More Builders And Fewer Traders – -A Growth Strategy For The American Economy

When the head of the world’s largest investment fund publicly questions the conduct of America’s leading corporations, we can be pretty sure that there’s a problem.
That’s what BlackRock Chairman Laurence Fink did last year in a letter to the Fortune 500 CEOs criticizing the short-term orientation that dominates today’s corporate behavior. ‘It concerns us,’ he declared, that ‘in the wake of the financial crisis, many companies have shied away from investing in the future growth of their companies. Too many have cut capital expenditures and even increased debt to boost dividends and increase share buybacks.’ And he concluded, ‘When done for the wrong reasons and at the expense of capital investment, [returning cash to shareholders] can jeopardize a company’s ability to generate sustainable long-term returns.’1
This is bad for the economy in two ways. As the growth of the U. S. workforce slows dramatically, economic growth will depend increasingly on improved productivity, most of which comes from raising capital investment per worker. Failing to make productivity enhancing capital investments will doom our economy to a new normal of slow growth.

This post was published at David Stockmans Contra Corner on July 6, 2015.