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GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss E-Book: Growth and Crisis, Social Structure of Accumulation Theory and Analysis Editedby: TerrenceMcDonough1 Michael Reich2 DavidM. Kotz3 Maria-AlejandraGonzalez-Perez4 ISBN 978-0-9553159-1-6 SocialSciencesResearchCentre(SSRC)& CentreforInnovation&StructuralChange(CISC), attheNationalUniversityofIreland,Galway, Galway,December2006 1Centre for Innovation & Structural Change (CISC), National University of Ireland, Galway, Ireland. [email protected] 2UniversityofCalifornia,Berkeley,[email protected] 3UniversityofMassachussettes,Amherst,[email protected] 4 Centre for Innovation & Structural Change (CISC), National University of Ireland, Galway, Ireland. [email protected] 2/538 http://ssagalway.blogspot.com 2/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss ABSTRACT This volumes was assembled from papers prepared for the First International Conference on Social Structure of Accumulation Theory and Analysis held in the J.E. Cairnes Graduate School ofBusiness andPublicPolicybetweenthe2nd and4th ofNovember, 2006. Conference details and digital videos of the papers that have been delivered are available onlineonourofficial blogat http://ssagalway.blogspot.com/. This e-bookcontains 21chapters dividedintoeight parts: 1. Social StructureofAccumulation 2. Theory 3. FinanceandRegulation 4. Brazil 5. Globalization,ChinaandCrisis 6. PropertyandIts Limits 7. India 8. UnitedStates andLabour 3/538 http://ssagalway.blogspot.com 3/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss This e-book is published also by the Centre for Innovation & Structural Change (CISC) at the J.E. Cairnes Graduate School of Business & Public Policy at the National UniversityofIreland,Galway(NUIG)underits WorkingPaperSeries. First Published2006 AccessedDate: 11th December2006(11/12/2006) Growth andCrisis:Social StructureofAccumulation:TheoryandAnalysis editedby: TerrenceMcDonough,MichaelReich,DavidM.KotzandMaria-AlejandraGonzalez-Perez ISBN 978-0-9553159-1-6 Email: [email protected] 4/538 http://ssagalway.blogspot.com 4/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss TABLE OF CONTENTS ABSTRACT...........................................................................................................................3 TABLEOFCONTENTS...........................................................................................................5 Contributors.............................................................................................................................19 JohnAsimakopoulos............................................................................................................19 Robert Boyer........................................................................................................................19 Miguel Bruno.......................................................................................................................20 RicardoCaffé.......................................................................................................................20 AnnDavis............................................................................................................................20 HawaDiawara......................................................................................................................21 AndrewGlyn,.......................................................................................................................21 Maria-AlejandraGonzalez-Perez.........................................................................................21 BarbaraHarriss-White,.......................................................................................................22 EnidHill...............................................................................................................................22 DavidM. Kotz.....................................................................................................................22 Minqi Li...............................................................................................................................23 VictorLippit.........................................................................................................................23 Stavros D.Mavroudeas........................................................................................................23 TerrenceJ.McDonough.......................................................................................................24 FidelmaMurphy...................................................................................................................24 EmlynNardone....................................................................................................................25 BrianO’Boyle......................................................................................................................25 WendyOlsen........................................................................................................................25 Hindenburgo-FranciscoPires...............................................................................................26 K.Ravi-Raman....................................................................................................................26 Michael Reich......................................................................................................................27 Samuel Rosenberg...............................................................................................................27 Carlos Salas..........................................................................................................................28 William Tabb.......................................................................................................................28 MartinWolfson....................................................................................................................28 Acknowledgements,.................................................................................................................29 PARTONE: SOCIALSTRUCTUREOFACCUMMULATION..........................................30 1. SSATHEORY: THESTATEOFTHEART, TerrenceMcDonough.......................31 AnOverviewoftheLast Decade.....................................................................................31 EnterSociology............................................................................................................33 SSAs OutsidetheUnitedStates...................................................................................34 SpecificInstitutions withintheSSA............................................................................35 TheCurrent StateofSSATheory....................................................................................36 Is aNewSSAConsolidating?......................................................................................39 Conclusion.......................................................................................................................44 Bibliography.....................................................................................................................46 2. INSTITUTIONALSTRUCTUREOR SOCIALSTRUCTUREOF ACCUMULATION, David M.Kotz....................................................................................50 Introduction......................................................................................................................50 TheOriginoftheConcept ofanSSA..............................................................................50 Institutions andCapitalism..............................................................................................52 Liberal andRegulationist Institutional Structures............................................................54 ConcludingComments.....................................................................................................56 5/538 http://ssagalway.blogspot.com 5/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Table1.GrowthRates ofReal Gross DomesticProduct forSelectedCountries....57 (Annual averagepercentagerateofgrowth)............................................................57 