** The plough-back ratio is net investment
expressed
as a per cent of capitalist income.
Nitzan Bichler - 2012 - Capital as Power
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
?
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)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 1960
1970
1980 1990
www. bnarchives. net ? ? 1
0 2000 2010
Figure 14. 4 . . . Or a differential accumulation boom?
* 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.
Note: Series are smoothed as 5-year moving averages.
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price); U. S. Bureau of Economic Analysis through Global Insight (ZA for corporate profit after tax; ZAECON for after-tax corporate profit with IVA and CCA; INTNETAMISC for net interest and miscellaneous payments on assets; YN for national income); U. S. Internal Revenue Service (number of corporate tax returns for active corpor- ations). The number of US corporations for 2005-2006 is extrapolated based on recent growth rates.
returns and hence a downward pressure on the income share of capital. Marxist analysis is more ambivalent. It accepts that distribution could depend on power - yet, hostage to the labour theory of value, it sees investment as contributing to a rising organic composition of capital and therefore to lower surplus and declining returns.
From our own perspective, however, the positive association between differential accumulation and capital's income share is hardly surprising. Accumulation is a power process, not a material one. Defined in differential terms, it involves the growing relative power of society's leading capital groups, which in turn helps sustain or expand the overall income share of capital. This double-sided process is consistent with our analysis in
Differential accumulation and dominant capital 325
Chapter 12, where we suggested that the distribution of capital income among absentee owners (and hence the differential rate of accumulation) is roughly related to the balance of business damage they inflict on each other, and that the income share of all absentee owners depends (although non- linearly) on the overall industrial damage arising from the business warfare raging among them.
Therefore, we tentatively argue that, over the longer term, capital accumu- lation depends on two key conditions, and that the absence of one or both of these conditions brings a threat of capitalist crisis:
? A non-negative rate of differential accumulation by dominant capital. This condition implies that the relative power of the largest absentee owners is either stable or growing. It reflects both the power drive of accumulation and the actual ability to keep 'industry' subjugated to 'business'.
? A steady or rising capital share of income. Although this requirement is partly an indirect result of the first condition, it also reflects the overall balance of power between capitalists and other societal groups. Unless this condition is fulfilled, the very 'capitalist' nature of the system could be put into question.
Historical paths
The boundaries of novelty
Differential accumulation is a power creorder, an ongoing struggle to restruc- ture society against opposition. The form of the process is the quantitative redistribution of ownership, its content the qualitative transformation of power relations. The transformative feature is crucial because it means novelty, and novelty, by definition, is never in the cards. It cannot be predicted. In this sense, differential accumulation, despite its 'objective' quan- titative appearance, is inherently open-ended. It does not move toward any 'equilibrium'. It has no 'laws of motion'. It may not even happen at all. In short, like much else in society, it is an indeterminate journey, an adventure continuously re-written by its own characters. 16
This is the dynamic prefix of the capitalist cre-order. But there is also the static suffix of cre-order - namely, the structures that capitalists try to impose and to which they themselves often become subservient. The imposition of
16 'The most important aspect of the economic process', writes Georgescu-Roegen (1979: 321), 'is precisely the continuous emergence of novelty. Now, novelty is unpredictable, but in a sense quite different from the way in which the result of a coin toss is unpredictable. . . . [it] is unique in the sense that in chronological time it occurs only once. Moreover, the novelty always represents a qualitative change. It is therefore understandable that no analytical model can deal with the emergence of novelty, for everything that can be derived from such a model can only concern quantitative variations. Besides, nothing can be derived from an analytical model that is not logically contained in its axiomatic basis'.
? 326 Accumulation of power
order concretizes differential accumulation. It turns it from an abstract prin- ciple into a particular story, subject to specific, albeit broad, limitations. As noted earlier, these limitations - including the basic algorithm of accumula- tion - are themselves created by humans, so they too can be altered. But such changes, being more fundamental in nature, always come with difficulty and never too quickly. To paraphrase Marx, 'human beings make their own history, as well as the circumstances in which this history unfolds, but the latter are much more difficult to change than the former'. And as long as these 'circumstances', or 'algorithms' persist in their general form, their impact is to restrict action and 'limit the possible' as Fernand Braudel (1985) put it.
It is in this latter sense that commodification and capitalization gradually make the quest for differential accumulation a primary compass of social action, a constraint that shapes both ideology and behaviour. And insofar as this differential quest materializes - that is, insofar as dominant capital does grow faster than the average - its expansion tends to occur within certain boundaries and follow particular paths.
Spread, integration, oscillation
What are these paths? Broadly speaking, the historical evolution of differen- tial accumulation during the past century seems to have followed three related patterns. The first, secular feature is the gradual spread of differential accu- mulation as the principal driving force of capitalist development - within a given society, as well as into virgin territory previously untouched by vendible capital.
