“In the 1990s, the American media would make fun of the Japanese and say that this happened in Japan. The United States didn’t do that. That was the attitude.”
Sharma warns that the problem is now affecting the very heart of the US economy.
“Who is capitalism for? Why are these big fat cats or these rich fields being bailed out?” Sharma asked on CNBC-TV18’s Townhall.
Speaking further about the first two centuries of capitalism, Sharma said government spending remained relatively stable and the state’s role was largely limited to essential services such as delivering mail and overseeing national defense.
However, the Great Depression exposed the vulnerabilities of a system without a safety net, prompting governments to take on a larger role in the economy, he added. What began as a necessary intervention to stabilise the economy, however, has over time become much more widespread, Sharma stressed.
Today, governments are not only concerned with providing safety nets, but are also deeply involved in rescuing private sector companies in crisis and enforcing strict regulations.
This shift, according to Sharma, has contributed to the rise of so-called “zombie companies” – businesses that are actually dead but kept alive by continued financial support.
“What are these companies? They are companies that are not able to earn enough to cover their interest and debt payments, so they have to keep going to the market every year. They have been doing this for three years in a row and they are classified as zombie companies. So let’s imagine that in the heart of capitalism this is what is happening. And in Europe it is even worse.”
In the United States, nearly 20% of all businesses can now be classified as zombies, an alarming statistic that underscores the severity of the problem.
The zombification of capitalism is not just an economic issue; it also has profound social and political implications, Sharma added.
The crisis of low productivity
An even more insidious trend that has taken hold in the West, according to Sharma, is declining productivity growth.
“Why is productivity growth slowing in the Western world, including the United States? We are in the midst of this incredible technological boom that is taking place, and yet why is productivity growth, which is the key to economic growth, slowing?… It has lost dynamism because companies are being bailed out, many dead companies, zombie companies, are being kept alive.”
The productivity of American workers, a key driver of economic growth, has been on a downward trend for years, Sharma adds, and this threatens the foundations of the capitalist system.
The problem is further exacerbated by rising national debt, Sharma notes. In fact, U.S. debt, as a percentage of its economy, is now second only to that of Japan and Italy.
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