----- Original Message ----- From: "Sabri Oncu" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Friday, February 27, 2004 11:34 PM Subject: Re: [PEN-L] Stats & OED: [Was Re: demo fervor]
Hey dms! > > Tell me how you are planning to conduct that concrete > analysis? > Sabri _______________________________ Ask and you shall receive... A CASE OF CURIOSITIES: UNSOLVED MYSTERIES OF OVERPRODUCTION For every capitalist, profit appears as a function of cost-- as the discrepancy between cost and price. The capitalists as a class speak about "value added" in production, but that value added doesn't appear as a material component of the production process itself. Its "materialization" assumes form as a price bestowed, granted, by the market exchanging all commodities. It, profit, appears as a "gift," a "blessing," "magic," arbitrary, chimerical, a miracle requiring priests, police, and quick hands. No capitalist can account concretely for the value generated in the production process. There is no accounting line item for the value of things obtained without cost, for value expropriated without compensation. There can't be. The expropriation is concealed within the form of compensation itself, which is of course, wages. And the value expropriated is the surplus value from wage-labor. Everything has its price and everything has a cost. In the confusion of the two every capitalist experiences glee and misery, triumph and despair, meat and poison. Cost is the disease and price is the cure. And vice versa. All of capitalist production tends, by necessity, to become overproduction. To the individual capitalist, overproduction is an unfortunate byproduct of attempts to reduce the costs of production, or the misreading of the markets. In reality, only through overproduction can the surplus value expropriated through wage-labor be transformed into a relation of profit to the capital it mobilizes; only the maximum production forcing all surplus values into the markets provides even a minimum return. The realization of a portion of the expropriated value requires the circulation of all values. This process contains the capitalist dream of "value added," sure. And it contains within the dream a reality of devaluation, of a productive apparatus "too expensive," not in the costs of production in relation to market prices, but in the relation of profit to capital as a whole. Case 1: Steel-- Overproduction in a Down-sized Place. When confronting a decline in the rate of profit, capital's usual course is to call on the army to rearrange certain relations of debt, of wages, of the existing profits themselves. Behind every free market there's a death squad ready for deployment. But in 1973, the US military was fully occupied licking its wounds after a ten year tour of Southeast Asia. The military was in no shape to come to the phone. So capital turned to the next best thing, oil, to do the rearranging. OPEC answered on the first ring. Oil prices spiked and all the profits of all the exchanges in all the markets entered that great pipeline belonging to the seven sisters. And their banks. And a funny thing happened on the way home from the bank. The inflated price of oil took its toll on behalf of the petroleum companies, sure. But the cascade of petrodollars, the general price inflation accompanying the inflated price of oil propelled manufacturing industries to accumulate "hard assets," to expand the fixed asset base of production with the depreciating dollars realized in the markets. Between 1973 and 1980, the net stock (measured on the historical cost basis) of manufacturing fixed assets doubled. Manufacturing profits did not do quite as well in general, peaking in 1978 at $89.7 billion before falling back to $76.3 billion in 1980, a gain of 75 percent from 1973. Profits for the durable goods industry collapsed, rose to a peak of $45.5 billion in 1978, and collapsed again to $18.3 billion in 1980, below 1973's $25 billion. Profits for the primary metal industries, i.e., steel , peaked in 1974 at $5.0 billion but dropped to $2.6 billion in 1980. For the entire period, this sector's profits averaged $2.4 billion per year, essentially showing no growth from 1973 on a year to year basis. The market mechanisms of price had done half a job, on employment levels and living standards. But half won't do. Capital hit the redial button on its phone. The steel industry accounted for, then as now, approximately 3 percent of total energy consumed in the US. This time, when the phone rang, it was OPEC 2, and it was calling collect. The industry was asset heavy and profit short; capacity large and utilization small. It wasn't that OPEC caught steel short. Rather, OPEC 2 caught the industry going long. In 1980, the US steel industry production capacity was estimated at 155 million net tons. The utilization rate was 53% as shipments measured 85 million net tons. Net shipments shrank to 60 million net tons in 1982. The industry recorded losses for four consecutive years. Industry owners initiated a rapid destruction of assets, utilizing bankruptcy procedures to eliminate fixed plant and labor force. The decline in asset base coupled with improved production technique precipitated significant reductions in working time required for each ton of steel. In 1980 each ton required 10 man hours production time. By 1985, the HPT ratio was reduced to 7 hours. Shipments "recovered" to 75 million net tons. In 1990, the ratio stood at 5.5 and shipments reached 86 million net tons. In 1996, the 4 hour per ton barrier was broken and shipments exceed 100 million net tons. In 1998 , the ratio measured 3.6. Current estimates of the ratio are below 3 hours per ton, with some producers operating at the 2 HPT ratio. The industry thought it had solved its problem of overproduction, reducing capacity by 30 percent between 1980 and 1997; reducing production hours per ton; reducing production workers by 60 percent; reducing total production hours by 50 percent for that period, and then by a further 20 percent between 1997 and 2001; holding the cost of materials to a six percent increase while reducing the price per ton of product by 13 percent while Japan and Germany increased prices by 25 percent. God is sure in the machine, for capital and capitalists, and the machine is a calculator. Steel had looked overproduction squarely in the eye and not blinked. "We have seen the future," announced the owners in 1997 and 1998 to the banks, the investment analysts, to the journalists in a telephone conference, "and it's smaller than you think. Overproduction is a thing of the past." As they spoke, the call waiting light began to flash. The steel executives looked at each other and grimaced. In the meantime, while in 1998 the US experienced a slight decline in the rate of profit, the newly industrializing countries of Asia experienced a collapse, and the collapse spread to Russian and Latin America. Production there declined drastically, the surest index to overproduction. The US steel industry, calling for protection by government tariffs, reduced production by less than 1 percent in 1999 while increasing capacity by 2 percent. Imports in 1999 fell by 25 percent. In 2000, the steel industry, caught up in the irrational exuberance that only overproduction can bring, expanded production another 3.5 percent and capacity a further 2 percent. Between 1995 and 2000, capacity had expanded 15 percent, production by 7 percent, assets 25 percent, revenues 9 percent, actual shipments 12 percent, while employment and production hours declined by approximately 20 percent. And profits? Well profits had declined from 1.5 billion dollars to a negative 1.1 billion dollars. The phone was ringing, and a familiar voice was on the other end. When, in 1999, OPEC raised the price of oil 140 percent, it was, in its way, acting as the perfect market, raising the price of oil to offset the lower rate of profit in the oil industry. This "unequal exchange" established a uniform general rate of profit out of the very disparities of capitalist production. In a compressed version of the 1973-1979 period, 2000 saw the US economy surge forward under the whip of this generalized decline. With costs of production declining, with the necessary time of production dramatically reduced, steel had managed only to lower itself back down to the bottom rung. And from that vantage point, where everything was seen upside down, the industry turned its pockets inside out and pleaded bankruptcy. By 2001, an estimated 30 percent of production capacity was involved in bankruptcy proceedings. Despite the moans and groans of the steel executives, imports from cheaper more efficient producers in Asia and Europe had exactly nothing to do with the US predicament, despite an estimated worldwide over capacity of 25 percent in the industry. US steel production is configured around an inability to satisfy domestic requirements. Imports had been declining before Bush enacted the section 201 tariffs, and increased after the implementation. And perhaps most importantly, the US steel producers account for 25 percent of imports, processing imported semifinished slabs. The source of the steel industry's distress was in profit, both its particular profit and capital's in general -- in the conversion of profit into production, into expanded means of production expelling proportionately more labor from the system. This conversion of value into inanimate mass, reproduces itself in proportionately less profit being realized from the production of each unit-- ton or slab, hour or dollar-- of steel. Production statistics for the 1997-2001 period trace the transformation of increasing productivity into decreasing rates of realized production profits. In that period, production wages per hour increased 4.3 percent; production hours per ton declined 10 percent, so that production wages per ton declined 4.7 percent. Material costs per ton declined 3.2 percent offsetting, partially, a 16 percent increase in fuel and energy costs. Capital consumption per ton declined some 40 percent. Capital spending had peaked in 1997, with modest declines in 1998,1999, and 2000, leading to the 30 percent reduction in 2001. The rate of realized production profit