Growth versus zombies

Everybody’s talking about and expecting growth to come about like a gift from heaven. One thing is certain: There will be no growth as long as banks and the rules of the game allow zombie companies to survive when healthy ones are being punished with hopelessly high interest rates and there is constant pressure to stop the funding flow.

From coastal shipping to the car trade, fish farming and the metals industry, the crisis has brought several once-thriving sectors to the brink of disaster. Certain firms have taken out huge loans and will never become sustainable, even if the economy does recover. And of course there is absolutely no chance they will ever pay back their debts.

Bankers deal with such companies in fear because they know that if they pull the plug they will have to report losses. The owners are aware of this and go about their business in a careless fashion, sometimes even displaying the arrogance drawn from knowing that by owing so much you become untouchable. There are examples of this in every sector. Businessmen carry on the debauchery of the past, banks remain inactive and companies suffer at the hands of bad management. Going bankrupt is not a solution because the procedure is painful and long and usually ends up in an endless legal deadlock.

Meanwhile, enterprises which could survive end up suffering. The “condemned” have nothing to lose: They lower their prices, manipulate competition and generally suck up any oxygen left in their field. Banks are powerless when it comes to the zombies so they seek to squeeze the ones which are still healthy.

This could change if banks became more decisive and acquired the necessary tools to go a step further. The dilemma cannot be inaction or bankruptcy. A troubled business whose shareholders don’t have the means or don’t want to invest, or refuse a strategic investor or some kind of recovery plan should go to the banks, which in turn will seek potential buyers. Otherwise, the Greek economy will soon be filled with real zombies as well as healthy companies which will turn into collateral damage.

Attention should be paid to arbitrariness, scams and all the rest of it. We have already observed such practices with enterprises which are closing and leaving outstanding debts to their suppliers only to open shop next door under a new name. Capitalism is based on creativity cycles which are usually followed by disaster cycles. Inaction and refusing to find solutions to vital problems could lead to a kind of Greek capitalism where you risk throwing out the baby with the bathwater. Experienced bankers and market people should sit down together and find a solution to this crucial problem.