Debt: The Last 30 Years

We are marginally less constipated than before. Ideologically speaking. Thanks in large part to Jeremy Corbyn British politics has begun to move on from the mendacious obsession with public debt being the cause of the last financial crisis (and the harbinger of future ones).

Political conservation has started to appreciate the seriousness of enormous levels of private debt, which was always the elephant in the room. The Bank of England has warned of a ‘spiral of complacency’ about growing household debt, while the IMF has cautioned that the ‘rapid growth in household debt – especially mortgages – can be dangerous’. Anthropologist David Graeber says ‘the household sector is a rolling catastrophe’. Around 17 million Britons have less than £100 in savings.  And with the BoE making noises about raising interest rates from rock bottom levels, there are worries that some mortgage-holders could default, precipitating a US-style sub-prime crisis.

The problem is that all attention is directed at one kind of private debt – personal debt. And while its seriousness should not be minimised there are other sorts of private debt that merit just as much, if not more, concern:

Personal debt is not the most extreme form of private debt

Private debt can be divided into three types – financial sector debt (i.e. banks & insurance companies), corporate debt and personal or household debt. All three have grown exponentially since the start of the 1990s. According to economist Michael Roberts, what he terms ‘global liquidity’, a combination of banks loans, securitized debt and derivatives, mushroomed from 150% of world GDP in 1990 to 350% in 2011. And while in some countries, colossal financial sector debt has declined to a degree following the financial crisis, and household debt levels fell before rising once more, corporate debt, nourished by near zero interest rates, has just snowballed over the last nine years.

According to figures released by management consultants McKinsey in 2015, all forms of private debt have grown since 2007 but corporate debt has increased by double the rate of both household and financial debt, which nonetheless rose but in a more subdued manner than before the crisis (see the graphic in this article). Government debt has also exploded as financial debt was transferred to state coffers. “Nonfinancial corporate debt remains the largest component of overall in the advanced capitalist economies at 113% of GDP,” says Roberts, “compared to 104% for government debt and 90% for household debt.”

The forms that corporate debt takes vary but one of the most common is for companies to use debt to buy back their own shares. This practice, which was illegal in the United States before 1982, increases the firm’s share price in a totally artificial manner, giving the appearance of financial health and success in the marketplace. Frequently, it also personally benefits the corporate executives who authorise it as they are paid partly in stock options. In fact the corporate sector has been the main buyer of US equities since the market meltdown of 2008, engaging in what has been described as ‘the greatest debt-funded buyback spree in history’. It was estimated that in 2017 the largest US companies would spend a record $780 billion on share buy backs, though, in reality, the forecast bonanza has apparently hit a snag.

Or possibly corporate debt takes the form of shareholder loans, the practice by which one company deliberately loads another company that they own (they are the main shareholders) with huge amounts of debt which the captive company is then obliged to pay back at high rates of interest; 15 or 20% for example. The Financial Times recently highlighted the case of Arqiva which owns 9/10ths of the UK’s terrestrial TV transmission networks and, in the three years to June 2016, paid around £750 million in interest to its controlling shareholders, payments financed by borrowing.  It is now £3 billion in debt. And that’s just one company.

Household debt did not cause the 2007-8 Global Financial Crisis

What household debt did was light the touch-paper. The nationwide implosion of the housing market in America after interest rates were raised signalled the demise of all those mortgage backed securities and collateralized debt obligations but the reason it proved so devastating for the US economy and spread the crisis around the world was because of the fatal combination of household debt with gargantuan financial sector and corporate debt. The Global Financial Crisis was sparked in August 2007 (‘the day the world changed’) when French bank BNP Paribas froze its funds because of its exposure to the mortgage backed securities of the US sub-prime market. The problem wasn’t defaulting French mortgage-holders but the effects were being felt by a French bank. BNP was one of three major French banks who were collectively overleveraged to the tune of 237% of French GDP. That level of indebtedness caused the crisis to spread to Europe as hugely indebted, and now effectively insolvent, European banks called in the loans they had made to southern European governments.

Nobody can say with any assurance what the trigger will be for the next financial crisis. It might be heavily indebted US college graduates or UK credit card borrowers or Australian consumers or Dutch mortgage holders (a country which has the most indebted households in the euro area).

But it’s equally possible that the fuse will be lit from another sector of the economy entirely – massively overleveraged corporations being unable to repay their creditors when interest rates rise, for instance. In that case, households will simply be spectators to the unfolding events.

