Beware the zombies

An interesting post (link below) from Marxist economist Michael Roberts on the ‘zombie’ companies holding back economic growth across the rich world since the financial crisis. In short, many that would otherwise go bust are struggling on, just able to meet interest payments on their debt, since rates are so low, but unwilling to invest due to a low prospective return on their capital.

Roberts argues that for the average rate of profit for the whole economy to recover, the weakest and least productive firms need to fail, and resources (capital and labour) need to be reallocated to firms with brighter growth prospects.

If this happens, there is likely be some considerable short term pain in the form of rising unemployment in the midst of bankruptcy as economic restructuring takes place to restore average profitability across the economy.

Where I disagree with Roberts is in his solution to these kinds of problems under capitalism: socialist revolution and widespread central planning.

There are alternatives to this, which can mitigate some of the social pain of economic restructuring without necessitating socialism.

Active labour market policies can help unemployed workers retrain, relocate and find new work, and possibly provide them with useful activity as the economy adjusts.

Industrial policies can also help, in the form of encouraging structural change as new firms and industries emerge, and old ones die.

These kinds of initiatives are something of a ‘middle road’ between untrammelled capitalism and socialism, but they surely offer more of a solution than either. Michael Roberts continues to hold out hope for a socialist economy, but I am not convinced this offers anything better.

Mainstream economics has been seriously puzzled by the failure of the major economies to restore the previous growth rate in the productivity of labour since the end of the Great Recession. There has been an intense debate over the issue. Some argue that productivity growth has been restored but is just not being measured properly, […]

via Beware the zombies — Michael Roberts Blog


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