> 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. If we started not doing that, the priorities might shift, but those executives like things the way they are.
This isn't right but it's adjacent.
Executives don't need buybacks to get whatever compensation. Their compensation is negotiated and you can write the contract to make it whatever.
However, paying dividends is a taxable event, which means shareholders don't like it. You have to pay the tax on the dividend immediately instead of when you sell the shares, even if you just use the money to buy more shares. Buybacks don't work like that unless you're the one who sells your shares in the buyback. Which you can be if you'd rather have the money immediately (and pay the tax) than de facto increase your holdings in the company.
If transferring money to shareholders as dividends forces them to realize taxable gains before they want to then they'd prefer the company keep the money and invest it in something internally instead. Buybacks give them away around that.
But that's not necessarily bad. The shareholders (the ones who sold their shares) get the money instead and then invest it in something else, ideally a different company so that the existing large company doesn't get even bigger.
Also, when the company keeps the money, it doesn't have to use it for R&D at all. Companies often use it to acquire other companies, which is the worst.
You don't really want a tax incentive to make big companies bigger.
> pushed the company's market capitalization to $72.13 billion
This, on annual revenue of ~$19B.
Apple today is closing in on 2x that revenue every month now. Quarterly net profit exceeds annual revenue in 2006. The Apple Watch group is roughly half the size of the whole company in 2006.
At some point, it became clear that the business throws off vastly more cash than can be productively used in R&D (here I will note that Apple's recent profit gusher is already net of investments in things like the Titan car project, Vision, and all the other stuff they work on but never release).
Maybe some of these 2-brain cell executives should consider that their "buybacks" will be worthless when US throughput starts to be equally worthless compared to the rest of the world...
Of course, I'm being a bit pejorative, they aren't thinking big picture at all, just concerned with what happens tomorrow not the day after...
However, they are in part responsible for the nonsense happening at the moment wrt to American policy, it seems like a game who can light cash on fire the fastest ..
I don't think they do know. Nor do I think most of the shareholders know. If they did they would know that they can make way more money with forward thinking and planning beyond a quarter. The lack of that is the clearest indication I can imagine that they do not know.
Most investors today are basically stock printer go brrr....
If one looks at US money printing in the past two decades, they'll find that the S&P's gains are basically just a mirror to the increased injection of dollars, a facade made to prop up the market. There really has been no actual growth compared to like Japan in the 1980s or China and India in the early 2000s, or Vietnam today. Just a few companies, mostly in tech, which are propping up the rest of the market.
> 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.
My understanding is that executives prefer buybacks because they mostly are compensated with stock options, which don't pay dividends (until exercised) but which appreciate disproportionately from buybacks.
Dividends actually directly lower the stock price. Keep an eye on your portfolio when your holdings go ex-div -- the price falls because it no longer includes that cashflow.
This doesn't sound correct. Giving out an expected dividend lowers a stock price since otherwise one could arbitrage it, but this is evidence that the dividend raised the price when it got priced in
No, most dividends are "qualified" and taxed at the long term capital gains rate, assuming you've held the underlying for a decent amount of time.
Still, they're taxed, whereas buybacks allow the shareholders to control exactly when they take income.
Also buybacks will tend to select for frequently traded shares with high cost basis, further reducing total taxes and selecting for longer term shareholders. They really are just better than dividends in every way.
Share buybacks are are at least nominally a financially neutral exercise - it generally does not benefit either shareholders or executives.
They can however signal 'strength' in stock price by creating more demand and signalling to the market that the company itself which has 'insider information' believes the stock price is worth less than the price they're bought for.
It's a fair point about Jobs - but - Jobs was never sitting on more money than the economies of most nations.
Jobs Apple was a consumer product company, Tim Cook Apple is a Private Equity Operating Entity in a way. Their financial operations dictate as much about their valuation as anything else.
The whole point of owning shares is to share in a company’s profits. In simple terms, you make money through dividends or buybacks. Without that, there’s really no reason to own the stock. Sure, prices go up and down, and you can try to profit from that, but if a company never plans to return money to shareholders, there’s nothing real behind the price. Eventually you’d just be holding on until the company fades away or goes bankrupt.
Buybacks are just another way of giving profits back to shareholders—an alternative to dividends with different tax implications. Their purpose isn't to "allow companies to reward executives directly", they are just an alternative way for shareholders to share in the profits.
A company could tie executives compensation to the amount of dividend if it wanted. That might be a good idea.
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.
Buybacks in theory do not cause share price to rise like your example though. Investors already price in that cash will be either reinvested at a high rate or returned to shareholders. You are reducing share count of a company that now has less cash which nets out in share price.
Demand tends to push price up. Investors don't really know who's buying until later.
But yes, of course it's a toy example. I should probably have made the buybacks drive the price from $1.10 to $1.20 or something, with a much smaller reward for the founder & CEO. I got bored and kept it simple. (Or I got greedy for that $1 profit, maybe.)
All the working parts of the example are on display. You can make other examples that seem better to you.
Well there you go again, lying and making things up. The trades are executed in compliance with Rule 10b-18. If you want anyone to take you seriously then at least come up with a realistic example.
I'm talking about how equity works at the most basic level, in a vehicle worth 1000 USD. It's an ice cream stand, capisce?
You may well be offended because we were rude to each other. That's fair. But you're not telling me to stop being a dick. You're telling me my ice cream stand has to be listed on a major US stock exchange. That's not a strong argument, and it's not really on topic.
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.
I worked in finance for years before I went into SWE and studied it in university before that. Your example would be found in no textbook (because it is complete idiocy) and you would know it if you ever cracked one, which you obviously haven't. You are just another bitter loser peddling conspiracy theories of how the financial system is rigged against you because you are envious of the money that people who actually understand it make.
Fine. You're well-versed in finance. For ... reasons ... you're doing a very good impression of someone missing the simple point of a very vanilla toy example.
And, yes. I admit it. I'm a fanatical believer in the conspiracy theory that buybacks can be either good or bad for a given shareholder, and that this depends on the price paid for the shares, and on when each shareholder buys and sells. The system is rigged, I tell you! Rigged! .... but, er, ... sometimes it's rigged one way ... and ... sometimes, um, it's rigged the other way. You have to run the numbers. But it's RIGGED!
> My argument is a stock buyback isn't a gain for a long-term, buy-and-hold investor.
It's better for me as a long term investor because I can better control my tax liability. It also allows for long term growth without a tax drag until I'm ready to switch out of my accumulation phase.
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.
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.
Buybacks do not necessarily create an increase in stock price. Economically no value has been created. Cash on a balance sheet has simply been exchanged for shares. The people selling their shares in the buyout get the "value" of the company at that moment. The remaining shareholders now own a larger percentage of a smaller company i.e. a company that no longer has the cash used for the buyout.
Markets tend to reward companies that use buybacks as there is a belief the buybacks are a demonstration of discipline by the management team. Conceptually COMPANIES SHOULD BUY BACK STOCK IF THEY DO NOT HAVE BETTER ROI PROJECTS IN THE PIPELINE. This frequently happens in mature industries.
As noted above, buybacks are another means to return cash to investors. Today, in the US, the tax rate on qualified dividends and long-term capital gains are equivalent for most shareholders. This has not always been the case. When tax rates for capital gains are lower than dividends, buybacks are a more efficient means to return capital to investors.
Buybacks also allow for more tax planning. When dividends are issued, the investors have to pay taxes on them at that time. Stock buybacks allow investors to choose when they want to pay taxes. They can sell into the buyback and pay taxes now or hold the stock and pay taxes at a later time.
Buybacks are can be part of normal corporate capitalization decisions - what is the appropriate debt to equity ratio for the company.
Finally, changing dividend levels has its own impact on stock price. If a company increases its dividend, them market expects it to remain increased. In this case the stock price goes up as investors expect more dividends in the future. When a company cuts its dividend (rare event), the stock price drops dramatically as the market punishes company not only for the reduced expectation of future dividends but also because companies only cut dividends when they are having severe problems. Some companines issue a special dividend related to a one-time event such as selling a division. The stock price does not do much in these events.
All of this is to say that stock buybacks are not why corporations reduced basic research investment. I was at GE watching the famous research centers getting cut. The bottom line was the research coming out of the centers was not creating a meaningful ROI. At one point the researchers went to the various GE businesses looking for projects where their expertise could add value - an internal consulting group. They gave up after a year as there was so little success. Corporate research centers are expensive. They need to earn their keep.
> Buybacks create a tendency toward higher share prices, but only while they continue.
Buybacks increase the share price because you have a company that is worth (for sake of argument) the same as it was worth before, except now there are fewer shares available.
A fixed market cap divided by fewer shares equals a higher share price.
In the limit case imagine buying back all but 1 share. Now that 1 share represents the entire value of the company, so the share price would equal the market cap.
The company is worth a bit less after the buyback, because it's given away some of its money, which was part of its valuation. But the effect should still be positive on the share price.
> 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.
> As I get to grow compound interest on my money, I will come out much better in the long term.
You will pay the capital gains tax rate either way. Either when you buy 15% less additional shares, or when you sell them at the end and pay the 15% then.
If you start with 15% less and compound it, you still end with 15% less.
(15% is just an example)
You might be placing a bet that at some point in the future there will be a reduction the capital gains rate, but, as far as I can see, you are not earning more due to compounding.
> 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.
Actually no, they have the same benefits as a dividend except they don't create a forced tax liability.
Stock grants can actually include dividends.
Even if you don't sell or borrow against it you benefit because you don't have that tax liability, and the money you woulda paid in taxes can continue to be invested.
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.
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.
That is US-specific tax policy, but many international companies are listed on US exchanges and purchased by international investors. As a Canadian, my retirement savings in my TFSA are subject to 15% taxes on dividends and 0% taxes on capital gains (for US-listed stocks).
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.
Even folks who are just saving for retirement benefit, since they need not take any income on top of their normal employment income. They may be in a lower bracket when they sell.
Also the reality is that its somewhat rare for retirees to spend down their entire portfolios.
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?
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/using shares makes no difference to cash (whether to employees or in M&A situations), why not do buybacks 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.
Actually, normal people can do the borrowing thing. It's not really as necessary since you have normal employment income but you can do it and it can work. If you continually add more principle to your pile-o-stock than your monthly spending the growth will outpace your interest and you won't accumulate an unbounded amount of leverage.
At least if your broker offers decent margin rates or you sell boxes.
Well, also, your 401k and IRAs are probably superior to this strategy and can't be used as collateral as they're protected in bankruptcy. So it's not worth it until you fill those up.
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).
Different markets. Companies are created to allow investors to create profits selling something (things, services, etc). Companies compete with other companies to attract capital. Companies which offer higher expected returns for comparable levels of risk will attract more capital. This reflects supply and demand for capital.
Employees are part of a labor market. Supply and demand in the labor market drives compensation levels. When you have a rare skill that is perceived to be valuable, you can get higher compensation - e.g. Meta AI researchers getting $100M contracts or Juan Soto getting a $750M baseball contract.
As mentioned elsewhere, some companies give stock to employees. In my experience this is for one of two reasons. 1) Employee retention - stock grants tend to have multiyear vesting periods designed to keep the employee at the company. 2) Start up companies that do not have the cash to pay employees.
None of these explanations would lead to simply paying employees more with excess cash (unless the cash was created by a group of employees that you were trying to retain).
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.
Have you ever been a c-staff? C-staff are employees as well. Usually more expensive employees. Well run companies are trying to figure out how to win in the marketplace. To do this they hire the employees they need to win. Investors do this with CEOs.
I agree that it is much more difficult for a CEO to get fired than a line employee as CEOs have significant influence in picking their boarda. However, the consequences to a company of replacing a CEO are generally more significant as well.
1. They don't have to
2. If employees want to be exposed to excess profit (and loss) they can buy shares like everyone else. (Not a super strong argument tbh)
3. It's impossible to measure how much any given employee/department really contributed and they don't want to create a culture of chasing fat bonus checks.
4. To some extent they do tend to. Profit sharing plans and ESOPs aren't that uncommon
> 2. If employees want to be exposed to excess profit (and loss)
It's funny that people tell me they want this because they'll see some of the sales outliers. But then I explain that 1/2 or more of their salary will be dependent on some type of performance metric and most clam up.
> 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 same reason you don't give a store $2 for something priced at $1 or write anything other than a zero in the box on your tax form that lets you pay more if you like.
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.
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.
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.
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)
And yet when Jobs returned to Apple he blew up ATG (the Advanced Technology Group) that gave us Quicktime, etc. He also shutdown Apple's research library (and gave all the books to Stanford, I believe).
He seemed to have little patience for "scientists" — preferred engineers that shipped shit.
I think that at best he saw research as expensive, at worst he saw it as elitist.
Apple was giving away the Keys to the Kingdom by way of licensing Macintosh clones, among other things. If ATG were responsible for hemorrhaging cash I am not sure why they did not re-appear then when Apple was firing on all cylinders. Only Jony was crowned.
And there's no way the library and its books were a cost — unless perhaps it was attracting snooty engineers who were reading Foley and van Dam when they should have been fixing bugs. ;-) (That actually might have been me.)
I could be putting too fine a point on it, but my impression was that he was kind of jealous of "academia". Not only did he not graduate from but even seemed to eschew higher learning. And to be sure he would have had a harder time bullshitting an expert in a given domain. They had a kind of power of knowledge that he lacked.
At the same time he was clearly enamored with Avadis, very much the academic — appeared to be grooming him for role of Apple CEO. He must have been very disappointed when Avadis left the fold.
> They said a Unix weenie was code for software engineers who hated what we were doing to Unix (the operating system we licensed)—putting a graphical user interface on it to dumb it down for grandmothers. They heckled Steve about his efforts to destroy it. His nightmare would be to speak to a crowd of them.
The value proposition NeXT found on UNIX, was the same as Microsoft (after they let go of Xenix, thanks to MS-DOS golden goose deal with IBM), a means to an end, the market of companies and universities that wanted something with UNIX in the box.
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.
