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Sitting on the Stimulus

CIC | September 7, 2011
A phone hangs above the floor of the New York Stock Exchange

Half by 2013.” Last year, finance ministers from the G20 committed to lower deficits as the first step toward economic recovery. Corporations, they assumed, would take the lead on steps two, three, four, and five, and their spending would create jobs.

And yet, today, U.S. corporations collectively sit on cash sums greater than the GDP of the entire Canadian economy. Despite miniscule interest rates, U.S. companies’ debt-to-cash ratios are at their lowest in five years.

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At the height of the debt-ceiling debacle, corporations lambasted the incompetence of government. The CEO of Starbucks was joined by the CEOs of the NYSE, Whole Foods, and JC Penney in his campaign to halt donations to politicians until Congress reached a bipartisan agreement on debt reduction. Legendary investor Jim Rogers called the debt-ceiling talks “a sham,” while the CEO of Caterpillar, the world’s biggest maker of earthmoving equipment, remarked, “The process was ugly and it was a red herring of a problem.”

But maybe it is time for corporations to be lambasted, too.

The Globe and Mail was one of the first to blame corporations, publishing an editorial earlier this month entitled, “Austere U.S. Companies Need to Start Spending Too.” “For too many [corporations],” it declared, “the U.S. economy has become one giant mattress under which any extra dollar is stuffed.”

Now, the CIC bombards the prevailing “fortress mentality.” Catherine Swift has spent time in big business (as senior economist at TD Bank) and in the federal government. Now, as president and CEO of the Canadian Federation of Independent Business, she offers a perspective from that component of the private sector, which accounts for 37 per cent of all jobs created.

John Curtis, former chief economist at the Department of Foreign Affairs and International Trade, comes at the issue from a markedly different angle. For him, it is time for government to employ the levers of fiscal policy to create an environment in which corporations are compelled to spend. In other words, it is better to cultivate an economic environment in which the poorest members of society can afford corn than to decrease the price of corn.

The question then becomes, should corporations act alongside government to cultivate such an economic environment?

Photo Courtesy Reuters.