[PEN-L:11206] Re: rent question -- an addendumb
Each year, business Week gives an article detailing the exploits of executives, like Ovitz, who screw up and get paid royally for their efforts. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 916-898-5321 E-Mail [EMAIL PROTECTED]
[PEN-L:11204] rent question -- an addendumb
Yes, addenDUMB: I got so hung up with the idea of execs being paid a scarcity rent that I lost sight of what they get paid when they don't receive a scarcity rent, i.e., when they're paid their "Marginal physical product." Since corporate execs are, strictly speaking, unproductive workers -- i.e., not producing surplus-value directly -- the "marginal product" of an exec's "labor" is problematic. To a neoclassical, it's no problem: hey, divide the extra production that results from the exec's exertions by the amount of those efforts and you've got the MPP. But to a Marxian economist, that's obfuscating. The "MPP" of the exec would be the rise in the amount that productive workers produce (extorted by the exec's minions under the supervision of the exec) divided by the amount of the exec's efforts. Most execs wouldn't have their salaries determined by that "MPP," by the way, since much of what they do is pure financial paper-shuffling. Much of that is quite profitable to the owners of the corporation, thank you very much, even it doesn't add to the aggregate surplus-value at all. mea culpa: I've broken two resolutions in one day. in pen-l solidarity, Jim Devine [EMAIL PROTECTED] [EMAIL PROTECTED] Econ. Dept., Loyola Marymount Univ. 7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA 310/338-2948 (daytime, during workweek); FAX: 310/338-1950 "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- K. Marx, paraphrasing Dante A. >From "LYNN TURGEON, PROFESSOR EMERITUS OF ECONOMICS, HOFSTRA UNIVERSITY, >[EMAIL PROTECTED]"@anthrax.ecst.csuchico.edu Tue Jul 8 20:50:57 1997 Tue, 8 Jul 1997 19:49:44 -0700 (PDT) Date: Tue, 8 Jul 1997 19:49:44 -0700 (PDT) Reply-To: [EMAIL PROTECTED] Originator: [EMAIL PROTECTED] Sender: [EMAIL PROTECTED] From: "LYNN TURGEON, PROFESSOR EMERITUS OF ECONOMICS, HOFSTRA UNIVERSITY, [EMAIL PROTECTED]"@anthrax.ecst.csuchico.edu Subject: [PEN-L:11205] Soviet Imperialism X-Comment: Progressive Economics What was the economic basis for Soviet imperialism? In short, who exploited whom? IMHO, it was the Russians who were exploited by the countries in their sphere of influence, as well as the underdeveloped countries generally. The ideological basis for this exploitation goes back to Lenin's ideas on imperialism. Whereas capitalism produced uneven development, the post-revolutionary noncapitalist system would tend to "even out development." Prices oninternational exchanges would ten to now be highly favorable to the less developedcountries, whether they be India, Slovakia, Cuba, or the countries of Eastern Europe. The best documentation of thisreverse exploitation is the recent bookby Randall Stone,"Satellites and Commissars. Strategy and Conflict in the Politics of Soviet-bloc Trade."(Princeton,1996) The pressure for the expansion of Comecon trade came from the countries other than the Soviet Union since petroleumexports from the Soviet Unionwere highly subsidized. The same was true for economic relations with the Third World. Beginning with Khrushchev, the Soviet Union committed itself to a major aid program with Marxist dogma dictating interest rates in the neighborhood of one percent. To remain competitive, the advanced capitalist world developed the International Development Association (IDA) the poor country's branch of the World Bank with low interest rates competitive with those of the Soviet Union. Cuba was heavily subsidized by Soviet exports of petroleum for refining in Duba andsales in world markets with much higher prices. The generosity of the Russians made the ultimate breadkown of Comecon more difficult during the post-Communist transition. TheAswan Dam in Egypt was largely a gift from the Soviet Union as Egypt learned how to switch sides in the Cold War. Thus, when the Russians sanctioned the break-up ofthe Soviet Union, they thought that the removal of previous subsidies to Central Asia, the Baltic Republics and Moldavia would result in an improvement of their own standard of living. One of the principal problems faced by U.S. propagandists was their inability to convince the Third World that there was somethingcalled"SovietImperialism." This was obvious during the period of the New International Economic Order in the mid-seventies when Third World countries tried to emulate the OPEC countries andimprove theirterms of trade for 17 commodities by establishing an organization that would buy up and store commodities that were in oversupply, and sell these same commodities when prices were high. This same principle underlay the New Deal programs to assist U.S.agriculture. The Sovietsfinally agreed to joinin such an operation but the West refused to go along with NIEO. When looking for reasons for the ultimate defeat of Soviet socialism, in addition to the effects of NSC-68, Soviet foreign economic relations represents an important reason.Ionce wrote an article, "Is
