A Pertinent Question

What do Canadian corporations do with all their profits?
September 1, 2010

What do Canadian corporations do with their profits? It’s an important question, since it’s fair to assume that most workers want to see at least some benefit from the billions of dollars in wealth that they sweat to produce.

Most working people likely believe that corporations and their managers and shareholders deserve a fair return on their investments and expertise. But they also want reasonable benefits for their country, their communities, their families, and themselves.

From this perspective, recent evidence is not very encouraging. A big share of the profits Canadian workers produce is being invested outside Canada, while investment in this country languishes. And a growing amount is being spent on luxury goods rather than being re-invested.

Statistics Canada reports that Canadian corporations last year made $219 billion (before tax) in profits. Not a great year for them, of course -- about $60 billion less than they made in 2008 – but it was still a hefty amount.

Where did it all go? Well, StatsCan tells us that $12 billion (nearly 10% of it) was invested abroad. That compares to a $13.3 decline in domestic investment on machinery and equipment for 2009, and a further planned cut of $13.5 billion this year.

And the outflow of capital continues. StatsCan says that “Canadian investors acquired $3.9 billion of foreign debt and equity securities in February 2010, the largest outflow since March 2009, following significant divestments in January.” 

Canadian workers pay the price for falling domestic investment in the form of declining competitiveness, lower wages, and lost jobs. Since the fourth quarter of 2007, labour productivity in Canada fell 1.2% up to the third quarter of 2009, while over the same period U.S. labour productivity rose 4.9%. It’s no accident that the most jobs wiped out last year were in the goods-producing sectors, where employment dropped 6.9%, including staggering 9.8% plunge in manufacturing and 11.4% in natural resources.

Meanwhile, a lot of those profits went into business executives’ pockets. In 2009, the total net worth of Canada’s wealthiest 100 corporate executives rose 4.6% to $172.7 billion from $165.1 billion in 2008 – even though profits that year fell by more than 30%.

Over the past 12 years, Canada’s top CEOs have been lavished with a 444% increase in compensation. CEOs at Canada’s six big banks got average raises of 10% last year, But Bank of Nova Scotia CEO Richard Wright got a 29% raise and Bank of Montreal CEO William Downe 25%.

Anther sign that the recessionary burdens of hard times in 2009 were not shared evenly: Manufacturing workers last year took an average 4.4% pay cut while corporate managers, on average, got a 5.7% raise.

 No wonder luxury car sales have been so strong this year, jumping 30% by March.

 Since the crash in 2008, billions have also been pumped back into the stock markets, rather than into productive investments, raising fears of yet another financial bubble. The total capital poured into the Toronto Stock Exchange grew 93% from March 2009 to March 2010.

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Isn’t it time Canadian workers said, “Enough is enough!”? Isn’t it time governments ensured that more of the profits generated by working people for private employers was used to improve the welfare of all Canadians? Shouldn’t creating more jobs get a higher priority than raising CEOs’ pay? Shouldn’t workers get a fair share?

 As the economy slowly recovers from the worst slump since the 1930s – a slump caused by the very people who own the corporations and banks, run the system, and get most of the returns – we should be asking ourselves: what kind of society, what kind of country, what kind of economy do we want for ourselves and our families?


(Kim Pollock is a research representative of the United Steelworkers of America, based in Burnaby, B.C.)