As we know, the U.S. is still stuck in a capital spending drought. According to my calculations, nonresidential business investment in the first quarter of 2011 was still 23% below its long-term trend. By contrast, nonfarm employment is about 8% below its long-term trend.
But there are some companies that are still investing in the U.S. As part of a new paper for the Progressive Policy Institute, I identified America’s “investment heroes”: The companies which are the leaders in domestic capital spending. Here’s the table from the paper:
In 2010 AT&T was the domestic capital spending leader, by a wide margin. Verizon was next, followed by Wal-Mart. These are companies that invested huge sums into the domestic economy, at a time when many other companies were still holding back. Out of the top seven “investment heroes,” 3 were telecom companies, 3 were energy companies, and 1 was a retailer. [Before you ask, I'm not ready to release the rest of the list yet. Some companies break out their U.S. vs non U.S. capital spending, but many don't, so it takes time to estimate and verify the breakdown based on other financial data ].
Why is this important? We at PPI see long-term economic prosperity as resting on a three-legged stool: Investment in physical capital, human capital, and knowledge capital. Higher levels of investment improve the productivity of U.S. workers, which in turn should show up as higher real wages and greater international competitiveness. Or to put it another way: Without strong capital spending at home, the U.S. economy will sink into irrelevance. *
The overarching aim of economic policy should be to encourage all three types of investment, since all are essential for long-term prosperity. In particular, those companies which continue to invest in the U.S. need to be acknowledged for their contributions to the domestic economy, especially when other companies of equal size are investing much less at home. I wouldn’t go as far as to give them a medal, but let’s give them their due. Rather than resorting to financial trickery, these investment heroes are making money the old-fashioned way–by spending on productive long-lived assets which will generate economic benefits for years to come.
*Some might argue that the U.S. has been able to generate good productivity gains since 2007 without capital spending. But as regular readers of this blog know, I am skeptical of the stunning productivity gains that the official statistics seem to report for many industries in 2007-09, the middle of the financial crisis (see this post here, for example).