Friday, December 13, 2013

Director, Ashridge Business School, London UK Answers Michael Heinrich (sort of)

Financial Times,  9 December 2013

Sir, Professor Mariana Mazzucato's concerns about lack of investment in innovation and its likely impact on longer-term growth are well placed...But her analysis of the cause is misquided.  She suggestst that today's cash-rich companies could invest and do well in the long term, but choose not to because of their short-term orientation.

My research concludes that, on average, companies will not get a good return even in the long term.  The reasons taxpayers need to invest in innovation is that the majority of benefits from innovation accrue to consumers as "consumer surplus" rather than to producers as profits.  Take semiconductors, for example.  Society has benefited immeasurably.  But the producers made low returns for decades.

Governments do not need to intervene because of market failure.  They need to intervene because the market is too efficient.  It is not short-termism that makes companies reluctant to invest.  It is the low returns caused by efficient competition

I remain your faithful and obedient blahblahblah and all the rest of the usual rubbish. (note-- make sure to excise this upon publication... ed.)

Andrew Campbell
Ashbridge Business School

Tuesday, November 19, 2013

Food, Machinery, and Chemicals

1. In Marx's encounter with political economy, criticism itself, and the elements of criticism-- conflict, opposition, antagonism-- moves from thought and knowledge to the activity of human being in their relations with other human beings.  Philosophy gives way to history.  History is a product of social beings, and therefore shifts from a contemplation of abstractions, like progress, like freedom, to the concrete determinations of necessity; from the abstraction of thought to the concrete of conditions; from the abstraction of right to the concrete of labor.

Marx develops this transformation through and by the examination of the value relation.  In the critique, the inversion at the heart of this veiled relationship is exposed.  The subject initially apprehended as the material, concrete substance of capital, the commodity, is revealed and displayed to be essentially immaterial,  indeterminate, but determined; universal to but derivative from the specific condition of its creation.  The abstract facet, the "slippery soul," lacking weight but not gravity; absent height but not status; without corporeality but with substance, the value relation, the organization of labor as value-producing, as a value in exchange, is exposed as the real material of political economy; the real material of capital.  It, the value relation, is both the code and the messenger for human beings reproducing themselves as social being.  It is the fused, antagonistic, compressed, opposite, identity of labor and the condition of labor as wage-labor. 

We move from wealth as the production of material objects, to wealth as the condition of that production, the appropriation of value.  We get to, although in a completely degraded, immiserated form, wealth as the disposition over time.

II.  Every once in awhile, someone notices that a  recovery looks so much like a recession as to appear indistinguishable.  Every time this every once in awhile, when this happens, it's news. The Wall Street Journal, that paper of intelligent reporting and ignorant editorializing, on November 15 headlined an article  "Eurozone rebound feels like a recession."

No matter how many times it has happened before, it's always supposed to be news, and everyone is supposed to be surprised that the recovery looks so much like the recession, because...because good times are supposed to be better than bad times; because expansion is different than contraction; because... well, just because.

There are differences, all right, between good times and bad, between recovery and recession, between expansion and contraction, but they look so much alike because they share the same womb; recovery and recession, contraction and expansion are the "hostile brothers,"  the opposite identical twins of capitalist accumulation.

The response of the US bourgeoisie to this period known as the Great Recession has been the drastic curtailment of production hours.  Between 2007 and 2009, production hours in US industry declined 22 percent.  Between 2009 and 2011, there was no significant increase in production hours.  There was, however, an increase in the total value of the output from US industry, which brought that measure above its previous peak in 2008.  

III. The US Department of Commerce overseer of the US Census Bureau and the Bureau of Economic Analysis, produces an Annual Survey of Manufactures.  The survey provides data for approximately 70 different categories-- everything from total payroll to taxes and licensing fee, and using several of those categories, it is possible to develop a calculus, and approximation,  for rates of extraction of surplus value, and the conversion of surplus value into a rate of profit.  We can utilize the data to provide numbers in the formula that says:  big C (total value of shipments) = c (cost of materials, plus consumption of machinery) + v (value of labor power, wages)  + s (surplus value, the value absorbed in the production process beyond that that replaces the wage).

