Menu Expand

Cite JOURNAL ARTICLE

Style

Schlotmann, O., Eberhardt, F. The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide. Credit and Capital Markets – Kredit und Kapital, 53(1), 17-42. https://doi.org/10.3790/ccm.53.1.17
Schlotmann, Olaf and Eberhardt, Frank "The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide" Credit and Capital Markets – Kredit und Kapital 53.1, 2020, 17-42. https://doi.org/10.3790/ccm.53.1.17
Schlotmann, Olaf/Eberhardt, Frank (2020): The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide, in: Credit and Capital Markets – Kredit und Kapital, vol. 53, iss. 1, 17-42, [online] https://doi.org/10.3790/ccm.53.1.17

Format

The Costs of Zombification in Europe: Why Austrian Economics Fails and the Empirical Findings for Japan are a Misleading Guide

Schlotmann, Olaf | Eberhardt, Frank

Credit and Capital Markets – Kredit und Kapital, Vol. 53 (2020), Iss. 1 : pp. 17–42

Additional Information

Article Details

Author Details

Prof. Dr. Olaf Schlotmann, Brunswick European Law School; Ostfalia Hochschule für angewandte Wissenschaften, Salzdahlumer Str. 46/48, 38302 Wolfenbüttel

Frank Eberhardt, Brunswick European Law School; Ostfalia Hochschule für angewandte Wissenschaften