[PEN-L:11203] rent question
Wojtek: I recommend that you look at Frank & Cook's THE WINNER-TAKE-ALL-SOCIETY (Penguin). Even though they don't use the terminology of rent, their analysis fits with it. It's generally well written, for a nonprofessional-economist audience. (It's in the broad tradition of segmented labor markets theory of the sort that Gil cites, though they don't use that terminology either.) Though many if not most of Gil's points are valid, I agree with Jim Craven that marginal product framework that Gil uses is not totally appropriate to this question. After all, top executives are not "factors of production" who are hired by someone in exchange for a salary (so that marginal cost of hiring = marginal benefit, salary = marginal revenue product under perfect comp.) Rather, to a large extent they are _hiring themselves_. Similarly, they have part-ownership of the firm, receiving some of the profits (residual income). The executive salary stats you see almost always include "property income" (such as stock options) along with "labor income." However, Gil has a point. The issue of whether or not top exec salaries constitute "rent" is usually a question from the stock-holder point of view (not, say, the societal perspective of Marx). Are "we stockholders" overpaying "our" execs? Thus marginal productivity logic is not that far off. (Marginal products are defined in terms of benefits to the firm, contribution to profits, not in terms of benefits to the working class, society as a whole, future generations, etc.) I don't think the micro-analysis of scarcity-rent is very different between neoclassical theory and Marxian theory. Neoclassical scarcity-rent refers to a surplus of income received beyond that needed to bring forth the supply of whatever is being sold (i.e., its opportunity cost). Marx only applied rent theory to land and natural resources, with a nod to the issue of temporarily scarce commodities, but I see no reason why it can't be generalized to other products (such as executives). As such, Marxian rent is formally similar to the neoclassical rent: marginal products can be calculated from Marx's rent tables in vol. III of CAPITAL. What's different in Marxian theory is the that micro-analysis is constrained and shaped by the societal framework. Exec rents -- assuming they exist -- represent redistributions of surplus-value from other fractions of the ruling class, where the total amount of surplus-value to be distributed is determined at any specific time in commodity production for society as a whole (the exploitation of labor), which is in turn dependent on the state of class relations on the level of society as a whole. (Top exec rents are thus similar to not only land-owners' rents but interest income, redistributions that do not arise directly from production but from the scarcity of a necessary commodity.) The competition between the various fractions of the ruling class is intensified as exec rents rise. Ceteris paribus, this encourages the raising of the rate of exploitation over time, so that there is more surplus-value to redistribute to execs, bond-holding rentiers, etc. This hike may not happen, of course, if working-class resistance is strong enough. [*] Do exec rents exist? Such rents mean that top managers receive income because of their scarcity and their power (once in office) rather than the cost of producing their skills or that of the effort required for their jobs. The anti-rent (apologetic) position justifies high pay by the personal cost of the supply of effort and other aspects of the individuals rather than the institutions within which the individuals work (the "demand side"); it's solely a supply-side theory. The cost of producing the exec's skills represents one hurdle for becoming insiders, but it is hardly the only one. A lot of people have MBAs but only one in a few thousand gets into the executive suite; in F & C's terms, the few win a lottery, while many who are equally qualified or almost so get nothing but the basic MBA salary. Many of the other skills that top execs have -- such as how to back-stab peers and kiss up to superiors -- are learned as part of the job. That is, they are gained by insiders as part of what C. Wright Mills terms the virtuous circle of wealth (in WHITE COLLAR, p. 111). Note that they were paid handsomely at the time of this learning process, so that the cost of this education is minor. I don't think the cost of effort has anything to do with exec's high salaries. Many people, including unskilled gardeners, work much harder than top execs and get paid less. More importantly, the top execs are the type of people who really enjoy their jobs, including the effort. Wielding power is pleasureable, as is wheeling and dealing, hanging out with similar sorts with similar tastes, flying on executive airplanes, drinking executive Scotch, etc. (much of which, BTW, is deductible from the corporate income tax because it's a cost of doing business and not
