[OPE-L:6468] Re: Competition and equalization of profit rates - an abstract

Gerald Levy (glevy@pratt.edu)
Thu, 16 Apr 1998 10:06:00 -0400 (EDT)

Eduardo -- thanks for the abstract of your paper. You wrote (on Mon, 13
Apr):

> 1) the Marxian approach does not assume that the competitive process tends
> to bring an economy to a state of equilibrium where industry rates of
> profit are actually equalized. In other words, competition is not seen as
> establishing an uniform rate of profit across industries in any actual
> economy. There are several reasons to support this view. For example, in
> those industries where production is carried out in
> large scale and with a high proportion of fixed capital, the time required
> for pulling an abnormally high or low rate of profit towards the average
> level is substantially greater than in those industries where medium and
> small firms are the rule. These factors are, by themselves, sufficient to
> guarantee that for any period of time which is taken into consideration the
> industry-average rates of profit will be, in general, different.
> 2) Marx does not assume that the equalization process is
> necessarily a smooth one. It may happen that too much capital is invested
> in some of those industries which have above-average rates of profit
> thereby causing a temporary overproduction and, as a consequence, a
> prolonged period of low profitability in those industries.
> 3) consequently, even when the analysis of the competitive process is
> restricted only to its aspect of being an equilibrating mechanism, it is
> plain that the working of the adjustment process, together with all other
> factors which influence prices and profit rates, makes it unrealistic to
> assume that in an actual economy the industry rates of profit tend to be
> more or less uniform at any given point in time. Rather, according to the
> Marxian approach it is expected that, at any period of time, differentials
> in industry rates of profit do exist and, consequently, that the dynamic
> process of equalization is permanently in operation.

I agree with the above. I wonder: do others?

However, even if all of the above is true, it may _also_ be the case that
there are other variables (e.g. related to market structure) inhibiting
profit rate equalization.

> I have tested it against the post-Marxist/post-Keynesian
> hypothesis that oligopolist industries are able to obtain, on the average,
> profit rates which are persisitently above the profit rate obtained by the
> competitive industries. If long run profit rates are positively correlated
> with market power and entry barriers variables the Marx's theory is clearly
> inconsistency with the empirical evidence.

This p-M/p-K distinction between oligopolistic industries and competitive
industries raises the question: do oligopolies represent the negation of
competition (I think not) or a significant change in the *form* of
competition (I think so)?

It is not at all clear to me that if in contemporary capitalism there are
these market power and entry barrier variables causing and enhancing
profit rate differentials among different branches of production, this
would represent a (empirical) "inconsistency" in Marx. Marx doesn't really
talk about this subject, does he? At least, he doesn't talk about the form
of competition taken in oligopolistic markets (including product
differentiation and industrial pricing), does he?

I believe that our former mentors, Anu and Willi Semmler, wrote about this
subject. How would you differentiate your theory and results from theirs?

> At the sector level (i.e., oligopolist and competitive industries) the
> empirical results shows that their long run equilibrium profit rate are not
> significantly diffrent from RE; b(i) is greater the zero (and b(i=o) >
> b(i=c).
> At industry level (45 industries) the results shows that a(i) = 0 for 38
> industies. In relation of the oligopolist industies (n = 13) only one of
> them presented a(i) 0,
> but in that case a(i) < 0.

It would be interesting to know if these results could be generalized for
other capitalist economies besides the Brazilian economy.

> I also regress the estimated long run equilibrium profit rate and b(i), at
> industry level, with the market power and entry barriers variables (CR,
> economies of scale, absolute capital requirements and ratio of fixed
> capital to total capital). The results confirmed that long run equilibrium
> profitability is not associated with market structure variables, as the
> post-Marxist/post-Keynesian approach postulated.

What is the "long-run equilibrium profit rate"? How do you define
"long-run" in this context?

> In other words, the
> empirical evidence for the brazilian economy, at least during the 1973-85
> period, is consistent with the predictions of Marx's theory of competition.

As you know, at the time that Marx wrote the drafts for V3, he was
planning on writing an "eventual" book on competition. Are you supposing
that what Marx wrote in _Capital_ represents a fully-developed theory of
competition? Also, I don't think that it is all that useful or accurate to
speak about and test Marx's "predictions". Of course, he had some
"predictions", but certainly not as many as some believe.

In solidarity, Jerry