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Decrease in Industrial production.

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Rugged Free-Marketeer posted on Sat, Oct 27 2012 11:07 PM

 

What's the Austrian explanation for the fall in industrial production in advanced capitalist societies since the early 20th century? 

http://www.tradingeconomics.com/charts/united-states-industrial-production.png?s=ip%20yoy&d1=19200101&d2=20121031

http://www.tradingeconomics.com/charts/united-kingdom-industrial-production.png?s=ukipiyoy&d1=19720101&d2=20121031

I'm searching for a refutation, or for an alternative, of the Marxist explanation (LTV + Falling rate of profit) and its implications (capitalism is on its last legs, etc.).

Thanks.

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Going a little more in-detail the reasons are a few.

1)Minimum wage laws and other artificial restrictions on the labor market like "national contracts". These don't take into account a worker's wage is ultimately decided by his producticity which is invariably linked to capital investments. and by scarcity of a given type of labor (specialized engineers are in shorter supply than people with a degree in arts). When investors are forced to pay workers more than they are worth productivity-wise, profits drop off sharply especially in sectors heavily reliant on non-qualified or lowly-qualified manpower.

2)Taxation. I should just call it a day after using that word. Taxation in all industrialized countries has increased dramatically since the boom years of the '50s. Effects are manyfold and not uniform. For example Germany, Switzerland and Sweden, despite the high taxation, allow investors generous tax breaks for R&D, retooling and training. In these countries industrial production hasn't declined as sharply as in countries such as Italy or France whose tax breaks to increase productivity are not only minimal but have been steadily reduced. Also taxation affects consumption. A worker whose income gets steadily eroded by taxation (both direct and indirect) will have less disposable income to purchase goods. This of course works in conjunction with

3)Inflation. The pace of inflation in industrialized countries has increased since 1971 (abolition of the Bretton Woods Treaty) and has further increased since 2002 (introduction of the euro) when the two last vestiges of monetary stability, the gold-dollar reserve system and the German mark, were removed. Inflation, as many have said, is just occult taxation which is not exactly quantifiable because of the accounting trickery employed by the bureaucrats in charge of it. Purchasing power gets corrupted and reduced by inflation, forcing producers to adopt cost-cutting measures which invariably end up hurting the manufacturer-consumer relationship.

4)Regulation. My best friend is a lawyer, and a good one. I asked him "How many laws have we got in our country?" "No idea, tens of thousands for sure". When a good lawyer cannot even give a tentative number, you know you are in troubles. Professor A. Cleveland covered the issue of excessive legislation in his magistral Unmasking the Sacred Lies. Cleveland argues that not only the huge volume of regulation hampers economic activity but, when a certain level is reached, enforcement becomes sporadic and tends to take a "let's make an example of this" turn instead of a more balanced "punishment proportionate to violation" approach. It also waters down the value of legislation: people are less wont to abid the law because they both see sporadic, disproportionate enforcement and a huge number of highly ineffective laws. This hurts business: legal instability is every bit as bad as economic instability.

5)The Rise of the Far East. Without taking Japan and South Korea into the picture (because they became powerhouses before industrial output started to decline in developed countries), the ascent of countries such as India, China, Malaysia, Thailand etc came at a very propitious moment when investors were looking for somewhere to transfer labor intesive production requiring unskilled or lowly skilled labor because, plainly put, to break even they had to increase prices to such a point people would not buy anymore. I remember the uproar when Dyson, the high end vacuum cleaner manufacturer, opened their first factory in Malaysia. Dyson replied if their vacuum cleaners were to be fully built in the UK they would cost at least 50% more. If Apple was to assemble iPhone's in Silicon Valley they would have an instant 30-40% markup. Mind both Dyson vacuum cleaners and Apple mobile phones are high end products whose potential customers are ready to pay a premium for high quality. Imagine what would happen to low-end products.

 

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Going out on a limb, but I'd say government & fiat money. When industrialists say devaluing currency and regulations hamper business, they don't be joking.

