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.
Roll credits.
Dan McCurry is a Labour activist who blogs here
Tags: Dan McCurry, Ed Balls, George Osborne, unemployment, zombie jobs
“Keeping companies afloat” yep, called forbearance and been with us for a while.
http://blogs.channel4.com/faisal-islam-on-economics/the-end-of-forebearance-britains-roadrunner-moment/17623
Only it’s not just about demands of regulators; banks and ‘regulators’ are on the same side. That’s a fundamental of the current economic system. Serious political responsibility was negated some time back. That much became clear as the consequences of the crash unfolded surely? And the point now is can neo-liberalism survive? Well the powers that be look to be giving this a good try….. And if they succeed doubtless one day we will be preparing for our own “spring”, just a question of which decade.
I’m not sure what Dan is saying in this post, but it sounds like he accusing Osborne of supporting, to use a phrase from the past, ‘lame duck industries’ in order to hide the true cost to the employment numbers of austerity and to cause a future Labour government embarassment.
Now I’m a bit suspicious of this. Somehow I can’t imagine that supporting lame ducks is high on Osborne’s agenda. Remembering Tories who were so keen on pulling the rug from under these lame ducks back when I was much younger, I think of Enoch Powell, Keith Joseph and of course Thatcher herself. Looking at those countries which were not quite as fast to join the Hayekian bandwagon like Germany and France, it does seem that the euthanasia of the lame ducks was a long term mistake.
So if there is some secret society inside the governing Tories to protect lame ducks I, for one, applaud it. Is Dan really supporting letting more ‘ducks’ going to the wall?
Dan, you’re back to the usual stuff. Are these “zombie jobs” the same “zombie jobs” that Labour introduced by padding out the civil service and local government with non-jobs like “Outreach Worker” or ” Residents Advocate”. Yes these were “real jobs” advertised by our lefty local council.
LesAbbey, I’m not suggesting for one moment that Osborne knows what he is doing.
LesAbbey, I’m not suggesting for one moment that Osborne knows what he is doing.
Whether Osborne’s actions are by accident or design, we should not be in too much of a hurry to close the lame ducks.
I think the point is being missed here, closures are in the gift of the banks not government; and it is argued, only being avoided because of the current state of the banks balance sheets. Nothing to do with GO wishes. Lame or otherwise? Well who knows or will care, when or if our powers that be get their globally driven financial system back on track….
@e
Yes, that is what I’m saying, but in addition I’m saying that Osborne used to love telling us that we don’t know how to regulate. He doesn’t know what’s happening under his own nose.
@ Dan McCurry
I think he does. Behind a shroud of yesterday’s arguments ‘our banks’ are being allowed to waste productive time at no cost to the way they do business; the effort is to once again underpin. I don’t myself see all being well for a one nation Britain until an honest, transparent, root and branch evaluation of this essential utility is achieved. Not much to ask hey,….But was there ever a better time?
At first I was like: what’s so bad about those zombie jobs? Now I see that this is just a matter of time. I am hoping that people who are obtaining these jobs do understand that this is going to end sooner or later. Now is a perfect time to start looking for news jobs, be careful with credit cards, not take out even a single payday loan, because if (I mean when) they will become jobless previously wrong taking actions may seriously harm their position. Still maybe a miracle is about to happen and companies are going to start paying off their huge loans.