Internal
Revenue Service (number of corporate tax returns for active corporations); U.
Nitzan Bichler - 2012 - Capital as Power
036 2002-06 100 95,943 5,243 6,175 2,749 5,566,044 0.
166
Source: See Figures 14. 1 and 14. 2
Industrial database, a cluster that we use as a proxy for dominant capital;9 (2) the universe of listed corporations; and (3) the universe of all corpora- tions. The table provides information on the number of firms in each group, the average capitalization per firm and the average profit per firm. We refer to these numbers in our description below.
Figure 14. 1 shows two indices of aggregate concentration - one based on market capitalization, the other on net profit. Each index measures the per cent share of the top 100 firms ranked by market capitalization in the relevant corporate universe. 10
The concentration index for market capitalization is computed from two sources. The numerator is the market capitalization of the top 100 firms from the Compustat database, ranked annually by market capitalization. The denominator is the combined market capitalization of all listed corporations on the NYSE, NASDAQ and AMEX (the number of listed corporations quadrupled from roughly 1,500 in the early 1950s to over 6,000 presently).
The second measure of concentration, based on net profit, is computed a bit differently. The numerator is the total net profit of the top 100 Compustat firms by capitalization. The denominator is the aggregate net profit of all US corporations, listed and unlisted (the total number of corporations increased nearly tenfold - from around 600,000 in the early 1950s to over 5. 5 million presently).
Both data series show high and rising levels of aggregate concentration. In the early 1950s, the top 100 firms accounted for 40 per cent of all market capi- talization. By the early 2000s their share was 60 per cent. The uptrend in the aggregate concentration of net profit, based on the entire corporate universe, is even more pronounced - particularly given the much faster growth in the total number of firms. During the early 1950s, the top 100 dominant-capital firms accounted for 23 per cent of all corporate profits. By the early 2000s, their share more than doubled to 53 per cent.
9 The term 'Industrial' here is misleading. The Compustat database includes firms from all sectors.
10 Unless otherwise noted, market capitalization denotes the market value of outstanding equity shares. It does not include bank debt and bonds.
? ? 318 Accumulation of power 90
per cent
? ? ? ? ? ? ? 80
70
60
50
40
30
20
10
Capitalization *
Top 100 / all listed corporations
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Net Profit **
Top 100 / all corporations
? ? ? ? ? www. bnarchives. net
? ? 0
1940 1950 1960 1970 1980 1990 2000 2010 2020
Figure 14. 1 Aggregate concentration in the United States
* Ratio between the market capitalization of the top 100 Compustat corporations (ranked annu-
ally by market capitalization) and the overall market capitalization of all US listed corporations.
** Ratio between the net profit of the top 100 Compustat corporations (ranked annually by market capitalization) and the overall net profit of all US corporations (listed and unlisted).
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price; data172 for net income); U. S. Federal Reserve Board's Flow of Funds through Global Insight (FL893064105 for market value of corporate equities); U. S. Bureau of Economic Analysis through Global Insight (ZA for profit after taxes).
Measures of aggregate concentration are often used to approximate the overall power of big business. And the levels and trends in Figure 14. 1 indeed portray an ominous picture. But the situation in fact is far more alarming than this picture suggests. The difficulty lies in the definition of aggregate concentration and is fairly simple to explain. Let (s) denote the average size of a dominant capital firm (in terms of capitalization, profit, etc. ), (n) the fixed number of dominant capital firms, (S) the average size of a firm in the corpo- rate universe and (N) the number of firms in the corporate universe: The aggregate concentration ratio is then given by:
1. aggregate concentration = s * n = s * n 1. aggregate concentration = S * N = S * N
? ? ? ? ? Differential accumulation and dominant capital 319
As the equation makes clear, the rate of aggregate concentration depends not only on the differential size of dominant capital (s/S), but also on the ratio between the number of dominant-capital firms and the total number of firms (n/N). The problem is that over time these two ratios tend to trend in opposite directions. Whereas (s/S) tends to increase as large firms grow bigger while small firms do not, (n/N) tends to fall since the number of dominant-capital firms remains fixed while the overall number of firms keeps rising. In many instances, the rise in N is so fast that the aggregate concentration ratio ends up moving sideways or even down.
