The tendency for the rate of profit to rise
Remember Marx’s tendency for the rate of profit to fall? Well, today’s official figures show that it no longer exists. If anything, there’s been a tendency in recent decades for the rate of profit to rise.The numbers show that non-oil, non-financial companies’ net return on capital was 11% in Q4 and 11.2% in 2009 as a whole. This means that UK firms were more profitable during the worst recession since 1931 than they were at the end of the long post-war upswing in the early 1970s. Quite why this should be is a long story, in which the success of Thatcher’s attack on the unions, the rise of China and India’s reserve army of labour, and latterly the role of fiscal policy in supporting profits all play starring roles. Does this matter? Not in the sense that high profits stimulate capital spending and growth; today’s BCC survey shows that investment intentions have actually fallen. But I think it does matter for equality. It is perhaps no accident that the trend increase in profit rates - sharply up in the 80s and later 90s but levelling off more recently - looks roughly similar to the trend in the Gini coefficient. Higher profits mean higher inequality.This isn’t merely or even mainly because profits are paid to wealthy shareholders. It’s because higher profit rates affect wage inequality. Workers who are in more powerful positions relative to companies - managers, bankers, skilled employees who can credibly threaten to leave their employer - do better than less powerful workers when profits are rising. This is because they can use their bargaining power or rent-seeking skills to extract some profits for themselves; had this not happened, profits would have risen even more than they have over recent years.In this sense, maybe Marx was right. Income inequality depends heavily upon profits, power and class relations.