Thinking

Brenner’s response to “The Empirical Evidence for the Brenner Hypothesis”

Michael Lind introduced me to Robert Brenner, who has kindly permitted me to publish his response to my post. His response follows.


Anusar Farooqui takes me to task for arguing that the fall in the manufacturing profit rate took place mainly between the mid 1960s and early 1980s, by bringing forward the fundamental point that the buildup of overcapacity in manufacturing did not end then, in the 1980s, but has continued to heighten virtually into the present.   That is of course what I said–viz. that the buildup overcapacity resulting from the continuing intensification of international competition in manufacturing has continued to intensify, with the virtual collapse of investment on a world scale as perhaps its most striking and significant consequence.   But, as Farooqui quickly also concludes, formally contradicting what he just said, the ongoing intensification of international competition and resulting buildup of overcapacity did NOT actually lead to much, if any, further fall in the rate of profit in manufacturing after the early 1980s, which was my contention. Yet, finally, despite the leveling off–not further fall– of the profit rate, there was nonetheless, a deep falloff of capital accumulation, as the overcapacity, intensified competition, and the expectation of the continuation of same profoundly discouraged new investment.

One could say that, in the first instance, the Japanese, then Koreans and Taiwanese, and then their East Asian cohorts above all China, stepped up capital accumulation far more than was justified by the immediate/static profit rate, because they knew that, given that US and other earlier developing producers could not much reduce costs because production technology was frozen in the existing capital stock and wages were pretty inflexible, they could sell more cheaply than the Americans on the world market for as far as the eye could see (in practice, until the huge devaluation of the dollar from 1971-1973-1979).   On the other hand, world producers have, over time, reduced investment growth to an ever greater extent, because they have known that, at whatever costs they are able to produce at, will soon be bettered by lower cost producers coming on line.   Capital accumulation was amplified because the Japanese especially but other latecoming investors knew that the earlier comers could not match the latecomers costs.   Capital accumulation slowed down because all manufacturing producers knew that later developing entrants would be able to throw commodities onto the world market that were cheaper than they could possible match.   So after the Great Recession of 2007-2009, even the Chinese, overwhelmed by over-capacity and the collapse of world demand growth, could not prevent investment in China from plunging, because the firms there knew they could not match the costs of even later entrants (Vietnamese, etc) and could never make up for the drop off of US borrowing and US debt-driven purchases of Chinese goods.

Farooqui goes on to tax me for seemingly failing to register that, while the manufacturing rate of profit fell sharply, manufacturing makes up only 12% of value added, and the overall rate of profit did not fall.   To show this, he adduces a graph that shows a major recovery, if still incomplete recovery, of the corporate rate of profit.     But I think he is wrong about this, because I don’t think that the corporate rate of profit is a good measure of economy-wide profitability, since it includes the profit rate of the corporate financial sector.   The financial sector rate of profit can’t be properly included in the measure of the corporate rate of profit, because the financial rate of profit is not properly measured, as it is in the BEA data (and Farooqui), as financial profits over financial capital stock; it should rather be measured as returns from investment in financial assets (mostly on paper).   So, the corporate financial rate of profit must have financial assets overall, not the corporate financial capital stock, in the denominator, just as it must have financial returns in the numerator.

So, to properly get an idea of profitability or the rate of return for the economy as a whole, one must confine oneself to the profit rate for the non-financial corporate sector, which is properly measured by non-financial corporate profits/non-financial capital stock. If one consults this latter measure one can see that, properly measured, the recovery of the profit rate for the economy as a whole is still pretty far from complete.   What has happened is that the fall and failure of the manufacturing rate of profit has brought down the overall rate of profit, but not nearly as much as in manufacturing itself, because there was no significant fall in the rate of profit outside of manufacturing.   It is the divergence between the trajectories of the manufacturing rate of profit (sharp fall) and the non-manufacturing rate of profit (basically flat/stable) that was my main evidence for arguing that the fall in the rate of profit were the result of what happened in manufacturing almost by itself…and thus an intensification of international competition that obtained only in manufacturing but not in nonmanufacturing. Bottom line is that the economy wide rate of profit did fall, if not nearly as much as did the manufacturing rate of profit.

Farooqui, in bringing his article to conclusion, puts a big emphasis on the big shift in the wage share against labor and in favor of capital, which began in the 1970s (if not a bit earlier).   Here I agree with him completely, even if I think that this rise in the profit share does not fully restore the rate of profit for the economy as a whole.   Indeed, I would take this point much much further, arguing that the gains for capitalists (and the rich) are nowhere near fully accounted for by what might be called the effect of austerity on wages (and government services), but are, especially from around 1980, to be found above all in the direct political interventions of both political parties in alliances with top corporate managers (especially in finance) to radically shift– by way of taxation, returns to lending to government, etc etc– income and wealth upward to the one per cent or, really, top 0.1% or top 0.01%   At least that’s what I tried to argue in the section on neoliberalism in my editorial in Catalyst, number 1.

 

 

 

 

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