Now, this counter movement would have been inconsequential had the numerator and denominator of the concentration ratio represented compa- rable entities. But the entities they represent are very different. The numerator measures the overall size of dominant capital - a cluster that gets as close as one can to the ruling capitalist class. This group is subject to intra- distributional struggles, but on the whole it is probably the most cohesive - and often the only - class in society. Its members - owners and controllers - are connected and fused through numerous ownership, business, cultural and sometimes family ties; they are tightly linked to key government organs through a complex web of regulations, contracts, revolving doors and a shared world- view; and their accumulation trajectories often show close similarities.
The denominator, representing the corporate sector as a whole, is a very different creature. Excluding dominant capital, the vast majority of its firms are small. Unlike dominant capital, whose worldview was shaped by the twentieth century, the owners of smaller firms tend to entertain nineteenth- century ideals. They continue to swear by the 'free market' and the 'autono- mous consumer', they love to bedevil 'government intervention' and the higher-up 'lobbies', and they long for the good old days of 'equal opportu- nity' and a 'level playing field'. Their own corporate units are only loosely related through professional associations, if at all; they are removed from the high politics of organized sabotage; they have very little say in matters of formal politics; and, most importantly, they tend to act at cross purposes. In no way can they be considered a power block. 11
The fractured nature of this sector makes aggregate concentration ratios difficult to interpret: an increase in the number of small firms causes aggre- gate concentration to decline - yet that very increase fractures the sector even further, causing the relative power of dominant capital to rise.
Differential measures
The relevant measure of power, therefore, is not aggregate but disaggregate. What we need to compare are not the totals, but the 'typical' units that make
11 The different mindsets of the numerator and denominator were portrayed rather accurately in Jack London's The Iron Heel (1907) and further elaborated in C. W. Mills (1956) The Power Elite.
? 320 Accumulation of power
up those totals - i. e. the relevant (s/S) in Equation (1). This is what we do in Figure 14. 2 which displays two differential measures - one for capitalization, the other for net profit. 12
Begin with differential capitalization. This ratio is computed in three steps: first, by calculating the average capitalization of a dominant-capital firm (total capitalization of the top 100 Compustat firms divided by 100); then by
100
100,000
10,000
1,000
? ? ? ? ? ? ? ? log scale
log scale
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 10
? ? ? ? ? Differential Net Profit **
? ? ? ratio of average net profit per firm (Top 100 / all corporations, right)
? ? ? ? ? ? ? Differential Capitalization *
? ? ratio of average market capitalization per firm (Top 100 / all listed corporations, left)
? ? ? ? 1 100 1940 1950 1960 1970 1980 1990 2000 2010 2020
www. bnarchives. net
? ? ? ? Figure 14. 2
Differential capitalization and differential net profit in the United States
* Ratio between the average market capitalization of the top 100 Compustat corporations (ranked annually by market capitalization) and the average market capitalization of all US listed corporations.
** Ratio between the average net profit of the top 100 Compustat corporations (ranked annually by market capitalization) and the average net profit of all US corporations (listed and unlisted). The number of US corporations for 2004-2006 is extrapolated based on recent growth rates.
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price; data172 for net income); Global Financial Data (number of listed corporations on the NYSE, AMEX and NASDAQ till 1989); World Federation of Exchanges (number of listed corporations on the NYSE, AMEX and NASDAQ from 1990); U. S.
Internal Revenue Service (number of corporate tax returns for active corporations); U. S. Federal Reserve Board's Flow of Funds through Global Insight (FL893064105 for market value of corporate equities); U. S. Bureau of Economic Analysis through Global Insight (ZA for profit after taxes).
12 For a different approximation of differential capitalization, based on book value, see Nitzan (1998b).
? Differential accumulation and dominant capital 321
calculating the average capitalization of a listed company (total market capitalization divided by the number of listed companies); and finally by dividing the first result by the second.
The ensuing ratio denotes the differential power of capital. It shows that in the early 1950s, a typical dominant capital corporation had nearly 7 times the capitalization (read power) of the average listed company ($694 million compared to $107 million, as calculated in Table 14. 1). By the early 2000s, this ratio had risen to around 35 ($96 billion vs. $2. 7 billion) - a fivefold increase. 13
Unfortunately, this measure significantly underestimates the increase in the power of dominant capital. Note that the vast majority of firms are not listed. Since the shares of unlisted firms are not publicly traded they have no 'market value'; the fact that they have no market value keeps them out of the statistical picture; and since the excluded firms are relatively small, differen- tial measures based only on large listed firms end up understating the relative size of dominant capital.
