Changing lifestyles, not zombie companies, are the reason for low productivity

The zombie company concept was developed in Japan, to suggest that persistent low interest rates allowed heavily indebted companies (who might, at more normal rates of interest, have been liquidated) to stay in business, thus preventing the Schumpeterian creative destruction that allows the business sector to innovate and improve. It has since been applied to the UK as a possible explanation of low productivity, most recently by Liam Halligan in the Sunday Telegraph.

There are three problems with the claim. The first is that in the UK stagnant low productivity companies tend not to be heavily indebted but instead sit on cash. So low interest rates hinder, not help, them.

The second is that, according to the ONS, the UK productivity problem has been concentrated in five sectors: banking, telecoms, management consulting, gas and electricity supply and legal services. As Chris Giles and Emma Tetlow of the Financial Times point out ‘these are among the UK’s most prestigious and go-getting sectors, suggesting that mediocre companies just bumbling along are not the root of the problem’.