(OPE-L) [Jurriaan] Capacity utilisation - additional comment

From: Gerald_A_Levy@MSN.COM
Date: Mon Nov 01 2004 - 16:52:08 EST

Jurrian's  short essay that the following is an additional comment on
appeared in a 10/30 post that I sent on "forces of destruction".
In solidarity, Jerry

----- Original Message -----
From: "Jurriaan Bendien" <andromeda246@hetnet.nl>
Sent: Monday, November 01, 2004 4:42 PM
Subject: Capacity utilisation - additional comment

A few more comments about this - usually capacity utilisation is surveyed in
manufacturing, mining and utilities, but in some cases all industries are
surveyed. The average utilisation rate of installed productive capacity in
industry, in some major areas of the industrialized world, is currently
estimated as follows:

 United States 77% (Federal Reserve measure)
Japan 83% (manufacturing) 86% (non-manufacturing; Bank of Japan)
Europe 82% (Bank of Spain estimate)
Australia 81% (National Bank estimate)
Brazil 60-80% (various sources)
India 70% (Hindu business line)
China around 50-60% (various sources)
Turkey 72.5% (July 2001; Statistics Bureau)

 Comprehensive data for China are difficult to find. In 1995, the
rate for China's steel refining capacity, which then amounted to 169 million
annual tons, was said to be 56% (Chen Jiagui 1997). China's 1995 industrial
census showed that the average utilization rate for equipment in 111 product
lines was 66 percent, with half of the figures falling under 55 percent. In
1996, information for 1,000 product lines showed 600 with utilization rates
under 60 percent. A 1999 report, presumably referring to conditions in 1998,
stated that "at present, nationwide utilization rates are below 60% for half
of all industrial products" (Chen and Qi 1999, p. 16). Data for Guangdong,
one of China's most dynamic provinces, show that: "of 320 types of
production equipment [apparently for 1998]. . . 52% have utilization rates
below four tenths, and 22 types have utilization below two tenths. . ." (Li
Chao 1999, p. 45). More recent reports noted overcapacity across a broad
range of industries, including steel, glass, cement, chemicals, motor
vehicles, fertilizer, electricity, textiles, garments, appliances, paper,
coal, and oil refining. See: "The Political Economy of China's Declining
Growth" by Thomas G. Rawski, University of Pittsburgh and Nicholas R. Lardy,
China's Unfinished Economic Revolution. Washington: Brookings, 1998.

 Michael Perelman commented on the US FRB measure that: "I think that this
measure is not very revealing.  I made this same point in a book, "Keynes,
Investment Theory and the Economic Slowdown." Prior to the early 1980s,
business carried a great deal of extra capacity. Running close to 80%
indicated at the time approaching capacity restraints. Since that time,
firms have scrapped much of their most inefficient capacity. As a result, an
80% capacity utilization would be equivalent to a historical level of
something less, say 70 or 75%."

 For the US survey of plant capacity utilisation, see:

 For a theoretical discussion on capacity utilisation, see: "The
International Politics of Surplus Capacity: Competition for Market Shares in
the World Recession" (London: Allen & Unwin, 1981), by Susan Strange and
Roger Tooze. I did not really discuss the effects of market monopolisation
on capacity utilisation.

 However I think we can say with some confidence that as a global average,
about 1/5 of installed productive capacity in the material goods sector of
industrialised countries is not being used, a fraction which increases to
1/4 or 1/3 in recessions. It would probably be possible to find a
significant positive correlation between the real unemployment rate and the
capacity utilization rate.


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