Sectoral evolution in Australia

The Reserve Bank’s Bulletin this month includes an interesting little paper drawing an outline of the evolution of the structure of production and employment in Australia over the last few decades. [PDF] Staff economists Ellis Connolly and Christine Lewis provide no surprises – just the clarity of a long view with basic stats. (All graphs below are from the paper.)

Just about everybody works in services these days – more than 85 per cent of the employed workforce. That share has risen fairly steadily since the end of World War II, from just over 55 per cent. In the post-war period the growth of the service sector picked up the slack from the declining rate of growth in agriculture; since the late 1960s it has taken over from manufacturing too. In absolute terms, this is a story of service sector expansion rather than decline elsewhere: net employment growth since the war has been almost all about services. Mining has remained steady at around 1 per cent of employment.

When it comes to output shares rather than employment, the picture looks different. Manufacturing and agriculture shares in nominal value added are about the same as their shares of employment. But mining’s share is much bigger, at 7 per cent over the past decade, while services’ share is lower at 78 per cent. Mining is extremely capital intensive, and hence accounts for a much bigger share of value added and investment than its share in employment would suggest, while services tend to be more labour intensive.

When a sectoral category makes up around four-fifths of the economy, it loses much of its usefulness as a category. Connolly and Lewis break services down into five sub-sectors, and the data begin to get more interesting. The distribution and utilities sector – i.e., services related to moving and selling goods, energy and communications – has declined in its employment share since the 1960s. (It would be interesting to see a further breakdown of a category that includes everything from wastewater to supermarkets and internet service providers.) The employment share of social services enjoyed a great leap in the 1970s – and especially the Whitlam years – from around 13 per cent to 20 per cent, and climbed more slowly over the next three decades to reach 25 per cent, to become the largest service sector today. This includes education and health care, public and private, as well as public administration, police and so on.

Business services (including finance, insurance and real estate) have grown more steadily, but especially rapidly in the 1980s and 1990s before stabilising at around 17 per cent of employment over the 2000s. Personal services – restaurants, hotels, cinemas, etc. – had a modest burst of expansion in employment share in the 1980s and early 1990s, taking them from a steady 10 per cent to a steady 12-13 per cent since. Construction’s share has remained between 6 and 9 per cent since the 1970s, though responsible for much of the growth in the share of services as a whole over the 2000s.

Although these shifts are long-run trends, they have run faster at some times than others. The most interesting thing Connolly and Lewis do with this data is to generate ‘structural change indices’ to show the waves of change. These indices measure the average movement in industry and state shares of nominal and real output, employment and investment, to give a simple indicator of structural change over the previous five years. Such a measure is only as meaningful of the categories into which the industry structure is divided – it clearly doesn’t capture movements within the categories. The figure shows two major waves of structural change since the 1960s – one during the 1970s, and one in the late 1980s and early 1990s. (Note that the indices are backward-looking in that each year’s figures compare the average shares of the previous five years with the average shares of the five years before that.)

In terms of real output and employment, the last decade has apparently been more structurally stable than the previous three decades, though not as stable as the 1960s. Things look different in nominal terms, largely because of the effect of booming commodity prices on the value of mining output. Connolly and Lewis expect the commodities price boom to have a delayed impact on the structure real output through the great increase in mining investment over the last half of the 2000s.

The structural change index for employment shows only one wave of accelerated change, rather than the two apparent with output, peaking at the turn of the 1980s, though never returning to the low level of the early 1960s. The 1970s were, of course, the decade that ended full employment. Connolly and Lewis make no connections between the structural shifts they chart and macroeconomic developments, but there would certainly be connections to draw. The reconfiguration of the last quarter of the 20th century was far from painless: manufacturing job growth collapsed long before services growth replaced them, and even in the 2000s unemployment remained well above that of the postwar period.

Connolly and Lewis include ‘economic reform’ among the factors behind the structural changes – in particular, deregulation of service industries and reduction of trade protection. It would be wrong to overemphasise the impact of policy, however – it probably had more impact on the timing of the ‘waves’ than on the long-run processes themselves. The growth of low labour cost manufacturing in East Asia inevitably undercut the profitability of many kinds of manufacturing here, while the proportion of incomes spent on consumer services has long shown a tendency to rise with those incomes.