The second feature, also secular, is the increasing integration of separate differential accumulation processes. As capital becomes more and more vend- ible, its buying and selling transcends its original industry, sector and, finally, home country, resulting in a progressive convergence of accumulation bench- marks across these different universes. The capitalists find it feasible to invest farther afield, and the more they venture out, the more universal their yard- sticks become. The social process underlying this convergence is the growing unification and standardization of business principles, so that any given society or group finds itself responding to the roller coaster of differential accumulation elsewhere and to an increasingly similar normal rate of return everywhere.
The final feature of this history is cyclical. Differential accumulation tends to move in long swings, alternating between two distinct regimes which we term 'breadth' and 'depth'. A breadth regime is characterized by proletarin- ization, growth and corporate amalgamation; it tends to be structurally dynamic; and commonly it is less conflictual. A depth regime, by contrast, is marked by stagflation; it tends to consolidate rather than change institutions and structures; and it is usually more conflictual and often violent.
Differential accumulation and dominant capital 327
These three features of differential accumulation - its spread, integration and alternating regimes - are closely related. The first two processes work to reinforce one another; and their unfolding makes the breadth-depth cycles ever more interdependent and synchronized across sectors and societies.
The other side of this triple process relates to class. Ongoing differential accumulation means the centralization of commodified power in the hands of an ever more cohesive group of dominant capital, whereas the spatial inte- gration of the process makes this group increasingly transnational. The study of differential accumulation regimes therefore is a study of capitalist class formation. It helps us understand how this class comes into being, the methods it uses to build and consolidate its power, and the conflict and contradictions it faces in creordering its own history.
The remainder of the chapter outlines the general boundaries and paths of these processes, characterizes their features and briefly examines their inter- actions. The subsequent chapters look at these issues more closely, flesh out their history and assess their broader significance for the global political economy.
Regimes of differential accumulation
How can dominant capital achieve differential accumulation? To set the context, consider again the capitalization equation from Chapter 11. The formula consists of four elementary particles - future earnings (E), hype (H), a risk coefficient (? ) and the 'confident' normal rate of return (rc):
2. K = E * H rc * ?
For dominant capital, differential capitalization (DK) is the ratio between its own capitalization and the average capitalization. Equation (3) expresses this ratio by using the D subscript to denote dominant capital and no subscript to denote the average capital. The normal rate of return is common to dominant capital and the average and therefore drops from the ratio:
EH 3. DK = KD = ? ED ? * ? HD ?
K?
? ? D ?
? ? ? ? ? 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)
? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? 1960
1970
1980 1990
www. bnarchives. net ? ? 1
0 2000 2010
Figure 14. 4 . . . Or a differential accumulation boom?
* 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.
Note: Series are smoothed as 5-year moving averages.
Source: Compustat compann file through WRDS (series codes: data25 for common shares outstanding; data199 for share price); U. S. Bureau of Economic Analysis through Global Insight (ZA for corporate profit after tax; ZAECON for after-tax corporate profit with IVA and CCA; INTNETAMISC for net interest and miscellaneous payments on assets; YN for national income); U. S. Internal Revenue Service (number of corporate tax returns for active corpor- ations). The number of US corporations for 2005-2006 is extrapolated based on recent growth rates.
returns and hence a downward pressure on the income share of capital. Marxist analysis is more ambivalent. It accepts that distribution could depend on power - yet, hostage to the labour theory of value, it sees investment as contributing to a rising organic composition of capital and therefore to lower surplus and declining returns.
From our own perspective, however, the positive association between differential accumulation and capital's income share is hardly surprising. Accumulation is a power process, not a material one. Defined in differential terms, it involves the growing relative power of society's leading capital groups, which in turn helps sustain or expand the overall income share of capital. This double-sided process is consistent with our analysis in
Differential accumulation and dominant capital 325
Chapter 12, where we suggested that the distribution of capital income among absentee owners (and hence the differential rate of accumulation) is roughly related to the balance of business damage they inflict on each other, and that the income share of all absentee owners depends (although non- linearly) on the overall industrial damage arising from the business warfare raging among them.
Therefore, we tentatively argue that, over the longer term, capital accumu- lation depends on two key conditions, and that the absence of one or both of these conditions brings a threat of capitalist crisis:
? A non-negative rate of differential accumulation by dominant capital. This condition implies that the relative power of the largest absentee owners is either stable or growing. It reflects both the power drive of accumulation and the actual ability to keep 'industry' subjugated to 'business'.
? A steady or rising capital share of income. Although this requirement is partly an indirect result of the first condition, it also reflects the overall balance of power between capitalists and other societal groups. Unless this condition is fulfilled, the very 'capitalist' nature of the system could be put into question.
