Profits Without Prosperity
How $942.5 Billion Left the Building in a Single Year. Evidence They Can’t Defend — Essay 3 of 13
In 2024, S&P 500 companies set a record: $942.5 billion in stock buybacks. Add dividends, and total shareholder returns hit $1.572 trillion.
Let that number sit for a moment.
$1.572 trillion returned to shareholders in a single year. Not invested in R&D. Not invested in worker training. Not invested in equipment modernization, supply chain resilience, cybersecurity, or community infrastructure. Returned to shareholders — of whom the top 1% own more than half the market, and the bottom 50% own approximately 1%.
This is the extraction mechanism operating at full speed, in plain sight, reported proudly in quarterly earnings calls.
William Lazonick saw this coming.
In 2014, the University of Massachusetts economist published “Profits Without Prosperity” in Harvard Business Review. It won the McKinsey Award for the most influential article of the year. The core finding was devastating in its simplicity.
From 2003 through 2012, 449 companies in the S&P 500 used 54% of their earnings — $2.4 trillion — to buy back their own stock. Dividends absorbed another 37%. That left 9% of net income for everything else: research, development, training, wage increases, capital investment, new product development.
Nine percent.
Lazonick’s term for the operating model was “downsize and distribute.” Cut costs (primarily labor), distribute the savings to shareholders (primarily through buybacks that inflate stock prices), and collect executive compensation tied to those inflated prices.
The executives who decide the timing and amount of buybacks are the same executives whose pay is overwhelmingly stock-based. In 2024, stock-related pay — exercised options and vested stock awards — averaged $18.2 million and accounted for 79% of average CEO compensation. The incentive structure is not subtle: buy back stock, price goes up, executive wealth increases.
Defenders of buybacks argue they’re efficient capital allocation. If a company can’t find productive investments yielding returns above its cost of capital, returning cash to shareholders lets the market reallocate it to companies that can.
The theory is clean. The practice is not.
If buybacks were truly about returning “excess” cash when no productive investments existed, we would expect buybacks to be countercyclical — higher when the economy is slow and investment opportunities are scarce, lower when the economy is booming and opportunities abound.
The opposite is true. Buybacks surge when stock markets boom and decline when markets fall. Companies buy high and reduce purchases when prices are low. This is the opposite of rational capital allocation. It is, as Lazonick argues, market manipulation operating within a regulatory safe harbor.
The SEC created that safe harbor in 1982 with Rule 10b-18, which essentially gave companies a legal framework to buy back massive quantities of their own stock without facing manipulation charges — as long as they followed volume, timing, and price guidelines. Before 1982, open-market buybacks were rare because companies feared SEC enforcement. After 1982, they became the primary mechanism for corporate cash distribution.
The timing matters. 1982 is three years after the productivity-wage gap began opening. The same era that saw deliberate weakening of worker bargaining power also saw deliberate enabling of shareholder extraction mechanisms.
Now watch what buybacks do to the investment equation.
Apple spent $104.2 billion on buybacks in 2024 alone. Apple is also one of the most innovative companies in the world — but its innovation budget is dwarfed by its shareholder returns.
General Motors — the company that couldn’t match Toyota’s suggestion systems, that let Lansing Delta Township become the Handmaid’s Tale of Lean — announced a new $6 billion stock buyback program in February 2025. Six billion dollars. For context, GM’s total spending on worker training and development is not even reported as a separate line item in its financials. It’s buried in SG&A, invisible, too small to warrant its own disclosure.
The Oxfam analysis of the five largest U.S. corporations by market cap — Microsoft, Nvidia, Apple, Amazon, and Alphabet — found they spent more than $1 trillion on buybacks and dividends over five years. That’s more than five times what they paid in federal taxes over the same period.
These are not struggling companies returning their last dollars to patient shareholders. These are the most profitable enterprises in human history choosing to inflate their stock prices rather than invest in the human and physical capital that created their profits.
Lazonick called the pre-1980s corporate model “retain and reinvest.” Companies retained earnings and reinvested them in productive capabilities — including their workforce.
