by Dan McCurry
We now have an explanation for why unemployment hasn’t soared in the worst recession since the first World War.
It seems that the banks are keeping failing companies afloat rather than calling in their loans, for fear of damaging their capital base and failing to comply with regulations. It is this priority of the regulators that has had the perverse effect of bunging up the unemployment market and creating a million zombie jobs.
Before you think this is a good thing, recognise that productivity is supposed to improve during a recession, instead it has slumped, causing long term damage. Meanwhile the unemployment has only been delayed. Sooner or later the banks will be forced to call in their loans. At that point, the zombie companies fold, and the workers become unemployed.
When I was working for a retail chain called Wilding Office Machines in the early ‘90s recession, the board decided to start, and then lose, a price war with Dixons. A man called Charles Wigador had built a fleet of salesmen selling mobile phones to businesses. Phones were changing from being bricks to pocket sized devices that consumers could buy, but there were no retail shops to supply them. When we were about to go bust Charles bought us out, all 120 shops, staff and head office, for a mere £100k.
For us, overnight the recession ended and we were on the cutting edge of a new business, and Britain was at the cutting edge of mobile phones. Within a couple of years, Charles sold out to a small company called Vodafone for £17 million.
If George Osborne was in charge at the time, Wildings would have been kept alive as a zombie company and Vodafone would not today exist as the largest phone company in the world. George Osborne promised the “march of the makers”, but the British economy today can best be described as the march of the zombies.
The obvious remedy is to lower the capital reserve requirements until such a time that they can rise naturally. For this government to insist on immediate higher capital, while at the same time insisting on immediate higher lending, is a impossible contradiction that everyone had warned them of.
However George Osborne wants to address the problem with his credit easing policy. The Funding for Lending scheme, which enables banks to borrow very cheaply from the Bank of England, has so far failed to increase lending, but instead has competed with savers, driving down the interest rate that the elderly were receiving before the government decided to undermine them with the unfair advantage of being in possession of a mint.
According to Investors Chronicle, “lenders are now awash with very cheap government cash and don’t need to compete for savers’ money”. This means that, “Banks are anxious to avoid offering the best rate, because they’ll attract more customers’ money and will have to pay more for it than they would for government cash.” Great. So now private enterprise between banks and savers has been curtailed, in order that this incompetent government can create a zombie banking system.
Now that the problem of zombie jobs has been identified, we should expect the cover-up to end and for the unemployment to be unleashed. Labour will probably be in power by the time this tidal wave of misery peaks. At least we’ll have policies to help cope with it, such as the new version of the future jobs fund, as well as infrastructure investment that will spur economic growth.
When this happens, you can bet the Tories will try to use it against us, even though they are the ones who created the situation. For all the arrogant lectures from George Osborne on regulation, the truth is that he’s the one who created a zombie economy.
If this were a 1950’s American B-movie, the final scene would be the death of evil doctor Osborne, the zombie creator, at the hands of our hero, dashing professor Ed Balls, the man who saved the world from zombie apocalypse.
Fade to black.
Dan McCurry is a Labour activist who blogs here