[PEN-L:268] Re: Re: rising rate of profit

[James Devine <jdevine@xxxxxxxxxxxxxxx>]

Jason Hecht writes: >Did you net out financial income from industrial
profits ?  For example, GMAC and GE finance provide significant income to
GM and GE.<

I presented both with and without. It's the Dept. of Commerce's
calculation, not mine. At the end of this missive, I've reproduced more
detailed data.

Michael Perelman wrote: >>I can think of several reasons.  Perhaps the most
important is outsourcing.  If I have little domestic investment, outsource
inputs, and just assemble them output/per capital should increase.<<

Bill Burgess answers: >Has the increase in outsourcing really been so great
as to account for a signficant portion of the rise in profits? And, I get
lost in the accounting, but wouldn't only *foreign* outsourcing affect
*aggregate or average* US profit rates in this way? Also, I presume Jim's
data is for US operations and excludes foreign subsidiaries, but if not,
what difference would that make?<

Right: the Dept. of Commerce numbers are the aggregate average on domestic
US operations.

>Jim mentioned that the organic composition of capital falls as (fixed)
capital/output rises. If Michael is right about outsourced inputs (which
are part of circulating constant capital) the trend in the OCC might change
(quite apart from unproductive labour, etc.), since the OCC includes both
fixed and circulating constant capital.<

It's true that (according to some interpretations) circulating capital
should be part of the numerator of Marx's organic composition of capital.
But the Department of Commerce includes not only structures and equipment
but inventories as part of the stock of capital, K (which is valued at
replacement cost).

>Years ago I estimated circulating c at about 1/3 of fixed c in
manufacturing in Canada (on a "flow" basis, i.e. raw materials and energy
plus inventories /capital consumption allowances). I think Mosely and
others fail to properly count circulating c (or, more to the point in trend
analysis, changes in the ratio of circulating to fixed capital). As I
recall, Mosely uses business inventories for circulating c, which is
problematic given the different (presumably, but also unknown) rates of
turnover of raw material, goods in process and finished goods which are
included under this one figure. <

Marx brought in turnover times because he dealt with all capital in terms
of flows. The Department of Commerce, on the other hand, follows a
different convention, using net stocks (i.e., stocks after subtracting
used-up or depreciated inputs). This method should deal with differences in
turnover times because those things that turn over fastest are subtracted
from the stock quickly.

>I confess I find the high (average or aggregate) non-financial profit
rates a puzzle. <

I don't see why we should presume that capitalism always encounters falling
profit rates. Absent that presumption, we should see rising profit rates
once and awhile. When things are going swimmingly for the capitalists, the
profit rate is rising.

Doug Henwood writes: >A lot of the profit rise in the 1990s has been from a
decline in interest costs, both from lower debt loads and lower rates. If
you add interest and profits together to estimate a corporate surplus, that
line is pretty flat.<

It's true that falling net interest (both as a ratio to K and to domestic
income) have been falling in the 1990s and compared to the 1980s. (see
columns 5, 8, and 11 below) But the numbers in column 1 below indicate that
the rate of return that includes interest income in the numerator has been
increasing since 1992 (and compared to the 1980s average). Not only has the
interest claim on the surplus fallen, but the surplus is growing.

The numbers below suggest that during the 1990s, the rate of return (both
total and from current production, columns 1 and 2) rose during the 1990s
due to the rising Y/K (column 9) and, more importantly, a rising income
share received by property-owners (columns and 7). A similar story can be
told comparing the 1990s average to the 1990s.

The change in the income share seems a result of the success (so far) of
capital's largely one-sided class war, though rising capacity utilization
rates also help boost these ratios (by allowing the more complete use of
overhead labor). (It should be noted, however, that  capacity utilization
rates have not risen as much as unemployment rates have fallen in recent
years, i.e, since 1994 or so. Also, if it means anything, downsizing
implies a shrinking role for overhead labor. So profit-rate-boosting effect
of rising capacity utilization is limited in recent years.) Also, there has
been a major shake-out of U.S. industry, the shutting down of many old
factories. This helps raise Y/K, as do increases in the rate of capacity
utilization.

