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Macroscope | With a global recession looming, will cash-rich corporations swoop to the rescue?
- Central banks and governments are stretched to the limit while big businesses sit on cash mountains that dwarf national economies. In a downturn, they can make investments and retain staff to shore up consumption and the economy. But will they do it?
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Why you can trust SCMP
If and when economic recession comes, there will be few places to hide. Monetary policy has been stretched to near its limits already (unless you are a modern monetary theorist) while governments are too highly borrowed to finance a bailout. But could the corporate sector act as a kind of deus ex machina?
The idea that big business corporations might emulate the “gods from the wings” of ancient Greek and Roman drama, and offer salvation when all seems lost, may seem far-fetched. And yet many of them are so stuffed with cash that they have the means (if not yet the will) to mount such a rescue.
We are talking sums that make government fiscal reserves look puny in comparison. Nowhere is this more true than in Japan where corporate cash balances easily outpace the size of Japan’s gross domestic product. They are very big too in the United States and in Europe – Britain especially.
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Why would companies distribute the cash mountains they have built from restraining wage growth, cutting capital investment and other Scrooge-like behaviours? It could be a matter of enlightened self-interest to prevent the global economy from imploding.
Cash-rich corporates have the financial wherewithal to cushion against an economic recession by making capital investments at historically low interest rates, raising their productivity and their (domestic and international) competitiveness in the process.
They can act as a buffer against recession by retaining employees whose redundancy would otherwise put a drag on consumption, adding to recessionary and deflationary pressures. The business environment may not be ideal for investment and hiring, but it will spiral downwards unless someone takes a stand.
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