References

  1. Ademmer, M./Jannsen, N. (2018): Post crisis business investment in the euro area and the role of monetary policy, in: Applied Economics Vol. 50: 34–35, pp. 3787–3797.  Google Scholar
  2. Autor, D. H./Dorn, D./Hanson, G. H. (2013): The China Syndrome: Local Labor Market Effects of Import Competition in the United States, in: American Economic Review 103, 6, pp. 2121–2168.  Google Scholar
  3. Banerjee, R./Hofmann, B. (2018): The Rise of Zombie Firms. Causes and consequences. in: BIS Quarterly Review: International Banking and Financial Market Developments, pp. 67–78.  Google Scholar
  4. Borio, C. E. V. (2018): A Blind Spot in Today’s Macroeconomics? Panel Remarks on BIS-IMF-OECD Joint Conference on “Weak Productivity: The Role of Financial Factors and Policies”, Paris.  Google Scholar
  5. Borio, C. E. V./Kharroubi, E./Upper, C./Zampolli, F. (2015): Labour Reallocation and Productivity Dynamics. Financial Causes, Real Consequences. in: BIS working papers, No. 534, Bank for International Settlements Monetary and Economic Department, Basel.  Google Scholar
  6. Bosse, F. (2002): Japan: Wirtschaftliche Strukturen, Bundeszentrale für politische Bildung. http://www.bpb.de/izpb/10174/wirtschaftliche-strukturen?p=all.  Google Scholar
  7. Brunnermeier, M./Koby, Y.: “The ‘Reversal Rate’: Effective Lower Bound on Monetary Policy”, presented at the BIS research network meeting, 14 March 2016. https://www.bis.org/events/confresearchnetwork1603/brunnermeier.pdf.  Google Scholar
  8. Caballero, R. J. /Hoshi, T./Kashyap, A. K. (2008): Zombie Lending and Depressed Restructuring in Japan. in: American Economic Review 98 (5), pp. 1943–1977.  Google Scholar
  9. Cowen, T. (2011): The Great Stagnation, New York.  Google Scholar
  10. Feldstein, M. (2018): Why Is the Fed Still Raising Interest Rates?, Project Syndicate. https://www.project-syndicate.org/commentary/three-reasons-for-fed-interest-rate-increases-by-martin-feldstein-2018-12?barrier=accesspaylog.  Google Scholar
  11. Gordon, R. J. (2010): Revisiting U. S. Productivity Growth over the Past Century with a View of the Future, NBER Working Paper Nr. 15834, March 2010.  Google Scholar
  12. Goto, Y./Wilbur, S. (2019): Unfinished Business: Zombie firms among SME in Japan`s lost decades, in: Japan & The World Economy 49, pp. 105–112.  Google Scholar
  13. Gouveia, A. F./Osterhold, C. (2018): Fear the Walking Dead. Zombie Firms, Spillovers and Exit Barriers, in: OECD productivity working papers, No. 13, June 2018, Paris.  Google Scholar
  14. Harford, T. (2018): Zombie Companies Walk Among Us, in: Financial Times, February 23th 2018.  Google Scholar
  15. Hayek, F. A. (1931): Prices and Production). London.  Google Scholar
  16. Hoffmann, A./Schnabl, G. (2018): Warum der frühe Ausstieg aus der finanziellen Repression lohnt. Austrian Institute Paper Nr. 19.  Google Scholar
  17. Jorda, O./Schularick, M./Taylor, A. N. (2014): The Great Mortgaging: Housing Finance, Crises and Business Cycles. HKIMR Working Paper No. 25, Hong Kong.  Google Scholar
  18. Keynes, J. M., (1936): General Theory, London.  Google Scholar
  19. King, M. (2016): The End of Alchemy. London.  Google Scholar
  20. Köhler, H.-D. (2010): Spanien in Zeiten der globalen Wirtschaftskrise, Bundeszentrale für politische Bildung. http://www.bpb.de/apuz/32536/spanien-in-zeiten-der-globalen-wirtschaftskrise?p=all.  Google Scholar
  21. Koo, R. (2009): The Holy Grail of Macroeconomic Lessons from Japan`s Great Recession, Hoboken, NJ.  Google Scholar
  22. Koo, R. (2014): Blance sheet recession ist he resason for “secular stagnation.” https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation.  Google Scholar
  23. Kremer, D. (2019): Drohen uns Jahrzehnte ohne Zinsen?, in: Frankfurter Allgemeine Zeitung, April 06th 2019, https://www.faz.net/aktuell/finanzen/meine-finanzen/sparen-und-geld-anlegen/nullzinszeit-drohen-uns-jahrzehnte-ohne-zinsen-16128064.html.  Google Scholar
