Demanding Demand

There is no question that the recent recession has been the deepest and most painful since the Great Depression, with 8.4 million jobs lost and peak-to-trough decline in GDP of 3.8 percent. Today, however, we are seeing some improvement. In the last six months the private sector has created nearly 600,000 new jobs and business investment spending for equipment and software -- the biggest investment category -- has increased by more than 6 percent. Most evidence suggests that America's largest companies are leading the way toward recovery, as we begin to grow the economy at a pace we hope will accelerate in coming quarters.

Yet, amid the uptick, some in the press have begun wondering why non-financial companies have "piled up" nearly $1.84 trillion in assets -- a significant jump over last year -- instead of spending more of these reserves on investments or hiring. Is it that businesses are acting selfishly? Are they scared? It's a legitimate question.

First, we must remember that the economic recovery has been anything but robust. It is both fragile and tenuous, and the prospect of a "double-dip" recession is very real -- and worrying for businesses. While there's no denying that our country is on stronger ground than we were a year ago, there is more that can and should be done to ensure that the recovery continues. Just as many Americans are saving more because they perceive an uncertain economic future, businesses are acting with caution to ensure that they are making good investments.

Investment decisions are driven by a host of factors, including projections of demand growth, capital costs, technology improvements and capacity utilization (reflecting the pressure on current productive capacity). Although capacity utilization has been increasing, the rate remains at a low level, which offers little incentive to invest. Meanwhile, fallout from past overbuilding and the continuing difficulty of businesses to secure credit for construction projects has forced a precipitous drop in spending for new structures. Another significant issue confronts the electric utility sector, an important investment category. Many utilities want to build new capacity and have the financial resources to do so, but they face great uncertainties about the type of generation they should build as Congress debates energy and climate legislation. As a result, many utility projects sit on the drawing board until the rules of the game are clarified.

Creating jobs is a top priority for the the Business Roundtable, an organization of U.S. CEOs that I belong to whose goal is to promote pro-business public policy. We're encouraged that businesses have helped create more than a half million jobs since the beginning of the year, but there is much more work to be done. At a fundamental level, hiring decisions are made to ensure a company has the human resources it needs to meet expected production requirements. To achieve higher production, economics dictates that a business must experience higher demand from consumers. Businesses are simply not yet confident that demand is on a sustained upswing and, as a result, are acting cautiously - hiring a worker only to have to lay him or her off a month later is both cruel and economically irrational. We're hiring, to be sure, but we want to be doing more of it.

While the private sector needs to take the lead in creating new sustainable jobs, there is a role for policymakers to play in creating the conditions necessary for businesses large and small to ramp up investments and hiring. Let's be clear -- the current legislative agenda, which includes an abundance of evolving regulations, is not going to help. Instead, it's critical that Congress and the Administration fight for American jobs and domestic growth by reducing uncertainty and supporting legislation that is cost-effective and encourages efficiency.

It will be the private sector that leads our nation back to a path of long-term prosperity. Businesses across America will continue to hire and invest each and every day -- it's our bread and butter. Working together in partnership with the government, we know we can boost these investments at greater speed and provide more better-paying jobs for American workers. Businesses and policymakers ultimately have the same goals: to build a robust economy and to ensure long-term job creation for the American people.

We need to work together in this fight, day after day, for prosperity and growth.

Steve Odland is Chairman & CEO of Office Depot, Inc., and serves on the Executive Committee of Business Roundtable, an association of more than 160 CEOs of leading U.S. companies.