Who are the zombie firms?

Photo of an empty boardroom
By Eleanor O'Neill, Student Blog

22 May 2017

'Zombie firms' are associated with periods of low productivity and low-interest economies, but how can they be helped?

Productivity gains in the UK have been largely stagnant since interest rates were dramatically slashed in 2008, making the past nine years the longest period of non-growth in two centuries.  

Andy Haldane, Chief Economist at the Bank of England, admitted earlier this year that the steady 0.25% interest rate in the UK was likely to be behind a lack of growth in productivity since the financial crisis.

This is due to the continued survival of 'zombie firms' who are heavily indebted and / or unproductive but are supported by a low-interest economy.

Productivity has historically been at the root of wealth advancement in the UK. As businesses seek more efficient processes and ways of working, new ideas and products are given more room to develop and contribute to the wider growth of the economy. 

In the absence of that, the market relies on measures like currency depreciation.

This means that exports become cheaper and more attractive internationally, but the consumer pays the price on expensive imports.

The Chancellor allocated £23bn to a National Productivity Plan in the 2016 Autumn Statement in an attempt to address the issue. Another solution suggested by Mr Haldane was highly-productive 'frontier' businesses adopting a mentoring role.

He said: "By shining a light on companies' relative performance, the aim is that this would serve as a catalyst for remedial action by company management. Indeed, the aim is to provide firms not only with a means of benchmarking themselves, but with tools to improve performance along identified areas."


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