RE: Re: Re: Re: Re: Stupid profit rate question
My brother use to work for government lab. They developed some kind of communications technology that was then to be commercialized by one of the big defense companies. DOD instituted a new program allowing the research labs to bid against the defense companies to do the actualy production. My brother's unit successfully bid and got the job. This is when the problems started. The technology was a small piece of a larger unit produced by the defense company. The company began a campaign of villification against the government unit (through Congressional and Pentagon contacts) and also stone-walled on any collaboration that was crucial to make the products work together. They were also many months behind schedule in doing there part of the job while my brother's unit was on schedule and below cost. I see similar things in my area of health research; e.g. our most efficient activities are in-house government production, next is contracting-out where we have direct over-sight, next is cooperative agreements where we play a partnership role with grant-funded research, last is unrestricted grant-funded research. The latter is 80% of the NIH activities because it is claimed that this is the best way to get innovative science done. -Original Message- From: Michael Perelman [mailto:[EMAIL PROTECTED]] Sent: Tuesday, December 11, 2001 11:17 PM To: [EMAIL PROTECTED] Subject: [PEN-L:20588] Re: Re: Re: Re: Stupid profit rate question I was not advocating contracting out. I only mentioned it because Max suggested difficulties of running a production unit. On Tue, Dec 11, 2001 at 10:45:32PM -0500, Max B. Sawicky wrote: 12/11/01 8:43:48 PM, William S. Lear [EMAIL PROTECTED] wrote: On Tuesday, December 11, 2001 at 18:04:18 (- 0500) Max Sawicky writes: The Gov would have to organize a competitive bidding system, . . . Why have bidding? Why not just set up a public company that hires staff to run things. The board would be publicly accountable. mbs: fine but that's a different animal -- a public enterprise, the same as nationalization. Perelman was talking about contracting out. Perhaps simply owning the intellectual property of the company and having companies freely use it to produce things (with strings, of course) would be the best. No need for contracts, competitive bids. mbs: the intellectual prop is most appropriate for public ownership. the commodity-type manufacture lends itself to contracting, though even so you need a fairly sophisticated arrangement to get the best deal. All the fuss about the vacinnation contracts indicates some of the sort of problems that can come up. Gov wants the cheapest price, but in a decreasing cost context this favors the big boys. Little boys complain, others point out using a sole source has other risks, thin market means few bidders and questions about whether the lowest costs are attained, political interference, etc. etc. play unless you pay us handsome profits? This is where a public company (really, industry) would come in handy. mbs: agreed. even pro-privatization types of the more sophisticated sort say the Gov should always reserve part of production to a public entity that can be ramped up if the contractors screw up. problem here is in a perceived emergency there isn't time to start up a new govt enterprise, especially in an era when ideology says if you can find it in the Yellow Pages, you don't need public employees and agencies. I'm not exaggerating. This is literally a test used in Washington to evaluate the potential for privatization. Talk about the Stone Age. mbs -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
RE: Re: Re: Stupid profit rate question
Sorry if I misinterpreted. I agree that corporate influence is an eternal problem, but it is the least interesting one analytically. Even if without any such influence, there is an intrinsic problem of contracting in some areas simply because running a contract system has costs, both government and vendors are self-interested, and some public services are too complicated or too risky for contracting to be feasible. You could have the same sort of problems if a socialist Gov was dealing with an independent cooperative and nobody except the Gov owned capital. mbs Max, I never intended to implement contracting out would be easy. You gave a number of examples of government screw-ups. Won't they be almost inevitable so long as the government is permeated with corporate influence? Max B. Sawicky wrote: MP suggested contracting was an easy alternative, tho he didn't advocate it. I said it isn't easy. --- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
RE: RE: Re: Re: Stupid profit rate question
I agree from my experience. People may or may not be aware that Bush's head of OMB, Mitchell Daniels, is aggressively promoting increased levels of contracting out, including substituting contracted out professionals to replace government career individuals. -Original Message- From: Max Sawicky [mailto:[EMAIL PROTECTED]] Sent: Wednesday, December 12, 2001 3:38 PM To: [EMAIL PROTECTED] Subject: [PEN-L:20611] RE: Re: Re: Stupid profit rate question Sorry if I misinterpreted. I agree that corporate influence is an eternal problem, but it is the least interesting one analytically. Even if without any such influence, there is an intrinsic problem of contracting in some areas simply because running a contract system has costs, both government and vendors are self-interested, and some public services are too complicated or too risky for contracting to be feasible. You could have the same sort of problems if a socialist Gov was dealing with an independent cooperative and nobody except the Gov owned capital. mbs Max, I never intended to implement contracting out would be easy. You gave a number of examples of government screw-ups. Won't they be almost inevitable so long as the government is permeated with corporate influence? Max B. Sawicky wrote: MP suggested contracting was an easy alternative, tho he didn't advocate it. I said it isn't easy. --- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: RE: Re: Stupid profit rate question