All the focus is on personal debt because it represents a morality play

In Debt: The First 5,000 Years David Graeber points out that in Sanskrit, Aramaic and Hebrew ‘debt’, ‘guilt’ and ‘sin’ are all the same word. In modern German, the word for ‘debt’ – schuld – also means guilt. “If history shows anything,” Graeber writes, “it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt – above all because it immediately makes it seem that it’s the victim who’s doing something wrong.”

The existence of enormous level of personal debt in advanced capitalist countries is a sure sign that the individual freedom these societies claim to uphold is skin deep. In reality, they are founded relations of coercion and control. To be in debt is to have someone’s boot on your neck. In the UK, high rates of personal debt are intimately related to the fact that real wages are 10 per cent lower than a decade ago. Rising personal debt is also strongly correlated to mental health problems like depression and anxiety.

From another perspective, personal debt is the symbol of our fatal addiction to consumerism, the consequence of an all-embracing need to maintain a modern lifestyle, decorated with the latest products, no matter what the cost to ourselves or the environment. Either way, personal debt unmistakably says something about the current state of society – what drives it and who is in control.

Corporate and financial sector debt, by contrast, is not only opaque, it is frightening neutral. Debt has simply become the way of doing business over the last 30 years. Debtors are frequently also creditors and companies may simultaneously indebt themselves and hoard cash. Indeed, increasing ‘leverage’ (to use the technical term) or loading debt onto captive companies (as in the Arqiva case) is often the primary means by which profits are made. No sense of shame or ‘doing something wrong’ attaches to it.

The question that should arise is why the corporate sector – financial and otherwise – has become so addicted to debt? Why is old-fashioned investment in new products or new technologies comparatively shunned?

It is possible to reduce personal debt but corporate debt is far more of an intractable problem

Theoretically it is possible to cut personal debt to more manageable and less dangerous levels.  Ending austerity, strengthening trade unions, instituting rent controls and directing efforts to raising the level of real wages should see the rates of payday loan and credit card debt diminish. I say theoretically because, interestingly, some of the highest quantities of personal debt, as a proportion of GDP, are in Scandinavian countries – nations that have impressive rates of trade union membership, collective bargaining and high personal incomes. However, those in debt in Nordic countries tend to be higher earners. In the US and UK, by contrast, personal debt often afflicts people much lower down the income scale – people who are much more likely to default given a slight change in the economic winds.

Corporate debt is a different matter entirely. The massive government bail outs of 2008 only succeeded in transferring debt from the financial sector to the state and, even then, only denting marginally the indebtedness of the banks. Corporations, whose debt had risen markedly over the previous twenty years, merely took advantage of the lower interest rate environment, to become even more indebted.

The writer and broadcaster Paul Mason says governments have to do something ‘clear and progressive about debts’. He advocates a policy of ‘financial repression’ – that is stimulating inflation and holding interest rates below the rate of inflation for 10 or 15 years as a way of writing off debt. But we can see the problems that a mild rise in the rate of inflation to the historically low level of 3% is currently causing people in the UK, with wages unable to catch up. Deliberately stoking inflation for a decade or more would surely precipitate the household debt defaults that so many people are warning about – inflation would erode the total amount of people’s debt but interest payments would still need to be met as real incomes plummeted. And if interest rates are below inflation – as they are now – the incentive for corporations to take on more debt is still there.

It is difficult to imagine how this system can gradually and progressively resolve its problems without provoking the economic collapse that everyone is so desperate to avoid.

Addendum

It's probably worth re-emphasising that when I speak about corporate debt, I'm not referring to the borrowing a company naturally needs to do to keep going and expand its operations. See - https://www.touchfinancial.co.uk/knowledge-centre/blog/4-reasons-why-successful-businesses-borrow-money

What's happening now is massive borrowing to either appear successful (share buy backs) or invest in debt to make more money. They're nothing to do with how capitalism is meant to function in the textbooks.


 

O Robot, Where Art Thou?

“The bourgeoisie cannot exist without constantly revolutionizing the instruments of production,” Karl Marx and Friedrich Engels declared in The Communist Manifesto. To Marx, capitalism was oppressive, immiserating and dehumanizing but, in the final analysis, progressive because the technological leaps it entailed paved the way for a rational, socialist society.