Although mining accounts directly for a small proportion of output and a tiny proportion of employment in Australia, it is now responsible for more than half the value of exports. The conceptual framework used by Connolly and Lewis has its limitations in understanding the meaning of mining. First, as they note themselves, the sectoral break-down they use misses the cross-sectoral linkages through which mining activity has its multiplied effects: through services – especially construction – and manufacturing oriented towards the mining industry. The statistics on the inter-state shifts in population and output towards Western Australia and Queensland capture these effects of the mining boom better.

Second, to talk of ‘the structure of the Australian economy’ may give a misleading impression of the coherence of the economic system at a national level. To what extent does it make sense to think of mining exports as ‘national’ exports, when they are undertaken by multinationals funded primarily by international capital, employing relatively few people here? In the days of a fixed exchange rate, with foreign exchange centralised in the hands of the Reserve Bank, it was more natural to think of exports earning the currency needed to pay for imports. Now, there is no centralised nexus of international trade. This is not to say that mining is an enclave completely isolated from the mainly urban economy of the Southeast, but that the links are complex. Perhaps the most direct effect of the mining boom on the living standards of Sydneysiders and Melburnians comes through its effect on the exchange rate, cheapening foreign goods and services. The tax take from mining is another – and still a relatively undeveloped resource.

Published in: on 23 September, 2010 at 11:01 am  Leave a Comment  

Way off license

Pic borrowed from the linked article - Mikey Hamer/Lucien Alperstein

A cool piece in Cyclic Defrost about the temporary, nomadic venues of Sydney’s out music. One of the places mentioned is a few blocks from my house, it was awesome to stumble upon it one night. You could buy beer and red wine at more-or-less cost price and bands and audience sat around on the same concrete floor. A good proportion of the audience would be on the line-up at some point. Following the links from flyer to flyer, I took my visiting brother to another place in Newtown, which turned out to be someone’s flat. “It’s like they forgot everything that makes music good,” he said, “but it’s interesting to see the kind of people that get into it.” Actually a lot of the music is pretty good, and although Sydney has a reputation as a musical wasteland it seems to me like the good swampy kind of wasteland and no longer a desert.

Published in: on 19 September, 2010 at 8:46 pm  Leave a Comment  

The Poulantzas project

Nicos Poulantzas in days before smoking in the office was structurally selected against

Now that I have some spare time on my hands, one of my medium-term projects is to do a proper engagement with Poulantzas, with the aim of sorting out my own theory of the capitalist state, and of economic policy in particular. I draw on Poulantzas a bit in my thesis, borrowing useful ideas without dealing with his vision as a whole. Now I want to go back and sort out exactly what I think. Poulantzas is one of those theorists who is incredibly helpful even when I disagree with points or even think the framing itself is misguided. He asks the right kinds of questions, and shows what a theory of the capitalist state has to do, even when his own particular constructions (which he kept radically revising throughout his short career) are problematic. Thirty or forty years on, he is still the person to engage with in Marxian state theory – a tradition that reached its high-water mark in the late 1970s, and never died but faded away.

Poulantzas is also difficult to read, and I don’t think it’s the translation. He adopts the language of other theoretical systems – first Sartre’s, then Althusser’s – of which he simply assumes knowledge. So there are a lot of sidetracks to do in dealing with him. On the other hand, once the language is understood, he is a very clear and systematic writer. And the fact that most of his exposition takes place through engagement with other writers is a good thing – in dealing with Poulantzas, you are also dealing with the Marxian ‘classics’, with Gramsci, Sartre, Althusser, Ralph Miliband, Perry Anderson, and Foucault.

