The Great Buildings Collection website is an useful architectural resource.
It includes information about the following architects among others: Tadao Ando, Mario Botta, Santiago Calatrava, Peter Eisenman, Antonio Gaudi, Frank Gehry, Walter Gropius, Zvi Hecker, Phillip Johnson, Albert Kahn, Rem Koolhaas, Maya Lin, Robert Maillart, Fumihiko Maki, Richard Meier, Pier Luigi Nervi, Frei Otto, I.M.Pei, Cesar Pelli, Renzo Piano, Eero Saarinen, Shoji Sadao, Moshe Safdie, Carlo Scarpa, Paolo Soleri, James Stirling, Kenzo Tange, Bernard Tschumi, Robert Venturi, Frank Lloyd Wright, and Minoru Yamasaki.
There is a master architects list from around the world and across history who are documented in the Great Buildings Online. Where a place name is given, it refers to the location of major works, not necessarily to the architect him or herself.
To find a particular architect, browse the list on the web, use the Find command in your browser to search the page for a particular architect or place, or jump to the Quick Search page for fast results and free text searches. For powerful focused searches based on multiple architectural criteria, use our unique Advanced Search page.
For an extensive listing of current architects beyond this master selection, please visit the ArchitectureWeek Directory of Architects and Firms.
2008/08/20
A Proposal for Standardized, Processor-Enforced Contracts
Instead of arbitrarily regulating against this idea, I'd like to see the card processors, card networks or banks establish a standardized, open protocol for handling situations of this sort. There's no reason that a single card transaction always has to result in a single payment in a one-to-one relationship. In the Rewards Network example, a single card transaction results in two payments: one to the restaurant, and one to Rewards Network. Since the card processor verifies the transaction, neither side has to undertake expensive verification and collection tasks. It's a good deal for everyone involved.
(Taking the concept even further, a processor could handle many-to-many transactions, where a group of transactions fitting a certain criteria would trigger a split payment. Easy, once you have the initial mechanism in place.)
A neutral processor with a transaction-based funds allocation mechanism would enable all sorts of sales agency models that wouldn't work otherwise. For example, suppose that I wanted to create an affiliate program, where I offered 10 percent of sales revenue to people who refer new clients to me. First, you'd have to trust that I'll do the right thing and tip out. Sure, you can follow-up with your referrals to get an idea of what you should expect, but it's an imperfect verification system. In addition, you'd have to wait to get paid, at least until I got paid, plus at least a few days.
Instead, suppose we could sign a standard contract where I not only assigned to you the rights to 10 percent of revenues for clients that you bring in, but also gave you a guarantee that if one of your referrals came to me and paid with a certain credit card, that you'd get your 10 percent instantly. Furthermore, to create an incentive for your referral to use the preferred payment mechanism, let's also say that your customer gets cash-back or frequent-flier miles by paying with a certain card. Even if we've never met, you might take me up on the arrangement. As long as your referral used the designed payment mechanism, you'd get paid as soon as I do.
There would be a few issues to work out. You'd have to trust that I don't switch someone from the designated payment method to an off-the-books transaction by offering an incentive that's better than yours (i.e. the restaurant gives a cash discount). And I'd have to be confident that you're getting me customers that I couldn't get on my own, perhaps claiming a certain group of customers (i.e. the people who live within a half-mile of the restaurant) as exemptions to the agency agreement.
But overall, as Luke Froeb always says, mutually satisfactory transactions create wealth. Thus if bank-moderated agreements can structure and enforce contracts that wouldn't otherwise happen because of high contracting and verification costs, that's a clear benefit to the overall economy.
Now, all that's going to take is a few good systems. And some strategic marketing.
(Taking the concept even further, a processor could handle many-to-many transactions, where a group of transactions fitting a certain criteria would trigger a split payment. Easy, once you have the initial mechanism in place.)
A neutral processor with a transaction-based funds allocation mechanism would enable all sorts of sales agency models that wouldn't work otherwise. For example, suppose that I wanted to create an affiliate program, where I offered 10 percent of sales revenue to people who refer new clients to me. First, you'd have to trust that I'll do the right thing and tip out. Sure, you can follow-up with your referrals to get an idea of what you should expect, but it's an imperfect verification system. In addition, you'd have to wait to get paid, at least until I got paid, plus at least a few days.
Instead, suppose we could sign a standard contract where I not only assigned to you the rights to 10 percent of revenues for clients that you bring in, but also gave you a guarantee that if one of your referrals came to me and paid with a certain credit card, that you'd get your 10 percent instantly. Furthermore, to create an incentive for your referral to use the preferred payment mechanism, let's also say that your customer gets cash-back or frequent-flier miles by paying with a certain card. Even if we've never met, you might take me up on the arrangement. As long as your referral used the designed payment mechanism, you'd get paid as soon as I do.
There would be a few issues to work out. You'd have to trust that I don't switch someone from the designated payment method to an off-the-books transaction by offering an incentive that's better than yours (i.e. the restaurant gives a cash discount). And I'd have to be confident that you're getting me customers that I couldn't get on my own, perhaps claiming a certain group of customers (i.e. the people who live within a half-mile of the restaurant) as exemptions to the agency agreement.
But overall, as Luke Froeb always says, mutually satisfactory transactions create wealth. Thus if bank-moderated agreements can structure and enforce contracts that wouldn't otherwise happen because of high contracting and verification costs, that's a clear benefit to the overall economy.
Now, all that's going to take is a few good systems. And some strategic marketing.
ZT finance new thinking
Xiamen University Professor Zheng Zhenlong in the Southwest University of Finance's speech …… Financial engineering is a new discipline, this appears beyond the traditional disciplines of finance have great impact. Therefore, we are in fact from a new perspective to a new awareness of financial issues. First look at what is financial. I read undergraduate school in 1982, now has more than 20 years have passed, the teacher taught me, is the capital of financial intermediation, or financial, teachers do not know how to teach you. In fact it is now the understanding is very narrow, in accordance with the definition of finance can be divided into MANETARY ECONOMICS and FINANCIAL ECONOMICS. Financial economics is actually new financial. With foreign financial big difference between the domestic financial, we should be very familiar with this, I do not speak the more. Research in financial economics is uncertain conditions, the assets will be along the two dimensions of time and space for the optimal allocation of decision-making science, it is very micro, in foreign countries belong to the areas of management. In simple terms is about the time and risk of Economics. So for the time economics, we all know is mainly on interest rates - the currency in terms of time value. So we decided to study the level of interest rates and term structure of interest rates and so on. With these two things, we can be cash flow at different time points along the timeline between the freedom of conversion. With immediate term structure we can have long-term maturity structure, all along the time dimension on the cash flow we can compare. Otherwise, today's 100 yuan with the money 100 years ago, 100 years after the 100 yuan gap between how much money we simply can not can not be measured. Another is the risk of Economics, which involve risk identification, risk management and risk pricing, if we can measure the risk will be worth the risk into uncertainty value. This is the time dimension. So is the latitude of space assets in space configuration. Various asset value at risk not the same, no conversion can not be compared. So pricing is beyond the end of it into a certainty equivalent. All the things converted into uncertainty after the equivalent of two equivalent coordinate axis, a timeline, a space-axis, and then intersection along a different axis can be compared to as the center point of intersection.
Finance and Economics What is the difference? » Our domestic finance in economic subjects below, in fact there are significant differences. We all know that economics is the most important general equilibrium analysis, it is a further breakdown of supply and demand analysis. …… But in our finance, we also balanced with the general law, we also have general equilibrium model, but supply and demand analysis in the financial field we used the very small. …… Virtually any person in the financial markets are also providers who demand. And no industry in the homogeneity of the products can be compared with the financial markets. Our product does not look like it is the five-year deposits, which is one-year deposit, which is foreign exchange, stock, bonds, not the name sounds like. However, the same substance, is what » "Three", profitability, liquidity and safety. All the different things on the surface, but these three are the last things. Therefore, the financial markets, the financial sector is the largest financial characteristics of homogeneity. …… This has resulted in a fully developed market, supply and demand curve will be two horizontal line, not economics in the curve. Therefore, the financial markets balanced only coincidence in the horizon when the two will be balanced. Once these two left curve when the price is wrong, prices will appear once deviated from arbitrage, and the rapid spread of the two curves coincidence. Therefore, the financial balance-not only on the balance point. …… So in the last financial discovered arbitrage-free analysis. Because everyone can supply and demand, which has led the market on the balance of power on arbitrage. ……
…… In financial economics say no more arbitrage is relatively pricing, and other subjects is more absolute pricing. For example, stocks, the traditional view that economics is very simple stock is the future of the cash flow forecast by then to discount, the discount what to do » Is risk-free rate? » Can not. Finance on the most basic principle, which is a discounted cash flow, how much risk it will be used in line with its discount rate to discount. Whether this theory of Marxism or other Western scholars are acceptable, very good, but using them will certainly not useless. Why not use, first of all let you predict next year's cash flow can, the year after the makeshift cash flow, the year after it was quite difficult, even after five years of cash flow that is Mopu. So who is also cash-flow forecast Gao Buding. Besides the discount rate, and it should suit the discount rate,好说words, but in the end should be the number, then Western scholars spent CAMP several decades to the present controversy is great. In the end the U.S. stock market is expected to yield the number, nobody spectrum. These two factors led to the absolute pricing method is not useful. However, the relative pricing is not the same, no absolute level of clearance, I just our two locations. …… So many financial assets are the same, eventually all up to three of the many financial assets in the three properties on a certain relationship, a sale of financial assets amount of money, I can give you the relative amount of money selling. The most typical is the futures, options and standard features you how much money the assets sold, the price I can sell how much money. For instance, prices of long-term, F = S * EXP (R * T), as long as the spot price that risk-free interest rate that expire time that forward and futures prices will certainly know. Both must maintain this relationship, which is relatively pricing. The relative pricing of the scientific theory may not absolute pricing, but in real life is the ease of use. ……
…… In the end could create financial value » This is the central problem, you may now feel that the redistribution of financial participation, will not create value. Today, we are used to prove the fact that numerous financial value creation. …… We have to the land of China to explain that China claims Detaiwubo, excellent Jiangshan. And the United States telling the truth, in addition to individual attractions, we Chinese can not Jiangshan beautiful than the United States, the United States than we absolutely. You said the United States of Great Falls, Yellowstone National Park can be, but compared to our Tibet, it is a shame Huangshan. But the same Yimu in Chengdu may be 1 million, while in Manhattan is not conceivable.为什么» A deciding what the value of things, the production of such goods by the needs of socially necessary labor time » Chengdu to create a time in Manhattan with the United States to create the time may be similar, the difference why the value of the hanging, it is is this thing in the future to create much value, take a decision on the future we can bring the number of cash flow. To listen carefully, that piece of land can give you the number of future cash flow » He is now converted to the value, which is the financial values. …… Financial may not in itself create value, but through financial future so that we create in the future all the time to multiply the value, or 10% of its value now on the increase. So what a listed value of a billion previously, after listing the value of 10 million, of which many people say that this bubble, we do not rule out the possibility that there may be bubbles of them, but 200 million is likely to bubble, but 800 million is what » 600 million or 500 million, or ask how is this 500 million to the » Who is now listed in this moment to create the right » We are fabricated by those investment bankers on the document created? » No, because after listing a better mechanism, on the whole, listed companies listed by the allocation of higher efficiency than before, so the same things for his future every time we create things will grow. Well, he now has to raise the value,…… My whole idea is to create a certain financial value. Through four ways: First, the flow of things will not flow; Secondly, the insecurity of things changed the security of the third, things will not change the perfect perfect; fourth, the world will not become fully More fully. Mainly through the four financial means to create value.
