[OPE] Estimating profit rate attractors

Paul,

When I researched fixed capital stocks twenty years ago at University of Canterbury using New Zealand national accounts data, I compared different series of fixed capital stocks I constructed or borrowed, compiled using the perpetual inventory method (PIM). There was an agronomics Professor named Bryan Philpott (now dead) http://www.eastonbh.ac.nz/?p=180 who had created the first series of gross and net capital stocks on an SNA basis for New Zealand, by production group. There was also a consultant, Gareth Morgan, who had some interest in this topic and worked on it. http://www.garethmorgan.com/ At that time there were no official capital stock series in New Zealand; that was a project begun only some time after I joined Statistics New Zealand in 1991, and which has since been completed. http://www.stats.govt.nz/cmsapp/templates/system/migration.aspx?NRMODE=Published&NRNODEGUID=%7B4258F700-E807-49B7-8D84-2B1D6B3FB0CA%7D&NRORIGINALURL=%2Fproducts-and-services%2FArticles%2Fcapstk-Dec00.htm&NRCACHEHINT=NoModifyGuest Philpott later extended his stock series to 1998.

Philpotts depreciation method was very simple: for "plant and machinery" it was something like 10% of stock per year constant and for "land improvements and buildings" about 2% of stock per year constant. As deflators, he used capital expenditure indexes which were partly constructed out of PPI and CPI series (I do not exactly remember what his method for constructing the indexes was). The GFCF data in national accounts are typically provided, at the lowest level of aggregation, by type of asset, so you can tabulate net fixed investment by type of asset, by production output group, and institutional sector. You can look at ruling sectoral rates of profit and average asset holdings, to estimate a benchmark stock. Obviously, the SNA approach meant, that the value of land was excluded, but land improvements were included.

Anyway, I compiled a variety of different PIM stock series with different methods. One method involved simply subtracting official CFC from official GFCF and projecting the deflated stock series from a benchmark. Another was to extend the Philpott series, and recalculate them. A third method was a mix of Philpotts method and official data. Lacking capital expenditure indexes for the whole series I used PPI and CPI series to deflate, and experimented a bit with different indexes. I also inventorised changes in tax legislation for depreciation schedules, of which there were several important ones (incentive schemes), and I tried to establish what difference it made to the series and to profits.

The main conclusion of all that was that, apart from the fact that the series compiled using different methods came out all significantly different, that the depreciation amounts obtained using simple percentage depreciation methods bore no resemblance to the official consumption of fixed capital totals.

So why was that? Several factors seemed to have played a role

(1) the official CFC was compiled by statisticians without reference to the value of the capital asset to which is was supposed to refer, because there was no or little data about it
(2) to a certain extent the CFC was "extrapolated" to be somewhere between the reported figure and a figure which seemed credible given the existing input-output matrix of enterprises in a production group, and the trend in grand totals,
(3) following SNA guidelines, capital repairs and insurance expenditure etc. was included in CFC (Suppose for example there was a large flood or draught or earthquake, well this would independently inflate the CFC figure)
(4) the questionnaire as I remember asked the enterprise respondent directly to calculate and provide a CFC figure reflecting SNA definitions, rather than the actual depreciation charge being used, as a basis for calculating official CFC.

In general, I concluded that the simplest depreciation method was probably the closest to reality, and that what deflator you used, did make considerable difference to the result. But since I obtained differences in results of up to 30 percentage points or so I distrusted capital data from there on. For technical discussion on capital stock estimates, profit and depreciation see for example:

Philip Armstrong, Andrew Glyn & John Harrison, Capitalism since world war 2, Fontana, 1984, p. 457ff.
Angus Maddison, Phases of capitalist development, 1982, Appendix D
T.P. Hill, Profits and Rates of Return

However these are old studies and there may be better ones now.

There is an OECD manual on capital measurement online http://www.oecd.org/dataoecd/61/57/1876369.pdf

If you use SNA data, then for a Marxian analysis it is important to split out capital and operating surplus for the private sector.

Jurriaan

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Received on Mon May 4 15:30:19 2009