The world is adrift in a seemingly-endless era of anemic growth in which even the vaunted economic engines of Germany and China are losing steam. Economists are racking their brains to come up with credible strategies to promote growth. None of the usual fixes -- such as low interest rates, tax cuts and more government spending -- seem to have much effect. The situation is so perplexing that today we hear prominent economists lamenting the lack of inflation which not so long ago was considered a major threat to economic growth.
The reality seems to be that modest growth is the new normal. There are important things our government can do to mitigate this dismal situation -- provide better incentives for capital investment and R&D, expand availability of H1B visas, build the Keystone Pipeline, invest more in infrastructure, phase out quantitative easing -- but even with all that we will still be below historic norms.
There is one viable option that deserves more attention -- the private sector. There is a lot more business can do to encourage growth, if only given proper encouragement. Corporations are sitting on a vast accumulation of cash that could be used for capital investment, employee development and R&D.
In earlier times, the interests of corporate America were deemed synonymous with those of the nation. "What's good for General Motors is good for the U.S.A. and vice versa," said GM Chairman Charlie Wilson during hearings to confirm him as Secretary of Defense.
But that has changed at least partly in response to the influential teachings of economist Milton Friedman who contended the prime directive of public corporations should be to enhance earnings for the benefit of shareholders. Within that context, it only makes sense for corporations to do what they have been doing -- reduce payrolls, send jobs overseas, chop pay and benefits, economize on R&D, buy back their own stock, spend money on acquisitions instead of expansion and development of new products, eliminate support for community and charitable services -- in sum focus on maximizing shareholder value in the near term.
We need to change the tax and regulatory incentives that now reward corporate leadership for short-term thinking. CEOs today make most of their money from stock options, which means they are highly motivated to keep the stock price up even if it means shortchanging long term objectives. Providing incentives to CEOs to think and act in the long term would be reflected in greater investment in plants and equipment, stepping up the re-shoring process now underway, hiking funding for R&D and more investment in employee development.
Congress and the Fed can help encourage this shift of priorities, and I would like to see trade associations, think tanks, and public interest groups rally behind a movement to promote a change in the dynamic of corporate leadership in favor of long term investment in the future.
If we are to remain a prosperous nation in which everyone can reasonably aspire to a better life, we have to get more money into the hands of consumers and foster confidence among workers that their jobs are reasonably secure and that they can look forward to a brighter future. Corporate CEOs can and will help make this happen - if they have incentives to do so.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking enagements. October 2014