References........................................................................................................................57 3. CHANGES INCAPITALISM SINCETHEREAGANERA: THENEW SOCIAL STRUCTUREOFACCUMULATION, Michael Reich......................................................59 SSATheory......................................................................................................................59 Maininstitutions that makeupaSocial StructureofAccumulation...............................59 Social Structures ofAccumulation(basedonGordon,Edwards andReich1982).........59 Institutions oftheDeregulatedCapitalism SSA: Consolidationafterthe1984election.60 Capital-laborrelations..................................................................................................60 Capital-capital relations...............................................................................................60 Finance.........................................................................................................................60 Government..................................................................................................................61 International relations..................................................................................................61 Dominant political coalitions ofthis SSA.......................................................................61 Quantitativeindices ofthenewSSA...............................................................................61 Graphic1: Long-Term DeclineinVolatilityofMacroeconomicIndicators...........62 Source: EconomicReport ofthePresident 2006,ch.9...........................................62 Graphic2: Laborshares 1981-2005(Business sector)............................................62 Graphic3: AverageIncomes ofTopOnePercent andEveryoneElse,1917-2004.62 Graphic4: ShareofCapital IncomeGoingtoTop1%ofIncomeDistribution......63 Graphic5: TopOnePercent WealthShare,1916-2000,various estimates.............63 Graphic6: Profit Rate-All Corporations, 1951-2005............................................64 Graphic7: Profit Rate-Financial Corporations, 1951-2005...................................64 Graphic8: Profit Rate–Nonfinancial Corporations, 1951-2005............................64 Graphic9: RatioofFC Profits toNFC Profits 1948-2005......................................65 Graphic10: RatioofFinanceNVAtoNonfinanceNVA,1948 -2005..................65 Graphic11: Cash Balances at Non-Financial Corporations, 1967to2005.............65 Source: EconomicReport ofthePresident in2006.................................................66 Graphic12: International Profits as PercentageofDomestic(pre-tax)Profits, 1948- 2005..........................................................................................................................67 Graphic13: Net Profit Inflows as PercentageofDomesticProfits, 1948-2005......67 Graphic14: Cross-BorderFlows as Measures ofGlobal Integration,Industrial and DevelopingEconomies, 1994-2004.........................................................................68 Graphic15: Gross International Financial Assets andLiabilities, 1970-2004 (trillions ofU.S.dollars)..........................................................................................68 Graphic16: EvolutionofInternational Financial Integration,1970-2004..............69 Graphic17: Real WageGrowthinChinaforUrbanManufacturingWorkers fora selectionofProvinces..............................................................................................70 Graphic18: Annual LabourCompensation,Manufacturing,SelectedProvinces, China,2002..............................................................................................................70 Graphic19: Personal SavingRateandtheRatioofNet WorthtoDisposableIncome 1953:Q1 –2000Q3..................................................................................................71 Graphic20: Savings RatebyIncomeQuintile,ExcludingDefinedPensionPlans andNonprofits Organisations 1992Q1-2000Q3.....................................................71 Graphic21: SavingRates byEducationCategory: ExcludingDefinedBenefit PensionPlans andNonprofits (1992Q1 –2000Q3)................................................72 DeregulatedCapitalism SSA: OngoingStrengths andWeaknesses................................72 Strengths ofcurrent SSA.............................................................................................72 EconomicWeaknesses.................................................................................................72 6/538 http://ssagalway.blogspot.com 6/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Political Challenges.....................................................................................................73 Political coalitiondynamics anddecayofSSAs..............................................................73 PreliminaryConclusions about theNewSSA.................................................................73 PARTTWO: THEORY...........................................................................................................74 4.SOCIALSTRUCTUREOFACCUMULATIONTHEORY, Victor Lippit....................75 SSAtheoryandits origins...............................................................................................75 ThepostwarSSAintheUnitedStates.............................................................................77 Japan’s postwarSSA........................................................................................................79 Thestructural integrityofanSSA...................................................................................81 OverdeterminationandthepostwarSSAintheUnitedStates........................................83 WhySSAs requiremanyyears toconstruct andwhytheyenduremanyyears................87 Theroleofclass conflict inSSAformationandcollapse................................................90 TheformationofanewSSAintheU.S.inthe1980s and90s.......................................92 1.Thestrengtheningofcapital relativetolabor..........................................................93 2.Thechangeinfinancial institutions favorabletoinvestment..................................94 3.Deregulation.............................................................................................................94 4.Institutional changes inthenatureofthecorporation..............................................94 5.Smallergovernment.................................................................................................95 6.Anincreaseininternational agreements tofacilitateinternational tradeand investment....................................................................................................................95 Capital markets favorabletosmall,entrepreneurial companies..................................96 SSAtheoryinthelight ofthenewly-constructedSSAintheU.S...................................97 Conclusion.......................................................................................................................99 References......................................................................................................................103 5.CLASS,CRISIS,ANDTHETHEORYOFASOCIALSTRUCTUREOF ACCUMULATION, Martin H.Wolfson...........................................................................106 SSATheory....................................................................................................................106 Class Contradictions......................................................................................................108 Polanyi’s DoubleMovement.........................................................................................109 Capitalist Crises.............................................................................................................110 ReinterpretingthePostwarEconomy.............................................................................110 ReinterpretingSSATheory............................................................................................112 References......................................................................................................................112 6.Meta-Theory: Critical Realism andSocial Structures ofAccumulationTheory. Brian