Companies In U.S. Reluctant To Spend

Robert Siegel speaks with Washington Post business columnist Steven Pearlstein about how big nonbanking companies have been sitting on huge cash reserves, rather than making capital investments. Pearlstein says CEOs love to blame regulation, but there are a host of reasons companies are loath to spend money.

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ROBERT SIEGEL, host:

As we just heard, many large corporations actually have plenty of cash. According to the Federal Reserve, the nation's 500 biggest companies, not counting the financial sector, are sitting on $1.8 trillion. That's more than ever before, and it's about twice what it was in 2002. So what does it mean? And various columnists, commentators and bloggers have read various meanings into that number.

Steven Pearlstein is a business columnist for The Washington Post. I asked him what he makes of the argument heard often these days from big business that $1.8 trillion is a measure of their uncertainty about taxes or regulations to come from Washington.

Mr. STEVEN PEARLSTEIN (Business Columnist, The Washington Post): I don't make much of it. There's no doubt that in the last year and a half things have changed for business. After really more than a decade of essentially writing their own regulatory rules and after a decade of declining corporate taxes as a share of GDP, things are going in the other direction. So they are naturally a grouchy bunch right now.

But that doesn't mean that just because they're grouchy about something and it is a burden on them that they - or an uncertainty that is the reason they're not spending the money. It's more of a rationalization.

Look, the big problem is there's not a lot of demand for services and goods, and there's a lot of unemployment. And that's what is the wet blanket on the economy, and that's what's causing them not to hire new people and invest.

SIEGEL: If in fact this is part lobbying, part trying to generate the argument in Washington that business needs a better environment to encourage them to spend, is it something that's going to last a few months until the end of the elections, say? Is there a political calendar driving what becomes of that $1.8 trillion?

Mr. PEARLSTEIN: I don't think so. I don't think they're that Machiavellian and manipulative. What may be driving it is the annual budget reviews at most companies. And so in the fall, they'll decide to do stuff that they might have decided not to do last fall when the economy really looked a lot weaker than it does. So some of these is the natural budget cycle.

And some of it, to be quite frank, Robert, is an appalling lack of imagination and guts on the part of these same CEOs who are complaining and pointing the finger at every else. You know, these guys are very good at cutting. They're very good at blaming others. They're a little less good at coming up with creative new products and services, and they've got a little flabby in that regard in the last few years where the focus has been on surviving and cutting, as it should had been. But they're not the gutsiest group of people in the world.

And by the way, they get into this group think which you - you know, the fact that they all say it, it's sort of like a notion that starts in the country club locker room, and everyone is nodding, and then the one passes it on to the other. And now, you know, this similarity of the comments betrays this sort of group think that is almost self-fulfilling at this point.

Look, do you hear Steve Jobs complaining out at Apple about this? No, he's busy trying to figure out how to fix the antenna and produce more of those iPads, which he, you know, he can't get enough of.

SIEGEL: Well, what do you make of the state of this idea, which as you've described it has taken on a life of its own, in your view, going from the country club, a locker room, through, well, through the Chamber of Commerce meeting in Washington, I suppose? Is it something which now affects national discussion of the economy and economic policy?

Mr. PEARLSTEIN: It does, and it's distorting it because this essentially - this fiction - has been repeated so many times that people actually believe it. You know, obviously, there are things that are increasing regulation and that might potentially increase taxes. And no one is arguing that that's good necessarily in the short term for particular businesses or industries. But that's different from saying that's the cause of they're not doing things.

It's sort of saying: Oh, don't blame us. Blame those bad guys in Washington. When in fact, most of the economic problems we have today have been brought on by poor allocation of capital by the private sector acting by itself. They did it themselves, and they're trying to divert the blame and the attention to those guys in Washington.

SIEGEL: Well, Steven Pearlstein, thank you very much for talking with us today.

Mr. PEARLSTEIN: Thank you.

SIEGEL: That's Steven Pearlstein, business columnist for The Washington Post.

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