Glad that's over

A year ago at this time, we were in the throes of the biggest economic crisis since the Great Depression of the 1930s, or so we were being told. Financial systems were melting down, unemployment was increasing, people were walking away from their homes because the mortgage exceeded the value of the property, and governments were planning massive public spending in an attempt to offset the pervasive doom and gloom. What a difference a year makes! This is not to undervalue some of the very difficult circumstances that befell many businesses and individuals, but the negative rhetoric of the past 12 months did, thankfully, turn out to be overblown. Recently, a number of the usual economic forecasters have suggested that the Canadian recession may well turn out to be the shortest and shallowest in several decades.

A key reason that Canada has made it through the global market meltdown with relative ease is the resilience of its small- and medium-sized business sector. Over the past year, surveys by the Canadian Federation of Independent Business found that the level of employment among small businesses has remained quite stable at the national level, although it varied by region and in different industry sectors. In the economy as a whole, the large corporate sector accounted for the vast majority of net job losses. It is generally true that small firms are more flexible than large firms in dealing with changing economic circumstances, and that laying off employees in a small business is typically the last resort, and only done when all other means of dealing with a slowdown are exhausted. This seems to have been the case during our recent recession.

Over the past year, lenders have taken a more constructive approach to dealing with their small-firm clientele than was previously the case. For instance, in the deep recession of the early 1990s, many Canadian banks overreacted to the economic slowdown and cut off credit to businesses that were experiencing some challenges but were still very viable. Many firms suffered unnecessary bankruptcies and/or job losses when their lines of credit were abruptly cut or their loans were unexpectedly called, and this ultimately made the recession deeper and longer than it needed to be. Fortunately, bankers learned from their experiences and did not react in such an extreme way this time around, so that sustainable firms stayed open and the banks retained good customers whose businesses would likely pick up once the economy improved. Sure enough, this is exactly what is happening now.

Canada also avoided some of the policy and regulatory pitfalls that caused such serious problems in other countries, notably the United States. Our financial institutions were equipped with more significant reserves; they did not flirt too much with overly generous mortgage lending; and, despite lots of ill-founded criticism, our social safety nets (such as employment insurance) did the job they are supposed to do in tough times. This recession was certainly more international in scope than previous recessions, which is simply a reflection of our increasingly global economic reality, but Canada is well poised to move into recovery much sooner than most other developed countries.

For all of these reasons, we should be able to look forward to a decent 2010, with improved business prospects. It is said that a pessimist is just an optimist with experience, but all current information indicates that optimism is well founded for the coming year.

Catherine Swift is chairwoman, president and CEO of the Canadian Federation of Independent Business