Low Investment Rates Research Articles

Politics and the Structural Dependence of the State in Democratic Capitalist Nations

I explore empirically a central claim of the structural dependence thesis, namely, that capitalists' ability to disinvest fundamentally conditions policy choices in democratic capitalist systems. Utilizing time-series data for 16 affluent democracies from 1965 to 1984, I find that, indeed, low rates of business investment are associated with reductions in corporate tax burdens and that these reductions are more pronounced in periods of economic crisis. Moreover, low rates of capital formation engender cuts in personal income taxes during periods of economic stress. However, I also find that the magnitude of responsiveness of taxation to low rates of investment is relatively small and that analyses of the political context of investment and taxation indicate that governments have choices. The responsiveness of corporate tax burdens to capital formation may, under some governments, be part of a policy mix designed to maintain adequate investment and to address the demands of core constituencies.

Agriculture in the Macroeconomy: Discussion

American Journal of Agricultural EconomicsVolume 70, Issue 5 p. 1023-1024 General Session Agriculture in the Macroeconomy: Discussion Stanley R. Johnson, Stanley R. Johnson professor of economics and administrator of the Center for Agricultural and Rural Development Center for Agricultural and Rural Development, Iowa State UniversitySearch for more papers by this author Stanley R. Johnson, Stanley R. Johnson professor of economics and administrator of the Center for Agricultural and Rural Development Center for Agricultural and Rural Development, Iowa State UniversitySearch for more papers by this author First published: 01 December 1988 https://doi.org/10.2307/1241728AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat No abstract is available for this article. Volume70, Issue5December 1988Pages 1023-1024 RelatedInformation

The carajas iron ore project: The strategy of a third world state- owned enterprise in a depressed market

This paper describes how the Carajas iron ore project was set up in February 1985 at a time of deep recession in the iron ore and steel industries. Development of the project was met with much criticism, mainly from North American steel makers, who argued that the project would only be successful through the support of a Third World government, highly dependent on foreign exchange, without any consideration being given to its economic feasibility or to the fundamentals of the market. The authors explain why the World Bank took the step of setting up the project and how its development can be partly explained by the interests of the Japanese and European steel makers. The role of the Brazilian government is explained and the authors conclude that the relatively low rate of investment anticipated by the project will be overshadowed by the high gains in foreign exchange.

ON THE ECONOMIC IMPLICATIONS OF THE GROWTH OF THE NON-MARKET SECTOR *

R. BACON and W. Eltis have argued, in their interesting and provocative book, that the economic diseases Britain has experienced since the 1970s largely stem from the growth of the public sector (or what they call the non-market sector) of the economy.' They support their thesis with empirical evidence and provide underlying economic theory. An investigation of the economic consequences of the growth of the public sector is crucially important, especially as it is a matter of deep concern to most of the developed countries today, which still have large public sectors in spite of their recent policies to halt such growth.2 Although there has been some argument on the Bacon and Eltis thesis since publication of their book,3 the underlying theory has not as yet been closely examined within the framework of a coherent economic model. Accordingly, this paper investigates the effects of non-market sector growth in a simple but consistent model, constructed, we might add, in the spirit of the Bacon and Eltis approach. Our model enables us to analyze the problem more comprehensively and precisely than theirs. We will examine how the economic effects of the growth of the non-market sector will differ depending on: (i) whether we consider the short-run or the long-run; (ii) whether we consider the case of under-employment or the case of fullemployment; (iii) whether we assume the budget to be balanced or not; and finally, (iv) whether the increase in government expenditure is directed toward marketed output or concentrated in payment to persons in the public service. After examining these cases closely, we will point out that although there can surely arise Bacon and Eltis case wherein an increase in the relative size of the non-market sector induces high rate of inflation, high rate of unemployment and low rate of investment, the increase in the relative size of the non-market sector itself may rather be the result than the cause of the low propensity of entrepreneurs to undertake investment.

Toward a Political Economy of British Labor Law

Throughout the past quarter-century, British labor markets have been characterized by an unusual degree of conflict, as measured by the number of agreements between employers and unions abrogated by unofficial union decisions, by days lost in strikes during the currency of existing agreements, by the prevalence of intimidatory and secondary picketing, by the evident political objectives of much strike behavior within public-sector industries, and by the strength of union opposition to trade-union reforms that are treated as commonplace elsewhere in Western Europe and in North America.' A significant concomitant of such turbulence has been a relatively low rate of investment in British industry and a correspondingly low rate of productivity growth, whether measured in terms of output per man-hour or of total-factor productivity.2 In this paper I will argue that labor-market turbulence on the scale witnessed in Britain over the past twenty-five years is primarily the consequence of a system of legal immunities for trade unions, trade-union officials, and individual trade-union members unprecedented in the Western world. The legal immunities availa-

America's Technological Society: The Next Decade

AbstractEvidence is presented that the US position in science and technology is slipping behind that of her competitors in Europe and Asia. The consequences are unacceptable in the economic, social and political fields, not only for the USA, but also worldwide. The reasons for the slippage are given as inflation, high tax policies, a too low investment rate in R and D and particularly governmental over-regulation. The proposed answer is effective cooperation between tbe private sector and the US Government; the production of synthetic fuel from coal is cited as an example of how such teamwork should be organized.

