Canadian banks posting record profits amidst stagnating production and deepening crisis for most people
by Steve da Silva
On August 22, the Governor of the Bank of Canada Mark Carney – a former leading executive of Goldman Sachs for thirteen years – delivered a speech to an unlikely audience of trade union delegates at the Canadian Auto Workers (CAW) convention. In a post-speech news conference, Carney tried to play to his audience by criticizing corporate Canada for not re-investing the record levels of cash reserves that they are sitting on – a whopping $526 billion, what Carney called “dead money”. This figure was brought to light by the Canadian Labour Congress in a January 2012 study that attributes the rising cash reserves to decades of tax breaks for corporations.
While many of the responses to Carney’s speech expressed shock that the Bank of Canada Governor would take a shot at corporate Canada, it certainly wasn’t a slip. If it was, Carney’s comments wouldn’t have been echoed by Federal Finance Minister Jim Flaherty just a few days later when he said that “At a certain point, it’s not up to the government to stimulate the economy; it’s up to the private sector; and they have lots of capital.” So what motivated these comments?
For one, the Federal government is running out of easy scapegoats for an economic crisis for which they have no exit strategy. They say that private sector wages are too high for Canada to compete; there’s a recession in the U.S.; and those lazy Portuguese, Irish, Italian, Greek, and Spaniard workers (the PIIGS) are keeping the whole world economy down. The critique of a supposed corporate stinginess a great way to strike a balance in the blame game, even if they know that a crisis of profitability
For his part in the Bank of Canada, Carney has kept the ‘overnight rate’ (the rate at which the banks make short-term loans to each other) below or at 1% since 2009. These rates translate into low borrowing costs for everyone, which, when combined with eroding or slashed wages, has pushed the debt-to-income ratio of Canadians to an all time high of 152%. With Canadians cash-strapped and up to their eyes in debt, household spending cannot drive the long-promised economic recovery. This fact, in turn, keeps corporations from rapidly expanding production beyond current capacity. Labour leaders tell us that raising wages would solve all the problems, that the middle class is the core of any “great democracy”. What they refuse to acknowledge is that high wages are just another obstacle to corporate profit.
Reports last week revealed that non-financial corporations experienced a five percent decline in operating earnings in the second quarter of 2012, following a downward trend of non-financial corporation profits over the last year. Meanwhile, Canada’s financial industry is booming – a trend that is not in contradiction to the downward trend in non-financial sector.
Canada’s big banks just released details of spectacular quarterly profits for April-June 2012, totaling a whopping $7.8 billion. Profits like these derive less and less from manufacturing, and more and more from mergers and acquisitions like the one made by Scotia Bank last week, when it acquired ING’s operations in Canada for $3.1 billion – the largest bank acquisition in Canada in more than a decade. Since the beginning of the economic crisis in 2008, big corporations have resorted to mergers and acquisitions (M&As) – especially in the financial and extractive industries – to knock out the competition, capture new markets, and prop up profits in a time of recession. This centralizing of capital is in direct contradiction to the type of investments and spending that Carney and Flaherty were calling for.
Corporate Canada – financial and non-financial – is doing everything it needs to do to make profits in the current context. It would be foolish to think that Carney and Flaherty don’t know this. Their comments in late August were nothing more than a veiled attempt to pass the buck so they don’t have to admit that the economy is structurally stagnant, especially in industries that create lots of jobs.
The sooner we come to terms with the reality that a government elected through a demagogy of prosperity at any costs is only a government of prosperity only for the few – that we’re not “all in this together” – the sooner we can organize ourselves for the fight back.
But that’ll remain a challenge so long as we have labour leaders who invite central bankers to speak at union conventions.
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