O’Boyle..............................................................................................................................114 Introduction....................................................................................................................114 Sectionone.....................................................................................................................115 Critical Realist PhilosophyofScience.......................................................................115 Critical Realist KnowledgeGeneration.....................................................................117 Sectiontwo.....................................................................................................................119 Critical Realism andHeterodox Economics..............................................................119 SituatingtheCREproject..........................................................................................119 CREcontributions......................................................................................................120 SectionThree.................................................................................................................123 HeterodoxyandtheSSAApproach...........................................................................123 Critical Realism andSSATheory..............................................................................124 Critical realist ontologyandSSAtheory...................................................................124 Critical Realism,SSAtheoryandknowledgegeneration..........................................125 Critical Realism, SSAtheoryandtheStatus ofKnowledge......................................126 SectionFour...................................................................................................................127 7/538 http://ssagalway.blogspot.com 7/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Critical realism as anemancipatoryproject...............................................................127 SectionFive...................................................................................................................129 Critical Realism andMarxism...................................................................................129 TheAdvantages ofaCritical Realist SSATheory.....................................................131 Bibliography...................................................................................................................133 PARTTHREE: FINANCEANDREGULATION................................................................137 7.THECONTEMPORARYAMERICANSSAINTHELIGHTOFCEOS REMUNERATIONEVOLUTION, Robert Boyer............................................................138 Abstract..........................................................................................................................138 Introduction: Anindirect approachtoemergingSSA....................................................138 Figure1: Thefactors that shapetheinternal organisationofthecorporation........141 Divisionoflabourandsizeofthemarket: from Adam SmithtoAlfredChandler....141 From apurelegal entitytoanorganicconceptionofthefirm: BerleandMeans......142 Stateinterventions andlegal conceptions shapetheinternal organisationofthe corporation: from KennethGalbraithtoNeil Fligstein..............................................142 Theemployees recognitionas stakeholders: AlfredSloan........................................143 Managers andcorporation: from theendofXIXthcenturyto earlyXXIst century.144 Figure2 : Act IandII: Theemergenceandthecrisis ofthemanagerial corporation ................................................................................................................................145 Valuecreationandshareholdervalueas disciplinarydevices...................................145 Figure3 : Act III: discipliningthemanagers byshareholdervalue.......................147 Financial bubbleandinfectious greed: executivecompensationunderscrutiny.......147 Figure4: Howanallegedvirtuous circleturnintoavicious spiral: theEnronstory ................................................................................................................................149 Corporategovernanceandshareholdervalue: thedivorcebetweeneconomic performanceandmanagers remuneration......................................................................149 Thejoint stockcorporationinthe90s: goodfinancial performancebut moderate improvement ofeconomicefficiency.........................................................................150 Figure5: S&P 100Americancorporations: Highfinancial profitabilityduetothe leverageofdebt......................................................................................................150 Figure6: CAC40Frenchcorporations: Moderateriseoffinancial profitabilitydue totheleverageofdebt............................................................................................151 Thesurprisingcomingbackofpatrimonial capitalism evenintheUS….................151 …Familycontrolledfirms outperform managerial corporations inFrance..............152 Figure8: Familyfirms areoutperformingpubliccorporations.............................153 Thesurgeofprivateequity: achallengertodispersedownership?...........................154 Figure9: Thepubliclyquotedcorporationunderpressureofanoldandanew challenger...................................................................................................................154 Topexecutives havedivorcedfrom labour................................................................155 Figure10: US: CEOs’payversus averagewage,1970-1999...............................155 Managers at thecentreofshiftingalliances: Apolitical economyanalysis..................155 Abriefhistoryofeconomicandsocial alliancesincethegoldenage.......................156 The60’s: Analliancebetweenwageearners andmanagers andtheFordist growth regime....................................................................................................................156 Figure11 -The60’s. Thefirst configurationofactors: theFordist compromise..156 The80’s: Theinternationalizationerodes theprevious alliance............................157 Figure12: The80’s. Thesecondconfigurationofactors: Aninternational competitionledregime..........................................................................................157 The90’s: Undertheaegis ofshareholdervalue,thehiddenalliancebetween managers andfinanciers.........................................................................................158 8/538 http://ssagalway.blogspot.com 8/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Figure13: The90’s. Thethirdconfigurationofactors: theallianceofinvestors and managers................................................................................................................159 Thepowerandinformational asymmetryinfavourofexecutives.............................159 Whenthefinancial crises andscandals burst out: twonewactors, thelawyerandthe activist........................................................................................................................160 Figure14: The2000’s intheUS.Thefourthconfigurationofactors: thelawyer wins whateverthesituation....................................................................................160 Figure15: The2000s. Thefifthconfigurationofactors: thethreat ofState interventioninordertodisciplineglobal finance..................................................161 Thepowerofmanagers at thefirm level: numerous convergingempirical evidences..162 Insidertrading: amanifest useofstrategicinformation.............................................162 Figure16: Market reactions toinsiderpurchases: theUKstock-market...............163 Figure17: Market reactions toinsidersales: theUKstock-market.......................163 Thediffusionofstockoptions plans: aresponsetoshareholdervalue......................163 Figure18: Thecontrastedpatterns ofstockoptiondiffusionintheUS andUK..164 Figure19: ThestructureofCEOcompensationis quitedifferent inUKandUS (1997).....................................................................................................................164 Thelargerthecorporation,lesserCEOpay-performancesensitivity........................166 Figure21: Statistics