Those were the final lines of a blog post on the structural productivity decline in the UK in the ‘Bank Underground’ blog.
Improving the economy’s supply potential is likely to require structural policies that are beyond their scope. [Link]
What follows is a comment I left on the blog post:
True, in theory. But, when monetary policy has one permanent foot on the accelerator (of liquidity) and keeps interest rates depressed, it is no longer feasible for monetary policymakers to argue that theirs is a cyclical aggregate demand management tool. Monetary policy has become a structural policy tool and monetary policymakers have also not pushed back on becoming or being the only game in town. Deep down, they welcomed it while they pretended to be wearing an uneasy crown.
Therefore, given theirs has become a structural policy tool for all practical purposes, they bear a large share of the blame for the structural decline in productivity.
In the United States, the share of zombie companies (firms that do not earn enough to service their debt) has risen to nearly a fifth of all companies in the last two decades [Link] – the period that has coincided with unprecedented monetary policy accommodation that has prevailed for most of those two decades.
The same must be true for the UK too and the Bank of England would do well to reflect on its role in the rise and perpetuation of zombie businesses in the UK and the structural decline in productivity in the country.