  24. McGowan, M. A./Andrews, D./Millot, V. (2017): The Walking Dead? Zombie Firms and Productivity Performance in OECD Countries, in: OECD Economics Department working papers, no. 1372, Paris.  Google Scholar
  25. Meurers, M. (2003): Japan – Aufschwung auf fragilem Untergrund, in: Ifo-Schnelldienst 56 (21), pp. 42–51.  Google Scholar
  26. Obstfeld, M./Duval, R. (2018), Tight Monetary Policy Is Not the Answer to Weak Productivity Growth. https://voxeu.org/article/tight-monetary-policy-not-answer-weak-productivity-growth.  Google Scholar
  27. Schivardi, F./Sette, E./ Tabellini, G. E. (2017): Credit Misallocation During the European Financial Crisis, Temi di discussione / Banca d'Italia, No. 1139, September 2017.  Google Scholar
  28. Schlichtmann, K. (2002): Wirtschaft, Gesellschaft und Außenpolitik Japans, Bundeszentrale für politische Bildung. http://www.bpb.de/apuz/25278/wirtschaft-gesellschaft-und-aussenpolitik-japans?p=all.  Google Scholar
  29. Schlotmann, O. (1997): Die deutsche Zeitstruktur der Zinssätze im Lichte der Wicksellschen Kredittheorie, Frankfurt.  Google Scholar
  30. Schlotmann, O. (2013): Zentralbanken, Sparflut oder säkulare Stagnation: Wer ist schuld an den niedrigen Zinsen? http://www.oekonomenstimme.org/artikel/2013/12/zentralbanken-sparflut-oder-saekulare-stagnation-wer-ist-schuld-an-den-niedrigen-zinsen/.  Google Scholar
  31. Schlotmann, O. (2017): Chicago Plan und Vollgeld als Alternative zum Kreditgeld: ein Weg zu stetigem Wachstum? Wirtschaftsdienst Dezember 2017, Volume 97, (12), pp. 889–895.  Google Scholar
  32. Schmelzing, P. (2020): Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018, Bank of England Staff Working Paper No. 845. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018.pdf?la=en&hash=5197703E8834998B56DD8121C0B64BFB09FF4881.  Google Scholar
  33. Schnabl, G. (2018): Die Effekte der ultralockeren Geldpolitik sind politischer Sprengstoff, Interview mit Michael Rasch, in: Neue Zürcher Zeitung, March 7th 2018.  Google Scholar
  34. Schumpeter, J. A. (1934): The Theory of Economic Development, translated by R. Opie, Cambridge, (MA).  Google Scholar
  35. Schumpeter, J. A. (1939): Business Cycles, New York.  Google Scholar
  36. Sinn, H.-W./Schnabl, G. (2016): Mario Draghi die Bazooka entreißen, in: Frankfurter Allgemeine Zeitung, April 16th 2016.  Google Scholar
  37. Starbatty, J./Stark, J. (2016): Schumpeter versus Keynes, in: Frankfurter Allgemeine Zeitung, December 30th 2016.  Google Scholar
  38. Storz, M./Koetter, M./Setzer, R./Westphal, A. (2017): Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe, in: Working paper series/European Central Bank, no 2104, October 2017, Frankfurt am Main.  Google Scholar
  39. Summers, L. H./Stanbury, A. (2019): Whither Central Banking, Project Syndicate. https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08.  Google Scholar
  40. Turner, A. (2016): Between the Debt and the Devil. Princeton.  Google Scholar
  41. Wicksell, K. (1936): Interest and Prices, translated by R. F. Kahn, New York.  Google Scholar
  42. Wieland, V./Afanasyeva, E./Yoo, J./Kuete, M. (2016): New Methods for Macro-Financial Model Comparison and Policy Analysis, in Taylor J. B./Uhlig H. (eds.): Handbook of Macroeconomics, Vol 2, North Holland/Elsevier.  Google Scholar
  43. Ademmer, M./Jannsen, N. (2018): Post crisis business investment in the euro area and the role of monetary policy, in: Applied Economics Vol. 50: 34–35, pp. 3787–3797.  Google Scholar
  44. Autor, D. H./Dorn, D./Hanson, G. H. (2013): The China Syndrome: Local Labor Market Effects of Import Competition in the United States, in: American Economic Review 103, 6, pp. 2121–2168.  Google Scholar
  45. Banerjee, R./Hofmann, B. (2018): The Rise of Zombie Firms. Causes and consequences. in: BIS Quarterly Review: International Banking and Financial Market Developments, pp. 67–78.  Google Scholar
  46. Borio, C. E. V. (2018): A Blind Spot in Today’s Macroeconomics? Panel Remarks on BIS-IMF-OECD Joint Conference on “Weak Productivity: The Role of Financial Factors and Policies”, Paris.  Google Scholar