First of all, we look at mobility, not a word is to let the flow of things flow together. First of all to ask mobility has value, if valuable, we have to create liquidity can create value. Mobile performance can not create the value we do not answer, look at how to measure the value of mobility. If we can measure up or can cite many examples to note on the flow of value, the value of mobility of people immediately understand. In the most typical example is the state-owned shares and individual shares, what are the same except mobility. Most of their value when the bad times. This is the movement of the stock and can not flow between the value of the shares the distinction. Well before issuing treasury bonds is rigidly apportioned in the already small number of wage Yingse on government bonds, treasury bonds now in Phnom Penh has become a very hot. Can now flow to the sale, before payment can only be due, among sell it or illegal. So mobility will create value. ……
Liquidity is not fully realized, for instance, the poor liquidity of the house, I can sell a penny, immediately realised. So are mobile, can only say that liquidity is good or bad. Time deposits realised that it is good or bad » Well, because time deposits have realised ahead of the main draw, but are subject to loss of interest, even if you only a day, all in accordance with the live period, the value of fixed deposits is this, if you deposited 1 million today, five years Maturity is 1.13 million, by two points for interest rates. If interest rates unchanged, we simplified the value of this is the direction (the blackboard painting), but once you extract the advance, it can only be in accordance with the demand, is a horizontal line, the real value of this path, only this one day due to the daughter-in-law Aocheng Great, it has jumps. The advance paid by such a demand on the slope to you, so he is the value of such a path. This is the realization of the loss, the more liquidity on the next worse, just before I put to him, the greater the loss due time. There is also a way to pledge collateral loans. You deposit rates for 2:00, 5:00 several loans, the price is great. Unless you are poor due a few days, you pledge does not matter. In the middle you're embarrassed, embarrassed paid in advance, pledge also embarrassing. So liquidity bad, we do not want to choose lead to five-year period deposits. Is not transferable, the transfer of real-name system is now relatively trouble, there is no way. Well, I for banks to offer such a proposal, in order to raise time deposit interest rates at the same time avoid the Banking Bureau under the supervision of the Banking Board requested at a rate not increase, an increase of the high-tension lines on the pedal. Well, I do skip the financial supervision is very easy, because I can not increase interest rates by increasing the mobility of! If the real-name system to be bypassed, it can do so, I absorb the five-year period of time deposits, I am committed to the customer, you can always sell this thing will be returned to me, in accordance with a formula to do, if interest rates unchanged Then you hold each day, on the basis of this curve, I give you, you keep two and a half years I gave you so much, this is a purely theoretical assumptions. You say now how Lane » This issue is not, I ask this of 1 million recently, I give him such interest, for example, 1.08 million, this thing I would like to sell others, such as 1.1 million, no one should » The first to be, the longest period of time only 12, but the income is still a few 2:00, while the other one-year deposit interest rate was 1.98. No loss of banks, to buy back as long as the first to be resold. Banks no cost, no loss, only the role of setters, Ho Lok not. …… Others have not done so, you do so all the 5-year deposits have come here went to you. Because it provides full mobility, my value as long as the curve in this competition on top of my stronger than others. Speaking just a totally competitive market, banks to do so it can attract customers. Even from this business you can make money. Therefore, financial engineering is a use of the things that we do not扎day in math reactor inside Chubu Lai. To get out of, think about it everywhere possible. …… This example on financial engineering in the bank note inside the premises.再举example of a mobile,…… I wrote his doctoral dissertation in 1995 when I proposed to solve the whole problem of the 16-character principle of mobility, and now almost all the many discussions. 95 now has more than nine years, up to now have not yet been resolved. I in 2001 in the United States, it is the most intense internal debate, the Commission collected more than 1,000 programmes. Today, I actually listen to lectures we will find full circulation problem is so simple. Only a question of implementation of a policy. Full circulation is doing, is to let the full circulation of shares in circulation can not be part of it in circulation, which itself is in the creation of mobility. To create liquidity will certainly create value. So good judgement that the reform programme can not judge whether he is the only reform. China is now a lot of reform for reform and, in fact, is in regression. He is good or bad judgement is whether he can create value, this is the economist, if he depends on whether politicians are conducive to social stability. So the only criteria is to create value or the eradication of value. As long as it is to create value there must be a solution, and must be win-win solution. …… So good, to look at the reality of China's one-third of the shares can flow, two-thirds of the shares can not be in circulation. For example, a total of 300 million shares, 200 million shares are state-owned shares, 100 million personal shares. State-owned shares is in accordance with the terms of the value of net assets, the assumption that two yuan of net assets of money, a total of 400 million yuan, if the individual is 600 million shares, this data is to facilitate, for example, we do not mind. The total value of 1 billion. Full circulation is to enable the state-owned shares in circulation, this will definitely increase in value, but does not rise to 6 yuan of money, because the scarcity of liquidity, this thing of value is relatively high, and more mobility, the mobility of the value will drop . Will lead to the ultimate value in the balance between the two, assuming that balance point is 5 yuan. This is the original 10 million shares, while the total value is 15 billion. So let the whole community full circulation of wealth increased by 5 billion. So full circulation from the overall situation of China is definitely a good thing, the total market value will become 1.5 billion from 1.0 billion. Then lies in state is black, said full circulation to create the value of all I bring, I want to have. So the people that I am full circulation will damage the interests not only increase but will not drop, the stock market or Jiumo Ming. However, there is a win-win solution, you are the original? 4:6, the ratio is also in accordance with the distribution, you 6 billion, 9 billion, so we have the assets of 50 percent growth, which resolved all the problems. Full circulation can be sure that the prices will certainly not let this money into two yuan. A truth, the original part of the change is not good for the circulation of mobile bring value, so the total assets of certain growth. With the growth in the number of the relevant market conditions, linked with the relevant funds, with public relations. But overall, a certain growth. …… As for the number of points, that is what politicians, but the direction is the case. Our demand is to create value, fair distribution of multi-income. States also will have a very healthy development of capital markets. Now transfer that interest, but will return in the long term. Because such a capital market is fully effective, then through the market in the allocation of resources will Effective risk management, risk management must be, there are many examples. For example the exchange. Now you average age of 25-year-old, working 60 to 35-year-old is also available. Now you are basically no money, but after 35, some people have good luck, become a billionaire, some people have become particularly unfortunate Qiongguang Dan. This is inevitable, is risk. Now you do not know how you will, that is, you face uncertainty, now become the most simple assumption, you have only two states, you are either billionaires, or Qiongguang Dan. Probabilities are equal, is 50 million from expectations. This way you will not be happy in life, you should continue to accumulate money. But the Americans why so潇洒, because he retired when there is a stable source of income, so money can be spent out. Therefore, the Chinese people especially the poor. When the young are on time do not have the money. You Leqian so that we do not have the time. To retirement when the time is money, not the energy. Americans will be good for his own life so a high degree of happiness. Individual Americans of wealth, we will not be higher than that. So faced with the risk we have to learn management, the first to participate in social security. China's social security we all Bugangongwei, efficiency is very low, so do not want to. So I will give you advice, you will all go back to the squad, bringing together people signed a contract, you have 60 years of age, the property will be a very out to the squad leader, all added together, divided by the total number of 100. If just the assumption is correct, you have 50 individuals are billionaires, 50 individuals are Qiongguang Dan. Rich with 10 million each, with 5 million results back. And with 0 to the poor, but with 5 million back. You are a billionaire, simply do not care about the show 5 million to help the students. If you are Qiongguang Dan, then 5 million pairs of you, very important. …… Our financial theory tells us that our investments should be diversified. But with the specialization and diversification has always been a contradiction. It means that I should diversify investments, stocks, bonds, real estate, gold, works of art, the more dispersed the better. But I do not necessarily those of professionals, buy the Mona Lisa's smile returned, found to be false. Because I simply do not have the knowledge, and I would also like to these investments to build art museums. Buy gold, I would also like to study gold, not so much time. So specialized is scattered with a pair of contradictions will never be solved. How to do that, you are a gold expert, I was art expert, you are American experts, I was South African experts, we cooperate together. We have 10 million, the specialized investment in your professional field, so the annual investment income divided by the combined number of points for everyone. This way is the best person to do the most professional thing, sharing the best results. But if you do not trust me, I do not trust you out. Originally a lot of good things can not be reached. We said that the purpose of financial engineering is the design of certain contracts so that we better, and then going to promote it. Credit risk we have to solve the credit risk in a variety of institutional arrangements. Members said Zhiduoshaoqian safety, security, the value can be measured by many. As wheat, the harvest next year, there are two options, the first sale of wheat futures now, or wait until next year to sell the Suixingjiushi. However, if we sell now than to wait until next year to buy less, and this is because safety. For security I am willing to pay such a price. There are uncertainties equivalent, it is expected the number of « I do not what is the value of uncertainty, which is the difference between the value of security. Therefore, this part of the non-systemic risk that is to say, to cover all out. Because the non-systemic risk is no income. If that is negative systemic risk, should never Zhao Shi of the Qumo nothing to it. Otherwise, not only income but also not to take risks pay the price. Is not to say that people have to have a return才行, mainly to the risk of your ability to select your risk value.be the future cash flow
growth. ……
