non-tech industries or tech-adjacent (e.g. chip manufacturing, oil and gas).
Most tech companies appear to put basically all their engineering/ product orgs down as R&D. That's probably not how most people understand the term.
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.
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.
All else being equal, it's most straightforward to demonstrate infringement of a composition of matter claim (which tends to be the earliest for pharma) and so these are more valuable. Also, they tend to be the earliest to issue and possibly litigate over, which also increases value.
It's a lot less valuable.
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.
And before buybacks they used distributions, which have always been allowed, so there has been no change there.
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.
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.
> 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
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.
Of course the relation is minimal if it exists at all.
Stock buybacks are simply a more tax efficient dividend.
Of course, I forgot how management's compensation used to be 'dividend options'.
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?
Where do you think the capital being returned is going? If it's not being consumed but instead is mostly getting reinvested somewhere else than what is the problem? Capital markets are working as intended to move capital out of a firm that cannot generate high returns with it into ones that can.
Buying back stock is just as a way to distribute money to shareholders. It's neutral when it comes to "shareholder value". It's the same as paying dividends and having some shareholders reinvest it.
It just saves an extra step and doesn't trigger tax event. It also makes more sense. If you prefer cash you sell it on the market to the company. If you prefer holding shares you don't do anything. You get a choice when it cash out instead of being forced to on regular basis.
Why would companies not want to maximize their value before share buybacks?
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.
Loads of reasons. The shareholder theory of corporate governance is actually not very old.
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.
Why not?
Suddenly they had a more lucrative was to spend their money, so they did.
Because before buybacks there were dividends. Did the difference between buybacks and dividends really make the difference between doing basic research and not?
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.
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.
Science takes years to decades to see a return. Much too long for the quarterly returns folks.
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.
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.
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.
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.
You're not missing anything, it's just completely wrong.
There's something odd in this argument. If you come at it from a Canadian perspective Canada seriously spent on neural network computer science when almost no one else did (many in AI considered the entire thing discredited and impossible), now the (financial) gains from that are almost entirely in a foreign country.
The US science establishment was all about buying and utilizing Russian rocket engines until he-that-shall-not-be-named came along. SpaceX took the breakthroughs that existed in the US in things like control theory, which the same science establishment had failed to value appropriately.
It doesn't look like the science establishments of any country are actually successfully feeding their innovation machines, or have done so for decades. Switching a non functioning system off does at least allow it to be replaced by something that risks doing things when something comes back.
Of course many pure scientists will, legitimately, argue that innovation isn't the point in the first place, and that is a far more solid point, but real academic diversity has been so destroyed by the global consensus making peer review process that much of their progress has effectively stalled.
I’m blind, and participate in a lot of research projects to create accessible technology, which are mostly done by universities. What I have noticed as a foreigner participating with US based universities is that, a lot of this research while very high-quality and very well done does not actually result in anything that the intended audience gets to use or experience. And a lot of this is due to the amount of red tape, as well as a lack of risk taking. This means that without trying to go commercial a lot of these projects end up shelved and many potential users simply never see the benefits.
Because talent and ideas move so easily between the US and Canada, any useful basic science that Canada comes up with will ultimately be monetized in the country with 10x the population, 15x the GDP, and 100x the stock market and VC funding depth.
This could start to change if present US hostility towards all things foreign results in a shift in investment and migration.
Research is necessary but not sufficient. Also need access to capital (and eventually capital markets) and a sufficiently sophisticated legal framework/safety framework so you can enforce contracts at least most the time. Good research is just a vehicle for producing knowledge and talent.
Not only did SpaceX make breakthroughs considered impossible by the "experts" in the industry, they did it by hiring a guy who literally built rocket engines in his garage to design the engines. The key here is personality. And the type of person who actually wants to build things and get things done absolutely recoils at bureaucracy and the type of people who like it.
