El-Erian: Policymakers must be obsessed with growth
Mohamed el-Erian, chief economic adviser at Allianz, has urged leaders to step in and ensure companies are investing in growth to avoid a path that could end in global recession.
He said politicians must avoid doing nothing as the global economy nears a "T-junction".
"Be obsessed with growth," he told BBC Radio 4's Today programme. "Genuine inclusive growth."
"If they do that, they will be surprised by their impact."
Mr el-Erian, who is also chairman of US President Barack Obama's Global Development Council and former chief executive of bond giant Pimco, said money which could be put to good use was idling on companies' balance sheets.
"Companies are sitting on a ton of cash," he said. They were spending it on dividends and buying back their own shares, he added.
If they instead spent it on real economic expansion, such as new factories and hiring workers, it would "turbocharge" growth, he said.
"I think we are heading towards a T-junction" as experimental central bank policy comes to an end, he said.
"The wrong turn means the return to global recession, greater financial instability, greater inequality, greater political dysfunction and higher tensions on the social side."
Politicians needed a "comprehensive" set of policies to avoid that scenario, he said.
Companies in Europe, the Middle East and Africa were sitting on €870bn (£660bn) at the end of 2014, according to Moody's Investors Service, up 6% from a year earlier.
Mr el-Erian is not alone in wanting companies' cash to be better spent.
In September, Swiss bank UBS said in a note: "Companies in many parts of the world have prioritised dividends and buybacks over capital spending or research and development.
"In individual cases, this may make sense, but viewed as a whole, it poses a significant challenge for economic growth.
"For each dollar that the largest US public companies devote to investment, around nine dollars are handed back to shareholders.
"Over the last two years, corporate spending on buybacks has climbed 45% in the US, with a 21% rise in dividends."
Capital investment, "by contrast, has climbed just 11%".
'Playing different tune'
Mr el-Erian also warned that a comprehensive plan from central banks and other authorities such as the International Monetary Fund was missing, as some policymakers, such as those in the US, raised interest rates, while others, such as in Japan and Europe, cut theirs.
They have "enormous trouble in communicating", he said. For example, there was no guidance on the balance of risks to the US economy in the latest Federal Reserve policy statement, he said. "That is a huge statement and a consequential one," he said.
"I've never seen such a low level of global policy co-ordination," he said. "Each part of the global orchestra is playing a different tune."
When asked about risks in China, he compared the jump in stock prices there with the bubble in home ownership in the US in the run-up to the sub-prime mortgage crisis in 2008. Both stock ownership and home ownership were seen as a social good and they "went too far", he said.
But, he said, China was going through "the typical transition of what development economists call the 'middle income' phase and what I call going from a teenager to being an adult".
No country had managed the transition to a developed economy "without some decline in the growth rate", he said.
"The good thing about the Chinese is that they learn," he said. "I think people will be surprised by the ability to soft land" or avoid a shock, he said.