>When you say "what matters is profits", Doug, do you mean for valuation
>purposes, i.e., to investors of capital?
Yes.
>Then shouldn't we be looking at
>the profit *rate* on investment, not share, which is just a share of
>revenue?
I'm talking profits as a percentage of GDP.
>Investors maximize rate of return capital advanced, not share of
>revenue. And it is profit rates that must be analyzed to understand
>economic growth.
>
>If you look at what I think is the best measure of profit rate--nonfinancial
>corporate after tax profits plus interests payments divided by net
>nonfinacial nonresidential fixed capital plus inventories--however, you're
>likely to get a similar result.
The profit rate so computed and the GDP profit share move pretty much in tandem, and the profit share figures are available just two months after the end of every quarter.
>Maybe downward a bit since WWII, but
>unlikely to be significant. At least that's what I found, though I last did
>it quite a few years ago.
Most (bourgeois) measures of U.S. profitability fell from the late 60s into the early 80s, and have risen since. Anwar Shaikh has unpublished data showing a similar pattern for his Marxian profitability series too.
>But one large caveat. Much of US based capital's profits comes from foreign
>affiliate operations not refelcted in GDP. Foreign affiliate data sucks.
>Still, foregn affiliate production as a share of total corporate output has
>been growing for about 40 years now, and it's reasonably clear that it has
>historically produceed higher return rates than domestic production. So
>total returns to US based capital may have actually been rising, perhaps a
>bit.
I looked at all these numbers the other day. Foreign affiliate data ain't so great - though I think saying it sucks is a bit too strong. According to the flow of funds accounts, U.S. nonfinancial firms direct investment abroad has averaged about 10% of their domestic capital expenditures over the last 15 years. Significant, but not overwhelming, and weak evidence for a significantly higher rate of profit available abroad. And here's a summary table of "investment position" (assets valued at historical cost), income (profits), rate of return (income divided by assets), and percentage of world total for position and income, for U.S. multinationals in 1997. Dollar figures are in millions.
percent of total
investment rate of -----------------
position income return position income First World 575,708 64,522 11.2% 66.89% 64.07%
Canada 99,859 10,692 10.7% 11.60% 10.62%
Europe 408,964 46,728 11.4% 47.51% 46.40%
Asia 66,885 7,102 10.6% 7.77% 7.05%
"Third" World 279,482 35,805 12.8% 32.47% 35.56%
Europe 11,970 1,141 9.5% 1.39% 1.13%
Lat Am/Car 172,481 19,992 11.6% 20.04% 19.85%
Guatemala 357 72 20.2% 0.04% 0.07%
Mexico 25,395 3,969 15.6% 2.95% 3.94%
Asia 75,819 11,223 14.8% 8.81% 11.14%
China 5,013 810 16.2% 0.58% 0.80%
Indonesia 7,395 1,741 23.5% 0.86% 1.73%
Singapore 17,514 2,991 17.1% 2.03% 2.97%
Africa 10,253 1,887 18.4% 1.19% 1.87%
Middle East 8,959 1,562 17.4% 1.04% 1.55%
Doug