In this sense, differential accumulation, despite its 'objective' quan-
titative
appearance, is inherently open-ended.
Nitzan Bichler - 2012 - Capital as Power
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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 ?
Equation (3) presents the overall picture. On the quantitative side, it tells us that dominant capital can achieve differential accumulation by some combination of the following: (1) raising its differential earnings (ED/E), (2) raising its differential hype (HD/H) and (3) lowering its differential risk
? ? ? ? ? ? 328 Accumulation of power
(? D/? ). 17 On the qualitative side it means that in order to understand the concrete history of dominant capital, we need to examine the intertwined power processes that drive its differential earnings, hype and risk (as well as the processes that underlie the normal rate of return - which, although not in the equation - remains of crucial importance in setting the boundaries of the process).
But of these components, one clearly stands out: differential earnings (ED/E). As we have seen, this is the main long-term driver of the process. And since our aim here is to provide only a broad-brush description, the empirical analysis that follows focuses mostly on earnings and refers to hype and risk only in passing.
For a corporation, the level of earnings is the product of the number of employees multiplied by the average earnings per employee:
4. E = employees * E = employees * earnings per employee employees
The number of employees denotes the formal size of the organization, while earnings per employee measure the elemental power per unit of organization. According to this equation, the firm can raise its earnings in two ways. The first path, which we call 'breadth', is to augment the size of its organization by having more employees. The second path, which we label 'depth', is to increase the elemental power of its organization by raising its earnings per employee. 18
This decomposition merits clarification. Despite the apparent connota- tions, the categories of employment and earnings per employee have little to do with narrowly defined production and everything to do with broadly conceived power. Our choice of employment as a measure of organizational
17 Differential accumulation (DA) is the rate of change of differential capitalization (DK). Expressed in instantaneous rates of change:
DA ? differential growth of earnings + differential growth of hype - differential growth of risk.
Note that differential accumulation is based on differences between growth rates. Dominant capital can achieve differential accumulation even if its own capitalization is falling - provided that the average capitalization falls even faster. This understanding applies also to the underlying components of differential accumulation and is assumed throughout.
18 Note that this decomposition differs from the common view of earnings as the product of sales revenues and the earnings margin. Although both decompositions are correct by defi- nition, only the former corresponds to our separation between the corporation's size and its elemental power. To illustrate, sales revenues can be raised by increasing employment in order to produce more (size), or by raising prices (elemental power). Likewise, earnings per employee (which for us represent elemental power) can be raised by increasing prices and therefore sales revenues, or by widening the earnings margin. Formally speaking, breadth affects market share, but market share does not always involve breadth. Similarly, the earn- ings margin affects depth, but depth does not necessarily influence the earnings margin.
? ? Differential accumulation and dominant capital 329
size is not accidental. Ever since they first emerged in the power civilizations of the ancient river deltas, hierarchical organizations have been measured by 'head', or capita. They have been counted in slaves, soldiers, serfs, religious followers, factory workers and now, more generically, in employees. The number of 'heads' under one's immediate command - relative to the number of heads commanded by others - is indicative of one's immediate power.
But formal organizational size is merely the first, immediate dimension of power. In the past, rulers were able to use their slaves, soldiers, serfs, religious laity and factory workers to control others, often beyond the formal confines of their own organization. And the same is true, only many times over, with the broader category of employment.
Operating through their corporate organization, capitalists are able to project their indirect power over society as a whole. This indirect power takes numerous forms - from the creation of loyal and predictable consumers, through the taming of voters, to the control of subcontractors, the subjuga- tion of governments, the shaping of public policies, the moulding of culture, the crafting of ideology, the harnessing of religion, the use of armies and police forces and the crafting of international relations. The relative effective- ness of these multiple forms of indirect power gets crystallized in the magni- tude of differential profit per employee. This latter measure represents the elemental power of the capitalist organization, its ability to extend its power beyond its immediate size.
Equation (5) formalizes this logic at the differential level (using the subscript D to denote dominant capital and no subscript to signify the average). Differential earnings (ED/E) are given by the ratio of differential employment and differential earnings per employee:
E employees earnings per employee 5. D = ? D? * ? D?
