Cash Is King: Apple's Hoard Reveals Corporations' Increasing Unequality

Much has been written about the growing income inequality among individuals, the infamous 1% and all that they represent.

But it turns out this is reflective of broader changes in the economy that affect enterprises, as well.

The name given to this originally was 'the winner take all' economy, the notion being that there were winners - and then everyone else. Apple is perhaps emblematic of this, when it was revealed that fully 10 percent of the cash held by US corporations was actually held by only one enterprise: yes, Apple.

The significance of that number goes beyond the mere fact that some companies hoard cash for whatever reason. It is probable that some feel earning interest on the pile is safer and more productive than investing it in uncertain initiatives (as if there were sure ones...well, beyond whatever Goldman Sachs may have devised recently). Even startups are no longer immune. The days of 'small business' growing slowly by dint of hard work and determination are largely the stuff of myth: now its big idea, small company, huge IPO and on to greatness.

Some of this, as the following article explains, is the result of the low staffing to wealth generation ratio possible in tech. Some of it has to do with the scaling effect of globalization. But some of it may have to do with an inherent bias in tax laws, fiscal and monetary policies that either purposely or inadvertently benefit the large and/or well-established. In a nation which, for over a century, the concept of anti-trust has been a deeply ingrained matter of public policy, it will be interesting to see whether there is a point at which it is decided that enough is too much. JL

Lydia DePillis reports in the Washington Post:

Apple's domination reflects an increasingly unequal cash distribution across American corporations generally.
We've known for a while that Apple has a mind-bogglingly large stockpile of cash: $147 billion, as of the latest count. We learned that it's also a huge chunk of the total amount of cash held by U.S.-based companies overall, not including banks: About 10 percent, according to a report from Moody's.
First of all, it's important to note that cash reserves have been rising steadily over the past five years, as corporations seek to shore up their reserves -- a behavior known as "liquidity preservation" -- in an uncertain economic environment. "The financial crisis really highlighted a greater need to get better control of your own financial future," explains Moody's analyst Richard Lane.

Ballooning piggy banks. (Moody's)

Another factor may be the compounding effects of globalization. Companies are making more and more of their profits overseas, and lose a lot of it to the U.S. Treasury when they bring that cash back home, which they have to do in order to paying dividends and doing share buybacks. So they've tended to sit on it instead -- and now, 61 percent of the total stockpile is stored outside the U.S.
But the ballooning reserves haven't been equally distributed. The 50 richest companies accounted for 64 percent of the $1.48 trillion total cash pile as of mid-2013 -- up from 61 percent last year, 59 percent in 2011, and 54 percent in 2006.

And the one percent get wealthier. (Moody's)

What's going on there? Well, it's not just Apple: The top four are rounded out by Google, Microsoft, and Cisco Systems. Lane says rising inequality has a lot to do with the emergence of tech companies that are both extremely profitable and have relatively low staffing costs and capital expenditures (compared to, say, Walmart, which is number one on the Fortune 100 but has only the 28th-largest cash pile). They also tend to pay lower dividends and do fewer buybacks, keeping more of it to themselves.
It's not by any means a perfect analogy to the economic inequality that's been growing in the United States for decades now. But it's interesting to see that corporate America isn't immune.