Posts Tagged ‘profits’

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Actually, robots do kill people.

A 21 year old external contractor was installing the robot together with a colleague when he was struck in the chest by the robot and pressed against a metal plate. He later died of his injuries, reports Chris Bryant, the FT’s Frankfurt correspondent.

While we certainly need to be aware of industrial accidents associated with robots, what we really need to be more concerned about is the relationship between the use of robotics and the metaphorical killing of workers via the elimination of their jobs.

Richard Baldwin [ht: ja], president of the Centre for Economic Policy Research and Editor-in-Chief of Vox (VoxEU.org, which he founded in June 2007), appears to agree:

Technological advances could now mean white-collar, office-based workers and professionals are at risk of losing their jobs

But, he argues, those who expect Brexit or the kinds of protectionist policies advocated by President Trump to bring back manufacturing jobs are sadly mistaken.

I think he’s right. Blaming international trade and immigration for the precarious plight of the working-class within advanced nations is wrongheaded.* Moreover, as Baldwin explains elsewhere, “We shouldn’t try and protect jobs; we should protect workers.”

However, the mistake Baldwin and other technological optimists make is to treat industrial robots (and their contemporary extensions, such as telepresence and telerobotics) in a purely instrumental fashion, as both inevitable and technically neutral. Just like the ubiquitous NRA bumper sticker: “Guns Don’t Kill People, People Kill People.”

As Bruno Latour (pdf) has explained, the NRA “cannot maintain that the gun is so neutral an object that is has no part in the act of killing.”

You are different with a gun in hand; the gun is different with you holding it. You are another subject because you hold the gun; the gun is another object because it has entered into a relationship with you. The gun is no longer the gun-in-the-armory or the gun-in-the-drawer or the gun-in-the-pocket, but the gun-in-your-hand, aimed at someone who is screaming. What is true of the subject, of the gunman, is as true of the object, of the gun that is held. A good citizen becomes a criminal, a bad guy becomes a worse guy; a silent gun becomes a fired gun, a new gun becomes a used gun, a sporting gun becomes a weapon.

And much the same is true of robotics. Employers are different when they have access to robots. They are another subject because they can reconfigure production by purchasing and installing robots; and robots are different objects when they enter into a relationship with employers, who stand opposed to their workers.

So, as it turns out, “it is neither people nor guns that kill” people. And, by the same token, it is neither employers nor robots that kill workers and their jobs. Responsibility for the action must be shared between the two—the employers who utilize robotics to increase productivity and raise profits, and the robots that are engineered, produced, and then sold for particular purposes, like transforming jobs and replacing workers.

So, yes, we shouldn’t try and protect jobs. Instead, we should protect workers. But the only way to protect workers is to create institutions for workers to be able to protect themselves. Leaving the European Union and electing Trump won’t do that. They are merely empty promises. Nor, as Baldwin presumes, will leaving robots in the hands of employers and expecting government programs to pick up the pieces.

It is still the case that most people are forced to have the freedom to attempt to sell their ability to work to a small group of employers, who have the option of using robots to replace them—across the globe—if and when they deem it profitable.

What that means is: robots and their employers do kill workers. Because of profits.

 

*And, as the United Nations Conference on Trade and Development (pdf) warns, “the increased use of robots in developed countries risks eroding the traditional labour cost advantage of developing countries.” That’s another reason to be cautious when it comes to facile predictions that the combination of globalization and robotics will be an unqualified advantage to workers in the Global South.

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Like many liberal economic nationalists, who are concerned about both inequality and economic growth, Michael Lind attempts to make a distinction between “takers” and “makers.”

As against conservative economic nationalists, who blame immigrants and the welfare-dependent poor, Lind focuses his attention on the “rent-extracting, unproductive rich” for undermining the dynamism and fairness of contemporary capitalism.