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Just a guess - international division of labor, based on comparative advantage. With "developing" countries increasingly able to profitably compete in more and more industries, the "developed" countries keep only the part of processes where they excel (due to a combination of accumulated capital and workforce). This part may well be decreasingly industrial in composition.

To confirm or refute this hypothesis, one needs to compare decrease of industrial production in developed countries with corresponding increase world-wide, over time.

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Thank you for contributing guys, but I’d like something more substantial, perhaps an article or a book that deals with this to some degree. I think it’s important to refute the Marxist explanation, or to at least present an alternative explanation, considering this is one of their main talking points. 

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Anymore input anyone? Much appreciated.

Philosophy is the study of one's own shit.
  • | Post Points: 5
Top 75 Contributor
1,485 Posts
Points 22,155

Going a little more in-detail the reasons are a few.

1)Minimum wage laws and other artificial restrictions on the labor market like "national contracts". These don't take into account a worker's wage is ultimately decided by his producticity which is invariably linked to capital investments. and by scarcity of a given type of labor (specialized engineers are in shorter supply than people with a degree in arts). When investors are forced to pay workers more than they are worth productivity-wise, profits drop off sharply especially in sectors heavily reliant on non-qualified or lowly-qualified manpower.

2)Taxation. I should just call it a day after using that word. Taxation in all industrialized countries has increased dramatically since the boom years of the '50s. Effects are manyfold and not uniform. For example Germany, Switzerland and Sweden, despite the high taxation, allow investors generous tax breaks for R&D, retooling and training. In these countries industrial production hasn't declined as sharply as in countries such as Italy or France whose tax breaks to increase productivity are not only minimal but have been steadily reduced. Also taxation affects consumption. A worker whose income gets steadily eroded by taxation (both direct and indirect) will have less disposable income to purchase goods. This of course works in conjunction with

3)Inflation. The pace of inflation in industrialized countries has increased since 1971 (abolition of the Bretton Woods Treaty) and has further increased since 2002 (introduction of the euro) when the two last vestiges of monetary stability, the gold-dollar reserve system and the German mark, were removed. Inflation, as many have said, is just occult taxation which is not exactly quantifiable because of the accounting trickery employed by the bureaucrats in charge of it. Purchasing power gets corrupted and reduced by inflation, forcing producers to adopt cost-cutting measures which invariably end up hurting the manufacturer-consumer relationship.

4)Regulation. My best friend is a lawyer, and a good one. I asked him "How many laws have we got in our country?" "No idea, tens of thousands for sure". When a good lawyer cannot even give a tentative number, you know you are in troubles. Professor A. Cleveland covered the issue of excessive legislation in his magistral Unmasking the Sacred Lies. Cleveland argues that not only the huge volume of regulation hampers economic activity but, when a certain level is reached, enforcement becomes sporadic and tends to take a "let's make an example of this" turn instead of a more balanced "punishment proportionate to violation" approach. It also waters down the value of legislation: people are less wont to abid the law because they both see sporadic, disproportionate enforcement and a huge number of highly ineffective laws. This hurts business: legal instability is every bit as bad as economic instability.

5)The Rise of the Far East. Without taking Japan and South Korea into the picture (because they became powerhouses before industrial output started to decline in developed countries), the ascent of countries such as India, China, Malaysia, Thailand etc came at a very propitious moment when investors were looking for somewhere to transfer labor intesive production requiring unskilled or lowly skilled labor because, plainly put, to break even they had to increase prices to such a point people would not buy anymore. I remember the uproar when Dyson, the high end vacuum cleaner manufacturer, opened their first factory in Malaysia. Dyson replied if their vacuum cleaners were to be fully built in the UK they would cost at least 50% more. If Apple was to assemble iPhone's in Silicon Valley they would have an instant 30-40% markup. Mind both Dyson vacuum cleaners and Apple mobile phones are high end products whose potential customers are ready to pay a premium for high quality. Imagine what would happen to low-end products.

 

Together we go unsung... together we go down with our people
  • | Post Points: 5
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