The third point is not perfect become perfect. There are transaction costs and tax short-selling restrictions, regulations of the world is not perfect. So you have to bypass them solve these problems on the line. Merton noted that the transaction costs for financial institutions, the existence of a huge stage. In order to solve the problem before transaction costs in the Fund. Think about it you, I order to spread the risks, I would buy shares on the How do I do that, I bought the East, West to buy one point, my 1 million yuan so much money to buy the stock, this is not tired? » I was commissioned by the Fund to do, as long as funds to buy it. This is the portfolio investment. You learn a CAPM, but you may have forgotten that this is a static model, CAPM tell you to spread the risks, should portfolio investment. Members may be simple to understand for me scattered on the line, I do not have regardless, not the East-West-liang. In fact, where the investment portfolio to continue to adjust the portfolio. In the continuous-time state should adjust the time to achieve optimal. However, we who can do that, today, buy, buy tomorrow, Suanlaisuanqu not so accurate. Transaction costs have led to these are not feasible, then handed over to a fund like. We know how many of the world's source of risk, then the world as long as there is some risk enough. If we buy these types of funds can control these types of risk. So the main risk is the copy provided to all risk management. You are going to bear this risk can, you are going to transfer this risk can be. You can sell to buy, you risk management makes this very convenient, effective this. However, we actually fund the manipulation of the stock market makers, so many things in China are the Bianwei. Only now emerging direction of change for the better. Futures is the same, in fact replace the spot. Through this formula you can do a lot of Lenovo. In fact the cash to buy futures and buy the same. But the need bond futures trading, spot trading transactions is full. As the use of margin trading funds so low, the lower transaction costs. Futures in addition to speaking in front of the function, the more important one is to facilitate transactions. Reduce the cost of a seven-day notice is the use of deposits. Do you have any of the seven-day notice deposit » I have a test this thing. Seven-day notice deposit in a bank deposit into the future, do not tell you when extracted, the interest rate in accordance with the seven-day notice deposit rate to you, that a few relatively high. As long as you extract in the seven-day advance notice before me. If you notice today, the seventh day you do not have to take, on the eighth day into all the demand. Even if you keep a hundred years, all of a call. If you take to the sixth day, the banks will refuse to you. Have to seventh day of the past. This is seven days notice deposits, as a system requirements down, so very inhumane. To me it is, I will be my money there now as a governor of the students there. I asked him now on seven days notice of deposits. To seven days after I went to the bank is not, I will be your bank raised the money to deposit into account, while doing a seven-day notice. Then this constant cycle. We also have a set of laws called the two-changed. Do not tell you how long into the deposit, as long as the minimum deposit period of the deposit period, the rate of interest paid on the basis of this, about a 40%. If you keep this five-year, all in accordance with the maturity period of five years of a 40% interest rate, I tell you, you to deposit the amount I did not notice deposits of more than seven days. A careful look at many of our requirement is a problem. I would like to deposit this five-year no-call seven days. So you do not live set of two changes, and do not survive for deposits. Deposits of seven days notice is the big deal-two change. More effective is the day notice, a total of compound interest. Therefore, banks must reflect innovative human services. I propose a bank customer to do such a commitment, this is the big sales, can not advertise in newspapers, The Banking Bureau will not find him. Managers of large customers that you deposit the money has come in every seven days I have seven days notice in accordance with the deposit interest to you. Maturity is not taken out on the profits roll benefit? » Therefore, 52, 2001 is power. Now you do not have demand deposits in the bank? » You up after a day of the first thing is to bank the money taken out, and then deposit into account. This year more than five yuan to the money. Banks have no way to do so, because the voluntary deposits, withdrawals free. So you have to ruin a bank is easy, you let workers take one yuan per day to repeat such a thing. Banks say you trouble, you can claim that this is to maximize the protection of your interests. Because I do not count extracted from simple, extracted count for compound interest. Another innovation is the payment system in order to reduce costs. Through the Internet transaction costs a bank only 1 percent of transaction costs. In the United States Instinet, Open-IPO, Ebay, B-to-B transactions, such as the appearance is to reduce transaction costs. There is also a world is not perfect, that is, asymmetric information and agents to resolve the problem. Throughout history, asymmetric information contributed to a lot of innovation. Haugen and Senbett (1981) found that the securities will be embedded in the options can ease the problem of moral hazard, such as in R & D financing in the embedded options. The capital structure of the management structure will have a decisive role. Relatively sound management structure also depends on the risk of moral hazard. …… Last one is not entirely the world, in the world in the N risk, but not so many securities, there are some risks we can not go to evade. Our financial engineering is to make our world completely as possible. So that we can free time and space along the allocation of resources. Found that enterprises should provide for the right to meet a variety of different preferences and needs of the needs of investors. A study found that the right to obtain a variety of enterprises, which means that enterprises will tear debris. He not only want to issue stock, and to let him issue a variety of things. Financial institutions obtain the right product is a combination of enterprises, is in fact an intermediary, not the ultimate provider. So, this is the four dimensions. To sum up: First, the flow of things will not flow; Secondly, the insecurity of things changed the security of the third, things will not change the perfect perfect; fourth, all of the world so that it does not fully Become more complete. These things is that financial innovation. In addition to that financial innovations contributed to technological progress. Technological progress to promote financial innovation. Information technology, communications and the development of the Internet led to the large number of financial innovations, such as securities underwriting the new method (OpenIPO), set up the portfolio of new methods (folioFN), trading in the new means and new markets (such as purely electronic stock exchange) These are hard technologies. The other is the new "intelligence technology", such as derivatives pricing model, the new Risk (VaR) and management systems, the new valuation techniques (such as real options), numerical simulation methods and means of development, also contributed to the Many of the popular new contract. In the financial engineering to do is to learn about these things. If there are no Black, Scholes and Merton, who contributed many derivative products may have so far not occur. …… If this world is perfect (Perfect), that is, no tax, control, asymmetric information, transaction costs, the risk of moral hazard if the market is completely (Complete), that is, the existing securities can cover (Span) all natural state ; Then there is no need of financial innovation. As the two "if" are impossible, and therefore the financial innovation is the eternal theme.
Finance and Economics What is the difference? » Our domestic finance in economic subjects below, in fact there are significant differences. We all know that economics is the most important general equilibrium analysis, it is a further breakdown of supply and demand analysis. …… But in our finance, we also balanced with the general law, we also have general equilibrium model, but supply and demand analysis in the financial field we used the very small. …… Virtually any person in the financial markets are also providers who demand. And no industry in the homogeneity of the products can be compared with the financial markets. Our product does not look like it is the five-year deposits, which is one-year deposit, which is foreign exchange, stock, bonds, not the name sounds like. However, the same substance, is what » "Three", profitability, liquidity and safety. All the different things on the surface, but these three are the last things. Therefore, the financial markets, the financial sector is the largest financial characteristics of homogeneity. …… This has resulted in a fully developed market, supply and demand curve will be two horizontal line, not economics in the curve. Therefore, the financial markets balanced only coincidence in the horizon when the two will be balanced. Once these two left curve when the price is wrong, prices will appear once deviated from arbitrage, and the rapid spread of the two curves coincidence. Therefore, the financial balance-not only on the balance point. …… So in the last financial discovered arbitrage-free analysis. Because everyone can supply and demand, which has led the market on the balance of power on arbitrage. ……
…… In financial economics say no more arbitrage is relatively pricing, and other subjects is more absolute pricing. For example, stocks, the traditional view that economics is very simple stock is the future of the cash flow forecast by then to discount, the discount what to do » Is risk-free rate? » Can not. Finance on the most basic principle, which is a discounted cash flow, how much risk it will be used in line with its discount rate to discount. Whether this theory of Marxism or other Western scholars are acceptable, very good, but using them will certainly not useless. Why not use, first of all let you predict next year's cash flow can, the year after the makeshift cash flow, the year after it was quite difficult, even after five years of cash flow that is Mopu. So who is also cash-flow forecast Gao Buding. Besides the discount rate, and it should suit the discount rate,好说words, but in the end should be the number, then Western scholars spent CAMP several decades to the present controversy is great. In the end the U.S. stock market is expected to yield the number, nobody spectrum. These two factors led to the absolute pricing method is not useful. However, the relative pricing is not the same, no absolute level of clearance, I just our two locations. …… So many financial assets are the same, eventually all up to three of the many financial assets in the three properties on a certain relationship, a sale of financial assets amount of money, I can give you the relative amount of money selling. The most typical is the futures, options and standard features you how much money the assets sold, the price I can sell how much money. For instance, prices of long-term, F = S * EXP (R * T), as long as the spot price that risk-free interest rate that expire time that forward and futures prices will certainly know. Both must maintain this relationship, which is relatively pricing. The relative pricing of the scientific theory may not absolute pricing, but in real life is the ease of use. ……
…… In the end could create financial value » This is the central problem, you may now feel that the redistribution of financial participation, will not create value. Today, we are used to prove the fact that numerous financial value creation. …… We have to the land of China to explain that China claims Detaiwubo, excellent Jiangshan. And the United States telling the truth, in addition to individual attractions, we Chinese can not Jiangshan beautiful than the United States, the United States than we absolutely. You said the United States of Great Falls, Yellowstone National Park can be, but compared to our Tibet, it is a shame Huangshan. But the same Yimu in Chengdu may be 1 million, while in Manhattan is not conceivable.为什么» A deciding what the value of things, the production of such goods by the needs of socially necessary labor time » Chengdu to create a time in Manhattan with the United States to create the time may be similar, the difference why the value of the hanging, it is is this thing in the future to create much value, take a decision on the future we can bring the number of cash flow. To listen carefully, that piece of land can give you the number of future cash flow » He is now converted to the value, which is the financial values. …… Financial may not in itself create value, but through financial future so that we create in the future all the time to multiply the value, or 10% of its value now on the increase. So what a listed value of a billion previously, after listing the value of 10 million, of which many people say that this bubble, we do not rule out the possibility that there may be bubbles of them, but 200 million is likely to bubble, but 800 million is what » 600 million or 500 million, or ask how is this 500 million to the » Who is now listed in this moment to create the right » We are fabricated by those investment bankers on the document created? » No, because after listing a better mechanism, on the whole, listed companies listed by the allocation of higher efficiency than before, so the same things for his future every time we create things will grow. Well, he now has to raise the value,…… My whole idea is to create a certain financial value. Through four ways: First, the flow of things will not flow; Secondly, the insecurity of things changed the security of the third, things will not change the perfect perfect; fourth, the world will not become fully More fully. Mainly through the four financial means to create value.
