When companies get into such financial difficulties that they cannot meet interest payments out of profits, they’re referred to as ‘zombie firms’. During recessions, many firms will find themselves in this predicament. Any subsequent recovery may be weakened if large numbers of such firms are still clinging on, possibly by meeting interest payments through further borrowing – perhaps combined with slashing their investments in training and R&D. In ‘Not all zombies are created equal. A Marxist-Minskyan taxonomy of firms: United States, 1950-2019’, Nicolás Águila & Juan M. Graña develop a taxonomy of firms that is more sophisticated than just ‘zombie’ or ‘non-zombie’ (according to the above description of being able to meet interest payments out of current profits). They look also at firms’ actual levels of profitability, and at leverage ratios. Their aim is to look beyond the financial characteristic – of being able to meet interest from profits – to consider productive characteristics as well. Their main finding is that the principal problem of U.S. firms is productive, not financial – as there is a high share of firms with increasingly negative profitability even before the payment of interest and despite having relatively low leverage. In other words, even taking the financial issue of needing to repay loans out of the equation, these firms aren’t productive enough to make any profit at all. Hence, they argue:
In this context, our analysis points to the insufficiency of policies aimed at granting firms in this condition cheap loans. Without improvements in their productive characteristics leading to higher productivity and therefore profitability, low interest rates will only manage to artificially extend the life of zombie firms. However, the opposite policy of increasing interest rates and contracting credit could lead to the bankruptcy of both zombie and non-zombie firms with troubling consequences in terms of employment. Because of this, the state should introduce credit guidance measures articulated with industrial policies for structural transformation. The consequence might be that some degree of creative destruction is needed, but the state should manage the process to ensure that workers do not bear the burden.
It’s not just firms that require access to finance – people do too. Having access to finance provides people with opportunities they wouldn’t otherwise have. But not all people are treated equally. Some will have more access to finance than others. Men, for example, have historically had more access to finance than women. This is despite the evidence from microfinance that women tend to be more reliable recipients of finance than men. In ‘Financial inclusion and women’s bargaining power: evidence from India’, Julia Jose & Javed Younas investigate women’s access to finance, and the effect it has. Quite aside from the above point about microfinance – which is that women tend to make good use of finance beyond the household – Jose and Younas find that removing barriers for women increases their independence, and their say in household decision-making.
Other articles in this issue range from a comparison of the net social wage in China and the United States, to the link between export sophistication and economic performance. The closing article looks at the environmental harms done by tourism. This is important, not only because environmental actions is required in all sectors, but also because tourism was one of the fastest-growing sectors of the global economy before the COVID-19 pandemic, and accounts for around ten per cent of global GDP. In ‘Dirty dance: tourism and environment’, Serhan Cevik investigates the impact of tourism on CO2 emissions in fifteen Caribbean countries, and concludes that managing tourism sustainably requires a comprehensive set of policies and reforms, aimed at reducing the negative environmental impact, and curbing excessive dependency on fossil fuel-based energy consumption. This is necessary not only to tackle the climate crisis, but also to protect and develop this sector of their economy, to reassure potential visitors that the ecological impact is being managed. And at the same time, investment is needed to make these countries more resilient in the face of climate change which is here already.