The book Paradigm Lost: state theory reconsidered, edited by Aronowitz and Bratsis [2002], has some great chapters on why Poulantzian state theory – along with the work of Miliband, which I’ll also discuss – receded as a research program and why it deserves to be revived. (It also makes clear why Poulantzas and Miliband – their names linked mainly by the polemics they directed against one another – can be seen as part of the same program.) Leo Panitch, in his chapter, “The impoverishment of state theory”, stresses that there was substance and systematicity to the state theory of the 1970s that was new to both social science and the Marxian tradition, especially in its attempts to deal with modern advaced capitalist democracies:

It needs to be stressed today that we did not at all see ourselves as falling back on a prefabricated Marxism; the new theory of the state had Marxist roots but it was founded on the notion that nothing like an elaborated and coherent theory of the capitalist state (in contrast with the complex array of concepts and tendential laws that constituted Marxian economics and historical materialism) had been fashioned either by Marx himself or by his successors—up to and including Gramsci. And the new theory was concerned to displace the narrowly ideological official Marxism of the Communist parties. [p. 90]

My plan, then, is to work through Poulantzas’s major essays and books and some of their reference points – with particular attention to his theory’s relevance for the development of economic policy in the twentieth century. Economics is sometimes said to be a weak point for Poulantzas – but that gives me something to do.

Published in: on 16 September, 2010 at 12:54 pm  Comments (3)  

Technocrats vs. ideologues revisited

Back in February 2009 I wrote about what I saw as the break-up of a longstanding political alliance between “a pragmatic, basically scientific technocratic economics and conservative pseudo-economics.” The split was forced by the technocratic imperative to run stimulatory fiscal policy in response to the crisis, while conservatives remained attached to balanced budget, small government rhetoric.

What we’re seeing is not the ‘end of neoliberalism’, because most practical neoliberals never ditched the idea of stimulatory spending in a downturn. We’re just seeing the widening of a split between technocrats and ideologues. The ideologues have become an obstacle to policy which is functional for capitalism; they are being cast adrift, but no doubt they’ll be useful again.

In a comment JCD wrote:

…the reiteration of the ideologue line in the media through all the op-eds and interviews though certainly has a broad impact on the wider public’s understanding of economics, so I am not so sure that the break is going to be so clean. At least here in the States. There are a whole bunch of cranks–professional economists and not–who loathe the notion of a government deficit.

And clearly he was right. I still think the technocrats have the upper hand within most policy bureaucracies. In Australia it almost goes without saying. In the UK the situation is more complicated, with a government committed to deficit reduction. In the US, also, it looks unlikely that the degree of stimulus that is called for will get through Congress. In both these places, though, this should be qualified by the substantial stimulus that has been run these past few years – the ideologues are in the ascendancy in the media-political sphere, but it remains to be seen whether policy follows through.

In the UK the bulk of the promised cut-backs are due to come a year or two down the track. I doubt they would go ahead in the event of another downturn, whoever is in government, and I think it is a very open question whether the government will succeed in its planned program even without a downturn, since its severity will surely provoke countervailing pressure. In the unlikely event of a boom, the technocrats and the ideologues will in any case be back in alignment, although the latter will probably prefer a more drawn-out process of deficit reduction.

The US is an interesting case. Although the US government is often seen as having a strong executive, that’s clearly not the case when it comes to fiscal policy. My impression is that the President’s relationship to Congress has more in common with temporary coalition building in a multi-party hung Parliament than with a winner-takes-all system. That makes technocratic fiscal policy extremely difficult – it faces stronger problems of timing and economic rationality than in most countries. (In some ways the strongly independent Federal Reserve has evolved to compensate for that.) So the ideologues in the media-political sphere are correspondingly more potent, and with elections this year we see almost the reversal of the traditional ‘political business cycle’, where stimulus is difficult to build support for.

I have to admit to still being surprised by the know-nothingness of the likes of the Wall Street Journal, in contrast to the more technocratic financial press elsewhere in the world. This editorial from Tuesday is a case in point. It is transparent pseudo-economics all the way through, arguing first that the first round of stimulus was a failure because there was still a recession, and second that this was a result of public deficit spending ‘crowding out’ the private sector, despite the lack of apparent upward pressure on interest rates. Hilariously, it puts ‘demand’ in scare-quotes, as if it were some kooky concept dreamed up by community organisers: “Larry Summers, who would later become Mr. Obama’s chief economic adviser, made the case for such a stimulus to boost domestic ‘demand’ in late 2007.” It’s hard to see it as anything other than propaganda – but propaganda for who? Wall Street doesn’t benefit from demand restraint. It can only be Republican anti-Obamaism; it is not really a rational ideology for capital.

