In Opinion

Today, I will mostly be blogging about economics, a subject I know almost nothing about.  I’d love to hear comments from anyone who does…

I recently listened to a Radio 4 programme on Zombie Companies (Transcript here: which I found really interesting.

The premise is roughly as follows:

Compared with previous recessions, fewer debts are being called in.  Partially this is because interest rates are so low that potentially crippling loans are affordable.  Companies and families stagger on in a “Zombie” mode.  They are unable to move on from their past debts, but neither are they forced into bankruptcy or receivership.  At the same time banks are being gentle with their creditors.  Those failing to pay their mortgages are being switched to interest-only products or allowed payment holidays instead of being evicted.  Companies are allowed to maintain or increase debt levels that are widely recognised to be unsustainable.

There are two alternative views on this.

This is a more humane recession.  There are fewer evictions and fewer companies are being forced to close down putting people out of work.  Employment remains higher.  The banks have received bailouts (or are in some cases effectively state owned) so it is only right that they should be gentle.  This represents a positive evolution of society.

Recovery is being held back.  We are failing to address our structural problems.  House prices remain artificially high because of an artificially low level of evictions.  Household debt remains unsustainably high.  Corporate debt remains unsustainably high, and people and assets are tied up in companies that are clinging on to life instead of being weeded out through an evolutionary process.   Assets are failing to deliver value and remain overpriced.  Banks are holding back on repossessions and corporate closures to maintain the illusion of strong balance sheets and minimise losses, not out of humanity.  We risk mimicking Japan’s “lost decade”, and will remain globally uncompetitive until we take action.

The popular view in the UK seems to be that this is a “humane recession”, but recovery remains weak (or non existent) and the evidence for austerity is being called into question.  Our economy overall is stagnant and inflation is devaluing incomes and saving every day.

Looking over the Atlantic to the US, they have taken the pain that we have avoided.  Evictions and unemployment were higher, but their banks and financial institutions have repaid huge chunks of the bailout they received and their growth figures are much better than ours.  Although the deficit remains an issue, it seems to me like they have done a better job of addressing their structural issues and are recovering better as a result.  Public debts and budget deficits seem a lot less scary in vibrant, growing economies than in stagnant ones.

There seems to me to be a certain sense in the idea that recovery is being held back by failing to properly address the mistakes of the previous economic cycle.  This seems to come at least in part from a feeling that those who would be repossessed or have their businesses closed “aren’t responsible” for the recession – it was those “naughty bankers”.  I don’t really buy that argument.  Anyone who took cheap credit or bought overpriced assets whether personally or for business purposes contributed to the problem (I include myself in that), and allowed  their personal greed to blind them to basics.

I believe that we should be a compassionate society and I’m not just paying that idea lip service – I volunteer for a charity that helps some of the furthest from employment gain the skills, confidence and experience they need to get into work.  However, I don’t want to see our country stagnate for years, or even a decade, and I believe that where debts are clearly unsustainable they should be called in.  People and companies should be freed from their debt using the appropriate legal processes, and banks should accept they made the wrong bets and take the losses.  Asset prices will adjust, money will be recycled into new projects, competition will do its work, and we can get back to a vibrant growing economy.

What of the people who lose their jobs, their businesses or their homes if this approach is followed?  Can we ever justify the individual pain and tragedy this will create?  Maybe rather than focussing on finger-pointing and austerity , it would be better to focus on how to ensure we move forward but still protect the people who are affected by it?  If only a fraction of the time, energy, effort and money spent on debates, recriminations, negative reportage and protest were instead spent on supporting those directly affected by the re-adjustments in finding accomodation, retraining, finding work, or even starting their owth businessses, maybe much of the tragedy could be averted.  Perhaps some of the talent and money could be recycled into new ventures, whether those are the high-tech businesses that I work with or other types of new and exciting opportunities.

I believe this to be of central importance because a vibrant and growing economy can do far more to be compassionate than a stagnant one.

I know these are huge and complex issues, and I’m doubtless oversiplifying, but I am fascinated by the concept of the “Zombie Recession” and it doesn’t seem right.  I started out by saying that I was economically ignorant – I guess I should end by confessing that I am also politically confused…

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