? ? ? . E employees earnings per employee
A dominant capital firm can accumulate differentially: (1) by expanding its employment faster than the average; (2) by raising its earnings per employee faster than the average - or by some combination of the two. Each avenue - breadth or depth - can be further subdivided into 'internal' and 'external' sub-routes, leading to a four-way taxonomy:
Table 14. 2
Breadth Depth
Regimes of differential accumulation
External Internal
Green-field Mergers & Acquisitions Stagflation Cost cutting
? ? ? 1 External Breadth: Green-field Investment. A firm can achieve differential accumulation by building new capacity and hiring new employees faster
330 Accumulation of power
2
than the average. This method is labelled 'external' because, from a societal perspective, it involves a net addition of employees. 19 Its upper ceiling is the extent of proletarianization. The more immediate limit comes through the negative impact it has on depth: 'excessive' green-field growth creates a downward pressure on prices and hence on earnings per employee.
Internal Breadth: Mergers and Acquisitions. Strictly speaking, internal breadth involves differential earnings growth through inter-firm labour mobility. This growth can happen when a firm adds new capacity and employment against cutbacks elsewhere, although such movements relate more to industrial restructuring (labour mobility between sectors) than to the size redistribution of firms (labour moving from small to large firms). The situation is different with corporate amalgamation via mergers and acquisitions, where no new capacity is created. By taking over other companies, the firm increases its own earnings relative to the average (which is virtually unaltered). We call this route 'internal' since it merely redistributes control over existing capacity and employment. Merger and acquisition activity perhaps is the most potent form of differ- ential accumulation, serving to kill three birds with one stone: it directly increases differential breadth; it indirectly helps to protect and possibly boost differential depth (relative pricing power); and it reduces differen- tial risk. This path is limited, however, both by the availability of take- over targets and by socio-political and technological barriers.
Internal Depth: Cost Cutting. The purpose is to cheapen production faster than the average, either through relative efficiency gains or by larger reductions in input prices. The process is 'internal' in that it redis- tributes income shares within a given price. Although cost cutting is relentlessly pursued by large firms (directly as well as indirectly through outsourcing), the difficulty of both protecting new technology and controlling input prices suggests that the net effect commonly is to meet the average rather than to beat it.
External Depth: Stagflation. Our emphasis on stagflation rather than inflation is deliberate: contrary to the conventional wisdom, inflation usually occurs with, and often necessitates, some slack. Now, for a single seller, higher prices commonly are more than offset by lost volume, but things are different for a coalition of sellers. Dominant capital, to the extent that it acts in concert, can benefit from higher prices, since, up to a point, the relative gain in earnings per unit outweighs the relative decline in volume. Of course, for the process to become continuous (inflation rather than discrete price increases), other firms must join the spiral. But small companies have little political leverage and usually are unable to collude, so the common result is to redistribute income in favour of the
3
4
? 19 For any given firm, green-field investment of course can draw on inter-firm labour mobility as well as on new employment. From an aggregate perspective, however, labour movement between firms is properly classified as internal breadth.
Differential accumulation and dominant capital 331 bigger ones who can. We refer to this method as 'external' since the redis-
tribution occurs through a (pecuniary) expansion of the earnings pie.
Some implications
In addressing the implications of this taxonomy, it is important to distinguish the case of an individual large corporation from the broader analysis of domi- nant capital as a group. A single firm may successfully combine different facets of breadth and depth. However, the same does not hold true for domi- nant capital as a whole. If we look at breadth and depth not as firm strategies, but as overall regimes of differential accumulation, it quickly becomes apparent that the broader conditions that are conducive to one regime often undermine the other. For the sake of brevity, we group our tentative argu- ments here into eight related propositions:
? Proposition 1. Understood as broad regimes, breadth and depth tend to move counter-cyclically to one another. Breadth presupposes some measure of employment growth as well as relative political-economic stability. Depth, on the other hand, commonly implies restrictions, conflict, and stagflation. Although strictly speaking the two regimes are not mutually exclusive, they tend to 'negate' one other, with more breadth being asso- ciated with less depth, and vice versa.
? Proposition 2. Of the two regimes, breadth is the path of least resistance. There are two reasons for this pattern. First, usually it is more straight- forward and less conflictual to expand one's organization than it is to engage in collusive increases in prices or in struggles over input prices. Although both methods are political in the wide sense of the term, depth commonly depends on complex corporate-state realignments that are not necessary for breadth. Second, breadth is relatively more stable and hence easier to extend and sustain, whereas depth, with its heightened social antagonism, is more vulnerable to backlash and quicker to spin out of control.
