Bankruptcies are up, to begin with. There is no doubt whatever about that.
The researchers at Statistics Canada must have felt positively Dickensian when they reported there were 14,148 bankruptcies either declared or proposed in June, 51 per cent more than in June 2008. For the 12 months ending with June, bankruptcies were up nearly 29 per cent to 143,883. That’s a lot of financial misery, and about what you would expect during a severe recession.
The trouble is, those big numbers don’t mean much unless you break them down. And when you do, they tell a more optimistic story of what’s happening in this country.
It turns out that almost 96 per cent of those June bankruptcies were personal while fewer than four per cent were business. Over the previous year, it was the same story: 95 per cent of bankruptcies were personal; the rest were businesses.
In fact, business bankruptcies in Canada have been in a long-term decline: Since 1990, the annual total of business failures has dropped 47 per cent, and since 2000, the falloff is 39 per cent. There are a number of reasons for this.
A Compas poll of business leaders in May reported that most of those surveyed thought the Canadian economy was inherently more stable than the U.S. economy and that we enjoy a strong, well-regulated financial system. Yes, there were valid complaints in the early stages of the recession that our banks were clamping down on credit. But unlike U.S. banks that went all-in with subprime lending, Canadian banks at least had money left to lend, which has begun to flow again.
It also helps that Canadian companies have been gradually weaning themselves off excessive reliance on the U.S. market. Admittedly, Canadian exporters still send two-thirds of all shipments to the U.S., but only six years ago it was closer to three-quarters.
And it isn’t just Canadian banks that are cautious. Most companies tend to be fairly conservative, keeping their balance sheets relatively unencumbered by too much debt. They are also careful to develop strong positions in both domestic and export markets.
Companies are getting better at workouts, doing restructurings with creditors to keep themselves going. They’re also good at taking action when times get tough. As ugly as it sometimes seems, they know how to cut costs and, unfortunately, jobs, but it keeps them alive to grow another day.
In the real world, it’s the Bob Cratchits who usually go under. Scrooges seldom do.