TIME Economy

Wall Street’s Values Are Strangling American Business

When finance calls the shots, we all lose

It’s widely known that more than half of all corporate mergers and acquisitions end in failure. Like many marriages, they are often fraught with irreconcilable cultural and financial differences. Yet M&A activity was up sharply in 2013 and reached pre-recession levels this year. So why do companies keep at it? Because it’s an easy way to make a quick buck and please Wall Street. Increasingly, business is serving markets rather than markets serving business, as they were originally meant to do in our capitalist system.

For a particularly stark example, consider American pharmaceutical giant Pfizer’s recent bid to buy British drugmaker AstraZeneca. The deal made little strategic sense and would probably have destroyed thousands of jobs as well as slowed research at both companies. (Public outcry to that effect eventually helped scuttle the plan.) But it would have allowed Pfizer to shift its domicile to Britain, where companies pay less tax. That, in turn, would have boosted share prices in the short term, enriching the executives paid in stock and the bankers, lawyers and other financial intermediaries who stood to gain about half a billion dollars or so in fees from the deal.

Pfizer isn’t alone. Plenty of firms engage in such tax wizardry. This kind of short-term thinking is starting to dominate executive suites. Besides tax avoidance, Wall Street’s marching orders to corporate America include dividend payments and share buybacks, which sap long-term growth plans. It also demands ever more globalized supply chains, which make balance sheets look better by cutting costs but add complexity and risk. All of this hurts longer-term, more sustainable job and value creation. As a recent article on the topic by academic Gautam Mukunda in the Harvard Business Review noted, “The financial sector’s influence on management has become so powerful that a recent survey of chief financial officers showed that 78% would give up economic value and 55% would cancel a project with a positive net present value–that is, willingly harm their companies–to meet Wall Street’s targets and fulfill its desire for ‘smooth’ earnings.”

Some of this can be blamed on the sheer size of the financial sector. Many thought that the economic crisis and Great Recession would weaken the power of markets. In fact, it only strengthened finance’s grip on the economy. The largest banks are bigger than they were before the recession, while finance as a percentage of the economy is about the same size. Overall, the industry earns 30% of all corporate profit while creating just 6% of the country’s jobs. And financial institutions are still doing plenty of tricky things with our money. Legendary investor Warren Buffett recently told me he’s steering well clear of exposure to commercial securities like the complex derivatives being sliced and diced by major banks. He expects these “weapons of mass destruction” to cause problems for our economy again at some point.

There’s a less obvious but equally important way in which Wall Street distorts the economy: by defining “shareholder value” as short-term returns. If a CEO misses quarterly earnings by even a few cents per share, activist investors will push for that CEO to be fired. Yet the kinds of challenges companies face today–how to shift to entirely new digital business models, where to put operations when political risk is on the rise, how to anticipate the future costs of health, pensions and energy–are not quarterly problems. They are issues that will take years, if not decades, to resolve. Unfortunately, in a world in which the average holding period for a stock is about seven months, down from seven years four decades ago, CEOs grasp for the lowest-hanging fruit. They label tax-avoidance schemes as “strategic” and cut research and development in favor of sending those funds to investors in the form of share buybacks.

All of this will put American firms at a distinct disadvantage against global competitors with long-term mind-sets. McKinsey Global Institute data shows that between now and 2025, 7 out of 10 of the largest global firms are likely to come from emerging markets, and most will be family-owned businesses not beholden to the markets. Of course, there’s plenty we could do policy-wise to force companies and markets to think longer term–from corporate tax reform to bans on high-speed trading to shifts in corporate compensation. But just as Wall Street has captured corporate America, so has it captured Washington. Few mainstream politicians on either side of the aisle have much interest in fixing things, since they get so much of their financial backing from the Street. Unfortunately for them, the fringes of their parties–and voters–do care.