When you build something to the point where there is a bureaucratic "establishment" in control you can be sure that innovation slows to a crawl. You may still have a few individual scientists doing great work, but you can be sure that some miserable bureaucrat will pat him on the back and stick it in a drawer somewhere never to see the light of day again. The same is true whether that bureaucratic establishment is at a government or in universities, or any other type of bureaucratic organization.
How's China doing? They seem to have a lot of research going on that feeds into their manufacturing fairly quickly from the papers I hear about
Notably China is a big country and Canada is a small country. If there is some innovation that is going to improve productivity globally by %X the amount of benefit that goes to China is always going to be bigger than the benefit that goes to Canada.
China are certainly better at turning the results of research into products, whether that research was them or anyone else.
The canonical example here is 5G. Once again the US science establishment had the guy, he ends up doing the breakthroughs for polar coding, they failed to appreciate him, he left and ended up being funded by Huawei.
https://en.wikipedia.org/wiki/Erdal_Ar%C4%B1kan
The US science establishment isn't broken as an innovation engine because of Trump - it's because they're clearly rewarding the wrong things.
What isn't so clear is if Chinese science is creating Chinese startups. It may yet happen.
Eh, China is better at directing massive state level resources at incrementally improving technology. Nothing truly revolutionary has come out of China. The West is still ahead in that sort of stuff.
"real academic diversity" is doing all your lifting here
There’s not enough information to determine what the phrase is supposed to mean in context.
They seem to be opposed to peer review?
Universities spend ~$109 billion a year on research. ~$60 billion of that $109 billion comes from the National Institutes for Health (NIH) for biomedical research, National Science Foundation (NSF) for basic science, Department of War (DoW), Department of Energy (DOE), for energy/physics/nuclear, DARPA, NASA.
Let's talk about the other $49B.
I read or heard someplace that at many universities tuition paid by students in the social sciences is effectively subsidizing the STEM fields, as the history department or psychology professors are unlikely to require huge investments in new buildings, specialized equipment, etc., yet they pay the same tuition fees as STEM majors. Families/students paying full freight at a private university are looking at undergraduate degrees that cost $250k-$400k all in.
That can't be the whole picture, as money also flows from rich donors, corporate partnerships of various types, and at some schools such as MIT licensing fees.
It doesn't seem like tuition can keep growing at the rates that it has to make up the shortfall from government research cuts, but what about the other areas?
Raising (already record high) tuitions that have far, far outpaced wages and inflation should be a last resort. You can start by cutting bloated admin, reduce fraudulent procurement/graft (e.g. the $700k Berkeley Chancellor's fence: https://www.cbsnews.com/sanfrancisco/news/700k-iron-fence-co...), vanity construction, study abroad admin budgets that dwarf actual student grants, and the executive compensation/perks by admin.
And this is just mentioning a sample of admin bloat, never mind the other areas.
This.
Cut spending on admin staff and facilities.
Schools do not need amenities to attract students. They need lower tuition. You could teach students out of a tent and do away with all the flashy health spas and do a better job at the core mission of empowering students.
No new buildings, no land acquisitions, no taking over facilities from the state for millions of dollars.
University leadership does not need to make $300k, $600k salaries. They should make what the median professor makes.
Universities will tell you they need all of this to compete with other universities. So to get the ball started, tax all of this as a negative externality and give it to the universities that do not spend in this way. Or turn it into scholarships.
Speaking of scholarships, stop putting a cap on admissions. Let everyone that wants to come in do so if they meet academic thresholds. Let them stay if they maintain a good GPA.
And make student loan debt dischargable. That might mean not everyone qualifies for a loan, but by making the system an "infinite money glitch", universities have grown into gluttons for tuition. They've taken this "free, unlimited money" to grow to obscene proportions. It's malinvestment propped up by an artificial quirk of economics.
I don't see how "uncap admissions" and "don't take on any new infrastructure" are compatible.