As others have mentioned that isn't comparable because salaries are taxed. The tax rate on unrealized gains in the US is zero percent from what I understand.
Not correct. Capital Gains taxes depend on the holding period. Short term capital gains (stock held less than a year) are taxed at the same rate as salaries (ordinary income rate). Long term capital gains (stock held at least a year), are taxed on a reduced level that peaks out at 20% (depends on total taxable income) with a possible additional 3.8% Obama Net Investment Tax.
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.
Close your eyes and picture a cash flow statement. Where do buybacks appear? Under investments, not under return of capital.
Now of course buybacks can work as a return of capital, but it's not quite as simple as "buybacks good" or "buybacks bad" or "buybacks = dividend". Sorry. It's not.
Please don't take this personally. Two different groups of people yelling here have got hold of different parts of the elephant. A few of them seem to blame me for mentioning the crazy word "elephant." Because the key word is surely "rope" or "tree". And since I don't use either of those words consistently, I must be detached from reality. What kind of idiot thinks a rope can be a tree?
That is making me feel like I've wasted my time.
It's not you, it's the whole discussion. If you've gotten this far, thanks for listening.
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.
What's missing from this explanation is that the corporate tax rate was also much higher, but R&D dramatically cut down profit that would be taxed and was taxed lower. So large corporations like Bell Labs and co would basically say "do we give the government X in taxes, or do we spend X on research?". They chose research, so we got the technology that powers our world.
That, combined with stock buybacks and the general take over of Friedman-economics resulted in a far more focused short term thinking and outsourcing research as much as possible due to uncertain horizon risks.
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.
I'm not really seeing how the blacks and women ruined corporate research, can you expand on that more? Are you saying they were all retarded and without enough white, Asian, and Indian men nothing could be accomplished?
Since they don't make up 50% of the pipeline the enforced restriction necessitates hiring further down the ability rank even if you are to assume that all races and all sexes have the same ability / aptitude. And it also means for every non-minority male you need a minority female and those are very hard to get.
If for instance higher ups from all companies require you to hire only whites with straight blond hair, a certain weight/size and with green eyes, you will quickly need to hire the bottom of the barrel of this group to expand your teams.
Numbers were not invented, they were tied to management bonuses, numbers lower than that negatively impacted bonuses. Inhouse counsel were much more worried about disparate impact lawsuits than race quota lawsuits. There are many reasons why I, and others like me, can't post personal anecdotes publicly.
Not absolutely everything was great before DEI, and DEI is not the only problem. I gave a number of other problems that have diminished the efficacy of research orgs.
Corporate labs have now gotten so bad that I can outcompete them as an individual which would have been much more difficult in the past.
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.
Silly argument. Everything in gravitational physics goes back to Newton? Who cares about Convex Optimization if you do not undertand gravity? Math goes back to Euclid and the Greeks?
Mankind has consistently built upon existing knowledge. "If I have seen further, it is by standing on the shoulders of giants. (Newton)"
IMHO, what we are seeing is the US was generating 50% of the world's GDP at the end of World War II. In that era it could afford to many non-economical things - Marshall Plan, funding research at universities, etc. The US is no longer the dominant economic engine. It actually has to prioritize its spending. Money spent on research is money not spent on food stamps, housing the homeless, defense.
What is never mentioned in these discussions is how much money has been spent on research that did nothing. Advanced nothing. When that is factored in, what is the ROI of university-based research?
Oh no! I wonder what the US could have achieved if instead of spending 10s of billions of dollars per year, it could instead have used those to fund more trillion-dollar wars!!
> 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.
This implies Xerox got no return on their research, and simply let Apple take their research, which isn't true. Rather, it was part of the investment deal they made with Apple [1]:
> Apple was already one of the hottest tech firms in the country. Everyone in the Valley wanted a piece of it. So Jobs proposed a deal: he would allow Xerox to buy a hundred thousand shares of his company for a million dollars—its highly anticipated I.P.O. was just a year away—if PARC would “open its kimono.”
Xerox clearly undervalued the research they were producing, but it wasn't like they just gave it away entirely. Per [2] the valuation of those shares in 2018 would be $1.2 billion had they not sold them - undervalued in hindsight, but not nothing.
Xerox's lack of capitalisation was a problem of their own making, not something inherent about investing in basic research.
Yeah, no, the ROI on Xerox Parc was excellent for Xerox, because of the technology they _did_ successfully commercialize on their own: the laser printer. It helped Xerox to $8 billion in revenue in 1984, a level Apple didn't beat until 2006. Even Microsoft didn't beat Xerox in revenue until the year 2000, where Xerox had $19 billion in revenue. Apple didn't reach that level until 2010. So you could say that it took the iPhone to beat laser printers; the Machintosh wasn't enough.
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.
Corporate R&D dies under the short-term thinking of quarterly profits. The best pure R&D seems to be coming from private companies that are able to sustain losses for long periods of time until a significant breakthrough is achieved (e.g. SpaceX, OpenAI, etc.).
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.
Bureaucrat-ification isn't a phenomenon unique to Google - it happens at every company eventually.
It's really hard to describe why it's inevitable (there are a lot of factors).
But it's self-evident really. All of the major tech players started with a single innovation that afforded them enough revenue to acquire almost everything else in their portfolio.
Aside from search, the only major product Alphabet built-in house that meaningfully moves the needle revenue-wise is their cloud segment. Youtube was acquired - and it's effectively an extension of search.
Meta had to acquire Instagram and WhatsApp. Without those acquisitions, I have strong doubts they'd still be a major player today.
You can run through this exercise with Microsoft, Apple, Amazon, NVDA etc.
The common theme is they did 1 or 2 things really well, and got big enough to acquire/copy/bully smaller players out of the market.
What's crazy is most of them still rely on that one original thing they did well for >50% of revenue.
The story with 3M and PostIt Notes is that the idea was originally rejected my management. The inventors created a batch and distributed them to all the executive admin assistants. When they went back a second time, they had the assistants speak up otherwise there would not be any more.
I didn't bring up 3M because of the Post-it story, but because they're being a "general research" company. From open reel tapes to sticky tapes and everything in between.
Würth is also similar. They make seemingly everything in a segment (lubrication, fuel additives, cleaning, restoration, protection, etc. etc.).
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.
“While it is never safe to affirm that the future of Physical Science has no marvels in store even more astonishing than those of the past, it seems probable that most of the grand underlying principles have been firmly established and that further advances are to be sought chiefly in the rigorous application of these principles to all the phenomena which come under our notice.” Albert A. Michelson (yes, that Michelson, one half of Michelson-Morley), 1894
If it feels like there’s nothing for us engineers to research, that’s probably a sign we need more basic research from the scientists!
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?
high temperature superconducting would cause a big leap. cheap energy would also help. cheap compute-in-the-walls. machines doing all the dangerous jobs.
All of this is research from the 90s, with a few decades of polish.
Now maybe we could start looking at what research labs have come up with since then.
> 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.
That's... an interesting point. I don't really buy it, though. The same could have been said of the fascist movement in Italy, or the royalists in France in 1905.
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 :)
Share buyback is the same as giving dividends - except the share holder doesn’t have to pay taxes until they sell. To the company, they spend the same amount on share buyback vs giving dividends. I don’t see how this argument holds up.
Further more, while some might argue that corporate R&D is better due to being closer to the problem but it is private research and not shared with the world like university research is.
depends how sophisticated the investor in the story is. it thay are perfect homo economicus they would have been selling some of those inflated shares to do what they would have done with the dividends
> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research.
Share buybacks are just the new go-to thing to blame. Economics students (at least "development economics") are memorising this concept all over the globe, so you can expect it more and more.
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.
Good point. And both Google and Apple used to reinvest all benefits in R&D.
My impression is that as they calcify into money-printing machines, this stopped. An example being Google's famed 20% that are apparently a long dead memory.
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 would agree the anti-monopoly action had far more to do with that.
Basically, if you you think you can leverage your R&D into maintaining your monopoly and extending it to other areas it makes sense if for nothing else to keep the smart people who might otherwise disrupt your monopoly connected to you.
But if you are going to get broken up, just take as much short term profits as soon as you can
Ah yes. The share buyback boogie man. If only companies couldn’t buy back shares then all that extra money would flow into research, except not. Shareholders would be demanding dividends.
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.
a) allowing share buy-backs might be good or bad. But it isn't good or bad unconditionally! The restrictions on the buyback policy should matter. Ideally, buybacks should make prices boring not create ultra thin books with hefty valuations that are cheaper to manipulate. But it seems the regulations around buybacks are in line with incentivizing growth and not stabilizing real prices.
b) to some extent putting uncertain/opaque research inside corporations is a defense against getting into regimes where it becomes easier to manipulate prices. I hadn't thought of it before, but if if important public companies become beholden to traded price and it becomes easy enough for large foreign entities to move markets, then it is simply a matter of "pricing" short term market punishment of a company for any policy you don't like. Yes, this might seem a bit far fetched, but remember that this kind of incremental worsening of outcomes is precisely what people say is hapenning via regulation and legal challenge in key industries.
Just some interesting thought legs spun off from the discussions here.
> 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
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.
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.
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.
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.
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.
"Seriously spent" where serious is less than the cost of a single bomber for the military. I forget what Geoffrey Hinton said it was, but it was an embarrassingly small pittance.
Military spending is largely economic dead weight, roughly the equivalent of handouts. And the end result is deterrence in a game of prisoners dilemma. Yet it is sacrosanct, and subject to ever increasing budgets for no gain.
The % of US GDP spent on defense has been going straight down ever since Eisenhower gave that speech about the MIC.
(Another fun fact is defense companies make fewer profits during war, not more. Presumably because they have to make real products instead of designing imaginary ones.)
The appropriated funds were only 4% of the defense budget, a lot of which still hasn't been handed out, and half of the handouts weren't even weapons and other military supplies. You could fund 10 Ukrainian wars at the same level and still have an extra 150% idle capacity.
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.
"Building things" is not science, it's engineering. We could certainly compare the outcomes of "bureaucratic" science against the free market variety, but there's basically no free market science going on to support such a comparison.
This isn't a value judgement. Engineering is just as important as science, but just as more science is not a replacement for engineering, neither does better engineering free us from the need to keep pursuing science. And at the end of the day, SpaceX might be an impressive engineering company, but we still need the scientists. And it's weird how often the success of SpaceX is brought up as an implicit argument that we can send all the scientists to work on farms or whatever without any ill effects.
It also seems notable that a company like SpaceX is an obvious candidate to bring back the 20th century style corporate funded scientific research organizations to underpin their engineering efforts in a way that would presumably be free of the hated "bureaucracy". But if they've done so, I haven't heard about it.
Any American company could use NASA's designs for reusable rockets... Oh wait, only SpaceX did it. And 10 years after they did it, they're still the only company that did it (not counting New Shepard of course, as it can't put anything into orbit). Are some congressmen forbidding other companies to use their own money to make better rockets?
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.
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.
I think the article does not explain this well, but (having worked in an applied science field for many years) much of the work is picked up from these failed projects by other members of the field. Sometimes this is quick, sometimes years later. Anyway, while it might not immediately evident, shelved projects often do move the state of the art forward and unlock someone else's success (hence part of the argument for it being a public funded system). Of course, a lot do not, but that is the nature of research.
That's purely an issue of living next to the USA and Canada's system not rewarding risktakers/startups like the USA does. If you have the next billion dollar idea would you rather get rich in Canada or the USA?
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.
> Good research is just a vehicle for producing knowledge and talent.
Yup, it was surprise seeing that once have a good STEM field Ph.D., written a lot of STEM and (early) AI software, and have published some peer-reviewed papers, are then condemned as in a felony conviction from ever having money enough to buy a house or to participate in the real world. A surprise.
But so far have missed the law that actually forbids doing some good math research, writing corresponding software, starting an LLC business as a sole proprietor, self-hosting a related Web site, getting users, running ads, and making (oops, forgive the transgression of mentioning) MONEY. Horrors! Uh, that's actually the same kind of "money" that people selling food, clothing, cars, and houses and providing medical care, private K-college education talk about.
Gee, cut out a lot of middle stuff, i.e., save on management, lawyers, office space, recruiting, HR legal issues, insurance, utilities, software developers, cloud fees, server farm staff, servers (an AMD FX 8350 can send a lot of the Web pages with still image banner ads), ....
Just now evaluating Macrium Reflect. Anyone have any experience? Uh, will it copy a disk partition that has a bootable instance of Windows so that the target disk partition will also be bootable or will it copy only whole hard disks with all the partitions, ....???? Similarly for Acronis and Windows Image. E.g., if make an Image of a bootable partition, will the partition written to boot? Right, just use the TIFO method!
> 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.
I feel like you're confusing "science" and "engineering". SpaceX is fundamentally an engineering company, not a scientific one. Don't get me wrong, they've done impressive work in engineering innovation, but that's fundamentally different from scientific research. And as the article points out, engineering innovation from the likes of SpaceX is usually reliant on that foundational scientific innovation, which in turn is essentially useless without an engineering partner to realize scientific discoveries.
> It doesn't look like the science establishments of any country are actually successfully feeding their innovation machines, or have done so for decades.
Really? Is it just a coincidence that up until recently the US had some of the most robust scientific funding and was an unbeatable source of engineering innovation? For that matter, are there any real counterexamples where science research is non-existent but engineering excellence abounds?
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.
It seems to me that incremental improvements undervalued in the West instead lots of efforts spend on chasing revolutions (which don’t happen often) and China capitalised on this.
> The problem is that in Canada we're willing to invest a little for a long time. But we're not willing to make big bets.
Element AI.
It's not that the bets are not made, the winnings are captured by those that corrupt the existing system before it's even started, so tney go nowhere. This has been the status quo for so long everyone assumes it is what is happening with every new initiative.
Your article strongly consonated with the ideas I often try to communicate to those around me. I wish there were more open discussion about biases related to PhD qualifications and the growing influence of venture-capital-style practices in science. Many researchers dedicate themselves to exploring new and uncertain areas of knowledge, yet their work is sometimes undervalued by hiring managers and industrial professionals. I personally know HRs who consider the "PhD" tag in a CV a red flag.