In order to get around this limitation, we plot another differential measure - one that is based not on capitalization but on net profit, and that includes all corporations, listed and unlisted. The computational steps are similar. We calculate the average net profit of a dominant-capital corporation (the total net profit of the top 100 Compustat companies by capitalization divided by 100); we then compute the average net profit of a US corporation (total corporate profit after taxes divided by the number of corporate tax returns); finally, we divide the first result by the second.
As expected, the two series have very different orders of magnitude (notice the two log scales). But they are also highly correlated (which isn't surprising given that profit is the key driver of capitalization). This correlation means that we can use the broadly-based differential profit indicator as a proxy for the power of dominant capital relative to all corporations. With this interpre- tation in mind, the pattern emerging from the chart is remarkable indeed. The data show that, in the early 1950s, a typical dominant capital corporation was roughly 1,667 times larger/more powerful than the average US firm (average profit of $60 million compared with $36,000). By the early 2000s, this ratio had risen to 31,325 ($5. 2 billion vs. $166,000) - a nineteenfold increase! 14
13 The sharp jump in differential capitalization between 1976 and 1977 is the result of adding the NASDAQ to our universe of listed companies (although the NASDAQ started to operate in 1971, data for total capitalization are available only from 1976 onward). At that time of its inclusion, the NASDAQ listed very small firms, so its addition brought down the capitalization of the average corporation.
14 The sharp drop in the series during 1992-93 is due primarily to a one-time accounting charge (SFAS 106), a regulation that required firms to report in advance the future cost of their post-employment benefits. Since the rule applied almost exclusively to large firms, it had a big effect on the numerator but a negligible one on the denominator.
? 322 Accumulation of power
Accumulation crisis or differential accumulation boom?
What does Figure 14. 2 tell us? Most generally, it suggests that US differential accumulation has proceeded more or less uninterruptedly for the past half- century and possibly longer. Relative to all listed companies, the rate of differential accumulation by the top 100 dominant-capital firms averaged nearly 4 per cent annually (measured by the slope of the exponential growth trend of the capitalization series). The differential profit measure, bench- marked relative to the corporate sector as a whole, expanded even faster, growing at annual trend rate of 5 per cent. Seen as a power process, US accumulation appears to have been sailing on an even keel throughout much of the post-war era.
For many readers, this conclusion may sound counterintuitive, if not heretical. According to analyses of the social structures of accumulation (SSA) and regulation schools, for instance, the United States has experienced an accumulation crisis during much of this period, particularly in the decades between the late 1960s and early 1990s. 15
This sharp difference in interpretation is rooted in the troubled definition of capital. The conventional creed, focused on a 'material' understanding of profitability and accumulation, indeed suggests a crisis. Figure 14. 3 shows two standard accumulation indices (smoothed as 5-year moving averages). The first is the plough-back ratio, which measures the proportion of capitalist income 'invested' in net productive capacity (net investment as a per cent of net profit and net interest). The second is the rate of growth of the 'net' capital stock measured in 'real terms'. The long-term trend of both series is clearly negative. And, from a conventional viewpoint, this convergence makes sense. The plough-back ratio is the major source of 'capital formation', so when the former stagnates and declines so should the latter.
This notion of accumulation crisis stands in sharp contrast to the evidence based on differential accumulation. As illustrated in Figure 14. 4, unlike the plough-back ratio and the rate of 'material' accumulation, the share of capital in national income trended upward: it rose in the 1980s to twice its level in the 1950s, and fell only slightly since then (with data smoothed as 5-year moving averages). This distributional measure shows no sign of a protracted crisis; if anything, it indicates that capital income has grown increasingly abundant.
From a conventional viewpoint, these opposite developments are certainly puzzling. Capitalists have been 'investing' a smaller proportion of their income and have seen their 'real' accumulation rate decline - yet despite the 'accumulation crisis' their share of national income kept growing.
From a power viewpoint, though, the divergence is perfectly consistent: capital income depends not on the growth of industry, but on the strategic con- trol of industry. Had industry been given a 'free rein' to raise its productive
15 Contributions to and reviews of these approaches are contained in Kotz, McDonough and Reich (1994) and in McDonough (2007).