> tuition paid by students in the social sciences is effectively subsidizing the STEM fields
This is not true at my state flagship R1 institution. Tuition and fees make up a little over 10% of the institution's total revenue. General funding provided in our state budget provides a larger percentage of the total revenue to the university and federal research funding provides an even larger percentage than the state.
The essential takeaway here is that our state taxes subsidize the actual cost of providing education to in-state students. In-state students are mandated to be at least 80%-ish of students.
The professors in the STEM fields are required to raise a significant percentage of their salary via research grants ("soft" money), teaching, and service work. The non-STEM professors are more often funded via "hard" money - eg, the institution has committed to pay the salary of history professors.
I googled and apparently a little more than 70% of undergraduate students in the US attend public schools. I don't know much about how funding works at the private universities that have the other 30% of undergraduate students.
> I read or heard someplace that at many universities tuition paid by students in the social sciences is effectively subsidizing the STEM fields
Diploma mill universities in my state are consolidating the smaller STEM universities and trade schools to build football and sports programs, gyms, and "lifestyle" amenities.
This university in particular [1] mints basket weaving degrees and has used consolidation to build sports programs [2] and lavish facilities for sports.
It's also been a revolving door of politician to high-ranking, high-compensation executive staff positions.
This university [3] has used funding to acquire properties from the state, such as the 1996 Olympic Stadium [4].
Neither of these universities does real, impactful research. The latter is ranked as an R1, but everyone at the "real" R1s in our state will tell you this is a fabrication. They're diploma mills and extract six figures from their student body. They turn this money into sports facilities and upper level faculty pay.
[1] https://en.wikipedia.org/wiki/Kennesaw_State_University
[2] https://en.wikipedia.org/wiki/Kennesaw_State_Owls_football
[3] https://en.wikipedia.org/wiki/Georgia_State_University
[4] https://en.wikipedia.org/wiki/Centennial_Olympic_Stadium
This is absurd. These universities aren't diploma mills. They're solid institutions in the "directional state U" tier.
Georgia State has an average SAT score of 1070. Nobody with a brain goes there. Just a societally sanctioned diploma scam for people who would be much better served by starting work right out of HS.
> Engineers design and build things on top of the discoveries of scientists
I agree with a lot in this post, but I think it's also worth mentioning how this is a two-way street. Practical considerations often drive theory research as much as the other way around.
Maybe we shouldn't have required 'kissing the ring' segments in every scientific grant proposal
The utter lack of self-awareness needed to post something like this now should humiliate them, of course it's a throwaway account.
With all those pronouns and not an antecedent in sight, what and who are you taking about?
It feels like in the past 20-ish years, maybe longer, game-changing innovations have become rarer, making science lower ROI.
If that’s true (maybe it’s not? all I have is vibes!), if it is indeed true, and science is becoming less able to convert into invention- it stands to reason that at some point it becomes rational for a country to direct resources elsewhere. Political will becomes strained, and politicians decide it’ll be popular to defund and discourage science.
And maybe that is how the US got here.
When dealing with patents, public interest, and their consequences, Bell Labs should be treated separately imo. My vague recollection of the book The Idea Factory [1] and a brief search indicate that AT&T was always treated as a special case due to its status as a regulated monopoly. This status at least culminated in the 1956 Consent Decree [2], which required making all prior patents royalty-free and (as I read elsewhere) mandated that all future patents be licensed on reasonable terms. Given Bell Labs' well-known portfolio-including the transistor, laser, CCD, DSP, and fiber-optic-related patents, this shows a significant exception to how other companies might have innovated and monetized their innovations.
[1] https://en.wikipedia.org/wiki/The_Idea_Factory
[2] https://en.wikipedia.org/wiki/Bell_System#1956_Consent_Decre...
Startup = disruption = threat to existing control.
If you love control and have control, why would you want to create fertile ground for startups?
(This was meant as devil's advocate, not my personal point of view).
That's short term thinking.
