Re: Estimating the surplus\Doug's question

[paul phillips <phillipsp@xxxxxxx>]

Devine, James wrote:
> Hi, Fred.
>
> you write:
> > spite of the loss of workers' power and stagnant real wages -
> > because the
> > ratio of unproductive to productive labor has continued to increase.
> >   
>
> A big question: _why_ does the ratio of unproductive to productive labor increase over time? if this ratio is squeezing profits, it seems that profit-seeking capitalists would make an effort to lower it. or is there some sort of technological or social imperative that pushes capitalists to increase the ratio anyway? or is it a matter of it being good for capitalists as individuals to raise the ratio even though it's bad for capital as a whole?
>
> why the ratio rises is important. For example, if we posit that demand-side stagnation has been the rule of late, that would push up the ratio (for a few years, at least) in that unproductive labor is typically overhead labor, while productive labor is laid off. However, this explanation doesn't fit the waves of "downsizing" (thinning out of management, etc.) that hit US business during the 1990s. (see below)
>
> >   
Jim,

I tried to offer one suggestion in my post a few days ago.  In the 1970s,
corporations attempted to restore the profit level through price increases
(leading to a price-wage spiral) which was cut off by the recession of the
1980s.  Since that time, we have been in a period of demand constraint.  As
a result, increasing productivity has been met by downsizing and wage restraint
resulting in stagnant wages which leads, as you point out, to an underconsumption
undertow.  Major corporations respond to this demand constraint by increasing
 promotion, marketing and advertising thereby increasing the ratio of unproductive
to productive labour.  But given globalisation and Asian competition, firms
can't raise prices to match the increased cost of unproductive labour.  They
respond by trying to cut managers, etc.  In the 1990s, they were aided by
technological change in white collar work (i.e. computerization) which reduced
the relative demand for/employment of unproductive labour. (My figures for
Canada indicate a significant decline in the employment of certain types
of secretarial and clerical labour in the early 1990s.)
But  given the deflationary effect of global competition using low-wage 3rd
world labour, 1st world corporations are unable to raise prices to restore
(realized) profitability.  Thus, the profit recovery in the 1990s was only
partial in the light of continuing need to increase unproductive selling/marketing
expenditures despite the rise in productive worker productivity.  To the
extent that the growth in non-productive worker productivity is on a declining
projectory,   there is little to give hope for a new long-term, profit-based
expansion based on technological change, at least in North America and Europe
where the ratio of productive to unproductive labour is already so low.

I think my read on this is similar to Fred's.  If not, I would be glad to
hear, and if so, why?

Paul
Paul Phillips,
Economics,
University of Manitoba