[PEN-L:11202] Re: Rent question
Wojtek writes: > > >Is executive salary, or a part of it, rent from an economic point of view? > >And if so, how can the rent component in that salary be determined? > > > >I'm asking this question because a mainstream economist I'm working with > >argued that exec's salary can actually reflect the exec's worth (i.e. what > >he, rarely she, produces). Since the productivity of an exec (or for that > >matter, any white collar worker) cannot be directly measured -- how can such > >a position be intelligently rebutted? > > These are two separate questions: that is, an executive could be paid an > amount equal to something that might plausibly be construed as his or her > marginal product, and yet still be earning (lots of) economic rent. I'd say > that conditions in executive labor markets, particular in the US, are such > that many or most executives earn economic rent, whether or not they're paid > the value of their marginal product. > > Details: > > 1) By its nature, executive labor is more or less a fixed-coefficient input > in the production process. This is especially the case for _chief_ > executive officers---once you've got 1 of them, the value of any more > plunges dramatically. An immediate consequence is that "marginal > productivity" of the executive has to be interpreted with care, since beyond > a given point (in the case of CEOs, that point presumably = one person) the > relevant derivative simply doesn't exist. > > Therefore "marginal productivity" has to be understood in a discrete sense, > as the difference in (discounted average) firm profits with and without the > services of a given CEO. Whether or not a given CEO receives this amount > depends primarily on the long-run elasticity of demand for CEO > services--which depends in turn on the long-run supply elasticity of firms, > or less vaguely, stockholders and other firm types of firm owners. CEOs are > guaranteed to receive their full marginal product, defined in the above > sense, only if this elasticity is infinite. In this case Keynes is probably > right--in the "long run" required for this prediction to hold, we're all dead. > > 2) But nothing in (1) determines whether executives earn economic rents, > since the latter has to do with conditions of market supply *relative to* > market demand. Executives will earn economic rents even given "price-taking" > behavior if they are on the "short side" of the market--i.e., the supply of > executives hits its limit before the demand for executive services does. > Alternatively, and maybe more plausibly, executives will receive economic > rent if they are difficult for firms to find and/or replace, and > consequently enjoy bargaining power in their negotiations with firms that > hire them. > > Thus, to guarantee that executives receive no economic rent, you'd have to > be sure that a) they enjoy no bargaining power vis-a-vis firms, and b) the > (long-run) supply of executives is infinitely elastic at the zero-rent wage > (and all CEOs are alike, so that all face zero rents if any one does). > > So the claim that executives do not typically receive rents depends on > pretty strenuous conditions. How to prove that they in fact receive rents? > Ask first who has proved that they receive _no_ rents--I'd love to see the > study claiming to do this. As a first pass, the evidence that executive pay > _does not_ vary predictably with firm profitability argues against the > relevance of marginal productivity theory in markets for executive labor > power, since the marginal product of an executive, especially the chief > executive, is best thought of in terms of differences in profitability > flowing from the presence of that input. > > To address the issue of economic rent directly, you could provide evidence > for the existence of mobility barriers in the market for executive labor > power, but this is easier said than done. You might look at Dickens and > Lang's articles supporting "dual labor market" theory for clues on how to > proceed on this issue. > > In solidarity, Gil Skillman > Hi Gil, Hope you are doing well. Really, this whole marginal productivity theory is like not- soelegantly quantified Calvinism. Instead of the Calvinist notion of pre-destination and wealth is the sign of being in "God's grace"(and poverty means God has it in for you), here we have some meaningless yet very pernicious tautologies. Here we have you are rich because you are paid (in the long-run) according to your MRP (Factor Suppy and elasticity of Supply assumed "given") and your MRP (MP x MR) is high relative to the MRPs of those who are poor (who have low MPs and/or produce products/services that command low MRs). Karl Meninger once said: A neurotic is one who builds castles in the sky, the neurotic is the one who moves in--and the shrink collects the rent." In the case of neoclassical theory (in my opinion the AIDS of economics), and especially in the case of marginal
[PEN-L:11201] Re: Rent question
Wojtek writes: >Is executive salary, or a part of it, rent from an economic point of view? >And if so, how can the rent component in that salary be determined? > >I'm asking this question because a mainstream economist I'm working with >argued that exec's salary can actually reflect the exec's worth (i.e. what >he, rarely she, produces). Since the productivity of an exec (or for that >matter, any white collar worker) cannot be directly measured -- how can such >a position be intelligently rebutted? These are two separate questions: that is, an executive could be paid an amount equal to something that might plausibly be construed as his or her marginal product, and yet still be earning (lots of) economic rent. I'd say that conditions in executive labor markets, particular in the US, are such that many or most executives earn economic rent, whether or not they're paid the value of their marginal product. Details: 1) By its nature, executive labor is more or less a fixed-coefficient input in the production process. This is especially the case for _chief_ executive officers---once you've got 1 of them, the value of any more plunges dramatically. An immediate consequence is that "marginal productivity" of the executive has to be interpreted with care, since beyond a given point (in the case of CEOs, that point presumably = one person) the relevant derivative simply doesn't exist. Therefore "marginal productivity" has to be understood in a discrete sense, as the difference in (discounted average) firm profits with and without the services of a given CEO. Whether or not a given CEO receives this amount depends primarily on the long-run elasticity of demand for CEO services--which depends in turn on the long-run supply elasticity of firms, or less vaguely, stockholders and other firm types of firm owners. CEOs are guaranteed to receive their full marginal product, defined in the above sense, only if this elasticity is infinite. In this case Keynes is probably right--in the "long run" required for this prediction to hold, we're all dead. 2) But nothing in (1) determines whether executives earn economic rents, since the latter has to do with conditions of market supply *relative to* market demand. Executives will earn economic rents even given "price-taking" behavior if they are on the "short side" of the market--i.e., the supply of executives hits its limit before the demand for executive services does. Alternatively, and maybe more plausibly, executives will receive economic rent if they are difficult for firms to find and/or replace, and consequently enjoy bargaining power in their negotiations with firms that hire them. Thus, to guarantee that executives receive no economic rent, you'd have to be sure that a) they enjoy no bargaining power vis-a-vis firms, and b) the (long-run) supply of executives is infinitely elastic at the zero-rent wage (and all CEOs are alike, so that all face zero rents if any one does). So the claim that executives do not typically receive rents depends on pretty strenuous conditions. How to prove that they in fact receive rents? Ask first who has proved that they receive _no_ rents--I'd love to see the study claiming to do this. As a first pass, the evidence that executive pay _does not_ vary predictably with firm profitability argues against the relevance of marginal productivity theory in markets for executive labor power, since the marginal product of an executive, especially the chief executive, is best thought of in terms of differences in profitability flowing from the presence of that input. To address the issue of economic rent directly, you could provide evidence for the existence of mobility barriers in the market for executive labor power, but this is easier said than done. You might look at Dickens and Lang's articles supporting "dual labor market" theory for clues on how to proceed on this issue. In solidarity, Gil Skillman
[PEN-L:11200] Jean-Luc Godard's "Contempt"