First of all, we look at mobility, not a word is to let the flow of things flow together. First of all to ask mobility has value, if valuable, we have to create liquidity can create value. Mobile performance can not create the value we do not answer, look at how to measure the value of mobility. If we can measure up or can cite many examples to note on the flow of value, the value of mobility of people immediately understand. In the most typical example is the state-owned shares and individual shares, what are the same except mobility. Most of their value when the bad times. This is the movement of the stock and can not flow between the value of the shares the distinction. Well before issuing treasury bonds is rigidly apportioned in the already small number of wage Yingse on government bonds, treasury bonds now in Phnom Penh has become a very hot. Can now flow to the sale, before payment can only be due, among sell it or illegal. So mobility will create value. ……
Liquidity is not fully realized, for instance, the poor liquidity of the house, I can sell a penny, immediately realised. So are mobile, can only say that liquidity is good or bad. Time deposits realised that it is good or bad » Well, because time deposits have realised ahead of the main draw, but are subject to loss of interest, even if you only a day, all in accordance with the live period, the value of fixed deposits is this, if you deposited 1 million today, five years Maturity is 1.13 million, by two points for interest rates. If interest rates unchanged, we simplified the value of this is the direction (the blackboard painting), but once you extract the advance, it can only be in accordance with the demand, is a horizontal line, the real value of this path, only this one day due to the daughter-in-law Aocheng Great, it has jumps. The advance paid by such a demand on the slope to you, so he is the value of such a path. This is the realization of the loss, the more liquidity on the next worse, just before I put to him, the greater the loss due time. There is also a way to pledge collateral loans. You deposit rates for 2:00, 5:00 several loans, the price is great. Unless you are poor due a few days, you pledge does not matter. In the middle you're embarrassed, embarrassed paid in advance, pledge also embarrassing. So liquidity bad, we do not want to choose lead to five-year period deposits. Is not transferable, the transfer of real-name system is now relatively trouble, there is no way. Well, I for banks to offer such a proposal, in order to raise time deposit interest rates at the same time avoid the Banking Bureau under the supervision of the Banking Board requested at a rate not increase, an increase of the high-tension lines on the pedal. Well, I do skip the financial supervision is very easy, because I can not increase interest rates by increasing the mobility of! If the real-name system to be bypassed, it can do so, I absorb the five-year period of time deposits, I am committed to the customer, you can always sell this thing will be returned to me, in accordance with a formula to do, if interest rates unchanged Then you hold each day, on the basis of this curve, I give you, you keep two and a half years I gave you so much, this is a purely theoretical assumptions. You say now how Lane » This issue is not, I ask this of 1 million recently, I give him such interest, for example, 1.08 million, this thing I would like to sell others, such as 1.1 million, no one should » The first to be, the longest period of time only 12, but the income is still a few 2:00, while the other one-year deposit interest rate was 1.98. No loss of banks, to buy back as long as the first to be resold. Banks no cost, no loss, only the role of setters, Ho Lok not. …… Others have not done so, you do so all the 5-year deposits have come here went to you. Because it provides full mobility, my value as long as the curve in this competition on top of my stronger than others. Speaking just a totally competitive market, banks to do so it can attract customers. Even from this business you can make money. Therefore, financial engineering is a use of the things that we do not扎day in math reactor inside Chubu Lai. To get out of, think about it everywhere possible. …… This example on financial engineering in the bank note inside the premises.再举example of a mobile,…… I wrote his doctoral dissertation in 1995 when I proposed to solve the whole problem of the 16-character principle of mobility, and now almost all the many discussions. 95 now has more than nine years, up to now have not yet been resolved. I in 2001 in the United States, it is the most intense internal debate, the Commission collected more than 1,000 programmes. Today, I actually listen to lectures we will find full circulation problem is so simple. Only a question of implementation of a policy. Full circulation is doing, is to let the full circulation of shares in circulation can not be part of it in circulation, which itself is in the creation of mobility. To create liquidity will certainly create value. So good judgement that the reform programme can not judge whether he is the only reform. China is now a lot of reform for reform and, in fact, is in regression. He is good or bad judgement is whether he can create value, this is the economist, if he depends on whether politicians are conducive to social stability. So the only criteria is to create value or the eradication of value. As long as it is to create value there must be a solution, and must be win-win solution. …… So good, to look at the reality of China's one-third of the shares can flow, two-thirds of the shares can not be in circulation. For example, a total of 300 million shares, 200 million shares are state-owned shares, 100 million personal shares. State-owned shares is in accordance with the terms of the value of net assets, the assumption that two yuan of net assets of money, a total of 400 million yuan, if the individual is 600 million shares, this data is to facilitate, for example, we do not mind. The total value of 1 billion. Full circulation is to enable the state-owned shares in circulation, this will definitely increase in value, but does not rise to 6 yuan of money, because the scarcity of liquidity, this thing of value is relatively high, and more mobility, the mobility of the value will drop . Will lead to the ultimate value in the balance between the two, assuming that balance point is 5 yuan. This is the original 10 million shares, while the total value is 15 billion. So let the whole community full circulation of wealth increased by 5 billion. So full circulation from the overall situation of China is definitely a good thing, the total market value will become 1.5 billion from 1.0 billion. Then lies in state is black, said full circulation to create the value of all I bring, I want to have. So the people that I am full circulation will damage the interests not only increase but will not drop, the stock market or Jiumo Ming. However, there is a win-win solution, you are the original? 4:6, the ratio is also in accordance with the distribution, you 6 billion, 9 billion, so we have the assets of 50 percent growth, which resolved all the problems. Full circulation can be sure that the prices will certainly not let this money into two yuan. A truth, the original part of the change is not good for the circulation of mobile bring value, so the total assets of certain growth. With the growth in the number of the relevant market conditions, linked with the relevant funds, with public relations. But overall, a certain growth. …… As for the number of points, that is what politicians, but the direction is the case. Our demand is to create value, fair distribution of multi-income. States also will have a very healthy development of capital markets. Now transfer that interest, but will return in the long term. Because such a capital market is fully effective, then through the market in the allocation of resources will Effective risk management, risk management must be, there are many examples. For example the exchange. Now you average age of 25-year-old, working 60 to 35-year-old is also available. Now you are basically no money, but after 35, some people have good luck, become a billionaire, some people have become particularly unfortunate Qiongguang Dan. This is inevitable, is risk. Now you do not know how you will, that is, you face uncertainty, now become the most simple assumption, you have only two states, you are either billionaires, or Qiongguang Dan. Probabilities are equal, is 50 million from expectations. This way you will not be happy in life, you should continue to accumulate money. But the Americans why so潇洒, because he retired when there is a stable source of income, so money can be spent out. Therefore, the Chinese people especially the poor. When the young are on time do not have the money. You Leqian so that we do not have the time. To retirement when the time is money, not the energy. Americans will be good for his own life so a high degree of happiness. Individual Americans of wealth, we will not be higher than that. So faced with the risk we have to learn management, the first to participate in social security. China's social security we all Bugangongwei, efficiency is very low, so do not want to. So I will give you advice, you will all go back to the squad, bringing together people signed a contract, you have 60 years of age, the property will be a very out to the squad leader, all added together, divided by the total number of 100. If just the assumption is correct, you have 50 individuals are billionaires, 50 individuals are Qiongguang Dan. Rich with 10 million each, with 5 million results back. And with 0 to the poor, but with 5 million back. You are a billionaire, simply do not care about the show 5 million to help the students. If you are Qiongguang Dan, then 5 million pairs of you, very important. …… Our financial theory tells us that our investments should be diversified. But with the specialization and diversification has always been a contradiction. It means that I should diversify investments, stocks, bonds, real estate, gold, works of art, the more dispersed the better. But I do not necessarily those of professionals, buy the Mona Lisa's smile returned, found to be false. Because I simply do not have the knowledge, and I would also like to these investments to build art museums. Buy gold, I would also like to study gold, not so much time. So specialized is scattered with a pair of contradictions will never be solved. How to do that, you are a gold expert, I was art expert, you are American experts, I was South African experts, we cooperate together. We have 10 million, the specialized investment in your professional field, so the annual investment income divided by the combined number of points for everyone. This way is the best person to do the most professional thing, sharing the best results. But if you do not trust me, I do not trust you out. Originally a lot of good things can not be reached. We said that the purpose of financial engineering is the design of certain contracts so that we better, and then going to promote it. Credit risk we have to solve the credit risk in a variety of institutional arrangements. Members said Zhiduoshaoqian safety, security, the value can be measured by many. As wheat, the harvest next year, there are two options, the first sale of wheat futures now, or wait until next year to sell the Suixingjiushi. However, if we sell now than to wait until next year to buy less, and this is because safety. For security I am willing to pay such a price. There are uncertainties equivalent, it is expected the number of « I do not what is the value of uncertainty, which is the difference between the value of security. Therefore, this part of the non-systemic risk that is to say, to cover all out. Because the non-systemic risk is no income. If that is negative systemic risk, should never Zhao Shi of the Qumo nothing to it. Otherwise, not only income but also not to take risks pay the price. Is not to say that people have to have a return才行, mainly to the risk of your ability to select your risk value.be the future cash flow
growth. ……
