23 Mart 2012 Cuma

Coercive Competition, Financialization and Labor Relations of the Post-1980 Period

Introduction

Since 1980, capitalism have experienced a dramatic change in its dynamics. Rise of the finance, ascent of neoliberalism and the spread of the globalization into the social structure were both come into the picture in that period. On the other hand, although, wage increases have interrupted or nearly decelerated in post-1980 era; the technological developments have increased, the productivity of labor have increased, the financial assets and the financial incomes have escalated, and the profit rates have drawn a stable or somewhat an upward movement rather than its falling rates of the 1950-1982 period. Also, despite the inequality and poverty were increasing, the balance sheet of the privileged capitals were expanding. For example, the U.N. 1997 Human Development Report pointed that ''More than a quarter of the developing world's people still live in poverty...About a third-1.3 billion people-live on incomes of less than $1 a day...and in industrial countries more than 100 million people live below the income poverty line''. These conditions continued more dramatically in its 1999 report: ''The income gap between the fifth of the world's people living in the richest countries and the fifth in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990, and 30 to 1 in 1960...By the late 1990s, the fifth of the world's people living in the highest-income countries had a %86 of the world GDP [output]-the bottom fifth just %1''. Also, in the light of these conditions, the total outstanding household indebtedness ratio have increased as a percentage of disposable personal income, however, the hourly earning did not increase too much as the change in indebtedness (Crotty, 2002). Along with these facts, the financialization has placed as a new dominant factor in economic and social relations. Thus the size and the power of the financial institutions, financial markets and its activities have significantly increased. These conditions offer so many important clues to understand the aim of the neoliberal development and the capital movement in that era. In general, the real wages have fallen, the indebtedness against the households has increased, the gap between rich and poor has widened in favor of rich, the inequality ratio has expanded, the unionization has limited and approximately 1.3 billion people were pushed to the poverty and misery. As it will be mentioned in article, the capitalism together with its neoliberal policies have curbed the falling rate of profit, the growth of finance have gone together by indebted the households and addicted itself, the gap between productivity of labor and wage ratio have widened and a reserve army of labor have made up at the expense of labor.

After three decades of coming into existence of neoliberalism, it can be now argued that its benefit is not the benefit of the majority of people. Briefly, the structure of neoliberalism depends on four basic processes which are deregulation, liberalization of the labor markets, privatization of the public structure and the abolishment of the barriers for trade for the economic integration. Also, the government interference has abolished in the neoliberal era, so that the global integrated economy would work efficiently. In its economic part, the interest rates would be determined in efficient markets, inflation would become the main issue for macro policies and there would be no excess supply because each supply would create its own demand. In other words, Say's Law would be operated perfectly in the neoliberal era. With liberalized markets, the output level would be increased and the productivity growth would be assured in developing countries. Moreover, these developments would bring average real GDP growth in all over the world and the divergence of income ratios and inequalities and poverty would be diminished. However, besides these foresights, the figure of capitalist development in common with the neoliberal policies did not move along in this way. According to Crotty (2000), the global income has slowed, the rate of growth of capital accumulation and productivity growth has deteriorated, real wage ratio has declined, inequality has risen in most countries and average unemployment rate has risen in the neoliberal era. Moreover, the average interest rate was %1.6 between 1959-1982 period but increased to %4.2 in average between 1982-2008. In that point, briefly, I want to explain the importance of real interest rates for that period of time. In my opinion, these high real interest rates have caused three consequences. First of all, because of these high real interest rate, the role of the finance have caused to increase the assets values and incomes. Secondly, the level of investment for developing countries have diminished in favor of developed countries. They have created a trade opportunity at the cost of developing countries. Finally, it has increased the income inequalities because income transfers from workers who have borrowed with high interest rates, to finance who have achieved high returns. On the other hand, increasing level of unemployment was another crucial indicator for post-1980 feature. For example, according to OECD ''Economic Outlook'' of 2009; the unemployment rate was %3.2 in 1960-73, %5 in 1973-79 but increased to %7.2 in 1979-1989 and %7.1 between 1989-95.

All in all, the paper handles four basic issues of post-1980 which are the decline in growth ratios, ascent of financialization, increase of coercive competition and low but stable profit rates. However, the aggravation of labor conditions are made up the basic factor of the center of these four issues. In other words, I think that the most crucial feature of the post-1980 is the change of labor relations in favor of the capitalist class. That's why, the arguments about these four issues will be evaluated with the changing role of labor class conditions.