? 6
5
4
3
2
1
Differential accumulation and dominant capital 323 280
? ? ? ? ? ? ? per cent
per cent
200 annual rate of change
of the 'capital stock' 160 (left)
120 80 40
0 -40 -80 -120 -160
2000 2010
? ? 240
? ? ? ? ? ? ? 'Accumulation' *
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www. bnarchives. net
Plough-Back Ratio **
net investment as a share of capitalist income (right)
1970 1980 1990
? ? 0 1950
Figure 14. 3
1960
? ? ? Accumulation crisis? . . .
* 'Accumulation' denotes the per cent growth rate of private fixed assets net of depreciation, expressed in constant prices. Private fixed assets comprise non-residential equipment, software and structures.
** The plough-back ratio is net investment expressed as a per cent of capitalist income. Net investment is the first difference between successive annual values of the net capital stock in current prices. Capitalist income is the dollar sum of after-tax corporate profit and net interest.
Note: Series are smoothed as 5-year moving averages.
Source: U. S. Bureau of Economic Analysis through Global Insight (series codes: FAPNRE for private fixed assets in current prices; JQFAPNRE for private fixed assets in constant prices; ZAECON for after-tax corporate profit with IVA and CCA; INTNETAMISC for net interest and miscellaneous payments on assets).
capacity, the likely result would have been excess capacity and a fall in capi- tal's share (revisit Figures 12. 1 and 12. 2). Based on this latter logic, it seems entirely possible that the income share of capitalists increased because their 'real' investment declined.
To close the circle, note that the uptrend in the income share of capital plotted in Figure 14. 4 coincided with a consistently positive differential accu- mulation by dominant capital (indicated here by the rising trend of differen- tial net profit, smoothed as a 5-year moving average). This correlation is hardly trivial, at least from the viewpoint of economic orthodoxy. Liberal analysis suggests that because of diminishing returns, accumulation (defined as rising 'capital goods' per head) should be associated with lower rates of
324 Accumulation of power 100,000
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
? ? ? ? ? ? ? ? ? log scale
Differential Profit *
ratio of average net profit per firm (Top 100 / all corporations, left)
per cent
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 10,000
1,000
100 1950
Capital's Income Share
after-tax profit and net interest as a share of national income (right)
? ? ? ? ? ? ? ?
Source: See Figures 14. 1 and 14. 2
Industrial database, a cluster that we use as a proxy for dominant capital;9 (2) the universe of listed corporations; and (3) the universe of all corpora- tions. The table provides information on the number of firms in each group, the average capitalization per firm and the average profit per firm. We refer to these numbers in our description below.
Figure 14. 1 shows two indices of aggregate concentration - one based on market capitalization, the other on net profit. Each index measures the per cent share of the top 100 firms ranked by market capitalization in the relevant corporate universe. 10
The concentration index for market capitalization is computed from two sources. The numerator is the market capitalization of the top 100 firms from the Compustat database, ranked annually by market capitalization. The denominator is the combined market capitalization of all listed corporations on the NYSE, NASDAQ and AMEX (the number of listed corporations quadrupled from roughly 1,500 in the early 1950s to over 6,000 presently).
The second measure of concentration, based on net profit, is computed a bit differently. The numerator is the total net profit of the top 100 Compustat firms by capitalization. The denominator is the aggregate net profit of all US corporations, listed and unlisted (the total number of corporations increased nearly tenfold - from around 600,000 in the early 1950s to over 5. 5 million presently).
Both data series show high and rising levels of aggregate concentration. In the early 1950s, the top 100 firms accounted for 40 per cent of all market capi- talization. By the early 2000s their share was 60 per cent. The uptrend in the aggregate concentration of net profit, based on the entire corporate universe, is even more pronounced - particularly given the much faster growth in the total number of firms. During the early 1950s, the top 100 dominant-capital firms accounted for 23 per cent of all corporate profits. By the early 2000s, their share more than doubled to 53 per cent.
9 The term 'Industrial' here is misleading. The Compustat database includes firms from all sectors.
10 Unless otherwise noted, market capitalization denotes the market value of outstanding equity shares. It does not include bank debt and bonds.
