NYT Finds Capitalists are Capitalists

capitalist_pig Reality has gotten harsh enough to compel even the professional addlers to peek behind the curtains:

Many companies are focusing on cost-cutting to keep profits growing, but the benefits are mostly going to shareholders instead of the broader economy, as management conserves cash rather than bolstering hiring and production. Harley, for example, has announced plans to cut 1,400 to 1,600 more jobs by the end of next year. That is on top of 2,000 job cuts last year — more than a fifth of its work force.

As companies this month report earnings for the second quarter, news of healthy profits has helped the stock market — the Standard & Poor’s 500-stock index is up 7 percent for July — but the source of those gains raises deep questions about the sustainability of the growth, as well as the fate of more than 14 million unemployed workers hoping to rejoin the work force as the economy recovers.

“Because of high unemployment, management is using its leverage to get more hours out of workers,” said Robert C. Pozen, a senior lecturer at Harvard Business School and the former president of Fidelity Investments. “What’s worrisome is that American business has gotten used to being a lot leaner, and it could take a while before they start hiring again.”

And some of those businesses, including Harley-Davidson, are preparing for a future where they can prosper even if sales do not recover. Harley’s goal is to permanently be in a position to generate strong profits on a lower revenue base.

In some ways, the ability to raise profits in the face of declining sales is a triumph of productivity that makes the United States more globally competitive. The problem is that companies are not investing those earnings, instead letting cash pile up to levels not reached in nearly half a century.

“As long as corporations are reinvesting, the economy can grow,” said Ethan Harris, chief economist at Bank of America Merrill Lynch. “But if they’re taking those profits and saving them, rather than buying new equipment, it hurts overall growth. The longer this goes on, the more you worry about income being diverted to a sector that’s not spending.”

“There’s no question that there is an income shift going on in the economy,” Mr. Harris added. “Companies are squeezing their labor costs to build profits.”

The trend is hardly limited to Harley. Giants like General Electric and JPMorgan Chase, as well as smaller companies like Hasbro, the toymaker, all improved their bottom lines despite slowing sales in the second quarter. Among the S.& P. 500 companies that have reported second-quarter results, more than one in 10 had higher profits on lower sales, nearly twice the number in a typical quarter before the recession, according to Thomson Reuters.

“Whole industries are operating at new levels of profitability,” said David J. Kostin, chief United States equity strategist at Goldman Sachs. “In the downturn, companies managed to maintain higher profit margins than ever before.”

Profit margins — the percentage of revenue left over after expenses — crumble in most recessions, as overall sales fall but fixed costs like infrastructure, commodities and rent remain the same. In 2002, during the recession that followed the bursting of the technology bubble in addition to the Sept. 11 attacks, margins sank to 4.7 percent. Although the most recent downturn was far more severe, profit margins bottomed out at 5.9 percent in 2009 and quickly rebounded. By next year, analysts expect margins to hit 8.9 percent, a record high.

[Source: The New York Times, July 26, 2010]

The New York Times, of course, implies that all this is some kind of anomaly, rather than still more evidence that corporate capitalism works as it is intended to work — it puts the rich first in any and all situations.

The truth is that the basic institutional logic of the system was explained in 1966 by suppressed Harvard and Stanford men Paul Baran and Paul Sweezy. Take a look at that book, plus Harry Braverman’s sequel, Labor and Monopoly Capital, and see if the above reportage conveys anything that ought to be surprising.

Wolff/Resnick v. Baran/Sweezy

needle_in_the_haystack Reader Justin asked about the work of Richard Wolff and Stephen Resnick, who make some arguments that “run directly counter to the arguments about monopoly that you have advanced in your book. So my question is, what do you make of Resnick and Wolff’s thesis?”

As Justin notes, Wolff and Resnick argue that:

Monopoly power, when achieved, does not necessarily contribute to an expanding economy, nor to a stagnating one. Our value examples show the many ways that monopolies can and do contribute to a variety of different economic conditions: more competition and less competition; more and less technical innovation; inflationary spirals; depressed real wages and consumption spending; unevenly developing depart¬ments; simultaneously falling real wage and rising subsumed class incomes; and so on.

