Sunday, 2 December 2012

The Zombies Are Coming! - Part 1

The Zombie Companies

According to insolvency specialists R3 nearly 10% of UK companies are “zombies”. That is 160,000 firms that are able to only pay the interest rather than the capital on their loans. This figure for November, is 10% up on the figure for July. These companies, like many individuals, are only able to pay the interest even, because of unsustainably low interest rates, and forbearance by banks, who are currently reluctant to foreclose on loans, for fear of starting a fire sale, that would likely mean those banks failed to recover the money they have lent. In other words, a large percentage of British business is effectively bust, as are a large percentage of British households. They only are able to survive in this zombified state, because of those low interest rates. That means that despite all the money printing, state funding and other measures, the banks that lent this money, and are unlikely to get it back, are themselves zombies. No wonder Bank of England Governor, Mervyn King, has said those banks still need to recapitalise.

Liberal-Tories claim employment is rising
and unemployment falling, but they are
"zombie" jobs, in zombie businesses, in an
increasingly zombified economy.
Looking at that figure of 160,000 essentially bankrupt businesses, it means that around 2 million workers exist in “zombie” jobs in these businesses. Any further deterioration in the UK economy, or even slight increase in interest rates will explode these zombie companies, and throw another 2 million workers on to the dole. That is before the multiplier effect will have on other businesses from taking out these workers and companies. It exposes the superficiality of the Liberal-Tory claims about rising employment, and falling unemployment. In fact, this figure of 2 million workers in zombie jobs, also explains some of the data from the ONS last week, which showed that 3 million workers would like to be working more hours than they are currently. In other words, widespread under employment. In fact, the figure for under employment is likely to be worse than the ONS data.

Many self-employed people are no
better off than on the dole.  Even a
minimal income often depends on
the black economy.
There will be at least some people who are today in part-time jobs, which suits their requirements. But, that does not change the fact that previously these workers, or these jobs may well have been full-time jobs or workers. Nor is it likely to account for the number of people who have lost their job, and who in desperation have become self-employed. In the 1980's, I did that myself, and I know a number of people who have done the same thing today, becoming self-employed gardeners, window cleaners and so on. Often, this can involve working long hours trying to get work, or else doing work for which you pay yourself next to nothing. Many self-employed people are probably no better off than if they were on the dole. Many are forced into it, because for various reasons, now, they would not get benefits they would previously have been entitled to.

But, similarly, there will be many employed workers who are so poorly paid that they have to work long hours, or do more than one job, just to earn a passable wage. Marx explains that in Capital I, Chapter 20. He explains that this can work both ways round. If workers receive a low hourly rate, they can be encouraged, and are often keen, to work longer hours, in order to obtain the required wage. But, similarly, if working hours are long, the Supply of Labour increases, so the price of Labour falls i.e. the hourly rate declines.

This is part of the explanation of why GDP is falling, and yet the official figures for unemployment are not rising rapidly, and employment shows an increase.

But, for a healthy, dynamic economy this is not what is required. As Marx says,

This industrial revolution which takes place spontaneously, is artificially helped on by the extension of the Factory Acts to all industries in which women, young persons and children are employed. The compulsory regulation of the working-day as regards its length, pauses, beginning and end, the system of relays of children, the exclusion of all children under a certain age, &c., necessitate on the one hand more machinery and the substitution of steam as a motive power in the place of muscles. On the other hand, in order to make up for the loss of time, an expansion occurs of the means of production used in common, of the furnaces, buildings, &c., in one word, greater concentration of the means of production and a correspondingly greater concourse of workpeople.”

Tory politicians do not represent
the real interests of big productive
capital.  They represent the interests of
their core membership and electoral base.
That is the small capitalists, middle class
and Money Capitalists.  It is Social Democracy
that today represents the interests of Big Capital.
What really promoted a dynamic economy in Britain in the 19th Century, was not the kind of low wage, free for all of its early period, which finds its reflection today in the kind of demands from small business and its representatives in the Liberal-Tory Party in the UK, and its equivalents in Europe, and in the Republican Party in the US, with their demands for scrapping even basic protections for workers and so on. It was, as Marx describes the introduction of such regulation and protection for workers as that introduced by the Factory Acts. It was the organisation of workers in Trades Unions, able to demand the enforcement of those Acts, and, although those Unions, as Marx and Engels set out, could not raise wages above the Value of Labour Power during booms, and could barely prevent them falling below it, during slumps, those unions during booms could at least ensure that wages did not fall below the Value of Labour Power.

That meant that Capital had to introduce machines to replace expensive Labour, and to raise the productivity of Labour. It had to use science to introduce new techniques that raised efficiency, and so on. For example, Marx quotes the example of the earthenware manufacturers, who had objected that they couldn't possibly survive if they were subject to the Factory Acts.

In 1864, however, they were brought under the Act, and within sixteen months every “impossibility” had vanished.

'The improved method,” called forth by the Act, “of making slip by pressure instead of by evaporation, the newly-constructed stoves for drying the ware in its green state, &c., are each events of great importance in the pottery art, and mark an advance which the preceding century could not rival.... It has even considerably reduced the temperature of the stoves themselves with a considerable saving of fuel, and with a readier effect on the ware.'

In spite of every prophecy, the cost-price of earthenware did not rise, but the quantity produced did, and to such an extent that the export for the twelve months, ending December, 1865, exceeded in value by £138,628 the average of the preceding three years.”

In the 1980's we saw a similar thing in Singapore. As part of the country's development strategy, they began to discourage the lower value production, and encourage higher value production, including planning higher increases in wages. China is doing the same thing today. As labour shortages have begun to arise, workers have begun to demand up to 50% wage increases, and although the Stalinist bureaucrats are keen to keep control, they have publicly backed these demands for higher wages, as part of their strategy of moving into higher value, more profitable production, and developing a domestic consumer market.

The same is true today for the UK – and for the peripheral economies of Europe. No solution can be found down the road of austerity, low wages, and poor conditions for workers. Neither, Britain, nor even Greece or Spain can compete with the low wages, and poor conditions of a China, India or the many African developing economies, on that basis. Nor will the unsustainably low interest rates, and other measures of corporate welfare be able to keep these zombie companies afloat for long. Only by restructuring to higher value production based on high wages, and decent conditions will UK capital be able to compete in the world economy. But, the Liberal-Tory policies mitigate against that. In Part 2, I will look at why these zombie companies have arisen, and the other zombies within the economy.

Forward To Part 2

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