You can't stop innovation across the planet, you will lose control over time as adversaries continue to innovate and subsume antiquated control structures.
All the people in charge currently are banking on being rich, enjoying society as they have made it, and then dead before it personally affects them.
I dunno about the last part. Rich people under 60 seem to be under the impression they might live forever, either biologically or digitally. Within our lifetime we see people trying to make their digital twin their legal heir.
I get the longevity angle (even if I think it’s not possible or even desirable) but digital twin I don’t understand. It’s like a different person altogether. Even if it was possible to completely clone a persona digitally it would not be you but someone else.
Much like grooming a natural heir, you can hope that someone will keep your legacy going, make decisions you would make, run your business, and so on.
I can see it as a rational strategy if you're worried successors won't be up to the job.
I totally agree with the ridiculousness of it, but that's not going to stop people with outsized egos from trying. Or companies that are trying to ride the coattails of a cult of personality.
Nah it’s more complicated than that. They need to lie to themselves first. They need to build a scaffold of logic that proves and justifies there actions before they do it.
Hitler for example thought he was justified. And so do all the people who claim global warming isn’t real.
> That's short term thinking.
Which is exactly what our system encourages. You don’t need to think beyond the next quarter / election cycle. You’re only in it to extract as much wealth in the short-term as possible and secure your chair before the music stops playing.
Everything that is happening in the US screams short term thinking. It feels like the scramble after a leveraged buyout.
Funny that you mentioned an LBO, which is a strategy that requires long term success to succeed.
Currently the biggest US companies are throwing hundreds of billions into an uncertain bet that may pay off in a decade or so while everyone around is screaming "bubble" at them.
It looks like long term risky bet on new technology to me - exactly what you want those rich capitalist do.
Yet it’s a mistake companies and societies repeatedly make, because human brains are wired for zero sum games and paranoia. When you have it, the instinct is to clutch and guard and hoard not grow and expand.
When a company or a society is threatened the usual response is to double down on things that accelerate decline like killing novelty and innovation.
These things worked when we were small primates fighting over limited food sources on the savannah. Our brain stems don’t know what millennium they are in and still run those programs.
Oh I completely agree.
this is great except nobody who should read this article is reading it
The people who should read this article and won't are actually an anti-growth movement. The silicon valley bros I work with are lapping up the sabotage because they want a lower standard of living in America and less science and innovation because they are already comfortable enough. Their sites are set only on the short-term gains of anti-Muslim and anti-abortion sentiment and "though talk" on immigration. Results are not that important. They claim that there would be enough funding if universities funded it with their endowments.
The anti-government sentiment is frankly anti-American. Even the ones who are naturalized don't know the basics about how ballots are validated ("If my wife vote with a provisional ballot, couldn't just anybody?"). I thought there was some testing for naturalization but it must be easy to cheat.
Anyone who convinced themselves that "economic anxiety" was actually a thing should talk to any MAGA or "centrists" about the present state of the economy.
SV bros want less science and innovation, and are anti-abortion / anti-immigration? Have you been to SV?
> Countries that neglect science become dependent on those that don’t. U.S. post-WWII dominance came from basic science investments (OSRD, NSF, NIH, DOE labs). After WWII ended, the UK slashed science investment which allowed the U.S. to commercialize the British inventions made during the war.
> The Soviet Union’s collapse partly reflected failure to convert science into sustained innovation, during the same time that U.S. universities, startups and venture capital created Silicon Valley. Long-term military and economic advantage (nuclear weapons, GPS, AI) trace back to scientific research ecosystems.
The US has an extremely entrepreneurial culture, which is why Americans are so good at building innovative businesses. In the UK, money is seen as grubby and the class system has consistently placed barriers between those with ideas and those with money. Similarly, the Soviet Union struggled to make use of its innovators due to the strictures of central planning. Australia punches well above its weight in scientific research but is unwilling to engage in any economic activity other than digging rocks out of the ground and selling them to China.