forstock-basedCEOincentives bysize................................166 Thesurgeofmergers andacquisitions: abenefit forthemanagers, morerarelyfor shareholders...............................................................................................................167 Figure22 : From therhetorictotherealityofshareholdervalue..........................168 Clearwindfall profits formanagers benefitingfrom stockoptions...........................168 Figure23: Whystockoptions donot sort out thecontributionofmanagers tothe performanceofthecorporation..............................................................................169 Figure25: Thesourceofshareholdergains intheUKand US (2003).................169 CEOs haveanasymmetricpowerontheremunerationcommittee...........................170 After1997,afavouritecorporatestrategy: distortingtheprofit statements..............171 Figure25: Thesystematicoverstatements ofprofits after1997: as slowprocess of adjustment intheUS..............................................................................................171 Figure26: Twoevaluations oftheimpact ofstock-options oncorporateprofits in theUS.....................................................................................................................172 Alast resort weaponofCEOs: shift from thetransparent tothehidden...................172 Figure27: From thetransparent tothenonapparent: thetrickledownstrategyof CEOabout theircompensation..............................................................................173 ThefinancialisationofCEOs compensation: theconsequenceoftheinternal restructuringofthedivisions ofthequotedcorporation............................................173 Figure28: Theshift ofinternal control withinthecorporation: theriseofCFOas CEO........................................................................................................................175 Thepowerofmanagers inthepolitical arena................................................................175 Financial liberalisationhas beenaprerequisiteforCEOs compensationexplosion.175 Figure29: Themainepisodes andfactors inthefinancialisationofexecutive remuneration..........................................................................................................175 Wheneconomicpoweris convertedintopolitical power..........................................176 Thegeneral context ofrisinginequality.....................................................................176 Figure30: TheUS: Thetopdeciles incomeshare,1917-1998.............................176 Figure31: ThepolarisationofAmerica(1967-1997) Averageinflation-adjusted annual aftertax incomeofpoor,middleclass,andrichhouseholds.....................178 Thesurgeofentrepreneurial incomes contributes tothegrowingnumberofsuperrich ....................................................................................................................................178 9/538 http://ssagalway.blogspot.com 9/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Figure32 : US: Incomecompositionoftopgroups withinthetopdeciles in1929 and1998.................................................................................................................179 Theconcentrationofwealthgoes alongwithstockmarket bubbles.........................180 Figure33 : Wealth inequalityand stockmarket peaks..........................................180 Thetax system is redesignedinfavouroftherichest................................................180 Figure34 : Contrastedevolutions oftax rates formiddleclass andrichfamilies.181 Figure35: ThedecliningshareofFederal tax burdenpaidbycorporations andthe risingshareofpayroll taxes...................................................................................181 From themicroinefficiencyofstockoptions tothesurprisingresilienceofthe financialisedSSA...........................................................................................................182 AftertheInternet bubble: acritical reappraisal ofthevirtues ofstock-options.........182 Figure36: Tenreasons against theuseofstock-options........................................182 Therecent literature: arediscoveryofthepowerofmanagers..................................183 Figure37: Howmanagers usetheirrelativeautonomywithrespect toshareholders ................................................................................................................................183 CorporateAmericaversus SiliconValley: twodifferent uses ofstock-options........184 Figure38 : Twoconceptions ofstock options.......................................................184 Theemergenceofacorporategovernancemarket?...................................................185 Figure39 : Threestories about CEOremunerationinthe90’s............................186 Theexplosion ofCEOs remuneration: thesymptom ofaspecificform ofcorporation186 Figure40 : Alternativealliances, different conceptions ofthefirm,various rewards andcontrols ofmanagers.......................................................................................188 Figure41 : Anewfinanceledaccumulationregime.............................................189 AnevidenceforthefinancialisationofaccumulationregimeintheUS? .....................189 Thecoreofafinanceledaccumulationregime: anewalliancebetweenmanagers and financiers....................................................................................................................190 Themajorcomponents ofafinanceledSSA.............................................................190 Figure42 : Themainmacroeconomicrelations ofafinance-ledSSA..................191 This is aregimequitespecifictoUS.........................................................................191 Figure43: Thefinance-ledSSAis typical ofUS andUK: fewchances ofdiffusion ................................................................................................................................192 Conclusion: managers, financiers, politicians andfinanceledSSA..............................192 Theexpressionofthetransformationofcorporategovernanceafterthecrisis of Fordism......................................................................................................................193 Noefficiencygainat themicro,macrolevel.............................................................193 Theintrinsicpowerofmanagerat thefirm level andits extensionat thesocietywide level............................................................................................................................193 Theart ofjudoka: convertingshareholdervalueintoCEOs wealthexplosion.........194 Thecompletescript: from anewalliancetoafinanceledSSA................................194 References......................................................................................................................195 8. SOCIALSTRUCTURES OFACCUMULATION,REGULATIONAPPROACH ANDSTAGES THEORY, Stavros D.Mavroudeas..........................................................200 Introduction....................................................................................................................200 Thenewernon-orthodox middle-rangetheories: RAvs. SSA......................................201 Periodisationtheoryandthenewernon-orthodox middle-rangetheories.....................205 Analternativeperiodisationtheory................................................................................208 LabourandProductionProcess..................................................................................209 Process ofsocialisationofproduction.......................................................................211 Process ofincomedistribution...................................................................................211 Forms ofcrisis............................................................................................................211 10/538 http://ssagalway.blogspot.com 10/538

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Social Structure of Accumulation Theory and Analysis. Edited by: Terrence McDonough. 1. Michael Reich. 2. David M. Kotz. 3. Maria-Alejandra Gonzalez-Perez. 4. ISBN 978-0-9553159-1-6. Social Sciences Research Centre (SSRC) &. Centre for Innovation & Structural Change (CISC), at the National