Falling effective corporate tax rates (column 10) have helped reinforce the
rise in capital's "take-home pay."   This is not only due to changes in the
tax laws but also because as profits rise, the tax burden on capital falls
in relative terms.

Rate of Return and Income Share, Domestic Non-Financial Corporations (percent)

                                                       ¦share of domestic
         ¦rate of return (R/K)                         ¦income (R/Y)
         +---------------------------------------------¦
         ¦        ¦profits from current       ¦net     ¦
         ¦        ¦production                 ¦interest¦
         ¦        ¦                           ¦        ¦
         ¦        ¦        ¦profits  ¦profits ¦        ¦
         ¦        ¦        ¦tax      ¦after   ¦        ¦
year     ¦total   ¦total   ¦liability¦tax     ¦        ¦total
         ¦        ¦        ¦         ¦        ¦        ¦
1960-69  ¦   10.8 ¦    9.7 ¦     4.1 ¦    5.7 ¦    1.0 ¦   21.5
1970-79  ¦    8.0 ¦    6.4 ¦     2.9 ¦    3.5 ¦    1.7 ¦   17.5
1980-89  ¦    7.5 ¦    5.2 ¦     1.9 ¦    3.4 ¦    2.3 ¦   17.1
1990-97  ¦    8.5 ¦    6.7 ¦     2.0 ¦    4.7 ¦    1.8 ¦   17.4

1990     ¦    8.0 ¦    5.2 ¦     1.8 ¦    3.4 ¦    2.8 ¦   17.1
1991     ¦    7.5 ¦    5.0 ¦     1.6 ¦    3.4 ¦    2.5 ¦   16.2
1992     ¦    7.3 ¦    5.4 ¦     1.7 ¦    3.7 ¦    1.9 ¦   15.4
1993     ¦    7.7 ¦    6.1 ¦     1.8 ¦    4.2 ¦    1.7 ¦   16.1
1994     ¦    8.9 ¦    7.3 ¦     2.1 ¦    5.1 ¦    1.6 ¦   18.0
1995     ¦    9.1 ¦    7.5 ¦     2.2 ¦    5.3 ¦    1.6 ¦   18.4
1996     ¦    9.5 ¦    8.2 ¦     2.3 ¦    5.9 ¦    1.3 ¦   19.1
1997     ¦    9.8 ¦    8.6 ¦     2.4 ¦    6.2 ¦    1.2 ¦   19.2
              (1)      (2)       (3)      (4)      (5)     (6)

       share of Y

	profits    ¦                              int.
	from       ¦                    corp.    share
	current    ¦net                   tax       in
	production ¦interest     Y/K     rate  profits
		
1960-69      19.5 ¦    2.0     0.50     0.42     0.09
1970-79      13.8 ¦    3.7     0.46     0.45     0.21
1980-89      11.9 ¦    5.2     0.44     0.37     0.31
1990-97      13.7 ¦    3.8     0.49     0.30     0.21

 1990 ¦      11.1 ¦    6.0     0.47     0.35     0.35
 1991 ¦      10.8 ¦    5.4     0.46     0.32     0.33
 1992 ¦      11.4 ¦    4.0     0.47     0.31     0.26
 1993 ¦      12.7 ¦    3.5     0.48     0.30     0.22
 1994 ¦      14.8 ¦    3.3     0.49     0.29     0.18
 1995 ¦      15.2 ¦    3.3     0.49     0.29     0.18
 1996 ¦      16.5 ¦    2.7     0.50     0.28     0.14
 1997 ¦      16.8 ¦    2.4     0.51     0.28     0.12
              (7)      (8)      (9)     (10)     (11)

Only the last three columns are my calculations. The output-capital ratio
is simply the profit rate divided by the profit share (R/K divided by R/Y).
The effective corporate profit rate equals the profits tax liability
divided by total profits from current production.

in pen-l solidarity,

Jim Devine jdevine@xxxxxxxxxxxxxxx &
http://clawww.lmu.edu/Departments/ECON/jdevine.html