I intended to ignore Jeff Mackler, the octogenarian leader of a mini-grouplet called Socialist Action (SA). Mr. Mackler, readers of this blog may recall, ran the most incompetent campaign for president ever in history. Indeed, at least partly due to that ridiculous effort, SA is now reduced to a few dozen members.
SA is a "fraternal party" to the Fourth International (FI), an organization of Trotskyist parties around the world. Depending on how you define "membership," FI represents a few hundred to a few thousand people globally. In other words, it's of negligible political consequence. SA's mission is to set this organization on the true Trotskyist straight and narrow--that is, to return it to the concept of Leninist party building, which presumably has been abandoned by their international comrades.
It's a lost cause and a silly cause, and we may ignore it. Nevertheless, to that end three documents have been submitted to the FI, the most recent one entitled Debate in the Fourth International Part III: Capitalism’s World Economic, Political and Social Crises and the Coming Fightback. While authorship is not credited, the "politics in the report below were adopted by the National Committee of Socialist Action/USA..." However, it's obvious that Mr. Mackler is the actual author--he's a good writer and there is nobody else in that organization capable of the assignment--so I'll explicitly credit him here.
Because Mr. Mackler is a good writer, and because the topic is mostly economics, I break my vow to ignore him and will pay the man some attention.
The lede paragraph:
Today, world capitalism’s neo-liberal globalization is best characterized as a new form of organization where global value chains have become the dominant form of production, employing workers for one out of every five job on the planet. From low to high tech commodities, basic consumer goods to heavy capital equipment, food to services, goods for the world market are now produced across many countries, integrated through global value chains.
And this is true! Globalization has enriched people around the world. Bigger markets (and there is no bigger market than the globe) leads to more labor specialization (between countries and individuals), and as Adam Smith pointed out long ago, specialization is what increases productivity and makes people richer. There is a huge literature that makes this case, but I'll just cite three of my own posts, here, here and here.
But Mr. Mackler thinks globalization is evil, writing
This globalization was essentially driven by the inherent contradictions in the capitalist system itself. Ever declining average rates of profit, as repeatedly demonstrated by Marxist economist Michael Roberts, were countered worldwide by ever intensifying attacks on working people, ...
I don't think Mr. Roberts demonstrated any such thing. I wrote an (admittedly crappy) post on this some years ago. First, Mr. Roberts suggests a very weird definition of profit that nobody else uses and which has no effect on economic decision-making. Second, his definition only applies to the economy as a whole, and not to any individual company. So there is no way a CEO could make use of this information. Third, the quantities required to calculate "profit" are vague and not obviously tabulated anywhere. So all Mr. Roberts can do is estimate them.
And finally, he defines profit as something related to operating margins rather than return on investment. His ultimate claim is that operating margins have been shrinking over the past decades. I don't think that's true. Of course if it is true this is good--smaller operating margins are better for consumers, who get cheaper prices. Successful companies (e.g., Walmart) have capped their operating margins at 3%--if they go above that they reduce prices.
Profitability is usually and most meaningfully measured by return on investment, which is the quantity that's actually important to the capitalist. Accordingly, the price/earnings ratio is a lead indicator for how valuable a stock is.
Arguing for a falling rate of profit, Mr. Mackler cites Marx.
Simply put, as Marx explains in the first volume of Capital, the average value of any commodity is measured by the average amount of human labor power embodied in it in the course of its production. Over time, competition compels capitalists to repeatedly renovate their productive facilities substituting machines for human labor power. This initially benefits the first on the market with the new technology and allows them to sell their product at a price above its real value. But as the competition heats up, weaker companies drop out while more serious competitors introduce even more advanced technological innovations and this initial advantage diminishes.
In time the price and value of commodities tend to reach equilibrium and the corresponding average rate of profit declines in correspondence with the reduced quantity of human labor power embodied.
And this is all true! I don't disagree with Marx at all. But Mr. Mackler leaves out two important points.
First, as already mentioned, declining profit rates (defined in terms of operating margins) are good for consumers, who get cheaper products. So I am in favor of shrinking profit margins--which as Mr. Mackler points out are often a result of new technology and increased productivity. This increases our standard of living! If he is trying to convince me that capitalism is broken, this is not a very good argument.
Second, Mr. Mackler does not understand the meaning of "commodity." A commodity is a good which trades only on price. Gasoline is a commodity--people drive around searching for the lowest prices. They don't really care about anything else. So are basic economy airfares--you'll fly on the cheapest airline if all you want to do is save money. Obviously, things sold on commodity exchanges--e.g., copper, iron, wheat--all trade on price and not on any other quality.
Mr. Mackler cites an excellent example of something that is NOT a commodity.
The process [offshoring--ed] included such phenomena as major corporations like Apple employing some one million Chinese workers at near slave wages and hours and selling Apple I-phones for $1,000, only a few dollars of which went to Chinese and other Asian workers at the low end of the value chain.
I think the one million number is an exaggeration, as is the adjective "slave." But the point is mostly correct. In a post from 2013 I document that the assembly cost of an iPhone was only $8, while the sales price was closer to $300. The wages paid to the Chinese workers was 50 cents per hour. Add in the cost of components sourced from around the world, there is still no question that Apple made a healthy profit from the iPhone.
It's still true today, even with inflation doubling or tripling those numbers. The price of an iPhone is not determined by the production cost--and that's because an iPhone is NOT a commodity. Nobody buys it because it's cheap. Instead they appreciate the excellent engineering, the high-end components, the stellar design, and especially the cool factor in owning an iPhone. It's a fashion statement. An iPhone is expensive because Steve Jobs carefully and meticulously nurtured the brand. And for that reason it's very profitable with extremely high operating margins.
A commodity smart phone available on Amazon costs less than $40. That's the cost of production plus a small operating margin. An iPhone 13 sells for 20 times that much.
In Marx's time, almost everything sold was a commodity, and it is understandable that he expressed his economic theory in those terms. But that's not true today--most things Americans buy are not commodities. That is, the competition is not based solely or primarily on price, but rather on other qualities. The Marxist argument for declining profit margins does not apply.
Further Reading:
