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Cadrisme within a Post-Keynesian Model of Growth and Distribution

2009; Taylor & Francis; Volume: 21; Issue: 3 Linguagem: Inglês

10.1080/09538250903073396

1465-3982

Marc Lavoie,

Economic Theory and Institutions

Abstract The 1990s, especially in the United States, witnessed an unprecedented change in income distribution, with a large redistribution towards rentiers on the one hand, and towards the upper ranks of the managerial bureaucracy on the other hand, as became ever more obvious after the financial scandals affecting large corporations such as Enron and Worldcom. This has also been accompanied by large capital gains that benefited top-file managers as well as shareholders. Ordinary employees and workers, as a counterpart, have seen their real purchasing power stagnate. Despite all this, and in contrast to the predictions of the canonical Kaleckian growth model, many countries achieved respectable growth rates of capital and output. The purpose of the present paper is to explain this paradox and to provide a consistent post-Keynesian model of growth that would model the main features identified above, making a distinction between managerial labour, basically overhead labour, and workers, essentially direct labour – a distinction that was recommended, but never implemented by Kaldor. The model is based on target-return pricing procedures. We then study the implications of cadrisme, a managerial-friendly regime based on large pay packages for the managerial class. Acknowledgments This paper was presented at the conference Post-Keynesian Economics, Income Distribution and Distributive Justice, the Second Bi-Annual Canada/US Eastern Border Post-Keynesian workshop, at the University of Vermont, Burlington, September 23, 2006. It was also presented to the students of the Berlin Post-Keynesian Summer School in July 2008. The paper arose as a result of my stay at the University of Lille, in June 2006, following very enlightening discussions there with Laurent Cordonnier and Franck Van de Velde. Notes 1For instance, the average remuneration of CEOs in the USA, as a ratio of average workers' wages has increased from 96 in 1990 to 458 in 2000 (Petit, Citation2006, p. 51), a period that most observers associate with the demise of managerial capitalism. One would presume that other upper and middle rank managers also benefited from this bonanza. Saez & Veall Citation(2005) show that the top 5% income earners in Canada have dramatically increased their share of income, in particular those of the top percentile, as in the USA. This has been mainly accomplished through increases in salary income. The top 5%- income earners now get nearly 30% of all income, whereas their share remained at or below 25% from 1945 to 1995. 2See the appendix for an alternative specification. 3In Kaleckian models, markups are usually assumed to depend on various historical factors, such as industry concentration ratios or the bargaining power of labour unions. For instance, Dutt (Citation1990, p. 83) assumes that labour unions have a target real wage, while firms have a target markup, and hence, in line with equation Equation(7), a target real wage. The actual real wage will be some weighted average of these two targets. Similarly, we can assume here that labour unions target a certain real wage, which corresponds to a standard rate of return, while firms aim at a standard rate of return, say r s *, whereas the actual target rate of return incorporated into prices, r s , in general will be in-between these two rates (Lavoie, Citation1992, pp. 418–419; Citation2003). See also Cassetti Citation(2003). 4See Lavoie (Citation1992, pp. 256–258). In addition, such an approach to pricing would appear to bring consistency within a multi-sector framework, without adopting long-period Sraffian pricing. See Lavoie and Ramírez-Gastón Citation(1997). 5By equating the two expressions representing required total profits, one obtains: Then equating this new value of p with the one given by equation Equation(8), we have: Plugging back the required value of Θ into equation Equation(8), one obtains equation Equation(9). Of course, this equation makes sense only if the denominator is positive, i.e., if: u s > r s v. The inequality must by necessity be fulfilled since it implies that wages are positive, i.e., profit income is smaller than total income. 6More will be said later about the well-known Bhaduri & Marglin Citation(1990) investment function. In the meantime, note that in a model without overhead costs or without capital depreciation, the constant parameter γ would need to be positive, because the saving function would arise from the origin, forcing the investment function to have a positive intercept with the vertical axis, for otherwise, as we shall see in the next footnote, there would be no economically-meaning solution, since the slope of the investment function needs to be smaller than that of the saving function. But here, with overhead costs, the constant γ can be negative, as will be emphasized later. 7The model is stable if the slope of the saving function is steeper than that of the investment function, which implies that the profits cost curve is steeper than that of the effective demand curve, i.e., provided: s p >g r +g u v/m. This, or similar conditions, will be assumed throughout. 8Recall that (u s – r s v) is necessarily positive. 9If we leave partial equilibrium analysis, things are a bit more complicated since all prices, including those of investment goods, would need to rise, as can be seen from equation Equation(5), which implies that price increases would need to take into account the higher value of replacement capital. This however does not change anything in the logic of the above argument. 10This effect is clearly illustrated at u C . At that rate of utilization, the firm was initially making profits. The increase in overhead labour costs would push up unit costs to the new (higher) price level, and hence profits and profitability would drop to zero. 11Within the context of a short-run model, see Lavoie Citation(1998) for a simplified analysis of the profit share under different hypotheses (with or without overhead costs, with a Kaleckian or Marxist closure, etc). 12Making use of equation (3) and the definition of f, savings on managerial salaries are thus: Savings on overhead salaries as a percentage of the value of capital are thus: and one only needs to substitute w/p by its value in equation Equation(13) to obtain the third term in the saving function. 13 Figure 9 illustrates the case where the sum of the constants in the r ED equation are negative. 14Both (u s − r s v) and {s c +s fr (1−s c )− g r } are positive. See footnotes 8 and 9.