Carlo Ponti and Joseph E. Levine, the producers of Jean-Luc Godard's "Contempt", were eager to make a commercial film that would appeal to a broad audience, while simultaneously exploiting their "edgy" young director's notoriety. They were interested in a "product" that would sell both in art-houses and in shopping malls. Godard resisted them every step of the way and turned the film itself into a brilliant satire on Hollywood stupidity and greed, including the bottom-line mentality of his producers. "Contempt" is about the making of a new version of Homer's Odyssey. A crude and venal American producer named Jerry Prokosch (Jack Palance) has arrived in Rome to assemble a crew that can realize his new vision of the epic. While the director Fritz Lang--played brilliantly by himself--wants to film ancient Greek sculptures of the gods to accompany the action, Prokosch dictates that there should be nude mermaids instead. Joseph E. Levine himself had achieved some success in Hollywood making trashy versions of Greek and Roman myths. These inevitably featured body-builders playing gods and heroes, scantily dressed actresses and the most ridiculous sorts of plots. The analogy between Prokosch's vision of the Odyssey and the producer's prior efforts could not have been lost on Levine. Tensions ran high on the set of "Contempt", according to press reports of the time. Prokosch hires a young novelist and Communist Party member Paul Javel (Michel Piccoli) to crank out a screenplay that would cater to popular tastes. Javel is only too happy to please the Hollywood producer who can pay him the money he needs to finish the work on his new apartment. In the opening scenes of the film we observe Paul making love to his wife Camille played by Bridgette Bardot in their bedroom. She asks him "Do you think my feet are beautiful?" and the camera pans in on her feet. As she repeats the question about her thighs, breasts and buttocks, the camera dutifully and clinically pans in on each body part. The scene is studiously anti-erotic. Just as Prokosch instructed Lang to include plenty of nude mermaids, Levine and Ponti had urged Godard to show the sex-goddess Bardot unclothed. It was good for the box-office they told him. Godard, ever the rebel, gave them the nudity they wanted but made it so antiseptic as to subvert their intentions. In a long scene that constitutes the entire middle section of the film, Paul and Camille have a marital squabble that leads to their separation. Paul believes that sexual jealousy has sparked the fight. In the preceding scene, Prokosch has made a play for Camille while she has caught him in the act of fondling Prokosch's beautiful young assistant. But it is not sexual jealousy that is the cause of their estrangement. It is rather her loss of respect for him as an artist. The film gives Godard plenty of opportunity to take knocks at the Carlo Pontis and Joseph E. Levines of the world. Prokosch tells his screen-writer Paul and his director Fritz Lang that "Whenever I hear the word 'culture,', I reach for my checkbook." This is an allusion to Nazi culture minister Joseph Goebbels' famous remark about hearing the word "culture" and reaching for his gun. The background to this is interesting since Joseph Goebbels offered Lang the job of supervising German film production in 1933. He responded by fleeing into exile--a choice (and true story) that Godard relates in the film. For Godard, the comparison between Hollywood and Nazi Germany is of real significance. In 1963, when the film was made, the United States had not only achieved global economic and military dominance, it also had begun to enforce its cultural standards on the rest of the world as well. Godard had become disillusioned by the crisis facing both the American and European film industries. The American studio system was collapsing and could no longer support the creative vision of "auteurs" like John Ford or Howard Hawks who had strongly influenced French "nouvelle vague" criticism and film-making. Godard's had a love-hate relationship for American popular culture. Although he clearly despised the sort of commercialism that Joseph E. Levine represented, there were continual reminders of his affection for its icons. Paul Javel wears a fedora and smokes cigarettes during the entire film, even while bathing, because as he tells his wife, he wants to look like Dean Martin in "Some Came Running". Godard even considered casting Frank Sinatra and Kim Novak in the roles of Paul and Camille at one point. His hatred was toward the moguls in Hollywood, not working professionals like himself. "Contempt", above all, is a film about irony. The irony of a Communist screen-writer turning out commercial schlock. The irony of his sex kitten wife Camille rejecting him for his failure as an artist rather than as a lover. Perhaps the least ironic figure in the film is Fritz Lang himself who Godard had a deep respect for. The fact that Lang's heroic period
[PEN-L:11199] Re: imperialist competition?