? Proposition 3. Over the longer haul, mergers and acquisitions tend to rise relative to green-field investment. While both routes can contribute to differential accumulation, as capitalism spreads geographically and dominant capital grows in importance, so does the threat of excess capacity. Mergers and acquisitions alleviate the problem whereas green- field aggravates it. 20 The broader consequence of this shift is for chronic stagnation to gradually substitute for cyclical instability.
20 The notion of excess capacity, associated mainly with Monopoly Capital writers such as Kalecki (1971), Steindl (1952) and Baran and Sweezy (1966), is admittedly problematic. Here, we use it to denote the potential threat to prevailing earning margins from higher resource utilization. To illustrate, recall from Figure 12. 2 that, since the Second World War, US margins, measured by the combined profit and interest share of GDP, have been positively related to the rate of unemployment. In this context, a move from higher to lower unemployment increases utilization and threatens margins.
? 332 ?
?
?
?
?
Accumulation of power
Proposition 4. The relative growth of mergers and acquisitions is likely to oscillate around its uptrend. Corporate amalgamation involves major social restructuring and hence is bound to run into roadblocks. The result is a wave-like pattern, with long periods of acceleration followed by shorter downturns.
Proposition 5. The underlying logic of mergers and acquisitions implies progressive 'spatial' unification and, eventually, globalization. For amalga- mation to run ahead of overall growth, dominant capital must succes- sively break its 'envelopes', spreading from the industry, to the sector, to the national economy, and ultimately to the world as a whole. In this sense, differential accumulation is a prime mover of spatial integration and globalization.
Proposition 6. Cost cutting is not a real alternative to an amalgamation lull. The pressure to reduce cost is ever-present, but its effect is more to meet than to beat the average. The principal reason is that productivity improvements are neither inherently related to corporate size nor easy to protect. Similarly, reductions in input prices seldom are proprietary and often spill over to other firms.
Proposition 7. A much more potent response to declining mergers and acquisitions is inflationary increases in earning margins. This method is often facilitated by previous corporate centralization, and although the process is inherently unstable and short-lived, it can generate very large differential gains. By its nature, though, such inflation is possible only through a vigilant limitation of production, as a result of which inflation appears as stagflation.
Proposition 8. Over the longer term, differential accumulation depends primarily on mergers and acquisitions.
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 ?
Equation (3) presents the overall picture. On the quantitative side, it tells us that dominant capital can achieve differential accumulation by some combination of the following: (1) raising its differential earnings (ED/E), (2) raising its differential hype (HD/H) and (3) lowering its differential risk
? ? ? ? ? ? 328 Accumulation of power
(? D/? ). 17 On the qualitative side it means that in order to understand the concrete history of dominant capital, we need to examine the intertwined power processes that drive its differential earnings, hype and risk (as well as the processes that underlie the normal rate of return - which, although not in the equation - remains of crucial importance in setting the boundaries of the process).
But of these components, one clearly stands out: differential earnings (ED/E). As we have seen, this is the main long-term driver of the process. And since our aim here is to provide only a broad-brush description, the empirical analysis that follows focuses mostly on earnings and refers to hype and risk only in passing.
For a corporation, the level of earnings is the product of the number of employees multiplied by the average earnings per employee:
4. E = employees * E = employees * earnings per employee employees
The number of employees denotes the formal size of the organization, while earnings per employee measure the elemental power per unit of organization. According to this equation, the firm can raise its earnings in two ways. The first path, which we call 'breadth', is to augment the size of its organization by having more employees. The second path, which we label 'depth', is to increase the elemental power of its organization by raising its earnings per employee. 18
This decomposition merits clarification. Despite the apparent connota- tions, the categories of employment and earnings per employee have little to do with narrowly defined production and everything to do with broadly conceived power. Our choice of employment as a measure of organizational
17 Differential accumulation (DA) is the rate of change of differential capitalization (DK). Expressed in instantaneous rates of change:
DA ? differential growth of earnings + differential growth of hype - differential growth of risk.
Note that differential accumulation is based on differences between growth rates. Dominant capital can achieve differential accumulation even if its own capitalization is falling - provided that the average capitalization falls even faster. This understanding applies also to the underlying components of differential accumulation and is assumed throughout.
18 Note that this decomposition differs from the common view of earnings as the product of sales revenues and the earnings margin. Although both decompositions are correct by defi- nition, only the former corresponds to our separation between the corporation's size and its elemental power. To illustrate, sales revenues can be raised by increasing employment in order to produce more (size), or by raising prices (elemental power). Likewise, earnings per employee (which for us represent elemental power) can be raised by increasing prices and therefore sales revenues, or by widening the earnings margin. Formally speaking, breadth affects market share, but market share does not always involve breadth. Similarly, the earn- ings margin affects depth, but depth does not necessarily influence the earnings margin.
? ? Differential accumulation and dominant capital 329
size is not accidental. Ever since they first emerged in the power civilizations of the ancient river deltas, hierarchical organizations have been measured by 'head', or capita. They have been counted in slaves, soldiers, serfs, religious followers, factory workers and now, more generically, in employees. The number of 'heads' under one's immediate command - relative to the number of heads commanded by others - is indicative of one's immediate power.
But formal organizational size is merely the first, immediate dimension of power. In the past, rulers were able to use their slaves, soldiers, serfs, religious laity and factory workers to control others, often beyond the formal confines of their own organization. And the same is true, only many times over, with the broader category of employment.
Operating through their corporate organization, capitalists are able to project their indirect power over society as a whole. This indirect power takes numerous forms - from the creation of loyal and predictable consumers, through the taming of voters, to the control of subcontractors, the subjuga- tion of governments, the shaping of public policies, the moulding of culture, the crafting of ideology, the harnessing of religion, the use of armies and police forces and the crafting of international relations. The relative effective- ness of these multiple forms of indirect power gets crystallized in the magni- tude of differential profit per employee. This latter measure represents the elemental power of the capitalist organization, its ability to extend its power beyond its immediate size.
Equation (5) formalizes this logic at the differential level (using the subscript D to denote dominant capital and no subscript to signify the average). Differential earnings (ED/E) are given by the ratio of differential employment and differential earnings per employee:
E employees earnings per employee 5. D = ? D? * ? D?
? ? ? . E employees earnings per employee
A dominant capital firm can accumulate differentially: (1) by expanding its employment faster than the average; (2) by raising its earnings per employee faster than the average - or by some combination of the two. Each avenue - breadth or depth - can be further subdivided into 'internal' and 'external' sub-routes, leading to a four-way taxonomy:
Table 14. 2
Breadth Depth
Regimes of differential accumulation
External Internal
Green-field Mergers & Acquisitions Stagflation Cost cutting
? ? ? 1 External Breadth: Green-field Investment. A firm can achieve differential accumulation by building new capacity and hiring new employees faster
330 Accumulation of power
2
than the average. This method is labelled 'external' because, from a societal perspective, it involves a net addition of employees. 19 Its upper ceiling is the extent of proletarianization. The more immediate limit comes through the negative impact it has on depth: 'excessive' green-field growth creates a downward pressure on prices and hence on earnings per employee.
Internal Breadth: Mergers and Acquisitions. Strictly speaking, internal breadth involves differential earnings growth through inter-firm labour mobility. This growth can happen when a firm adds new capacity and employment against cutbacks elsewhere, although such movements relate more to industrial restructuring (labour mobility between sectors) than to the size redistribution of firms (labour moving from small to large firms). The situation is different with corporate amalgamation via mergers and acquisitions, where no new capacity is created. By taking over other companies, the firm increases its own earnings relative to the average (which is virtually unaltered). We call this route 'internal' since it merely redistributes control over existing capacity and employment. Merger and acquisition activity perhaps is the most potent form of differ- ential accumulation, serving to kill three birds with one stone: it directly increases differential breadth; it indirectly helps to protect and possibly boost differential depth (relative pricing power); and it reduces differen- tial risk. This path is limited, however, both by the availability of take- over targets and by socio-political and technological barriers.
Internal Depth: Cost Cutting. The purpose is to cheapen production faster than the average, either through relative efficiency gains or by larger reductions in input prices. The process is 'internal' in that it redis- tributes income shares within a given price. Although cost cutting is relentlessly pursued by large firms (directly as well as indirectly through outsourcing), the difficulty of both protecting new technology and controlling input prices suggests that the net effect commonly is to meet the average rather than to beat it.
