The FT tells a story without realising this morning. This combination of stories appeared on one of their emailed news alerts today:
I am sure the juxtaposition was just chance and yet what the two stories have to say is important.
The first is that we have no rebalanced the economy.Financial services remain as important as ever they were. And we know that did not work for us. For all the talk of reform so that we would supposedly become a country of makers again George Osborne has not achieved his goal: the City and its activities remain at the heart of the UK economy now just as they were in 2007 and we remain a vulnerable as ever as a result.
The second story is even more telling though. This says:
The UK's largest companies by market value are sitting on cash piles of £53.3bn, more than two-fifths higher than the amount of net cash they held last year, according to Capita Asset Services.
The report is one of many that tries to estimate how much cash large companies has. The consistent theme is that they are holding more. This is just another repetition of that message, but two things matter about this.
The first is that if big business is holding cash it is not spending it. And if it is not spending it then that money is not in the economy and that means that this cash is not in the economy. As I have explained many times, there are only four drivers of growth: increasing consumer spending, increased business investment, increased et exports and increased government spending. Now we know the government is cutting and export news is bad so the only chance of recovery comes from either increased consumption or increased business investment and what this survey and others show is that the latter isn't happening, so it all comes down to consumption to keep the economy moving at a time when real incomes are falling. And what that means is that growth is now wholly dependent on people taking on debt they cannot afford. This is the Wonga economy at work.
And yet, secondly, and just as importantly, the FT article makes no mention of this aspect of the story as if the macro-economic implications of this cash pile had not occurred to its compilers or the FT's journalists. It does offer some discussion of which sectors might be investing or not, I admit, but the core element of the story clearly arrives with this comment:
According to the Office for National Statistics, the number of M&A transactions involving UK companies remains historically low, with 76 domestic acquisitions in the first half of the year and 51 overseas companies being bought by UK groups.
The whole concern goes back to the City: it's not that business is not investing in real economic activity, innovation and growth that matters; it's the fact that it is not spending its money buying other businesses to fuel City fees that is the real concern, apparently.
I despair of the FT.
I despair of the lack of understanding.
I despair of the lack of vision in business that sees no use for its cash pile.
I despair that we're imposing cuts on essential services to fuel corporation tax cuts to help these cash piles grow.
I despair that we apparently believe that only business can generate new jobs when it so obviously failing to invest in doing so - and is making new zero hour minimum wage roles at best when it has money available to do so much better.
I despair that despite this the myth is still peddled that all prosperity is generated in the private sector.
I despair that our politicians have not a clue about how to get us out of the mess we're in.
I despair that the alternatives are not being considered.
I despair that when it comes down to it we just see more personal debt advanced to people who already cannot make ends meet as the only answer for our economy.
I despair of our poverty of ambition.
I want for something so much better, and I know I am not alone.
Do you wonder why people feel alienated form politics?
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I used to say “We are approaching the end point of the shift from productive investment to speculation, rent-seeking and hoarding.”
You do know that the cash piles you can see – and some that you can’t! – are largely sitting overseas because the companies do not wish to pay tax on them? You know exactly how money ‘trapped’ in this way ended up there!
And yes, some of that money is onshore, and could be paid to the shareholders tomorrow. Or, if we’re going to descend into crazy talk and wild-eyed anticapitalist extremism, the money could be deployed. This is, after all, what joint stock companies are for: deploying the capital put up by their shareholders and bondholders.
Perhaps the Directors of these companies see no productive investment to deploy the shareholders’ capital into – and they’re not fools, we all voted for their remuneration packages and we must consider the possibility that they are right – so we must ask ourselves what is going so very, very wrong in our economy. Is there really nothing better to do with money than letting it sit in a cash account?
The next time our Chancellor talks about confidence in the economy, we might all ask ourselves why the most senior managers of our capital see nothing worthwhile to do with all that money.
Nothing worthwhile. Even when vast new markets have opened up, online and overseas. Even when products and services that could not have existed or even been imagined twenty years ago are now profitable markets. Even when machinery is unimaginably productive and supply chains are astonishingly efficient. Even when labour is so cheap that malnutrition and reliance of food distribution from charities are an accepted part of life in working households.
Even when labour is provided free by government, under coercion and the threat of benefit sanctions.
All this, and capital sits idle?
And we might ask ourselves whether economic policy, and taxation – as practiced and enforced in the real world – has resulted in a degenerate state where deploying capital productively is less profitable than just letting it sit in a cash account.
I was wrong about the secular shift from productive investment approaching an end point: if there is an ‘end point’, it is so far from the familiar economy we have known in our lifetimes that we have no vocabulary for it; or, perhaps, we would be dismissed as hysterical or deluded if we attempted to elicidate it.
And some of the familiar vocabulary has fallen so far out of use as to be utterly unthinkable. For example: the red-in-tooth-and-claw capitalists of earlier centuries would be calling for their Board of Directors’ dismissal.
What this really says is capitalism is bankrupt
And we live in a rentier economy
I wonder if accounting has something to do with lack of investment. Many companies will need to invest in training and developing human capital to grow the economy etc. however because investors want a quarter on quarter increasing EPS they can’t do this at the level they would want to given cash pile.
Contrast with old industry Plant and machinery which doesn’t have the immediate impact on profits.
James
That’s an old debate and a good one
It is why it is training that needs the extra tax relief, not R & D
Yet so many of us feel the same. It is why your work is so important. The Billy Connolly thing ‘don’t vote, it just encourage them,’ may be amusing but it is no guide to what needs to be done. It is up to the rest of us to act as best we can.
Did Billy say that?
Or Russell Brand?
Either way, I agree with you
It’s that old fallacy of composition. Only the levers available to governments can address this.
It is becoming clear that the ‘rentier’ economy is now the only game in town. I worry that a Labour induced Tory government next year will open the flood gates of ‘rentierism’ even wider with benefit claimants reduced to shamed social pariahs and even those in low payed jobs being shamed for not ‘doing better’ (we’ve already had hints of this in Jobcentre policy).
The fear this creates will create a vicious cycle of social outcasting.
I agree with Fred Harrison (thought he chiefly focuses on Land/property rentierism) that all this produces a ‘traumatised society’ with cheating elevated to the highest good.
If the FT cannot see this and communicate it seriously; the Labour Party cannot see the open goal the width of the pitch; the public seem to be cowed and accepting of the yolk of debt peonage with out a whimper and the media (BBC!!) is dumbed down beyond belief – then anyone caring about fairness, social justice, social purpose, ethical societies needs to be very, very concerned.
I am concerned, as you say
For my benefit, what is your reference to “we’ve already had hints of this in Jobcentre policy” about?
Thanks
Yes, large companies are holding large amounts of cash, but I can say with some certainty small and medium sized businesses are not. If you want to change the world, start with small steps (I see too many contributors who seem to be expert on how to radically change a country’s economy, but probably have never run anything
significant in their lives). So, let’s start with compulsory payment terms like Germany I believe, so small and medium sized businesses can get paid on time.
Those small and medium sized enterprises are much more likely to spend immediately into the economy.
Maybe
Mariana Mazzacutto would not agree