- Original Message - From: Max Sawicky [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Tuesday, December 11, 2001 3:04 PM Subject: [PEN-L:20575] RE: Re: Stupid profit rate question The Gov would have to organize a competitive bidding system, evaluate contract proposals, monitor contract compliance, enforce contracts, and have substitutes (possibly itself) in the event of non-performance. It ain't like ordering pizza. Taxing is definitely easier. Yup, just look at the Pentagon system. If the Gov is renting capital and paying managers what they could earn in alternative employment, the extent of remaining surplus that it has 'nationalized' is in some doubt. In the pharmaceuticals case, it would might own patents and collect rents they earn. But where would it get the patents? What's really in question is the ownership of the research, not the manufacturing. The latter lends itself to contracting, with above caveats, whereas the production of patents is an excellent candidate for public ownership, as Dean Baker has written. -- mbs The Feds have title to some 2.5million + patents that have been funded by taxpayers. The technology transfer system it has in place is a great big giveaway right now. So looking at the Pentagon mess and learning it's mistakes might go some way in figuring out how to create a system for picking who shall lease the patents from the research. Criteria chosen could be used to make firms more worker friendly, greater openness of books to community etc., in short to start seriously tinkering with corporate governance along the lines of Pagano, Putterman and others who've thought long and hard about the issues. To the extent start-ups or small-medium firms have problems getting credit in order to competitively bid, they could tell the Feds and the Feds could start negotiating substantive issues with creditors. This of course means the Feds would have to be a completely different Government than the one we're stuck with now as it's far easier for the Republicrats to continue with the current system as it keeps their own revenue stream intact from the Fortune 500... Ian
Re: Re: Re: Stupid profit rate question
12/11/01 8:43:48 PM, William S. Lear [EMAIL PROTECTED] wrote: On Tuesday, December 11, 2001 at 18:04:18 (- 0500) Max Sawicky writes: The Gov would have to organize a competitive bidding system, . . . Why have bidding? Why not just set up a public company that hires staff to run things. The board would be publicly accountable. mbs: fine but that's a different animal -- a public enterprise, the same as nationalization. Perelman was talking about contracting out. Perhaps simply owning the intellectual property of the company and having companies freely use it to produce things (with strings, of course) would be the best. No need for contracts, competitive bids. mbs: the intellectual prop is most appropriate for public ownership. the commodity-type manufacture lends itself to contracting, though even so you need a fairly sophisticated arrangement to get the best deal. All the fuss about the vacinnation contracts indicates some of the sort of problems that can come up. Gov wants the cheapest price, but in a decreasing cost context this favors the big boys. Little boys complain, others point out using a sole source has other risks, thin market means few bidders and questions about whether the lowest costs are attained, political interference, etc. etc. play unless you pay us handsome profits? This is where a public company (really, industry) would come in handy. mbs: agreed. even pro-privatization types of the more sophisticated sort say the Gov should always reserve part of production to a public entity that can be ramped up if the contractors screw up. problem here is in a perceived emergency there isn't time to start up a new govt enterprise, especially in an era when ideology says if you can find it in the Yellow Pages, you don't need public employees and agencies. I'm not exaggerating. This is literally a test used in Washington to evaluate the potential for privatization. Talk about the Stone Age. mbs
Re: Re: Re: Stupid profit rate question
The first year, that would be the profit rate. God knows what the profit rate should be the second year. What is the depreciation rate? How is it affected by the business cycle? On Mon, Dec 10, 2001 at 07:18:45PM -0600, William S. Lear wrote: On Monday, December 10, 2001 at 16:03:05 (-0800) Devine, James writes: How does one calculate the profit rate for a given unit cost? I'm assuming it is: 100% * ((profit - unit cost) / unit cost) Is this correct? If you replace profit with price per unit, that's more like a profit margin. Yes, stupid typo for a stupid question. The formula should be: 100% * ((price per unit - unit cost) / unit cost) a profit _rate_ would measure total profit [(price - unit cost) times the number of units sold] as a percentage of capital invested. OK, so profit margin is, as above: 100% * ((price per unit - unit cost) / unit cost) and profit rate is: 100% * ((price per unit - unit cost) * units sold) / invested capital ? So, if I sell 100 widgets that cost 2 cents to make at 1 dollar a piece, and if I had to spend ten thousand dollars to set up the plant to do the work, the profit rate would be: 100% * ((1.00 - .02) * 100) / 1 or .98 percent, while the profit margin would be (again), 4,900%? Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Stupid profit rate question
