Last weekend, I presented two papers at the conferences of the Association of Heterodox Economists (AHE) and the Society for the Advancement of Socio-Economics (SASE).
The AHE paper was Revisiting a World Rate of Profit and was a follow-up to my previous paper, A World Rate of Profit, presented to the AHE conference in 2012 (http://hetecon.net/documents/ConferencePapers/2015/AHERoberts.pdf).
The 2012 paper made a tentative estimate of what had happened to the rate of profit on capital in the G7 economies and the so-called BRICs. It was not the first attempt to measure a world rate of profit, but it was a more up to date attempt, using more comprehensive data made available from the Extended Penn World Tables of global economic data.
The 2012 paper recognised that measuring a world rate of profit was problematic. First, capitalism is not a ‘world economy’ as projected in Marx’s law of value and profitability, but still a bunch of national economies with barriers to the flow of capital, trade and labour that would distort a measure of world profitability using national data. Second, the available data for a comprehensive analysis of a world rate of profit are inadequate and vary from country to country, making it difficult to estimate Marxian categories of value and surplus value.
However, capitalism has become hugely more ‘global’ in just the last 40 years and neo-liberal ‘reforms’ have opened up trade and deregulated capital flows. And there has been an emergence of new capitals onto the world stage. So a ‘world rate of profit’ has become more realistic by the day.
What encouraged me in my original paper was that other estimates of global profitability were broadly similar in their results as my own attempt. Even more encouraging has been work done by other scholars since my effort in 2012. In particular, Esteban Maito published a paper that looked at the rate of profit on capital for 14 countries going back, in some cases, to 1855 (http://gesd.free.fr/maito14.pdf). He found that there was a discernible fall in the rate of profit on capital over the period, as Marx’s law predicted. But this secular fall also contained periods when profitability rose according to Marx’s counteracting factors coming into play for periods.
In my new paper, I revisited the old data but also presented a new measure of a world rate of profit based on using the Penn World Tables for all the top economies of the world, the so-called G20, going back to 1950. I found that the rate of profit for the G20 economies since 1950 exhibits a similar secular decline as does the Maito data. Also, like the US and the UK, there is a significant fall from the first simultaneous international economic slump in 1974-5 to the early 1980s, then a modest recovery before another fall coinciding with the world 1991-2 economic recession. There is a mild recovery in the 1990s until the early 2000s. Since then, the G20 rate of profit has slumped, both before the 2008-9 Great Recession and after, with only a tiny recovery up to 2011.
Marx’s law of the tendency of the rate of profit to fall does not imply that the rate of profit will fall in a straight line over time. Counteracting factors come into play that, for a period of time, can overcome the tendency. My results show that this was the case between the mid-1970s or early 1980s up to the late 1990s or early 2000s (depending on the measure). The neoliberal period of recovery in profitability did take place but it came to an end well before the Great Recession. World profitability was falling by the early to mid-2000s on most measures.
The changes in the rate of profit in the post-war period follow Marx’s law, namely that the secular decline was accompanied by a rise in the organic composition of capital that outstripped any rise in the rate of surplus value achieved by capitalists, at least in the G7 economies. Profitability rose in the neo-liberal period because the counteracting factor of a rising rate of exploitation dominated.
There were several other interesting papers at AHE (apart from mine, of course). They can all be found at
http://hetecon.net/division.php?page=ahe_conferences&side=call_for_papers&sub=2015_conference
Of particular note was the paper by Steve Keen, head of economics at Kingston University and the leading proponent of the post-Keynesian/Minsky view that crises of capitalism are caused by an inevitable tendency for the financial sector to expand private sector credit excessively. I have commented on Keen’s arguments in several posts on this blog, but his latest paper is the most comprehensive in arguing this case.
http://hetecon.net/documents/ConferencePapers/2015/KeenModelingFinancialInstability.pdf
I also liked the paper on Kondratiev cycles by Leo and Dianad Nefiodow
http://hetecon.net/documents/ConferencePapers/2015/AHENefiodow.pdf
They presented some interesting arguments to justify the existence of this series of long-term cycles and the reasons for them – namely the cycle of bunches of innovation a la Joseph Schumpeter (Business Cycles). I have also looked at the role of Kondratiev cycles in my book, The Great Recession and also in a past AHE paper cycles-in-capitalism.
My big difference with the Nefiodow paper is that they consider that the global economy is already in the upswing phase of a ‘sixth Kondratiev’. On the contrary, I think we are still in the ‘winter’ depressionary phase of the Kondratiev where inflation and real GDP growth are low and profitability has not been restored yet sufficiently for a new innovation upswing. Also, there is no mention in their paper about AI and robots, an innovatory development that I see as key to the next stage in capital accumulation – more on that on another day.
The main theme of the SASE conference was rising inequality in modern economies. I presented an updated paper of my critique of Thomas Piketty’s book on inequality, Capital in the 21st century, called Unpicking Piketty (Unpicking Piketty – SASE).
Readers of this post will know that I have covered this issue in some detail in various posts and in my collection of essays on inequality.
Createspace https://www.createspace.com/5078983
or Kindle version for US:
http://www.amazon.com/dp/B00RES373S
and UK
http://www.amazon.co.uk/s/?field-keywords=Essays%20on%20inequality%20%28Essays%20on%20modern%20economies%20Book%201%29&node=341677031.
My main argument is that Piketty had not really proved that inequality of wealth in modern economies would continue to rise inexorably or that his explanation of rising inequality as due to the return on capital will be higher than a slowing rate of growth in national income per head in the major economies was right. By conflating ‘wealth’ with productive capital, Piketty’s prediction was really founded on a continuation of the property and stock market bubbles of the last 25 years. And that could easily change in the next 25 years. The paper contrasted Piketty’s r (rate of return on personal wealth) with Marx’s r (rate of profit on productive capital). In my view, the latter is a much better indicator of the direction of capitalism and its underlying contradictions.
In the same session, Robert Boyer presented a paper on global inequality. Boyer is one of the members of what are called the Regulation School, who argue that capitalism goes through different stages or structures of regulation which leads to different causes of crises http://robertboyer.org/. Boyer’s argument on rising inequality was that there was no one cause: it depended on the different regimes and stages of development for an economy. Inequality rises when an economy is industrialising and urbanising fast, as in China now, it also rises when there is a deep depression that hits the poorer parts of an economy, as in southern Europe now; and it rises when the financial sector dominates an economy as in the US; but it can fall when governments of a more leftish persuasion take over, as in Latin America in recent years.
There may be some truth to this view. But perhaps it is simpler put to say that rising inequality of income (or in Marxist terms, a rising rate of surplus value) is more to do with the balance of forces in the class struggle between capital and labour. The stronger capital is, the more it can get the rate of surplus value and this acts a counteracting factor to the tendency for Marx’s r to fall. And that is what has happened in many countries since the 1980s.
SASE was a huge conference attended by 1200 academics and graduate students all with their specialised research subjects. So there were innumerable papers on inequality seen from various angles, mainstream and heterodox. The best I can do for readers of this blog is to give you the place to read what you want.
https://sase.org/2015—london/sase-27th-annual-conference-theme_fr_202.html
And https://sase.confex.com/sase/2015am/webprogram/start.html