>The power of labor or capital-labor accord do not explain why
>wage growth was able to exceed growth of labor productivity.
I am baffled by Brenner's disinterest in Fred M's critique of the wage
squeeze theory: higher rate of exploitation, profit rate brought down
nonetheless by a higher OCC and higher productive/unproductive ratio. But
this would have required the reworking of data in terms of Marxian theory,
and Brenner seems not interested in this. Quite interesting.
>The normal process of adjustment in which the higher-cost firms
>leave the line and make room for lower-cost replacements does not
>take place, owing to the presence of fixed capital; the higher-
>cost firms are forced to accept lowered profit rates, causing the
>average rate in the line to fall.
If sufficient higher cost firms don't leave--and this cannot be determined
ex ante--the market share won by cost cutting entrants may be limited and
their ability to secure a higher or even the same rate of profit
jeopardized. Of course a firm may notheless be forced to introduce low cost
capacity out of the exigencies of "hyper-competitive" warfare. It may not
just be a matter of only the higher cost firms enduring a profit rate cut
and thereby "causing the average rate in the line to fall." The new and old
firms could suffer a decline in the rate of profit if not enough high cost
capacity is forced to exit.
> Instead of adjustment, there is
>widespread excess capacity and over-production.
What prevents adjustment according to Brenner is the Keynesian stimulus. I
would be most interested in your and Michael P's comments on this. At the
same time, the adjustment required could only be forced by such a long and
deep depression as to be politically intolerable. And perhaps economically
as well given the size of the fixed capitals that need be liquidated and
the claims that creditors may have on them.
> Outside the line, there are gains to the economy as a whole.
No, Brenner contests this. If higher cost firms stay in business and still
suck up capital to pay for their circulating costs in order to amortize
their inefficient fixed capital, then the return on capital is thereby
*generally* lowered. Again, the key for Brenner is the insufficient exit of
this high cost capacity. Instead by sucking up capital, these inefficient
firms become vehicles for the destruction of value even if their continued
operation enables a certain stabilization in the level of material
production for some time.
> Without a careful and systematic quantitative argu-
>ment (a model), one simply has no way of knowing whether the cen-
>tral claims in Brenner s chain of verbal arguments are valid.
What link in the chain do you think is most questionable?
> Even in its own terms, however, Brenner s argument raises
>some obvious flags. Those of us who have attempted to provide
>rigorous foundations for biased technical change have had to face
>the question of microfoundations
The only bias in technical change Brenner recognizes is "factor saving."
By his theory of capitalist dynamics, there is a systematic tendency for
the productivity of direct (or effective) and indirect (or capital) labor
to increase; the FROP theory underestimates the potentialities in the
saving of capital (Brenner does not contest however the theory of the
rising minimum size of capitalist establishments which is of course
distinct from the theory of tendency for a rising OCC).
The real output capital ratio rises no less than output labor ratio. What
brings the profit rate down for Brenner is the fall in the nominal output
capital ratio due to international competition.
>at which they were purchased and installed. In a picturesque im-
>age commonly used in growth economics, the capital stock consists
>of vintages of capital goods. At any moment in time, the earliest
>vintages are becoming non-operational, and more-or-less fully de-
>preciated. Existing firms will therefore not sit still to be
>fleeced by cost-cutters. They will move aggressively themselves
>to replace the retiring portions of their capital stocks with the
>latest-vintage (cutting-edge) equipment. They may even force-re-
>tire larger portions of their capital stocks, to keep the average
>age of their equipment low and its average productivity high.
For Brenner aggressive retirement of high cost capacity by age heavy firms
can only be forced by recessions that he implies must become deeper and
wider as well.
> Price decreases will normally
>increase the size of the market, allowing some room for both cost-
>cutters and existing firms.
For Brenner, the problem is just that there is enough room for the high
cost producers to continue to exist.
Perhaps even more important, his ar-
>gument greatly underestimates capital mobility across lines, or
>sectors.
With their existing lines of credit, high cost firms will command capital
to maintain their circulating costs, but being inefficient, they will
ensure a lower general rate of return and a slow down.
>It is, however, ironic that the principle critic of neo-Smithian
>Marxism as applied to the feudalism-to-capitalism transition in
>Europe, should produce a truly neo-Smithian competition-spoiling-
>the-market explanation of world capitalist turbulence in the pres-
>ent.
Yes, ironic indeed. Well here is Brenner's "Smithean" mark up theory of
profit: " As with the mfg profit rate, to understand (most of) the
contribution of the fall in mfg output capital ratio to the fall in mfg
profitability between 1965 and 1973, it is necesary to understand why mfg
were so much less able to mark up over costs than were their counterparts
outside mfg." p. 102 And: "Since what lay behind that fall [of the nominal
output capital ratio] was the inability of output prices to keep up with
the growth of capital stock prices, it seems reasonable at least to advance
the hypothesis that what caused a good part of the delcine was once
again...an inability of mfgers to mark up sufficiently over costs due to
intl mfg over capacity and over-production." p.136
> Concluding, I return to the Tower of Babel theme. Historians
>and philosophers and political scientists (and others) should be
>welcomed into the house of political economy.
Rakesh Bhandari
Ethnic Studies
UC Berkeley