The answer -- and which of these you want to look at -- depends on the amount of capital per unit of sale. For example, supermarkets are always touting the claim that they make only 1% or 2% on sales. But what do they make on capital? Somewhere upwards of 15 or 20 or 25% or more? Other industries might have substantially more investment per unit of sales -- they would point in the opposite direction --- i. e. a low profit rate, while perhaps earning a high profit margin. Gene Coyle William S. Lear wrote: On Monday, December 10, 2001 at 16:15:35 (-0800) Michael Perelman writes: Jim is right. What is the cost per unit? Does it include the depreciation of durable plant and equipment? If so, the invested value of the durable plant and equipment would be in the denominator. Because economists and accountants have no realistic way of putting a value on durable equipment, profit ratios are often questionable. So, using profit ratios (profit *rate*, or profit *margin*) is not a good way to view how competitive a market is? Bill
Re: Re: Re: Stupid profit rate question
Bill, turnover rates are an important factor. If a supermarket sells a loaf of bread each day. The bread costs $1 and it sells for $1.01. But it makes $3.65 per year on the bread. On Mon, Dec 10, 2001 at 07:20:42PM -0600, William S. Lear wrote: On Monday, December 10, 2001 at 16:15:35 (-0800) Michael Perelman writes: Jim is right. What is the cost per unit? Does it include the depreciation of durable plant and equipment? If so, the invested value of the durable plant and equipment would be in the denominator. Because economists and accountants have no realistic way of putting a value on durable equipment, profit ratios are often questionable. So, using profit ratios (profit *rate*, or profit *margin*) is not a good way to view how competitive a market is? Bill -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: Re: Re: Stupid profit rate question
Yes, the criterium that you suggest is appropriate, but mark-ups can be misleading. William S. Lear wrote: I guess I should say that what I'm interested in is a measure of which markets are good candidates for public investment. It seems that if you have high profit *margins*, low unit costs, and high capital investment costs (as with drugs), the public would win big-time --- of course in more ways than one --- by paying the investment costs. I'm just wondering with which markets we should start our program of public ownership. Bill -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: Re: Re: Stupid profit rate question
Title: Re: [PEN-L:20537] Re: Re: Stupid profit rate question Bill wrote On Monday, December 10, 2001 at 17:31:20 (-0800) Michael Perelman writes: Bill, turnover rates are an important factor. If a supermarket sells a loaf of bread each day. The bread costs $1 and it sells for $1.01. But it makes $3.65 per year on the bread. I guess I should say that what I'm interested in is a measure of which markets are good candidates for public investment. Though Mattick Sr was interested in a different facet of so called public investments, I thought that I would mention his argument that debt or tax financed public expenditures are not in fact *investments* (that is, a moment in the valorization of capital) but rather hidden state appropriations that over time diminish, rather than enlargen, the sum of surplus value. Here are a couple of quotes: The government increases effective demand through purchases from private industry, either financed with tax money or by borrowings on the capital market. In so far as it finances its expenditures with tax money, it merely transfers money made in the private sector to the public sector, which may change the character of production to some extent but does not necessarily enlarge it. If the government borrows money in the capital market, it can increase production through its purchases. Capital exists either in liquid form, i.e. as money, or in fixed form, that is, as means and materials of production. The money borrowed by government puts productive resources to work. These resources are private property, which, in order to function as capital, must be reproduced and enlarged. Depreciation charges and profits gained in the course of government-contracted production--are 'realized' out of money borrowed by the government. but this money, too, is private property--on loan to the government at a certain rate of interest. Production is thus increased, the expense of which piles U.S. as government indebtedness. To pay off its debts and the interest on them, the government has to use tax money, or make new borrowings. The expense of additional, government contracted production thus carried by private capital, even though it is distributed over the whole of society and over a long period of time. In other words, the products which the government 'purchases' are not really purchased, but given to the government free, for the government has nothing to give in return but its credit standing, which in turn has no other base than the government taxing power and its ability to increase the supply of credit money. We will not enter here into the intricacies of this rather complex process, for, however, the credit expansion is brought about and however it is dealt with in the course of expanding government-induced production, one thing is clear, namely, that the national debt, and the interest on it, cannot be honored save as a reduction of current and future income generated in the private sector of the economy... Because government induced production is itself a sign of a declining rate of capital formation in the traditional sense, it cannot be expected to serve as the vehicle of private capital expansion effective enough to assure conditions of full employment and general prosperity. It rather turns into an obstacle into such expansion, as the demands of government on the economy, and old and new claims on the government, divert an increasing part of the newly produced profit from its capitalization to private account. Of course, claims on the government, which make up the national debt, can be repudiated, and 'profits' made via government induced production are thus revealed for they actually are, namely, imaginary profits. Mattick also wrote: The money capital utilized by the government is not invested as capital and so preserved but disappears into ìpublic consumption.