There is also a tendency to overlook the fact that pursuing a PhD is a form of professional work, comparable in commitment and responsibility to other careers. Sometimes 699, sometimes 700. Academia can indeed be a challenging environment, and not everyone contributes in the same way—some may prioritize credentials over substance, and cases of research misconduct do exist. However, these examples definitely do not represent the academic community as a whole.
Regarding the venture-capital approach, in applied sciences, researchers are increasingly expected to present their ideas in short, pitch-style formats. At some point, this process itself becomes the goal of the work. I can imagine this encouraging concise communication. Still, it also shifts part of the management responsibilities—such as market analysis and outreach—onto scientists, which does not align with their core expertise or professional goals.
As many gripes as there are about the competitive grant process, at least in the US it was formerly adjudicated by scientific experts. (Yes, subject to groupthink and overweighting en vogue topics, but still by experts)
TBH, it makes sense for large incumbents to sell out science on the altar of politics because they are now will profit more from rent seeking than from innovation.
The gravy train will crash. Fortunately, given many of those who facilitated it will die within 20 years, and then that will be someone else's problem.
> 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.
I like to imagine that thermodynamics happened because industrial metallurgy and boiler design advanced to the point where people started asking "what are the fundamental constraints?"
There's a chance that it didn't actually happen that way, though.
edit: I also heard that Louis Pasteur did work for breweries, answering the question "Why do some batches come out nasty while most are fine, given the same inputs?"
The history of steam engines would suggest that our understanding of thermodynamics developed out of a large base of first-hand experience. Same story for Calculus. And the t-statistic was developed by a QA guy (student) at Guinness.
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.
If the free market says that young adults 18-24 want to spend thousands of dollars on gyms, saunas and sports facilities, why should government regulators get involved?
because government regulators are backstopping the loan that young adult took for that sauna.
There's no free lunch. Its not a free market when a 17yr old with zero job experience can enter loan agreements of 100k per year.
And you know that's true because in any other scenario, the same 17yr old will get laughed out of any loan office. I'm not even sure a 17yr old would get a 400k bank loan if the kid showing up at the bank as the patent holder of Wegovy, for example.
That ans I'm not sure the free market could not provide private independent luxury sports amenities just next to universities if it was a real need. I'm pretty sure the free market sports places would fail fast however.
> 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
I'm very skeptical of this claim.
In fact up until a recent funding method change from the Trump Administration, most grant money was subject to "overhead"--a nebulous nonsensical accounting trick that allowed the university administration to get upwards of 60% of the dollars that are earmarked for grants. If you invent something, the school will take 70% of the revenue from the innovation. Much like VC, some big wins can power the school for years.
Actually, most highly productive research universities use the research as a prestige magnet and marketing tool to help grow endowments and keep up in the US News college rankings.
I would be great if the funding weren't so opaque. We may be able to find accounting info for the public univeristies. I would bet money that, Liberal arts tuition likely goes into administration, endowments, and campus improvements for student life (better food in the dining halls...)
> In fact up until a recent funding method change from the Trump Administration, most grant money was subject to "overhead"--a nebulous nonsensical accounting trick that allowed the university administration to get upwards of 60% of the dollars that are earmarked for grants.
We're better than this here. Don't spread misinformation. First of all overhead is listed as a percentage, such as 55% or 60% or whatever but the university doesn't get that fraction of the total grant. You work up the so called direct costs, ie the line item salaries of the researchers, the reagents, etc. and then the overhead is 60% of that figure. So it would work out to be 38% of the total dollars granted.
It's also not a trick. It's a negotiated amount that is supposed to avoid each grant requesting some amortized fraction of the cost of office space and other necessary but shared expenses.
I and most people agree that's it's possibly too high, but it's ignorant to treat it like a scam.
I and most people agree that's it's possibly too high, but it's ignorant to treat it like a scam.
The fact that it is so high is a scam.
It really depends on the grant. For the larger grants, it may work somewhat like you describe. For the smaller grants, they literally do just take 60% of the money (and complain that it is not enough to administer the grant while providing absolutely no support whatsoever). In theory, it's paying for salary and office space and whatnot, but those are already covered by other budgets.
It's not misinformation. You are repeating a misleading talking point. Here's what happens.
- Professor & students get a grant application for 100K.
- University charges indirects at a ratio (0.55)
- 155K gets transferred from treasury to the university account.
That extra 55K comes from the money that congress allocated for grants, so if congress allocates 1 billion dollars -> 450 million will actually go to professors for research. (less than half).
I don't know about you but the universities I went to were rarely ever building new labs or buildings. Furthermore, those large projects always have state grant money coming out of another funding pool.
Glossing over some details, but the fact of the matter is that it's opaque.
> 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.
You clearly aren't familiar. These "universities" are a step above DeVry. They might be worse in that they cost an arm and a leg to attend.
I used to tutor CS students at several different universities during my first two years at college. I would bet my arm that none of the ones I taught from KSU wound up with a career in software.
The student perspective at these schools is that they're there for the credential, not for the learning. Even at the risk of false negatives, I would actively filter out resumes listing schools like these. I would much sooner interview a non-degree holder.
> Even at the risk of false negatives, I would actively filter out resumes listing schools like these.
I am occasionally on hiring committees and use a rubric for ranking candidates. The rubric usually has 8-10 yes/no questions that might be best summarized as "Does this applicant's resume and cover letter indicate that they have actually written code deep enough to 'map' to our requirements?" Some of the rubric may be a little more specific to the actual job role, but the main idea is to filter out what I have come to think of as "aspirational" software developers.
I think one nice thing about the rubric approach is that candidates don't score "prestige" points or get "penalty" points for their specific educational background. Honestly, it seems like a lot of students from many institutions (some quite well known for rigor) are mostly about the "credential, not for the learning." The rubric seems to effectively filter out the less skilled or interested without eliminating skilled candidates with less "sterling" credentials.
I went to SJSU (now KSU) briefly before transferring to a better school (because I slept through all of high school and didn't do any homework) and I did not get the feeling that anyone else in my classes was going to be a successful software engineer. Rather I got the feeling their parents told them to do CS because they really liked video games.
I took a group project game development class and it went beyond doing all the work in the group, I think I did all the work in the class.
Two people I know did graduate then change careers and become successful animators on Archer though.
At GA Tech the quality of students were better, but it mostly seemed to me that it worked by beating everyone to death such that you washed out if you couldn't work nonstop. They still weren't especially good eg not a single other student knew what version control was.
Nice article, I completely agree that government funding is essential for America to sustain its technological advancement.. After reading it, we need to validate the following points:
1.The government should periodically review how many funded research projects are successfully completed and lead to tangible outcomes.
2. The government should ensure that research funding is properly utilized for the intended purposes, so that resources are used effectively and efficiently.
3. It is necessary to study how artificial intelligence can be leveraged to reduce the cost and duration of research while accelerating scientific experimentation.
How can statistically generated tokens help in basic research to find things outside the training set? This is where things are “inefficient” as it’s driven by extrapolated knowledge and often requires money to proceed. Sometimes in quantity. And things often fail.
As basic research transitions to engineering, things built from the current knowledge base, if suitably updated, should be useful. And work within the training set should go well.
I agree that basic research like the discovery of GMR often has an unpredictable timeline and shouldn't be judged too early..
However, I still believe that a light-touch monitoring system is important. It's not about evaluating the usefulness of the discovery in the short term, but rather ensuring that:
Funds are being used for the stated research goals (fiscal responsibility).
The project is making scientific progress as defined by its own milestones (accountability).
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.
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.
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.
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.
Just seems a very idealistic and almost simplistic view of how a thing should work best because it feels like it should work but the reality is academia gets completely outpaced by private companies. SpaceX, GPT4, Ozempic, list goes on.
> academia gets completely outpaced by private companies
Outpaced? What does that even mean? The whole point is they have different roles and goals. And you need them all, if you cut basic research all the downstream stuff will suffer.
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.
Maybe they meant before X/Twitter.com, before Google, before Meta, before... wait, what's left? PayPal mafia much? Anduril? Oh you meant startups? That will then be bought by those?
There is an ideal of SF but SV isn't SF, definitely not non-tech SF.
So... you might think of a version of SV that existed, maybe, at some point. It might even still exist as some rebellious employees of those large corporations but in practice people with the money and power in SV I believe now are pretty much with such a stance, yes, sadly IMHO.
> 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.
The UK has an extremely entrepreneurial culture as well, which is shown in the data (number of businesses registered, number of startups, both per capita), it ranks very highly, along with other indicators of innovation, it might not be as entrepreneurial as the USA, but globally it ranks very highly. The fact that you mention the Soviet Union and its central planned economy and the (outdated and stereotyped view of the) British class system almost like they are equivalent really undermines your point as well.
What pisses me off the most about this, is that CEOs still preach about how life-long learning is a must. Stop that fucking bullshit, will ya? If you as a CEO don't give a flying fuck to invest in knowledge, than you have no right to preach from that high horse of yours to do that myself.
edit: to clarify I am arguing against putting in the effort on my own expense which benefits the company because I need to foot the bill which the company should have, so I am not arguing against such self-improvement which obviously benefits me
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.
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.
It depends upon the field you are talking about for diminished return and less innovations. Returns have been thoroughly diminished when it comes to raw power in weaponry for instance. With anti-ship missiles already it is rather 'you get hit and you die'. Railguns haven't really been working out well for instance, and even if they did succeed all they would do is create 'stable magazines' while adding 'unstable' additional power production. Precision is the area where real work is being done, lumping in drones as an example of precision compared to say missiles or bombs which just explode at a destination, or mines which just explode when anything triggers it.
There are some major advancements in biotech for instance that are nothing to sneeze at, and even more in the pipeline (which admittedly may not pan out). Organs may not qualify as an invention technically, but being able to manufacture them certainly does. Not to mention how environmental tech is needed now more than ever.
Science being less convertible to inventions could have counterintuitive effects if it were true. Like smaller nations being in a 'don't even bother' situation while superpowers gain a literal monopoly on invention due to the rareness raising the barrier to entry to get anything meaningful out of it.
Politicians defunding and discouraging science is based more around memes and suppressing dissent than anything concrete. The reason not to create such 'stability' is generally that when the rest of the world passes by it will not be kind to you. But even if science somehow became literally useless tomorrow (an impossibility, of course), I highly doubt that politicians would not be such rigorous cost-oriented stewards that they would consider it worth the political capital to uproot the entrenched bureaucracies which no longer serve a purpose. Even if they knew it for certain was useless they might consider the spending a worthy price to pay for false hope. Crowds get real ugly when you tell them that things will never get better.
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.
The science research today in most universities are not driven by curiosity at all. It is most funding drive and in a lot of cases researchers has even less freedoms than an industrial professionals.
I do feel this is a case of Americans believing their own propaganda. What the US does well is efficiency. The problem is, capitalism has pushed the time to ROI (return on investment) to get shorter. 5 years is what venture capitalists were working on. At one point there was status for a corporation to have a research lab of quality - in the same way as corporations had glorious architecture for their headquarters, Bell labs was about status. These research labs provided a safe space for curiosity driven scientists. In the interests of efficiency (and because it no longer had kudos) the labs were abandoned and - in a classic US way - it was decided the State should do the science. The trouble now is that the Universities are thinking about their ROI. Curiosity driven science has no home at the moment.
> So is gender research or feminist queer dance theory studies a part of basic or applied science?
People's ideas about how humans should live together can be beneficial for the wealth and well-being of whole societies and its members. Was Rousseau part of basic or applied science?
We can wonder about how useful certain efforts are, of course, especially in all their extent; but I don't know how wise it is to dismiss things _wholesale_, just because their application is not immediately apparent and the rejection fits into the political current. The unnecessary snark is just sad to see here.
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.
What almost nobody in SV wants to talk about it the gutting of STEM in the early 90's when real wages for STEM began it's decline in the US via labor arbitrage. Of course Blank and most of Silicon Valley benefited from this, because it allowed them to get cheap, compliant labor. Eric Weinstein did a great paper on this years ago https://users.nber.org/~sewp/references/archive/weinsteinhow... . Looking at the current unemployment in STEM, which is higher than the national average, this arbitrage has just hit a point where it has killed the goose that laid his golden egg.
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.
Yeah, that's not really how I view central planning. To me, central planning is when decisions go through a central authority. The only thing centralized here is the money pot. The decision making about what gets funded is mostly distributed though. Yes the Trump administration is wielding influence but the way they are doing it is by exerting control over the purse strings, which is decidedly not constitutional. Indeed, the fact this has never happened before despite successive party changes shows that what Trump is doing is extraordinary.
> In an unplanned economy, people make decisions about how to allocate their own resources
Okay but we are not talking about allocating private dollars for profit, we're talking about allocating public dollars for science. People are still free to allocate their private dollars as they see fit. Notably, given the freedom to do so, most people do not allocate their private dollars for public science, making public science funding all the more necessary.
The grant committees didn't earn the money, but as practicing scientists of some renown they have earned the right to weigh in on how public dollars should be spent.
>>>The grant committees didn't earn the money, but as practicing scientists of some renown they have earned the right to weigh in on how public dollars should be spent.
No. They have not. They haven't earned anything. If they did, they would have had a connection to a company and thru their technical expertise, chosen exactly what to develop next, with their own (or investor's) dollars at stake.
You can't claim the best at a subject and purport to demonstrate it by writing a book. Say, risk management. Real risk managers open hedge funds. Academics write about other's hedge funds.
One has battle scars. The other is soft. Soft people don't get to make decisions on how to allocate anything. No cowards for leaders, since time immemorial.
This kind of marginal risk thinking has never made sense to me because of the declining marginal value of money.
If you have $0 you can't accept any risk and can't make any decisions correctly. But if you have like $4 million you also have no reason to make any decisions correctly because risk no longer matters to you. So it relies on them having expensive tastes such that they can't just retire?
