Re: [OPE] The organic composition of capital in New Zealand

From: Paul Zarembka <>
Date: Fri Jul 24 2009 - 08:52:35 EDT

Jurriaan, You are mistaking the neoclassical K/L ratio for Marx's OCC.
The latter refers to the LABOR TIME required to produce constant
capital, a concept for which the article you cite is totally opaque. In
fact, the article even is explicit in its definition: "relative capital
shallowness - or low levels of physical capital per worker". Further,
the article is not even vaguely aware of the Cambridge critique of
neo-classical capital theory in that it shows absolutely no awareness of
how one measures "physical capital" (Marx or no Marx). Paul

(V23)  THE HIDDEN HISTORY OF 9-11, Seven Stories Press softcover, 2008 2nd ed
====>   Research in Political Economy, Emerald Group, Bingley, UK
====>   Paul Zarembka, Editor
Jurriaan Bendien wrote:
> Just in case you thought that Marx's concept of the OCC is 19th 
> century economics, have a read of this news item:
> NZ can catch Australia: Brash
> NZ Herald Wednesday Jul 22, 2009
> By Brian Fallow
> (...) For a while, back in the 1960s, New Zealand's economic output 
> per head was slightly higher than Australia's. But last year, 
> according to the OECD, while Australia's population was five times New 
> Zealand's its gross domestic product (GDP) was 7.2 times larger, 
> implying per capita GDP was 31 per cent higher across the Tasman.
> Much of the gap is a legacy of the 1970s and 1980s. New Zealand's per 
> capita GDP went more or less sideways between the mid-1970s and the 
> end of the 1980s, while Australia and the OECD as a whole continued to 
> forge ahead. When growth resumed in the 1990s at an internationally 
> respectable rate, it was from that comparatively low base and it has 
> not been strong enough to narrow the gap. And much of the growth has 
> come from people working longer rather than more productively.
> In 2006 New Zealand ranked fifth in the OECD for hours worked per head 
> but only 22nd for labour productivity (Australia was 10th). (...) 
> Statistics New Zealand says labour productivity growth averaged 1.3 
> per cent a year over the eight years to March 2008. That compares with 
> 2 per cent in Australia, and 2.5 per cent during the 1990 to 1997 
> cycle. (...)
> Research by Treasury economists in recent years has highlighted the 
> importance of New Zealand's relative capital shallowness - or low 
> levels of physical capital per worker - in explaining the productivity 
> gap. Thirty years ago the capital-to-labour ratio was almost the same 
> on both sides of the Tasman but by the early 2000s Australia's was 
> about a third higher. Some economists have pointed to weaker wage 
> growth in New Zealand, especially since the labour market reforms of 
> the early 1990s, as part of the explanation, making it more attractive 
> for firms to grow by a strategy of more hands to the pump, rather than 
> investing in a better pump.
> The Treasury notes that the difference in multi-factor productivity - 
> the effectiveness with which both labour and capital are used [i.e. 
> the change in output per unit of combined inputs, Solow's "coefficient 
> of ignorance"] - has not been markedly different between the two 
> countries in the current decade: 0.5 per cent a year in New Zealand 
> and 0.7 per cent in Australia.
> This suggests that capital deepening - an increase in capital per 
> worker - explains most of the higher labour productivity growth across 
> the Tasman. [Productivity Taskforce leader Donald] Brash appeared to 
> accept the importance of capital deepening yesterday but said that 
> ideas about how to improve it would have to wait until the taskforce's 
> first report, due in October. 
> But hey, wait a minute: on average, New Zealand gross wages are now 
> between 20% to 30% lower than in Australia, although for the most part 
> the same kinds of technologies are used and the intensity and 
> efficiency of labour is basically the same. The measure of net output 
> (value added) used in these calculations INCLUDES the factor income 
> represented by the compensation of employees, as well as gross profit 
> and tax. So, really, it looks very much like the lower output value 
> per New Zealand worker is largely attributable to LOWER GROSS WAGES in 
> New Zealand.
> If wages fall, logically the aggregate net output measure will fall 
> also, unless more workers are employed (increasing the total value of 
> the wage component in net output), or total gross profit volumes 
> increase in proportion. The fact that on average more NZ workers than 
> Australian workers are employed to produce the same output value, 
> means primarily that NZ workers earn less, simple as that. The problem 
> being referred to in this article is really that the historic 
> reduction of NZ gross wages has not been compensated for by a 
> proportional growth in gross profit from production. Had gross profit 
> growth fully offset the tapering off of wage growth, there would have 
> been no problem, because in that case total net output growth would 
> have stayed much the same.
> However, even as the rate of surplus value increased, this did not 
> translate into sufficient profit growth. Hence the idea now that more 
> must be invested in production to increase the physical productivity 
> of the worker, because, assuming real wages stay constant, that is the 
> only thing that can generate more gross profit and thus a greater net 
> output value. But, assuming this is done, how can workers buy the 
> additional output, if real wages remain constant or even fall? The 
> only way out of that is to export even more... And so it goes on. The 
> underlying problem is that insufficient capital resources were 
> invested longterm in production for many years, because the yields 
> from asset speculation and property deals were greater and faster, at 
> a lower risk. Capitalists are now being invited to invest more in 
> upgrading production technology, but how can this be profitable in the 
> middle of a recession - there are now three times as many NZers on the 
> dole as at the same time last year - when final demand is falling, 
> rather than rising? The main problem of the rich is not that they are 
> rich, but that if income inequality strongly increases, this 
> undermines the very possibility of cumulative economic growth.
> Jurriaan
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Received on Fri Jul 24 08:55:04 2009

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