  47. Borio, C. E. V./Kharroubi, E./Upper, C./Zampolli, F. (2015): Labour Reallocation and Productivity Dynamics. Financial Causes, Real Consequences. in: BIS working papers, No. 534, Bank for International Settlements Monetary and Economic Department, Basel.  Google Scholar
  48. Bosse, F. (2002): Japan: Wirtschaftliche Strukturen, Bundeszentrale für politische Bildung. http://www.bpb.de/izpb/10174/wirtschaftliche-strukturen?p=all.  Google Scholar
  49. Brunnermeier, M./Koby, Y.: “The ‘Reversal Rate’: Effective Lower Bound on Monetary Policy”, presented at the BIS research network meeting, 14 March 2016. https://www.bis.org/events/confresearchnetwork1603/brunnermeier.pdf.  Google Scholar
  50. Caballero, R. J. /Hoshi, T./Kashyap, A. K. (2008): Zombie Lending and Depressed Restructuring in Japan. in: American Economic Review 98 (5), pp. 1943–1977.  Google Scholar
  51. Cowen, T. (2011): The Great Stagnation, New York.  Google Scholar
  52. Feldstein, M. (2018): Why Is the Fed Still Raising Interest Rates?, Project Syndicate. https://www.project-syndicate.org/commentary/three-reasons-for-fed-interest-rate-increases-by-martin-feldstein-2018-12?barrier=accesspaylog.  Google Scholar
  53. Gordon, R. J. (2010): Revisiting U. S. Productivity Growth over the Past Century with a View of the Future, NBER Working Paper Nr. 15834, March 2010.  Google Scholar
  54. Goto, Y./Wilbur, S. (2019): Unfinished Business: Zombie firms among SME in Japan`s lost decades, in: Japan & The World Economy 49, pp. 105–112.  Google Scholar
  55. Gouveia, A. F./Osterhold, C. (2018): Fear the Walking Dead. Zombie Firms, Spillovers and Exit Barriers, in: OECD productivity working papers, No. 13, June 2018, Paris.  Google Scholar
  56. King, M. (2016): The End of Alchemy. London.  Google Scholar
  57. Harford, T. (2018): Zombie Companies Walk Among Us, in: Financial Times, February 23th 2018.  Google Scholar
  58. Hayek, F. A. (1931): Prices and Production). London.  Google Scholar
  59. Hoffmann, A./Schnabl, G. (2018): Warum der frühe Ausstieg aus der finanziellen Repression lohnt. Austrian Institute Paper Nr. 19.  Google Scholar
  60. Jorda, O./Schularick, M./Taylor, A. N. (2014): The Great Mortgaging: Housing Finance, Crises and Business Cycles. HKIMR Working Paper No. 25, Hong Kong.  Google Scholar
  61. Keynes, J. M., (1936): General Theory, London.  Google Scholar
  62. Köhler, H.-D. (2010): Spanien in Zeiten der globalen Wirtschaftskrise, Bundeszentrale für politische Bildung. http://www.bpb.de/apuz/32536/spanien-in-zeiten-der-globalen-wirtschaftskrise?p=all.  Google Scholar
  63. Koo, R. (2009): The Holy Grail of Macroeconomic Lessons from Japan`s Great Recession, Hoboken, NJ.  Google Scholar
  64. Koo, R. (2014): Blance sheet recession ist he resason for “secular stagnation.” https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation.  Google Scholar
  65. Kremer, D. (2019): Drohen uns Jahrzehnte ohne Zinsen?, in: Frankfurter Allgemeine Zeitung, April 06th 2019, https://www.faz.net/aktuell/finanzen/meine-finanzen/sparen-und-geld-anlegen/nullzinszeit-drohen-uns-jahrzehnte-ohne-zinsen-16128064.html.  Google Scholar
  66. McGowan, M. A./Andrews, D./Millot, V. (2017): The Walking Dead? Zombie Firms and Productivity Performance in OECD Countries, in: OECD Economics Department working papers, no. 1372, Paris.  Google Scholar
  67. Meurers, M. (2003): Japan – Aufschwung auf fragilem Untergrund, in: Ifo-Schnelldienst 56 (21), pp. 42–51.  Google Scholar
  68. Obstfeld, M./Duval, R. (2018), Tight Monetary Policy Is Not the Answer to Weak Productivity Growth. https://voxeu.org/article/tight-monetary-policy-not-answer-weak-productivity-growth.  Google Scholar
  69. Schivardi, F./Sette, E./ Tabellini, G. E. (2017): Credit Misallocation During the European Financial Crisis, Temi di discussione / Banca d'Italia, No. 1139, September 2017.  Google Scholar
  70. Schlichtmann, K. (2002): Wirtschaft, Gesellschaft und Außenpolitik Japans, Bundeszentrale für politische Bildung. http://www.bpb.de/apuz/25278/wirtschaft-gesellschaft-und-aussenpolitik-japans?p=all.  Google Scholar