It has to do with the lindy effect. If you have $X, statistically you will quit trying to accumulate money when you have $2X. Hence you are safe to entrust some reasonable fraction of $X in without fear of you running away with it. Someone with substantially less than $X will see that as the most money they will ever see in their lifetime and immediately being trying to cash out.
> chosen exactly what to develop next, with their own (or investor's) dollars at stake.
We are talking about fundamental research here. Most investors are not interested in funding fundamental science, evidenced by the fact they have all the power to currently fund such work, but they choose not to.
> You can't claim the best at a subject and purport to demonstrate it by writing a book
They don't, they do it by doing science and building a reputation in their field for doing good work. People who work at the NSF and NIH are vouched for by others in their field.
> Real risk managers open hedge funds. Academics write about other's hedge funds.
The interests of private equity and hedge fund managers are well represented. They have plenty of say on public policy and how resources are allocated. It's good to give other people with different perspectives a say as well. Again, the total amount of money allocated for public research is very tiny compared to the rest of the federal budget, private research dollars, total hedge fund wealth, etc.
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."
NIH grant officers are not partisans, they are career scientists who manage a fair and transparent process for funding research. Their role is to ensure proposals are reviewed based on scientific merit, not political views. The way you're describing them is the opposite of how they operate.
The existence of diversity statements reflect institutional goals -- namely that the NIH funds science from a diverse set of researchers, to benefit a nation made up of a diverse population, who are funding all of this research.
The only partisans in the picture are the MAGA political actors who are going around saying that the NIH can't do these things for political reasons.
>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.
> But few people have asked what, exactly, is science? How does it work?
The author asks the question, but then never answers it. That isn't surprising -- nearly no one outside science understands how it works.
* Science rejects authority and doubts expertise. The greatest amount of scientific eminence is trumped by the smallest amount of scientific evidence.
* The basic scientific posture is that a theory is assumed to be false until proven true.
* Contrast this outlook with pseudoscience, where a theory is assumed to be true until proven false.
* A conscientious scientist lists all the reasons his theory might be wrong. In other fields, this task is left to critics.
This summary may seem to be at odds with modern scientific practice, but that's because much of modern scientific publishing is not science, it's marketing.
In a now-famous science story, during an astronomy conference a researcher stood up and confessed that he had made a mistake -- his detection of an exoplanet actually resulted from a failure to subtract Earth's own annual motion from his data.
The audience came to its feet and gave the researcher a standing ovation.
My brain reads “No science, no startups” — alarm bells. This kind of mono-causal oversimplification can only be anti-Trump clickbait — I ignore the post.
A few seconds later, guilt kicks in — “Don’t be so ignorant!” — I click the link. Literally the ninth word is Trump. My brain: “Alright, that says it all.”
I scroll a bit — should I really read this? My brain: “No, let ChatGPT analyze it critically.”
Conclusion:
The same kind of simplistic linear causality is presented without substance — no sources, no data, no valid projections — uncritically carried through. Typical NPC-scripted “science,” representative of much of today’s “NPC academia.” It’s just a patchwork of general knowledge and some combinatorial creativity, pretending to be expertise, seriousness, and understanding — enumerated to suggest strange, subjective, unscientific, and mostly personal goals.
This exact kind of NPC-scripted “science” needs to be exposed and discredited as pseudo. If this is the so-called “defense” of science, then it deserves to be opposed. Simple as that.
PLEASE - for the love of god - spare me with this nonsense!
Because whilst universities claim they do that, there is no evidence to suggest it is true. People genuinely trained in critical thinking would be highly skeptical of this claim. For example,
- What exactly is the definition of critical thinking they are using?
- Which part of a {computer science, art history, etc} course teaches this?
- How is it assessed?
- If it's a teachable skill, why are there no qualifications in it or researchers studying it specifically?
- If it's something universities teach, why are there so many bad papers full of logical fallacies and obvious fraud?
I know some like to argue philosophy is such a course but very few people do philosophy degrees, so even if that were true it could hardly be generalized to all of university teaching.
I've taken 2 required critical thinking courses from 2 different state schools. They were in the philosophy department. Why do you think they don't teach it? In stanford, for instance, they require taking 2 courses on formal reasoning as a prerequisite for a degree, which invariably includes critical thinking.
I've never heard of anyone being required to take a philosophy course but some universities surely do it. I was curious about the Stanford claim. This is the Ways system, right? Their website says you need to take at least one course in formal reasoning:
They list a few examples like market design or programming. I thought, OK, formal reasoning maybe, but is that really the same as critical thinking? Then I clicked the "See Formal Reasoning Courses in Explore Courses" link:
143 courses are considered to teach formal reasoning. First on the list is "The Questions of Cloth: Weaving, Pattern Complexity and Structures of Fabric (ARTSINST 100B)" which teaches hand weaving on a loom. A bit further down there is "Introduction to Bioengineering" which teaches "capacities of natural life on Earth" and "how atoms can be organized to make molecules". It goes on like that.
I dunno, this doesn't sound like anyone has to study critical thinking specifically to pass the formal reasoning requirements. It sounds like almost anything connected to science or engineering in any way counts. And that's Stanford!
There was a critical thinking requirement that multiple courses fulfilled. One was a critical thinking english class that involved a lot of writing. I didn't want to write, so I chose the philosophy course (which still involved writing).
Here is a state school that has a foundation requirement in critical thinking with several courses:
Yes, but, thinking critically about this, why would learning how to hand-weave on a loom teach critical thinking? I get that you weren't doing these courses at Stanford but it's this kind of thing that makes people skeptical when universities make grandiloquent claims. Stanford is supposed to be the gold standard, so when it makes it appear that they teach critical thinking but actually don't (or it's at least very easy to make choices that won't do so) of course the claim is devalued.
If universities really cared about this aspect of their reputation they'd defend it by firing professors who were found to not be thinking critically e.g. by praising or putting their names on papers that are clearly fraudulent. It doesn't happen.
Your original claim was "there is no evidence to suggest this is true (teaching critical thinking)". I presented my own anecdotal evidence, and then a counterexample. I'm sure there are many, many more. Moving the goalposts is not a discussion I'm interested in having and you seem to have a very set viewpoint on this topic.
That's an interesting perspective. Thanks for sharing. If you had free rein of an engineering school in a university system, how would you re-design curriculum to address your concerns and establish proof of teaching critical thinking?
I don't know, I never thought about it much. I think engineering schools already do better than most others at this because requirements validation and weighing tradeoffs is such a big part of engineering as a discipline. Validating requirements often boils down to critical thinking, e.g. "but do you really mean that" and "is there a better way?".
The issues with critical thinking really show up in the other areas of academia, the humanities and natural sciences. But it's hard to get people to do it because often there are strong incentives not to think critically, or to be outright misleading deliberately.
I guess a curriculum focused around finding subtle flaws in arguments would be a reasonable place to start. It could be a lot of work to compile teaching materials that are tough enough. You could take papers that you know contain logic errors and ask students to find them. For instance, a lot of COVID papers work like this:
1. A COVID case is defined as anyone who gets a positive PCR test.
2. A positive PCR test is defined as detecting a COVID case.
When you see it spelled out so simply the problem is obvious but the whole field of public health managed to not see it (there were a few papers that timidly pointed out the circular logic, but it never reached public awareness). Of course maybe it was deliberate. But you could assign students a few relevant papers and ask them to analyze them critically.
I don’t understand, can you elaborate? I’m trying to understand your perspective. New college grads I generally meet and work with are bright, hard working, curious and have a deep desire to learn.
I don’t think we’re having the same experiences so I want to know more about yours.
Most fresh college graduates I have worked with are anxiety ridden wrecks incapable of developing skills on their own and lack fundamental knowledge of industry practices.
Makes sense. I think they're lucky to be around you. Since you're hanging out on HN, I'd imagine you care about tech, doing things well and have a natural curiosity.
Back when I started out, I was deep in debt, insecure about my skills and being around highly skilled people who had many more years of experience only deepened those insecurities. Luckily, people were kind and patient with me and gave me the apprenticeship I needed. They deeply cared about technical expertise and doing things well, probably like you if I am guessing right. I have my dream job today, and I am in a position to mentor new grads. I continue to pay it forward as the senior engineers did when I started out. Not all my colleagues do this, but I see so much potential around me and I try to grow it. It's one of the most satisfying when I get a note from a new grad/junior engineer on how they've grown after our work together.
Thank you for caring!
On a side note, I can't imagine the anxiety they must go through now between the economy being what it is and AI exacerbating the gaps in technical skills. Seems like a scarier time than when I graduated. It's harder to mentor in this environment, but it's a fun challenge to learn how to mentor in this environment.
You must have missed out on the critical thinking courses, or you'd see the importance of teaching critical race theory. Not everyone is so privileged as you as to not need the benefit of a society educated on racial history.
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.
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.
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.
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.
Then fund science. Just because the government has done it previously doesn't mean it always has to be like that forever.
Maybe if science depended on the average Joe actually having a living wage, enough to donate some directly to science, the incentive structures of our society would become more healthy than they currently are.
Rich people, worrying about rich people jobs and outcomes, is getting a little tiresome. We don't care about your women's studies "research" grants. Maybe something will actually be done about income inequality, if you want to save the things you actually care about. Until then, let it burn; a lot of us will barely notice the difference.
> Then fund science. Just because the government has done it previously doesn't mean it always has to be like that forever.
I do. I'm not one of these wealthy startup founders, just a guy earning a salary--but I've donated to foundations doing basic research many times; and even to individual researchers when they lost a grant but were doing work that I wanted to see the results of.
However, funding science in general this way is likely to miss a lot of value. Not everyone makes basic research a priority in their charitable giving. More importantly, not everyone has my impeccable research taste: not to sound elitist, but if the average American's priorities determined the directions for basic research, we'd have thousands of studies on why vaccines cause autism, an nothing on weird stuff like the medical potential of gila monster saliva.
> 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. If we started not doing that, the priorities might shift, but those executives like things the way they are.
This isn't right but it's adjacent.
Executives don't need buybacks to get whatever compensation. Their compensation is negotiated and you can write the contract to make it whatever.
However, paying dividends is a taxable event, which means shareholders don't like it. You have to pay the tax on the dividend immediately instead of when you sell the shares, even if you just use the money to buy more shares. Buybacks don't work like that unless you're the one who sells your shares in the buyback. Which you can be if you'd rather have the money immediately (and pay the tax) than de facto increase your holdings in the company.
If transferring money to shareholders as dividends forces them to realize taxable gains before they want to then they'd prefer the company keep the money and invest it in something internally instead. Buybacks give them away around that.
But that's not necessarily bad. The shareholders (the ones who sold their shares) get the money instead and then invest it in something else, ideally a different company so that the existing large company doesn't get even bigger.
Also, when the company keeps the money, it doesn't have to use it for R&D at all. Companies often use it to acquire other companies, which is the worst.
You don't really want a tax incentive to make big companies bigger.
> Companies often use it to acquire other companies, which is the worst.
We also used to enforce antitrust law.
> Jobs was always thinking Apple could do better with the money in R&D
Turns out Jobs was right, relevant article from 2006:
https://appleinsider.com/articles/06/01/16/apples_jobs_says_...
Scale matters.
From TFA:
> pushed the company's market capitalization to $72.13 billion
This, on annual revenue of ~$19B.
Apple today is closing in on 2x that revenue every month now. Quarterly net profit exceeds annual revenue in 2006. The Apple Watch group is roughly half the size of the whole company in 2006.
At some point, it became clear that the business throws off vastly more cash than can be productively used in R&D (here I will note that Apple's recent profit gusher is already net of investments in things like the Titan car project, Vision, and all the other stuff they work on but never release).
Maybe some of these 2-brain cell executives should consider that their "buybacks" will be worthless when US throughput starts to be equally worthless compared to the rest of the world...
Of course, I'm being a bit pejorative, they aren't thinking big picture at all, just concerned with what happens tomorrow not the day after...
However, they are in part responsible for the nonsense happening at the moment wrt to American policy, it seems like a game who can light cash on fire the fastest ..
It's a prisoner's dilemma, but with a large number of prisoners.
Tragedy of the commons
Oh they know. They just don't care.
I don't think they do know. Nor do I think most of the shareholders know. If they did they would know that they can make way more money with forward thinking and planning beyond a quarter. The lack of that is the clearest indication I can imagine that they do not know.
Most investors today are basically stock printer go brrr....
If one looks at US money printing in the past two decades, they'll find that the S&P's gains are basically just a mirror to the increased injection of dollars, a facade made to prop up the market. There really has been no actual growth compared to like Japan in the 1980s or China and India in the early 2000s, or Vietnam today. Just a few companies, mostly in tech, which are propping up the rest of the market.
It's a perfect example of a prisoner's dilemma.
> 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.
My understanding is that executives prefer buybacks because they mostly are compensated with stock options, which don't pay dividends (until exercised) but which appreciate disproportionately from buybacks.
Dividends actually directly lower the stock price. Keep an eye on your portfolio when your holdings go ex-div -- the price falls because it no longer includes that cashflow.
This doesn't sound correct. Giving out an expected dividend lowers a stock price since otherwise one could arbitrage it, but this is evidence that the dividend raised the price when it got priced in
Also, I believe in the US ordinary dividends are taxed at the income tax rate which is much higher than the capital gains rate.
No, most dividends are "qualified" and taxed at the long term capital gains rate, assuming you've held the underlying for a decent amount of time.
Still, they're taxed, whereas buybacks allow the shareholders to control exactly when they take income.
Also buybacks will tend to select for frequently traded shares with high cost basis, further reducing total taxes and selecting for longer term shareholders. They really are just better than dividends in every way.
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.
Share buybacks are are at least nominally a financially neutral exercise - it generally does not benefit either shareholders or executives.
They can however signal 'strength' in stock price by creating more demand and signalling to the market that the company itself which has 'insider information' believes the stock price is worth less than the price they're bought for.
It's a fair point about Jobs - but - Jobs was never sitting on more money than the economies of most nations.