? ? 318 Accumulation of power 90
per cent
? ? ? ? ? ? ? 80
70
60
50
40
30
20
10
Capitalization *
Top 100 / all listed corporations
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Net Profit **
Top 100 / all corporations
? ? ? ? ? www. bnarchives. net
? ? 0
1940 1950 1960 1970 1980 1990 2000 2010 2020
Figure 14. 1 Aggregate concentration in the United States
* Ratio between the market capitalization of the top 100 Compustat corporations (ranked annu-
ally by market capitalization) and the overall market capitalization of all US listed corporations.
** Ratio between the net profit of the top 100 Compustat corporations (ranked annually by market capitalization) and the overall net profit of all US corporations (listed and unlisted).
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price; data172 for net income); U. S. Federal Reserve Board's Flow of Funds through Global Insight (FL893064105 for market value of corporate equities); U. S. Bureau of Economic Analysis through Global Insight (ZA for profit after taxes).
Measures of aggregate concentration are often used to approximate the overall power of big business. And the levels and trends in Figure 14. 1 indeed portray an ominous picture. But the situation in fact is far more alarming than this picture suggests. The difficulty lies in the definition of aggregate concentration and is fairly simple to explain. Let (s) denote the average size of a dominant capital firm (in terms of capitalization, profit, etc. ), (n) the fixed number of dominant capital firms, (S) the average size of a firm in the corpo- rate universe and (N) the number of firms in the corporate universe: The aggregate concentration ratio is then given by:
1. aggregate concentration = s * n = s * n 1. aggregate concentration = S * N = S * N
? ? ? ? ? Differential accumulation and dominant capital 319
As the equation makes clear, the rate of aggregate concentration depends not only on the differential size of dominant capital (s/S), but also on the ratio between the number of dominant-capital firms and the total number of firms (n/N). The problem is that over time these two ratios tend to trend in opposite directions. Whereas (s/S) tends to increase as large firms grow bigger while small firms do not, (n/N) tends to fall since the number of dominant-capital firms remains fixed while the overall number of firms keeps rising. In many instances, the rise in N is so fast that the aggregate concentration ratio ends up moving sideways or even down.
Now, this counter movement would have been inconsequential had the numerator and denominator of the concentration ratio represented compa- rable entities. But the entities they represent are very different. The numerator measures the overall size of dominant capital - a cluster that gets as close as one can to the ruling capitalist class. This group is subject to intra- distributional struggles, but on the whole it is probably the most cohesive - and often the only - class in society. Its members - owners and controllers - are connected and fused through numerous ownership, business, cultural and sometimes family ties; they are tightly linked to key government organs through a complex web of regulations, contracts, revolving doors and a shared world- view; and their accumulation trajectories often show close similarities.
The denominator, representing the corporate sector as a whole, is a very different creature. Excluding dominant capital, the vast majority of its firms are small. Unlike dominant capital, whose worldview was shaped by the twentieth century, the owners of smaller firms tend to entertain nineteenth- century ideals. They continue to swear by the 'free market' and the 'autono- mous consumer', they love to bedevil 'government intervention' and the higher-up 'lobbies', and they long for the good old days of 'equal opportu- nity' and a 'level playing field'. Their own corporate units are only loosely related through professional associations, if at all; they are removed from the high politics of organized sabotage; they have very little say in matters of formal politics; and, most importantly, they tend to act at cross purposes. In no way can they be considered a power block. 11
The fractured nature of this sector makes aggregate concentration ratios difficult to interpret: an increase in the number of small firms causes aggre- gate concentration to decline - yet that very increase fractures the sector even further, causing the relative power of dominant capital to rise.
Differential measures
The relevant measure of power, therefore, is not aggregate but disaggregate. What we need to compare are not the totals, but the 'typical' units that make
11 The different mindsets of the numerator and denominator were portrayed rather accurately in Jack London's The Iron Heel (1907) and further elaborated in C. W. Mills (1956) The Power Elite.
