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How much difference do you think the ongoing economic reorganization toward already dominant, quarantine-readied businesses like Amazon, Walmart, etc. during the current health crisis will make for this regression trend?
It’s hard to tell. On the dominant capital side, some online firms have seen their EBIT rise significantly in 2020, but others have suffered. With smaller firms, if the carnage decimated mostly those at the very bottom of the distribution, the effect would be to increase the average EBIT. On balance, then, it’s hard to guess the direction differential EBIT took in 2019-2020.
[D]oes this annual rate of change graph look about the same if viewed with the top 50 firms rather than 200? What about the top 10?
Don’t know, we haven’t done the empirical work using different thresholds.
Is this tendency for the annual rate of change to regress the CasP version of Marx’s tendency for the rate of profit to fall?
Interesting question. Marx proposed that, over the long run, the organic composition of capital tends to rise faster than the rate of exploitation, and that this differential implied that, over the long run, the rate of profit will tend to fall. In our CasP case here, the downward tendency comes from the growing difficulty of keeping the pace of corporate amalgamation in particular and the growth of power in general.
The difference is threefold.
1. To demonstrate Marx’s tendency of the rate of profit to fall requires leaps of faith, particularly in defining the “proper” rate of profit. In CasP, the measurement of differential earnings and differential capitalization is relatively straightforward.
2. The reason for the downward tendencies is different. In Marx, it is inherent, in CasP it depends on the dynamics of power.
3. Marx’s claims have been researched for over a century. CasP work is in its infancy.
There is plenty of research on institutionalized waste and inefficiency in capitalism, dating back to the early neo-Marxists and Veblen, among others.
Institutionalized waste and inefficiency are often seen as a ‘trick’ designed to create additional demand to ‘absorb’ the ever-growing surplus output generated by capitalism. They are presented as paradoxical, since the assumption (including of Veblen and the neo-Marxists) is that capitalists try to maximize profit, and that this maximization is generally presumed to require efficiency and abhor waste.
In CasP, the focus is not on maximum profit but differential profit, which often requires inefficiency and waste (and which can easily sustain both insofar as they are universal).
The tongue-in-cheek equation you refer to is written from the perspective of the individual manager (or rather the theorist of the individual manager), not the differential accumulators. And it seems nearly if not totally impossible to operationalize.
1. Do you know of any papers/books that analyse the crisis of 2007-08 through the lens of CasP?
Yes.
‘Systemic Fear, Modern Finance, and the Future of Capitalism’ (2010) http://bnarchives.yorku.ca/289/. This paper elicited a critique and reply here: http://bnarchives.yorku.ca/314/ and eventually led to our ‘CasP Model of the Stock Market’ below.
‘The Asymptotes of Power’ (2012) http://bnarchives.yorku.ca/336/
‘Can Capitalists Afford Recovery? Three Views on Economic Policy in Times of Crisis’ (2014) http://bnarchives.yorku.ca/414/
‘A CasP Model of the Stock Market’ (2016) http://bnarchives.yorku.ca/494/. Additional work on the subject by Hager and Baines: http://bnarchives.yorku.ca/599/ and McMahon: http://bnarchives.yorku.ca/643/
2. How would you go about assessing the power of organisations for which market cap data doesn’t exist
Unlisted assets, although having no observed market value, can be examined through estimates of sales, markups and profits. I’m not aware of CasP research on this subject.
3. [H]ow easy it is to do a CasP analysis when the powerful/controlling interest is a private entity (i.e. a private equity firm) who own a public company that is weak on paper with a low market cap?
When small assets are part of larger firms or conglomerates, they are hard to analyze independently – not only for CasP researchers, but for anyone. James McMahon grappled with this question in his 2015 PhD on the large entertainment conglomerates and their movie subsidiaries http://bnarchives.yorku.ca/463/.
We just posted a new WPCASP, titled ‘The Limits of Capitalized Power: A 2020 Update’ http://bnarchives.yorku.ca/663/. The paper shows the significance of strategic sabotage for the distribution of income between capital and labour and between large and small firms. The purpose of strategic sabotage is to control production (among other things), so as to redistribute income and assets. If capitalists ‘liberated’ themselves from this process, how could they control it?
Reading suggestions:
- If you need the Full Monty, the place to start is our 2009 book: http://bnarchives.yorku.ca/259/
- A shorter up-to-date summary is offered in this botched interview: http://bnarchives.yorku.ca/640/
- A 2018 summary of CasP research — including the research of others — is given here: http://bnarchives.yorku.ca/536/
Labban asks: “Has capital accumulation been completely liberated from production? This seems to be the conclusion drawn from reading Nitzan and Bichler.”
Hmmm.
I have no idea where Labban concocts this claim from. It certainly doesn’t come from us, or from any CasP work I know of.