Slowdown of the Growth Rates

The slowdown of the world economic growth is one of the most important issue in the neoliberal era. For Crotty (2000), the main source of slow growth in the global neoliberal regimes is the declining aggregate demand growth. Also, according to Crotty (2000) there are 6 important constraints which lay under the decreasing aggregate demand:

Slow growth of wages and mass consumption

The evolution of the global financial system

Restrictive impact of the pace and the character of global investment on growth

Restrictive fiscal policy

The expanding role of international institutions such as the IMF and World Bank

A severe weakening of East Asian type of models of state-guided development

I want to stress two of them which are slow growth of wages and mass consumption and restrictive impact of the pace and the character of global investment on growth. First of all, together with the impacts of the slow growth of wages and the mass consumption on aggregate demand, I see this situation as an important cause of the run up of the finance and then the rise in the overall rate of indebtedness. High real interest rates and rising debt burdens have constrained corporate and household spending (Crotty, 2002). Also, the decreasing level of wages for households and the productivity decline of corporations have addicted them to the finance capital in the long-run. Furthermore, there was an increasing share of income transfer from borrowers (as the households or corporations) to the lenders ( as banks or the other financial institutions) with a post-1980 high level of real interest rates. These incomes have created a positive impact for the downturn movement of the profit rates because of the facility to find resources for the real sector. In other words, both of the low costs as a result of the wage decreasing and the facility to find resources could be expressed as a restrictive factors to fall in profits.

Apart from these factors, there could exist a conflict between low wages and the aggregate demand: If the resources found easily and this could be proved with the increasing rate in the indebtedness, where was the basic and hidden relation between demand and wage? In my opinion, this issue of fact can be summarized like this: Formerly the reductions of the wages could compensate the paybacks of the debts as took for this reductions. However, rapid rise of real interest rates caused more share of wage to discharge the debts. So, while the households could pay indebtedness with their wage fraction, now the huge part of the wages which have been used for consumption, have made use for the interest paying. Alternatively, for example, they have made use for the payback of the credit card debts in 2000s. The fact that debt created new debts could be indicated as a reason of increasing poverty rates in the post-1980 era. As a result, there was experienced a slowdown in aggregate demand.

Furthermore, the negative effect of the flexibility of labor market have had an important impact on these issues. For example, the deunionization process, weak government support for collective bargaining, using of temporary labor by corporations and cheap workers were some consequences of the flexibility of labor markets. All of these examples have worsened the roots of the above conditions. As a result, although, approving to the downward movement of the aggregate demand, there were also another inverse situations which interrupted the downward movement such as the remove of the barriers for indebtedness together with the deregulation policies.

Secondly, I want to stress on the restrictive impact of the pace and the character of global investment on growth. Crotty (2000) states that ''the growth of investment spending has slowed in neoliberal era due to not only to high real interest rate, but to sluggish aggregate demand growth as well'' and also he adds that ''slow demand growth retards investment, which in turn further slows demand growth in an ongoing multiplier-accelerator process''. Although, I agree that declining investment affects the growth, I think that there come into being a failure of the neoliberal policies in that juncture. As it mentioned above, one of the hinge was the global economic integration of the post-1980 era. Moreover, the low interest rates and tariffs and the remove of quotas would help these development. However, there has been a downward movement of investment spending within the 30 years periods to 2011. Furthermore, this movement has deepen in the current crisis of 2008. The high interest rate is well indicator but I also want to add that 4 different reasons:

Increasing unemployment rates

Increasing competition

High price ratios

Insufficiency of government support

Primarily, the high unemployment rates constitute an important reason for excess capacity. This is also caused either wait as inventories for a following periods and value losses in the products. As a result, it increases the costs in terms of corporations, addicts more to the finance sector, causes lack ability to payback of debts, being a bait to large corporations and finally, in the form of collapse, it adds new unemployed army to the current unemployment. Together with that these are both possible, they are placed as a sub-reasons of slow growth in the neoliberal era.

Secondly, fierce competition also deteriorated the investment. I want to explain it like this: you can not change the fixed capital in the long-run. For this reason, on account of increasing competition in neoliberal regime, it moves down on the wage level to create a cost advantage. However, the paradox begin there: This situation can cause downward movement in the aggregate demand and reduce the investment spending.

Thirdly, the another important characteristic is an increasing rate of monopolization in the neoliberal era. Besides monopolization creates the price advantage by the market control on one's own, it has an inverse impact upon the investment spending in the period of economic crises. Consequently, it engenders a pressure upon the profit rates. To eliminate this pressure or to keep it stable, sometimes monopolies move to a price increases. However, in the period of low real wages and high interest rates, the price increases cause a negative movement on investment and also decreases the growth rates.