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GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss E-Book: Growth and Crisis, Social Structure of Accumulation Theory and Analysis Editedby: TerrenceMcDonough1 Michael Reich2 DavidM. Kotz3 Maria-AlejandraGonzalez-Perez4 ISBN 978-0-9553159-1-6 SocialSciencesResearchCentre(SSRC)& CentreforInnovation&StructuralChange(CISC), attheNationalUniversityofIreland,Galway, Galway,December2006 1Centre for Innovation & Structural Change (CISC), National University of Ireland, Galway, Ireland. [email protected] 2UniversityofCalifornia,Berkeley,[email protected] 3UniversityofMassachussettes,Amherst,[email protected] 4 Centre for Innovation & Structural Change (CISC), National University of Ireland, Galway, Ireland. [email protected] 2/538 http://ssagalway.blogspot.com 2/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss ABSTRACT This volumes was assembled from papers prepared for the First International Conference on Social Structure of Accumulation Theory and Analysis held in the J.E. Cairnes Graduate School ofBusiness andPublicPolicybetweenthe2nd and4th ofNovember, 2006. Conference details and digital videos of the papers that have been delivered are available onlineonourofficial blogat http://ssagalway.blogspot.com/. This e-bookcontains 21chapters dividedintoeight parts: 1. Social StructureofAccumulation 2. Theory 3. FinanceandRegulation 4. Brazil 5. Globalization,ChinaandCrisis 6. PropertyandIts Limits 7. India 8. UnitedStates andLabour 3/538 http://ssagalway.blogspot.com 3/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss This e-book is published also by the Centre for Innovation & Structural Change (CISC) at the J.E. Cairnes Graduate School of Business & Public Policy at the National UniversityofIreland,Galway(NUIG)underits WorkingPaperSeries. First Published2006 AccessedDate: 11th December2006(11/12/2006) Growth andCrisis:Social StructureofAccumulation:TheoryandAnalysis editedby: TerrenceMcDonough,MichaelReich,DavidM.KotzandMaria-AlejandraGonzalez-Perez ISBN 978-0-9553159-1-6 Email: [email protected] 4/538 http://ssagalway.blogspot.com 4/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss TABLE OF CONTENTS ABSTRACT...........................................................................................................................3 TABLEOFCONTENTS...........................................................................................................5 Contributors.............................................................................................................................19 JohnAsimakopoulos............................................................................................................19 Robert Boyer........................................................................................................................19 Miguel Bruno.......................................................................................................................20 RicardoCaffé.......................................................................................................................20 AnnDavis............................................................................................................................20 HawaDiawara......................................................................................................................21 AndrewGlyn,.......................................................................................................................21 Maria-AlejandraGonzalez-Perez.........................................................................................21 BarbaraHarriss-White,.......................................................................................................22 EnidHill...............................................................................................................................22 DavidM. Kotz.....................................................................................................................22 Minqi Li...............................................................................................................................23 VictorLippit.........................................................................................................................23 Stavros D.Mavroudeas........................................................................................................23 TerrenceJ.McDonough.......................................................................................................24 FidelmaMurphy...................................................................................................................24 EmlynNardone....................................................................................................................25 BrianO’Boyle......................................................................................................................25 WendyOlsen........................................................................................................................25 Hindenburgo-FranciscoPires...............................................................................................26 K.Ravi-Raman....................................................................................................................26 Michael Reich......................................................................................................................27 Samuel Rosenberg...............................................................................................................27 Carlos Salas..........................................................................................................................28 William Tabb.......................................................................................................................28 MartinWolfson....................................................................................................................28 Acknowledgements,.................................................................................................................29 PARTONE: SOCIALSTRUCTUREOFACCUMMULATION..........................................30 1. SSATHEORY: THESTATEOFTHEART, TerrenceMcDonough.......................31 AnOverviewoftheLast Decade.....................................................................................31 EnterSociology............................................................................................................33 SSAs OutsidetheUnitedStates...................................................................................34 SpecificInstitutions withintheSSA............................................................................35 TheCurrent StateofSSATheory....................................................................................36 Is aNewSSAConsolidating?......................................................................................39 Conclusion.......................................................................................................................44 Bibliography.....................................................................................................................46 2. INSTITUTIONALSTRUCTUREOR SOCIALSTRUCTUREOF ACCUMULATION, David M.Kotz....................................................................................50 Introduction......................................................................................................................50 TheOriginoftheConcept ofanSSA..............................................................................50 Institutions andCapitalism..............................................................................................52 Liberal andRegulationist Institutional Structures............................................................54 ConcludingComments.....................................................................................................56 5/538 http://ssagalway.blogspot.com 5/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Table1.GrowthRates ofReal Gross DomesticProduct forSelectedCountries....57 (Annual averagepercentagerateofgrowth)............................................................57 References........................................................................................................................57 