  71. Schlotmann, O. (1997): Die deutsche Zeitstruktur der Zinssätze im Lichte der Wicksellschen Kredittheorie, Frankfurt.  Google Scholar
  72. Schlotmann, O. (2013): Zentralbanken, Sparflut oder säkulare Stagnation: Wer ist schuld an den niedrigen Zinsen? http://www.oekonomenstimme.org/artikel/2013/12/zentralbanken-sparflut-oder-saekulare-stagnation-wer-ist-schuld-an-den-niedrigen-zinsen/.  Google Scholar
  73. Schlotmann, O. (2017): Chicago Plan und Vollgeld als Alternative zum Kreditgeld: ein Weg zu stetigem Wachstum? Wirtschaftsdienst Dezember 2017, Volume 97, (12), pp. 889–895.  Google Scholar
  74. Schmelzing, P. (2020): Eight centuries of global real interest rates, R-G, and the ‘suprasecular’ decline, 1311–2018, Bank of England Staff Working Paper No. 845. https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2020/eight-centuries-of-global-real-interest-rates-r-g-and-the-suprasecular-decline-1311-2018.pdf?la=en&hash=5197703E8834998B56DD8121C0B64BFB09FF4881.  Google Scholar
  75. Schnabl, G. (2018): Die Effekte der ultralockeren Geldpolitik sind politischer Sprengstoff, Interview mit Michael Rasch, in: Neue Zürcher Zeitung, March 7th 2018.  Google Scholar
  76. Schumpeter, J. A. (1934): The Theory of Economic Development, translated by R. Opie, Cambridge, (MA).  Google Scholar
  77. Schumpeter, J. A. (1939): Business Cycles, New York.  Google Scholar
  78. Sinn, H.-W./Schnabl, G. (2016): Mario Draghi die Bazooka entreißen, in: Frankfurter Allgemeine Zeitung, April 16th 2016.  Google Scholar
  79. Starbatty, J./Stark, J. (2016): Schumpeter versus Keynes, in: Frankfurter Allgemeine Zeitung, December 30th 2016.  Google Scholar
  80. Storz, M./Koetter, M./Setzer, R./Westphal, A. (2017): Do We Want These Two to Tango? On Zombie Firms and Stressed Banks in Europe, in: Working paper series/European Central Bank, no 2104, October 2017, Frankfurt am Main.  Google Scholar
  81. Summers, L. H./Stanbury, A. (2019): Whither Central Banking, Project Syndicate. https://www.project-syndicate.org/commentary/central-bankers-in-jackson-hole-should-admit-impotence-by-lawrence-h-summers-and-anna-stansbury-2-2019-08.  Google Scholar
  82. Turner, A. (2016): Between the Debt and the Devil. Princeton.  Google Scholar
  83. Wicksell, K. (1936): Interest and Prices, translated by R. F. Kahn, New York.  Google Scholar
  84. Wieland, V./Afanasyeva, E./Yoo, J./Kuete, M. (2016): New Methods for Macro-Financial Model Comparison and Policy Analysis, in Taylor J. B./Uhlig H. (eds.): Handbook of Macroeconomics, Vol 2, North Holland/Elsevier.  Google Scholar

Abstract

Supporters of the Austrian School of Economics and a number of empirical studies have claimed that the increasing number of “zombie” companies is a supply-side reason for the low growth rates in Europe. Often, these studies cite empirical findings for Japan to justify their claims, and conclude that in order to overcome the stagnation phase, bad investments and thus zombie companies should be eliminated from the production process. However, such creative destruction can only prove beneficial if innovative and highly productive companies replace these zombies under full utilization of resources. We ask whether findings on the zombie problem from empirical studies on Japan can be applied directly to the current European situation. We present facts contradicting the idea that productive companies would not have been able to exploit their growth potential in (southern) Europe, allegedly because they could not have found suitable employees since these were tied up in zombie companies on a massive scale. Even under the false assumption of full employment in Europe, existing empirical work shows that the losses due to zombification are only around 3.6?% of GDP over 10 years. In our calculation, that would be 100 euros per capita and year currently far too little to call for a drastic change in ECB monetary policy towards past long-run average short-term rates.