Wanted: Bold Companies Willing to Invest in the Future
"Make no little plans," Daniel Burnham, the great Chicago architect and city planner, is purported to have said. "They have no magic to stir men's blood and probably will not themselves be realized."
Stirring sentiments-and though Burnham may not have actually said the words, he certainly lived them. But don't try writing them into next year's budget. Whatever lift your spirits get from the holidays-and from the apparent return of American shoppers to the mall-the dispiriting fact is that chief execs and CFOs don't seem to want big plans. They're as "Bah, humbug" as Scrooge himself when it comes to investing in the future:
- Item: American non-financial companies have $1.93 trillion in cash on hand. That's 7.4% of net assets, the highest share of book since 1959. Apple is sitting on $51 billion, GE $78 billion.
- Item: Profits are at record levels, too, running at an annual rate of $1.66 trillion, according to Commerce Department figures.
- Item: Money's so cheap they're practically giving it away. As I noted a month and a half ago, some companies have been able to borrow at 1% a year.
Put these three together and what do you have? A colossal failure of imagination and the will. Collectively speaking, Corporate America is sitting on pots of money and can't figure out what to do with it other than keep it in cash; meanwhile more lucre keeps pouring in; and out there in bank- and debt-market land, untold trillions lie idle waiting for someone to borrow it-while tens of millions of potential employees wait on the sidelines.
To be sure, there are signs that C-suite ambition hasn't gone completely limp: Capital spending's up a tad, M&A activity has awoken from recession-induced torpor. But can anyone name any large company, apart from Apple or News Corp, that is making investments that stir the blood?
Take the health insurance industry: As health-care reform kicks in, the sector is facing what is likely to be the largest increase in its customer base in history-30-million-plus newly insured people. Rather than make bold plans for this future, the industry appears to have preferred prefer to protect current profits by ponying up $86 billion to oppose the law that brings the opportunity.
A Risky Political Environment is Only Part of the Problem
What's going on? It's tempting to blame politics-and legit to a point. I can't recall when political risk seemed so high, not because of war or fear of expropriation by populist regimes in distant lands, but because of policy paralysis in what should be grown-up circles.
Business needs some sort of stable, centrist regulatory and budgetary consensus as a basis on which to plan, but in America these days the only sure bet in politics is that bankers will have a Merry Christmas. There's no hope of further fiscal stimulus, and as for monetary policy, the Fed has gone about as low as it can go. Seemingly settled issues-Medicare, Social Security, arms control treaties, reasonable environmental rules-are up for grabs.
Across the pond, the budgetary problems of Europe's PIIGS (Portugal, Ireland, Iceland, Greece, and Spain) have caused the EU to set macroeconomic policies guaranteed to stifle economic growth on a continent where, moreover, demographics militate against investing in anything except walkers, wheelchairs, and large-button phones. China seems to be the only major economy pouring big bucks into the world's sunrise industries-the cleantech cluster of solar, high-speed rail, and so on-but it appears to be pursuing policies that favor its own firms, while U.S.-China geopolitical tensions have grown all year.
Time to Reject the Naysaying Mindset
Blame Washington if you want-everyone else does-but the fault, dear Brutus, lies not in our stars, but in ourselves. Conversations I've been having with executives and others suggests that something's broken in the internal conversation that results in decisions to invest. Always during a recession, budgetary authority gets centralized. Capex gets iced, R&D gets a haircut. (In 2009, the world's most innovation-oriented companies cut capital spending 17.5%, R&D 3.5%.) Business-unit heads lose the autonomy or the nerve to do what they think is right for their business, seeking HQ's forgiveness rather than waiting for it to grant permission.
We're still stuck there, in a nay-saying mindset. Rather than aiming for the stars in order to reach the moon, we're aiming for what's at eye-level-and shooting ourselves in the foot.
What will it take, I wonder, before companies dare to be audacious again?
Image courtesy flickr user jenniferphoon