Date: Thu, 19 Dec 1996 09:21:16 -0500
From: dhenwood-AT-panix.com (Doug Henwood)
Subject: Re: M-I: Rate of Profit


At 4:09 PM 12/18/96, Patrick Bond wrote:

>Can you break this down a bit more? Are corporate treasurers and
>portfolio managers

Different people, I must emphasize, with different pools of capital to
invest in different instruments....

>investing for the long-term, or instead (as you
>suggest next regarding shareholder control) for the short-run impact on the
>quarterly statements?

Corporate managers must invest to produce quick, high, and reasonably
stable profits for their shareholders. No question about it. But Ford & all
still make lots of cars.

>How has the short-term Dow performed in
>relation to fixed capital investments?

U.S. stocks have had some of their best years in history; in fact, the Dow
is on its longest winning streak since the fateful 1925-29 period. Over the
very long term, though, real stock returns average about 9-10% a year,
while the return to invested corporate capital is around 15-18%. According
to surveys, the real "hurdle rate" - the minimum return required for
managers to undertake an investment - is 11%, greater than both equity
returns and real interest rates.

>I would have said that the power shift from productive to
>financial circuits was discernable first in the form of greater
>spatial mobility (stemming especially from the
>1960s liberalisation of the Euromarkets and then the 1970s recycling of
>Petrodollars), and then in the form of Volcker's 1979-80 interest rate
>ratchet, with all that it implied for financial power over debtors
>everywhere. And only then, came Wall Street's ascendance. No?

The Euromarkets grew up in part around the multinationalization of U.S.
corporations (though the first Eurobond was an issue by the Italian highway
authority). Obviously, though, the markets took on a life of their own, and
now banks are among the major issuers of Eurobonds. Just what circuits of
capital are you referring to, though? The foreign exchange trading that is
almost exclusively speculative? Financing operations by MNCs? The
connections between financial and productive capital in unregulated arenas
like the Euromarkets are extremely complicated, like I keep saying.

Wall Street's "ascendance" in the sense I mean it - the assertion of
shareholder power over corporate managers - can be dated from the early
1980s, with the first LBOs and the beginning of the great M&A wave. It's
gone through several stages of evolution; now it's mainly direct pressure
>from institutional investors (and the new priorities that managers have by
now internalized). So when we talk about the Euromarkets and shareholder
assertiveness, we're talking about different, though obviously not
unrelated, phenomena here.

>It's all relative, eh? Productive capital is more in hock to
>financiers than in previous decades (having not entirely worked off the
>junk bond,
>LBO and general rise in debt from the 1980s); and is more prone to
>substitute financial acquisitions and treasury room operations for
>investment in plant and equipment than was the case in earlier
>decades; and is also more reliant upon increasingly-indebted states
>and consumers (and other firms) for customers than was the case
>previously. All debt indicators are up substantially from the early
>1970s, right?

Up from the early 1970s, but the U.S. corporate sector is far less indebted
than it was 5 years ago. The household sector is another story; there, debt
and bankruptcies are at record levels. The personal bankruptcy rate
(relative to population) has set new records every quarter this year - this
despite some of the best labor market indicators in 20-30 years.

Another sector that's reducing its indebtedness is the U.S. government,
don't forget. I suspect that one reason U.S. growth rates are running well
below expansion averages is that the stimulus of new debt just isn't there.

>So referring to the the temporal fix offered by finance is another way of
>saying you
>can mop up overaccumulation today by consuming but putting off
>payment (and hence further surplus value extraction) until another
>time. Wouldn't you say that this has been a valuable tactic for
>global K to displace crisis tendencies?

Well, sure. And not only in the "economic" sense: debt has been a wonderful
political lever to push austerity and privatization around the world.

Doug

--

Doug Henwood
Left Business Observer
250 W 85 St
New York NY 10024-3217
USA
+1-212-874-4020 voice
+1-212-874-3137 fax
email: <dhenwood-AT-panix.com>
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