The Economics of the Modern Construction Sector PDF
Preview The Economics of the Modern Construction Sector
The Economics of the Modern Construction Sector Graham J. Ive and Stephen L. Gruneberg The Economics of the Modern Construction Sector Also by Stephen L. Gruneberg and Graham J. Ive THE ECONOMICS OF THE MODERN CONSTRUCTION FIRM Also by Stephen L. Gruneberg CONSTRUCTION ECONOMICS: An Introduction FEASIBILITY STUDIES IN CONSTRUCTION (with David H. Weight) RESPONDING TO LATHAM: The Views of the Construction Team (editor) The Economics of the Modern Construction Sector Graham J. Ive Senior Lecturer Bartlett School University College London and Stephen L. Gruneberg Lecturer Bartlett School University College London ©Graham J. Ive and Stephen L. Gruneberg 2000 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P0LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2000 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG21 6XS and London Companies and representatives throughout the world ISBN 978-0-333-62662-7 ISBN 978-0-230-51091-3 (eBook) DOI 10.1057/9780230510913 Acatalogue record for this book is available from the British Library. This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. 10 9 8 7 6 5 4 3 2 1 09 08 07 06 05 04 03 02 01 00 To Rose and Jan Contents List of Figures xi List of Tables xiii Preface xv List of Abbreviations xviii Introduction 1 PART I PRODUCTION 1 Construction and value added 3 Introduction 3 Defining the construction sector of production 4 Is the construction sector really several different industries? 11 Factors of production 13 The structure of value added in the production of the built environment 16 Input–output analysis and the value added by the construction sector. 19 Gross and net profit 23 Concluding remarks 23 Appendix: Standard Industrial Classification, 1992 25 2 The capitalist construction industry labour market 29 Introduction 29 The technological and social relations of production 30 Labour markets 32 The supply and demand for labour 33 Inefficient labour markets and non-clearing labour markets 39 The dual labour market 42 Construction labour 44 The role of collective bargaining in construction 47 Supply and demand in labour markets – a theory of construction wages and employment 51 Formal and real subsumption of labour by capital 55 vii viii Contents The use of labour in the construction industry 56 Structure of the construction labour force 58 Concluding remarks 59 3 Productivity and the production of profits 61 Introduction 61 Productivity 61 Average net productivity 65 Alternative estimates of level and rate of change of construction productivity 66 Rate of increase in productivity: alternative estimates 68 Marginal productivity theory 71 The production function 73 The production of profit 74 Unit labour costs and labour and profit shares in output 75 Division of labour in the construction industry 76 Concluding remarks 78 PART II ACCOUNTING FOR PRODUCTION AND ASSETS 4 The logic of accounts 81 Introduction 81 The structure of national accounts 81 The logic of national accounts statistics 85 Income 87 National income and the standard of living or economic welfare 90 Output 91 Domestic and national product 92 ‘Output’ from real estate 92 Accuracy and reliability of the components of the National Accounts 95 Expenditure 95 The structure of company accounts 96 The production account 97 The appropriation account 98 The capital account 100 The financial account 101 National accounts again – the composition of national income 104 National and expenditure in the corporate sector 105 Stocks and flows of the construction industry 108 Concluding remarks 111 Contents ix 5 Value of stock and flows of built capital at national level 113 Introduction 113 The valuation of property and real estate 113 The capital stock in the National Accounts 115 Types of fixed capital stock 118 The valuation of fixed capital in the National Accounts 121 Stocks of capital and flows of investment 123 Retirements of built stock, life-spans and replacement demand 126 Concluding remarks 128 6 Ownership of and investment in built stock and land 129 Introduction 129 The book value of assets 129 Devalorisation 132 Schumpeterian innovation, super-profits and revalorisation 134 Techniques of valuation of buildings 136 Payback period 137 Life cycle investment appraisal models 138 Discounting 139 The creation of money and credit by financial institutions 141 Landowners and capitalists in the development process 141 Concluding remarks 145 PART III THE NATURE OF THE CONSTRUCTION PROCESS 7 Actors and roles 149 Introduction 149 The nature of construction as a process 149 The nature of team-working in construction 150 Systems and their main types of actor 164 Speculative builders and contractors 166 Construction as a manufacturing process 167 Other roles in the process 167 Projects and firms 171 Portfolio risk management costs 176 Concluding remarks 179 8 The contracting system 180 Introduction 180 Fragmentation and innovation in the development process 180 x Contents The contracting system 188 Concluding remarks 190 Part IV Construction and the Economy 9 Construction investment, the multiplier and the accelerator 195 Introduction 195 Aggregate construction demand 197 The multiplier 206 The accelerator 209 Change-induced demand for buildings and works 217 Concluding remarks 218 10 Business cycles and construction 222 Introduction 222 A profit-led model of private sector investment demand and of business cycles 222 Cycles 226 Trend and cycle 227 Business cycles 229 The 9-stage business cycle: a method of description of business cycles 230 Measurement of construction demand 237 GDP and aggregate construction demand 245 Product cycles and the trend rate of change in aggregate construction demand 250 Economic development and the trend in construction demand 254 Building cycles 255 Price fluctuations 256 Concluding remarks 258 Bibliography 260 Index 269
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