In the U.S., it’s $ 2.23 trillion (U.S.), including cash and other liquid assets. Apple Inc. alone has $ 100 billion (U.S.) in cash and could soon have a lot more if this week’s projections for sales of its iPhone5 hold.
If Canadian companies aren’t going to spend that money buying machinery and equipment, opening plants and hiring new workers, then they should pay out the excess to shareholders and let them give the economy a much-needed jolt, Carney said.
But would that work?
“Corporate businesses are flush with cash, which they still seem hesitant to deploy, presumably due to the uncertain economic outlook. This obviously leaves scope for firms to increase dividends, which could boost personal income and consumption significantly,” Capital Economics Canadian economist David Madani wrote in a note to clients.
Even paying out just 5 per cent of corporate cash would be enough to boost personal disposable income by 2.5 per cent, Madani estimates. Assuming just half of this was spent, while the rest is saved or reinvested, consumption could increase by over 1 per cent, he wrote.
While that might not sound like much, consumer spending accounts for 70 per cent of all economic growth. In comparison, business investment accounts for just 12 per cent of the economic growth, Madani estimates.
Other studies have found that shareholders are behaving much like companies these days. In the face of an uncertain economic future, and few other places where they can earn higher returns, they’re saving rather than spending their dividends.
“At the end of the day, the firepower of higher dividend payments on the real economy may not be all that large. ‘Animal spirit,’ be that of corporations or investors, is being tamed by both cyclical uncertainty and strong structural undercurrents,” Marion wrote in a note to clients.
Most shares are held by foreign investors, pension funds or the very rich —and none are likely to go out and spend it in a way that will stimulate the Canadian economy, says Hugh Mackenzie, a research associate with the Canadian Centre for Policy Alternatives.
Having lived through the financial crisis of 2008, when access to credit seized up, they say it’s no wonder why they’re hoarding their cash, especially when the global economic forecast is so uncertain.
The sovereign debt crisis in the euro zone has plunged parts of that region into recession. The U.S. is headed for a fiscal cliff later this year when a series of tax cuts and spending stimulus programs come to an end.
Some Canadian companies heavily invested in the resource sector have recently announced plans to reduce — not increase — their spending on new projects, machinery and equipment. They include some of Canada’s cash-rich firms, such as Talisman Energy Inc.
Even critics of current policies say private corporations can’t reasonably be expected to behave contrary to their immediate interests.
“What we should be doing is to re-open the debate about whether we’ve radically over-achieved on cutting corporate tax burdens,” the policy alternative centre’s Mackenzie argues.
“The best way to stimulate the economy right now is to take that money off corporate balance sheets by raising taxes and spend the money improving public infrastructure. That would have a huge macro-economic impact.”