The standard Marxist theory of the falling rate of profit rests on the notion that there is an upper bound to the rate of exploitation. That bound is both political and physical, political because the capitalist mode of production unintentionally increases the potential political power of workers, and physical because exploitation of the workforce must, in the long run, be conducted at a level that permits the reproduction of the working class. (OK, that last is quasi-physical since, as Marx notes, the level of consumption required for reproduction varies from place to place, but capitalism raises this level of consumption needed for reproduction, thereby making the quasi-physical limit more stringent, not less). In mainstream economics, these kind of limits get taken up in discussions of the efficiency wage.
The problem with Marx's argument is the assumption that investment in constant capital only reproduces value, which is doubly nonsense, partly due to the incoherence of the notion of value [NB - I won't respond to any of the objections this may elicit] and partly because investment in constant capital increases the productivity of labor. But that's not Brenner's argument for a (localized) tendency for the rate of profit to fall. Brenner argues that rates of profits tend to fall (in some places, at some times) because sunk investment in fixed capital makes it rational to keep producing as long as the rate of profit on variable capital is at least as high as the overall rate of profit on total capital investment. Very different from Marx's argument, and not vulnerable to the same objections (which is not to say that it is invulnerable to objection).
So, my claim that squeezing labor tighter can only succeed in the short-to-medium run is simply an argument that in the long run increases in productivity have to come through more intensive use of labor-saving capital and through technical change. There's nothing particularly Brenneresque or even Marxist about this argument, and I don't see why it should be controversial.
Brenner's argument does change over time, but I think a lot of the objections to Brenner rest on quick simplifications of his argument. In the 1998 NLR version of his work, for example, he notes the increased profitability of manufacturing in the United States and leaves it as an open question whether this represents a long-term resumption of manufacturing profitability. His financialization argument really starts with The Boom and the Bubble in 2002, and you find it in the last chapter of his 2006 version of The Economics of Global Turbulence. The piece I cited - written as a preface to a new Spanish-language edition of the book - updates the 2006 argument, but doesn't change it very much.
I think you have a point in your earlier objection that mfg profit rates for the US, Germany, and Japan are not the same as global mfg profit rates. But remember, too, that Brenner's argument is not about capital as a global entity, but about the cyclical nature of profitability, with the causal mechanism between competition between capitals. Profitability in a manufacturing line is depressed in firms with early fixed capital investments as other firms invest in new and more productive techniques. This would hold true even without the spatial features of capital accumulation that you find in Brenner's argument.
But there is a spatial component - investment of new firms is also frequently investment by firms located in newly industrializing zones. Those new investments require large public investments in infrastructure, investments that only states can make, so it is not entirely unreasonable to compare profitability in various states. Germany and Japan had to rebuild public infrastructure after WWII in order to industrialize, so the capital investments in their manufacturing firms was, on average, more recent than investments of US firms in the same line. So the German and Japanese trends in profitability follow the US trend with a suitable time - the profitability downturn occurs later there, but it occurs. And the argument is not that profitability within a national economy goes ever downward. Over time, antiquated capital investment wears out, or becomes so unprofitable that it is abandoned before fully amortized, and new investment renews the capital plant, laying the groundwork for renewed profitability. (Hence the term "global turbulence" rather than "global crisis" in the title). As I noted, Brenner in 1998 suggests that the upturn in profitability in the US might be just such a resumption of manufacturing profitability. (I think the real problem with his use of national profit rates has to do with transfer pricing and the movement of profit to offshore tax havens. Getting the data to decide whether this kind of fraud borks his data wouldn't be feasible, though, so this remains a question mark, not a decisive objection, or even one that can be resolved).