Nearly a hundred years later another economist, Joseph Schumpeter, made a very similar point, but this time from a pro-capitalist perspective. He referred to the “gale of creative destruction … that incessantly revolutionizes the economic structure from within, incessantly destroying the old one and incessantly creating a new one”.

The sociologist Randall Collins, whose essay on the cognitively astute robots that will progressively decimate middle class employment I reviewed in part one, relies on the same intuition. Capitalist competition dictates that the replacement of human labour with machines will inexorably go on for the next 20, 100 or theoretically 1,000 years, he claims, unless something extrinsic to the system calls time on capitalist competition.

However, capitalist competition isn’t proving as revolutionary as it’s supposed to be. Were the digital/robot revolution to be merrily scything through the analogue economy, this would show up in soaring productivity figures, which measure output per worker. In reality, productivity in the advanced capitalist countries has rarely been lower. It currents stands at 0.3%, down from the 1% of the pre-crisis years. And nothing like the 5% achieved in the 1960s and early ‘70s. In Britain, productivity fell by 0.5% in the first three months of 2017. And the productivity enigma is not limited to advanced economies – regions like Latin America show similar inertia. The gale of creative destruction has turned into an oppressive stillness.

Equally, unemployment shows scant signs of the robot revolution. If robots were stealing all the jobs, thousands of people would find themselves surplus to requirements. The official unemployment rate is 4.8% in the UK and 4.7% in the US. Assuredly, these figures need to be read in the light of the millions who have given up looking for work or are economically inactive, but they do not appear to mask steadily rising structural unemployment caused by technological displacement.

And the jobs being ‘created’ are not ones entailing the supervision of machines; they are menial. The number of hand car washes in Britain now stands at 20,000 while their mechanised equivalent, the rollover cash wash, has halved in number in ten years. In the words of one commentator, this is “a kind of reverse industrialisation”.

Collins himself notes that the “biggest area of job growth in rich countries has been low-skilled service jobs, where it is cheaper to hire human labour than to automate.” In the US, he says, one of the most impressive employment growth areas is (as of 2013 when he was writing) tattoo parlours.

This is not to claim that new technologies are not being conceived or realised. Most people, by now, have heard of 3-D printing, self-driving cars and nano-technology. But they are not being utilised in the economy. This is not a new development, though perhaps it is new for capitalism. The steam engine was invented during the Roman Empire but was not commercially exploited until the 18^th century.

David Graeber attributes part of the reason for technological stagnation to the corporate form. In Marx’s London, says Graeber, scientific and technological innovation was the order of the day because individual capitalists, rather than conglomerates, dominated. But in the 20^th century, corporations gradually extended their iron grip and creativity declined.

There is something to be said for this. The point of a corporation is not to encourage competition but stamp it out – to achieve monopoly and restrict entry to the market to other firms. Once market dominance has been achieved, you then aim to maximise take-up of your products (two or three of the same gadget for everyone) and to restrict labour costs (by moving your production to China for example). But technological innovation brought by a rival company breathing down your neck is less desirable.

However, I don’t think this tells the whole story. The really glaring declines in productivity have occurred after the 2008 financial crisis. The official story is that government stepped to make sure credit continued to flow through the system and to set the private economy back on the virtuous path of self-regulation. But in reality what emerged was the simulacrum of a competitive system, and one particularly ill-suited to technological innovation. The priority was to preserve the system, and that overriding aim sacrificed what technological dynamism there was.

It’s undisputed that what characterised the world economic system before 2008 was overwhelming debt – debt miring banks, corporations and subsequently governments, debt asphyxiating consumers as wages failed to grow. But far from falling after the crisis, debt has continued to mount. In 2015 it was revealed that global debt had risen by over 40% since 2008, climbing to $57 trillion. Ultra-low interest rates throughout the world have made that debt manageable (by minimising interest payments) even while it continues to mount.

But this ‘preservationism’ has facilitated the after-life of a growing number of ‘zombie’ companies – firms so much in debt that their income only covers the interest payments they have to make. According to the OECD, across nine European economies (including the UK), between 5 and 20% of the total sum of private capital is sunk in zombie companies. It is estimated that there are between 108,000 and 160,000 such undead companies in the UK. And there are presumably many more near zombies. It no accident that genuine technological innovation is the preserve of a few mega corporations, such as Apple, who are awash with cash. Most companies don’t want to risk investment in untried technology.