External Depth: Stagflation. Our emphasis on stagflation rather than inflation is deliberate: contrary to the conventional wisdom, inflation usually occurs with, and often necessitates, some slack. Now, for a single seller, higher prices commonly are more than offset by lost volume, but things are different for a coalition of sellers. Dominant capital, to the extent that it acts in concert, can benefit from higher prices, since, up to a point, the relative gain in earnings per unit outweighs the relative decline in volume. Of course, for the process to become continuous (inflation rather than discrete price increases), other firms must join the spiral. But small companies have little political leverage and usually are unable to collude, so the common result is to redistribute income in favour of the
3
4
? 19 For any given firm, green-field investment of course can draw on inter-firm labour mobility as well as on new employment. From an aggregate perspective, however, labour movement between firms is properly classified as internal breadth.
Differential accumulation and dominant capital 331 bigger ones who can. We refer to this method as 'external' since the redis-
tribution occurs through a (pecuniary) expansion of the earnings pie.
Some implications
In addressing the implications of this taxonomy, it is important to distinguish the case of an individual large corporation from the broader analysis of domi- nant capital as a group. A single firm may successfully combine different facets of breadth and depth. However, the same does not hold true for domi- nant capital as a whole. If we look at breadth and depth not as firm strategies, but as overall regimes of differential accumulation, it quickly becomes apparent that the broader conditions that are conducive to one regime often undermine the other. For the sake of brevity, we group our tentative argu- ments here into eight related propositions:
? Proposition 1. Understood as broad regimes, breadth and depth tend to move counter-cyclically to one another. Breadth presupposes some measure of employment growth as well as relative political-economic stability. Depth, on the other hand, commonly implies restrictions, conflict, and stagflation. Although strictly speaking the two regimes are not mutually exclusive, they tend to 'negate' one other, with more breadth being asso- ciated with less depth, and vice versa.
? Proposition 2. Of the two regimes, breadth is the path of least resistance. There are two reasons for this pattern. First, usually it is more straight- forward and less conflictual to expand one's organization than it is to engage in collusive increases in prices or in struggles over input prices. Although both methods are political in the wide sense of the term, depth commonly depends on complex corporate-state realignments that are not necessary for breadth. Second, breadth is relatively more stable and hence easier to extend and sustain, whereas depth, with its heightened social antagonism, is more vulnerable to backlash and quicker to spin out of control.
? Proposition 3. Over the longer haul, mergers and acquisitions tend to rise relative to green-field investment. While both routes can contribute to differential accumulation, as capitalism spreads geographically and dominant capital grows in importance, so does the threat of excess capacity. Mergers and acquisitions alleviate the problem whereas green- field aggravates it. 20 The broader consequence of this shift is for chronic stagnation to gradually substitute for cyclical instability.
20 The notion of excess capacity, associated mainly with Monopoly Capital writers such as Kalecki (1971), Steindl (1952) and Baran and Sweezy (1966), is admittedly problematic. Here, we use it to denote the potential threat to prevailing earning margins from higher resource utilization. To illustrate, recall from Figure 12. 2 that, since the Second World War, US margins, measured by the combined profit and interest share of GDP, have been positively related to the rate of unemployment. In this context, a move from higher to lower unemployment increases utilization and threatens margins.
? 332 ?
?
?
?
?
Accumulation of power
Proposition 4. The relative growth of mergers and acquisitions is likely to oscillate around its uptrend. Corporate amalgamation involves major social restructuring and hence is bound to run into roadblocks. The result is a wave-like pattern, with long periods of acceleration followed by shorter downturns.
Proposition 5. The underlying logic of mergers and acquisitions implies progressive 'spatial' unification and, eventually, globalization. For amalga- mation to run ahead of overall growth, dominant capital must succes- sively break its 'envelopes', spreading from the industry, to the sector, to the national economy, and ultimately to the world as a whole. In this sense, differential accumulation is a prime mover of spatial integration and globalization.
Proposition 6. Cost cutting is not a real alternative to an amalgamation lull. The pressure to reduce cost is ever-present, but its effect is more to meet than to beat the average. The principal reason is that productivity improvements are neither inherently related to corporate size nor easy to protect. Similarly, reductions in input prices seldom are proprietary and often spill over to other firms.
Proposition 7. A much more potent response to declining mergers and acquisitions is inflationary increases in earning margins. This method is often facilitated by previous corporate centralization, and although the process is inherently unstable and short-lived, it can generate very large differential gains. By its nature, though, such inflation is possible only through a vigilant limitation of production, as a result of which inflation appears as stagflation.
Proposition 8. Over the longer term, differential accumulation depends primarily on mergers and acquisitions.