By way of background, Wolff and Resnick are living economics professors.  Baran and Sweezy are deceased economists and authors of Monopoly Capital: An Essay on the American Economic and Social Order, which I judge to have been the single most powerful (though extremely outdated in a few spots) work of social science in the 20th century.

Before saying a few things about this comparison, I would mention that Richard Wolff is close to Monthly Review, the magazine founded by Paul M. Sweezy in 1949, so the conflict here isn’t huge.

Nonetheless, Wolff and Resnick do claim to be correcting and improving upon Monopoly Capital.

I don’t buy it.

First of all, Wolff and Resnick begin by making a false distinction.  “Monopoly power, when achieved, does not necessarily contribute to an expanding economy, nor to a stagnating one,” they write, implying that Baran and Sweezy thought that monopoly power does have automatic and necessary results.  That, of course, is untrue.  Baran and Sweezy repeatedly argue in Monopoly Capital that monopoly capitalism tends toward economic stagnation.  But they also explain in detail how various things like military spending, the expansion of “the sales effort” (i.e., marketing), and new, epoch-making inventions can and do arise and lead to boom periods.  In other words, Baran and Sweezy don’t disagree with Wolff and Resnick’s observation that monopoly power can lead to a variety of contingent outcomes.

None of that, of course, means that the tendency toward economic stagnation isn’t real.  It’s quite real, as we know all too well at the present moment.  It just isn’t automatic.  So, Wolff and Resnick’s first premise is an error, and that’s usually a rather poor way to start a supposedly new and important social science analysis.

To my eye, Wolff and Resnick also do something that Baran and Sweezy rejected:  Wolff and Resnick think that “Marxian value theory,” if perfected, could explain how the whole world works via a series of mathematical “economic” equations.

Baran and Sweezy held no such illusions.  They saw what Marx said about the theory of economic value as an important and realistic way of tracking relationships between workers and business owners.  But they took what Marx said about value as neither a means of calculating the whole of reality nor even the last word on the topic of economic categories.  In fact, one of their prime arguments was that the triumph of corporate capitalism rendered much of what Marx had done with value formulas (most of which lies in the unfinished second and third volumes of Das Kapital) outdated.  Wolff and Resnick, in contrast, seem to take “what Marx said” about value theory as somehow the innermost core of Marxism.

What is and isn’t essential to Marxism is, of course, a topic we could study for months.  Suffice it for now to say that I find Baran and Sweezy’s emphasis on power and history and institutional structures rather than Marx’s cryptic (and unpublished-by-Marx) value formulas to be not only far more effective as a framework for understanding how the world works, but also far closer than Wolff and Resnick’s jumbled neo-orthodoxy to the essential core of Marx’s way of thinking.

And certainly neither Wolff nor Resnick, nor the both of them together, have ever produced a piece of work that comes within a country mile of matching the realism and revelatory power of Monopoly Capital.

By the way, if you’re interested, I think Chapter 8 of this book provides the single best explanation of what’s central and what’s peripheral in the work of Karl Marx.

I also don’t think Baran and Sweezy are perfect, either.  For one thing, I believe they adopted the concept of “monopoly capitalism” out of an irrational desire to boost Lenin, who used the term, as a social theorist.  But Baran and Sweezy then have to turn around and devote pages of their book to explaining that “monopoly” (rule by one) isn’t really the norm of the corporate capitalist order.  Oligopoly, rule by a few, is.

Personally, I much prefer the term “corporate capitalism” to “monopoly capitalism.”  It’s more descriptive of the core of the problem, requires no special pleading, and is quickly understood by people who encounter it.  And I also see no point in trying to keep V.I. Lenin at the core of what the left is trying to do.  Fuck that guy, in fact.  He probably wasn’t as bad as Stalin, but neither was he anything like a democrat.  He also loved and imposed Taylorism.

If we’ve learned anything from the failure of Socialism 1.0, it is that democracy is neither a toy nor a mere bourgeois trick.  In fact, its extension and improvement is the whole idea of Socialism 2.0.  If we are to have any chance at using that to save our sacred, sorry asses from onrushing capitalist eco-tastrophe, we can’t afford any more “vanguard” jive and Stalinist dead-ends.  As Gandhi and MLK showed, the means are not separable from the ends.