Triumph of the capitalists

Britain's capitalists are winning the class war. Today's figures show that the net non-oil profit rate reached 14.8% in Q1, its highest level since records began in 1989 and, I suspect, its highest since the early 60s.
Not all sectors are benefiting however. In manufacturing the profit rate was just 5.3%, the lowest since the 1991 recession. In the services sector it was a record 21.1%.
This, I reckon, shows the impact of globalization. In much of manufacturing, a flood of cheap goods is forcing down profit rates: I wonder how Underworld stays in business in the face of competition from India and China.
But the cheap labour embodied in those goods is helping hold down wages - to the benefit of  services' productivity.
And herein lies a nice irony. What's happening here is what both Marx and Samuelson would expect.
Marx thought surplus population would hold down wages. And Andrew Glyn argues here (pdf) that the flood of workers from agriculture to industry in China and India might be vindicating him. Samuelson's factor price equalization theorem said trade in goods would equalize factor prices. This predicts profits will rise  at the expense of wages, as capital is scarce and labour abundant globally.

Comments

[dearieme]

Sounds a bit Malthusian.

[Recusant]

"as capital is scarce"

Not in my neck of the woods it ain't. The only thing that is scarce is something to invest it in that might produce a decent return.

[chris]

Recusant - move to India: capital's scarce there and labour is 10 a penny.
Dearieme - it's meant to be Malthusian. In arguing that wages would be bid down to subsistence, Marx was largely following Malthus (and Ricardo) - he was, after all, to a large extent an orthodox classical economist.

[Dom]

One thing: these profitability statistics are a bit flawed. The problem lies with the denominator in the profitability calculation (profits divided by capital employed). The ONS has a model to estimate the capital stock, which makes assumptions about depreciation rates etc. I've no idea how accurate these estimates are. The ONS probably doesn't either. But a lean capital stock is the reason why profitability has improved, not an improvement in profits.

The profit share (profits as a % of GDP) is probably a better (or less flawed) measure of an economy's ability to generate profits. This measure is only just above its long-run average and still some way below its late-90s peak. This looks pretty odd against record profit shares in the US and euro area.

[chris]

Dom - I take your point. Measures of the capital stock are subject to huge error, and possibly just nonsense (viz, the Cambridge controversy).
But I'm not sure whether measurement error is such as to overturn the point that the profit rate is very high now. For this to be so, the capital stock would have to be greater than NS estimates, say because the boom in demand has caused less scrapping than its depreciation assumptions predict. This is possible, but to what extent?

[james]

Have you seen this http://guidofawkeshungdrawnandquartered.blogspot.com