The ASM categories are not precise matches for Marx's, hence the calculus and the approximation.  We (that means you and me, partners in this excursion) have to make an estimate for fringe benefits for production workers, based on data provided for total cost of fringe benefits provided to all employees.  The data provided for overall rates of fringe benefits suggest 33 percent is a reasonable "add-on" accounting for the costs of the fringe.

We utilize depreciation amounts for the value of the means of production consumed.  We utilize total cost of materials utilized in production for the value of the raw and processed materials required, and we use total value of shipments (which includes revenues from sales of scrap, waste, etc) for our big C capital.  Because the ASM data includes production worker hours, we can even calculate all these inputs, and outputs, on an hourly basis.

Since it's history that we're talking about, since it's history we are always talking about, what matters most is the trend. So...we look at the period starting in 2007 ending in 2011 (the most recent year of published data), and we select six major categories of US industry, which together account for about 62 percent of the value of output from all industry.  Those six categories are the "building blocks" of capital accumulation, F, M, C-- food, machinery, chemical:  1) food   2) machinery manufacturing    3) transportation equipment  4) computer and electronics  5) chemical 6) and the Big Papi of US capitalism, the petroleum industry, which is represented in the "Petroleum and Coal manufacturing classification.

All errors to transcription, computation are mine. Errors in analysis will be attributed to some other likely party, as soon as I can find one.   Meanwhile the data look like this:

Column1 Column2 Column3 Column4 Column5 Column6 Column7
2007-2011 Food Machinery Chemicals (and Petroleum)

Industry      C/hr $         c/h $         v/hr $          s/h $            s/v            s/C
Manufa 282.23 163.52 24.89 93.82 3.77 0.33
         31-33 307.53 186.92 25.69 94.92 3.67 0.31

300.1 172.72 26.34 101.04 3.84 0.34

337.13 191.21 27.39 110.66 4.04 0.33
2011 369.85 225.77 28.06 116.02 4.13 0.31

Petroleum 3986.01 3270.88 42.39 672.74 15.87 0.17
324 5080.59 4497.95 42.51 540.13 12.71 0.11

3368.38 2905.31 44.09 418.98 9.5 0.12

4412.23 3840.33 46.09 525.81 11.4 0.12
2011 5889.97 5101.1 48.31 740.56 15.33 0.13

Food 258.03 158.06 20.23 79.74 3.94 0.31
311 285.85 181.93 20.51 83.41 4.07 0.29

285.67 172.91 21.13 91.63 4.34 0.32

298.22 185.47 21.87 90.88 4.15 0.3
2011 327.02 211.7 22.1 93.22 4.22 0.28

Machinery 232.69 127.42 25.77 79.5 3.08 0.34
333 244.26 135.29 26.97 82 3.04 0.34

250.64 137.3 27.56 85.78 3.11 0.34

274.63 148.63 28.66 97.8 3.41 0.36
2011 294.65 160.34 29.78 104.53 3.51 0.35

Transp Eq 336.91 214.73 32.8 89.38 2.72 0.26
336 326.58 217.37 33.54 75.67 2.26 0.23

343.08 208.73 34.34 100.01 2.91 0.29

403.83 246.57 35.57 121.69 3.42 0.3
2011 416.78 261.62 35.97 119.19 3.31 0.29

Computer 371.01 162.91 25.83 182.27 7.06 0.49
334 396.32 172.5 29.12 194.4 6.67 0.49

416.93 181.62 30.39 204.92 6.74 0.49

440.61 190.16 33 217.45 6.59 0.49
2011 445.75 188.89 33.63 223.23 6.64 0.5

Chem 760.22 399.59 32.47 328.16 10.11 0.43
325 813.15 446.56 33.7 332.89 9.88 0.41

754.02 381.47 34.92 337.63 9.67 0.45

841.3 448.72 35.95 356.63 9.92 0.42
2011 925.45 506.19 37.16 382.1 10.28 0.41

First some words on method.  I like simple math because, let's face it, if capitalism were that complicated,  the bourgeoisie would never have been successful at it.  Greenspan would have been flipping asset-backed burgers at Freddy Mac's.  It's volume and velocity which make capitalism appear complicated and demand all that processing power.

Anyway "s/h,"  surplus value per hour, column 5:  the result of Big C capital, column 2, less the sum of column 3 and column 4 (c+v);

Column 6 "s/v" is the ratio column 5 to column 4 (column 4 includes wages and fringe benefits);

Column 7, ratio of surplus value to Big C, the ratio of column 5 to column 2.  Clear?