So the idea that scientific research is a limiting factor in economic growth is not general; it's specific to the US and countries with that same entrepreneurial culture.
If you want new disease treatments and cures, you need to fund applied science (using the aforementioned definitions). Follow-on compounds can almost be engineered, but finding novel targets and coming up with candidates is a research problem. And dealing with the side-effects that appear can flip back from engineering to science. The Ozempic class of compounds has done wonders driving research in obesity and (I think) addictive behaviours.
Bringing it to market requires money and management and luck. Many/most of the promising candidates fall out along the way.
This is a really important topic. The argument that the shift from corporate research labs (Bell Labs, Xerox PARC, etc.) to stock buybacks killed basic science investment is compelling.
If the US is increasingly relying on universities for foundational research, and corporate R&D is only focused on short-term, applied projects, we're definitely running the innovation engine on fumes.
It’s hard to build the next trillion-dollar company if the core science wasn't funded 20 years ago.
>The argument that the shift from corporate research labs (Bell Labs, Xerox PARC, etc.) to stock buybacks killed basic science investment is compelling.
It is not compelling at all. The difference between dividends and share buybacks are not big enough to explain this at all. The argument is totally absurd, companies could always reward their shareholders with their profits.
Bell Labs did not end because of share buybacks, it ended because Bell was broken up and their free money printer did no longer exist.
>If the US is increasingly relying on universities for foundational research, and corporate R&D is only focused on short-term, applied projects, we're definitely running the innovation engine on fumes.
Why? This is just total nonsense. The only difference is the physical location of basic researchers. And that the government decides what to fund. That is literally it.
Basic university research is still funded by corporations. Only they are paying the money to the government, which then decides what to fund.
This seems quite adjacent to today's Nobel Prize announcement that sustained growth comes from understanding why an innovation works, so we can apply it in new domains.
"Government funding is the engine of economic innovation" is a tacit admission we have a planned economy.
That would depend on how the funding is controlled. If funding approvals had to go through partisan bureaucrats in the White House for approval, yes, that's a planned economy. Historically it's been disparate groups of scientists who decide how block grants from Congress get divided. I've had colleagues who go and work at the NSF just for that role. I wouldn't say that guy making decisions about what kind of programming languages research gets funding is planning the economy.
I also wouldn't say Congress allocating this or that block grants toward broad areas is planning the economy either. Usually planned economies are bad because it's one guy or one committee doing the planning, and they're really just a dysfunctional and doesn't incorporate evidence to make decisions. You get better decisions when you spread the planning across groups of loosely affiliated experts in their field.
The difference between a planned and unplanned economy isn't whether the bureaucrats claim to be politically neutral, scientists or anything else. The first head of GOSPLAN was a scientist and its members were academics.
Academic funding is absolutely a planned economy. No way around that. It's literally committees of people allocating money requisitioned through tax and deciding what to spend it on, whilst having no skin in the game themselves.
Then maybe I don't understand what you mean by a planned economy, because I understand them to be characterized by centralized decision-making, not distributed decision-making across committees.
It's about independence. Academic funding committees are not distributed or independent in any meaningful way. They might appear to be physically spread around the country, but look at what happened once the Trump admin came in. Academic funding policies changed over night.
In an unplanned economy, people make decisions about how to allocate their own resources, in the hope of earning a profit. There are not institutes setting policy frameworks that they have to follow, or committees arguing about how to give away money that they didn't earn to begin with.
Funding approvals do have to go through partisan bureaucrats. Until recently when the Trump administration killed it, NIH grant proposals had to contain a "diversity statement."
"Venture funding is the engine of economic innovation" is a tacit admission we have a planned economy.
I thought this was going somewhere rather than aiming to be a dictionary with pictures or am I missing a key paragraph?
>Engineers design and build things on top of the discoveries of scientists.