The term “rent” in this context refers to more than payments to your landlords. . . “Profits” from the sale of goods or services in a free market are different from “rents” extracted from the public by monopolists in various kinds. Unlike profits, rents tend to be based on recurrent fees rather than sales to ever-changing consumers. While productive capitalists — “industrialists,” to use the old-fashioned term — need to be active and entrepreneurial in order to keep ahead of the competition, “rentiers” (the term for people whose income comes from rents, rather than profits) can enjoy a perpetual stream of income even if they are completely passive.

This is a familiar trope within economic discourse. As I’ve explained before (e.g., here and here), it relies on a distinction between productive and unproductive economic activities, which is then overlain with other dichotomies: active vs. passive, doing vs. owning, and so on. The idea is that one group—the passive, owning, recipients of rent—increasingly serve as a drag on the other group—the active, doing, recipients of profits.

If one or more of the sectors providing inputs or infrastructure to productive industry charges excessive rents, then industry can be strangled.  Industry cannot flourish if too much rent is paid to landlords, if credit is too expensive, if excessive copyright protections stifle the diffusion of technology. . .

All of this suggests that, if we want a technology-driven, highly productive economy, we should encourage profit-making productive enterprises while cracking down on rent-extracting monopolies, whether they are natural products of geography and geology (real estate and energy and energy and mineral deposits) or artificial (chartered banks, professional licensing associations, labor unions, patents and copyrights). This is a valid distinction between “makers” and “takers.”

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Basically, Lind is privileging the profits that are received by productive capitalists from their supposed doing activities (the blue line in the chart above) and calling into question the profits that are received through the rent-seeking activities of financial capitalists (the red line in the chart above).

It’s a powerful idea, and one that—after the spectacular crash of 2007-08, the subsequent bailout of Wall Street, and the uneven recovery since then—stands to garner a great deal of attention and sympathy.

There are, however, two fundamental problems with Lind’s distinction between profit-oriented makers and rent-seeking takers.

First, Lind presumes that industrial capitalists would do more—more investing, and thus more job creating, more growth, and so on—if they had to pay lower rents to others, including rent-taking financial capitalists. While it is certainly the case that “industrialists” would have higher retained earnings if they distributed less of their profits in the form of rents (not only financial charges but also, as Lind explains, taxes, union wages, oil rents, healthcare premia, and so on), there’s no guarantee they would actually invest or accumulate more capital with those profits.

That is precisely the specter that is created when, as I explained the other day, the capitalist machine is broken. In recent decades, investment has increased much less than profits, thus calling into question the pact with the devil that historically has stood at the center of capitalism. Lind may be an economic nationalist but the industrialists he champions are not, and never have been.

The second problem is that Lind never offers an adequate explanation of where the profits of those industrial capitalists come from. He merely presumes they are the fair return to entrepreneurial, making activities.

But who is doing all that making—and who are the ones getting the profits? Non-financial corporate profits represent the extra value workers create during the course of producing commodities (both goods and services). The workers receive wages (more or less equal to the value of their labor power) and their employers receive the extra or surplus value those workers create (above and beyond the value of labor power). In other words, the profits of industrial capitalists stem from the exploitation of productive workers.

The surplus appropriated by the boards of directors of industrial capitalist enterprises is, in turn, distributed. One portion remains within those enterprises (in the form of retained earnings, executive and supervisory salaries, expenditures on new equipment and software, the hiring of additional workers, and so on), while another portion is distributed outside them (to shareholders, finance capitalists, merchants, the government, and so on). All of those payments—some of which Lind characterizes as profits, others as rents—represent distributions of the surplus.

In the end, then, there is no valid distinction between makers and takers. The appropriators of the surplus make nothing—and everyone who gets a cut of the surplus, in both industrial and financial enterprises, is a taker.

They are all, in Lind’s language, rich moochers who hurt America.

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The capitalist machine is broken—and no one seems to know how to fix it.

