Saturday, August 24, 2013

Smooth...And By the Numbers 3

[Again, all figures from, or derived from US Census Bureau's Quarterly Financial Report and the Bureau's Annual Survey of Manufacturers]

1.  Say hello to a not so little old non-friend, the petroleum industry.  Prior to the Great Recession, US petroleum producers accounted for, on average, about 20% of the total net property, plant, and equipment in the manufacturing sector.  The size of this investment is also characterized by the reduced value of living labor that engages, reproduces, expands this property plant and equipment.

The ratio of annual wages of production workers to the net PPE is approximately 1 to 4.5, $1 in wages for every $4.5 in net PPE, for the manufacturing sector as a whole.  The ratio measures about 1:69 in the petroleum sector (and coal manufacturing, as the industries are not separated in the NIPA tables).

Similarly, an examination the relation of production worker wages to total value of shipments shows that the petroleum sector ratio of 1:160, $1 of wages for every $160 of product shipped,  far "outperforms" the manufacturing rate of  1:17.  

Profitability, however, does not follow easily in the wake of this "super-productivity."    The size of the petroleum industry's investment creates a chronic (not permanent, not continuous, but chronic, an immanent condition, sometimes expressed in acute phases, sometimes expressed in its very remission) oscillation between two of capital's dynamics-- (1)that profits accrue proportionate to the size of the capitals employed and (2) the greater the mass of accumulated value in the means of production in relation to the living labor required to engage that mass, the greater the tendency for the rate of profit to decline.   

Achieving (1) is not always sufficient to offset (2).  The offset is essential to accumulation itself. The offset requires the transfer of portions of the total realized surplus value, the total social profit, to the petroleum industry.  The mechanism for this transfer is price, or more exactly, the differential between price and value.  

So for 2012, the petroleum sector's operating profits amounted to 14.1% of operating expenses.  However, the petroleum sector's operating profits amounted to 38% of the operating profits realized  in the manufacturing sector. Good for petroleum?  But not so good for the sector as a whole which experienced an overall decline in both the mass and rate of its profits.

The cost of product for the upstream (extraction) petroleum manufacturers has averaged around $10 per barrel of oil equivalent.  The price of product that the upstream manufacturers obtain in markets is usually between $91 and $100 per barrel of oil equivalent.  This disparity is the market distributive process at work. Only through the distribution and redistribution of value does capital tend to create an average rate of profit which offsets the declining rate in certain sectors by imposing that decline as a limit, a barrier, to the reproduction of all other sectors.

2. These processes, reproduction/disproportion/distribution, have taken their acute forms in the oil price spikes of 1999, 2001, 2003.  Of particular significance, however, is the US petroleum sector's performance in 2007 and 2008, years of the great oil price blowout culminating in....the Great Recession.  In both years, the sector's profits accounted for 25% of total manufacturing profits, in synch, in proportion (almost) to its 20% portion of net property, plant and equipment.  However in both 2007 and 2008, the ratio of operating income to operating costs in the sector was significantly below that ratio for manufacturing as a whole. 

In 2007,  the petroleum sector's ratio of operating income to operating expense measured 6.2%, while for manufacturing sector registered an 8.8% ratio.  In 2008, the petroleum sector registered a 4.2% ratio, while the manufacturing sector achieved a 7% ratio.  Capital is  incapable of  maintaining balance, proportion among the conflicting tendencies it itself spawns in the pursuit of value, in the need to accumulate, in the need to aggrandize greater ratios of surplus value. .

S. Artesian

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