Showing that the technocrat-ideologue struggle is alive and well, the Economist’s economics blogger has taken to ridiculing the Wall Street Journal and its “own special brand of economics”. On the other hand, today he or she gives a good illustration of why, however much we may enjoy their beatings of the conservative ideologues, the technocrats are ultimately not friends of the left either, and why eventually they will again be the force to contend with, precisely because they are rational:

When expanded government activity generates increased interest rates, that’s a sign that the activity is coming at the direct expense of private sector expansion, and society should think very, very carefully about the return to that increased government activity. It might nonetheless be worthwhile—defending the nation from attack would fall into this category—but in general it probably means that the government should find ways to reduce wasteful aspects of its demands on the economy.

Published in: on 9 September, 2010 at 11:02 am  Comments (3)  

Supply and demand and anachronistic Marxology

This comes from a long post I wrote on the LBO-Talk list a few weeks ago. (See it in context here.) It came out of a discussion about the embarrassing tendency for discussion among Marxists to degenerate into biblical exegesis. I wasn’t criticising Marxology as such. It’s a legitimate part of the history of thought if nothing else, and since Marx’s work still speaks pretty directly as a critique of capitalist society, it’s more than that. I also think it’s uncontroversial that appeals to authority are not legitimate arguments in anything other than disputes about what the particular authority said. My point was rather that the form and content of Marx’s political economy were partly determined by the political economy of his time, and therefore:

“the worst thing about so much Marxology is that many people who can quote the text itself back-to-front know very little about the early-to-mid-19th-century political economy that is its context and even so much of its content. If your economic methodology is to rip selections from the text 150 years out of that context, you’re often anachronistically defending the concerns and framing of Georgian and Victorian political economy rather than any particularly radical criticism of economics past or present. The ‘labour theory of value’ is a case in point – Marx’s theory points the way out of the labour theory, but thanks to the conservatism of exegesis-based economics, which freezes analysis at an earlier stage of its development, it’s become synonymous with it! Close the hermeneutic circle, people!”

Someone asked me to elaborate on the claim that Marx pointed the way out of the labour theory, and that generated my own exercise in Marxology.

Ricardo’s labour theory of value – that the rate at which commodities exchange depends on the labour-time that goes into producing them (modified by capital intensity and skill, etc) – was set up in opposition to the idea that price is determined by adding up labour-time multiplied by the wage rate plus the necessary capital times the rate of profit. (Leaving aside the complications of rent.) Adam Smith presented eclectic theories of the determination of the wage and profit rate that were basically about supply-and-demand in the markets for labour and capital. These were each plausible in themselves, but they led to a mess together because they neglected the joint determination of wages and profit. For example, you could get the impression that if wages rose, because of a rise in demand for labour, the price of each commodity would rise to the extent of the labour used to produce it, while the rate of profit would remain the same.

Ricardo emphasised that that’s impossible because given the quantity of stuff produced in a period, if the real wage rises, so that workers are getting more of the stuff, capitalists must be getting less, and given the same value of capital, the rate of profit must fall, and there would be no general rise in prices because money, the measure of value, is a commodity too. (Relative prices would change, however, because of different capital intensities.) It was basically a long-run general equilibrium critique of partial equilibrium – that you need to follow the disturbance all the way through the whole chain of effects and not just limit yourself to supply and demand in the market of the original disturbance.

And when you do this, the system actually appears simpler rather than more complex – you can cut through all the eclectic bullshit and relate relative prices to simply the labour time and capital intensity of each commodity’s production. It can seem arbitrary as to whether you consider capital intensity to ‘warp’ the field of value determined by labour time, or labour time to ‘warp’ the field of value determined by capital intensity. But Ricardo believed differences in capital intensity (and rate of turnover) between different commodities would only have a minor impact on relative prices compared with differences in labour time – as George Stigler put it he had a “93% labour theory of value”. So it made more sense to say labour-time determines value but capital intensity modifies it.

