The uncertainty trope: what exactly are CEOs waiting for?

June 5, 2012

Corporate America is sitting on massive amounts of cash. But companies are not investing that capital back into their businesses in search of growth. Instead, yields on stocks continue to climb at a time when America needs jobs not dividends.

So why aren’t companies investing for growth? One answer ringing from the C-Suites of corporate America (and their Washington megaphone, the Business Roundtable) is uncertainty. Specifically, uncertainty brought on by government actions (regulation) and inaction (debt ceiling and tax expiration procrastination).

Verizon’s CEO Ivan Seidenberg has been on the warpath against gummit-caused uncertainty since 2010, saying it makes it “harder to raise capital and create new businesses”. Cisco’s John Chambers agrees with him, as does FedEx’s Fred Smith and AT&T’s Randal Stephenson. The word uncertainty appears 10 times, each negative, in the Business Roundtable’s economic plan, “A CEO plan for jobs and growth”.

The problem with the idea that uncertainty is killing the economy is that it’s false. Bloomberg’s editors do an admirable job dismantling the argument. As they point out, you can’t cry uncertainty after a bill has been passed and signed into law (as is done with respect to health-care reform). And despite the talk of over-regulation, President Obama has issued fewer regulations than George W. Bush did in his first three years in office. Sure, Congress has acted counterproductively at times, but interest rates and inflation remain low. Beyond that, the Business Roundtable praises the US for “remarkable social stability, the world’s finest legal system, a large and sophisticated internal market, abundant natural resources, and efficient capital markets”.

The question remains what kind of certainty these CEOs are really after. Looking at two of companies doing some of the more high-profile complaining — AT&T and Verizon — is instructive. These are large, dominant players in mature industries with high barriers to entry. But over the last decade, neither company has out-performed the S&P 500. That makes sense, given what they sell and how they sell it. Despite being in the telecom/tech business, the bulk of these companies’ business is far from the cutting edge. That’s the context for Verizon laying of 1,700 employees in its wireline business, where the all-too-certain demise of old-fashioned land lines was the job killer.

If you can’t remove uncertainty that isn’t there, lower rates any more, or reduce non-existent inflation, there’s a strong case for fiscal stimulus. But since these CEOs have Peterson Institute-ingrained aversion to deficits and debt, they aren’t advocating for that. Rather, this crowd seems to be holding out for corporate welfare: changes to rules and regulations that would help specific companies outperform the market.

America’s biggest companies want a specific kind of regulation that proactively establishes their company’s ability to generate value. For instance, decreasing the time it takes for energy and mining companies to acquire permits and give responsibility for approval to a single agency: a single regulator on a tight deadline is all the easier to capture. Or revamping the corporate tax code and then making all revisions permanent: locking in the incumbents’ lobbying advantage in perpetuity. Even some of the more milquetoast proposals, like increased spending on working training, can be read as calls for the public to spend on an item that is well within the interests and means of the private sector to do.

Companies are sitting on their hands and not investing in their businesses while the economy wilts, waiting for the kind of low-risk, above-market-return investment scenario that rentiers love. After four years of dealing with the after effects of a crisis brought on in part by providing an the securities business with precisely those type of opportunities, that should be off the table.

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