Finally, the minimization of the government support in the neoliberal era is another source of the slow growth. For example, instead of the high real interest rates, the income transfers with low rates by government have reduced much relative to pre-1980 process.

The Financialization Process in the Neoliberal Era

The another important feature of the post-1980 period is the financialization and the hegemony of the finance on nonfinancial corporations (NFCs). There is no doubt that the finance has exceeded its limits and it has increased its importance with the rise of neoliberal policies in the post-1980 era. Alongside with the above mentioned things, the financialization have had a great importance on the economy in that period. On the other hand, these things have had a great impact by the increasing rate of finance on the economy. In my opinion, it was clear by the increasing effect of financialization on the corporations. For example, Crotty (2002) offers three stylized facts about the condition of most NFCs in the neoliberal era:

1. First, slow demand growth and more intense competition reduced average NFCs profit rates well below their Golden Age levels.

2. Second, while NFCs investment spending eventually declined, coerced investment delayed the decline and limited extent of its fall.

3. Third, the gap between internal funds and investment in both real and financial assets, forced NFCs into ever-rising indebtedness.

The last part of the third fact presents us an important point for financialization which is ''forced NFCs into ever-rising indebtedness''. So, why have the finance loom large accompanied by the neoliberal policies in this era and why have it become one of the most important feature of post-1980 process? Briefly and simply, I can say that the financialization process was an engendered process for which to restrict the falling rate of profit in the neoliberal regime. For example, according to Orhangazi (2011) and Crotty (2002) that the profit rates before tax revenue points a stable view after a 1982.

Furthermore, it has brought control and hegemony of finance upon the NFCs along with the increasing rate of indebtedness. Finance become a significant tool for non-financial corporations to support both their sales and profits (Orhangazi, 2011). Also, the debt ratio per person have shown a dramatic increase and the large part of the wage have gone to the finance as an interest payment. Total credit market debt of all sectors as percentage of GDP rose dramatically (Crotty, 2002). Corporate and household borrowing raised indebtedness further in the 1990s; by 2001 debt was %280 of GDP, almost double the ratio in the Golden Age (Crotty, 2002). Also, as Orhangazi (2011) states ''While household consumption was increasingly financialized in this era, the relationship between financial markets and nonfinancial corporations also changed significantly''. Furthermore, the rate of financial assets value and the financial income share in the GDP have rised in this period. Moreover, the other prove of the finance hegemony can be found to indicate that profits in financial industries have risen much faster than in NFCs (Crotty, 2002).

Besides these things, the global economic integration in which neoliberalism have aimed in macro level, have expanded by financialization together with the abolishment of capital controls all over the world. That's why, the money flows across countries have risen dramatically in comparison with pre-1980 process. For example, by 1989, it was $590 billion and by 1989, it reached to $1,5 trillion daily flows between countries (Crotty, 2002). Against the pre-1980 policies, neoliberalism have yielded different innovations to support these developments. Also, global financial interests increased their influence over fiscal policy in this era (Crotty, 2002). For example, the debt burden of the government as a percent of GDP have increased, the high unemployment rates have caused the interest payments increase and tax revenues of the government have diminished. Moreover, the control mechanisms of the IMF and World Bank have grown against the developing countries in this neoliberal era. Thus, these institutions have helped to spread the neoliberal policies all over the world. As Crotty (2002) implies that '' the IMF and World Bank took control of policy making in a growing number of developing countries that, having initially opened their financial and product markets to some degree, ended up with serious balance of payments problems that forced to seek IMF and World Bank assistance''.

In these financalization process of the neoliberal era, the another crucial development was the takeover movement. What the 1980s takeover movement did accomplish was to force the financial or portfolio view of the firm on nonfinancial corporations management. They have begun to spread their investment plans to short-time horizon rather than pre-1980 long-time horizon. A shift in the the strategy of large nonfinancial corporations was hence identified as a switch from long-term investment strategies to maximization of short-term financial gains and distribution of earnings to shareholders in the forms of dividends and stock buybacks (Orhangazi, 2011). This shift was also valid for an individuals within a different shape as a stock and equity. For instance, the retention of stock period has reduced to one-year or less. On average, stocks are now held for just one year (Crotty, 2002). In my opinion, the the most noteworthy impact on the time-horizon difference was the increasing destructive/fierce competition. Beginning of the shift in time-horizon difference with the hostile mergers and acquisition movement in the 1970s, it has given a signal of the inception of the finance upon the nonfinancial corporations and thus, it has increased their debt ratios which have taken from the finance sector. The main aim was being a maximization of the shareholder value, so that the maximization of the production aim has resigned to second plan. On the other hand, the stock and equity allocations have expanded, so the liabilities in balance sheet have shown an explosion for some large nonfinancial corporations. That's why it has increased the transfer costs and the rate of indebtedness to the banks and to the other financial institutions. As Orhangazi (2011) states ''takeovers faciliated by financial markets have been effective in breaking labor contracts and forcing wages down''. In that juncture, the reason appears why the indebtedness rate of households have boomed and the reason can explain why the profit rates of the firms have drawn a stable movement. For Palley (2010) and Dumenil and Levy (2004) advance the argument that redirecting income from labor to finance has been a hallmark of the financialization process (Orhangazi, 2011).