The machine I’m referring to is the one whereby the “capitalist” (i.e., the boards of directors of large corporations) converts the “surplus” (i.e., corporate profits) into additional “capital” (i.e., nonresidential fixed investment)—thereby preserving the pact with the devil: the capitalists are the ones who get and decide on the distribution of the surplus, and then they’re supposed to use the surplus for investment, thereby creating economic growth and well-paying jobs.

The presumption of mainstream economists and business journalists (as well as political and economic elites) is that the capitalist machine is the only possible one, and that it will work.

Except it’s not: corporate profits have been growing (the red line in the chart above) but investment has been falling (the blue line in the chart), both in the short run and in the long run. Between 2008 and 2015, corporate profits have soared (as a share of gross domestic income, from 3.9 to 6.3 percent) but investment has decreased (as a share of gross domestic product, from 13.5 to 12.4 percent). Starting from 1980, the differences are even more stark: corporate profits were lower (3.6 percent) and investment was much higher (14.5 percent).

The fact that the machine is not working—and, as a result, growth is slowing down and job-creation is not creating the much-promised rise in workers’ wages—has created a bit of a panic among mainstream economists and business journalists.

Larry Summers, for example, finds himself reaching back to Alvin Hansen and announcing we’re in a period of “secular stagnation”:

Most observers expected the unusually deep recession to be followed by an unusually rapid recovery, with output and employment returning to trend levels relatively quickly. Yet even with the U.S. Federal Reserve’s aggressive monetary policies, the recovery (both in the United States and around the globe) has fallen significantly short of predictions and has been far weaker than its predecessors. Had the American economy performed as the Congressional Budget Office fore­cast in August 2009—after the stimulus had been passed and the recovery had started—U.S. GDP today would be about $1.3 trillion higher than it is.

Clearly, the current recovery has fallen far short of expectations. But then Summers seeks to calm fears—”secular stagnation does not reveal a profound or inherent flaw in capitalism”—and suggests an easy fix: all that has to happen is an increase in government-financed infrastructure spending to raise aggregate demand and induce more private investment spending.

As if rising profitability is not enough of an incentive for capitalists.

Noah Smith, for his part, is also worried the machine isn’t working, especially since, with low interest-rates, credit for investment projects is cheap and abundant—and yet corporate investment remains low by historical standards. Contra Summers, Smith suggests the real problem is “credit rationing,” that is, small companies have been shut out of the necessary funding for their investment projects. So, he would like to see policies that promote access to capital:

That would mean encouraging venture capital, small-business lending and more effort on the part of banks to seek out promising borrowers — basically, an effort to get more businesses inside the gated community of capital abundance.

Except, of course, banks have an abundance of money to lend—and venture capital has certainly not been sitting on the sidelines.

Profitability, in other words, is not the problem. What neither Summers nor Smith is willing to ask is what corporations are actually doing with their growing profits (not to mention cheap credit and equity funding via the stock market) if not investing them.

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We know that corporations are not paying higher taxes to the government. As a share of gross domestic income, they’re lower than they were in 2006, and much lower than they were in the 1950s and 1960s. So, the corporate tax-cuts proposed by the incoming administration are not likely to induce more investment. Corporations will just be able to retain more of the profits they get from their workers.

But corporations are distributing their profits to other uses. Dividends to shareholders have increased dramatically (as a share of gross domestic income, the green line in the chart at the top of the post): from 1.7 percent in 1980 to 4.6 percent in 2015.

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Corporations are also using their profits to repurchase their own shares (thereby boosting stock indices to record levels), to finance mergers and acquisitions (which increase concentration, but not investment, and often involve cutting jobs), to raise the income and wealth of CEOs (thus further raising incomes of the top 1 percent and increasing conspicuous consumption), and to hold cash (at home and, especially, in overseas tax havens).

And that’s the current dilemma: the machine is working but only for a tiny group at the top. For everyone else, it’s not—not by a long shot.

We can expect, then, a long line of mainstream economists and business journalists who, like Summers and Smith, will suggest one or another tool to tinker with the broken machine. What they won’t do is state plainly the current machine is beyond repair—and that we need a radically different one to get things going again.