I had an interesting conversation today with the CEO of Honeywell, David Cote. As head of a $40 billion tech and manufacturing conglomerate, he has about as good a read on the direction of the global economy as any business leader out there, and what it means for US companies and consumers. Here are three fascinating things I took away from our talk:
The 2% economy isn’t anything new. The U.S. has been here for the last 30 years or so. Cote pointed out that the only times that America grew steadily beyond 2% was when we were taking on substantial amounts of debt to fund new growth. That’s not happening now, so 2% really is the new normal. Actually, it’s also the old normal. Cote, like many CEOs, believes only a major fiscal stimulus like a big infrastructure program will change that dynamic.
Despite slower growth, China is going in the right direction. Cote is in close touch with the Chinese leadership and was part of the Seattle delegation that met president Xi Jinping. “He’s the real deal,” says Cote, “a true reformer.” So why is he throwing tens of thousands of people in jail? “China really has a lot of corruption to address,” says Cote, who believes the campaign serves a legitimate reform need. “The people we employ in China and many average people on the ground are just happy to see someone addressing these issues for the first time.”
The big question is how far up the power chain the purge will go. And what about the bifurcated policy decisions this summer, during which time the Chinese leadership spent hundreds of billions of dollars to buoy financial markets, then let them fall, triggering a global market correction? “It wasn’t a great policy reaction, but they are learning. And they learn quickly. I don’t think you’ll see them make that kind of mistake again.”
The US tax code must be reformed if we want companies to keep more of their cash horde at home. “We [Honeywell] have about $10 billion in cash, and $9 billion in debt,” says Cote. “All the cash is abroad, and the debt is in the U.S. The reason for that is all my shareowners are in the U..S; any dividend I pay, any stock repurchase I do, must be done with U.S. generated cash. With 50% of my sales outside the US, I can’t use it for the U.S. stuff I do. I have to borrow to do that. It doesn’t make any sense.”
Cote would like to see Simpson Bowles style tax reform, and he favors a tax repatriation holiday, but doesn’t expect it to create a huge investment in America’s Main Street as some politicians would suggest—for that, he believes, we need big reform and spending in areas like education and infrastructure.