The gist of the argument is that statistically, U.S. productivity is not keeping up with the pace of the past because businesses (especially large, public companies, in this case) are not keeping up their investments in their workers. The growth of capital spending (basically, equipment and software) fell 25% during the recent recession and has never recovered to where economists had predicted. In fact, growth of spending is about 30% behind the pace of five prior recoveries.
It appears that whether it’s a machine or a computer or a forklift, workers are stuck using outdated machines. Equipment, including software, is aging. Companies are preferring to take their profits and put them into dividends and stock buybacks, instead of those things that will help their firms grow and become more competitive.
The article points out that “over the past 30 years, no form of capital has made workers more efficient than the computer.” The rate of such growth however has fallen from 40% between 1995 and 2000 to just 7% between 2007 and 2012. Meanwhile, cash on balance sheets has increased by 70%, and profits are at or near all-time highs.
One spokesperson at Deloitte summed it up best after surveying CFOs: “We’re just seeing an abundance of caution.”
However, notes Businessweek, the situation could be set to change. For the past four months (as of May) “companies with high levels of capital spending have outperformed those with low levels.” Up until now, the reverse was true. Companies with large share buybacks were among the best stock market performers over the past two years. But this year, they’re among the worst, indicating that a slow turnaround in reinvestment may finally be occurring.
This turnaround is poised to lay the groundwork for higher productivity growth, the article notes. And workers may finally get those new computers.