David B. Shemano wrote:
> I am not asking whether increasing labor expense will increase unemployment,
> affect growth, or any macro question, What I want to know is the allocation
> of enterpise wealth between labor and the owner with respect to the
> enterprises that continue to operate after the change in labor costs. My
> intuition is that there is, let's call it, a "natural rate of profit" below
> which owners/entrepeneurs say it is not worth it and they close up shop to
> retire, become consultants or government employees. <
Economists call it the "normal" rate of profit (or return), which has
fewer implicit value judgements, though not many. The usual "normal"
rate of profit is equivalent to Marx's average rate of profit (for the
economy as a whole). (FWIW, "average" seems to have even fewer implied
value judgments.) This is a world-wide average (for the capitalist
world). If a capitalist earns a sub-average rate of profit (and
expects to do so in the future), he or she would move to greener
pastures, i.e., where wages are lower and profit rates are higher. Of
course, they're doing that already, as new low-wage havens enter the
world market. Alternatives include lobbying the government to drive
down labor costs (or doing it directly), breaking unions and similar
irritants, and introducing technical change to raise labor
productivity. Of course, these are just as "normal" as capital flight.
Orthodox economics does not have a coherent explanation of the
"normal" rate of profit. The most common solution is basically a
matter of hand-waving, i.e., assuming that there's a
twice-differentiable aggregate production function with diminishing
returns to capital goods, so that the normal profit rate equals the
first derivative for capital goods (i.e., their "marginal product"). A
less faith-based solution is to see financial investment as the
alternative to real investment. That makes the interest rate (adjusted
for risk and the like) the determinant of the normal rate of profit.
But what, then, determines the interest rate? Orthodox economists
usually lean on the unknown, i.e., people's rate of time preference
(how much the prefer current income to future income). Explaining
anything with reference to tastes seems pretty weak, especially since
orthonomics does not examine or explain or understand the determinants
of preferences.
BTW, the capitalist alternative of becoming a government employee is
quite unattractive (and thus irrelevant). After all, the capitalists
have been squeezing government salaries for decades at the same time
that corporate salaries have gone from princely to kingly to imperial.
To Marx, the average rate of profit was determined by the aggregate
average state of class relations (the balance of power in the class
struggle) and also technical matters (like the "organic composition of
capital," the OCC). A rise of wages (and benefits) relative to labor
productivity for the same time period would hurt the rate of profit,
ceteris paribus. But, the employers look for ways to compensate (as
above). In addition to lowering the OCC, the profit rate could be
raised by intensifying the labor process (raising labor done per hour
of labor-power hired) or, if labor productivity is measured as output
produced per week of labor-power sold, increasing the number of hours
of labor-power sold per week. The productivity of the labor done can
also be increased, perhaps by training programs.
> Therefore, assuming that enterprises continue to exist after the [upward]
> labor cost shock, my intuition is that those [capitalists] that survive after
> the initial shock will ultimately have profit margins that provide a return
> to the owners that is consistent with the "natural rate of profit" that
> existed before the shock. I want to know whether my intuition is right and
> whether any notion of permanently decreasing the share of enterrpise wealth
> that goes to the owners is a fool's errand.<
This assumes that the average ("natural") rate of profit is constant.
It may not be, for example, as wages lag behind labor productivity,
raising it.
But, going in a more progressive directly, this change may be not a
"fool's errand," if the political-economic situation is right (or,
rather, left). The promise of social democracy is that by bringing in
technocrats to run the economy, the efficiency of the capitalist
economy can be raised, so that both employers and workers can gain.
For example, cutting work-hours (with no cut in pay) seems extremely
anti-profit for the individual capitalist. But if _all_ or most
capitalists in a country cut work-hours (but not pay), then that can
actually raise labor productivity, allowing either constant or even
rising profit rates. For example, France has done pretty well, despite
its long-established restrictions on work-hours per year. The U.S. did
pretty well at the end of the 1960s, when both wages and profits were
doing pretty well.
Of course, these days, it's very, very difficult to have a
social-democratic compromise, since most countries have abandoned the
nation-centered "growth model" and have submerged themselves in the
global economy (while carrying the baggage of neoliberalism). In
addition, and perhaps more importantly, social-democratic compromises
never come about without a mass movement pushing the capitalists in
that direction. The technocrats ride in to manage the economy on the
backs of the labor movement and similar organizations.
(for some reason, my version of Gmail's e-mail writing program has
lost its word wrap. Is there a solution? This is true on both Firefox
and IE.)
--
Jim Devine / "Nobody told me there'd be days like these / Strange
days indeed -- most peculiar, mama." -- JL.
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