The third point is not perfect become perfect. There are transaction costs and tax short-selling restrictions, regulations of the world is not perfect. So you have to bypass them solve these problems on the line. Merton noted that the transaction costs for financial institutions, the existence of a huge stage. In order to solve the problem before transaction costs in the Fund. Think about it you, I order to spread the risks, I would buy shares on the How do I do that, I bought the East, West to buy one point, my 1 million yuan so much money to buy the stock, this is not tired? » I was commissioned by the Fund to do, as long as funds to buy it. This is the portfolio investment. You learn a CAPM, but you may have forgotten that this is a static model, CAPM tell you to spread the risks, should portfolio investment. Members may be simple to understand for me scattered on the line, I do not have regardless, not the East-West-liang. In fact, where the investment portfolio to continue to adjust the portfolio. In the continuous-time state should adjust the time to achieve optimal. However, we who can do that, today, buy, buy tomorrow, Suanlaisuanqu not so accurate. Transaction costs have led to these are not feasible, then handed over to a fund like. We know how many of the world's source of risk, then the world as long as there is some risk enough. If we buy these types of funds can control these types of risk. So the main risk is the copy provided to all risk management. You are going to bear this risk can, you are going to transfer this risk can be. You can sell to buy, you risk management makes this very convenient, effective this. However, we actually fund the manipulation of the stock market makers, so many things in China are the Bianwei. Only now emerging direction of change for the better. Futures is the same, in fact replace the spot. Through this formula you can do a lot of Lenovo. In fact the cash to buy futures and buy the same. But the need bond futures trading, spot trading transactions is full. As the use of margin trading funds so low, the lower transaction costs. Futures in addition to speaking in front of the function, the more important one is to facilitate transactions. Reduce the cost of a seven-day notice is the use of deposits. Do you have any of the seven-day notice deposit » I have a test this thing. Seven-day notice deposit in a bank deposit into the future, do not tell you when extracted, the interest rate in accordance with the seven-day notice deposit rate to you, that a few relatively high. As long as you extract in the seven-day advance notice before me. If you notice today, the seventh day you do not have to take, on the eighth day into all the demand. Even if you keep a hundred years, all of a call. If you take to the sixth day, the banks will refuse to you. Have to seventh day of the past. This is seven days notice deposits, as a system requirements down, so very inhumane. To me it is, I will be my money there now as a governor of the students there. I asked him now on seven days notice of deposits. To seven days after I went to the bank is not, I will be your bank raised the money to deposit into account, while doing a seven-day notice. Then this constant cycle. We also have a set of laws called the two-changed. Do not tell you how long into the deposit, as long as the minimum deposit period of the deposit period, the rate of interest paid on the basis of this, about a 40%. If you keep this five-year, all in accordance with the maturity period of five years of a 40% interest rate, I tell you, you to deposit the amount I did not notice deposits of more than seven days. A careful look at many of our requirement is a problem. I would like to deposit this five-year no-call seven days. So you do not live set of two changes, and do not survive for deposits. Deposits of seven days notice is the big deal-two change. More effective is the day notice, a total of compound interest. Therefore, banks must reflect innovative human services. I propose a bank customer to do such a commitment, this is the big sales, can not advertise in newspapers, The Banking Bureau will not find him. Managers of large customers that you deposit the money has come in every seven days I have seven days notice in accordance with the deposit interest to you. Maturity is not taken out on the profits roll benefit? » Therefore, 52, 2001 is power. Now you do not have demand deposits in the bank? » You up after a day of the first thing is to bank the money taken out, and then deposit into account. This year more than five yuan to the money. Banks have no way to do so, because the voluntary deposits, withdrawals free. So you have to ruin a bank is easy, you let workers take one yuan per day to repeat such a thing. Banks say you trouble, you can claim that this is to maximize the protection of your interests. Because I do not count extracted from simple, extracted count for compound interest. Another innovation is the payment system in order to reduce costs. Through the Internet transaction costs a bank only 1 percent of transaction costs. In the United States Instinet, Open-IPO, Ebay, B-to-B transactions, such as the appearance is to reduce transaction costs. There is also a world is not perfect, that is, asymmetric information and agents to resolve the problem. Throughout history, asymmetric information contributed to a lot of innovation. Haugen and Senbett (1981) found that the securities will be embedded in the options can ease the problem of moral hazard, such as in R & D financing in the embedded options. The capital structure of the management structure will have a decisive role. Relatively sound management structure also depends on the risk of moral hazard. …… Last one is not entirely the world, in the world in the N risk, but not so many securities, there are some risks we can not go to evade. Our financial engineering is to make our world completely as possible. So that we can free time and space along the allocation of resources. Found that enterprises should provide for the right to meet a variety of different preferences and needs of the needs of investors. A study found that the right to obtain a variety of enterprises, which means that enterprises will tear debris. He not only want to issue stock, and to let him issue a variety of things. Financial institutions obtain the right product is a combination of enterprises, is in fact an intermediary, not the ultimate provider. So, this is the four dimensions. To sum up: First, the flow of things will not flow; Secondly, the insecurity of things changed the security of the third, things will not change the perfect perfect; fourth, all of the world so that it does not fully Become more complete. These things is that financial innovation. In addition to that financial innovations contributed to technological progress. Technological progress to promote financial innovation. Information technology, communications and the development of the Internet led to the large number of financial innovations, such as securities underwriting the new method (OpenIPO), set up the portfolio of new methods (folioFN), trading in the new means and new markets (such as purely electronic stock exchange) These are hard technologies. The other is the new "intelligence technology", such as derivatives pricing model, the new Risk (VaR) and management systems, the new valuation techniques (such as real options), numerical simulation methods and means of development, also contributed to the Many of the popular new contract. In the financial engineering to do is to learn about these things. If there are no Black, Scholes and Merton, who contributed many derivative products may have so far not occur. …… If this world is perfect (Perfect), that is, no tax, control, asymmetric information, transaction costs, the risk of moral hazard if the market is completely (Complete), that is, the existing securities can cover (Span) all natural state ; Then there is no need of financial innovation. As the two "if" are impossible, and therefore the financial innovation is the eternal theme.
Water Selling Experiment
I enjoyed doing my lottery experiment, now it's time to venture out and do something more practical. I took a look at some of my Make Money with No Money ideas, and I want to back my advice by actually doing them (I've done most, but not all).
The one I am leaning towards: Selling bottled water. I will NOT be obtaining a license for this, therefore I am limited to low-regulated areas. There happens to be an intersection right near my apartment which is relatively lowly-regulated (and in turn has lots of bums no matter what time of the day).
I will speak to some officers in the area, asking them about the legality of my experiment. I don't want to be fined or arrested (although that would provide for some interesting journalism!)
I will try to turn about $5 into $24 by selling individual bottles of water on the side of the road. Some call this being a bum, some call it desperate, I call it learning.
It would actually be easier to make more money by increasing the hours I work, but this experiment is to prove that you can make money without a job or much startup capital.
If anyone has ever done this, drop me some recommendations for effective selling!
The one I am leaning towards: Selling bottled water. I will NOT be obtaining a license for this, therefore I am limited to low-regulated areas. There happens to be an intersection right near my apartment which is relatively lowly-regulated (and in turn has lots of bums no matter what time of the day).
I will speak to some officers in the area, asking them about the legality of my experiment. I don't want to be fined or arrested (although that would provide for some interesting journalism!)
I will try to turn about $5 into $24 by selling individual bottles of water on the side of the road. Some call this being a bum, some call it desperate, I call it learning.
It would actually be easier to make more money by increasing the hours I work, but this experiment is to prove that you can make money without a job or much startup capital.
If anyone has ever done this, drop me some recommendations for effective selling!
Indian Entrepreneurship
In two days I'll be going to India, my last trip there was 6 years ago, and from what I hear, things have already dramatically changed since then.
What I'm mainly interested to see is how the rising middle class is affecting the country. Is it like the rise of the massive middle class in the U.S. in the 1950's, or is it different?
While I'm there I'll try to visit some of the massive call centers I hear so much about, perhaps make a few contacts. Some of the best engineering talent in the world is in India, so some interesting things must be happening there regarding entrepreneurship. This is a democratic country with tons of talent being used to develop tons of large scale projects, so it's inevitable that Indian entrepreneurs will spring up all over the place. I'd like to meet some of these people.
Some questions I'll ask myself while there:
-What brand of cars are becoming prevalent? Fiats dominated the road last time I visited.
-Last time I went, disposal waste per household was extremely low. I remember one guy with a small basket picking up the garbage for every household in an entire colony (equivalent to an apartment complex). Hardly anything was wasted. How has that changed with modern packaging techniques, fast food etc?
-How easy/hard is it to get an internet connection and power outlet for my laptop over there? Is it expensive?
-Cell phone usage?
-Adjusted price comparison of a Big Mac in the United States and India. Over there It's actually called a Maharaja Mac and is made with lamb or chicken instead of Beef. McDonald's got in some trouble for serving beef.
-Attitudes towards the United States?
I'm also highly interested to see if the level of corruption has gone down, as this is one of the more powerful issues I see holding India back.
The way of doing business there is entrenched in bribes and "Bonuses", many which are now considered a normal part of doing business. The sad thing is the people who enforce the law are involved too, so people are forced to continue the system of bribes in order to get anything done.For example: If you open a restaurant and need a liquor license, let's just say unless you pay someone a very large "gratuity" for their work, your license won't show up for the next 10 years.
This also happens on a smaller scale. For example: If you want to park your car in a no parking zone, an officer will ticket or tow your car unless you "encourage" the officer not to with a monetary incentive.
I also want to try some sort of money experiment while in India. With the sheer amount of poor people already trying to sell stuff, I don't know if my bottled water experiment would fly over there, so I'll have to look for something else!
What I'm mainly interested to see is how the rising middle class is affecting the country. Is it like the rise of the massive middle class in the U.S. in the 1950's, or is it different?
While I'm there I'll try to visit some of the massive call centers I hear so much about, perhaps make a few contacts. Some of the best engineering talent in the world is in India, so some interesting things must be happening there regarding entrepreneurship. This is a democratic country with tons of talent being used to develop tons of large scale projects, so it's inevitable that Indian entrepreneurs will spring up all over the place. I'd like to meet some of these people.
Some questions I'll ask myself while there:
-What brand of cars are becoming prevalent? Fiats dominated the road last time I visited.
-Last time I went, disposal waste per household was extremely low. I remember one guy with a small basket picking up the garbage for every household in an entire colony (equivalent to an apartment complex). Hardly anything was wasted. How has that changed with modern packaging techniques, fast food etc?
-How easy/hard is it to get an internet connection and power outlet for my laptop over there? Is it expensive?
-Cell phone usage?
-Adjusted price comparison of a Big Mac in the United States and India. Over there It's actually called a Maharaja Mac and is made with lamb or chicken instead of Beef. McDonald's got in some trouble for serving beef.
-Attitudes towards the United States?
I'm also highly interested to see if the level of corruption has gone down, as this is one of the more powerful issues I see holding India back.
The way of doing business there is entrenched in bribes and "Bonuses", many which are now considered a normal part of doing business. The sad thing is the people who enforce the law are involved too, so people are forced to continue the system of bribes in order to get anything done.For example: If you open a restaurant and need a liquor license, let's just say unless you pay someone a very large "gratuity" for their work, your license won't show up for the next 10 years.
This also happens on a smaller scale. For example: If you want to park your car in a no parking zone, an officer will ticket or tow your car unless you "encourage" the officer not to with a monetary incentive.
I also want to try some sort of money experiment while in India. With the sheer amount of poor people already trying to sell stuff, I don't know if my bottled water experiment would fly over there, so I'll have to look for something else!
Weekend Update
I had some visitors stay over in Austin this weekend and I was really expecting to completely exhaust my spending account. Fortunately, I could not find a single boat to rent this weekend, and certain people refused to let me pay for meals/drinks etc.. I wasn't complaining.I came out alive with $54 in the Spending Account.I felt smug having such a fun weekend and spending half of what I expected, see for yourself:
Still had tons of fun and went to all sorts of fancy places in Austin. However, if I didn't previously save for this weekend, I would have exceeded my spending account limit.
Still had tons of fun and went to all sorts of fancy places in Austin. However, if I didn't previously save for this weekend, I would have exceeded my spending account limit.
When it rains... Don`t Purchase a Dell Computer
My computer is dead. You know the saying `when it rains it pours`? Well, it`s kind of pouring all over me right now (heheheh- still smiling though).