3. CHANGES INCAPITALISM SINCETHEREAGANERA: THENEW SOCIAL STRUCTUREOFACCUMULATION, Michael Reich......................................................59 SSATheory......................................................................................................................59 Maininstitutions that makeupaSocial StructureofAccumulation...............................59 Social Structures ofAccumulation(basedonGordon,Edwards andReich1982).........59 Institutions oftheDeregulatedCapitalism SSA: Consolidationafterthe1984election.60 Capital-laborrelations..................................................................................................60 Capital-capital relations...............................................................................................60 Finance.........................................................................................................................60 Government..................................................................................................................61 International relations..................................................................................................61 Dominant political coalitions ofthis SSA.......................................................................61 Quantitativeindices ofthenewSSA...............................................................................61 Graphic1: Long-Term DeclineinVolatilityofMacroeconomicIndicators...........62 Source: EconomicReport ofthePresident 2006,ch.9...........................................62 Graphic2: Laborshares 1981-2005(Business sector)............................................62 Graphic3: AverageIncomes ofTopOnePercent andEveryoneElse,1917-2004.62 Graphic4: ShareofCapital IncomeGoingtoTop1%ofIncomeDistribution......63 Graphic5: TopOnePercent WealthShare,1916-2000,various estimates.............63 Graphic6: Profit Rate-All Corporations, 1951-2005............................................64 Graphic7: Profit Rate-Financial Corporations, 1951-2005...................................64 Graphic8: Profit Rate–Nonfinancial Corporations, 1951-2005............................64 Graphic9: RatioofFC Profits toNFC Profits 1948-2005......................................65 Graphic10: RatioofFinanceNVAtoNonfinanceNVA,1948 -2005..................65 Graphic11: Cash Balances at Non-Financial Corporations, 1967to2005.............65 Source: EconomicReport ofthePresident in2006.................................................66 Graphic12: International Profits as PercentageofDomestic(pre-tax)Profits, 1948- 2005..........................................................................................................................67 Graphic13: Net Profit Inflows as PercentageofDomesticProfits, 1948-2005......67 Graphic14: Cross-BorderFlows as Measures ofGlobal Integration,Industrial and DevelopingEconomies, 1994-2004.........................................................................68 Graphic15: Gross International Financial Assets andLiabilities, 1970-2004 (trillions ofU.S.dollars)..........................................................................................68 Graphic16: EvolutionofInternational Financial Integration,1970-2004..............69 Graphic17: Real WageGrowthinChinaforUrbanManufacturingWorkers fora selectionofProvinces..............................................................................................70 Graphic18: Annual LabourCompensation,Manufacturing,SelectedProvinces, China,2002..............................................................................................................70 Graphic19: Personal SavingRateandtheRatioofNet WorthtoDisposableIncome 1953:Q1 –2000Q3..................................................................................................71 Graphic20: Savings RatebyIncomeQuintile,ExcludingDefinedPensionPlans andNonprofits Organisations 1992Q1-2000Q3.....................................................71 Graphic21: SavingRates byEducationCategory: ExcludingDefinedBenefit PensionPlans andNonprofits (1992Q1 –2000Q3)................................................72 DeregulatedCapitalism SSA: OngoingStrengths andWeaknesses................................72 Strengths ofcurrent SSA.............................................................................................72 EconomicWeaknesses.................................................................................................72 6/538 http://ssagalway.blogspot.com 6/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Political Challenges.....................................................................................................73 Political coalitiondynamics anddecayofSSAs..............................................................73 PreliminaryConclusions about theNewSSA.................................................................73 PARTTWO: THEORY...........................................................................................................74 4.SOCIALSTRUCTUREOFACCUMULATIONTHEORY, Victor Lippit....................75 SSAtheoryandits origins...............................................................................................75 ThepostwarSSAintheUnitedStates.............................................................................77 Japan’s postwarSSA........................................................................................................79 Thestructural integrityofanSSA...................................................................................81 OverdeterminationandthepostwarSSAintheUnitedStates........................................83 WhySSAs requiremanyyears toconstruct andwhytheyenduremanyyears................87 Theroleofclass conflict inSSAformationandcollapse................................................90 TheformationofanewSSAintheU.S.inthe1980s and90s.......................................92 1.Thestrengtheningofcapital relativetolabor..........................................................93 2.Thechangeinfinancial institutions favorabletoinvestment..................................94 3.Deregulation.............................................................................................................94 4.Institutional changes inthenatureofthecorporation..............................................94 5.Smallergovernment.................................................................................................95 6.Anincreaseininternational agreements tofacilitateinternational tradeand investment....................................................................................................................95 Capital markets favorabletosmall,entrepreneurial companies..................................96 SSAtheoryinthelight ofthenewly-constructedSSAintheU.S...................................97 Conclusion.......................................................................................................................99 References......................................................................................................................103 5.CLASS,CRISIS,ANDTHETHEORYOFASOCIALSTRUCTUREOF ACCUMULATION, Martin H.Wolfson...........................................................................106 SSATheory....................................................................................................................106 Class Contradictions......................................................................................................108 Polanyi’s DoubleMovement.........................................................................................109 Capitalist Crises.............................................................................................................110 ReinterpretingthePostwarEconomy.............................................................................110 ReinterpretingSSATheory............................................................................................112 References......................................................................................................................112 6.Meta-Theory: Critical Realism andSocial Structures ofAccumulationTheory. Brian O’Boyle..............................................................................................................................114 