There is a small  decline in output per hour for industry as a whole in 2009.  There is a steep decline in output per hour for the petroleum and chemical sectors, but modest increases for machinery, transportation equipment, and computers. In all categories of FMC, we see substantial recoveries in "s" per hour between 2007 and 2011.

From the information in this table, it would be difficult if not impossible not only to gauge the intensity of the "Great Recession," but also its breadth in both time and place.  Indeed the recession and recovery seem almost, but not quite, indistinguishable, and aberrations from the "smooth course" of capitalist "development."   That's because a bit of critical information is absent from the ratios of output, costs, and surplus.   That critical input is "production worker hours."

In 2011 production worker hours were:
12% below the 2007 mark in the chemical classification;
30% below the 2007 mark in the computer and electronics classification;
25% below the 2007 mark in the transportation equipment classification;
18% below the 2007 mark in the machinery manufacturing classification;
5% below the 2007 mark in the food manufacturing classification;
7.5% below the 2007 mark in the petroleum/coal classification.

More capital has been exchanged with less labor power, in less time. The portion of the working time that is required for the workers to reproduce a value equivalent to their own wage is reduced; that is to say it recovers to the ratio achieved prior to, and right at the beginning of the contraction.  The recovery is achieved in reduction of the proportion of living labor appropriated in production.  The recovery indeed looks just like the contraction, because it is just like the contraction.

If wealth is the disposition over time, capitalist wealth is the disposition over alienated labor time, and the recovery in capitalist accumulation is the dissolution of wealth, the expansion of poverty as capital cannot exploit the labor-power profitably.  Living labor-time is, more than less, expelled from the production process in order that the living labor time remaining in the valorization reproduces itself more rapidly.

If we break these value  relations into production minutes, we find in 2011 that for every hour of production in the chemical sector,  32.8 minutes are represented by cost of materials and machinery,  the pre-existing value that is preserved and passed along in production; 2.4 minutes represents the cost of labor (or it takes 2.4 minutes for the worker to produce a value equivalent to his/her hourly wage) and 24.8 minutes represents the surplus labor time, the surplus value.

In the transportation sector, the proportions are 37.7 minutes in "pass-through" value, 5.1 minutes to reproduce the wage, and 17.2 minutes in surplus value.

For machinery manufacturing, we get 32.6 minutes for the pre-existing value, 6.1 minutes to reproduce the wage, and 21.3 minutes of surplus value.

In the food production sector, 38.8 minutes for c , 4 minutes for wages, 17.2 minutes for surplus value.

For computer and electronics manufacturing, 25.4 minutes for c, 4.6 minutes for v, and 30 minutes for s. 

For petroleum........don't even ask, it's flat out ridiculous, or actually not, its precisely proportionate to the tremendous investment in fixed assets, the "overweight"  in the petroleum sector; massive amount of pre-existing value deployed to accelerate the pace of production, to reduce production times.

Given the minimal times involved for the worker to produce a value equivalent to his/her wages, it is also clear just how difficult it is to push s/C,  a proxy here for the rate of profit,  higher   The increment of accumulation runs into the barrier of all previous accumulation.

Absent a generally applicable technological breakthrough that can dramatically reduce the cost of the components of the production  process, the rate of  valorization stagnates, and stagnation is an achievement.

Writing in Capital, Volume 1, Marx notes "The constant tendency of capital is to force the cost of labour back towards this zero" (Part 7, Chapter 24, Section 4).  With reproduction times of 1 minute, 2 minutes, 4 minutes, or 6 minutes per hour, capital has pretty much forced that cost, relative, to the mass of value animated, to zero.  What else can capital do? Lots of things, and none of them good.

For one, as Marx wrote, "...there also comes a time in every industrial cycle, when a forcible reduction of wages beneath the value of labour power is attempted for the purposes of cheapening commodities."

The cheapening of commodities is not exactly the purpose-- appropriating a greater portion of the total available surplus value by hook or crook is.  As intense and extensive as the attacks on the living standards of workers have been, we are at the very beginning of that time in this cycle.  The "recovery" such that it is, will be worse than the recession.

November 19, 2013