“The fundamental tenet of capitalism, which holds that some bad companies need to fail to make way for new and better ones, is being rewritten,” says one management consultant. Farewell Joseph Schumpeter.

This might explain the growth of menial, low paid, temporary work rather than robotic technology. Such work guarantees profit but requires minimal capital investment in new equipment. According to Adair Turner, the former head of the UK’s Low Pay Commission, “there is something about the economy which – left to itself – will proliferate very, very low paid jobs.” But, of course, the economy has not been ‘left to itself’ – its financial system has been subject to a multi-trillion dollar bail-out and central banks across the world are still in the process of ‘tapering down’ a Quantitative Easing programme that has created $12.3 trillion out of thin air.

This economic settlement also indicates that the scenario painted by Randall Collins – one where capitalist competition ordains the rapid robotization of the economy, throwing 50 or 70% of people out of work by mid-century – will take much longer to come to pass, if it does at all. A new and deeper financial crisis will almost certainly get their first.

However, there is, at root, something strange about dreading technological progress – desultory or transformative. Collins’ nightmarish near-future – where a tiny elite owns all the automated businesses and computer equipment and the vast majority of people fight over the scant number of jobs serving them – is peculiar to a very particular kind of social structure. One in which a person’s livelihood is dependent on whether they can make themselves useful to the ‘productive apparatus’. In these circumstances, being displaced by a machine is clearly very threatening.

But automation loses its menace if people’s income is divorced from work; if the income they receive to live on has nothing to do with their ability to sell themselves to an employer, or the capacity of a machine to perform a task more efficiently than a human can. Once this practical and conceptual breakthrough has been made, far from being something to be dreaded, technology acquires a very different complexion. It becomes something to be welcomed.

The thinker who most embodied this leap in understanding was Murray Bookchin. Back in 1965 (its five decades old lineage revealing in itself) he wrote an essay entitled Toward a Liberatory Technology that belied contemporary attitudes of ‘deep pessimism’ and fatalism towards the effects of technology. “After thousands of years of tortuous development,” Bookchin wrote, “the countries of the Western world (and potentially all countries) are confronted by the possibility of a materially abundant, almost workless era in which most of the means of life can be provided by machines.”

The real issue to Bookchin was not whether this technically transformed economy could eliminate repetitive and thankless toil, “but whether it can help to humanize society”. Technology, he claimed, did not have to enslave humanity or result in legions of passive automatons mesmerized by gadgets. It could just easily facilitate a revival of craftsmanship, producing products that people can personalise themselves or freeing them to pursue ‘unproductive’ activities.

But the primary liberatory potential of technology lay in the fact that it could give people the free time and energy to manage society themselves. Past revolutions, such as the French or the Russian, had shown tantalising glimpses of this possibility. The Parisian sections of 1789 or the Petrograd soviets (councils) of 1917 were democratic assemblies which everyone could attend and participate in the hitherto privileged act of ‘policy making’. However, the brute fact that these societies were mired in conditions of material scarcity meant, said Bookchin, that the mass of people had to return to the role of mute wage slaves reproducing the means of subsistence, while “the reins of power fell into the hands of political ‘professionals’”.

Future society – and specifically the robotized society predicted by Collins – has no such restraints. It is only the outcome of a perverse social structure that, in a material environment where robots and computers carry out the vast majority of work, people fight among themselves for the right to serve the elite. Nor is it inevitable that, as Collins predicts, that post-capitalist society oscillates between the bureaucratic oppression of central planning and market capitalism. Fully automated luxury communism can not only facilitate a self-managed society but also satisfy myriad wants far better than the Stalinist planned economies of the post-war years. “From the moment toil is reduced to the barest possible minimum or disappears entirely,” said Bookchin, “the problems of survival pass into the problems of life, and technology itself passes from being the servant of man’s immediate needs to being the partner of his (sic) creativity.”

I think three things are becoming increasingly clear: (i) Automation determined by capitalist competition will magnify current inequalities of wealth and power, leading to a dystopian future (ii) Far from revolutionizing the ‘productive forces’, the corporate, debt-riddled, state-reliant economy that has emerged from the 2008 global financial crisis is proving conspicuously bad at instituting technological innovation, preferring old-fashioned exploitation of human labour, and (iii) A post-capitalist society can choose which technologies to expedite, without any concern about the consequences of throwing people out of work. It can also facilitate enduring democratic self-management for the first time in history. Given (i) and (ii) are not remotely desirable and will likely precipitate huge conflict and war, getting to (iii), however difficult, is the only rational course of action.