TIME politics

The Students vs. the Unions

New York City’s mayor handed teachers a big win. Struggling students will be the losers

Back in 2005, when New York City was pre-crash flush, Mayor Michael Bloomberg offered the United Federation of Teachers a raise in return for 150 extra minutes of classroom work per week. The mayor’s idea was to spend that extra time tutoring the kids who needed the most help–the bottom third of each class. UFT president Randi Weingarten agreed that the group sessions would be small, no more than 10 students per class. Schools chancellor Joel Klein wanted three 50-minute periods per week. The union wanted five 30-minute periods. They compromised on four 37½-minute sessions.

The program was never given a name, which made it easier for New York’s new “progressive” mayor Bill de Blasio to give it back–to eliminate the required 150 minutes of special instruction–in his negotiations with the UFT this spring. You might well wonder why. I tried to find out but received a heaping ration of gobbledygook from a source close to the mayor. He said that the program had been “inflexible” and “one size fits all.” That it was not “workable to the purpose.” Translation: it didn’t work. But how do we know that? No studies or evaluations were done. At his press conference announcing the new union deal, the mayor and his schools chancellor, Carmen Fariña, gave several foggy reasons for the change: the time would be used for additional parent conferences and for “professional development” so the teachers could learn how to teach the new core curriculum. A lot of unspecific wiggle room was negotiated on both counts–part of the mayor’s drive toward “flexibility.”

But flexibility is not a trait often associated with teachers’ unions. The American Federation of Teachers, which Weingarten now heads, calls itself “a union of professionals,” but it negotiates as if it were a union of assembly-line workers. Let’s start with the 37½ minutes, especially that half-minute. What happens if the teacher is in midsentence–or is in the midst of a breakthrough with a student–when the bell rings? A professional finishes the lesson and is paid in personal satisfaction. (I’m sure that the overwhelming majority of teachers do so; these sorts of work rules insult their dedication.) A professional talks to parents whenever and wherever. A professional also doesn’t resist evaluation–but the current New York City union president, Michael Mulgrew, actually bragged that he “gummed up the works” on an evaluation agreement with the far more rigorous Bloomberg administration; de Blasio, of course, hasn’t sought to implement that deal.

The most damning aspect of de Blasio’s giveback is the “didn’t work” argument. We are talking about one of the ground-zero principles of a healthy school system: extra help for those who need it. If the program doesn’t work, you don’t eliminate it. You fix it. The mayor’s spokesman said the extra help would be continued in “flexible” ways. Apparently, “flexibility” is a mayoral euphemism for “I cave.” And given the current atmosphere, if it isn’t specified in the contract, it doesn’t exist. A mayor who actually cared about education would be seeking longer school days, longer school years, more charter schools (which have to be more rigorously monitored) and the elimination of tenure and seniority rules to make sure that the best professionals, not the longest-serving assembly-line workers, are in the classrooms.

Teachers’ unions are suddenly on the defensive across the country. The Supreme Court recently ruled–unfairly, I believe–that some home health care workers did not have to join the union that negotiated their contract. That could have an impact on all public-employee unions. In California, a district court judge recently threw out the state’s tenure rules. In his ruling, he wrote that the widespread protection of incompetent teachers “shocks the conscience.” A group called the Partnership for Educational Justice, which is led by former CNN anchor Campbell Brown, is filing a similar suit in New York and promises to take the movement national. Brown’s group has hired Robert Gibbs, the former Obama press secretary, to run its communications strategy; other Obama stalwarts will soon join the effort as well. Obama’s Secretary of Education Arne Duncan praised the California decision, which caused the National Education Association, the country’s largest teachers’ union, to call for him to be fired.

All of which raises an old labor-movement question for Democrats in 2014 and 2016: Which side are you on? Competent teachers should certainly be paid more, but the protection of incompetence is a national scandal, as is the unions’ resistance to teacher evaluations and charter schools, as is the quiet undermining of educational creativity by eliminating special programs for needy students. The Obama Administration has clearly edged away from the unions’ excesses. But what about the rest of the party? Which side are they on: the students’ or the unions’?

