Of all the reasons I've heard to rationalize weak capital investment spending, the most difficult to understand is "secular stagnation," which claims a lack of investment opportunities, particularly in technology. Any manufacturing business executive giving credence to this view isn't paying attention.
But I've gotten ahead of myself.
That U.S. capital investment spending hasn't kept pace with other measures of growth, and hasn't for quite some time, is made clear by a recent report from The Aspen Institute's Manufacturing in the 21st Century program and the MAPI Foundation. Published in the hope that "showing the long-term impact on basic investment will help resuscitate a reasonable democratic discussion of the trade-offs," the analysis presents the evidence and reviews plausible explanations for lagging investment. It also offers suggestions on how public policy can address the problem.
In listing the range of explanations for middling investment, the authors include:
• Policy uncertainty and weak business confidence
• Reduced animal spirits and entrepreneurialism
• Lack of investment opportunities ("secular stagnation")
• Corporate tax policy
• Regulation
• Loss of market share to global competitors
I understand the calls for reductions and/or reform of corporate tax and regulation. These twin pleas always top the business community's policy recommendations.
… we're living through an historical technological convergence ...
I'll accept at face value that policy uncertainty could cause weak business confidence and, in turn, a hesitancy to invest. The authors name several significant uncertainties, including volatility in energy markets, polarization of political parties and unpredictable monetary policy. They also reference research and indices that indicate an uptick in business uncertainty.
Likewise, I'll not quibble with the authors' contention that reduced animal spirits and entrepreneurialism, one of the more academic theories, could be a contributing culprit.
However, I don't buy the argument that investment spending has slowed because there is a lack of opportunities to invest "… owing to the absence of new technologies that typically spur investment and to demographic weakening." OK, I'll grant the demographic weakening part: The authors note: "Population growth is slowing or declining, the labor force participation rate has declined, average hours worked is falling, and educational attainment indicators are stable to declining." It's difficult to argue with those facts.
But I'm not convinced that there's an "absence of new breakthrough technologies" worthy of investment.
… Companies investing in these technologies ... are sparking a manufacturing transformation every bit as impactful as those that drove earlier periods of large investment and economic growth.
Indeed, I believe we're living through an historical technological convergence, a time during which several breakthrough technologies have reached maturation and are ready for businesses to deploy—and leading companies have been deploying them. These technologies include additive manufacturing, advanced materials, big data & analytics, cloud computing, design & simulation software and autonomous robots.
Companies investing in these technologies, often in combination, are sparking a manufacturing transformation every bit as impactful as those that drove earlier periods of large investment and economic growth. And as the authors emphasize, the investment in and incremental new ideas and technologies—the continuous improvement process—is often overlooked as a way to achieve competitive advantage.
The authors of "Why is Capital Investment Consistently Weak in the 21st Century U.S. Economy" have sparked a vital public policy discussion. It should inform a reevaluation of your capital investment strategy.