Jobs Apple was a consumer product company, Tim Cook Apple is a Private Equity Operating Entity in a way. Their financial operations dictate as much about their valuation as anything else.
Isn't corportate csuite compensation the highest it's ever been? This isn't that great of an argument.
The whole point of owning shares is to share in a company’s profits. In simple terms, you make money through dividends or buybacks. Without that, there’s really no reason to own the stock. Sure, prices go up and down, and you can try to profit from that, but if a company never plans to return money to shareholders, there’s nothing real behind the price. Eventually you’d just be holding on until the company fades away or goes bankrupt.
Buybacks are just another way of giving profits back to shareholders—an alternative to dividends with different tax implications. Their purpose isn't to "allow companies to reward executives directly", they are just an alternative way for shareholders to share in the profits.
A company could tie executives compensation to the amount of dividend if it wanted. That might be a good idea.
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.
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Buybacks in theory do not cause share price to rise like your example though. Investors already price in that cash will be either reinvested at a high rate or returned to shareholders. You are reducing share count of a company that now has less cash which nets out in share price.
Demand tends to push price up. Investors don't really know who's buying until later.
But yes, of course it's a toy example. I should probably have made the buybacks drive the price from $1.10 to $1.20 or something, with a much smaller reward for the founder & CEO. I got bored and kept it simple. (Or I got greedy for that $1 profit, maybe.)
All the working parts of the example are on display. You can make other examples that seem better to you.
Well there you go again, lying and making things up. The trades are executed in compliance with Rule 10b-18. If you want anyone to take you seriously then at least come up with a realistic example.
I'm talking about how equity works at the most basic level, in a vehicle worth 1000 USD. It's an ice cream stand, capisce?
You may well be offended because we were rude to each other. That's fair. But you're not telling me to stop being a dick. You're telling me my ice cream stand has to be listed on a major US stock exchange. That's not a strong argument, and it's not really on topic.
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.
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I worked in finance for years before I went into SWE and studied it in university before that. Your example would be found in no textbook (because it is complete idiocy) and you would know it if you ever cracked one, which you obviously haven't. You are just another bitter loser peddling conspiracy theories of how the financial system is rigged against you because you are envious of the money that people who actually understand it make.
Fine. You're well-versed in finance. For ... reasons ... you're doing a very good impression of someone missing the simple point of a very vanilla toy example.
And, yes. I admit it. I'm a fanatical believer in the conspiracy theory that buybacks can be either good or bad for a given shareholder, and that this depends on the price paid for the shares, and on when each shareholder buys and sells. The system is rigged, I tell you! Rigged! .... but, er, ... sometimes it's rigged one way ... and ... sometimes, um, it's rigged the other way. You have to run the numbers. But it's RIGGED!
We good?
> My argument is a stock buyback isn't a gain for a long-term, buy-and-hold investor.
It's better for me as a long term investor because I can better control my tax liability. It also allows for long term growth without a tax drag until I'm ready to switch out of my accumulation phase.
> they don't see the benefit of a higher stock price or reduced share count.
If they're continually investing/rebalancing then it benefits them the same way a dividend does, but with fewer tax consequences.
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.
Easy to say for sure when you know what you're talking about, hard to say when you know less about the subject than any other commenter on this post.
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.
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.
Buybacks do not necessarily create an increase in stock price. Economically no value has been created. Cash on a balance sheet has simply been exchanged for shares. The people selling their shares in the buyout get the "value" of the company at that moment. The remaining shareholders now own a larger percentage of a smaller company i.e. a company that no longer has the cash used for the buyout.
Markets tend to reward companies that use buybacks as there is a belief the buybacks are a demonstration of discipline by the management team. Conceptually COMPANIES SHOULD BUY BACK STOCK IF THEY DO NOT HAVE BETTER ROI PROJECTS IN THE PIPELINE. This frequently happens in mature industries.
As noted above, buybacks are another means to return cash to investors. Today, in the US, the tax rate on qualified dividends and long-term capital gains are equivalent for most shareholders. This has not always been the case. When tax rates for capital gains are lower than dividends, buybacks are a more efficient means to return capital to investors.
Buybacks also allow for more tax planning. When dividends are issued, the investors have to pay taxes on them at that time. Stock buybacks allow investors to choose when they want to pay taxes. They can sell into the buyback and pay taxes now or hold the stock and pay taxes at a later time.
Buybacks are can be part of normal corporate capitalization decisions - what is the appropriate debt to equity ratio for the company.
Finally, changing dividend levels has its own impact on stock price. If a company increases its dividend, them market expects it to remain increased. In this case the stock price goes up as investors expect more dividends in the future. When a company cuts its dividend (rare event), the stock price drops dramatically as the market punishes company not only for the reduced expectation of future dividends but also because companies only cut dividends when they are having severe problems. Some companines issue a special dividend related to a one-time event such as selling a division. The stock price does not do much in these events.
All of this is to say that stock buybacks are not why corporations reduced basic research investment. I was at GE watching the famous research centers getting cut. The bottom line was the research coming out of the centers was not creating a meaningful ROI. At one point the researchers went to the various GE businesses looking for projects where their expertise could add value - an internal consulting group. They gave up after a year as there was so little success. Corporate research centers are expensive. They need to earn their keep.
> Buybacks create a tendency toward higher share prices, but only while they continue.
Buybacks increase the share price because you have a company that is worth (for sake of argument) the same as it was worth before, except now there are fewer shares available.
A fixed market cap divided by fewer shares equals a higher share price.
In the limit case imagine buying back all but 1 share. Now that 1 share represents the entire value of the company, so the share price would equal the market cap.
The company is worth a bit less after the buyback, because it's given away some of its money, which was part of its valuation. But the effect should still be positive on the share price.
> 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.
I'm not sure about this bit:
> As I get to grow compound interest on my money, I will come out much better in the long term.
You will pay the capital gains tax rate either way. Either when you buy 15% less additional shares, or when you sell them at the end and pay the 15% then.
If you start with 15% less and compound it, you still end with 15% less.
(15% is just an example)
You might be placing a bet that at some point in the future there will be a reduction the capital gains rate, but, as far as I can see, you are not earning more due to compounding.
The other tax-free way to benefit is to sell while your in the (fairly generous) 0% capital gains bracket
That bracket also applies to qualified dividends.
> 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.
Actually no, they have the same benefits as a dividend except they don't create a forced tax liability.
Stock grants can actually include dividends.
Even if you don't sell or borrow against it you benefit because you don't have that tax liability, and the money you woulda paid in taxes can continue to be invested.
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.
At any given point in time for an individual yes, but your cap gains rate can vary substantially over time. Also trusts are taxed fairly punitively.
So it's still better for everyone since only those who need or want the income have to take it.
Good point, but that only applies to individual, not corporate shareholders.
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.
> 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?
That is US-specific tax policy, but many international companies are listed on US exchanges and purchased by international investors. As a Canadian, my retirement savings in my TFSA are subject to 15% taxes on dividends and 0% taxes on capital gains (for US-listed stocks).
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.
Even folks who are just saving for retirement benefit, since they need not take any income on top of their normal employment income. They may be in a lower bracket when they sell.
Also the reality is that its somewhat rare for retirees to spend down their entire portfolios.
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!
Having been in the "don't intend to sell right now" situation for decades, the actual share price movements were always very relevant to me.
I'm confident I share that psychology with almost everyone.
Stop looking.
Well, "don't sell" is the wrong strategy anyway. Trade it in for an index fund.
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/using shares makes no difference to cash (whether to employees or in M&A situations), why not do buybacks 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?
Actually, normal people can do the borrowing thing. It's not really as necessary since you have normal employment income but you can do it and it can work. If you continually add more principle to your pile-o-stock than your monthly spending the growth will outpace your interest and you won't accumulate an unbounded amount of leverage.
At least if your broker offers decent margin rates or you sell boxes.
Well, also, your 401k and IRAs are probably superior to this strategy and can't be used as collateral as they're protected in bankruptcy. So it's not worth it until you fill those up.
> Actually, normal people can do the borrowing thing
But it's way riskier.
> At least if your broker offers decent margin rates
I guarantee you no retail broker will give you the rates Elon's broker gives him.
> you sell boxes
I have to guess you mean "box spreads". This is an advanced strategy and again more likely used by HNW people.
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?
Different markets. Companies are created to allow investors to create profits selling something (things, services, etc). Companies compete with other companies to attract capital. Companies which offer higher expected returns for comparable levels of risk will attract more capital. This reflects supply and demand for capital.
Employees are part of a labor market. Supply and demand in the labor market drives compensation levels. When you have a rare skill that is perceived to be valuable, you can get higher compensation - e.g. Meta AI researchers getting $100M contracts or Juan Soto getting a $750M baseball contract.
As mentioned elsewhere, some companies give stock to employees. In my experience this is for one of two reasons. 1) Employee retention - stock grants tend to have multiyear vesting periods designed to keep the employee at the company. 2) Start up companies that do not have the cash to pay employees.
None of these explanations would lead to simply paying employees more with excess cash (unless the cash was created by a group of employees that you were trying to retain).
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.
You're thinking of companies as teams where employees are members, but c-staff just see their employees as expensive suppliers.
Have you ever been a c-staff? C-staff are employees as well. Usually more expensive employees. Well run companies are trying to figure out how to win in the marketplace. To do this they hire the employees they need to win. Investors do this with CEOs.
I agree that it is much more difficult for a CEO to get fired than a line employee as CEOs have significant influence in picking their boarda. However, the consequences to a company of replacing a CEO are generally more significant as well.
1. They don't have to 2. If employees want to be exposed to excess profit (and loss) they can buy shares like everyone else. (Not a super strong argument tbh) 3. It's impossible to measure how much any given employee/department really contributed and they don't want to create a culture of chasing fat bonus checks. 4. To some extent they do tend to. Profit sharing plans and ESOPs aren't that uncommon
> 2. If employees want to be exposed to excess profit (and loss)
It's funny that people tell me they want this because they'll see some of the sales outliers. But then I explain that 1/2 or more of their salary will be dependent on some type of performance metric and most clam up.
> 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 same reason you don't give a store $2 for something priced at $1 or write anything other than a zero in the box on your tax form that lets you pay more if you like.
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.
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.
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.
That would set a precedent they don’t want. Investors and the Federal government have little interest in labor gaining power.
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)
And yet when Jobs returned to Apple he blew up ATG (the Advanced Technology Group) that gave us Quicktime, etc. He also shutdown Apple's research library (and gave all the books to Stanford, I believe).
He seemed to have little patience for "scientists" — preferred engineers that shipped shit.
I think that at best he saw research as expensive, at worst he saw it as elitist.
"real artists ship" - Jobs
Wasn't Apple burning money when he joined?
Apple was giving away the Keys to the Kingdom by way of licensing Macintosh clones, among other things. If ATG were responsible for hemorrhaging cash I am not sure why they did not re-appear then when Apple was firing on all cylinders. Only Jony was crowned.
And there's no way the library and its books were a cost — unless perhaps it was attracting snooty engineers who were reading Foley and van Dam when they should have been fixing bugs. ;-) (That actually might have been me.)
And yet, he went to Xerox PARC and copied their research.
He also didn’t seem to have an issue borrowing Unix, which obviously has a rich history of research and academia.
I could be putting too fine a point on it, but my impression was that he was kind of jealous of "academia". Not only did he not graduate from but even seemed to eschew higher learning. And to be sure he would have had a harder time bullshitting an expert in a given domain. They had a kind of power of knowledge that he lacked.
At the same time he was clearly enamored with Avadis, very much the academic — appeared to be grooming him for role of Apple CEO. He must have been very disappointed when Avadis left the fold.
Indeed, however many people are too young to remember that he looked down into UNIX, as a bunch of greybeards without taste.
"Why We Have to Make UNIX Invisible."
https://www.usenix.org/blog/vault-steve-jobs-keynotes-1987-u...
"That time I had Steve Jobs keynote at Unix Expo"
> They said a Unix weenie was code for software engineers who hated what we were doing to Unix (the operating system we licensed)—putting a graphical user interface on it to dumb it down for grandmothers. They heckled Steve about his efforts to destroy it. His nightmare would be to speak to a crowd of them.
From https://web.archive.org/web/20180628214613/https://www.cake....
The value proposition NeXT found on UNIX, was the same as Microsoft (after they let go of Xenix, thanks to MS-DOS golden goose deal with IBM), a means to an end, the market of companies and universities that wanted something with UNIX in the box.
"NeXT marketing strategy video (1991)"
https://www.youtube.com/watch?v=KRBIH0CA7ZU
Note that he wasn't at Apple when A/UX and MkLinux efforts took place.
This isn't a Jobs story, but it is an Apple and UNIX story:
Terry Lambert and OSX's UNIX certification https://www.quora.com/What-goes-into-making-an-OS-to-be-Unix...
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.
As others have mentioned that isn't comparable because salaries are taxed. The tax rate on unrealized gains in the US is zero percent from what I understand.
Not correct. Capital Gains taxes depend on the holding period. Short term capital gains (stock held less than a year) are taxed at the same rate as salaries (ordinary income rate). Long term capital gains (stock held at least a year), are taxed on a reduced level that peaks out at 20% (depends on total taxable income) with a possible additional 3.8% Obama Net Investment Tax.
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.
> Here's what you said
Different person.
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.
A buyback is literally returning actual money to investors.
Close your eyes and picture a cash flow statement. Where do buybacks appear? Under investments, not under return of capital.
Now of course buybacks can work as a return of capital, but it's not quite as simple as "buybacks good" or "buybacks bad" or "buybacks = dividend". Sorry. It's not.
Please don't take this personally. Two different groups of people yelling here have got hold of different parts of the elephant. A few of them seem to blame me for mentioning the crazy word "elephant." Because the key word is surely "rope" or "tree". And since I don't use either of those words consistently, I must be detached from reality. What kind of idiot thinks a rope can be a tree?
That is making me feel like I've wasted my time.
It's not you, it's the whole discussion. If you've gotten this far, thanks for listening.