? 320 Accumulation of power
up those totals - i. e. the relevant (s/S) in Equation (1). This is what we do in Figure 14. 2 which displays two differential measures - one for capitalization, the other for net profit. 12
Begin with differential capitalization. This ratio is computed in three steps: first, by calculating the average capitalization of a dominant-capital firm (total capitalization of the top 100 Compustat firms divided by 100); then by
100
100,000
10,000
1,000
? ? ? ? ? ? ? ? log scale
log scale
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 10
? ? ? ? ? Differential Net Profit **
? ? ? ratio of average net profit per firm (Top 100 / all corporations, right)
? ? ? ? ? ? ? Differential Capitalization *
? ? ratio of average market capitalization per firm (Top 100 / all listed corporations, left)
? ? ? ? 1 100 1940 1950 1960 1970 1980 1990 2000 2010 2020
www. bnarchives. net
? ? ? ? Figure 14. 2
Differential capitalization and differential net profit in the United States
* Ratio between the average market capitalization of the top 100 Compustat corporations (ranked annually by market capitalization) and the average market capitalization of all US listed corporations.
** Ratio between the average net profit of the top 100 Compustat corporations (ranked annually by market capitalization) and the average net profit of all US corporations (listed and unlisted). The number of US corporations for 2004-2006 is extrapolated based on recent growth rates.
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price; data172 for net income); Global Financial Data (number of listed corporations on the NYSE, AMEX and NASDAQ till 1989); World Federation of Exchanges (number of listed corporations on the NYSE, AMEX and NASDAQ from 1990); U. S.
Internal Revenue Service (number of corporate tax returns for active corporations); U. S. Federal Reserve Board's Flow of Funds through Global Insight (FL893064105 for market value of corporate equities); U. S. Bureau of Economic Analysis through Global Insight (ZA for profit after taxes).
12 For a different approximation of differential capitalization, based on book value, see Nitzan (1998b).
? Differential accumulation and dominant capital 321
calculating the average capitalization of a listed company (total market capitalization divided by the number of listed companies); and finally by dividing the first result by the second.
The ensuing ratio denotes the differential power of capital. It shows that in the early 1950s, a typical dominant capital corporation had nearly 7 times the capitalization (read power) of the average listed company ($694 million compared to $107 million, as calculated in Table 14. 1). By the early 2000s, this ratio had risen to around 35 ($96 billion vs. $2. 7 billion) - a fivefold increase. 13
Unfortunately, this measure significantly underestimates the increase in the power of dominant capital. Note that the vast majority of firms are not listed. Since the shares of unlisted firms are not publicly traded they have no 'market value'; the fact that they have no market value keeps them out of the statistical picture; and since the excluded firms are relatively small, differen- tial measures based only on large listed firms end up understating the relative size of dominant capital.
In order to get around this limitation, we plot another differential measure - one that is based not on capitalization but on net profit, and that includes all corporations, listed and unlisted. The computational steps are similar. We calculate the average net profit of a dominant-capital corporation (the total net profit of the top 100 Compustat companies by capitalization divided by 100); we then compute the average net profit of a US corporation (total corporate profit after taxes divided by the number of corporate tax returns); finally, we divide the first result by the second.
As expected, the two series have very different orders of magnitude (notice the two log scales). But they are also highly correlated (which isn't surprising given that profit is the key driver of capitalization). This correlation means that we can use the broadly-based differential profit indicator as a proxy for the power of dominant capital relative to all corporations. With this interpre- tation in mind, the pattern emerging from the chart is remarkable indeed. The data show that, in the early 1950s, a typical dominant capital corporation was roughly 1,667 times larger/more powerful than the average US firm (average profit of $60 million compared with $36,000). By the early 2000s, this ratio had risen to 31,325 ($5. 2 billion vs. $166,000) - a nineteenfold increase! 14
13 The sharp jump in differential capitalization between 1976 and 1977 is the result of adding the NASDAQ to our universe of listed companies (although the NASDAQ started to operate in 1971, data for total capitalization are available only from 1976 onward). At that time of its inclusion, the NASDAQ listed very small firms, so its addition brought down the capitalization of the average corporation.
14 The sharp drop in the series during 1992-93 is due primarily to a one-time accounting charge (SFAS 106), a regulation that required firms to report in advance the future cost of their post-employment benefits. Since the rule applied almost exclusively to large firms, it had a big effect on the numerator but a negligible one on the denominator.
? 322 Accumulation of power
Accumulation crisis or differential accumulation boom?
What does Figure 14. 2 tell us? Most generally, it suggests that US differential accumulation has proceeded more or less uninterruptedly for the past half- century and possibly longer. Relative to all listed companies, the rate of differential accumulation by the top 100 dominant-capital firms averaged nearly 4 per cent annually (measured by the slope of the exponential growth trend of the capitalization series). The differential profit measure, bench- marked relative to the corporate sector as a whole, expanded even faster, growing at annual trend rate of 5 per cent. Seen as a power process, US accumulation appears to have been sailing on an even keel throughout much of the post-war era.