Historical paths
The boundaries of novelty
Differential accumulation is a power creorder, an ongoing struggle to restruc- ture society against opposition. The form of the process is the quantitative redistribution of ownership, its content the qualitative transformation of power relations. The transformative feature is crucial because it means novelty, and novelty, by definition, is never in the cards. It cannot be predicted. In this sense, differential accumulation, despite its 'objective' quan- titative appearance, is inherently open-ended. It does not move toward any 'equilibrium'. It has no 'laws of motion'. It may not even happen at all. In short, like much else in society, it is an indeterminate journey, an adventure continuously re-written by its own characters. 16
This is the dynamic prefix of the capitalist cre-order. But there is also the static suffix of cre-order - namely, the structures that capitalists try to impose and to which they themselves often become subservient. The imposition of
16 'The most important aspect of the economic process', writes Georgescu-Roegen (1979: 321), 'is precisely the continuous emergence of novelty. Now, novelty is unpredictable, but in a sense quite different from the way in which the result of a coin toss is unpredictable. . . . [it] is unique in the sense that in chronological time it occurs only once. Moreover, the novelty always represents a qualitative change. It is therefore understandable that no analytical model can deal with the emergence of novelty, for everything that can be derived from such a model can only concern quantitative variations. Besides, nothing can be derived from an analytical model that is not logically contained in its axiomatic basis'.
? 326 Accumulation of power
order concretizes differential accumulation. It turns it from an abstract prin- ciple into a particular story, subject to specific, albeit broad, limitations. As noted earlier, these limitations - including the basic algorithm of accumula- tion - are themselves created by humans, so they too can be altered. But such changes, being more fundamental in nature, always come with difficulty and never too quickly. To paraphrase Marx, 'human beings make their own history, as well as the circumstances in which this history unfolds, but the latter are much more difficult to change than the former'. And as long as these 'circumstances', or 'algorithms' persist in their general form, their impact is to restrict action and 'limit the possible' as Fernand Braudel (1985) put it.
It is in this latter sense that commodification and capitalization gradually make the quest for differential accumulation a primary compass of social action, a constraint that shapes both ideology and behaviour. And insofar as this differential quest materializes - that is, insofar as dominant capital does grow faster than the average - its expansion tends to occur within certain boundaries and follow particular paths.
Spread, integration, oscillation
What are these paths? Broadly speaking, the historical evolution of differen- tial accumulation during the past century seems to have followed three related patterns. The first, secular feature is the gradual spread of differential accu- mulation as the principal driving force of capitalist development - within a given society, as well as into virgin territory previously untouched by vendible capital.
The second feature, also secular, is the increasing integration of separate differential accumulation processes. As capital becomes more and more vend- ible, its buying and selling transcends its original industry, sector and, finally, home country, resulting in a progressive convergence of accumulation bench- marks across these different universes. The capitalists find it feasible to invest farther afield, and the more they venture out, the more universal their yard- sticks become. The social process underlying this convergence is the growing unification and standardization of business principles, so that any given society or group finds itself responding to the roller coaster of differential accumulation elsewhere and to an increasingly similar normal rate of return everywhere.
The final feature of this history is cyclical. Differential accumulation tends to move in long swings, alternating between two distinct regimes which we term 'breadth' and 'depth'. A breadth regime is characterized by proletarin- ization, growth and corporate amalgamation; it tends to be structurally dynamic; and commonly it is less conflictual. A depth regime, by contrast, is marked by stagflation; it tends to consolidate rather than change institutions and structures; and it is usually more conflictual and often violent.
Differential accumulation and dominant capital 327
These three features of differential accumulation - its spread, integration and alternating regimes - are closely related. The first two processes work to reinforce one another; and their unfolding makes the breadth-depth cycles ever more interdependent and synchronized across sectors and societies.
The other side of this triple process relates to class. Ongoing differential accumulation means the centralization of commodified power in the hands of an ever more cohesive group of dominant capital, whereas the spatial inte- gration of the process makes this group increasingly transnational. The study of differential accumulation regimes therefore is a study of capitalist class formation. It helps us understand how this class comes into being, the methods it uses to build and consolidate its power, and the conflict and contradictions it faces in creordering its own history.
The remainder of the chapter outlines the general boundaries and paths of these processes, characterizes their features and briefly examines their inter- actions. The subsequent chapters look at these issues more closely, flesh out their history and assess their broader significance for the global political economy.
Regimes of differential accumulation
How can dominant capital achieve differential accumulation? To set the context, consider again the capitalization equation from Chapter 11. The formula consists of four elementary particles - future earnings (E), hype (H), a risk coefficient (? ) and the 'confident' normal rate of return (rc):
2. K = E * H rc * ?
For dominant capital, differential capitalization (DK) is the ratio between its own capitalization and the average capitalization. Equation (3) expresses this ratio by using the D subscript to denote dominant capital and no subscript to denote the average capital. The normal rate of return is common to dominant capital and the average and therefore drops from the ratio:
EH 3. DK = KD = ? ED ? * ? HD ?
K?
? ? D ?
