![]() ![]() This mechanism also contributes to the emergence of zombies in the economy, but they are fundamentally different from the above-mentioned orthodox zombies. At the same time, central banks, along with the implementation of an accommodative monetary policy, have weakened the regulatory function in relation to banks (Lenzu, Wang, Acharya, 2021).Īccording to some studies, there is a direct link between low interest rates and the rise of zombie companies in the economy (Blažková, Chmelíková, 2022). In particular, governments have begun to provide direct support (subsidizing) to firms through financial assistance programs (Song, Su, Wang, 2021). ![]() Yet, this is not at all surprising, given that the government stimulus used to support the economy (Hoshi, Kawaguchi, Ueda, 2023 Stiglitz, Rashid, 2020), in the conditions of the economic crisis caused by the pandemic (Papava, 2020a), contributed to the emergence of a new wave of the process of zombification of the economy (Papava, 2020b).īoth under the global financial and economic crisis of 2008-2009 and after it (including the economic crisis caused by the COVID-19 pandemic), new tools have emerged to form and support the zombie economy. The process of zombification of companies and banks not only failed to stop after this crisis, but gradually became one of the main challenges facing the global economy (Krugman, 2020).ĭuring the COVID-19 pandemic, the problem of zombification of the economy became a heightened reality (Donnan, 2020 Lee, Contiliano, 2020 Schepens, Schnabel, Laeven, 2020 Zingales, 2021). For greater clarity, this type of zombie economy, of so-called “Japanese origin” as the initial phenomenon, which is based on the existence of non-paying companies supported by government financial guarantees should, in my opinion, be named the Orthodox Zombie Economy.ĭuring the global financial and economic crisis of 2008-2009, the process of zombification of economies was seen almost worldwide (Desjardins, Emerson, 2011 Harman, 2009 Onaran, 2012 Quiggin, 2010). It was on the basis of this scheme that the zombie economy was born in its historical “homeland” –Japan. This scheme for the formation and support of the zombie economy is, in some cases, still used today. ![]() In turn, the government provides financial guarantees to zombie companies based on the interest of preventing their bankruptcy, which would cause the loss of the votes in political elections of those voters who were unemployed due to this bankruptcy. Thus, zombie banks appear in the banking system, and they, together with zombie companies, create a zombie economy (Kane, 2000). Banks are ready to lend to insolvent companies because they are insured by these government financial guarantees (Smith, 2003). Historically, it was precisely this support that characterized the emergence of zombie companies during the financial crisis in Japan in the 1990s (Hoshi, 2006), seeing zombie companies receive loans from commercial banks through financial guarantees issued by the government (Hoshi, Kashyap, 2005). Of the various forms of state support for zombie companies, the provision of government financial guarantees to these companies should be highlighted. In particular, the essence of this support is to provide these companies with government financial guarantees (through which these companies can take out new loans from banks), to provide direct support to firms through financial assistance programs, as well as to weaken the micro- and macro-prudential supervisory rules (e.g. Such a “relatively long time,” during the profit coverage ratio of debts below one, is considered as three consecutive years (GS, 2022).Ī logical question arises – due to why do zombie companies and zombie banks exist?Īs international experience of the functioning of the zombie economy shows, insolvent companies continue to exist due to extraordinary financial support from governments and central banks. It is necessary to consider the question in the context of what kind of economic zombies we are talking about, which is the subject of this analysis.Īccording to a common definition, zombie companies are generally considered to be companies that are insolvent, according to their declared negative profits, for a relatively long time, but which nevertheless continue to operate (e.g. In my opinion, the problem of ridding ourselves of zombies in the economy is not so simple as to be solved by exceptionally high inflation.
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