A Postindustrial columnist, farmer, and Democratic candidate for Michigan’s State Senate writes about the Michigan Senate candidate’s openly “hostile” remarks on capitalism.
My father always said to pay closer attention to what people do than to what they say.
Abdul El-Sayed’s comments on General Motors’ stock repurchase authorization say a lot.
READ: Michigan Democratic Party Senate Candidate Abdul El-Sayed slams General Motors
The basic tenet of capitalism is that investors should get a healthy return on their investment
The fundamental point of a corporation in a capitalist economy is to generate wealth for its investors – if it didn’t, no one would invest. This generally happens in one of two ways: 1) the corporation can pay dividends to its shareholders (a taxable event); or 2) it can increase the value of its existing shares (which is non-taxable), through a variety of means.
Since restarting dividends in 2022, GM has paid a paltry average 1.2% dividend – far short of the 10% minimum an investor would want as a return on investment every year.
During the same period, GM has used what could have been dividends to repurchase shares instead. This strategy has increased GM’s share price by about 17% per year.
This 18% return since 2022 seems rational and measured from an investor’s point of view. Investors can question whether those funds should have been used for other purposes, such as reducing vehicle sales prices to increase volume; advancing new technologies; conducting acquisitions; paying larger dividends; making charitable contributions; etc.
El-Sayed now argues that GM’s shareholders should get none of these gains. And that by giving the shareholders a reasonable return, management is robbing the company.
This is exactly what El-Sayed said: “Instead of investing in their workers or new product lines, GM executives are robbing from the future to pay their shareholders today.” This is parroting what the UAW said the day before.
This is socialism pure and simple. It isn’t that I object to someone being a socialist, but I do object to someone calling themselves a capitalist but then doing exactly the opposite.
How does El-Sayed think GM should return value to shareholders? He doesn’t.
Which is particularly galling here because GM already provides its employees with profit sharing.
GM’s unionized employees already receive profit sharing
The UAW has already negotiated profit sharing for GM employees. Eligible employees receive $ 1,000 for every $1 billion in pre-tax earnings. ($14,500 in 2024 and $10,500 in 2025).
That is a terrific deal for the employees since they don’t share in losses, only the upside.
El-Sayed wants this to go to the employees, but do the math. $20 billion divided by GM’s 47,000 unionized employees would be $425,532 per employee.
This is $21,266 extra per billion of profit. Instead of the $1000 that has already been negotiated?
Should GM management voluntarily give each employee another $21,266 per billion of profit, for a total of $425,532, and give the owners of the company nothing?
It is one thing to identify and argue for better uses of excess capital. This is not that.
El-Sayed then calls for a ban on all stock repurchases
A stock repurchase is a tool; it is neither good nor bad. Companies repurchase shares for many reasons, including funding stock plans or acquisitions, which are simple financial transactions.
Or sometimes, because the corporation has excess capital it wants to return to shareholders.
Warren Buffett points out that stock buybacks are a practical way to distribute excess capital to shareholders. It is simply a tax-free way to return capital to investors where appropriate.
In one of his rare political observations, Mr. Buffett famously wrote: “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
In the present case, both are true. El-Sayed wants to ban the tool: “Stock buybacks should be illegal.”
Investors should worry about whether a stock repurchase is warranted. It is their money after all.
Calling for the abolition of a routine financial tool demonstrates financial illiteracy.
El-Sayed doesn’t talk to the business community
I advocate for getting money out of politics. But either all of it or none of it. Not just the money you don’t like.
Rural voters understand this. If focused on the issue, rural voters would rather see endorsements split evenly between business (which creates wealth) and labor & other advocacy groups (which consume wealth)—or no endorsements from “groups” at all, and instead endorsements solely from individuals.
El-Sayed has endorsements only from entities that consume wealth. He has none from entities that generate wealth. Not a single one.
This is not balance. And he makes a point of not talking to the business leaders, which leaves him uninformed.
Yet he is unabashedly in lockstep with the UAW, regardless of how absurd their position is.
I view myself as pro-union, and I talk to union members routinely. Not the millionaires who run the unions, a fact union members point out to me, and it is why the union vote today has become nearly evenly split between the two parties.
We don’t need more populist politicians who are financially illiterate
I expect all of my U.S. Senators to be financially literate and to support our country’s defense. This is not a high bar.
When they aren’t, especially when they are attention-seeking, they waste everyone’s time and very little gets done.
El-Sayed’s comments on GM are openly hostile to capitalism.
In addition to having someone negative on U.S. defense, we have someone who is financially illiterate.
