For a while now, Bank of Canada governor Mark Carney has been nudging corporate Canada to do more to boost the country’s economy. The latest rhe-torical push reportedly came last week after a speech to the Canadian Auto Workers Union suggesting executives are playing it too safe by keeping billions in cash in reserve as they wait for a clearer direction of the global economy and an end to the European debt crisis.
Such an explicit push for progress by a central banker might be needed for an economy that continues to play it relatively safe compared with its counterparts in other countries. Such conservativism has been credited for creating one of the world’s soundest banking sectors, according to the World Economic Forum. But the lack of risk-taking from non-financial companies appears to be doing more harm than good for Canada’s economy. With governments and consumers cutting spending to reduce debt, businesses are the last remaining source of growth.
Taking on more risk might seem foolhardy in the face of persistent global uncertainty. But half a trillion dollars in cash reserves being hoarded by Canadian public companies, as estimated by the Canadian Centre for Policy Alternatives, is likely too risk-averse.
This isn’t to say businesses aren’t increasing their investments. A CD Howe report released earlier in August said Canadian companies are increasing their capital spending on tools for Canadian workers. Canadian corporate investment has generally lagged behind businesses in other countries belonging to the Organization for Economic Co-operation and Development (OECD). But since 2005, Canadian investment has remained on par with the OECD average and is estimated to rise above the average for 2011 and 2012. Average investment per worker in B.C. has particularly grown, rising more than 20% between 2001 and 2010, and is estimated to rise a further 14% by the end of 2012. All of this will likely increase worker productivity and improve business efficiency. But even more investment in research and development, new technologies and emerging markets is something that Carney and others say is greatly needed to further economic growth.