Marx fully accepted all this as an advance on Smith and was often dismissive of mere ‘supply and demand’ analysis, which he portrayed as just determining short run fluctuations around long-run prices-of-production – again, it’s essentially a general equilibrium criticism of partial equilibrium analysis. He was much more specific than Ricardo about all the qualifications – insisting, e.g., on ‘socially necessary’ labour time – and I doubt Ricardo would have disagreed with this.

But from Ricardo’s time and Marx’s time the labour theory was pretty controversial – Ricardo dominated English political economy, but as a polariser rather than as someone everyone agreed with. And there were a lot of legitimate problems – most notably, the awkwardness in saying relative labour-time determines relative value, but then that relative capital intensity modifies the relationship. (Partial equilibrium) supply-and-demand analysis continued to be refined, and could take into account effects of one market on another and so on – it was much better at picking holes in the Ricardian theory than building a full alternative system. John Stuart Mill’s 1848 texbook presented a synthesis of Ricardo and these developments and superseded Ricardo’s Principles as the basic text of political economy until Marshall.

Marx was full of contempt for Mill and stayed old-school, which essentially meant prioritising long-run general equilibrium over short-run partial equilibria. His presentation made the ‘transformation’ from labour-time determined values to prices-of-production modified by relative capital intensities seem even more awkward – since he hardly mentions the need for this until Volume 3. Engels urged him to make it clearer from the start, and it’s debatable why he didn’t (his reply to Engels was flippant – that he deliberately wanted to piss off ‘vulgar’ economists).

I think it’s because of his method of presentation – he needs a basic concept of value to build the concept of capital, and can’t present the effects of capital back upon value until capital is fully ‘constructed’. Also there’s an awful lot you can say about distribution and fluctuations at a macro level without worrying about relative prices – Keynes would use labour-time as his basic unit of value at a macro level too. But if that’s the case, it follows from the Volume 3 analysis of competition that as far as relative prices are concerned, the (socially necessary) labour time values of Volume 1 are epistemological devices, _not_ ontological – i.e., labour-time value – in the microeconomic sense of relative prices – doesn’t exist in real capitalist economies, ‘under the surface’ or otherwise. Wherever labour-values are used in this microeconomic sense in Volume 1, you can go back after Volume 3 and read ‘prices-of-production’ instead.

But ‘the transformation’ is basically a restatement of Ricardo. The interesting thing is where the analysis of competition and prices-of-production in Volume 3 goes way beyond the ‘transformation’. In my opinion this is where Marx really points the way out of the Ricardian labour theory of value. It becomes clear that supply and demand – as modern economics conceives them – actually do play a role in establishing long-run values and prices-of-production, not merely the fluctuations around them. Marx’s problem with supply and demand analysis _as he knew it_ was that it didn’t explain what determined supply and demand at any given price. In modern neoclassical terms, the answer is supply and demand schedules which relate demand and supply to the range of possible prices.

Marx more-or-less develops the idea of supply and demand schedules in the chapters on competition in Volume 3. It follows naturally from his emphasis that value depends on ‘socially necessary’ labour time. ‘Socially necessary’ has a dual meaning. On the one hand, for single kinds of commodities, it refers to the fact that thanks to competition between producers, those commodities produced with relatively inefficient production processes obviously don’t sell for more. On the other hand, it refers to society’s allocation via the market of labour to different kinds of commodity in proportion to society’s needs (ultimately determined by who can pay, of course – and Marx emphasises the dependence of demand on distribution in Vol. 3, Ch. 10 – p. 282 of the Penguin edition).

Now, thanks to economies of scale etc., the amount of labour necessary to produce a particular commodity depends on how much of the commodity society demands. For example, it’s way more expensive per unit of steel to produce 100 tons of steel a year than it is to produce 1,000,000 tons of steel. So ‘socially necessary’ in the first sense depends on ‘socially necessary’ in the second sense – that is, the cost of steel depends on the demand for steel. But at the same time, the amount society demands of a particular commodity depends on its price relative to substitutes – so the demand for steel depends on the cost of steel. The only way to resolve this dilemma is to think in terms of supply and demand schedules – and this is in effect what Marx does.