î If the state debt is ever paid off--which may well not happen--it can only be paid out of new surplus value freshly created in production. And this would in no way alter the fact that the surplus value represented in the national debt has vanished without a trace instead of adding its volume to the accumulation of capital. It follows that the stateís use of increased public spending to fight crisis ends by consuming capital. This consumption of capital appears as a growth of production and employment, but due to its unprofitable character, it is no longer capitalist production and really amounts to a hidden form of expropriation by the state. The state uses the money of one group of capitalists to buy the production of another group, with the intention of satisfying both groups by assuring for one the interest on and for the other the profitability of its capital. But the incomes that appear here as interest and profit can only be paid out of the total social surplus value actually produced, even if the reckoning can be deferred. As a result, from the standpoint of the system as a whole the
RE: Re: Re: Stupid profit rate question
Don't own; just tax. Fewer headaches. -- mbs I'm just wondering with which markets we should start our program of public ownership. Bill
Re: Re: Re: Re: Stupid profit rate question
Bill, go for the big drug take-over!!! Years ago Wassily Leontief (Nobelist?) took up a question in the Harvard Law Review -- whether the government ought to get the patents from research done with public money -- and concluded that it should. On Assignment of Patent Rights on inventions made under government contracts, Harvard Law Review, Vol 77, No. 3, January 1964. Reprinted in Essays in Economics: Theories and Theorizing. Oxford Univ Press 1966. A much better analysis than that Jackson Hole thing by Summers and DeLong that Ian put us on to a while back. Gene Coyle Michael Perelman wrote: Yes, the criterium that you suggest is appropriate, but mark-ups can be misleading. William S. Lear wrote: I guess I should say that what I'm interested in is a measure of which markets are good candidates for public investment. It seems that if you have high profit *margins*, low unit costs, and high capital investment costs (as with drugs), the public would win big-time --- of course in more ways than one --- by paying the investment costs. I'm just wondering with which markets we should start our program of public ownership. Bill -- Michael Perelman Economics Department California State University [EMAIL PROTECTED] Chico, CA 95929 530-898-5321 fax 530-898-5901
Re: Re: Re: Re: Re: Stupid profit rate question
- Original Message - From: Eugene Coyle [EMAIL PROTECTED] Bill, go for the big drug take-over!!! Years ago Wassily Leontief (Nobelist?) took up a question in the Harvard Law Review -- whether the government ought to get the patents from research done with public money -- and concluded that it should. On Assignment of Patent Rights on inventions made under government contracts, Harvard Law Review, Vol 77, No. 3, January 1964. Reprinted in Essays in Economics: Theories and Theorizing. Oxford Univ Press 1966. A much better analysis than that Jackson Hole thing by Summers and DeLong that Ian put us on to a while back. Gene Coyle === Well it's one thing to assign the patent rights to the state and a *big* mess in terms of constructing contracts/incentives to insure the patents are turned into products that are capable of securing a growing stream of revenue to the public coffers. It will take a long time to undo the mischief Bayh-Dole has created. Right now, Livermore labs alone has stuff in the RD pipeline that will be worth billions in the future yet the US has legislation on the books that will make the stuff as easy to grab as mineral rights under the 1872 mining law. I queried Brad on the philosophical justifications for the origins of property rights after looking at his paper. All he said was that he didn't like the Lockean paradigm.even though his paper reeks of it. At the same time there has been some interesting lefty stuff on property rights that has relevance to these kinds of issues. I'll just list one below folks might be interested in. Entitlement by Joseph William Singer In this important work of legal, political, and moral theory, Joseph William Singer offers a controversial new view of property and the entitlements and obligations of its owners. Singer argues against the conventional understanding that owners have the right to control their property as they see fit, with few limitations by government. Instead, property should be understood as a mode of organizing social relations, he says, and he explains the potent consequences of this idea. Singer focuses on the ways in which property law reflects and shapes social relationships. He contends that property is a matter not of right but of entitlement--and entitlement, in Singer's work, is a complex accommodation of mutual claims. Property requires regulation--property is a system and not just an individual entitlement, and the system must support a form of social life that spreads wealth, promotes liberty, avoids undue concentration of power, and furthers justice. The author argues that owners have not only rights but obligations as well--to other owners, to nonowners, and to the community as a whole. Those obligations ensure that property rights function to shape social relationships in ways that are both just and defensible. The appearance of a book on property law from Singer--one of the most interesting and provocative legal theorists now writing on the subject--is an event of some importance, and this book lives up to expectations.--James Boyle, Duke Law School Joseph William Singer is professor of law at Harvard Law School.
