Strategy

The CEO Poll: Avoiding recession

Canada won't follow the U.S. into recession if it does a few key things right.

Business leaders give the federal mini-budget high marks.

The American economy barely grew during the fourth quarter of last year. The U.S. Department of Commerce this week reported that GDP inched up only 0.6%. Naturally, many are concerned Canada could be pulled down along with the United States, but Canadian CEOs have a few suggestions for taking pre-emptive action. They let their views be known in a recent web poll of 144 business leaders conducted by COMPAS Inc.

The majority of respondents believe the stalled growth in the U.S. has been caused primarily by the sub-prime mortgage meltdown. Lax mortgage and loan regulation are to blame. “The crisis was precipitated by extremely poor lending practices by mature adults,” answered one CEO. “Bailouts don’t send the right message. This is supposed to be a market economy.” The CEOs were divided, however, on whether better regulation could have prevented the crisis. Other prominent factors identified by respondents as dragging down the U.S. economy include the war in Iraq, the decline in manufacturing due to off-shoring, and the regular ups and downs of the business cycle.

The best way to prevent Canada from sinking along with the U.S. is through tax cuts, argued the respondents. Reducing taxes for companies that create jobs in Canada would be far more effective than cuts for consumers, who would end up using the savings to buy imported goods, say the CEOs. Boosting infrastructure investment, such as for roads and energy projects, is another favourable option, since money would be spent mainly in Canada.

One suggestion that did not go over very well with the CEOs was to increase transfers to low-income individuals for reasons of fairness and as a way to encourage consumer spending. “There aren’t a lot of truly poor people in Canada and most of those are there by their own choices,” said one respondent. (The approximately 11% of Canadians defined as living below low income cut-off rates might disagree.)

Ultimately, many of the CEOs’ suggestions were about improving the health of Canada’s manufacturing sector. “Governments should prioritize by purchasing first from our own manufacturers,” wrote one respondent. “We are forgetting that we build successful economies by protecting our businesses.”