Back in February, I did an item about the largest corporations in the US and Canada respectively:
Here are the current standings
1. Apple - $849 billion
2. Google - $746 billion
3. Amazon - $ 702 billion
4. Microsoft - $699 billion
5. Facebook - $521 billion.
Boeing, which chose to leave Washington for Chicago, comes in at a paltry $205 billion.
By contrast, Canada's top 3 are banks: RBC, TD and Bank of Nova Scotia, at $113, $102 and $74 billion (Canadian) respectively. Pretty small potatoes and not an innovator or tech giant among them. Hewers of wood, drawers of water and bank tellers. Great.That post came to mind as I re-read James Galbraith's book, "The End of Normal," and his discussion about banks. I'm not a banker nor an economist but I put Galbraith's assessment out there for you to decide the role of banks in Canada.
In Canada, chartered banks are creatures of statute, given certain very advantageous rights. Every year, it seems, they announce record profits while ordinary Canadians complain they're getting the shaft. This is how Galbraith sees banks in the 21st century:
Banks are intermediaries. They provide nothing that contributes directly to current consumption or business investment. They are useful only insofar as they support either household consumption or business investment - and then only so long as they do so in an effective, responsible, low-cost way. Business underwriting was once such a function, but it entered a deep decline during the mortgage boom, if not before. Otherwise banks serve mainly to consolidate control and power, and they support this by exacting tribute, in the form of interest, from their borrowers. ...From a social standpoint, this is predation: no net benefit to anyone outside the banking sector comes from it.Galbraith, of course, writes of banking in the United States. Thanks to people such as Paul Martin, Canadian banks were reined in, held in check, when they lobbied for permission to leap into American style Casino Capitalism that ruined so many banks in the US and Europe during the sub-prime mortgage bubble.
Perhaps the country would be better off without its big banks. The basic functions of banking for most of the public - deposits, payments, credit and debit cards - could be handled by a low-cost public facility, perhaps run by cities or states at municipal pay scale or by the postal service. Smaller and regional and cooperative banks could grow into the work of business lending and of sorting good from weak household risks. Since executives of small banks are paid on a less lavish scale, the reduced cost of the financial plutocracy would be a social savings. There is no guarantee that these changes would bring financial stability: small banks can run in herds, and given the experience that bankers have acquired in distributing and hiding risk and fraud, there may be no solutions in the computer age to the dysfunctions of finance. But a decentralized system with smaller top-level units, less powerful bankers, and stronger controls could not be a worse bet than the system that exists now.
Canada escaped the American contagion - barely - because the crash came before Stephen Harper could remove Martin's prudent constraints. However, unlike the States, our big banks have become the largest corporations in Canada and they've grown immensely profitable while generating very little no no economic activity to benefit the country.
And banks may now be playing a detrimental role in Canada. Some speculate that behind Trudeau's pipeline fetish is concern that Canada's banks are so heavily invested in the soon to be stranded asset, bitumen, that not pushing the bitumen trade could have a devastating impact on the Canadian economy.
It's like riding a tiger. Great fun until you fall off. The bitumen barons have Canada in a real jam and, the recent Kinder Morgan ultimatum that sent Morneau scrambling to Texas, hat in hand, suggests they know it and won't hesitate to play hardball with the Liberal government.
Canada's chartered banks are supposed to serve the country, not the other way around, and yet, by their very size, they may now be dictating government policy. They've grown too big for our own good. Perhaps it is time to put them to pasture.
How sound can a nation's economy be when it is dominated by corporations that produce nothing?