[OPE-L:6538] Re: Competition & equalisation of the rate of profit

jurriaan bendien (Jbendien@globalxs.nl)
Tue, 5 May 1998 14:50:00 +0200

Eduardo writes in response to my query:

>In the empirical literature on profit rate differentials, the hypothesis
>that oligopolist sectors are capable to obtain, on the average, profit
>rates which are higher than those obtained by the competitive sectors is
>referred to as the 'concentration-profitability' hypothesis.

I think there must be truth in this thesis. If a corporation has sufficient
capital that it can monopolise a sector, it is certainly able to extract
and there is empirical evidence for that (think e.g. of the oil
industry). Indeed it could be said that this is exactly one of the
strategic objectives of the big corporations. The real question however is
whether, in this situation, a monopolist can escape from the equalisation of
the rate of profit and the pressure of competition altogether, and whether
it can maintain surplus-profits permanently. If that were true,
monopolisation would "cancel out" the law of value in regard to the
distribution of economic resources. But from what I have read of it, there
is plenty evidence to say that this is not generally the case, and that
surplus-profits are more a conjunctural matter.
Prof. Mandel noted several reasons why, in his primer Marxist Economic
Theory (completed 1960):

1. Excessive price hikes by the monopolists reduce demand for their
products and lead to the revival of competition.
2. The monopolists themselves are interdependent for their inputs, so that
an equalisation of the rate of profit tends to take place among them.
3. As monopoly surplus-profits are achieved at the expense of the freely
competitive sector, capitalists in the competitive sector will at a certain
point be motivated to infiltrate the monopolised sectors by any means
necessary, bringing about a revival of competition in those sectors.
4. New technological advances and "substitute products" can break down de
facto monopolies by providing cheaper or more accessible alternatives.

In his book Late Capitalism, Prof. Mandel further emphasised "The threat of
a fall in monopoly surplus-profits - i.e. the approximation of the monopoly
rate of profit to the average rate, which is subject to a falling tendency -
can only be averted by the constant expansion both of markets and of product
differentiation. Product differentiation is also greatly promoted by the
fact that monopolistic firms tend to limit output, while their capital and
productive capacity tend to grow faster then the average, precisely as a
result of their appropriation of surplus-profits. They are therefore
confronted with a problem of underutilisation of productive capacity - which
can be temporarily solved by diversification of output. [...] This is the
reason for the tendency towards the massive growth of Research and
Development, the acceleration of technological innovation, the incessant
search for technological "rents" and the efforts to avert the dangers of
conjunctural, and particularly structural, relative decline in the demand
for specific commodities by international centralisation of capital - the
multinational corporations - and formation of conglomerates. The more this
process advances... the smaller monopoly profits will tend to become and the
closer the monopoly rate of profit will have to adjust to the average rate
of profit. The monopolies will thus increasingly be dragged into the
maelstrom of the tendency of the average rate of profit to fall" (English
edition, p. 538-539).

In capitalism, almost as soon as competition has been eliminated at one
level, it re-appears at another level. Since it is not possible to escape
from competitive pressures, it is also not possible to escape from the law
of the tendency for profits to equalise, and therefore also not from the law
of tendency for the rate of profit to fall.

What remains to discuss is the validity of the term "monopoly capitalism".
To my way of thinking, this term denotes only the global increase in the
relative weight of monopolies and semi-monopolies, consequently changes e.g.
in the structure of price formation (which seems less clearly related to
actual production costs), but not a cancellation of the law of value nor in
the basic structure of capitalism nor its competitive mode of functioning.
This is a different view than e.g. Baran/Sweezy, for
whom the law of value in fact has ceased to operate as the overall regulator
of economic activity, and of medium-term to long-term price movements. For
them, the monopolies aided by the state become a "law unto themselves".
Similarly, the Stalinists wanted to mobilise the middle classes against the
evil of "big business" with the theory of "state monopoly capitalism".
But Baran and Sweezy's view has its origin in a
false view of the transformation problem going back to L. von Bortkiewicz,
as Alan Freeman and others have pointed out, which leads to a loss of
confidence in Marx's economic theory and prevents really understanding the
dynamics of the equalisation of the rate of profit. That is why empirical
measurement such as Eduardo's on profitability trends is valuable,
because it shows that the dynamics of capitalist development
identified by Marx stay basically the same. Yet, this should not blind us to
changes which have also occurred in world capitalism since Marx's day, or in
popular culture. Monopolisation has real effects: for prices,
for employment, for occupational structure, for the sectoral mobility of
capital, for the relationship between the state and private enterprise, for
the ideology of the ruling classes, and so on.


Jurriaan Bendien.