Introduction....................................................................................................................114 Sectionone.....................................................................................................................115 Critical Realist PhilosophyofScience.......................................................................115 Critical Realist KnowledgeGeneration.....................................................................117 Sectiontwo.....................................................................................................................119 Critical Realism andHeterodox Economics..............................................................119 SituatingtheCREproject..........................................................................................119 CREcontributions......................................................................................................120 SectionThree.................................................................................................................123 HeterodoxyandtheSSAApproach...........................................................................123 Critical Realism andSSATheory..............................................................................124 Critical realist ontologyandSSAtheory...................................................................124 Critical Realism,SSAtheoryandknowledgegeneration..........................................125 Critical Realism, SSAtheoryandtheStatus ofKnowledge......................................126 SectionFour...................................................................................................................127 7/538 http://ssagalway.blogspot.com 7/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Critical realism as anemancipatoryproject...............................................................127 SectionFive...................................................................................................................129 Critical Realism andMarxism...................................................................................129 TheAdvantages ofaCritical Realist SSATheory.....................................................131 Bibliography...................................................................................................................133 PARTTHREE: FINANCEANDREGULATION................................................................137 7.THECONTEMPORARYAMERICANSSAINTHELIGHTOFCEOS REMUNERATIONEVOLUTION, Robert Boyer............................................................138 Abstract..........................................................................................................................138 Introduction: Anindirect approachtoemergingSSA....................................................138 Figure1: Thefactors that shapetheinternal organisationofthecorporation........141 Divisionoflabourandsizeofthemarket: from Adam SmithtoAlfredChandler....141 From apurelegal entitytoanorganicconceptionofthefirm: BerleandMeans......142 Stateinterventions andlegal conceptions shapetheinternal organisationofthe corporation: from KennethGalbraithtoNeil Fligstein..............................................142 Theemployees recognitionas stakeholders: AlfredSloan........................................143 Managers andcorporation: from theendofXIXthcenturyto earlyXXIst century.144 Figure2 : Act IandII: Theemergenceandthecrisis ofthemanagerial corporation ................................................................................................................................145 Valuecreationandshareholdervalueas disciplinarydevices...................................145 Figure3 : Act III: discipliningthemanagers byshareholdervalue.......................147 Financial bubbleandinfectious greed: executivecompensationunderscrutiny.......147 Figure4: Howanallegedvirtuous circleturnintoavicious spiral: theEnronstory ................................................................................................................................149 Corporategovernanceandshareholdervalue: thedivorcebetweeneconomic performanceandmanagers remuneration......................................................................149 Thejoint stockcorporationinthe90s: goodfinancial performancebut moderate improvement ofeconomicefficiency.........................................................................150 Figure5: S&P 100Americancorporations: Highfinancial profitabilityduetothe leverageofdebt......................................................................................................150 Figure6: CAC40Frenchcorporations: Moderateriseoffinancial profitabilitydue totheleverageofdebt............................................................................................151 Thesurprisingcomingbackofpatrimonial capitalism evenintheUS….................151 …Familycontrolledfirms outperform managerial corporations inFrance..............152 Figure8: Familyfirms areoutperformingpubliccorporations.............................153 Thesurgeofprivateequity: achallengertodispersedownership?...........................154 Figure9: Thepubliclyquotedcorporationunderpressureofanoldandanew challenger...................................................................................................................154 Topexecutives havedivorcedfrom labour................................................................155 Figure10: US: CEOs’payversus averagewage,1970-1999...............................155 Managers at thecentreofshiftingalliances: Apolitical economyanalysis..................155 Abriefhistoryofeconomicandsocial alliancesincethegoldenage.......................156 The60’s: Analliancebetweenwageearners andmanagers andtheFordist growth regime....................................................................................................................156 Figure11 -The60’s. Thefirst configurationofactors: theFordist compromise..156 The80’s: Theinternationalizationerodes theprevious alliance............................157 Figure12: The80’s. Thesecondconfigurationofactors: Aninternational competitionledregime..........................................................................................157 The90’s: Undertheaegis ofshareholdervalue,thehiddenalliancebetween managers andfinanciers.........................................................................................158 8/538 http://ssagalway.blogspot.com 8/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Figure13: The90’s. Thethirdconfigurationofactors: theallianceofinvestors and managers................................................................................................................159 Thepowerandinformational asymmetryinfavourofexecutives.............................159 Whenthefinancial crises andscandals burst out: twonewactors, thelawyerandthe activist........................................................................................................................160 Figure14: The2000’s intheUS.Thefourthconfigurationofactors: thelawyer wins whateverthesituation....................................................................................160 Figure15: The2000s. Thefifthconfigurationofactors: thethreat ofState interventioninordertodisciplineglobal finance..................................................161 Thepowerofmanagers at thefirm level: numerous convergingempirical evidences..162 Insidertrading: amanifest useofstrategicinformation.............................................162 Figure16: Market reactions toinsiderpurchases: theUKstock-market...............163 Figure17: Market reactions toinsidersales: theUKstock-market.......................163 Thediffusionofstockoptions plans: aresponsetoshareholdervalue......................163 Figure18: Thecontrastedpatterns ofstockoptiondiffusionintheUS andUK..164 Figure19: ThestructureofCEOcompensationis quitedifferent inUKandUS (1997).....................................................................................................................164 Thelargerthecorporation,lesserCEOpay-performancesensitivity........................166 Figure21: Statistics forstock-basedCEOincentives bysize................................166 