The post-1980s model is “downsize and distribute.” Downsize the workforce (or suppress its wages), distribute the savings to shareholders.
The shift didn’t happen because retaining and reinvesting stopped working. It happened because a new set of actors — institutional investors, activist hedge funds, private equity firms — gained the power to demand immediate returns, and a new set of theories — Friedman’s shareholder primacy, Jensen’s agency theory — gave them the intellectual justification.
Michael Jensen’s influential 1986 paper on “free cash flow” argued that cash retained by managers would be wasted on empire-building and pet projects. Better to force it out the door to shareholders who would allocate it more efficiently. The theory assumed managers were the problem and shareholders were the solution.
The evidence suggests the opposite. The era of forced distribution has produced slower productivity growth, declining corporate investment as a share of GDP, and a financial sector that extracts rents rather than allocating capital to its highest productive use. The corporations that retained and reinvested — Toyota, Costco, the Ritz-Carlton — consistently outperform those that downsized and distributed.
Connect this to the frontline.
Every dollar spent on buybacks is a dollar that did not train a worker, did not improve a process, did not fund the kind of structured mentorship that Essay #11 of the Suppression Series proved essential for transmitting tacit knowledge.
When GM spends $6 billion buying back its own stock while its plants run suggestion systems that collect a fraction of Toyota’s, it is making a statement — not in words, but in capital allocation — about where it believes value resides.
The statement is: value resides in the stock price, not in the workforce.
That statement has been made, explicitly, by the 435 S&P 500 companies that conducted buybacks in 2024. It has been heard, implicitly, by every worker who saw their training budget cut, their pension converted to a 401(k), their raise fall below the rate of productivity growth.
The workers are not stupid. They know where the money went. And they respond accordingly — by withholding the discretionary intelligence, the suggestions, the problem-solving effort that the Suppression Series documented as the difference between NUMMI and Fremont, between Magnet hospitals and average ones, between Costco and the rest of retail.
Extraction doesn’t just take money from workers. It destroys the conditions under which workers would willingly contribute their intelligence. It is both theft and sabotage, conducted simultaneously, using the same mechanism.
$942.5 billion in 2024.
What would that number buy if 10% — not all, not most, just one-tenth — were redirected toward workforce capability?
$94 billion. Enough to give every one of America’s roughly 130 million production and nonsupervisory workers a $720 annual training investment. That’s more than most of them currently receive.
Or enough to fund 940,000 structured apprenticeships at $100,000 each. Or enough to raise the median wage by approximately $0.35/hour across the entire economy.
These are small numbers relative to the buyback total. They would be transformative relative to current investment in human capability.
But under the current moral framework — Friedman’s framework — they are impermissible. They are spending shareholder money for social purposes.
The next ten essays will show what that moral framework has cost.
Next: “The 281:1” — how CEO pay became 281 times worker pay, and what it signals about who the system values.
Sources: S&P Dow Jones Indices, “S&P 500 Q4 2024 Buybacks” report, March 2025 | Lazonick, William. “Profits Without Prosperity.” Harvard Business Review, September 2014 (McKinsey Award winner) | Oxfam, “Inequality Inc.” analysis, 2025 | Fast Company, “Stock buybacks biggest US companies S&P 500,” October 2025 | EPI, “CEO Pay,” September 2025 | SEC Rule 10b-18, adopted 1982 | Jensen, Michael C. “Agency Costs of Free Cash Flow,” American Economic Review, 1986.
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Dr. Venki Padmanabhan is a co-founder of the Capability Capital Institute and the author of Built to Extract and Already Paid For, forthcoming from Capability Capital Press.
Hi Dr. Venki, thanks for the great write up! I saw you mentioned, **“$942.5 billion in stock buybacks in 2024 alone”** and was wondering if there is evidence that companies conducting the largest buybacks are consistently underinvesting in projects with higher long-term returns, suggesting management may be destroying shareholder value through poor capital allocation rather than creating value through efficient capital returns?