As it mentioned above, the slowdown of the income and profits have been compensated by borrowing or by the individuals' dividends, interests and holding gains on assets who have had a stocks or equities. For instance, the rise of the shareholder value movement caused the dividend payout ratio to double from mid 1980s to the late 1990s, severely draining NFC funds (Crotty, 2002). Also, Orhangazi (2011) describes it as wealth effect created through the rising assets. However, together with the instable values of these assets according to firms progress in the market, these could be as a cost for the individuals.

Furthermore, the other valued areas were the mutual funds and insurance companies in the stock market after 1980 period. Technical progress in an information processing, a steep decline in trading commissions and liberalization of regulations on the composition of institutional portfolios led to a continuous rise in the percent of stock held by institutional investors in the 1980s and 1990s (Crotty, 2002). It might be a reason for the stable profit rates of post-1980s. It shows either increasing and decreasing picture but always comes to the initial level.

Also, there was a situation which was a high costs of external funds. For example, Crotty (2002) states that NFCs responded against it with two innovative ways. First, an increasing percent of NFC investment funds were used to acquire financial assets. Second, firms created or bought financial subsidiaries, and expanded those financial subsidiaries already in existence. He evaluates these things which I also accept, as a financialization of the nonfinancial corporations in the neoliberal era.

Coercive Competition

In this part, I want to stress on the competition issue which has varied in post-1980. Global neoliberalism has destroyed the pre-1980 effective government policies of economics and it has also destroyed the conditions required for a productive relationship between the state and the market. On the other hand, it has also changed the structure of the competition. In the neoliberal era, Crotty (2000) calls that as ''coercive competition''. Before the conditions of the coercive competition, I want to show some details of the Golden Age period of competition structure. Here some points :

The social contracts between the labor and the firm

The absence of cross-border mobility for labor

Importance of the domestic economy with high employment; low indebtedness; high real wages; strong unionization; bargaining power; high mass consumption; tightly regulated financial markets which were just the main area to provide a source for production and investment, not for their own profit; regulated business and social welfare system

Long-term planning horizon for an investment

High-labor relations with job security system

Redistributive taxation

Government-led expansion in an industries


However, the macro problems such as stagflation, oil crisis, the collapse of Bretton-Woods system, the downward movement in an investment spending and the production in the late 1970s caused a breaking point against to the inner dynamics of the high-labor relations in 1980s. Together with these issues, the competition became a coercive with cut-throat pricing, destructive oligopoly rents, over-investment and debt financing. The attempts to recover profitability included breaking up labor's power with the help of anti-labor policies and globally relocating production to low-cost sites (Orhangazi, 2011). For example, these are some points that show the changes of dynamics of the labor relations in the period of coercive competition:

Slash labor costs through downsizing and wage cuts to survive beyond the short-run time period

Conflict-driven labor relations policies

Attacks to unionization and bargaining power

Repeduate existing ''implicit contracts'' with workers and suppliers

Temporary workers as a cheap labor

Creating a reserve army of labors

These were the results to stand strong against the fierce competition in the neoliberal era.

Also, there were another developments to survive from coercive competition such as technical changes to take advantage of the ever larger returns to scale, cost reduction and finding a new geographies in developing countries. However, the fierce competition have continued with its increasing rate of excess capacity, low profits and financial fragility in that period. As a result, more competitive pressures brought tax cuts in favor of wealthy class, social spending cuts against labor class, flexibility of labor markets, low wage labor system and declining job security.

