Posted by: David Rocks on January 7, 2009
A decade ago, Americans and Europeans criticized Japan for its so-called “zombie companies”—moribund enterprises on government-funded life support. Now, the zombies may be rising again, but this time they’re more likely to be overseas.
At least that’s what Mizuho Securities strategist Hajime Takata warns in Tokyo’s Nikkei Business Daily (I’ve provided a link to the story, but you’ll need to subscribe to read the entire text).
Takata contends that the Detroit automakers, big banks, and other U.S. and European companies getting goverment bailouts will become the new zombies. “The collapse of asset prices due to the subprime credit crisis has eroded the capital bases of many Western financial institutions, making it impossible for some to survive without public funds,” Takata writes. “Some European banks are sitting on assets worth more than their nations’ gross domestic products, leading governments to keep these ailing giants alive with injections of taxpayer money.”
That’s going to lead to what Takata calls a “worldwide beggar-thy-neighbor competition” in which “corporate-government amalgams…jockey for position in the shrinking global market.” He cautions that similar forces in the 1930s led to increased protectionism and international friction—with dire consequences.
Japan Inc., Takata says, once saw the subprime mortgage trouble as someone else’s problem, which has left them vulnerable to competition from the new foreign zombies. “Japanese companies — in both the financial and industrial sectors — need to work with the government to chart new strategic courses and build appropriate defense mechanisms,” he writes.