Martin Vander Weyer
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All this talk of hammer blows to manufacturing and massacres in the shopping malls — I’ll come to those in a moment — is one reason why companies have been hoarding cash instead of investing it in new productive capacity. This is a global pattern, to be observed in companies from Apple to Siemens as well as the leaders of the FTSE 100, and in such turbulent economic times it’s not difficult to understand the boardroom mentality behind it. As one fund manager observed, ‘First and foremost, this is not a time for being heroic.’
But the habit is particularly prevalent in the UK, where public companies were reckoned by Deloitte last year to be holding more than £60 billion of ‘excess working capital’, while business investment was running at record low levels. Sitting on cash does not create skilled jobs or inject adrenaline into the wider economy; the hoarding itself is often achieved by delaying payments to smaller suppliers, making survival tougher all the way along the food chain; and research shows that the shares of companies holding excess cash tend to underperform the market, doing no favours for investors and pension funds.
The alternatives of special dividends and share buy-backs are controversial too, and governments can’t force companies to spend their money on machine tools and research laboratories. But they can influence corporate decision-making through large-scale investment tax credits and George Osborne has failed to do that so far, preferring instead to tinker around with marginal measures, some of which have come back to bite him. I’m intrigued by the argument put forward in a recent Prospect article by former Monetary Policy Committee member Adam Posen, who says Osborne should go further, changing governance rules so that cash mountains that are neither invested nor returned to shareholders as dividends over a two-year period are ‘automatically subject to a vote at the AGM’. One thing’s for sure, sustained recovery will only come when companies find both the confidence and the incentive to think bigger and bolder again.
‘Film bonanza’, begins an email from the cinema manager at what I like to think of as the world-famous Helmsley Arts Centre, cultural hub of my part of Yorkshire. Box-office sales for our new season have been breaking records, and one sell-out extra screening of Skyfall set a new benchmark for online bookings at 55 per cent of the total. Meanwhile, perusing my Amazon account, I see I have shopped there almost once a week for the past twelve months and seven times since Christmas, accumulating piles of (mostly secondhand) books and CDs, regular orders of printer ink, a smart new briefcase and even some bedding.
I tell you all this because, as the snow begins to settle, commerce in the high street — mine and yours, I suspect — looks all but dead. Some shops haven’t bothered to reopen since New Year’s Eve, and probably never will; HMV music stores may soon follow Jessops’ camera shops and Comet’s electrical emporiums towards oblivion. This week began with ‘Blue Monday’, supposedly the most depressing day of the year, and a weather forecast to match. American sources seem to think the low point falls next Monday — but who cares, either way we should all soon start to feel better about the year to come, and to realise that consumers are spending eagerly online if not in person, the best factories are thriving, and investment prospects are selectively improving. Not-so-blue Tuesday is coming.
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