As for the conflict between financialization and manufacturing profitability, you're certainly right that the two need not be in conflict, but sometimes they are. So I'm not claiming - and I don't think Brenner claims - that financial investments are "unproductive" in contrast with "productive" manufacturing investment. Yes, financial intermediation can permit capital to move to areas where it can be employed most productively, and it would be impossible to imagine a well-functioning capitalist economy in the absence of financial intermediation. But that doesn't mean that all financial intermediation performs the function the textbooks say it should. Doug's earlier post - about the insurgency of Kravis and others shaking up the complacent Galbraithean CEOs - is certainly how these corporate raiders represented themselves. Perhaps to some degree the financially induced restructuring of non-financial firms contributed to the increase in profitability from 1982 to 1997. But there are a lot of reasons to doubt the celebratory version of this story (its implications for increased exploitation of workers aside): (1) Potential for increased profitability was not the only - and maybe not even the main - feature that made a firm a takeover target. High levels of disposable assets also made firms very attractive (and that, I would think, would be a sign of the firm's health). (2) Restructuring had a mixed record when it came to restoring firm profitability. Remember Chainsaw Al Dunlap and Sunbeam? (3) The real claim for the benefits of financialization is that it would solve the principal-agent problem. By tying CEO pay to stockholder value, the firm would have the proper incentives to serve the stockholders (as opposed to a self-serving world of managerial capitalism, as portrayed by Galbraith). But that didn't solve the principal-agent problem: it simply relocated it. It gave CEOs an incentive to manipulate stock prices. "Restructuring" was one way to do this, whether or not it served the firm's long-term profitability. (Announcing restructuring almost always improved stock prices in the short run). More generally, tying compensation to stock prices gave firms an incentive to prioritize financial engineering as the core metric of the firm. CFOs became more important than COOs. (4) These principal-agent problems replicated themselves within financial firms, with compensation heavily reliant on bonuses and bonuses tied to imputed profit generation. But this gave the firm's employees huge incentives to game the system, which many of them did quite successfully. [Yves Smith, ECONNED, is quite good on both 3 and 4; Karen Ho, _Liquidated_ is quite good on #4]. (5) There are some obvious candidates besides financialization that can help account for increased profitability 1982-1997. One would be the productivity increases imputable to rapid innovation and investment in IT. Another would be the Wal-Mart effect - a retailer able to impose efficiencies on suppliers. And a third would be China's rapid industrialization, which drew on sources of capital that had nothing to do with the financialization wave in the US, UK, and elsewhere.
So, while financialization and manufacturing profitability are not inherently at one another's throats, neither can they be assumed to work together smoothly.
There is always the possibility that financialization will turn in a Minskyan direction, with profitability driven by unsustainable asset price inflation. I think this is basically the argument Brenner started making around 2002. It's hard to deny that this view has some merit. Can anyone make the case that the dot-com bubble or the real estate bubble were NOT instances of asset price hyperinflation driven by overtrading? The real question was whether or not these bubbles represented a general crisis for capital accumulation. A few years back there was a debate on this list about the relative merits of Brenner and Gindin, who had debated this issue at the Brecht Forum. Gindin argued that these financial bubbles were par for the course, and that capitalism as a whole recovered from a burst bubble rapidly. Brenner argued that these bubbles were different, that the recession of 2000-2001 was mitigated by the creation of a new asset bubble, and that the bursting of the second bubble would not be overcome so easily. IIRC, Doug and most other folks on this list tended to agree with Ginding. But I think Brenner's the one who had it right. (This, by the way, is not a catastrophist theory - that some final crisis will come along to destroy capitalism. Generalized capitalist crises are overcome by massive transfers of capital, via state spending, to restore capitalist profitability.
In the Great Depression that meant, to a minor degree, the New Deal and, to a much greater degree, World War II. In the current crisis it has meant, so far, massive recapitalization of financial institutions combined, in some places, with a degree of short-term fiscal stimulus. This crisis isn't going to sink capitalism, although it well may serve as an impetus for a long-term geographic reorientation of capital accumulation that, to be sure, had already begun.)
I hope this clarifies (and I'm sorry I didn't know how to clarify more concisely).
----- Original Message ---- From: brad <babscritique at gmail.com> To: lbo-talk at lbo-talk.org Sent: Sat, March 5, 2011 10:47:39 AM Subject: Re: [lbo-talk] An Orgy of Speculation?
Yes, Wren. He is singing a slightly different tune in that new article then he did previously. Even though he still wants to judge all mfg profits by the very peak year, rather than compare the 1982-1997 era to a longer-term average When a longer-term comparison is done, it shows the '82-97 era to be far above average, and the '65-82 era as only slightly off of historical average rates of profitability.
I also think the attempt to separate financial from non-financial as I stated in my last post leads far too many analysis off track. It makes it into some sort of competitive comparison. You claim yourself that finance aided production through restructuring. However, you then come back to try to argue that they somehow are at odds with each other.
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Wren:
But a speed-up of this sort can be a medium-term strategy at best; there has to be some kind of upper bound on how tightly you can squeeze labor before diminishing returns set in.
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Really? How so? Are you claiming that there is a limit that is a physical limit or a political one? Does this limit rest on workers saying enough and doing something or is it that at some point this squeeze undermines demand and impacts profits? Isn't the whole history of neoliberalism and the most recent use of state budgets to attack workers an example that the claim of a economic or physical limit exists doesn't hold water.
Brad ___________________________________ http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk