When economic historians come to write the book on the first great depression of the 21st century, squeamish bankers, politicians and credit ratings agency executives might want to skip the chapters dedicated to their contributions.  After four austere years, corporate bosses – who’ve enjoyed inflation-shattering pay rises throughout – might want to think about unlocking the mountains of spare cash they’ve been hoarding or face a chapter on how their failure to invest for the future helped extend the downturn.

After Lehman Brothers imploded in September 2008, global stock markets tumbled in sympathy. Within just a few months, both the Dow Jones and the FTSE had mislaid over 30 percent of the value of shareholders’ funds. This made 2008 and 2009 regrettable years if you were forced to collect your pension.

With revenues remaining flat or in decline, and despite an uncertain outlook for the global economy, the major stock markets have made a remarkable recovery – both the Dow and the FTSE are now higher than they were three months before Lehmans dropped the bombshell (see chart).


The markets have recovered recessionary losses. Investment needed to maintain momentum.

This tells us that the member companies have done an admirable job of cutting jobs, slashing costs and addressing inefficiency.  It suggests they’re also making creditors wait a little longer to get paid and trading any losses incurred in the immediate aftermath of the crash against current tax liabilities. Perhaps more worrying is that most corporates have also significantly curtailed new investment programmes, choosing instead to hoard the cash.

In May this year, Deloitte estimated that public companies in the UK were hoarding £64 billion of surplus working capital on their balance sheets.  This cash mountain is fuelling dividend growth (up 17% in the last two years with further rises predicted this year), while directors await better odds before making new investments. The odds will only improve when confidence makes a comeback.  The catch 22, of course, is that investing some of that corporate cash mountain would help entice confidence back out of hiding.

In other words, it’s not just the banks that are starving the economy of liquidity and even a competent government (were one available) can’t be expected to deliver business confidence on its own.

We’ve had four years of corporate hunkering down.  In the same way that you can’t spend cash twice, you can’t save the same costs more than once.  So in order to continue to improve shareholder returns in the near to mid term future, businesses need to start investing again now.

But that, we’re told, requires confidence.  Quite right.

With unemployment unsustainably high, tax proceeds declining and the government deficit expanding, maybe now is the time for corporates to invest some of that cash.  It could illustrate their commitment to corporate and social responsibility more strongly than any environmental initiative or charitable good deed.

So go on, big corporate boys and girls.  Open your wallets and buy the country a slice of confidence.