TO READ JOE’S BLOG POSTS, GO TO time.com/swampland

TIME Books

Self Helpless: Why Do We Keep Searching for the Perfect Advice Book?

Illustration by Luci Gutiérrez for TIME
Illustration by Luci Gutiérrez for TIME

Like most recovering overachievers, I have a complicated relationship with self-help books. That is, I approach the entire genre with a mixture of interest and dread. While I am certain I can become a better version of me with the help of someone who has a research staff and a lucrative book contract, I know my relationship with the self-help book of the moment will end badly. It always does.

Everyone wants to be better at something. Right? Wasn’t this very country founded 238 years ago on the unalienable rights to life, liberty and the pursuit of flat abs? I dare you to name someone who does not want flat abs. And yet they are so difficult to attain, unless you are an Olympic swimmer or under the age of 10.

This is the problem with self-help generally: real change is hard. So while you could fill whole libraries with the books that have been published in an effort to help us all get flat abs, when it comes to said books, there’s no such thing as strength in numbers. There is only strength in crunches, planks and other core exercises you probably wish didn’t exist. But if you are a recovering overachiever, the drive for self-improvement remains so persistent that it creates a selective memory in which all failed attempts at effectively using self-help books–to attain flat abs or to do just about anything else–are magically erased, along with the pain of childbirth and the tragedy (for me and all the other vans in the world) of the Dutch losing the 2010 World Cup final. Which explains why, when Daniel J. Levitin’s The Organized Mind: Thinking Straight in the Age of Information Overload landed on my desk, I thought, Oh goody, something that can help me become a better me at work and at home!

After spending decades in consumer magazines, I can say with certainty that after flat abs, what Americans want most in life is organized closets. And I know, as Levitin does, that you cannot have an organized closet without first having an organized mind. His book is full of amazing tidbits, like the chart that compares the average global temperature with the number of pirates in the world. What does that have to do with organizing? Who knows? Levitin is a professor, and he easily summons up lots of diverting facts to illustrate how distracted we are. For example, he knows that women’s cortisol levels spike when they are confronted with clutter but men’s don’t, which gave me a fantastic idea for my own self-help book: How to Live Happily With a Man Who Doesn’t Notice the Pile of Crapola at the Bottom of the Stairs.

Did Levitin’s book change my life? Well, first I need a leave of absence from work to finish it, as it is 512 pages long. Which brings us to another problem with self-help: those most likely to own self-help books are those least likely to have time for self-help books. Years ago, when my children were small and the working-mother routine felt particularly Sisyphean, my well-meaning husband gave me a book called How to Calm Down. It sat on my night table for six months or so until I realized that what would calm me down most was less time spent awake. I do, however, have an awesome framed photograph of my middle son holding the book and laughing maniacally. So it was good for something.

The one self-help book I have ever been able to get through is Adele Faber and Elaine Mazlish’s How to Talk So Kids Will Listen & Listen So Kids Will Talk, because the margins are very wide and half the book is fill-in-the-blank exercises, so the part you actually have to read is quite short. If you haven’t read it, here’s the key takeaway: when your child comes home and says, “I’m so mad that my math teacher took away my phone when I was texting in class,” you are not supposed to problem-solve or scold or, heaven forbid, call the school. You are just supposed to say, “Wow, it sounds like you’re really mad.” That’s right: parenting as parroting. Weirdly, it totally works, in part because it’s such an easy concept that even time-pressed lunatics can remember it.

As for the rest of the self-help volumes on your night table? Face it: they are dusty markers of inadequacy, reminders of the better you that will never be. They mock you, just like the fancy cookbooks with recipes for things like coq au vin that you will never learn to spell, much less make; the glue gun you absolutely will never use to DIY anything; the set of Rosetta Stone CDs for a language that it turns out you can get by fairly well without. Taken together, these little failures are all quite bad for your self-esteem. And you will certainly never get flatter abs if you don’t take care of your self-esteem problem first.

Van Ogtrop is the editor of Real Simple and author of Just Let Me Lie Down: Necessary Terms for the Half-Insane Working Mom

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