The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

Corporate Debt:
Gangrene Eating Away at the Economy

Oct 28, 2019

Translated from Lutte Ouvrière (Workers’ Struggle), the newspaper of the revolutionary workers’ group active in France.

The International Monetary Fund (IMF) published a report in mid-October warning about high levels of corporate debt in many countries. The IMF says this debt is a ticking time bomb on the scene of the approaching global economic recession.

By early this year, the total debt of companies excluding banks had risen by a fifth from two decades ago. The amount of debt is as huge now as nine-tenths of the global economy. The report lays out a worst-case scenario of recession in which 40% of all debt in the eight richest countries could be in default. That is more than in the last financial crisis. To be blunt: any predictable disruption of the global economy would lead to one bankruptcy after another.

The IMF’s figures for ratios of total business debt to a country’s economy range from 150% in China, and nearly that in France, to 75% in the USA. But adding government and household debt gives the picture of a volcano about to explode.

Since the 2008 financial crisis, companies have been taking advantage of the loans given nearly for free by governments and central banks. Even companies loaded with cash borrow. For example, Apple has 200 billion dollars in cash, but it borrowed seven billion dollars in September. Around the same time, Coca Cola and Disney borrowed 74 billion dollars. These companies borrow to buy back their own stock and give big dividends to shareholders, or to take over other companies. What they do not do is borrow to invest in production at any more than tiny levels.

Economists cynically coined the term “zombie companies” for small and medium-sized businesses with high debt. They can only survive if interest rates stay low. But as in horror movies, the axe is sure to chop. The only question is when and where. Capitalism today is like a house of cards.

The IMF and business journalists are perfectly capable of diagnosing the problem and sounding the alarm. But they are incapable of finding a remedy. That can only come from social revolution.