In conclusion, the conditions of the financial markets in the coercive competition of the neoliberal era can be summarized as:

Highly speculative and coercively competitive
Banking and currency crises together with the risky asset investments, high risk-premiums to interest rates and IMF and World Bank austerity plans and pressures
Increases in the indebtedness of households and nonfinancial corporations that creates financial fragility
IMF and Central Banks bailouts

The Change in the Profit Rates

The another crucial feature of the post-1980 was the low but stable profit rates. The profit rates had a downward movement between the periods of 1950-1982 (Dumenil and Levy, 2005). For so many disciplines argued that the economic problems which were lived in the late 1970s, were the cause of the falling rate of profit. They also implied that capitalism experienced different economical problems and the neoliberal developments of post-1980 because of the decline in profit rates. However, the arguments which were consistent with the Marx's formulation of the profit rates, were not explaining the ongoing process of post-1980. In general, while the fact that the profit rates fluctuated in this era as increasing and decreasing, it presented a stable picture with its low rates relative to pre-1980 condition. So, what are the reasons of these low and stable profit rates in the neoliberal era different from the pre-1980 downward sloping movement of profit rates? I want to draw up these factors as increasing size of the finance, the development in technology for finance, a destruction of the labor class conditions and the increasing rate of monopoly power in core industries.

From the beginning of mid-1960, there were reductions in the labor productivity and the labor costs. The reasons that lay under these conditions were the technological developments, increasing competition in the markets and the falling rate of profits. There was a lag adjustment of the growth of real wages to the deterioration of the performances of technical change (Dumenil and Levy, 2005). However, this technological developments with the decreasing price of raw materials have widened the gap between the labor productivity and the wage rates. The abolishment of the barriers to find a resources have also expanded this progress and have fed to the recovery of the profit rates. Furthermore, there were differences about the profit rates of the financial corporations and the nonfinancial corporations. For Dumenil and Levy (2005), in a definition of the profit rate abstracting from financial relations (measured after the tax but prior to the payment of interest, and over tangible assets), the profit rates of the nonfinancial corporate sector displayed the now familiar pattern in three phases: (1) the rise into the 1960s bulge, (2) the decline from the mid-1960s to the early 1980s, and (3) a recovery period of 1980s. However, there was an important impact of these financial relations in terms of nonfinancial corporations. Especially, the increasing effects of the net interest, dividends received, asset gains, the shareholder ratios and inflation targeting changed the falling rate of profits of pre-1980 to the indirect contradiction.

Moreover, the another important factor that has affected the profit rates was the high real interest rates. The end of inflation and large interest rates during the neoliberal decades have modified the profit rates (Dumenil and Levy, 2005). I think that these have got two effects on profit rates. First, the high interest rates had negative impact on the net interest and asset values which were also related with profit rates. Also, it caused decreasing of the investment spending that affected the profit rates. Second, the high real interest rates affected negatively the share of the stock. In addition to low wages, the decreases on the values of stocks have diminished the purchasing power which have had a downward movement effect on aggregate demand and then the slowdown of the growth rates.

In conclusion, because of high rates of interest of post-1980 period, the cost of the indebtedness have raised in the neoliberal era. For instance, overall, corporations benefited in the 1970s of the large reliance on indebtedness at a low cost, and this pattern was reversed during the 1980s and 1990s (Dumenil and Levy, 2005). I want to offer another two factors which were important on the profit rates: (1) the devaluation of debt by inflation (Dumenil and Levy, 2005) and the taxation. In the neoliberal era, while the low inflation rate has affected the financial incomes in a positive way, on the other hand, it has reduced the financial costs. It has created a beneficial situation for which has had a high debt ratio firms and impeded the profit rates reduction. Also, together with the reducing tax rates, the removal of the redistributive taxation system of Golden Age were another important factor to prevent the decrease in profit rates. The reduction of taxation had a powerful countertendencies effect vis-a-vis the decline of the profit rate (Dumenil and Levy, 2005).


Conclusion

The neoliberal era of post-1980 was an era of the abolishment of the social rights and the welfare of labors which acquired in the ''Golden Age''. That era has witnessed to the decrease in real wages and increasing rate of indebtedness, increase in an unemployment rate all over the world, progress of deunionization, change in the taxation at the cost of labor, diminish of the bargaining power, increase in the level of reserve army of labor, abolishment of job security, rise in inequality and the spread of poverty and misery. In addition to, the neoliberal era was an era that has witnessed to the slow growth rate, the rise of the financialization and coming into being of a coercive competition. Although the labor conditions have affected negatively together within the lights of these things, it has also led the destroying conditions both in the real and financial sector, bubbles and increasing rate of financial crises, social and economic disorder and the shift of capital accumulation process to the financial sector. Thus, the 2008 global economic crises have brought the inquiry of the neoliberal policies and has made it necessary for the new social order.


REFERENCES

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