New Deal-era regulations on financial flows made it painful tax-wise to remove cash from a company. So you either had to pay it as dividends, or you invest it in R&D, wages, or benefits for employees (this is why companies used to have very plush benefits even for lower level managers). When combined with pretty aggressive anti-trust, it also funneled cash into business expansion via conglomerates.

Companies were asset rich (which is the seam of valuable companies that private equity has been strip mining for 40 years, but even those are running out now).

Share buybacks are more symbolic that the Reagan era made it easy to take cash out of companies, which led to a race to the bottom of extracting as much cash as possible while leaving little for operations, wages, or expansion.