The end of always?

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There is nothing new about the fact that big businesses in the UK are sitting on enormous piles of cash.  Dylan Jones Evans is amongst those who’ve drawn attention to it in the past, and I posted on that last year.  It looks as though at least some around the cabinet table are starting to understand the issue as well, given Philip Hammond’s attack on the businesses concerned this week.

I’m not at all sure, though, that criticising the leaders of those businesses for being unprepared to take risks is the most constructive or sensible response.  The question we need to ask is whether the investment opportunities are there or not; the criticism being voiced assumes that they are.  I suspect that they might not be.

There are opportunities to spend money, of course.  They could always take over, or buy into, other companies either at home or abroad, and doing so would increase the size, turnover, and maybe even profits of the companies concerned.  But it would just move the surplus cash from one set of accounts to another; it isn’t really investment in growth.

But what if the opportunities for real expansion don’t actually exist?  There are plenty of economists who would argue that to be the case at present, and maybe the case for some time to come.  What few are really planning for though is a scenario in which that remains true for the long term.  That would require a major shift in economic thinking.

History to date shows that the economy ‘always’ recovers from a recession and resumes its long term growth path.  But the fact that something has ‘always’ happened in the past is no guarantee that it will happen in the future.  Sooner or later we will reach a limit to ‘perpetual’ economic growth – who’s planning for the possibility that it has happened?