Thesurgeofmergers andacquisitions: abenefit forthemanagers, morerarelyfor shareholders...............................................................................................................167 Figure22 : From therhetorictotherealityofshareholdervalue..........................168 Clearwindfall profits formanagers benefitingfrom stockoptions...........................168 Figure23: Whystockoptions donot sort out thecontributionofmanagers tothe performanceofthecorporation..............................................................................169 Figure25: Thesourceofshareholdergains intheUKand US (2003).................169 CEOs haveanasymmetricpowerontheremunerationcommittee...........................170 After1997,afavouritecorporatestrategy: distortingtheprofit statements..............171 Figure25: Thesystematicoverstatements ofprofits after1997: as slowprocess of adjustment intheUS..............................................................................................171 Figure26: Twoevaluations oftheimpact ofstock-options oncorporateprofits in theUS.....................................................................................................................172 Alast resort weaponofCEOs: shift from thetransparent tothehidden...................172 Figure27: From thetransparent tothenonapparent: thetrickledownstrategyof CEOabout theircompensation..............................................................................173 ThefinancialisationofCEOs compensation: theconsequenceoftheinternal restructuringofthedivisions ofthequotedcorporation............................................173 Figure28: Theshift ofinternal control withinthecorporation: theriseofCFOas CEO........................................................................................................................175 Thepowerofmanagers inthepolitical arena................................................................175 Financial liberalisationhas beenaprerequisiteforCEOs compensationexplosion.175 Figure29: Themainepisodes andfactors inthefinancialisationofexecutive remuneration..........................................................................................................175 Wheneconomicpoweris convertedintopolitical power..........................................176 Thegeneral context ofrisinginequality.....................................................................176 Figure30: TheUS: Thetopdeciles incomeshare,1917-1998.............................176 Figure31: ThepolarisationofAmerica(1967-1997) Averageinflation-adjusted annual aftertax incomeofpoor,middleclass,andrichhouseholds.....................178 Thesurgeofentrepreneurial incomes contributes tothegrowingnumberofsuperrich ....................................................................................................................................178 9/538 http://ssagalway.blogspot.com 9/538 GGrroowwtthhaannddCCrriissiiss,, SSoocciiaallSSttrruuccttuurreeooffAAccccuummuullaattiioonnTThheeoorryyaannddAAnnaallyyssiiss Figure32 : US: Incomecompositionoftopgroups withinthetopdeciles in1929 and1998.................................................................................................................179 Theconcentrationofwealthgoes alongwithstockmarket bubbles.........................180 Figure33 : Wealth inequalityand stockmarket peaks..........................................180 Thetax system is redesignedinfavouroftherichest................................................180 Figure34 : Contrastedevolutions oftax rates formiddleclass andrichfamilies.181 Figure35: ThedecliningshareofFederal tax burdenpaidbycorporations andthe risingshareofpayroll taxes...................................................................................181 From themicroinefficiencyofstockoptions tothesurprisingresilienceofthe financialisedSSA...........................................................................................................182 AftertheInternet bubble: acritical reappraisal ofthevirtues ofstock-options.........182 Figure36: Tenreasons against theuseofstock-options........................................182 Therecent literature: arediscoveryofthepowerofmanagers..................................183 Figure37: Howmanagers usetheirrelativeautonomywithrespect toshareholders ................................................................................................................................183 CorporateAmericaversus SiliconValley: twodifferent uses ofstock-options........184 Figure38 : Twoconceptions ofstock options.......................................................184 Theemergenceofacorporategovernancemarket?...................................................185 Figure39 : Threestories about CEOremunerationinthe90’s............................186 Theexplosion ofCEOs remuneration: thesymptom ofaspecificform ofcorporation186 Figure40 : Alternativealliances, different conceptions ofthefirm,various rewards andcontrols ofmanagers.......................................................................................188 Figure41 : Anewfinanceledaccumulationregime.............................................189 AnevidenceforthefinancialisationofaccumulationregimeintheUS? .....................189 Thecoreofafinanceledaccumulationregime: anewalliancebetweenmanagers and financiers....................................................................................................................190 Themajorcomponents ofafinanceledSSA.............................................................190 Figure42 : Themainmacroeconomicrelations ofafinance-ledSSA..................191 This is aregimequitespecifictoUS.........................................................................191 Figure43: Thefinance-ledSSAis typical ofUS andUK: fewchances ofdiffusion ................................................................................................................................192 Conclusion: managers, financiers, politicians andfinanceledSSA..............................192 Theexpressionofthetransformationofcorporategovernanceafterthecrisis of Fordism......................................................................................................................193 Noefficiencygainat themicro,macrolevel.............................................................193 Theintrinsicpowerofmanagerat thefirm level andits extensionat thesocietywide level............................................................................................................................193 Theart ofjudoka: convertingshareholdervalueintoCEOs wealthexplosion.........194 Thecompletescript: from anewalliancetoafinanceledSSA................................194 References......................................................................................................................195 8. SOCIALSTRUCTURES OFACCUMULATION,REGULATIONAPPROACH ANDSTAGES THEORY, Stavros D.Mavroudeas..........................................................200 Introduction....................................................................................................................200 Thenewernon-orthodox middle-rangetheories: RAvs. SSA......................................201 Periodisationtheoryandthenewernon-orthodox middle-rangetheories.....................205 Analternativeperiodisationtheory................................................................................208 LabourandProductionProcess..................................................................................209 Process ofsocialisationofproduction.......................................................................211 Process ofincomedistribution...................................................................................211 Forms ofcrisis............................................................................................................211 10/538 http://ssagalway.blogspot.com 10/538

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Social Structure of Accumulation Theory and Analysis. Edited by: Terrence McDonough. 1. Michael Reich. 2. David M. Kotz. 3. Maria-Alejandra Gonzalez-Perez. 4. ISBN 978-0-9553159-1-6. Social Sciences Research Centre (SSRC) &. Centre for Innovation & Structural Change (CISC), at the National
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