follows this same curve, peaking in 1997 at 40 percent, falling to 38.8 percent in 1998; 36.4 percent in 1999; 30.5 percent in 2000, and 22 percent in 2001. (These ratios exclude all costs-- wages, materials, administrative, etc., not directly involved in the production process.) Increasing the rate of the extraction of surplus value, the expropriation of "free" labor, or, more accurately, labor for free, was realized and reproduced in the growth of productive capacity. This very increase altered the relations of production, reducing the rate at which profit could be realized. The general predicament of capital can be described in this manner: increased profits had been converted into expanded capacity which had altered the rate at which profit would materialize in the accumulation process (production and circulation) as a whole. The very nature of capitalist production transmits the technical advances throughout the entire framework of production, transportation, circulation. The ability of profit to sustain growth in the means of production requires a certain unevenness in particular rates of profit; requires the specific inability of sectors of the economy to advance together, to improve uniformly, to be of equal efficiency, equal social necessities. Profit then, in the midst of its generally rapid advance, initiates a specific deceleration and decline. The reproduction of capital as a whole damages the ability of particular capitals to reproduce in part and the inability of particular capitals to reproduce themselves profitably threatens the entire circuitry of exchange. Capital then transforms the self-expansion of value into a self-devaluation. The specific predicament of steel was described by one steel executive in this manner: "We're not so much overbuilt as we are underdemolished." II. And a case of red... In June 2002, the biannual Bordeaux Vinexpo attracted 2500 exhibitors and 50,000 visitors from forty countries. The expo, a sort of inverted auto show where last year's models are the stars, was a commercial success. But the French hosts couldn't even raise their glasses to toast the event. The glasses were overfilled. The expo was successful but the markets had died. First growth bottling of Lafite, Latour, and Margaux sold for prices only half that of the 2000 vintages. A campaign to establish a futures market in the 2002 vintage drew only yawns. The 2002 harvest did not produce wines comparable to the great wines of 2000, not to mention 1982. However, the predicament of the French (and other, particularly old world) producers was not so much in the subtleties of terroir, tannins, or taste, but in the vulgar economics of capitalist production. The local journal, Sud-Ouest, put it this way: "Every year the world produces 280 million hectoliters of wine and every year it drinks only 220 million of them." In a world made complex by the means and methods of ten million speculators trying to decant a bit of profit by putting and calling, hedging and optioning, the great wine producers of France (and Italy and Portugal and Spain) were laid low by simple overproduction, or perhaps not so simple, but overproduction nonetheless. "Every year the world produces..." What is essential, inherent to capital is invisible until it appears in its acute, chronic form, and even then critical elements appear as inverted images of themselves. So the essential characteristic of capitalist production, the expropriation of surplus value, the overproduction of exchange value appears to our wine producers and wine drinkers as "underconsumption," as the imbalance between "supply" and "demand." But supply and demand refer to quantities, objects, articles, and prices. Capitalism is about values, the social relation yielding those values. Capitalism is about property and profit. Overproduction is the modern history of wine production, with relatively increasing overproduction despite the absolute decline in actual production. Between 1983 and 1998, total wine production dropped by 25 percent, yet in 1999 production exceeded consumption by a record 27 percent. 1999 was followed by the "golden year" of 2000 with exceptional harvests across France, Italy, and Spain yielding vintages of remarkable quality and quantity. During the 1983-1998 period, the 10 major producers; Argentina, Australia, Chile, France, Germany, Italy, Portugal, South Africa, Spain, USA; reduced total production by 20 percent. Yet their share of world production increased from 75 to 80 percent. Australia doubled its output, US production increased 40 percent, while France and Italy reduced production a combined 60 percent. The combined production of the largest "old world" producers (France, Germany, Italy, Spain, Portugal) measured 59 percent of the world's 34.77 million metric tons in 1980; 59 percent of the world's 26.57 million metric tons in 1998; 55 percent of total 2002 output of 26.79 million metric tons. Combined production of the major new world producers (Australia, Argentina, Chile, South Africa, USA) measured 16 percent of the total in 1980 and 23.5 percent in 2002. China is omitted as its