On Mon, 7 Jul 1997, Terrence Mc Donough wrote: > Competitiveness is also effective in that it provides an umbrella for > two different strategies. One is Jim D's competitive austerity of > which the U.S. and Britain are the exemplars. [Indeed, it would not > be inaccurate to describe it as the Anglo-Saxon Strategy.] The other > promotes competitiveness through the control of monopolized markets, > technology and scarce skills. This is the so-called "high > productivity" strategy. The proceeds of a successful implementation > of this strategy are to be divided between capital, labor and social > services. It hopes this income will maintain local demand. This > might be labelled the Continental Strategy. The problem is not that > this strategy cannot work (it's working very well in Ireland at the > moment) but that it requires extraordinary luck to remain at the > cutting edge of technology and skills. Sooner or later the high > productivity economy is overtaken by competition and the austerity > strategy imposed. Terrence previously noted he no longer agreed that NAFTA and EU were blocks of imperialist competition (my words here). Can the two strategies described above not qualify as the form this competition takes (in part)? James Devine suggests there are tendencies towards a world state. I think it is important to keep eyes fixed on the very real rivalries that dominate even the most advanced prototype, the EU. Can any of the major countries (UK, France, Germany) accept a real common currency without blowing up? I doubt it. They have not even been able to meet their own deficit schedules, and this in good times. As for the position of smaller powers, whether in Europe or, e.g. Canada, NZ, if we don't draw a basic line between imperialist status and imperialized status *before* considering relative vulnerabilities within the former group I think we have given up the most important point Lenin ever made. Terrence rightly noted this discussion was occuring in terms of metropole powers, and this is its major flaw, in my opinion. US hegemony partially functioned during the long post WW2 boom; those days are over. The military fact of the USSR blunted open rivalry between imperialist powers for awhile, but its (partial) demise opens more room for fighting over profit potentials. We're leaving off the economy from political economy if we don't connect this to the wars happening, including Iraq and intervention in Yugoslavia. Bill Burgess
[PEN-L:11198] Rent question
Is executive salary, or a part of it, rent from an economic point of view? And if so, how can the rent component in that salary be determined? I'm asking this question because a mainstream economist I'm working with argued that exec's salary can actually reflect the exec's worth (i.e. what he, rarely she, produces). Since the productivity of an exec (or for that matter, any white collar worker) cannot be directly measured -- how can such a position be intelligently rebutted? regards, wojtek sokolowski institute for policy studies johns hopkins university baltimore, md 21218 [EMAIL PROTECTED] voice: (410) 516-4056 fax: (410) 516-8233
[PEN-L:11197] Re: interimperialist rivalries (IV)
In his famous speech to the U.N. >on the ugly machinations of U.S. Imperialism, the Defense Minister >Krishna Menon (friend of both Nehru and Chou En-Lai) alluded to the >behind-the-scenes machinations going on of which India was an >unwilling participant (the slogan in India right before the border >war was "Hindi-Chini Pai Pai". ___ I thought the slogan was "Hindi-Chini Bhai Bhai". Bhai, of course, means brother in hindi. Does "Pai" means brother in Malyalum Jim? Cheers, ajit sinha Response: No, ajit you are correct. I simply turned the "Bh" sound into a closer phonetic equivalent in English; sorry about that, but for those who have not heard Hindi spoken I thought the "p" would get them closer to how the slogan would sound in Hindi. In Malayalam, for the unfamiliar or non-family-related "brother", Bhai-Ji is also commonly used (not as much resistance to Hindi in Kerala as in Madras). Thanks for the correction. Jim *--* * James Craven * " For those who have fought for it, * * Dept of Economics* freedom has a taste the protected * * Clark College* will never know." * * 1800 E. McLoughlin Blvd. *Otto von Bismark * * Vancouver, Wa. 98663 * * * (360) 992-2283 * * * [EMAIL PROTECTED]* * * MY EMPLOYER HAS NO ASSOCIATION WITH MY PRIVATE/PROTECTED OPINION *
[PEN-L:11196] Henwood speaks: DC
Comrades in the Washington area: I'll be at Vertigo Books tonight, Tuesday, at 6 PM, in the latest stop in my self-promotional tour. If you don't care, please ignore this. Doug