Our research reiterates, again and again, that capital is not about production, but about the control of production. But that doesn’t delink capital from production. Indeed, the very purpose of CasP research – our own as well as that of others — is to understand the ways in which capital creorders – or creates the order of – society, including its productive activity.
Now, given that capital is partly about the control of production, it is rather obvious – although not to Labban — that it cannot be ‘liberated’ from it.
But, then, maybe I misunderstand Labban’s misunderstanding….
You haven’t misinterpreted anything, Adam: qualitative research is as important as quantitative research, and facts always require theoretical interpretations — just as theory can rarely stand without empirical work.
Thanks for your posts Adam.
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Irrespective of your theoretical approach and whether you will be able to incorporate it in your PhD dissertation, empirical analysis is important. In many cases it’s essential. Without it, you often end up wandering in the dark, getting your cues from other blindfolded writers who in turn get theirs from other blindfolded experts. From my own experience, empirical analysis is important for the answers it gives, but more so for the questions it raises. It will likely change your research trajectory many times over, and in ways that cannot be achieved without it.
One of my former graduate students was once advised by a Marxist professor to not engaged in empirical work. Empirical work, the professor observed, can get you entangled (in other words, prove your Marxist theory wrong).
But what dogmatic adherents cannot risk, scientists must.
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I think that DT Cochrane has done some work on the triangle of differential accumulation, risk and activism. Perhaps he can contribute something to this exchange.
Nice chart. Here is my simplistic guess at what has happened since the 80s.
The causes you cite may affect the ‘real’ total return on the S&P 500. But how do they impact the correlation between the ‘real’ total return on the S&P 500 and the ‘real’ net assets of the top 0.01%?
The latter magnitude is determined by the portfolio of the top 0.01% and by the different ‘real’ returns on the various assets in that portfolio. As this portfolio changes, so will the correlation with the ‘real’ total return on the S&P 500. No?
Here is a comparison between the ‘real’ total return on the S&P 500 index (market value + reinvested dividends deflated by the U.S. CPI) and the ‘real’ net wealth of the top 0.01% of persons in the U.S. (also deflated by the CPI).
We can see that the two indices go pretty much together from 1980 onward, but that prior to 1980 their movement was cyclically similar by very different in trend.
I doubt that the reason for these variations is that, prior to 1980, the top 0.01 of persons did not reinvest their dividends in something.
A more likely reason, I think, has to do with the way in which the portfolio the top 0.01% has been reallocated over the years. For example, if a relatively small portion of this portfolio was in equities till 1980, and if that portion rose dramatically since 1980, we would expect the correlation between the two series to increase, as it has.
Of course, these are just guesses. The answer requires a much closer look a the data.
Neat, James!
Would be nice to see both charts combined + detailed footnotes on sources since the series are surely spliced many times over.
Good questions, James.
Our figure simply suggests that the vast majority of the population — i.e., those depending on labour income, small business income and state handouts — have gained little, and since the early 1980s, nothing, from the stock market’s glory. The stock market tide doesn’t lift all boats. It lifts only a tiny fraction of them. So while the business of America is business, most of its population is not in that business.
But then, probability notwithstanding, roughly half the U.S. population are made to believe that they are going to be rich; i.e., that some day they will ride the upper series instead of the lower one. That hope makes them admire those who are already rich. And that admiration makes them susceptible to stock market glorification.
I don’t know if that suffices as an explanation, but it flows.
Over the past 140 years, the total return on U.S. equities (capital appreciation plus reinvested dividends) grew 1,009 times faster than the manufacturing wage rate. Since the 1980s, the increase was due entirely to the rising stock market. Hourly wages, measured in ‘constant’ dollars, moved sideways.
In the United States, celebrating the stock market is celebrating the victory of the capitalist mode of power. The underlying population — made mostly of wage earners, small business people and those who are unemployed or not in the labour force — rarely if ever contests this celebration. This silence suggests something about the future of this society.
The more you disaggregate, the greater the possibility of a discord of the kind you describe.
My point here is merely that the broad transformation of top managers into large owners brought their pecuniary interests in line with those of non-managing owners and greatly lessened the principal-agent problem.
This convergence within the ruling class doesn’t make things better to the vast majority of humanity. Possibly the opposite.
Much of the modern principal-agent debate can be traced to the 1932 work by Berle and Means on the ‘Modern Corporation and Private Property’. But since the 1980s, when top managers became large owners, the debate has cooled off. This chart, taken from a recent paper by the Economic Policy Institute, shows the tight correlation between CEO realized compensation and the stock market. Owners and top managers are no longer at odds.
Also, investors focus on total returns – namely, capital appreciation + dividends. Insofar as the two complement each other, the question of whether owners receive their earnings directly or have the corporation retain them is irrelevant to them. They don’t need the company’s dividends to buy other assets. They can simply sell the company’s stocks.
