Are zombies eating our economy?
Zombie companies, a rather apt term for companies that through repetitive government bailouts or other types of funding such as low interest rate loans, are able to barely stay ahead of going broke but while they can just pay the interests on their debt, they can’t reduce the debt itself. Hence, the reference to zombies, they’re alive, but also not really, and to continue the analogy, they even prey on the living, i.e. healthy companies or new companies.
Recent reports even go so far to say that, at least in the mid to longer term, these companies cause economic decline as they are unable to hire (often they need to downsize) and can’t afford to invest, and as such they are unable to grow or contribute to growth. These companies are in fact tying up all kinds of resources which could be deployed more productively elsewhere, be it funding but also employees. Under normal circumstances bankruptcy is the “natural” mechanism that frees up those resources and allows new companies to take the place of the zombie company thereby boosting economic growth instead of dampening it.
These companies are sitting time bombs, because if interests go up, they will finally go down, but until then they drag themselves along, moaning and rotting, but not dead.
Question is of course, what to do to solve this problem? Make sure they die as quickly as possible, freeing up those resources (banks won’t like this, and there will be public outcry against the short term rise in unemployment this will bring), or keep on trying to cure their undead state? One thing is for sure, we can’t afford to create more zombies, as this thing has all the trapping of a viral infection, as banks have funding tied up and so can’t or won’t lend to healthy or new businesses, and the government needs to take budgetary measures that impact those same healthy businesses just to compensate for the bailouts to keep the zombies shambling just for the sake of public opinion…