Share buybacks is not some weird loophole that allows executives to get paid.
Companies are always allowed to reward their executives and other employees by giving them money, stock options, or other rewards.
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.
What's missing from this explanation is that the corporate tax rate was also much higher, but R&D dramatically cut down profit that would be taxed and was taxed lower. So large corporations like Bell Labs and co would basically say "do we give the government X in taxes, or do we spend X on research?". They chose research, so we got the technology that powers our world.
That, combined with stock buybacks and the general take over of Friedman-economics resulted in a far more focused short term thinking and outsourcing research as much as possible due to uncertain horizon risks.
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.
I'm not really seeing how the blacks and women ruined corporate research, can you expand on that more? Are you saying they were all retarded and without enough white, Asian, and Indian men nothing could be accomplished?
Since they don't make up 50% of the pipeline the enforced restriction necessitates hiring further down the ability rank even if you are to assume that all races and all sexes have the same ability / aptitude. And it also means for every non-minority male you need a minority female and those are very hard to get.
If for instance higher ups from all companies require you to hire only whites with straight blond hair, a certain weight/size and with green eyes, you will quickly need to hire the bottom of the barrel of this group to expand your teams.
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Numbers were not invented, they were tied to management bonuses, numbers lower than that negatively impacted bonuses. Inhouse counsel were much more worried about disparate impact lawsuits than race quota lawsuits. There are many reasons why I, and others like me, can't post personal anecdotes publicly.
Not absolutely everything was great before DEI, and DEI is not the only problem. I gave a number of other problems that have diminished the efficacy of research orgs.
Corporate labs have now gotten so bad that I can outcompete them as an individual which would have been much more difficult in the past.
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.
Silly argument. Everything in gravitational physics goes back to Newton? Who cares about Convex Optimization if you do not undertand gravity? Math goes back to Euclid and the Greeks?
Mankind has consistently built upon existing knowledge. "If I have seen further, it is by standing on the shoulders of giants. (Newton)"
IMHO, what we are seeing is the US was generating 50% of the world's GDP at the end of World War II. In that era it could afford to many non-economical things - Marshall Plan, funding research at universities, etc. The US is no longer the dominant economic engine. It actually has to prioritize its spending. Money spent on research is money not spent on food stamps, housing the homeless, defense.
What is never mentioned in these discussions is how much money has been spent on research that did nothing. Advanced nothing. When that is factored in, what is the ROI of university-based research?
Oh no! I wonder what the US could have achieved if instead of spending 10s of billions of dollars per year, it could instead have used those to fund more trillion-dollar wars!!
Umm, no. Maybe they have better PR departments than universities but this is clearly nonsense.
God, the irony in saying "All major research is done by companies" while typing your message out to post ON THE INTERNET. LOL.
lol hwut?
Except for DNA, CRISPR, WWW, mRNA, the manhattan project, ARPA, GPS, etc
Yes, let's not pay out the investors. That's how you get lots of funding.
There needs to be a balance
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.
This implies Xerox got no return on their research, and simply let Apple take their research, which isn't true. Rather, it was part of the investment deal they made with Apple [1]:
> Apple was already one of the hottest tech firms in the country. Everyone in the Valley wanted a piece of it. So Jobs proposed a deal: he would allow Xerox to buy a hundred thousand shares of his company for a million dollars—its highly anticipated I.P.O. was just a year away—if PARC would “open its kimono.”
Xerox clearly undervalued the research they were producing, but it wasn't like they just gave it away entirely. Per [2] the valuation of those shares in 2018 would be $1.2 billion had they not sold them - undervalued in hindsight, but not nothing.
Xerox's lack of capitalisation was a problem of their own making, not something inherent about investing in basic research.
[1]: https://www.newyorker.com/magazine/2011/05/16/creation-myth
[2]: https://researchnarrative.com/thinkerry/the-company-that-cou...
Yeah, no, the ROI on Xerox Parc was excellent for Xerox, because of the technology they _did_ successfully commercialize on their own: the laser printer. It helped Xerox to $8 billion in revenue in 1984, a level Apple didn't beat until 2006. Even Microsoft didn't beat Xerox in revenue until the year 2000, where Xerox had $19 billion in revenue. Apple didn't reach that level until 2010. So you could say that it took the iPhone to beat laser printers; the Machintosh wasn't enough.
All of your failure examples are failures of management and “leadership”.
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.
Corporate R&D dies under the short-term thinking of quarterly profits. The best pure R&D seems to be coming from private companies that are able to sustain losses for long periods of time until a significant breakthrough is achieved (e.g. SpaceX, OpenAI, etc.).
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.
Bureaucrat-ification isn't a phenomenon unique to Google - it happens at every company eventually.
It's really hard to describe why it's inevitable (there are a lot of factors).
But it's self-evident really. All of the major tech players started with a single innovation that afforded them enough revenue to acquire almost everything else in their portfolio.
Aside from search, the only major product Alphabet built-in house that meaningfully moves the needle revenue-wise is their cloud segment. Youtube was acquired - and it's effectively an extension of search.
Meta had to acquire Instagram and WhatsApp. Without those acquisitions, I have strong doubts they'd still be a major player today.
You can run through this exercise with Microsoft, Apple, Amazon, NVDA etc.
The common theme is they did 1 or 2 things really well, and got big enough to acquire/copy/bully smaller players out of the market.
What's crazy is most of them still rely on that one original thing they did well for >50% of revenue.
...and there's 3M and Würth.
The story with 3M and PostIt Notes is that the idea was originally rejected my management. The inventors created a batch and distributed them to all the executive admin assistants. When they went back a second time, they had the assistants speak up otherwise there would not be any more.
I didn't bring up 3M because of the Post-it story, but because they're being a "general research" company. From open reel tapes to sticky tapes and everything in between.
Würth is also similar. They make seemingly everything in a segment (lubrication, fuel additives, cleaning, restoration, protection, etc. etc.).
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.
“While it is never safe to affirm that the future of Physical Science has no marvels in store even more astonishing than those of the past, it seems probable that most of the grand underlying principles have been firmly established and that further advances are to be sought chiefly in the rigorous application of these principles to all the phenomena which come under our notice.” Albert A. Michelson (yes, that Michelson, one half of Michelson-Morley), 1894
If it feels like there’s nothing for us engineers to research, that’s probably a sign we need more basic research from the scientists!
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?
high temperature superconducting would cause a big leap. cheap energy would also help. cheap compute-in-the-walls. machines doing all the dangerous jobs.
All of this is research from the 90s, with a few decades of polish.
Now maybe we could start looking at what research labs have come up with since then.
> 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.
That's... an interesting point. I don't really buy it, though. The same could have been said of the fascist movement in Italy, or the royalists in France in 1905.
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 :)
you will look back on this and feel so silly.
Share buyback is the same as giving dividends - except the share holder doesn’t have to pay taxes until they sell. To the company, they spend the same amount on share buyback vs giving dividends. I don’t see how this argument holds up.
Further more, while some might argue that corporate R&D is better due to being closer to the problem but it is private research and not shared with the world like university research is.
It's not exactly the same: if the company does buybacks and then loses value or goes bankrupt, shareholders never get the benefit of those buybacks.
Shareholder prefer buybacks for tax reasons.
He didn't say it was exactly same, only that in principle it's the same - company returning money to shareholders.
Such an action has no effect on company valuation.
depends how sophisticated the investor in the story is. it thay are perfect homo economicus they would have been selling some of those inflated shares to do what they would have done with the dividends
> I'm not seeing how you get from share buybacks to a shift in priorities in corporate research.
Share buybacks are just the new go-to thing to blame. Economics students (at least "development economics") are memorising this concept all over the globe, so you can expect it more and more.
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.
Good point. And both Google and Apple used to reinvest all benefits in R&D.
My impression is that as they calcify into money-printing machines, this stopped. An example being Google's famed 20% that are apparently a long dead memory.
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.
The US doesn't have oligarchs except maybe Alex Karp.
Oligarch is a specific thing with a specific meaning.
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.
The buybacks also compensate for dilution from paying employees in shares.
> 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
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 would agree the anti-monopoly action had far more to do with that.
Basically, if you you think you can leverage your R&D into maintaining your monopoly and extending it to other areas it makes sense if for nothing else to keep the smart people who might otherwise disrupt your monopoly connected to you.
But if you are going to get broken up, just take as much short term profits as soon as you can
Ah yes. The share buyback boogie man. If only companies couldn’t buy back shares then all that extra money would flow into research, except not. Shareholders would be demanding dividends.
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.
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'.
A few points that seem to be going unstated here:
a) allowing share buy-backs might be good or bad. But it isn't good or bad unconditionally! The restrictions on the buyback policy should matter. Ideally, buybacks should make prices boring not create ultra thin books with hefty valuations that are cheaper to manipulate. But it seems the regulations around buybacks are in line with incentivizing growth and not stabilizing real prices.
b) to some extent putting uncertain/opaque research inside corporations is a defense against getting into regimes where it becomes easier to manipulate prices. I hadn't thought of it before, but if if important public companies become beholden to traded price and it becomes easy enough for large foreign entities to move markets, then it is simply a matter of "pricing" short term market punishment of a company for any policy you don't like. Yes, this might seem a bit far fetched, but remember that this kind of incremental worsening of outcomes is precisely what people say is hapenning via regulation and legal challenge in key industries.
Just some interesting thought legs spun off from the discussions here.
> 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.
This is disingenuous.
The driver behind the buybacks was also the motive to shift from research and manufacturing and into profits.
The massive failure is in inaccurately quantifying the true value of these labs.
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.
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.
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.
Was anything form Friedman actually proven correct or worked on practice?
I don't understand how he became such a big name.
EDIT: Hum... Do the people downvoting have some answer?
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.
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.
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.
"Seriously spent" where serious is less than the cost of a single bomber for the military. I forget what Geoffrey Hinton said it was, but it was an embarrassingly small pittance.
Military spending is largely economic dead weight, roughly the equivalent of handouts. And the end result is deterrence in a game of prisoners dilemma. Yet it is sacrosanct, and subject to ever increasing budgets for no gain.
The % of US GDP spent on defense has been going straight down ever since Eisenhower gave that speech about the MIC.
(Another fun fact is defense companies make fewer profits during war, not more. Presumably because they have to make real products instead of designing imaginary ones.)
Just look at all the handouts going to Ukrainian soldiers right now. What silly economic dead weight!
The appropriated funds were only 4% of the defense budget, a lot of which still hasn't been handed out, and half of the handouts weren't even weapons and other military supplies. You could fund 10 Ukrainian wars at the same level and still have an extra 150% idle capacity.
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.
"Building things" is not science, it's engineering. We could certainly compare the outcomes of "bureaucratic" science against the free market variety, but there's basically no free market science going on to support such a comparison.
This isn't a value judgement. Engineering is just as important as science, but just as more science is not a replacement for engineering, neither does better engineering free us from the need to keep pursuing science. And at the end of the day, SpaceX might be an impressive engineering company, but we still need the scientists. And it's weird how often the success of SpaceX is brought up as an implicit argument that we can send all the scientists to work on farms or whatever without any ill effects.
It also seems notable that a company like SpaceX is an obvious candidate to bring back the 20th century style corporate funded scientific research organizations to underpin their engineering efforts in a way that would presumably be free of the hated "bureaucracy". But if they've done so, I haven't heard about it.
It's not like they were able to use NASA's designs for reusable rockets...
Oh wait..they did...
Because NASA thought reusable rockets were possible decades ago. The reason they never built them was because certain Congressmen blocked the funding.
Any American company could use NASA's designs for reusable rockets... Oh wait, only SpaceX did it. And 10 years after they did it, they're still the only company that did it (not counting New Shepard of course, as it can't put anything into orbit). Are some congressmen forbidding other companies to use their own money to make better rockets?
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.
Talent and ideas move so easily to the US from Canada*
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.
I think the article does not explain this well, but (having worked in an applied science field for many years) much of the work is picked up from these failed projects by other members of the field. Sometimes this is quick, sometimes years later. Anyway, while it might not immediately evident, shelved projects often do move the state of the art forward and unlock someone else's success (hence part of the argument for it being a public funded system). Of course, a lot do not, but that is the nature of research.
That's purely an issue of living next to the USA and Canada's system not rewarding risktakers/startups like the USA does. If you have the next billion dollar idea would you rather get rich in Canada or the USA?
I'd rather get rich in Canada, but I will still find it much easier to fund my pursuit of a billion dollar idea in the USA.
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.
> Good research is just a vehicle for producing knowledge and talent.
Yup, it was surprise seeing that once have a good STEM field Ph.D., written a lot of STEM and (early) AI software, and have published some peer-reviewed papers, are then condemned as in a felony conviction from ever having money enough to buy a house or to participate in the real world. A surprise.
But so far have missed the law that actually forbids doing some good math research, writing corresponding software, starting an LLC business as a sole proprietor, self-hosting a related Web site, getting users, running ads, and making (oops, forgive the transgression of mentioning) MONEY. Horrors! Uh, that's actually the same kind of "money" that people selling food, clothing, cars, and houses and providing medical care, private K-college education talk about.
Gee, cut out a lot of middle stuff, i.e., save on management, lawyers, office space, recruiting, HR legal issues, insurance, utilities, software developers, cloud fees, server farm staff, servers (an AMD FX 8350 can send a lot of the Web pages with still image banner ads), ....
Just now evaluating Macrium Reflect. Anyone have any experience? Uh, will it copy a disk partition that has a bootable instance of Windows so that the target disk partition will also be bootable or will it copy only whole hard disks with all the partitions, ....???? Similarly for Acronis and Windows Image. E.g., if make an Image of a bootable partition, will the partition written to boot? Right, just use the TIFO method!
> 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.
I feel like you're confusing "science" and "engineering". SpaceX is fundamentally an engineering company, not a scientific one. Don't get me wrong, they've done impressive work in engineering innovation, but that's fundamentally different from scientific research. And as the article points out, engineering innovation from the likes of SpaceX is usually reliant on that foundational scientific innovation, which in turn is essentially useless without an engineering partner to realize scientific discoveries.
