From: Gerald_A_Levy@MSN.COM
Date: Fri Dec 24 2004 - 10:17:41 EST
> _Replacement Investment Patterns_ > Because the installation of long‑lived capital goods is likely to > disrupt production, one might expect that long‑lived investments would > be installed or significantly upgraded during contractions when plant > and equipment is used less intensively (S. Moss, 1984, p. 297). Michael P, I think that makes sense -- from a *technical* standpoint -- for many industrial branches of production, especially those that employ assembly line and/or continuous production technologies. Also occurring during the same period, though, are plant closures which can have the consequence of decreasing the average 'lifetime' of constant fixed capital even when there isn't increased replacement investment. > [...] During the Depression, firms weeded out inefficient plant and > equipment, creating a much newer capital stock (Staehle, 1955, p. 124). > By 1939, one‑half of all manufacturing equipment in the US that had > existed in 1933 had been replaced (Staehle, 1955, p. 127). Thereafter, > business produced as much output as a decade before with 15 per cent > less capital and 19 per cent less labour (Staehle, 1955, p. 133). > French productivity also improved noticably during the Depression > (Aldrich, 1987, p. 98, citing Carr'e, Dubois and Malinvaud, 1972). The Great Depression of the 1930's may be exceptional in this regard. E.g. its length was exceptional. It certainly doesn't show an empirical trend. (Also, in the case of France during the Depression, I am suspicious of increased productivity as an indicator of increased replacement investment since during periods of crisis when the industrial reserve army is large, the intensity of labor also tends to be significantly higher. And an increased intensity of labor would cause by itself a noticeable increase in productivity.) > Similarly, in the recessionary period of 1982‑4, only 20 per cent of > West German manufacturers replying to IFO's investment survey gave > capacity expansion as their motive for investment; 55 per cent cited > rationalization (Anon., 1985a, p. 69). Those kinds of surveys of manufacturers are notoriously inaccurate and often biased (and, as in this case, quite incomplete). In any event, it is to be expected that during a period of time when firms have unsold inventory and when demand is weak that increasing capacity isn't going to be a major corporate goal. > [...] Once the economy begins to prosper, scrapping returns to its > normally low level. During expansions, firms tend to increase the > proportion of investment devoted to long‑lived capital of the sort that > expands capacity (Boddy and Gort, 1971; see also Mairesse and Dormont, > 1985). So ... replacement investment increases during the expansion. What I want to see is the following: statistics on replacement investment over a long period of time, for as many countries as possible, in which one can compare the rates that occur during contractionary periods to the rates that occur during expansionary periods. Until I see that, I am skeptical about any claims re the empirical record on this subject. > For example Schmenner > reports that space constraints and poor plant layout are much more > important than labour costs in explaining why plants move to new > locations (Schmenner, 1980; see also Boddy and Gort, 1971). Proximity to and access to markets, due more to state requirements than an effort to decrease transport costs, may in recent years be more significant than either technical (space and layout) constraints or labour costs. I.e. states increasingly require that firms produce in their countries as a condition for selling in their countries. Unless firms are willing to forego these markets, they have to relocate production facilities. In solidarity, Jerry
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