Monday, September 13, 2004

Stephen Roach points out today that US capital knows it is foolishness to lay out big investments in this economy.
On the surface, there can be no mistaking the recent accelerated pace of business fixed investment; average annualized growth of 11% over the past five quarters stands in sharp contrast with a 6% annualized contraction over the first six quarters of this recovery. But these are �gross� investment figures, representing the sum of outlays on new capacity as well as those earmarked to replace worn out or obsolete capacity. It turns out that it�s the latter portion of capital spending budgets that is driving the overall trend. According to US Department of Commerce statistics, in 2003, net investment by US businesses -- the portion of capital spending that goes to the expansion of productive capacity -- remained about 60% below levels prevailing in 2000. Like the hiring decision, Corporate America remains exceedingly cautious in expanding the scale of its domestic production base.
Monopoly capital -- just about the only kind now in America -- is especially cautious about overaccumulation, having apparently learned the lesson of the late 1990s. The globalization of production is helping to locate what capital investment is occurring abroad rather than in the US proper. Roach thinks that data on falling real wages, limited capital investment and dramatically rising productivity suggests
an unusually intense strain of slash-and-burn cost-cutting -- tactics that could lead to increasingly �hollow� companies that will be unable to maintain market share in a growing global economy.
That's true only if the companies are American and not global, which increasing they are not. The companies won't be hollow so much as the US economy will be.

O brave New Economy, that has such people in it!

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