> It doesn't look like the science establishments of any country are actually successfully feeding their innovation machines, or have done so for decades.
Really? Is it just a coincidence that up until recently the US had some of the most robust scientific funding and was an unbeatable source of engineering innovation? For that matter, are there any real counterexamples where science research is non-existent but engineering excellence abounds?
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.
It seems to me that incremental improvements undervalued in the West instead lots of efforts spend on chasing revolutions (which don’t happen often) and China capitalised on this.
Canada is also reaping outsized rewards for that investment. There are plenty of AI jobs in Canada that never would have existed.
The problem is that in Canada we're willing to invest a little for a long time. But we're not willing to make big bets.
You can raise far more capital in the US than in Canada. So naturally large rewards come to those who are willing to make large bets.
> The problem is that in Canada we're willing to invest a little for a long time. But we're not willing to make big bets.
Element AI.
It's not that the bets are not made, the winnings are captured by those that corrupt the existing system before it's even started, so tney go nowhere. This has been the status quo for so long everyone assumes it is what is happening with every new initiative.
"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?
Your article strongly consonated with the ideas I often try to communicate to those around me. I wish there were more open discussion about biases related to PhD qualifications and the growing influence of venture-capital-style practices in science. Many researchers dedicate themselves to exploring new and uncertain areas of knowledge, yet their work is sometimes undervalued by hiring managers and industrial professionals. I personally know HRs who consider the "PhD" tag in a CV a red flag. There is also a tendency to overlook the fact that pursuing a PhD is a form of professional work, comparable in commitment and responsibility to other careers. Sometimes 699, sometimes 700. Academia can indeed be a challenging environment, and not everyone contributes in the same way—some may prioritize credentials over substance, and cases of research misconduct do exist. However, these examples definitely do not represent the academic community as a whole. Regarding the venture-capital approach, in applied sciences, researchers are increasingly expected to present their ideas in short, pitch-style formats. At some point, this process itself becomes the goal of the work. I can imagine this encouraging concise communication. Still, it also shifts part of the management responsibilities—such as market analysis and outreach—onto scientists, which does not align with their core expertise or professional goals.
As many gripes as there are about the competitive grant process, at least in the US it was formerly adjudicated by scientific experts. (Yes, subject to groupthink and overweighting en vogue topics, but still by experts)
TBH, it makes sense for large incumbents to sell out science on the altar of politics because they are now will profit more from rent seeking than from innovation.
The gravy train will crash. Fortunately, given many of those who facilitated it will die within 20 years, and then that will be someone else's problem.
> 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.
I like to imagine that thermodynamics happened because industrial metallurgy and boiler design advanced to the point where people started asking "what are the fundamental constraints?"
There's a chance that it didn't actually happen that way, though.
edit: I also heard that Louis Pasteur did work for breweries, answering the question "Why do some batches come out nasty while most are fine, given the same inputs?"
The history of steam engines would suggest that our understanding of thermodynamics developed out of a large base of first-hand experience. Same story for Calculus. And the t-statistic was developed by a QA guy (student) at Guinness.
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.
Lecture halls sit empty while universities build amenities to make college seem like a staycation.
If a university truly needs more classrooms, so be it, but much of the spending is going to perks like gyms, saunas, and sports facilities.
If the free market says that young adults 18-24 want to spend thousands of dollars on gyms, saunas and sports facilities, why should government regulators get involved?
because government regulators are backstopping the loan that young adult took for that sauna.
There's no free lunch. Its not a free market when a 17yr old with zero job experience can enter loan agreements of 100k per year.
And you know that's true because in any other scenario, the same 17yr old will get laughed out of any loan office. I'm not even sure a 17yr old would get a 400k bank loan if the kid showing up at the bank as the patent holder of Wegovy, for example.
That ans I'm not sure the free market could not provide private independent luxury sports amenities just next to universities if it was a real need. I'm pretty sure the free market sports places would fail fast however.
> 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
I'm very skeptical of this claim.
In fact up until a recent funding method change from the Trump Administration, most grant money was subject to "overhead"--a nebulous nonsensical accounting trick that allowed the university administration to get upwards of 60% of the dollars that are earmarked for grants. If you invent something, the school will take 70% of the revenue from the innovation. Much like VC, some big wins can power the school for years.
Actually, most highly productive research universities use the research as a prestige magnet and marketing tool to help grow endowments and keep up in the US News college rankings.
I would be great if the funding weren't so opaque. We may be able to find accounting info for the public univeristies. I would bet money that, Liberal arts tuition likely goes into administration, endowments, and campus improvements for student life (better food in the dining halls...)
> In fact up until a recent funding method change from the Trump Administration, most grant money was subject to "overhead"--a nebulous nonsensical accounting trick that allowed the university administration to get upwards of 60% of the dollars that are earmarked for grants.
We're better than this here. Don't spread misinformation. First of all overhead is listed as a percentage, such as 55% or 60% or whatever but the university doesn't get that fraction of the total grant. You work up the so called direct costs, ie the line item salaries of the researchers, the reagents, etc. and then the overhead is 60% of that figure. So it would work out to be 38% of the total dollars granted.
It's also not a trick. It's a negotiated amount that is supposed to avoid each grant requesting some amortized fraction of the cost of office space and other necessary but shared expenses.
I and most people agree that's it's possibly too high, but it's ignorant to treat it like a scam.
I and most people agree that's it's possibly too high, but it's ignorant to treat it like a scam.
The fact that it is so high is a scam.
It really depends on the grant. For the larger grants, it may work somewhat like you describe. For the smaller grants, they literally do just take 60% of the money (and complain that it is not enough to administer the grant while providing absolutely no support whatsoever). In theory, it's paying for salary and office space and whatnot, but those are already covered by other budgets.
It's not misinformation. You are repeating a misleading talking point. Here's what happens.
- Professor & students get a grant application for 100K.
- University charges indirects at a ratio (0.55)
- 155K gets transferred from treasury to the university account.
That extra 55K comes from the money that congress allocated for grants, so if congress allocates 1 billion dollars -> 450 million will actually go to professors for research. (less than half).
I don't know about you but the universities I went to were rarely ever building new labs or buildings. Furthermore, those large projects always have state grant money coming out of another funding pool.
Glossing over some details, but the fact of the matter is that it's opaque.
> 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.
That's slightly above the average of SAT test takers which puts them top 1/3ish of high school students. Silly to think they don't have a brain
You clearly aren't familiar. These "universities" are a step above DeVry. They might be worse in that they cost an arm and a leg to attend.
I used to tutor CS students at several different universities during my first two years at college. I would bet my arm that none of the ones I taught from KSU wound up with a career in software.
The student perspective at these schools is that they're there for the credential, not for the learning. Even at the risk of false negatives, I would actively filter out resumes listing schools like these. I would much sooner interview a non-degree holder.
> Even at the risk of false negatives, I would actively filter out resumes listing schools like these.
I am occasionally on hiring committees and use a rubric for ranking candidates. The rubric usually has 8-10 yes/no questions that might be best summarized as "Does this applicant's resume and cover letter indicate that they have actually written code deep enough to 'map' to our requirements?" Some of the rubric may be a little more specific to the actual job role, but the main idea is to filter out what I have come to think of as "aspirational" software developers.
I think one nice thing about the rubric approach is that candidates don't score "prestige" points or get "penalty" points for their specific educational background. Honestly, it seems like a lot of students from many institutions (some quite well known for rigor) are mostly about the "credential, not for the learning." The rubric seems to effectively filter out the less skilled or interested without eliminating skilled candidates with less "sterling" credentials.
I know several graduates of GA State and KSU. Including one KSU grad that works as a software engineer.
I went to SJSU (now KSU) briefly before transferring to a better school (because I slept through all of high school and didn't do any homework) and I did not get the feeling that anyone else in my classes was going to be a successful software engineer. Rather I got the feeling their parents told them to do CS because they really liked video games.
I took a group project game development class and it went beyond doing all the work in the group, I think I did all the work in the class.
Two people I know did graduate then change careers and become successful animators on Archer though.
At GA Tech the quality of students were better, but it mostly seemed to me that it worked by beating everyone to death such that you washed out if you couldn't work nonstop. They still weren't especially good eg not a single other student knew what version control was.
SPSU?
Maybe we shouldn't have required 'kissing the ring' segments in every scientific grant proposal
Er what? This is very vague.
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?
The race for quick profits is eating away our future innovations.
*The race for quick profits is eating away our future.
Nice article, I completely agree that government funding is essential for America to sustain its technological advancement.. After reading it, we need to validate the following points:
1.The government should periodically review how many funded research projects are successfully completed and lead to tangible outcomes.
2. The government should ensure that research funding is properly utilized for the intended purposes, so that resources are used effectively and efficiently.
3. It is necessary to study how artificial intelligence can be leveraged to reduce the cost and duration of research while accelerating scientific experimentation.
How can statistically generated tokens help in basic research to find things outside the training set? This is where things are “inefficient” as it’s driven by extrapolated knowledge and often requires money to proceed. Sometimes in quantity. And things often fail.
As basic research transitions to engineering, things built from the current knowledge base, if suitably updated, should be useful. And work within the training set should go well.
Giant magnetoresistance was discovered in 1988, it became useful in HDDs in 1997.
If they had evaluated 1993 the discovery would be called useless and a waste of money.
I agree that basic research like the discovery of GMR often has an unpredictable timeline and shouldn't be judged too early..
However, I still believe that a light-touch monitoring system is important. It's not about evaluating the usefulness of the discovery in the short term, but rather ensuring that:
Funds are being used for the stated research goals (fiscal responsibility).
The project is making scientific progress as defined by its own milestones (accountability).
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.
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.
> 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.
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.
Just seems a very idealistic and almost simplistic view of how a thing should work best because it feels like it should work but the reality is academia gets completely outpaced by private companies. SpaceX, GPT4, Ozempic, list goes on.
> academia gets completely outpaced by private companies
Outpaced? What does that even mean? The whole point is they have different roles and goals. And you need them all, if you cut basic research all the downstream stuff will suffer.
All of those are based on basic academic science…
What you’re describing is at least partly engineering and product design, not pure science
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?
See: https://archive.is/GxSLU
Maybe they meant before X/Twitter.com, before Google, before Meta, before... wait, what's left? PayPal mafia much? Anduril? Oh you meant startups? That will then be bought by those?
There is an ideal of SF but SV isn't SF, definitely not non-tech SF.
So... you might think of a version of SV that existed, maybe, at some point. It might even still exist as some rebellious employees of those large corporations but in practice people with the money and power in SV I believe now are pretty much with such a stance, yes, sadly IMHO.
Wind has turned, in SV too.
> 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.
The UK has an extremely entrepreneurial culture as well, which is shown in the data (number of businesses registered, number of startups, both per capita), it ranks very highly, along with other indicators of innovation, it might not be as entrepreneurial as the USA, but globally it ranks very highly. The fact that you mention the Soviet Union and its central planned economy and the (outdated and stereotyped view of the) British class system almost like they are equivalent really undermines your point as well.
What pisses me off the most about this, is that CEOs still preach about how life-long learning is a must. Stop that fucking bullshit, will ya? If you as a CEO don't give a flying fuck to invest in knowledge, than you have no right to preach from that high horse of yours to do that myself.
edit: to clarify I am arguing against putting in the effort on my own expense which benefits the company because I need to foot the bill which the company should have, so I am not arguing against such self-improvement which obviously benefits me
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...
Not to be confused with:
https://mitpress.mit.edu/9780262731423/the-idea-factory/
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.
It depends upon the field you are talking about for diminished return and less innovations. Returns have been thoroughly diminished when it comes to raw power in weaponry for instance. With anti-ship missiles already it is rather 'you get hit and you die'. Railguns haven't really been working out well for instance, and even if they did succeed all they would do is create 'stable magazines' while adding 'unstable' additional power production. Precision is the area where real work is being done, lumping in drones as an example of precision compared to say missiles or bombs which just explode at a destination, or mines which just explode when anything triggers it.
There are some major advancements in biotech for instance that are nothing to sneeze at, and even more in the pipeline (which admittedly may not pan out). Organs may not qualify as an invention technically, but being able to manufacture them certainly does. Not to mention how environmental tech is needed now more than ever.
Science being less convertible to inventions could have counterintuitive effects if it were true. Like smaller nations being in a 'don't even bother' situation while superpowers gain a literal monopoly on invention due to the rareness raising the barrier to entry to get anything meaningful out of it.
Politicians defunding and discouraging science is based more around memes and suppressing dissent than anything concrete. The reason not to create such 'stability' is generally that when the rest of the world passes by it will not be kind to you. But even if science somehow became literally useless tomorrow (an impossibility, of course), I highly doubt that politicians would not be such rigorous cost-oriented stewards that they would consider it worth the political capital to uproot the entrenched bureaucracies which no longer serve a purpose. Even if they knew it for certain was useless they might consider the spending a worthy price to pay for false hope. Crowds get real ugly when you tell them that things will never get better.
Maybe but the successful part of the US got there through science and tech. So I think more science and tech is a better prospect long term.
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.
The science research today in most universities are not driven by curiosity at all. It is most funding drive and in a lot of cases researchers has even less freedoms than an industrial professionals.
because of NPCs like the author
I do feel this is a case of Americans believing their own propaganda. What the US does well is efficiency. The problem is, capitalism has pushed the time to ROI (return on investment) to get shorter. 5 years is what venture capitalists were working on. At one point there was status for a corporation to have a research lab of quality - in the same way as corporations had glorious architecture for their headquarters, Bell labs was about status. These research labs provided a safe space for curiosity driven scientists. In the interests of efficiency (and because it no longer had kudos) the labs were abandoned and - in a classic US way - it was decided the State should do the science. The trouble now is that the Universities are thinking about their ROI. Curiosity driven science has no home at the moment.
So is gender research or feminist queer dance theory studies a part of basic or applied science?
