Tags: Hobbs | CEO | invest | buyback

CNBC's Hobbs: CEOs 'Failing to Invest for Jobs and Growth'

Friday, 03 Jan 2014 07:18 AM

By Dan Weil

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CNBC Anchor Simon Hobbs takes CEOs to task for failing to invest their companies' profits into productive activity.

"CEOs are currently extracting record profits from the economy," he writes on CNBC.com. Profits totaled 11.1 percent of GDP in the third quarter, far exceeding the average of 6.1 percent since 1929, according to the Commerce Department.

"But this current generation of CEOs is failing to take risk," Hobbs writes. "They are failing to invest for more jobs and growth. And if they don't — who will?"

Editor’s Note:
Opinion: Retirees to Be Hit With Social Security Cuts

That failure by CEOs is helping to keep unemployment high, he argues. The unemployment rate was 7 percent in November.

The massive corporate profits are turning into cash on companies' balance sheets, Hobbs says.

Non-financial companies now possess $1.8 trillion of cash, according to the Federal Reserve.

"That's a major chunk of this nation's vital productive resources, accumulated over decades of capitalist endeavor, now lying completely idle."

And the cash that is being spent isn't necessarily going to productive use, he explains. Companies spent $445 billion buying back their own shares in the 12 months through October, according to S&P Dow Jones data.

"Share buybacks are of zero productive value," Hobbs says.

"Capitalism gives CEOs, acting for their shareholders, a pivotal role in leading economic recovery through risk taking," he adds.

"Five years in, it's now time for this generation of CEOs to step up to the plate, before the rest of society starts to demand a change in the rules."

Some others agree with him. "It's not just the money," going to buybacks, William Lazonick, director of the Center for Industrial Competitiveness at the University of Massachusetts at Lowell, tells The Washington Post.

"It changes the strategy of the company. It undermines innovation."

Editor’s Note: Opinion: Retirees to Be Hit With Social Security Cuts

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