In the last 80 or so years, this has been the case, but I don't think it's historically the norm. It just so happens that through whatever accident of scientific history, we were set up perfectly for a series of discoveries in basic theory that lent themselves well to immediate implementation and productization. We had a "science cycle" to match the business cycle that looked like this: Come up with a theory -> works? (yes: proceed, no: start again) -> publicize result -> collect huge sums of money -> plow that into new experiments -> find a problem with current theory -> start again. I don't think there is much disagreement that this cycle has slowed down considerably over the last 30-40 years.
Science by its nature is descriptive. As a discipline, it isn't actually geared towards discovering maxima in a space of design possibilities. No scientist invented the automobile or the airplane or the steam engine. A more typical mode is that engineers demonstrate that something is possible, and scientists recapitulate/integrate it into theory.
Academia has become a racket that is actively hostile to technological progress. I want them to get exactly 0 of my tax money for anything.
Tenured academia, sure, burn it to the ground, no survivors, mostly a temple of mean girls and enablers of those mean girls. Adjunct and other non-tenure track professors, however, not so much. They do the real work along with the postdocs and grad students. And they get the least recognition. And oh the bellyaching when they leave academia with no hope of a tenured position and 10x their salary by pivoting to industry.
I understand why academia might be a racket. But why do you think they are actively hostile to technological progress? Are we including all the premier institutions in that claim?
>> Scientists are driven by curiosity
Ok, then why do they get affected by funding? The truth is, today there is not a scientist, artist, researcher or writer who is not driven by funding. The era for curiosity-driven science is was over a long time ago.
The direction of research or science is all driven by funding.
if scientists are so curious, why do they have to eat??? checkmate atheists
Less snarky: getting funding and making a living in academia, which is the most accessible way to be a scientist, has been cutthroat since long before this administration. If it were more accessible, or if staying alive weren't so damn expensive, I think we'd see more curiosity-driven science being performed.
Also, I don't believe one negates the other. As an engineer, my work satisfies my curiosity / desire to build, and I would do it for $50k, but I'm not gonna take a pay cut to prove how curious I am.
Lets say the scientist takes $0 home (which is ridiculous btw). even then you would need the almighty "funding" to setup a lab, recruit participants, etc.
Anybody doing science at a University is definitely doing it at a significant discount to their salary (phds are paid ~$50K at the high end) at a private company.
I believe that most scientists start out being driven by curiosity. Just like most politicians start out being driven by ideology.
Unfortunately, we've created a system that wears them down to being driven largely by self-preservation.
Many people eager to better the world come of age every second. It's just that once they've amassed enough power to make a dent, most of them have been worn down.
Here we have someone who clearly practices little real science, as evident by the ease with which they speak absolute statements that apply extremely broadly.
I'm sure you are a Scientist. I worked as a Scientist (not a data scientist etc), worked on pure science projects that ran under grants from government, spoke at international conferences presenting the findings etc. Believe me. Every single move in this "science" work was guided by funding. Not just my projects, but all of them.
Yes, I agree there is a funding requirement for academic science. Hell, even attending a conference you've been accepted to is prohibitively expensive if out of your own pocket.
But your original statement was far too broad:
> there is not a scientist, artist, researcher or writer who is not driven by funding.
There are absolutely members from every one of those subsets driven by curiousity.
(In my own life, I have reached out to labs in completely different fields than my own to help publish out of nothing more than pure curiosity.)
So nobody in your department ever ran out of stipend or research funding?
Nope. The grants were always sort of 5-year projects. They just keep on going. We were employees, doing the work we were asked to do, not doing something we were curious about. For example, do this experiment, get field measurements, correlate them to some factors and publish a report. Ensure it takes 5 years and nothing less.
All I have to say is that it was not uncommon for people to run out of funding at my research university, nor others I was at.
Everything in the world is driven by money. There was never such a thing as curiosity driven science.
What pays for your leisure time so you can be alive and not starve? Money. Nobody on the face of the earth can just be curious and do science and not starve.