Zombies have earned the label of companies that cannot make a profit in the long run, and their survival depends purely on the external assistance of governments or central banks. “The problem of zombie companies is emerging after every global crisis,” explains Pavel Sobíšek, chief economist of UniCredit Bank. According to him, tens of thousands of companies can be expected to disappear in the next two years in the United States alone.
Bloomberg’s analysis proves him right. Since the beginning of the coronary crisis, nearly two hundred large corporations that meet the criteria for zombies have been added to the United States. At the same time, their outstanding liabilities are more than double the debts of half-dead companies at the height of the financial crisis from 2008 to 2009. Although some of them have a chance to return to the for-profit after the crisis, in reality only two out of ten.
According to experts, the “zombification” of companies is caused by the government and especially by central banks, which buy corporate bonds and keep interest rates low. Similar artificial interventions in the natural change of the structure of the economy tend to be a waste of taxpayers’ money and hamper the overall economic recovery.
Salvation by ruin
“Central banks need to understand that they are not non-participating observers who are only responding to natural interest rates, but by constantly printing billions to depress natural interest rates, creating a breeding ground for zombie companies to grow and thrive,” said Lukáš Kovanda of Trinity Bank. .
According to him, keeping these companies alive disrupts the basic engine of civilizational growth, when the old is replaced by a new, more productive one. “Outdated companies must go bankrupt, otherwise the whole of capitalism will go bankrupt and global socialism will be directed by central banks,” says Kovanda.
On the other hand, it must be borne in mind that the collapse of some giant corporations can have far-reaching economic, political and social consequences.
“This applies to the so-called natural monopolies, where extremely high market entry and fixed costs have pushed out competition and the company has complete control over the market,” explains Helena Horská, Raiffeisenbank’s chief economist. “In such a case, the state is faced with a difficult choice – to save or not to save?” He adds.
Zombie with a chance to survive
Česká spořitelna analyst Jan Šafránek believes that it is necessary to distinguish between zombie companies that got into trouble mainly due to the effects of the COVID-19 pandemic and after normalizing economic conditions, their return to the previous economic level can be expected, and those that were drowning in problems even before a pandemic and their recovery cannot even be expected under normal circumstances. Only the second mentioned category can be considered real zombies. According to Šafránek, Exxon Mobil or Boeing certainly do not belong to it.
“Exxon Mobil still pays a dividend of around $ 15 billion a year. Boeing got into trouble again due to problems with the 737 MAX aircraft, which should soon be back in service, and this is not a sign of the company’s long-term failure, “notes Šafránek.
However, he agrees that a pandemic may have a long-term negative impact on some sectors, such as airlines, energy or tourism – and related catering and accommodation – or brick-and-mortar retail. Companies in these sectors burdened by coronary debt will be in a very difficult situation and their recovery may take several years.
Joe Biden’s victory in the presidential election is also likely to hurt American oil and coal miners. The next head of the White House has repeatedly stated in his campaign that he intends to bet on green energy. “Companies such as Exxon Mobil will therefore have to find a new business model as part of their survival, focus on innovation and keep pace with changing demand,” says Horská.
However, experts agree that rather smaller companies that do not have such financial reserves as large players will disappear completely. Especially those who are all too dependent on the off-line environment and cannot adapt to the enrichment of the online world.
Too vulnerable Europe
Of course, the zombification of societies is not a phenomenon limited to the United States. A sharp increase in half-dead companies can also be seen in Japan, China and Western European countries. In Europe, according to Horská, zombies may increase even faster in the coming years, as European companies are generally more inclined to state aid and, unlike American companies, have a better chance of seeking rescue from the government. “Unfortunately, at the expense of taxpayers, the rapid recovery of the entire economy, its modernization, productivity growth and prosperity,” concludes Horská.
The Czech Republic is one of the countries with the lowest incidence of zombie societies in Europe. “Of course, the coronavirus pandemic will also have a negative effect in the Czech Republic, but local companies have a better starting position,” points out Jan Šafránek. In addition, the potential for higher economic growth and a healthier banking sector than, for example, southern European countries are factors that should prevent the formation of zombies in the Czech Republic in the future.