What is in this article?:
- The Dangerous Decline in Investment in Equipment and Software
- Missing Facts on Capital Investment Status
First, the failure of the U.S. federal government to put in place a robust national competitiveness strategy has led manufacturing firms to either look to other, more competitive countries when it comes to choosing locations or to lose market share to companies located in other nations.
One of the most important, if little publicized, intermediate economic indicators is business investment in new equipment and software. This type of investment drives productivity and competitiveness, not just in manufacturing firms, but in the economy as a whole.
It is therefore troubling, to say the least, that the trends in investment in capital equipment are down, not up.
In the 1980s, businesses in the United States increased their fixed capital investments by 2.7% per year on average, and in the 1990s, that figure rose to 5.2 % annually.
But, since the year 2000, capital investment grew a paltry 0.5% per year. Even worse, as a share of GDP, investment in the 2000s was a full 30% lower than in the 1980s.
This is bad news for businesses, workers and consumers. Investment in new equipment and software is the primary means through which innovation spreads throughout the economy. Innovations are embedded in new capital, and investment in that new capital is what facilitates the adoption of those innovations.
Whether embedded in new personal computers with touch screens and solid state drives, or in new cotton harvesters with microwave sensors and wireless data communication capabilities, innovations—and in particular information technology (IT) innovations—find their way into “new” and “old” industries alike. Therefore, failing to invest in new capital equipment leads to less innovation adoption causing productivity growth to stagnate and competitiveness to decline.