You know, I think Dell computers suck. Last summer I purchase a brand new laptop from Dell (one that I am still paying for) and so far I have experienced a malfunctioning keyboard and now the freaking power chord is dead.
For the past week it has been going in and out and I have been rigging it up with rubber bands and whatnot to maintain a good position. Yesterday, it finally gave out on me. What a piece of shyt!
Do I have a warranty, yep. Unfortunately, Dell cannot ship the replacement to me here in Japan. And, there seems to be some type of restriction that forbids sending the part to Japan, plus, it`s kind of expensive shipping things from the home to Japan. So I went to the electronics store yesterday to price a non-Dell power chord. It`s going to run me $70 bucks or more. Sucks right? It really sucks having computer problems here.
My plan is to have one of my computer genius friends take a look at it first. If they say there`s no hope, then I will either have to purchase the $70 one.
On a more happy note, packing is coming along, I am healthy, and the rainy season has finally ended so the sun has been smiling for the pasts few days! Japan is beautiful in the summer!
You know, I think Dell computers suck. Last summer I purchase a brand new laptop from Dell (one that I am still paying for) and so far I have experienced a malfunctioning keyboard and now the freaking power chord is dead.
For the past week it has been going in and out and I have been rigging it up with rubber bands and whatnot to maintain a good position. Yesterday, it finally gave out on me. What a piece of shyt!
Do I have a warranty, yep. Unfortunately, Dell cannot ship the replacement to me here in Japan. And, there seems to be some type of restriction that forbids sending the part to Japan, plus, it`s kind of expensive shipping things from the home to Japan. So I went to the electronics store yesterday to price a non-Dell power chord. It`s going to run me $70 bucks or more. Sucks right? It really sucks having computer problems here.
My plan is to have one of my computer genius friends take a look at it first. If they say there`s no hope, then I will either have to purchase the $70 one.
On a more happy note, packing is coming along, I am healthy, and the rainy season has finally ended so the sun has been smiling for the pasts few days! Japan is beautiful in the summer!
2008/08/16
Colombia: Equity issuance moves into boom period
Two major state companies will be partly privatized and up to 10 private companies are expected to undertake initial public offerings in Colombia next year.
Some 20% of the equity of the country’s leading state oil producer, Ecopetrol, will be listed. According to Bogotá stockbroker Suvalor this stock issue will be valued at $5 billion.
In addition, some 20% of the country’s leading state energy transmission company, Isagen, will be privatized, valued at $200 million (some 30% of Isagen’s equity has already been listed).
A programme undertaken by the Bogotá stock exchange, called Colombia Capital, is also helping several small companies to gear up to listing on the stock market for the first time. These include paper producer Carvargal, vegetable oil maker Alianza Team, and dairy products maker Alqueria.
Camila Pérez Marulanda, head of economic research at Suvalor, says: “There are several factors that are making the Colombian stock market more attractive to foreign investors. One of them is the country’s economic stability. Another is new corporate governance regulations which have led many of the country’s leading companies to become more transparent.
“The programme, Colombia Capital, is providing a lot of important support to small firms wishing to list for the first time. Furthermore, the Inter-American Development Bank is heavily subsidizing the investment banking fees for these companies wishing to list.”
Elizabeth Praga, manager of Colombia Capital, says: “Our organization is helping 47 Colombian small and medium-sized companies to move towards a stock market listing. It is also assisting some 250 companies that want to issue bonds and commercial paper.
“We are training company executives on the functioning of the stock market and guiding them through the whole process of doing an IPO.”
Alberto Gutierrez, president of Titularizadora Colombiana, the country’s equivalent of Fannie Mae, says: “Low inflation and low interest rates have helped to develop capital markets markedly in the country in recent years. For the first time in the country’s history, we have just securitized fixed-rate mortgages.”
During the past four years, Titularizadora Colombiana has undertaken securitizations valued at $2.5 billion and, in November, did securitizations for mortgages fixed at 8.5% over a 15-year term, valued at a total of $300 million.
Moreover, the government is considering a further financial services law, expected to be implemented this year, that would allow banks to more easily become involved in other sectors, including leasing, corporate finance, and brokerage.
Get involved
“Banks can set up affiliates in some of these areas at the moment, such as brokerage, but the new law would allow them to become directly involved in these sectors,” says Pérez Marulanda.
Recent free-trade agreements have allowed foreign banks to set up shop in Colombia for the first time. HSBC now has a big presence in the country through its $1.7 billion purchase of Panama’s Banistmo, which has an important Colombian arm. The UK bank made the acquisition last July.
GE Finance is also expected to enter the Colombian market next year.
Juan Cabrera, senior director of investment bank Duff and Phelps in Colombia, says: “The stock market has been very volatile over the past decade. It rose considerably between 1991 and 1997 but then dropped between 1998 and 2002 during Colombia’s economic crisis.
“There are around 40 companies listed on the market but only 12 stocks are actively traded.”
Some 20% of the equity of the country’s leading state oil producer, Ecopetrol, will be listed. According to Bogotá stockbroker Suvalor this stock issue will be valued at $5 billion.
In addition, some 20% of the country’s leading state energy transmission company, Isagen, will be privatized, valued at $200 million (some 30% of Isagen’s equity has already been listed).
A programme undertaken by the Bogotá stock exchange, called Colombia Capital, is also helping several small companies to gear up to listing on the stock market for the first time. These include paper producer Carvargal, vegetable oil maker Alianza Team, and dairy products maker Alqueria.
Camila Pérez Marulanda, head of economic research at Suvalor, says: “There are several factors that are making the Colombian stock market more attractive to foreign investors. One of them is the country’s economic stability. Another is new corporate governance regulations which have led many of the country’s leading companies to become more transparent.
“The programme, Colombia Capital, is providing a lot of important support to small firms wishing to list for the first time. Furthermore, the Inter-American Development Bank is heavily subsidizing the investment banking fees for these companies wishing to list.”
Elizabeth Praga, manager of Colombia Capital, says: “Our organization is helping 47 Colombian small and medium-sized companies to move towards a stock market listing. It is also assisting some 250 companies that want to issue bonds and commercial paper.
“We are training company executives on the functioning of the stock market and guiding them through the whole process of doing an IPO.”
Alberto Gutierrez, president of Titularizadora Colombiana, the country’s equivalent of Fannie Mae, says: “Low inflation and low interest rates have helped to develop capital markets markedly in the country in recent years. For the first time in the country’s history, we have just securitized fixed-rate mortgages.”
During the past four years, Titularizadora Colombiana has undertaken securitizations valued at $2.5 billion and, in November, did securitizations for mortgages fixed at 8.5% over a 15-year term, valued at a total of $300 million.
Moreover, the government is considering a further financial services law, expected to be implemented this year, that would allow banks to more easily become involved in other sectors, including leasing, corporate finance, and brokerage.
Get involved
“Banks can set up affiliates in some of these areas at the moment, such as brokerage, but the new law would allow them to become directly involved in these sectors,” says Pérez Marulanda.
Recent free-trade agreements have allowed foreign banks to set up shop in Colombia for the first time. HSBC now has a big presence in the country through its $1.7 billion purchase of Panama’s Banistmo, which has an important Colombian arm. The UK bank made the acquisition last July.
GE Finance is also expected to enter the Colombian market next year.
Juan Cabrera, senior director of investment bank Duff and Phelps in Colombia, says: “The stock market has been very volatile over the past decade. It rose considerably between 1991 and 1997 but then dropped between 1998 and 2002 during Colombia’s economic crisis.
“There are around 40 companies listed on the market but only 12 stocks are actively traded.”
Cameron Systems - 1st FIX Platform Vendor in Shanghai
Finetik Partners, a Singapore-based data and content management advisory company, will launch a new service called Asian Data Content Service next Monday, Aug. 9, says managing partner Stephan Stadelmann.
The service will provide asset managers, hedge funds, brokers and vendors with market data from local Asian vendors that is customized to meet their specific requirements in terms of both content and normalization format. Finetik effectively represents the local data vendors outside of their home countries.
Users can access corporate actions, financial reporting, financial statements, end-of-day pricing, company fundamental data such as management structures and holding structures, equity data, economic indicators and indices. Japanese earnings estimates and fixed-income, commodities and derivatives data for China and Taiwan are also available.
Finetik will meet with the clients and find out what their data requirements are and in what format they would like to receive the file, and how often. This information is then passed on to the local vendors, which audit the data and then deliver a file customized to a client’s needs. The file is delivered once a day through e-mail or FTP. However, the Chinese data can also be delivered via a direct data feed from the local Chinese vendor as often as the client requires, including in real time.
So far Finetik is representing four local data vendors based in Hong Kong, China, Taiwan and Japan, respectively. Together, they cover China, Taiwan, Japan, Hong Kong, Singapore, Malaysia, South Korea, Thailand and the Philippines. However, Stadelmann declines to name the vendors.
For end users, especially asset managers that focus on a specific country, the service could offer a much more economical way of getting data from a local vendor while ensuring that the data is customized to their particular needs, says Stadelmann. He says that it can be costly to set up the infrastructure to receive data from a major vendor. The prices are quite high as well, he adds. If you only want one market it can be quite expensive.
In addition, users will receive data as reported in that particular country or normalized to their own format, which Stadelmann says is actually quite an advantage to the normalized form, which for example Bloomberg or Reuters are providing. He adds that Finetik has seen a lot of interest in the data content and data modeling areas due to Basel II.
Currently, data used by the front office, back office, research, settlement and risk management departments of the same institution can be accessed through different systems or applications within or outside of a firm. This has proven to create inconsistencies, errors, costs and risk exposure, says Stadelmann. “So we’re helping to come up with design concepts on data models and integration and migration on how you pull that altogether and influence the processes,” he says.
Finetik also offers the service to companies that want to resell or redistribute data from the local Asian vendors. The idea is that they can access the whole Asian market without needing to set up operations, which rather costly,” he says. Those companies will pay the vendors for the privilege at an agreed rate based on the usage of the data vendor.
The service will provide asset managers, hedge funds, brokers and vendors with market data from local Asian vendors that is customized to meet their specific requirements in terms of both content and normalization format. Finetik effectively represents the local data vendors outside of their home countries.
Users can access corporate actions, financial reporting, financial statements, end-of-day pricing, company fundamental data such as management structures and holding structures, equity data, economic indicators and indices. Japanese earnings estimates and fixed-income, commodities and derivatives data for China and Taiwan are also available.
Finetik will meet with the clients and find out what their data requirements are and in what format they would like to receive the file, and how often. This information is then passed on to the local vendors, which audit the data and then deliver a file customized to a client’s needs. The file is delivered once a day through e-mail or FTP. However, the Chinese data can also be delivered via a direct data feed from the local Chinese vendor as often as the client requires, including in real time.