Those Recession Blues

Don’t panic! A conspicuous feature of mainstream accounts of recent stock market torments is that beneath the systematic shredding of share values everything is fine. Both UK and global equities have lost approximately 9% of their value since the start of 2016 and around 20% since April last year. Nonetheless, financial experts have been on hand to point out that the real economy has not suffered from this ‘equity bloodbath’, and is not likely to.

The sage and sceptical voice of the Telegraph’s Ambrose Evans-Pritchard, despite other downbeat pronouncements, advises a cool view be taken of ‘these deranged markets’. ‘This a stock market rout we should celebrate’, he says. The New Statesman’s Go To finance analyst, Felix Martin, maintains that the ‘global economy is in reasonable shape’. Only its software, the financial system, is faulty and ‘can be debugged’.

I think we should not be taken in by these soothing utterances. There are reasons to be worried. Which become more apparent, when you consider, in depth, the reasons frequently given for why we shouldn’t be:

Stock crashes don’t always affect the real economy

This is true, historically speaking, but the reasons why it was so in the past don’t apply now. The most notable example of a stock market crash not translating into a recession or depression was 1987. Then, the US stock market lost nearly 29% of its value in three days. But a downturn did not materialise (although there was, many argue, a delayed recession from 1990-92). The reason for this was the instantaneous reaction of the US Federal Reserve under new Chairman Alan Greenspan. Interest rates were cut and $12 billion injected into the banks.

Another stock market crash in 2001, the bursting of the dot com bubble, prompted a similar response. After successive rises at the height of the boom, Interest rates were again cut - to 1% in the US and to 4% in the UK. An immediate slump was sidestepped but the seeds of the Great Recession were planted in these actions. Banks, corporations and consumers took advantage of the low rates to borrow like crazy and when interest rates were subsequently raised, the housing market folded.

The official response to the Great Recession, in addition to massive bail-outs and subsequent doses of Quantitative Easing, was to again drop interest rates – to historic lows. Last December, the US Federal Reserve edged them higher and then came to regret the decision as stock markets haemorrhaged value. In fact, they have headed in a resolutely southwards direction, even since the Federal Reserve ended its 6 year $4.5 trillion invented money, Quantitative Easing programme, in late 2014.

Thus, central banks are in an impossible situation. The traditional response to a stock market crash – slashing interest rates – is not an option if they are near zero to begin with. And increasing them to secure the breathing space to drop them again only seems to instigate the very crash you want to avoid.

This is why William White, chairman of the OECD’s review committee, said recently, “Things are so bad that there is no right answer. If they raise rates, it’ll be nasty. If they don’t raise rates, it just makes matters worse.”

This quandary is what people mean when they say central banks have no ‘ammo’ left to fight a crash. And if, in contrast to the recent past, they are bereft of weapons, then a stock market crash will inevitably infect the rest of the economy.

The global economy is not ripe for a fall

Alright, say the recession sceptics, the world economy may not be hitting the high spots of the turn of the century, but it is chugging along nicely. The ‘macro picture’ belies nothing to be concerned about. Evans-Pritchard says world economic growth has been ‘drearily stable’ for years – 3.4% in 2012, 3.3% in 2013, 3.4% in 2014, 3.1% in 2015 and forecast to be 3.4% again this year.

Moreover, the drop in oil and commodity prices, while hitting commodity producing countries and companies, (Japan, Canada, Australia, Russia, Ukraine, Brazil and Greece all experienced recessions in 2015) has been a massive shot in the arm to consumers, akin to a large tax cut. Coupled with near zero inflation, consumers are recovering from the gaping wound to their living standards inflicted after 2008. Consumer spending amounts to up to 70% of GDP in the UK and US, so, the logic goes, when consumers prosper, so do economies.

The flaw here is that there is no real evidence that falling consumer spending or faltering economic growth precipitates stock market crashes or recessions. Or that rising consuming spending is an inoculation against them. Economic growth was respectable (and much better than now), in the run-up to the 2008 crash. But the crash still happened. Research has shown a negative correlation between economic growth and consumer spending in the US. When economic growth was higher in the 1950s and ‘60s, consumer spending occupied a lower share of GDP. Conversely, 2001-10 was a decade of relatively high consumer spending, but low economic growth. The key to economic growth seems to be the level of business investment**.