For example, in explaining how the rise in price of a raw material affects the profit rate of the producer, Marx explains that it depends on how much the capitalist will raise his own price, which depends on his calculations of how it will affect demand – in other words partly on the price elasticity of demand for his product:

It is evident… that the expansion or contraction of the market depends on the price of the individual commodity and stands in an inverse relationship to the rise or fall in this price. It happens in fact, therefore, that a rise in the price of raw material does not lead the price of the manufactured product to rise in the same proportion, or to fall in the same proportion when the price of the raw material falls.” [vol. 3, ch. 6, p. 203 in the Penguin edition]

Another example from vol 3 ch 10 (p. 279 of the Penguin) where Marx basically edges towards the concept of demand (in)elasticity:

At a given price, a species of commodity can only take up a certain area of the market; this area remains the same through changes in price only if the higher price coincides with a smaller quantity of commodities and a lower price with a greater quantity. If the demand is so strong, however, that it does not contract when price is determined by the value of commodities produced in the worst conditions, then it is these that determine the market value.

The point of these quotations is not to say, ‘aha, Marx anticipated Marshall’. These are fragments that are not developed into a coherent statement, and the section is unfinished. It is, rather, to say

(1) that Marx himself recognised, at least implicitly, that determination of relative price by labour-time cannot be causally prior to demand in the market, because the size of the market for a commodity enters into the determination of the labour time necessary to produce it (due to economies of scale, etc); and

(2) that Marshallian (neoclassical) concepts can be a useful tool for dealing with this kind of question more systematically than Marx did.

Now, there’s also a debate in the literature about the extent to which John Stuart Mill anticipated Marshallian demand and supply curves. It certainly wasn’t only Marx that was groping in this direction. It’s generally accepted that Marshall got the idea from Cournot rather than Mill – but the point is it was in the air of Victorian political economy. Many of the early neoclassicals defined themselves as anti-Ricardians, arguing especially that he neglected the influence of demand. But Marshall argued in an appendix to his Principles that Ricardo did in fact implicitly incorporate it and even anticipated the distinction between marginal and total utility. He understood that the purpose of Ricardo’s labour-time theory was to go beyond the immediate supply-and-demand in the market – because if high demand raised a price and thereby profits, capital would move into that line and bring labour with it – so that ultimately labour-time, as a cost that enters into every commodity, regulates relative prices in the long run. Marshall believed this still to hold, although because of economies of scale etc, labour-time would be affected by the demand schedules for each product, just as Marx recognised.

In other words, the labour theory of value was thus a step towards equilibrium theory and a real advance over vulgar supply-and-demand theory. But conceptualising demand and supply as schedules opened the way to superseding vulgar labour-value theory in turn. When Marxists stick to the letter of Capital and quote Marx’s dismissals of supply and demand as determining nothing, and think this holds against neoclassical conceptions of supply and demand, they are falling into anachronism. Even if the neoclassical vision is problematic, the fact remains that it’s not what Marx was dismissing, and they therefore miss the opportunity to engage productively.

Published in: on 7 September, 2010 at 11:08 am  Comments (5)  

Back

The thesis is finally done – ‘Inflation and the making of macroeconomic policy in Australia, 1945-85’. There will be an online version eventually, once it’s marked and corrected.

Anyway I think I might now have the time and energy to revive things here, though there probably won’t be much content on inflation, macroeconomic policy, Australia, or the decades 1945-85 for a little while.

The plan is to use this site more for scraps, notes and conversation – that is, what a blog is meant to be for – and I’ll try and put more substantive pieces elsewhere. One reason I want to revive Scandalum Magnatum is that Sydney friends have put up blogs so I now have locals to link to. Dr_Tad and liz_beths have started Left Flank, focused on Australian politics. They have kicked off with an excellent series of posts on the Federal election and some constructive criticism of the Greens. On a more philosophical plane is Jonathon Collerson’s Wrong Arithmetic – and also check out the group blog associated with a Sydney Capital reading group which has achieved the rare feat of continuing to exist long enough for an attempt on Volume II.

I’m also excited to get back into discussions with international friends, and especially to tag along with Duncan Law’s project to review the literature on the history of capitalism.

Published in: on 6 September, 2010 at 10:53 am  Comments (6)