Question

3. Describe the crisis of the 1970s by discussing the Social Structure of Accumulation as described by Bowles, Gordon and Weisskopf. Include in your answer the variables in their after tax rate of profit model and the institutions that influence them.

Answer 1

During the period 1970-2011 there were 146 banking crises, 218 currency crises, and 66 episodes of sovereign debt crisis and debt restructuring. The authors provide careful formal definitions of each type of crisis, but in any of the three types the basic characteristic is financial stress due to inabilityof private financial enterprises or government institutions to face due payments, which leads to more or less general bank runs and liquidations (banking crisis), devaluation of the national currency (currency crisis) or sovereign debt defaults (sovereign debt crisis).

There have been five crises of the world economy from 1970 to the present. Social Structure of Accumulation (SSA) theory seeks to explain the long waves-averaging about fifty or sixty years for a complete cycle--that have characterized capitalist economic growth, and the distinct stages of capitalism that have marked each long upswing U.S. hegemony is not strictly an institution in any of the senses described above, but it can be thought of as encompassing a set of institutions ranging from the nature of the relations between the U.S. and other countries .

Gordon’s formulation is very close to the principles of overdetermination in its focus on the mutual interaction among the various institutions composing any given SSA .The main difference is that Gordon appears to present each institution as an independent entity which is then subject to change when another institution, an external entity, changes. The idea of overdetermination suggests that institutions are never entirely disparate entities, that each is shaped by and incorporates elements of the other institutions and social forces with which it interacts.

The most recent crises of united states economy , in contrast, appears to have originated as asupply-side crises brought about by the erosion of the hegemony of the united states capitalist class in the world economic system and by effected challenges to the challenges to capitalist prerogatives mounted by workers and citizens during 1960’s and early 1970’s.once and only after these mounting barriers to surplus-value production and initially reduced corporate profitability , both stagnating investment and political efforts to roll back these challenges resulted in demand side problems as well,further reinforcing the dynamic of crises (bowels,gorden,weissikof)

It is possible to identify quite clearly the channels through which the condition of this three front war is directly to have direct impact on an aggregate measures of corporate profitability, these channels can be highlighted with a relatively simple model , it can be shown that the economy- wide average net after tax-profit rate of capitalist depends on six specific factors:

The real wage rate, or the cost of hiring an hour of labour power as aproductive input: lower the real wage ,higher will be the profit rate .

The intensity of labour , or the amount of labour services extracted from an hour of labour power purchased for production:the higher the intensity of labour , higher the profitability.

The terms of trade , or the relative cost of acquiring foreign-produced input for production:the more favourable terms of trade, the lower will be the cost of acquiring foreign produced input and the higher will be the rate of profit.

The i/o coefficients of production, or the amount of o/p which can be produced in one unit of any given factor i/p : the larger amount of o/p which can be produced with i/p , the higher will be the rate of profit.

The rate of capacity utilization , or the ratio of productive capital used in production to the stock of capital actually owned: the higher the utilization rate , the less waste of owned capital will takes place and the higher will be the rate of profit.

The profit tax rate, or the percentage of the before-tax profit which are taxed by the government : the higher this tax rate , the lower will be the profitability.

SOCIAL STRUCTURES OF ACCUMULATION (SSA) :

The SSA model begins with the basic Marxian proposition outlined above : Profitability conditions the pace of accumulation which in turn substantially regulates the rate of economic growth.But the accumulation of capital through capitalist production cannot be analzed as if it takes place either in a vacuum or in chaos. Capitalist cannot and will not invest in production unless they are able to make reasonably determinate calculations about their expected rate of return. A specifically SSAF approach would bring together insights drawn from the spatialization and globalization strands of SSA theorizing. On the one hand, the relevant unit of analysis has to be extended beyond national boundaries to include the transnationalization of class relations and the associated accumulation process. The dominant proposed solution to the stagflationary crisis of the 1970s has involved the aggressive imposition of a new global neoliberal order. . The model of autonomous national growth has been superseded in its heartland and has subsequently faded as the goal of many policy-makers in the less developed world.

The SSA framework argues that this stagnating profitability was the result of adverse changes in institutional factors including the effectiveness of the capital–labor accord itself, U.S. hegemony, and the Keynesian state. Nilsson finds that the loss of U.S. hegemony was the largest single cause of stagnating profitability and, by extension, the breakdown of the capital–labor accord.

There are several somewhat overlapping reasons for this development. It appears that Gordon’s death has had the indirect effect of distancing both Weisskopf and Bowles from the mainstream of the subsequent development of the SSA framework. These two scholars were the most interested in introducing concepts from outside the initial Marxian and Keynesian inspiration. Weisskopf has concentrated his work on studying the transition process in the former Soviet Union. Contrary to Coban’s ([1995] 2002) prediction, Samuel Bowles’s interest in alternative microeconomic theories has become increasingly divorced from the SSA framework

The fact that the majority of work within the framework is now being done within disciplines other than economics is also important. While still concerned with agency, sociology is much less obsessed with micro-founding macro- and meso-level behavior than economics. While American sociology is hardly a bastion of progressive thinking, it is far less conservative than the often openly reactionary political character of that nation’s economics profession. Pressures to disguise or dilute the Marxian character of the framework have consequently eased.