The rise of zombie companies could spark another catastrophic crisis

Full-blown issues such as soaring inflation, poor job quality or sluggish growth do not appear to be related to the company’s management style. officee’s Michael Scott Paper Company or a pyramid scheme like Elizabeth Holmes Theranos. However, there may be more to this connection than it appears on the surface. The post-COVID-19 crisis recovery has pointed to several weaknesses in the economy, such as supply chain Destruction, but there is another growing problem: Companies rely on new sources of funding to cover up previous debts, thereby masking the fact that they are not making any profits. They’re called “zombie companies” — and they’re getting more important.

Zombie companies are companies with negative profitability or so low that they cannot even pay interest on debt.Share of these companies in advanced economies grown a lot In recent years, it has reached 20% of all companies in several countries.in the most recent study, we show that this dynamic also occurs in US public companies. Such large numbers cannot be just a matter of scams. It includes established companies such as Boeing Co, Carnival Corp, Delta Air Lines and Macy’s, which have been lucrative in the past but have struggled recently.There are also startups like this Uber This could remain unprofitable for years as they are expected to start making profits at some point.But many never do, and their collapse can be staggering (eg. we work).

In the U.S., the vast majority of zombie companies have posted negative earnings even before paying interest. This tells us that they have serious problems at production levels that are only exacerbated by having to deal with their financial commitments. The share of public companies with negative earnings before meeting their financial commitments has grown significantly over the past half century, from 3% in 1969 to 33% in 2001, and has remained high ever since.

The rise of zombies since the late 1960s is no accident. A new global division of labor rearranged capitalism around the world, shifting manufacturing production from the United States and Western Europe to East Asia, and then to Eastern Europe and Mexico. At the same time, the Bretton Woods international monetary system collapsed, creating a large number of credit currencies and opening the era of financialization based on the hegemony of the US dollar. Finally, neoliberalism has politically embodied (and given ideological legitimacy) a dramatic shift in global production and finance. It succeeded by attacking working-class organizations, imposing austerity policies, and deregulating trade and finance. These combined elements are characteristic of the current stage of capital accumulation.

However, this phase of capitalism lost momentum in the period following the great crisis of 2007-9, leading to a decade of stagnation. In most of the world’s economies, economic growth rates have fallen, investment has slowed, and productivity growth has been sluggish despite the promise of an era of technological revolution. Conversely, technological innovation has created a large number of “technically unstable” forms of employment for large numbers of workers. All this while the destruction of the planet continues.

The rise of zombies as an explanation weakness Capital accumulation in the period between the 2007-9 crisis and the pandemic crisis. These companies invest less and are less productive than their non-zombie counterparts. This era has also seen unusually easy credit conditions and a surge in stock prices. These conditions easily allow zombies to survive, especially through easy credit and low interest rates. In this case, they can artificially extend productive life by reducing cash balances, selling assets, raising additional equity, or increasing liabilities.

Also, during the pandemic crisis, the share of zombies spikes As already weak companies face a collapse in revenue and profits, making it difficult to meet financial commitments. Many companies in this situation survive thanks to state support, debt moratoriums, temporary changes to bankruptcy proceedings, and additional borrowing, often benefiting from state guarantees.

However, as demand begins to recover, zombie companies may be more concerned about using razor-thin profits to pay down debt and guarantee their immediate survival than to invest, innovate or create high-quality jobs. Thus, zombie firms respond to increased demand by pushing existing capacity to the limit.This includes resorting to low-wage, precarious or flexible employment that increases hiring but often produces low-quality jobs (thus workers More and more quitting smoking when they can find something better), and also raise prices instead of investing in new production capacity. It also contributed to inflationary pressures.

In this case, raising interest rates not only limited help Fights inflation, but can also have a serious impact on businesses by increasing borrowing costs. In particular, zombies may find they can no longer sustain their Ponzi scheme-like survival plans, and thus be pushed into bankruptcy. This could lead to job losses and disruption to payment chains, triggering wider financial instability. There would be similar consequences if the government rolled back plans to stimulate demand too quickly, as these companies still rely on high demand.

However, continued cheap credit policies without the improvement in the production performance of these companies to translate into higher profitability can only artificially extend their lifespans. The survival and growing importance of zombies expresses the absurdity of the current stage of capitalism, in which the disconnect between social production and consumption—and the credit expansion that makes this differentiation possible—has reached unprecedented levels Level.

The problem is that sooner or later this potential crisis of overproduction will end. Instead of letting the crisis erupt, the state should intervene to manage the process, ensure workers are not burdened, and reallocate resources to activities that benefit society.

Now we are faced with the question of how to address current macroeconomic issues such as inflation. But we should also address the structural issues of this stage of capitalism, including zombification, weak capital accumulation, low wage growth, job instability, and the need for a structural green transition. A proactive approach to getting out of this situation requires innovation to increase productivity, lower unit costs, and thus lower prices. This can be achieved through improved conditions for workers (increasing wages, re-establishment of union and social welfare policies, industrial democracy on a global scale) to drive corporate innovation, and through bold industrial and credit-steering policies. Democratic form of planning.

Today’s macroeconomic problems show that the current phase of capital accumulation has dried up, and at the same time we are heading towards the catastrophic consequences of climate change. Time to turn over this failed model.