Cooking the Books: From Lame Ducks to Zombies (2012)

The Cooking the Books column from the November 2012 issue of the Socialist Standard

Apologists for capitalism are quite cruel to firms that don’t make a profit or not enough profit. In the 1970s they were called ‘lame ducks’. In the harsher climate of today they are called ‘zombies’. Lame ducks can be left to die, but zombies have to be killed.

“HELP,” read the headline of an article by the Times Business Editor, David Wighton, on 19 September, “ZOMBIES ARE ATTACKING THE RECOVERY” He was discussing a theory put forward by some economists as to why “employment is strong but output is weak and investment sluggish”. According to them, given that “output is still more than 4 per cent down on its peak in 2008”, unemployment ought to be higher than it actually is. That it isn’t, they suggest, is because not enough firms have gone bankrupt when they should have done:

“These corporate zombies are so weighed down with debts to banks and their own pension funds that they are barely alive. But, as in the movies, they are hard to kill.”

… zombie businesses may have enough cash coming through the door to stay alive but not enough to thrive. They simply don’t have the money to invest in long-term growth.

In other words, these are firms that are still making a profit but not enough. Normally, says Wighton, they would go under:

In normal downturns these companies would be subject to the forces of ‘creative destruction’ that drive market capitalism. The undead would be restructured, with debt written off, or broken up with their assets sold to other businesses that could afford to make better use of them. Many would die and be reborn as much healthier businesses.

This is indeed one of the things that happen in a slump to create the conditions for a recovery. Unprofitable firms go bankrupt and their assets pass cheaply to others. In Marxist terms, this is capital getting devalued, which means that with the same income the rate of profit is raised, which is a must for a recovery. Insofar as government action prevents this – and Wighton mentions that the current very low interest rates have allowed firms to keep up with their interest payments even though they have no chance of repaying the loan – it would delay any recovery.

Wighton’s economists want the zombie firms to be killed off but are afraid that the politicians won’t be ruthless enough and will allow these firms to stagger on, leading to what happened in Japan in the 1990s, its so-called ‘lost decade’ of stagnation.

Could they be right? The argument is plausible in terms of the way the capitalist economy works. If not so much capital is devalued in a slump then restoring the rate of profit risks taking that much longer. If they are right, the choice capitalism has to offer in the immediate future is either more closures, more redundancies and more unemployment or a prolonged period of stagnation. Some prospect! And further proof that capitalism has nothing to offer the majority class of wage and salary workers and their dependants.