There is a solution to some of the U.S.’s biggest economic challenges: unemployment; questionably adequate GDP growth; insufficient funds to repair aging infrastructure, and dependence on fossil fuels. The answer: Corporate America itself.
U.S. public companies as a whole have plenty of cash, but it is not being put to good use for the economy. For example, companies spent close to $1 trillion buying back their own shares in the last 20 months, an activity with only the faintest impact on jobs and GDP.
Corporations could have a major impact on the economy, and earn decent returns, in at least four ways:
1. Home loans. Companies could assist employees with their housing needs through loans while lending polices at banks remain tight. Helping with housing will be a perk that improves hiring and productivity, and the company can receive interest income from the loans, secured by the property.
Such a program is not for every company, nor every employee. However, employers know their employees and their prospects better than a bank. Those caught in the “student debt trap” could be prime beneficiaries. Apartment developers, now reluctant to build for the middle class, could receive rent guarantees for this group of employees and others.
Pimco works to keep investors following Bill Gross's exit
(3:05)Pimco executives hit the phones to persuade clients to stick with the firm, even as Wall Street traders placed bets against its holdings. Greg Zuckerman joins MoneyBeat. Photo: Getty.
Employee housing initiatives could put large numbers of the unemployed back to work and ensure healthy GDP growth. Home building once was 6% of GDP; it is just 2% now. Well over half of all homes are reported to be “unaffordable” in many major markets; in others where prices have risen dramatically, more building will keep valuations in check.
Many of the unemployed can work in various aspects of home building, while other jobs will be created by the effect of the economic multiplier. It is a fantasy that the unemployed will all be retrained for high-tech or other positions in the new economy.
2. Small business lending. Companies could adopt formal agendas for lending to small businesses where the banks are failing, again on a purely voluntary basis for businesses that have the cash. This can begin with what London Business School Professor John Mullins calls “the customer-funded business.”
3. Infrastructure. Barring emergency lending from Congress, the Federal Highway Trust Fund would have run out of money in September, bringing a halt to the nation’s highway projects. Recently, the UCLA campus was flooded by a burst in a 100-year-old water pipe — and such incidents are only the beginning. Participating in public-private-partnerships to build or repair roads, bridges and other key parts of the U.S. infrastructure is a way to substitute a corporation’s better balance sheet for the poor ones of local, state and federal governments — and make a profit.
4. The ‘green economy.’ In “Creating Climate Wealth: Unlocking the Impact Economy,” entrepreneur Jigar Shah, founder of SunEdison Inc. SUNE, -3.18% predicts that climate control is a $10 trillion market now that Wall Street backs “the service model” where investors pay for the infrastructure, such as solar panels, and the user and investor share in the return from reduced electricity bills over time.
Tapping corporate balance sheets to use dormant capital to solve our economic challenges would be a celebration of free-market principles, devoid of government involvement and partisanship, with “win-win-win” results that symbolize national pride and priorities.
The plan is win-win-win because it promotes jobs, especially for the unskilled; offers good returns to companies, plus more satisfied employees and other constituencies, and provides societal benefits — namely better homes for the less-wealthy, capital for entrepreneurs, repairs for aging infrastructure, and funding for renewable energy.
Investment firms — pension funds, insurance companies, sovereign wealth funds and large family offices — command $125 trillion in assets globally. While lacking the specific business skills of corporate manager, they could certainly participate in these corporate initiatives. Companies of the world, listen up!
