UK and US Businesses and Economies are paralysed by weak confidence. By Stephen Archer, business analyst and director at Spring Partnerships

I am seeing repeated evidence of not only a general weak confidence in the economy but more seriously a weakening self confidence on the part of business leaders. This is manifested by them deferring even decisions that have little or no cost implication. Business leaders are sitting on their hands – as if hoping that the storm will pass and that they can ride on the coat tails of the sunnier economic climes to come.  There are two clear manifestations of this.

Firstly, UK and US corporate are sitting on more cash in their balance sheets than at any time in history. In the US case, the figure is $20 trillion. That’s 50% more than the staggering US debt of $14.3 trillion. No wonder Obama is imploring businesses to invest and hire. This is a remarkable and unwelcome state of affairs. Corporates are taking the view that cash is the safest insurance against any further economic shocks. This is to damage the economic cycle. The wider economy is lacking the growth opportunity that it would otherwise have.

Incentives as well as political pressure will be needed to break this cycle before it causes long term damage. The second manifestation is that M&As are occurring at a very high level. Company cash is being used on a higher number of deals than the economic conditions would suggest would be likely. Why? Again, it’s a form of protectionism and with cash can come growth through acquisition. However, acquisitions do not add value to the economy, indeed they usually lead to shrinkage as the combined resources are consolidated. M&As rarely lead to net aggregate growth. They do however make CEOs look good and shareholders get an extra hope kick.

Investment banks are of course a key driver in this behaviour – they are doing very well from M&As. Meanwhile, innovation, organic growth drivers and performance progress from good leadership are taking a back seat. This will lead to reduced global competitiveness and a sapping of the enterprise culture. Clear thinking is needed on this and it is incumbent on boards and shareholders to wake up to the unfolding disaster. The problem is currently being ignored – mainly because very few recognise it. Engagement of management is vital to increase performance and externally focused enterprise initiatives. Leadership is losing its grip on its own raison d’etre as well as the purpose of business. It’s as fundamental and serious as that in my view.