So far Finetik is representing four local data vendors based in Hong Kong, China, Taiwan and Japan, respectively. Together, they cover China, Taiwan, Japan, Hong Kong, Singapore, Malaysia, South Korea, Thailand and the Philippines. However, Stadelmann declines to name the vendors.
For end users, especially asset managers that focus on a specific country, the service could offer a much more economical way of getting data from a local vendor while ensuring that the data is customized to their particular needs, says Stadelmann. He says that it can be costly to set up the infrastructure to receive data from a major vendor. The prices are quite high as well, he adds. If you only want one market it can be quite expensive.
In addition, users will receive data as reported in that particular country or normalized to their own format, which Stadelmann says is actually quite an advantage to the normalized form, which for example Bloomberg or Reuters are providing. He adds that Finetik has seen a lot of interest in the data content and data modeling areas due to Basel II.
Currently, data used by the front office, back office, research, settlement and risk management departments of the same institution can be accessed through different systems or applications within or outside of a firm. This has proven to create inconsistencies, errors, costs and risk exposure, says Stadelmann. “So we’re helping to come up with design concepts on data models and integration and migration on how you pull that altogether and influence the processes,” he says.
Finetik also offers the service to companies that want to resell or redistribute data from the local Asian vendors. The idea is that they can access the whole Asian market without needing to set up operations, which rather costly,” he says. Those companies will pay the vendors for the privilege at an agreed rate based on the usage of the data vendor.
Letter from Hong Kong
Last week’s Inside Market Data Asia conference should make vendors sit up and think. Not only is Asia growing in leaps and bounds (and not just in China and India), but it is crying out for better, more suitable products. And it seems clear that they need both local and global vendors to supply them.
That’s because the local vendors can offer local data, timeliness and a deep understanding of the local market. The global vendors, though, have breadth of information and global resources on their side.
A panel of local and global vendors acknowledged this. Stephan Stadelmann of Finetik Partners says, “A global ! vendor has global coverage and a greater financial budget, but in terms of domestic needs is usually not as flexible as local vendors.”
Yet the panel agrees that local and global vendors can be complementary, especially-as Reuters’ Alex Hungate says-in local markets in which a big player might not want to compete.
From the local vendor’s perspective, says Stephen Lai of Singapore’s NextView, “you can’t grow in Asia without [working with] global vendors,” especially if the local vendor wants to move beyond its home market.
In addition, they agree that Asia is a fragmented market, and vendors can’t apply a one-size-fits-all strategy (an issue that was also discussed by the last panel of the day). As Darren Bishop of Tullett Prebon Information says, in the past, vendors based their Asian strategies on Japan. But, he points out, the Japanese market is completely different from, say, the Chinese market. Now vendors are beginning to understand that.
Another theme that developed at the show is a global one: information is useless if it’s not delivered or packaged in a useful way.
In the morning keynote, Micah Green, president of the Bond Market Association, says that while there is more and more data available-thanks to business scandals, customer demand, technological developments and globalization-the key is making it useful.
For example, he cites one firm whose second-largest expense is its Bloombergs. But those Bloombergs are sacred, because they don’t simply deliver data-they are communications tools, as well as being used for analytics and processing. Green says Bloomberg’s competitors have begun to look at and market their products differently, to show how they can support a user’s business.
This trend is also being driven by increased transparency, which has in turn lowered profit margins on trades. “How do you raise your profits?” Green asks. “You have to reduce your costs.” As a result, firms are applying technology to their data to improve processing and risk management, which then lowers costs and improves profits, even when margins are falling.
S. Swaminathan, CEO of Indian vendor Iris, echoed this theme in his afternoon address. Vendors need to take their data and develop applications around it to serve their customers. “[They say] there’s an information overload,” he says. “There’s not too much information; it’s, ‘can you give me the information I want, how I want it and when I want it?’”
Swaminathan suggests that both local and global vendors apply this advice, particularly to India, which is expecting a huge inflow of domestic investment over the next five years. He notes that this is also a great opportunity for Indian companies and the Indian people: “Until now, we were a factory for the world, we never met the customer, so the benefits flowed to someone else. Today, we are working with the customers.”
That’s because the local vendors can offer local data, timeliness and a deep understanding of the local market. The global vendors, though, have breadth of information and global resources on their side.
A panel of local and global vendors acknowledged this. Stephan Stadelmann of Finetik Partners says, “A global ! vendor has global coverage and a greater financial budget, but in terms of domestic needs is usually not as flexible as local vendors.”
Yet the panel agrees that local and global vendors can be complementary, especially-as Reuters’ Alex Hungate says-in local markets in which a big player might not want to compete.
From the local vendor’s perspective, says Stephen Lai of Singapore’s NextView, “you can’t grow in Asia without [working with] global vendors,” especially if the local vendor wants to move beyond its home market.
In addition, they agree that Asia is a fragmented market, and vendors can’t apply a one-size-fits-all strategy (an issue that was also discussed by the last panel of the day). As Darren Bishop of Tullett Prebon Information says, in the past, vendors based their Asian strategies on Japan. But, he points out, the Japanese market is completely different from, say, the Chinese market. Now vendors are beginning to understand that.
Another theme that developed at the show is a global one: information is useless if it’s not delivered or packaged in a useful way.
In the morning keynote, Micah Green, president of the Bond Market Association, says that while there is more and more data available-thanks to business scandals, customer demand, technological developments and globalization-the key is making it useful.
For example, he cites one firm whose second-largest expense is its Bloombergs. But those Bloombergs are sacred, because they don’t simply deliver data-they are communications tools, as well as being used for analytics and processing. Green says Bloomberg’s competitors have begun to look at and market their products differently, to show how they can support a user’s business.
This trend is also being driven by increased transparency, which has in turn lowered profit margins on trades. “How do you raise your profits?” Green asks. “You have to reduce your costs.” As a result, firms are applying technology to their data to improve processing and risk management, which then lowers costs and improves profits, even when margins are falling.
S. Swaminathan, CEO of Indian vendor Iris, echoed this theme in his afternoon address. Vendors need to take their data and develop applications around it to serve their customers. “[They say] there’s an information overload,” he says. “There’s not too much information; it’s, ‘can you give me the information I want, how I want it and when I want it?’”
Swaminathan suggests that both local and global vendors apply this advice, particularly to India, which is expecting a huge inflow of domestic investment over the next five years. He notes that this is also a great opportunity for Indian companies and the Indian people: “Until now, we were a factory for the world, we never met the customer, so the benefits flowed to someone else. Today, we are working with the customers.”
Solidarity on trade conspicuous by its absence
Trade, apart from peace and prosperity, is always held up as the great EU success story. If only the EU could get its act together in other areas, such as foreign affairs, it would be a global power, the argument runs. Lorenzo Bini Smaghi, an Italian member of the European Central Bank board, is suggesting that the unity on trade should be a model for countries in the eurozone to boost the currency’s political weight.Yet in the last few weeks European solidarity on trade has been conspicuous by its absence. Last year’s imposition of quotas on Chinese textiles angered nations of shoppers such as the UK and Sweden. They were riled again this summer when the European Commission ruled that Chinese and Vietnamese shoes were being dumped on European markets. Many are made by European companies that have outsourced production.
The same north-south faultlines appeared, where Italy, Portugal and the like that still have small family-owned shoemakers, pressed for duties while Peter Mandelson, the British commissioner who is a liberal by instinct and a European by conviction, floated two proposals but both were sunk. In the meantime, the Doha trade talks collapsed. Now hectic lobbying is under way to extend the duties that will expire on October 6 without agreement. Romano Prodi, the new Italian prime minister, has been hitting the phones to line up votes. Vocal industry lobbies have been yelling from the sidelines. Rumours of the UK vacillating after Italy offered to support it in opposition to restrictions on working time have been denied. The Italians are shocked that countries they backed in the past on anti-dumping have not returned the favour. "The old idea of backing each other up seems to have gone out of the window," says one trade veteran.Mandelson has washed his hands of the affair, saying it is up to governments who want the measures to knock heads together. He will not be disappointed if they fail, as he unveils his review of the whole regime in October. Globalisation of supply chains has made it harder to judge what is in "the European interest".Ambassadors meeting on Wednesday have been asked to provide a rare written statement of their position in an attempt to find consensus and the whole wrangle is unlikely to be resolved until the last moment. It could fall to justice ministers meeting in Luxembourg on October 5 to take a decision.
The same north-south faultlines appeared, where Italy, Portugal and the like that still have small family-owned shoemakers, pressed for duties while Peter Mandelson, the British commissioner who is a liberal by instinct and a European by conviction, floated two proposals but both were sunk. In the meantime, the Doha trade talks collapsed. Now hectic lobbying is under way to extend the duties that will expire on October 6 without agreement. Romano Prodi, the new Italian prime minister, has been hitting the phones to line up votes. Vocal industry lobbies have been yelling from the sidelines. Rumours of the UK vacillating after Italy offered to support it in opposition to restrictions on working time have been denied. The Italians are shocked that countries they backed in the past on anti-dumping have not returned the favour. "The old idea of backing each other up seems to have gone out of the window," says one trade veteran.Mandelson has washed his hands of the affair, saying it is up to governments who want the measures to knock heads together. He will not be disappointed if they fail, as he unveils his review of the whole regime in October. Globalisation of supply chains has made it harder to judge what is in "the European interest".Ambassadors meeting on Wednesday have been asked to provide a rare written statement of their position in an attempt to find consensus and the whole wrangle is unlikely to be resolved until the last moment. It could fall to justice ministers meeting in Luxembourg on October 5 to take a decision.
Who wants to be a functionnaire?
Those maligned servants of the European project have been much in the news since the FT revealed the astonishing incidence of mental illness and early retirement at the European institutions, principally the executive Commission.Some maintain it is simply a way of squeezing out difficult or incompetent staff who are very difficult to fire. If not, is there something about building Europe that produces intolerable stress? Read more in the European court of auditors’report on the subject.Certainly, working for multinational sovereign bodies brings unique difficulties. Rates of illness at the United Nations and International Labour Organisation are not much different. All have a strict hierarchy based on grades. All have some senior managers who advance thanks to political connections rather than ability. Some EU member states weigh their influence by how many of the top jobs in Brussels their nationals hold. In contrast with private employers, the Commission holds no data on ethnic minority recruitment but tries scrupulously to balance nationalities.