The Wedge Theory: Pie in the Sky?

* According to the wedge doctrine propounded by ProfessorArthurLaffer, governmenttaxation introduces disincentives to supply while government spending, particularly transfer payments, introduces incentives to demand. Underinvestment and low productivity suppress output and employment even while consumption is burgeoning; stagflation is the inevitable result. Laffer's conclusion: The economy would produce more and consume less if government's role were reduced. High taxes may indeed have something to do with low rates of investment, profitability and productivity improvement. On the other hand, the assumption that only government stands in the way of inflation-free economic growth is at odds with a long history of economic instability under capitalism. High rates of profitability and investment are destined by their very nature to self-destruct; the wedge theory is dangerously optimistic in implying that high levels of employment and output are, in the absence of government intervention, indefinitely sustainable. On the other hand, the wedge hypothesis is dangerously pessimistic in arguing that we have no way out of our troubles short of a major withdrawal of government from the economy. Just as the euphoria of the 1970s led directly to the unhappy economic performance of the past decade, so the disappointment, distress and modest investment levels of recent years are destined to lead to something much better in the years ahead. 0

Laws of Motion of Capital in the Center-Periphery Structure

The laws of motion of capital in the world economic system are analyzed through the fundamental necessary relation between production and consumption capacities. The structural contrasts between center and periphery and domination of the former over the latter create specific barriers to the pro cess of accumulation that are overcome through external relationships among them. Specifically, the tendency for the rate of profit to fall in the center and, in the periphery, the deficit in the balance of payments, the low rate of investment, the limited market size, and the food crisis create the internal possibilities for these external relations. The laws of motion provide the objective basis for the contrasted relations between growth and income distribution in center and per iphery and for the deepening of dualism in the latter.

Human Capital and Labor Supply: A Synthesis

The joint determination of work and investment in human capital over the life cycle is analyzed. At low rates of impatience investment is decreasing throughout life, as in simpler models which assume hours of work to be fixed. The demand for leisure over the life cycle is "U shaped." Wages rise to a single peak which occurs after the peak in hours of work. Distinctly different patterns arise when the rate of impatience is high. Such individuals may prefer an increasing hours of work profile, and schooling need not be concentrated at the beginning of life. Conditions are provided to determine a critical level of time preference which is sufficient to induce a "normal" life-cycle pattern for investment and work.

The multinational enterprise and the theory of development policy

In the early phase of the theory of development policy in the 1950s it was capital that was stressed as the strategic factor in development. Foreign investment by the multi-national enterprise (MNE) was therefore regarded mainly as a source of foreign funds which supplemented domestic savings efforts. Nurkse’s thesis that countries are poor because they are poor and needed large injections of foreign capital became widely accepted.’ According to this view, a poor country could not raise its low ratio of savings to national income very quickly or very easily. A low savings and investment rate led to a low rate of capital accumulation. This, in turn, implied that workers were endowed with relatively little capital: this kept their productivity low. Low productivity per worker perpetuated low income per head. The low investment ratio was both cause and effect of poverty. In order to break out of this vicious circle of poverty, massive injections of capital from abroad would be necessary. Foreign investment could contribute to pulling poor countries out of this low equilibrium trap.

Note sur «le degré d’intensité capitaliste» des investissements dans les pays sous-développés

A note on the degree of capital intensity in under-developed countries. Discussion of the policies of underdeveloped countries is governed by the dogma that, since a scarcity of capital relatively to labour is a usual characteristic of such countries, capital investment needs there to take the form of projects with a «low capital intensity». The form in which the above principle is stated rests on the assumption of a given stock of capital equipment in existence as the country's heritage from the past, and or the assumption that the rate of new investment is given. But the choice between more or less capital-intensive forms of investment should depend not on the existing ratio of available labour to capital, treated as a slock, but on precisely the same considerations as those which determine the choice between a high and a low rate of investment — namely, the importance to be attached to raising consumption in the immediate future, compared with the potential increase of consumption in the more distant future which a particular form of investment will make possible. There is no reason to suppose that an under developed country should always choose a lower rate of investment than a more developed one — if anything the converse, since, although the lowness of existing consumption per head may put a high premium upon raising it in the near future, the effect upon productivity (and hence upon potential consumption in the more distant future) of a given increase in the (relatively small) stock of capital is likely also to be abnormally large. A simple model, gradually refined, illustrates the argument.