In my last post, I argued that Canadian capitalism is becoming increasingly unstable. A buoyant economy requires growing returns, and profits have been uninspiring to would-be investors.
Optimistically, GDP will grow by 1.6% this year. The employment rate is lower than it was during the darkest days of the Great Recession. And real incomes are stagnating.
If businesses are not investing actively, what are they doing with their cash?
They are hoarding it.
Canadian corporations are sitting on $970 billion. That is almost a trillion dollars and is equivalent to 43% of GDP. Topping off these gargantuan hoards are $353 billion squirreled away in offshore tax havens. That comes to $1.3 trillion.
When he was still governor of the Bank of Canada in 2012, Mark Carney deplored corporate Canada’s “dead money” and chastised the business community for not putting it to work.
Back then the hoard was big — but only half as big!
Mr. Carney must have known he was playing second fiddle to profit. After all his imploring, corporate managers responded with a shrug.
So long as profit is in the doldrums, business enterprise will twiddle its thumbs while it waits for sunnier days.
Cash is not the only thing corporations have been hoarding.
Following their friends around the globe, corporate managers have been buying up land at record rates. Over the last decade, they increased their land holdings by 9% per year.
Figure 2 shows their property in land as a share of non-financial corporate assets. In 2007 land made up 3% of corporate assets. Now it is closer to 15%. Over the last decade, corporations have acquired $456 billion in that property class.
Needless to say, this has pushed up the price of land and has disproportionately affected small farmers across the country. Farmland prices have almost quadrupled since 2005, with the largest increases in Saskatchewan and Manitoba. I will return to this important topic in the future.
So, there you have it. When profits faltered, everything changed. Investment, employment and GDP stagnated, while corporations hoarded cash and land.
Corporate managers are now perched atop colossal piles of money on vast tracks of land — and they refuse to budge until they are given the sign.
In my next post, I will show how corporate cash hoards have destabilized Canadian capitalism and have helped pave the way for the next crisis.