Date: Sun, 11 Jan 1998 13:23:31 -0500
From: Doug Henwood <dhenwood-AT-panix.com>
Subject: Re: M-TH: MANDEL, DOUG AND BODDHI


Rakesh Bhandari wrote:

>I don't think Doug has presented any evidence of such trends. But such
>evidence would be the real proof that even after amortization of past
>investment in which value has been tied up, capital is not haunted by a
>shortage of surplus value for new capital outlays.  Mattick argued that
>profitability could indeed be boosted *for some time* through
>reorganization of existing capital assets, ie. downsizing: last year
>witnessed a record one trillion dollars in US mergers and
>acquisitions--which seems to be the major cause of Wall Street's riches.
>This may have indeed boosted industrial profitability as well but it only
>does so by playing a *diminished mass of surplus value* into fewer hands.

This seems to be exactly what's going on through M&A - a concentration
along with a withdrawal of capital. Various studies of mergers over the
last century have shown that most fail to meet the profits expectations of
the participants and promoters. Mainstream analysts find this puzzling, but
I think the reason is that combinations are a logical response in a
maturing or declining industry, a way of managing relative decline and the
withdrawal of capital. Since most of these mergers are consummated through
the stock market, and involve the exchange of cash for shares, they
contribute greatly to the buoyancy of Wall Street, a simultaneous increase
in demand and a shrinkage of supply (a takeover brings cash into the market
at the same time it retires the shares of the target firm).

Phrases like "for some time" bother me, though, and it's bothers like that
that make me push on this issue. Would anyone of the Mattick school have
argued in 1982 that U.S. profitability was on the verge of a 15-year
uptrend? The world was in deep recession, Volcker had pushed dollar
interest rates towards 20%, and Mexico defaulted. But capital used this
crisis, which it had partly engineered, to restructure the world very much
to its liking. Does a 15-year rise in U.S. profitability to levels not seen
since the late 1960s qualify as "for some time"?

>The character of US accmulation is indeed suggestive. For example, the
>modernization of the US industrial structure has focused on relatively
>cheap information technologies, instead of on more capital-intensive
>technologies.

It seems that way from the fevered reports in the press, but computers
account for something like 2% of the U.S. capital stock, and the broader
category of information-processing and related equipment accounts for about
15% of U.S. investment. (The discrepancy is in large part a result of the
fact that computers depreciate so rapidly; the cliche in the industry is
that the computers coming in the front door are just replacing ones going
out the back door.) And as far as I can tell, a lot of that computer
investment goes to outfit financial trading rooms.

>That is, the obsession with each new generation of word
>processor and other IT--the least of the roundabout methods in Austrian
>lingo--could suggest a shortage of surplus value to carry out the real
>modernization of the major expensive capital goods used in machine tools,
>steel, automobiles, etc.

U.S. rentiers and managers don't have the patience for these kinds of
investments - they want double-digit returns, and quickly. No doubt there
are institutional and historical reasons for what looks to mainstream
observers like  a "cultural" preference - but it's an empirical fact. I'm
wondering, though, about the kinds of effects that these investment
preferences have on the outside world. The secondary metropoles that were
once seen as the gainers on a falling U.S. - Japan and Western Europe -
have been/are being forced to give up all their institutional arrangements
that helped sustain their profitability and time preferences. Is part of
the reason for that the generalization of the American financial model -
which comes packaged with a set of ownership and governance arrangements -
to worldwide dominance?

>At any rate, the growing world economic crisis will bury Doug's
>triumphalism,

We'll see, won't we? The theory can be very persuasive - it just hasn't
worked out yet in practice.

>seemingly based on a chauvinism for the US working class.

Eh? I said the restoration of profitability in the U.S. was largely made
possible by an attack on the working class at home and abroad. Turning
steelworkers into 7-11 cashiers and starving Latin Americans through
austerity programs is not my idea of something to be proud of. I'm
disgusted by this latest round of U.S. triumphalism, this dancing on the
grave of the Asian "miracle." Why do you continue to attribute positions to
me that I don't hold?

>But I wouldn't worry, Doug: people are still paying Paul Krugman $15,000 a
>lecture, though  just five months ago, he was touting Indonesia as the
>model for the whole third world.

Shit, I should sell out. Pays a lot better than petit bourgeois punditry.

Doug




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