Curious Capitalist

Is Buffet Betting On America, or Just Its Exports?

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Warren Buffet focuses on exports for growth (Jason Lee/REUTERS)

Leave it to Warren Buffet to be the biggest America bull. The legendary billionaire investor gave a pep talk on our country’s prospects to investors in his annual shareholder’s letter, arguing that the nation’s “best days lie ahead” and pledged to pour record amounts of money into the US economy. He’s already put his money where his mouth is. His $26.6 billion purchase of Burlington Northern Santa Fe railroads in late 2009 has worked out well, and Buffet says he’ll spend $8 billion on other such deals this year.

But what, exactly, is Buffet buying? I’d argue that it’s not so much the prospects of our country as a whole, but rather, the ability of our best companies to sell more and more of their goods and services overseas. Here’s why:

If you think about it, Burlington Northern was more a gamble on the future of American exports than the future of America itself– if we make more stuff, everything from solar panels to bags of grain, we’ll need more rail cars to ship it to ports where it can be sent to faster growing countries like China and Brazil.

On that front, there’s plenty of evidence that we are doing well, and that we will continue to. American exports were up even during the recession, and Global Insight chief economist Nariman Behravesh believes that they’ll rise as much as 11 percent a year between now and 2013. The current bull-run in the S & P (the 12th longest on record, in fact) also reflects this trend; the biggest companies are the ones that are doing best, and that’s because they are the ones that export to the most to faster growing emerging markets.

A weakened dollar has helped quite a bit on that score, as have continued productivity gains, which always give Americans a bit of an edge over Europeans. In fact, there’s a whole group of economists that try to put a numeric value on our “can do” attitude versus the “yes, but” outlook of Europeans. My personal feeling is that at least some chunk of the difference in historic growth rates in the US versus Europe is down to an American fear factor that comes from an almost total lack of social safety net. When healthcare is tied to your job, you might tend to work a lot harder (this is not, by the way, an argument against nationalized healthcare – I think it would help U.S. competitiveness in the long run). But it’s no wonder that between this and the ponderous way in which the Europeans are dealing with their own debt crisis that Buffet came back from a recent Continental buying trip empty handed.

To me, the biggest question about Buffet’s vision is whether his belief in the success of America’s companies will actually translate into better days at home for the American worker. I see little evidence so far that this is the case, at least in the short term. Indeed, I think one of the most worrisome economic trends of our time is the growing disconnect between the fortunes of American companies, and those of American workers. Despite the bailouts, bankers are funding fewer real businesses than ever before. American companies balance sheets are looking great, but they aren’t hiring – and as the CEO of 3M just warned us, if these big firms have to pay more taxes or jump through more regulatory hoops, they’ll simply send jobs abroad.

Numbers show that they already are. Employment growth by US multinationals abroad jumped 22.6 percent between 2002 and 2008; it grew just 4.9 percent at home. Good thing that Mr. Buffet seems to be buying into US companies that are all about exports, because if things remain as they are, Americans certainly won’t have much more to spend on anything here at home.