Restoring America's Lagging Investment in Capital Goods

This report analyzes U.S. business investment the past three decades. Business investment in capital equipment, software and structures grew by 2.7 percent per year on average during the 1980s and 5.2 percent annually during the 1990s. However, from 2000 to 2011 it grew by just 0.5 percent. As a share of GDP, business investment has declined by over 3 percentage points since the 1980s. Moreover, investment that was once broadly distributed across industries is now much more concentrated in a few select domestic service sectors, while industries that once powered U.S. investment growth and global competitiveness have seen sharp declines. This decline in investment negatively affects U.S. productivity growth and competitiveness. The authors argue that “short-termism,” the growing focus on short-term profits over long-term planning by many firms, and the diminished global competiveness of the U.S. economy has contributed to declines in private capital investment. ITIF calls on Congress to establish an investment tax credit and on the Administration to create task force to investigate the causes of and solutions to market short-termism.