by Michael Roberts
In a previous post,
I covered the arguments of several mainstream economists who sought to
explain the slowdown in productivity and investment growth especially
since the beginning of the 2000s as due to market power.
Now there is yet another round of mainstream economic papers trying
to explain why investment in the major economies has fallen back since
the end of Great Recession in 2009. And again most of these papers try
to argue that it is the rise in ‘market power’ ie monopolistic trends,
especially in finance, that has led to profits being accumulated in
finance, property or in cash-rich techno giants that do not invest
productively or innovatively.
That investment in productive assets has dropped in the US is
revealed by the collapse in net investment (that’s after depreciation)
relative to the total stock of fixed assets in the capitalist sector.
Note that the fall in this net investment ratio took place from the
early 2000s at the same time as financial profits rocketed. That
suggests that a switch took place from productive to financial
investment (or into fictitious capital as Marx called it).
In a new paper,
Thomas Philippon, Robin Döttling and Germán Gutiérrez looked at data
from a group of eight Eurozone countries and the US. They first
establish a number of stylised facts. They found that the corporate
investment rate was low in both the Eurozone and the US, with the share
of intangibles (investment in intellectual property such as computer
software and databases or research and development) increasing and the
share of machinery and equipment decreasing. But they also found that
investment tracked corporate profits in the Eurozone, but fell below in
the US. In other words, productive investment slipped in the Eurozone
because profitability did too.
But there appeared to be an ‘investment gap’ in the US.
But there is an important issue here of measurement. As I showed in
my previous post, these mainstream analyses use Tobin’s Q as the measure
of accumulated profit to compare against investment. But Tobin’s Q is
the market value of a firm’s assets (typically measured by its equity
price) divided by its accounting value or replacement costs. This is
really a measure of fictitious profits. Given the credit-fuelled
financial explosion of the 2000s, it is no wonder that net investment in
productive assets looks lower when compared with Tobin Q profits. This
is not the right comparison. Where the financial credit and stock
market boom was much less, as in the Eurozone, profits and investment
movements match.
Nevertheless, mainstream/Keynesian economics continues to push the
idea that there is an ‘investment gap’ because the lion’s share of the
profits has gone into monopolistic sectors which do not invest but just
extract ‘rents’ through their market power. This argument has even been
taken up by the United Nations Conference on Trade and Development
(UNCTAD) in its latest report. In chapter seven of its 2017 report,
UNCTAD waxes lyrical about the great insights of Keynes about the
‘rentier’ capitalist, who is unproductive, unlike the entrepreneur
capitalist who makes things tick.
UNCTAD’s economists conclude that
there has been “the emergence of a new form of rentier capitalism as
a result of some recent trends: highly pronounced increases in market
concentration and the consequent market power of large global
corporations, the inadequacy and waning reach of the regulatory powers
of nation States, and the growing influence of corporate lobbying to
defend unproductive rents”.
But is the rise of rentier capitalism the main cause of the relative
fall in investment? As I have pointed out above, the rentier appears to
play no role in the low investment rate of the Eurozone: it’s just low
profitability. However, there does seem a case for financial market
power or financialisation as a cause for low productive investment in
the US.
Marx considered that there were two forms of rent that could appear
in a capitalist economy. The first was ‘absolute rent’ where the
monopoly ownership of an asset (land) could mean the extraction of a
share of surplus value from the capitalist process without investment in
labour and machinery to produce commodities. The second form Marx
called ‘differential rent’. This arose from the ability of some
capitalist producers to sell at a cost below that of more inefficient
producers and so extract a surplus profit – as long as the low cost
producers could stop others adopting even lower cost techniques by
blocking entry to the market, employing large economies of scale in
funding, controlling patents and making cartel deals. This differential
rent could be achieved in agriculture by better yielding land (nature)
but in modern capitalism, it would be through a form of ‘technological
rent’; ie monopolising technical innovation.
Undoubtedly, much of the mega profits of the likes of Apple,
Microsoft, Netflix, Amazon, Facebook are due to their control over
patents, financial strength (cheap credit) and buying up potential
competitors. But the mainstream explanations go too far. Technological
innovations also explain the success of these big companies. Moreover,
by its very nature, capitalism, based on ‘many capitals’ in
competition, cannot tolerate any ‘eternal’ monopoly, a ‘permanent’
surplus profit deducted from the sum total of profits which is divided
among the capitalist class as a whole. The continual battle to increase
profit and the share of the market means monopolies are continually
under threat from new rivals, new technologies and international
competitors.
The history of capitalism is one where the concentration and
centralisation of capital increases, but competition continues to bring
about the movement of surplus value between capitals (within a national
economy and globally). The substitution of new products for old ones
will in the long run reduce or eliminate monopoly advantage. The
monopolistic world of GE and the motor manufacturers did not last once
new technology bred new sectors for capital accumulation. The world of
Apple will not last forever.
‘Market power’ may have delivered rental profits to some very large
companies in the US, but Marx’s law of profitability still holds as the
best explanation of the accumulation process. Rents to the few are a
deduction from the profits of the many. Monopolies redistribute profit
to themselves in the form of ‘rent’ but do not create profit. Profits
are not the result of the degree of monopoly or rent seeking, as
neo-classical and Keynesian/Kalecki theories argue, but the result of
the exploitation of labour.
The key to understanding the movement in productive investment
remains its underlying profitability, not the extraction of rents by a
few market leaders. If that is right, the Keynesian/mainstream solution
of regulation and/or the break-up of monopolies will not solve the
regular and recurrent crises or rising inequality of wealth and income.
No comments:
Post a Comment