What will stimulate spending? Advertising!

In the big push to boost the economy, says a veteran marketer, the government left out a key ingredient.

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By Bob Pittman, Fortune contributor

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NEW YORK (Fortune) -- The government's stimulus plan won't work as planned if we don't get consumers spending again. But in the nearly $800 billion package, there is one thing missing that would surely help accomplish this: advertising. To get people spending again, and the economy moving, the government needs to provide help for businesses in America to advertise their products and services.

Let me disclose that I do have a horse in this race: I'm an investor in advertising-supported businesses. I've spent a large percentage of my working career in businesses that sell advertising -- including broadcast and cable TV, radio, magazines, Internet, newspapers and direct marketing. I've also led businesses that have used these media to advertise products and services.

Having looked at advertising from both sides, I developed a healthy respect for the power and necessity of strong advertising to the success of any business.

There's a reason that America is the largest consumer market in the world: It also happens to be the largest advertising market in the world. Advertising works -- and it has been proven again and again for over a century. Every successful business spends money on advertising, everything from public relations to TV to Internet-search advertising.

But today's businesses have responded to the economic crisis by radically cutting payrolls and other expenses, which includes advertising budgets.

We are now at the lowest levels of consumer spending in recent history -- it fell at a 4.3% rate in the fourth quarter of last year, the biggest drop in nearly three decades -- and the lowest levels of advertising spending as well. There is a connection. Maybe, just maybe, some of the current drop in consumer spending is the result of cuts in advertising.

The auto companies, for example, have been dramatically cutting back their advertising for over a year now, to the point where General Motors (GM, Fortune 500) dealers are clamoring for the automaker to buy ads to reassure consumers, according to Advertising Age. While these spending reductions are certainly not the only thing responsible for the huge auto-sector decline, it's likely that they have contributed to the staggering drop in car sales.

Corporate earnings are the cornerstone of our market economy. But it's hard to make profits when you're not ringing up sales. Not until companies' earnings start increasing again will we see increased employment, higher wages, more tax revenues, fewer loan defaults and even the higher stock prices that replenish 401(k)s and pension plans.

We can debate exactly how much consumer spending is healthy -- and the pros and cons of a consuming society. However, I think we can all agree that a meaningful resurgence in consumer spending is necessary right now to get us out of this economic hole -- and advertising would certainly have a stimulating effect.

What can the government do? If the recovery program includes provisions promoting job creation, renewable energy and infrastructure improvements, couldn't it also include at least a little something to help businesses advertise more? That would enable them to connect the consumer to those products and services through awareness, excitement and information.

I'm not a tax-policy expert, but as a marketer I know that offering a new incentive would help. Ad spending is already tax-deductible as a business expense; a bigger help to some advertisers would be a tax credit for ad spending up to some percentage of prior-year sales.

Unfortunately, some consumers today simply can't spend, since they've lost their jobs or their nest eggs. This is the group which is rightfully a major focus of the current economic stimulus program.

However, there is a much larger group of consumers that I believe holds the key to our recovery: those who can spend, but aren't. They are sitting on the sidelines and waiting, even though they have the money and security to be spending. How do we stimulate them to spend again? With advertising.

It's a mistake to think of advertising merely as a cost -- it's an investment, and like all investments it can have a wide-reaching impact. Incentives for advertising need to be an important component of any plan to stimulate our economy.

Bob Pittman is a co-founder of the Pilot Group investment firm, the former CEO of MTV Networks, AOL Networks, Six Flags Theme Parks, Time Warner Enterprises and Century 21 Real Estate, as well as the former chief operating officer of America Online and AOL Time Warner (now Time Warner (TWX, Fortune 500)), the company that publishes Fortune. To top of page

Company Price Change % Change
Bank of America Corp... 15.58 0.24 1.56%
Genworth Financial I... 13.98 -2.28 -14.02%
Facebook Inc 74.68 0.97 1.31%
Pfizer Inc 29.26 -0.21 -0.71%
Apple Inc 98.15 -0.23 -0.23%
Data as of Jul 30
Index Last Change % Change
Dow 16,880.36 -31.75 -0.19%
Nasdaq 4,462.90 0.00 0.00%
S&P 500 1,970.07 0.12 0.01%
Treasuries 2.55 0.09 3.74%
Data as of 5:28am ET
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