participation in the world markets is minimal. "Every year the world produces....every year the world drinks..." Per capita wine consumption in the old world producers of Western Europe has declined by 50 percent in the last 20 years. While the decline in consumption is used to explain the decline in production, both declines, both changes in "supply" and in "demand" are determined by the social mediation of each-- profit. Neither production nor consumption occurs in "natural" conditions, in "direct" relation to each other. The interaction of production and consumption is mediated by the social organization of labor and property. And the mediation, the reproduction of the mediation, is the determinant of both production and consumption. . The wine producers of Western Europe occupy 6 percent of the total available crop area, with yields of 53 hectoliters per hectare. New world producers have less than 1 percent of crop areas under cultivation with yields averaging more than 61 hectoliters per hectare. Production in Western Europe is decentralized and diffuse, with wine cooperatives dominating the industry. France has 870 cooperatives with a 52 percent market share; Italy has 607 with a 55 percent share; Spain has 715 with a 70 percent share; Portugal has 90 with a 49 percent share. Sales per cooperative reflect the petty scale of production; in France the ratio is 5.3 million euros per cooperative; in Spain the ratio drops to .9 million euros. In 2000, the top five producers in France accounted for 13 percent of total output and recorded sales of $330 million. Italy's top five accounted for just 5 percent and $125 million in sales. In 2000, the top five producers in the United States produced 73 percent of total output with sales of $750 million. In Australia, the top five accounted for 68 percent of production with sales of $310 million. The decentralized and diluted structure of wine production in Western Europe may make the price of wine cheap, but it makes the production of wine, the social cost of the structure and process of production, the time spent in realizing the completed circuit, dear. Cheap or expensive, price itself is not the issue. Surplus value is, and the surplus value realized from the existing, historical organization of the Western European wine industry is insufficient for maintaining expanded reproduction. Consequently, consumption and production enter into a descending spiral. The European Union has prohibited further vine plantings until 2010, except for the replacement of cheaper "table wine" varieties by premium grapes. The social space, and time, once occupied by wine production and consumption, has been commandeered by soft drink production and consumption. In the beverage and tobacco industries, the wine sector is the least concent rated, and the soft drink sector the most concentrated. The world's six largest soft drink manufacturers have a 78 percent share of the world market. Since 1994, soft drink consumption in the European Union has increased 25 percent, and with production costs at approximately five cents per liter, the surplus value extracted and then realized in this expansion dictates the enforced contraction of wine production. While production declined, international trade increased. In 1980 exports (volume) of the major producers measured approximately 10 percent of world output. In 1998 exports were 21 percent of output. Between 1980 and 1998, the major wine producers, old and new world quadrupled, export revenues. The result of overproduction is this interlocking of expanded, accelerated, trade with a diminished, decelerating, reproduction. . And so, in a bizarre replay of its own history, the centers of capital reprise the elements of mercantilism and colonization internally-- restriction and destruction of the domestic markets to support the realization of value through exports, the saturation of the home markets with inferior goods at inflated prices, the conversion of expanded reproduction into faux boutique schemes of circulation. "Every year the world produces 280 million hectoliters of wine, and every year it drinks only 220 million of them." "We're not so much overbuilt as we are underdemolished." And with every hectoliter, every metric tonne, capital exacerbates the antagonism between production and profit. . December 2003 This work may be reproduced without restriction provided the source is cited. Sources for statistics on steel production are: Statistical Abstract of the United States, US Department of Commerce Economic Census, US Department of Commerce Bureau of Economic Analysis, US Department of Commerce Annual Survey Of Manufacturers, and AISI. Thanks to Robert Brenner for his analysis of fixed capital formation and profit rates. Sources for statistics on wine and beverage production are: UN FAO, US Department Of Commerce, US Department of Agriculture, European Soft Drink Association (Unesda-Cisda), and most importantly, the incredibly detailed analyses produced by Kym Anderson of the Centre for International Economic Studies, University of Adelaide . All mistakes, miscalculations are mine. >