Declining consumer spending is thus a consequence of recession or stock market crashes, not its cause. One variant of Marxism argues, persuasively in my view, that the crucial element is the overall profit of companies. This profit level should not be confused with profit margins* (the percentage of profit compared to total sales), which can be increased by bearing down on ‘costs’ such as wages, and are currently very healthy. By contrast, overall profit levels are, it is claimed, near post-1945 lows for US corporations, and will, in time, lead to lower business investment. Earlier this month, economists at the mega-bank JP Morgan warned of a 10% fall in corporate profits compared to a year ago. “A double digit decline in profits is a rare event outside of recessions, having been recorded only twice in the last half century,” they say.

In other ways, too, the global economy is labouring under lowering clouds. Debt levels are huge, having grown by £37 trillion since 2007. Debt has doubled in emerging markets while increasing by around a third in developed economies. And this is after the last crash, which was transformed from a bearable ‘v shaped’ recession, into a global credit crunch by huge levels of private debt.

Overall corporate leverage (debt) is at a 12 year high. It stands at $29 trillion in the US and, it is estimated, one third of companies globally are not generating high enough returns to cover their funding. European banks are especially vulnerable, think of Deutsche Bank’s recent losses and credit risks, and may have to be recapitalised ‘on a scale yet unimagined’, says the former chief economist of the Bank for International Settlements. Taking on debt to buy back shares and thus bolster the share price and apparent health of the company, has become a major activity for large US corporations over the past five years. In the words of one financial strategist, “this is not for real economic activity.”

So the major actors in the global economy, the multinational corporations, whose health will determine whether stock markets crash and economies dive into recession, are not in reasonable shape.

You can continually dodge the recession bullet

Underlying all these predictions that the global economy can weather stock market storms is a fantasy – that recession can forever be averted provided the economic fundamentals are sound enough. Before the 2008 crash, similar siren voices were insisting there was nothing to be concerned about.

But history paints a more realistic picture. Two Russian researchers, Korotayev and Tsirel have calculated that there have been six recessions since 1973. This is using the IMF’s definition of a recession – six months where global growth dips below 3%. Using the accepted developed economy recession definition, two successive quarters of contraction, there were recessions in 1974/75, 1980/81, 1990/92 and 2008/9. As opposed to none from the end of the Second World War until the mid-seventies. So, if recent history is any guide, the question is not if, but when.

‘What happens when’ is the crucial question. Because the recession that awaits us is not an ordinary one. By ordinary, I mean a V-shaped downturn during which growths dips below zero and then swiftly recovers. The 2008 slump was not ordinary. It was so prolonged, sweeping and deep because it was accompanied by massive debt contraction on the part of over-leveraged banks and corporations. The signature products of the crash – credit default swaps and collatarized debt obligations - betray exactly what was going on.

Nothing in the official reaction to the 2008 crash, the lowering of interest rates and propping up markets with masses of confected money (QE), has done anything to deal with these underlying causes. It’s why one economist has condemned the worldwide governmental response as “self-contradictory and doomed to failure”.

Thus, the next recession is likely follow a similar course to the last, with the exception that governments have exhausted their ammunition to combat the contagion.

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” said William White, chairman of the OECD’s review committee last month. “It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something.”

The critical assumption here is the inevitability of the next recession and what will follow its in wake. Then we will see if governments really are bereft of ammunition or can conjure yet more monetary tricks to kick the can further down the road. If they can’t, the consequences will be profound.

 *As far as I understand, it is quite possible for a business to increase its profit margins (by cracking down on wages, utilising zero hour contracts or slashing the marketing budget) but reduce its overall profit. Conversely a business can increase profit levels by expanding (taking on more staff, moving to bigger premises etc) yet reduce profit margins. But the long-term aim would be to increase profit and, in time, profit margins. Since 2008, many companies have followed, not the traditional maxim of ‘grow or die’, but rather ‘sweat or die’.

** If this is true, it is a damning indictment of a major plank of public policy over the last 40 years – slashing corporate taxation as a way, it is claimed, of giving businesses more money to invest and thus create jobs. An approach known as supply side economics. Actually business investment as a share of GDP has fallen in most developed countries since 1980. A period when recessions have become much more common.