> So is gender research or feminist queer dance theory studies a part of basic or applied science?
People's ideas about how humans should live together can be beneficial for the wealth and well-being of whole societies and its members. Was Rousseau part of basic or applied science?
We can wonder about how useful certain efforts are, of course, especially in all their extent; but I don't know how wise it is to dismiss things _wholesale_, just because their application is not immediately apparent and the rejection fits into the political current. The unnecessary snark is just sad to see here.
> feminist queer dance theory studies
I dunno, but how many % of research in terms of money and effort do you think is spent on that? 0,0001 % ?
The author is just a scripted NPC.
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.
What almost nobody in SV wants to talk about it the gutting of STEM in the early 90's when real wages for STEM began it's decline in the US via labor arbitrage. Of course Blank and most of Silicon Valley benefited from this, because it allowed them to get cheap, compliant labor. Eric Weinstein did a great paper on this years ago https://users.nber.org/~sewp/references/archive/weinsteinhow... . Looking at the current unemployment in STEM, which is higher than the national average, this arbitrage has just hit a point where it has killed the goose that laid his golden egg.
"Government funding is the engine of economic innovation" is a tacit admission we have a planned economy.
That's a strawman, you're not quoting anyone and the article doesn't imply anything so reductive.
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.
Yeah, that's not really how I view central planning. To me, central planning is when decisions go through a central authority. The only thing centralized here is the money pot. The decision making about what gets funded is mostly distributed though. Yes the Trump administration is wielding influence but the way they are doing it is by exerting control over the purse strings, which is decidedly not constitutional. Indeed, the fact this has never happened before despite successive party changes shows that what Trump is doing is extraordinary.
> In an unplanned economy, people make decisions about how to allocate their own resources
Okay but we are not talking about allocating private dollars for profit, we're talking about allocating public dollars for science. People are still free to allocate their private dollars as they see fit. Notably, given the freedom to do so, most people do not allocate their private dollars for public science, making public science funding all the more necessary.
The grant committees didn't earn the money, but as practicing scientists of some renown they have earned the right to weigh in on how public dollars should be spent.
>>>The grant committees didn't earn the money, but as practicing scientists of some renown they have earned the right to weigh in on how public dollars should be spent.
No. They have not. They haven't earned anything. If they did, they would have had a connection to a company and thru their technical expertise, chosen exactly what to develop next, with their own (or investor's) dollars at stake.
You can't claim the best at a subject and purport to demonstrate it by writing a book. Say, risk management. Real risk managers open hedge funds. Academics write about other's hedge funds.
One has battle scars. The other is soft. Soft people don't get to make decisions on how to allocate anything. No cowards for leaders, since time immemorial.
This kind of marginal risk thinking has never made sense to me because of the declining marginal value of money.
If you have $0 you can't accept any risk and can't make any decisions correctly. But if you have like $4 million you also have no reason to make any decisions correctly because risk no longer matters to you. So it relies on them having expensive tastes such that they can't just retire?
It has to do with the lindy effect. If you have $X, statistically you will quit trying to accumulate money when you have $2X. Hence you are safe to entrust some reasonable fraction of $X in without fear of you running away with it. Someone with substantially less than $X will see that as the most money they will ever see in their lifetime and immediately being trying to cash out.
> chosen exactly what to develop next, with their own (or investor's) dollars at stake.
We are talking about fundamental research here. Most investors are not interested in funding fundamental science, evidenced by the fact they have all the power to currently fund such work, but they choose not to.
> You can't claim the best at a subject and purport to demonstrate it by writing a book
They don't, they do it by doing science and building a reputation in their field for doing good work. People who work at the NSF and NIH are vouched for by others in their field.
> Real risk managers open hedge funds. Academics write about other's hedge funds.
The interests of private equity and hedge fund managers are well represented. They have plenty of say on public policy and how resources are allocated. It's good to give other people with different perspectives a say as well. Again, the total amount of money allocated for public research is very tiny compared to the rest of the federal budget, private research dollars, total hedge fund wealth, etc.
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."
NIH grant officers are not partisans, they are career scientists who manage a fair and transparent process for funding research. Their role is to ensure proposals are reviewed based on scientific merit, not political views. The way you're describing them is the opposite of how they operate.
The existence of diversity statements reflect institutional goals -- namely that the NIH funds science from a diverse set of researchers, to benefit a nation made up of a diverse population, who are funding all of this research.
The only partisans in the picture are the MAGA political actors who are going around saying that the NIH can't do these things for political reasons.
"Venture funding is the engine of economic innovation" is a tacit admission we have a planned economy.
>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.
I thought this was going somewhere rather than aiming to be a dictionary with pictures or am I missing a key paragraph?
nope, classic scripted NPC post
> But few people have asked what, exactly, is science? How does it work?
The author asks the question, but then never answers it. That isn't surprising -- nearly no one outside science understands how it works.
* Science rejects authority and doubts expertise. The greatest amount of scientific eminence is trumped by the smallest amount of scientific evidence.
* The basic scientific posture is that a theory is assumed to be false until proven true.
* Contrast this outlook with pseudoscience, where a theory is assumed to be true until proven false.
* A conscientious scientist lists all the reasons his theory might be wrong. In other fields, this task is left to critics.
This summary may seem to be at odds with modern scientific practice, but that's because much of modern scientific publishing is not science, it's marketing.
In a now-famous science story, during an astronomy conference a researcher stood up and confessed that he had made a mistake -- his detection of an exoplanet actually resulted from a failure to subtract Earth's own annual motion from his data.
The audience came to its feet and gave the researcher a standing ovation.
That is science.
> Tons of words have been written about the Trump Administrations war on Science in Universities.
... followed by lots more words that don't support this premise.
My brain reads “No science, no startups” — alarm bells. This kind of mono-causal oversimplification can only be anti-Trump clickbait — I ignore the post. A few seconds later, guilt kicks in — “Don’t be so ignorant!” — I click the link. Literally the ninth word is Trump. My brain: “Alright, that says it all.”
I scroll a bit — should I really read this? My brain: “No, let ChatGPT analyze it critically.” Conclusion: The same kind of simplistic linear causality is presented without substance — no sources, no data, no valid projections — uncritically carried through. Typical NPC-scripted “science,” representative of much of today’s “NPC academia.” It’s just a patchwork of general knowledge and some combinatorial creativity, pretending to be expertise, seriousness, and understanding — enumerated to suggest strange, subjective, unscientific, and mostly personal goals.
This exact kind of NPC-scripted “science” needs to be exposed and discredited as pseudo. If this is the so-called “defense” of science, then it deserves to be opposed. Simple as that.
PLEASE - for the love of god - spare me with this nonsense!
Hush hush... the startups that aim to "disrupt" running on burning VC funds will definitelly improve our lives! Pinky promise! /s
Oh no, Steve Blank is now pro big government like Mariana Mazzucato! /s
PS: teasing aside she did write The Entrepreneurial State: Debunking Public vs. Private Sector Myths in 2013 on the topic.
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Why do you think they don’t teach critical thinking?
Because whilst universities claim they do that, there is no evidence to suggest it is true. People genuinely trained in critical thinking would be highly skeptical of this claim. For example,
- What exactly is the definition of critical thinking they are using?
- Which part of a {computer science, art history, etc} course teaches this?
- How is it assessed?
- If it's a teachable skill, why are there no qualifications in it or researchers studying it specifically?
- If it's something universities teach, why are there so many bad papers full of logical fallacies and obvious fraud?
I know some like to argue philosophy is such a course but very few people do philosophy degrees, so even if that were true it could hardly be generalized to all of university teaching.
I've taken 2 required critical thinking courses from 2 different state schools. They were in the philosophy department. Why do you think they don't teach it? In stanford, for instance, they require taking 2 courses on formal reasoning as a prerequisite for a degree, which invariably includes critical thinking.
I've never heard of anyone being required to take a philosophy course but some universities surely do it. I was curious about the Stanford claim. This is the Ways system, right? Their website says you need to take at least one course in formal reasoning:
https://ways.stanford.edu/about/ways-categories/formal-reaso...
They list a few examples like market design or programming. I thought, OK, formal reasoning maybe, but is that really the same as critical thinking? Then I clicked the "See Formal Reasoning Courses in Explore Courses" link:
https://explorecourses.stanford.edu/search?q=all%20courses&v...
143 courses are considered to teach formal reasoning. First on the list is "The Questions of Cloth: Weaving, Pattern Complexity and Structures of Fabric (ARTSINST 100B)" which teaches hand weaving on a loom. A bit further down there is "Introduction to Bioengineering" which teaches "capacities of natural life on Earth" and "how atoms can be organized to make molecules". It goes on like that.
I dunno, this doesn't sound like anyone has to study critical thinking specifically to pass the formal reasoning requirements. It sounds like almost anything connected to science or engineering in any way counts. And that's Stanford!
There was a critical thinking requirement that multiple courses fulfilled. One was a critical thinking english class that involved a lot of writing. I didn't want to write, so I chose the philosophy course (which still involved writing).
Here is a state school that has a foundation requirement in critical thinking with several courses:
https://www.csulb.edu/student-records/ge-approved-courses-ca...
Yes, but, thinking critically about this, why would learning how to hand-weave on a loom teach critical thinking? I get that you weren't doing these courses at Stanford but it's this kind of thing that makes people skeptical when universities make grandiloquent claims. Stanford is supposed to be the gold standard, so when it makes it appear that they teach critical thinking but actually don't (or it's at least very easy to make choices that won't do so) of course the claim is devalued.
If universities really cared about this aspect of their reputation they'd defend it by firing professors who were found to not be thinking critically e.g. by praising or putting their names on papers that are clearly fraudulent. It doesn't happen.
Your original claim was "there is no evidence to suggest this is true (teaching critical thinking)". I presented my own anecdotal evidence, and then a counterexample. I'm sure there are many, many more. Moving the goalposts is not a discussion I'm interested in having and you seem to have a very set viewpoint on this topic.
That's an interesting perspective. Thanks for sharing. If you had free rein of an engineering school in a university system, how would you re-design curriculum to address your concerns and establish proof of teaching critical thinking?
I don't know, I never thought about it much. I think engineering schools already do better than most others at this because requirements validation and weighing tradeoffs is such a big part of engineering as a discipline. Validating requirements often boils down to critical thinking, e.g. "but do you really mean that" and "is there a better way?".
The issues with critical thinking really show up in the other areas of academia, the humanities and natural sciences. But it's hard to get people to do it because often there are strong incentives not to think critically, or to be outright misleading deliberately.
I guess a curriculum focused around finding subtle flaws in arguments would be a reasonable place to start. It could be a lot of work to compile teaching materials that are tough enough. You could take papers that you know contain logic errors and ask students to find them. For instance, a lot of COVID papers work like this:
1. A COVID case is defined as anyone who gets a positive PCR test.
2. A positive PCR test is defined as detecting a COVID case.
When you see it spelled out so simply the problem is obvious but the whole field of public health managed to not see it (there were a few papers that timidly pointed out the circular logic, but it never reached public awareness). Of course maybe it was deliberate. But you could assign students a few relevant papers and ask them to analyze them critically.
We have all met college graduates.
I don’t understand, can you elaborate? I’m trying to understand your perspective. New college grads I generally meet and work with are bright, hard working, curious and have a deep desire to learn.
I don’t think we’re having the same experiences so I want to know more about yours.
Most fresh college graduates I have worked with are anxiety ridden wrecks incapable of developing skills on their own and lack fundamental knowledge of industry practices.
Makes sense. I think they're lucky to be around you. Since you're hanging out on HN, I'd imagine you care about tech, doing things well and have a natural curiosity.
Back when I started out, I was deep in debt, insecure about my skills and being around highly skilled people who had many more years of experience only deepened those insecurities. Luckily, people were kind and patient with me and gave me the apprenticeship I needed. They deeply cared about technical expertise and doing things well, probably like you if I am guessing right. I have my dream job today, and I am in a position to mentor new grads. I continue to pay it forward as the senior engineers did when I started out. Not all my colleagues do this, but I see so much potential around me and I try to grow it. It's one of the most satisfying when I get a note from a new grad/junior engineer on how they've grown after our work together.
Thank you for caring!
On a side note, I can't imagine the anxiety they must go through now between the economy being what it is and AI exacerbating the gaps in technical skills. Seems like a scarier time than when I graduated. It's harder to mentor in this environment, but it's a fun challenge to learn how to mentor in this environment.
Some of us are even college grads ourselves!
You must have missed out on the critical thinking courses, or you'd see the importance of teaching critical race theory. Not everyone is so privileged as you as to not need the benefit of a society educated on racial history.
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?
Academia has become home to scripted NPCs
I think to prosper out of science / innovation you need cheap energy. I really think, Trump realizes that the age of cheap energy has past.
>> 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.
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.
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.
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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.
Then fund science. Just because the government has done it previously doesn't mean it always has to be like that forever.
Maybe if science depended on the average Joe actually having a living wage, enough to donate some directly to science, the incentive structures of our society would become more healthy than they currently are.
Rich people, worrying about rich people jobs and outcomes, is getting a little tiresome. We don't care about your women's studies "research" grants. Maybe something will actually be done about income inequality, if you want to save the things you actually care about. Until then, let it burn; a lot of us will barely notice the difference.
Income inequality in the US hasn't increased since 2014. Wage inequality severely decreased between 2019 and 2023.
https://www.nber.org/papers/w31010
Sometimes good things happen!
> Then fund science. Just because the government has done it previously doesn't mean it always has to be like that forever.
I do. I'm not one of these wealthy startup founders, just a guy earning a salary--but I've donated to foundations doing basic research many times; and even to individual researchers when they lost a grant but were doing work that I wanted to see the results of.
However, funding science in general this way is likely to miss a lot of value. Not everyone makes basic research a priority in their charitable giving. More importantly, not everyone has my impeccable research taste: not to sound elitist, but if the average American's priorities determined the directions for basic research, we'd have thousands of studies on why vaccines cause autism, an nothing on weird stuff like the medical potential of gila monster saliva.