Despite the gloomy picture, many economists say a bloodletting of zombie firms – handled the right way – may actually be a good thing in the long run.
Some have theorised that a rising number of zombified companies since the Great Recession is partly to blame for Britain’s pitiful productivity gains since 2008.
Patrick Minford, the Cardiff University economics professor favoured by Tory leadership frontrunner Liz Truss, recently argued that hiking interest rates would deliver a healthy dose of economic medicine by thinning the zombie herd.
“Zombie companies interfere with productivity,” he explains, “because the normal process of capitalism is for companies that don’t make money to leave the market, while companies that can make money get funds and create products that are profitable.
“There’s quite a lot of evidence that there are now a lot of zombie companies that should have gone but are hanging on because the cost of capital has gone so low.
“That’s a result of monetary policy – rates have been at pretty much zero for a decade – so it has been really easy for companies to survive on borrowed money, because they’re not paying any interest.
“In my view, interest rates ought to get back to a normal level, so there’s a return to savers and a cost to borrow – a real cost.
“That, I think, will be a healthy discipline on the market.”
The drag on productivity from zombie firms, he argues, is even more pronounced when the labour market is so tight, because those firms are employing people whose time could be more usefully spent at better businesses.
Palmer, at Begbies Traynor, agrees that the demise of zombie companies is not necessarily a bad thing.
“They will have shown signs of distress for a long period of time but have just been able to sort of stumble on and keep themselves afloat,” she explains.
“You might say that’s good, because if those businesses fall over there’s livelihoods and jobs behind them.
“But what normally happens is the zombie businesses fail and the better-capitalised businesses pick up that market share, and are able to use that working capital much more efficiently and the jobs tend to get recirculated by those better-run businesses.”
The LSE’s Van Reenen warns there remain significant risks, however. Andrew Bailey, the Bank of England’s governor, and his fellow rate setters face a conundrum: hike rates too quickly and a steady trickle of zombie firm failures could quickly morph into an uncontrollable torrent.
Yet the need to quell rampant inflation may force the Bank’s hand.
“In the natural order of things, the zombie firms will go down and their assets will be reallocated to other firms,” Van Reenen adds.
“But you’ve got to be careful about when that happens, because if it all happens at the same time, instead of people leaving the zombies and working for the healthy, thriving companies, those people may end up just being unemployed.
“So that’s a tricky call for policymakers; how you wind down the zombie part of the economy without throwing a lot of resources and people and assets out of business, which would be the worst of all worlds.
“You’d obviously like to have a slower transition rather than a hard landing. But it’s hard to see how that’s going to happen – because in order to keep inflation under control the Bank has got to raise interest rates.”
On the plus side, Britain’s low levels of unemployment and strong jobs market may help to cushion the blow as the zombie horde collapses.
But regardless, Fleming and his colleagues are expecting to do brisk business – certainly enough to warrant fielding a few calls from the beach.
“Business is escalating,” he says. “2023 and 2024 will be very busy years. We’re coming off a coma.”
