RE: Profit Rates -- From Michael Yates

["Davies, Daniel" <daniel.davies@xxxxxxxxxxxx>]

>>From Michael Yates

>In the discussion about profit rates, I am confused.  Doug Henwood
>suggests dividing profits by capital stock.  Wouldn't this involve
>dividing a flow (profits) by a stock (capital stock) and therefore
>making a not very meaningful calculation?

Dividing flows by stocks is not always bad voodoo.  This calculation would
give a ratio equivalent at the macro level to "Return on Capital Employed",
which is always a useful thing to know in the context of companies and I
don't see a fallacy-of-composition type argument which would make it not a
useful thing to know about whole economies.  Or to put it another way, it's
a flow divided by a stock in the same way that the rate of interest is a
flow divided by a stock; it's a rate of return.

> And, in any event, why make
>such gross calculations which don't tell us much?  Just as life
>expectancies and GDP per capita are not good comparison measures in many
>cases, because they hide all the disparity within countries.

I agree much more with this, in that FDI into the Asian countries in
particular is going to span all sorts of non-comparable items, but what do
you do?  The aggregate numbers are all that's available

>In addition, shouldn't comparisons be made between truly comparable
>things.  For example, it would be meaningful to compare profitability
>between an engine plant in the U.S.and one in Mexico.  My guess is the
>rate would be higher in Mexico than in the U.S. as costs are lower and
>productivity is probably comparable.  Of course, profits are difficult
>to get good accurate measures on, so it would probably still be hard to
>make a good comparison.


>  Isn't it the case that  more money flows from the poor countries

>to the rich ones than vice versa?  Repatriated profits, interest, etc.
>are greater than than the inflow of money to the poor countries.

Vastly depends on your definition of a "poor country".  If you mean
non-OECD, then the answer is broadly no on a cash basis but yes on an
accounting basis (because poor countries accrue interest liabilities that
they don't pay).  But this definition would not count Mexico as a "poor
country" because it's OECD.


dd


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