Our content is fiercely open source and we never paywall our website. The support of our community makes this possible.
Make a donation of $35 or more and receive The Monitor magazine for one full year and a donation receipt for the full amount of your gift.
How much money do you currently have in your bank account? Enough to hold out for a week? a month? six months? How would you like to have $111 billion set aside? To give you a better sense of just how much that is, it’s almost a third of Quebec’s GDP. Or more than three times the entire state budget, including the debt service. It’s also the size of the savings accumulated by Quebec’s businesses. Yes, savings.
In other words, these are sums of money that businesses prefer to have sitting in their coffers rather than invest in improving working conditions for their employees, in providing dividends to their shareholders (often pension funds), or even invest directly into their business (technological improvements, R&D, etc.). And across Canada? The total comes up to $604 billion.
It’s obviously normal for businesses to set aside a certain amount to meet their financial needs even when times are rough. However, according to The Economist, a normal saving ratio for business is set between 10% and 20% of their country’s GDP. The magazine warns against over saving as seen in Korea and Japan, where rates are closer to 34% and 44% of the GDP respectively. In Canada and in Quebec, with 32% rates, the situation is worrisome.
We could think that it’s a consequence of the crisis, that confronted with economic uncertainty, businesses are reacting with caution. But that would be a mistake. Money has been accumulating for far longer than the recession, and at an always increasing pace. Between 1999 and 2012, the amount set aside per business almost doubled. During the same period, corporate debt ratios went down.
Actually, since 1998, oil and mining corporations have been responsible for the increase in investments in Canada. In the case of manufacturing businesses and other non-financial sectors, the amount flowing into the economy in comparison with the GDP decreases year after year. Even worse, governments have reduced their contribution to public finances, while claiming they were stimulating investments and job creation. As you can see, it was all in vain.
(missing image)
Today, corporations pay a much smaller portion of their profits to the government thanks not only to tax cuts, but also to an entire taxation regime designed for their benefit. Despite politicians’ and economists’ repeated promises, these measures have not led to any increase in investments. On the contrary, in an economic climate in which consumers are already burdened by too much debt and the majority’s wages are stagnating, businesses do not seem to want to try and bet on stimulating consumption. Cutting their taxes gives them more liquid assets that they can then accumulate. In these times of austerity, there is no need for much imagination to think of better ways of using up these $604 billion in savings sitting, untouched, in Canadian banks…
This article was written by Eve-Lyne Couturier, a researcher with IRIS—a Montreal-based progressive think tank.