For many readers, this conclusion may sound counterintuitive, if not heretical. According to analyses of the social structures of accumulation (SSA) and regulation schools, for instance, the United States has experienced an accumulation crisis during much of this period, particularly in the decades between the late 1960s and early 1990s. 15
This sharp difference in interpretation is rooted in the troubled definition of capital. The conventional creed, focused on a 'material' understanding of profitability and accumulation, indeed suggests a crisis. Figure 14. 3 shows two standard accumulation indices (smoothed as 5-year moving averages). The first is the plough-back ratio, which measures the proportion of capitalist income 'invested' in net productive capacity (net investment as a per cent of net profit and net interest). The second is the rate of growth of the 'net' capital stock measured in 'real terms'. The long-term trend of both series is clearly negative. And, from a conventional viewpoint, this convergence makes sense. The plough-back ratio is the major source of 'capital formation', so when the former stagnates and declines so should the latter.
This notion of accumulation crisis stands in sharp contrast to the evidence based on differential accumulation. As illustrated in Figure 14. 4, unlike the plough-back ratio and the rate of 'material' accumulation, the share of capital in national income trended upward: it rose in the 1980s to twice its level in the 1950s, and fell only slightly since then (with data smoothed as 5-year moving averages). This distributional measure shows no sign of a protracted crisis; if anything, it indicates that capital income has grown increasingly abundant.
From a conventional viewpoint, these opposite developments are certainly puzzling. Capitalists have been 'investing' a smaller proportion of their income and have seen their 'real' accumulation rate decline - yet despite the 'accumulation crisis' their share of national income kept growing.
From a power viewpoint, though, the divergence is perfectly consistent: capital income depends not on the growth of industry, but on the strategic con- trol of industry. Had industry been given a 'free rein' to raise its productive
15 Contributions to and reviews of these approaches are contained in Kotz, McDonough and Reich (1994) and in McDonough (2007).
? 6
5
4
3
2
1
Differential accumulation and dominant capital 323 280
? ? ? ? ? ? ? per cent
per cent
200 annual rate of change
of the 'capital stock' 160 (left)
120 80 40
0 -40 -80 -120 -160
2000 2010
? ? 240
? ? ? ? ? ? ? 'Accumulation' *
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? www. bnarchives. net
Plough-Back Ratio **
net investment as a share of capitalist income (right)
1970 1980 1990
? ? 0 1950
Figure 14. 3
1960
? ? ? Accumulation crisis? . . .
* 'Accumulation' denotes the per cent growth rate of private fixed assets net of depreciation, expressed in constant prices. Private fixed assets comprise non-residential equipment, software and structures.
** The plough-back ratio is net investment expressed as a per cent of capitalist income. Net investment is the first difference between successive annual values of the net capital stock in current prices. Capitalist income is the dollar sum of after-tax corporate profit and net interest.
Note: Series are smoothed as 5-year moving averages.
Source: U. S. Bureau of Economic Analysis through Global Insight (series codes: FAPNRE for private fixed assets in current prices; JQFAPNRE for private fixed assets in constant prices; ZAECON for after-tax corporate profit with IVA and CCA; INTNETAMISC for net interest and miscellaneous payments on assets).
capacity, the likely result would have been excess capacity and a fall in capi- tal's share (revisit Figures 12. 1 and 12. 2). Based on this latter logic, it seems entirely possible that the income share of capitalists increased because their 'real' investment declined.
To close the circle, note that the uptrend in the income share of capital plotted in Figure 14. 4 coincided with a consistently positive differential accu- mulation by dominant capital (indicated here by the rising trend of differen- tial net profit, smoothed as a 5-year moving average). This correlation is hardly trivial, at least from the viewpoint of economic orthodoxy. Liberal analysis suggests that because of diminishing returns, accumulation (defined as rising 'capital goods' per head) should be associated with lower rates of
324 Accumulation of power 100,000
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Differential Profit *
ratio of average net profit per firm (Top 100 / all corporations, left)
per cent
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1,000
100 1950
Capital's Income Share
after-tax profit and net interest as a share of national income (right)
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