[OPE-L] SV: [OPE-L] how industry-specific are most capital goods?

From: Martin Kragh (Martin.Kragh@HHS.SE)
Date: Wed Apr 18 2007 - 11:24:53 EDT

"What about computers  (to the extent that they serve as
means of production)?"

Hi Jerry,

If you don't mind me intervening, I might have some suggestions. I think the answer to the main question (about flexibility) is "it depends". As regards computers they are now completely integrated to all of industry (except for a few places in the world) this is true, but when we talk about capital goods, they constitute an indefinetely small part of the total value of the capital stock. Perhaps the equivalent of a few days paycheck for one employee. 

One of Sweden's main industries is paper and a single enterprise used to employ thousands of workers. The same enterprise today employ about ten persons, basically maintenance and supervision (and the output/hour is many times higher). The machine they built to procure the paper however is enormous, and I doubt it has any alternative use.

On the other hand, medical industry is also very capital intensive. But it is possible that in case of war, Pfizer would actually be able to redirect production to poison or something similar. In cases of war, people tend to push creativity in that way. Of course the USSR, and France, Germany etc had dual economies. In the USSR this was pronounced, all of industry was planned so as to change from civilian to military production in case of war (from shoes to boots, cars to tanks etc). They also had plans for the evacauation of industry, where you could put the factories on trains and move them inland away from the front and put them together somewhere else so as to continue production.

The Japanese industry used to be famous for its flexibility, Toyota was said to be able to switch production from one type of car to another in a matter of days if not hours. When Ford changed from his T-Ford model back in the days, the factory was closed for two years. Here comes in the question of robot arms and stuff like that. They are, I would guess, somewhere in between. You can use them for many different types of tasks, but my guess is that they are still only a smaller part of the total capital.

When I was a student and studied economics they told me that "labour" was "variable capital" and machinery, factories etc were "fixed capital". The explanation was that you could sack the labourers and re-employ them within the timeframe of about one year - whereas this can not be done for machinery and factories. The explanation makes little sense though since you can sell machinery and factories but this didn't matter much to my professors. 

I think that somebody who would be interested in researching this seriously would actually look at fixed capital assets sold (in one branch, or year), and follow the stream, that is, try to find out where it ends up. You get some methodological problems (how do you define alternative use?) but most likely something will come out of it. However, very few economists are that practical nowadays. 

Within the economics profession I see that this type of question is dealt with, but I cannot read their works. They are basically applying game theory on a rather advanced mathematical level, it's called "industrial organization" or something like that. I cannot see how game theory could actually explain these type of very concrete questions, but I am no game theorist either. 

Kind regards

-----Ursprungligt meddelande-----
Från: OPE-L [mailto:OPE-L@SUS.CSUCHICO.EDU] För Jerry Levy
Skickat: den 18 april 2007 16:21
Ämne: Re: [OPE-L] how industry-specific are most capital goods?

>  It seems to me that most capital goods are quite industry specific, 
> and are used in only one industry, or a small group of industries.

Hi Fred:

What about computers  (to the extent that they serve as
means of production)?

One has to remember that a distinguishing characteristic of
new information technologies is *flexibility*:  thus, industrial robots
can be employed in many different branches of production and
assigned many different tasks and all that is needed is re-programming
(which is often very simply done) and other minor changes (e.g.
the changing of end effectors).  This form of flexible (or "soft")
automation is in contrast to the "hard automation" that used to be
more common and has now increasingly become obsolete in many
branches of production (but are retained in some other sectors for
industry-specific reasons).  Similarly,  office computers are
"flexible" and the same hardware is used in many sectors.  The
software is often changed, but -- even there -- there are commonly
used software programs in many branches of production.

Consider for a moment how many capital goods use the chip.
An enormous amount!

There are also common elements of constant circulating capital
required across branches of production, e.g. electricity, heating oil,
etc. Also,  plastics (an oil derivative) and steel are  by no means
industry-specific but often are elements of constant capital.

In solidarity, Jerry

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