Then last week Finland, which holds the EU’s rotating presidency, suggested that the Commission’s 22,000-strong bureaucracy could be trimmed by 800 with little discernible effect. That brought splutters of indignation from Brussels, where a spokeswoman said the Commission had not been consulted. None of this shrinks the queue waiting to board the gravy train. A job for life in the "golden cage" comes with low taxes, free private schooling, good pensions and relocation allowances.This year some 19,000 candidates took the notoriously tricky concours, testing knowledge of EU law, history, directives and second languages. There were just 210 jobs up for grabs. The only shortages are of competition lawyers, who can command more in the private sector, and communications experts. So why do the volunteers get such attractive perks in a borderless Europe where more and more of us have to get on the plane and look for work?Perhaps Brussels, so keen on exposing others to the rigours of the market, should follow the laws of supply and demand and abolish the idea of a job for life.
Then last week Finland, which holds the EU’s rotating presidency, suggested that the Commission’s 22,000-strong bureaucracy could be trimmed by 800 with little discernible effect. That brought splutters of indignation from Brussels, where a spokeswoman said the Commission had not been consulted. None of this shrinks the queue waiting to board the gravy train. A job for life in the "golden cage" comes with low taxes, free private schooling, good pensions and relocation allowances.This year some 19,000 candidates took the notoriously tricky concours, testing knowledge of EU law, history, directives and second languages. There were just 210 jobs up for grabs. The only shortages are of competition lawyers, who can command more in the private sector, and communications experts. So why do the volunteers get such attractive perks in a borderless Europe where more and more of us have to get on the plane and look for work?Perhaps Brussels, so keen on exposing others to the rigours of the market, should follow the laws of supply and demand and abolish the idea of a job for life.
The haves and have nots
Woe betide Europeans whose lot it is to be young, foreign or female. So says Anthony Giddens - Baron Giddens of Southgate, to the likes of you and I - who has spent the week in Brussels delivering his findings after a year probing the European social model. The big problem for the European Union, says Giddens, who made his name as the architect of the Third Way theory that shaped the political vision of Bill Clinton and Tony Blair, is its "radically divided labour markets". These are most gratuitously in evidence in Italy, Germany, France and Poland, where the jobs of an inner core of workers are treated as sacred.
If you are lucky enough to hold one of these jobs - which range across sectors but are largely white-collar - you’re laughing. Your position will be almost inviolable. You can expect to retire with decades to live and to receive a pension to keep you in the manner to which you will doubtless have become accustomed. For this you can thank rigid employment laws and intractable working hours, unreconstructed unions and governments whose conservatism is drowned out by sly rallying calls to protect "social" Europe.If, however, you have failed to penetrate this inner sanctum, you will effectively be cannon fodder for the buffets of globalisation. "Radically divided labour markets mean all the burdens of insecurity fall on the young, ethnic minorities and women," Lord Giddens concludes. He resists demonising the fashion for labour-market "felxicurity", the principle of fostering an adaptable workforce capable of adjusting to the changing needs of the modern services economy, which has caused a lot of rumpus, especially over the French first-employment contract. All of which helps to explain why European women are not having babies and why ethnic minorities are being marginalised, Giddens posits. And keeping pension arrangements as they are is a non-starter if Europe wants a modicum of social justice - and, indeed, if it hopes to compete globally. "Europe has been spending too much on the old and not enough on the young," is Giddens’ verdict. If there is one political sideshow that needs to take centre stage, he argues, it is childcare.The difficulty for Brussels as it unveils a blueprint for decent work and improved social safety nets, is that its competences to regulate the internal market far outweigh its powers to influence social protection, even if it wanted to.This, says Giddens, is the contradiction at the heart of the Lisbon Agenda, Brussels’ vaunting ambition to make the EU’s economy more competitive. Some Europeans are, as planned, becoming fabulously knowledgable and out-doing their peers in highly-skilled sectors, particularly information and communications technology. By contrast, those at the shallower end of the skills pool are offered scant protection as their jobs migrate eastwards. And yet more trouble may be in store, if we heed the warnings of Princeton’s Alan Blinder, whom Giddens describes as one of very few people to have said anything novel about globalisation in recent times. It may be that the Lisbon Agenda’s faith in churning out professionals - accountants, lawyers, spinners - is misplaced, if, as Prof Blinder augurs, we are entering a new phase of globalisation. In a thoroughly networked world, it will not be manufacturing jobs that are outsourced, but high-skill jobs, the reasoning goes, taking as its first portent the boom in sub-continental call-centres.This, Giddens and his fellow penseurs suspect, will mean an end to international competition between sectors. Instead, wealth will be dispersed on the basis of competition between individuals. In Europe, the individuals who cannot compete to provide a particular service under a particular contract will be in need of lower-skilled jobs to tide them over - exactly the kind of labour Europe is merrily doing away with.
If you are lucky enough to hold one of these jobs - which range across sectors but are largely white-collar - you’re laughing. Your position will be almost inviolable. You can expect to retire with decades to live and to receive a pension to keep you in the manner to which you will doubtless have become accustomed. For this you can thank rigid employment laws and intractable working hours, unreconstructed unions and governments whose conservatism is drowned out by sly rallying calls to protect "social" Europe.If, however, you have failed to penetrate this inner sanctum, you will effectively be cannon fodder for the buffets of globalisation. "Radically divided labour markets mean all the burdens of insecurity fall on the young, ethnic minorities and women," Lord Giddens concludes. He resists demonising the fashion for labour-market "felxicurity", the principle of fostering an adaptable workforce capable of adjusting to the changing needs of the modern services economy, which has caused a lot of rumpus, especially over the French first-employment contract. All of which helps to explain why European women are not having babies and why ethnic minorities are being marginalised, Giddens posits. And keeping pension arrangements as they are is a non-starter if Europe wants a modicum of social justice - and, indeed, if it hopes to compete globally. "Europe has been spending too much on the old and not enough on the young," is Giddens’ verdict. If there is one political sideshow that needs to take centre stage, he argues, it is childcare.The difficulty for Brussels as it unveils a blueprint for decent work and improved social safety nets, is that its competences to regulate the internal market far outweigh its powers to influence social protection, even if it wanted to.This, says Giddens, is the contradiction at the heart of the Lisbon Agenda, Brussels’ vaunting ambition to make the EU’s economy more competitive. Some Europeans are, as planned, becoming fabulously knowledgable and out-doing their peers in highly-skilled sectors, particularly information and communications technology. By contrast, those at the shallower end of the skills pool are offered scant protection as their jobs migrate eastwards. And yet more trouble may be in store, if we heed the warnings of Princeton’s Alan Blinder, whom Giddens describes as one of very few people to have said anything novel about globalisation in recent times. It may be that the Lisbon Agenda’s faith in churning out professionals - accountants, lawyers, spinners - is misplaced, if, as Prof Blinder augurs, we are entering a new phase of globalisation. In a thoroughly networked world, it will not be manufacturing jobs that are outsourced, but high-skill jobs, the reasoning goes, taking as its first portent the boom in sub-continental call-centres.This, Giddens and his fellow penseurs suspect, will mean an end to international competition between sectors. Instead, wealth will be dispersed on the basis of competition between individuals. In Europe, the individuals who cannot compete to provide a particular service under a particular contract will be in need of lower-skilled jobs to tide them over - exactly the kind of labour Europe is merrily doing away with.
2008/08/09
Surplus value
Surplus value is a concept created by Karl Marx in his critique of political economy, where its ultimate source is unpaid surplus labor performed by the worker for the capitalist, serving as a basis for capital accumulation.
The German equivalent word "Mehrwert" means simply value-added (an output measure), but in Marx's value theory, the extra or surplus-value has a specific meaning, namely the amount of the increase in the value of capital upon investment, i.e. the yield regardless of whether it takes the form of profit, interest or rent.
Marx himself regarded the reduction of profit, interest and rent income to surplus-value, and surplus value to surplus labour as one of his greatest theoretical achievements.
For Marx, the gigantic increase in wealth and population from the 19th century onwards was mainly due to the competitive striving to obtain maximum surplus-value from the employment of labor, resulting in an equally gigantic increase of productivity and capital resources. To the extent that increasingly the economic surplus is convertible into money and expressed in money, the amassment of wealth is possible on a larger and larger scale (see capital accumulation and surplus product).
In the Communist Manifesto, Marx and Engels wrote:
The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?Theory of surplus valueThe problem of explaining the source of surplus value is expressed by Friedrich Engels as follows:
"Whence comes this surplus-value? It cannot come either from the buyer buying the commodities under their value, or from the seller selling them above their value. For in both cases the gains and the losses of each individual cancel each other, as each individual is in turn buyer and seller. Nor can it come from cheating, for though cheating can enrich one person at the expense of another, it cannot increase the total sum possessed by both, and therefore cannot augment the sum of the values in circulation. (...) This problem must be solved, and it must be solved in a purely economic way, excluding all cheating and the intervention of any force — the problem being: how is it possible constantly to sell dearer than one has bought, even on the hypothesis that equal values are always exchanged for equal values?" [1]
Marx himself also put the problem as follows:
"If the exchange-value of a product equals the labour-time contained in the product, then the exchange-value of a working day is equal to the product it yields, in other words, wages must be equal to the product of labour. [20] But in fact the opposite is true. Ergo, this objection amounts to the problem, -- how does production on the basis of exchange-value solely determined by labour-time lead to the result that the exchange-value of labour is less than the exchange-value of its product? This problem is solved in our analysis of capital." [2]
Marx's solution was to distinguish between labor-time worked and labor power. A worker who is sufficiently productive can produce an output value greater than what it costs to hire him. Although his wage seems to be based on hours worked, in an economic sense this wage does not reflect the full value of what the worker produces. Effectively it is not labour which the worker sells, but his capacity to work.
Imagine a worker who is hired for an hour and paid $10. Once in the capitalist's employ, the capitalist can have him operate a boot-making machine using which the worker produces $10 worth of work every fifteen minutes. Every hour, the capitalist receives $40 worth of work and only pays the worker $10, capturing the remaining $30 which, after deduction of costs (the leather, depreciation of the machine, etc.) leaves a residual, i.e. surplus value or profit.
The worker cannot capture this benefit directly because he has no claim to the means of production (e.g. the boot-making machine) or to its products, and his capacity to bargain over wages is restricted by laws and the supply/demand for wage labour. Hence the rise of trade unions which aim to create a more favourable bargaining position through collective action by workers.
[edit] Definition of surplus valueTotal surplus-value in an economy (Marx refers to the mass or volume of surplus-value) is basically equal to the sum of net distributed and undistributed profit, net interest, net rents, net tax on production and various net receipts associated with royalties, licensing, leasing, certain honorariums etc. (see also value product). Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way an individual business does that (see also Operating surplus).
Marx's own discussion focuses mainly on profit, interest and rent, largely ignoring taxation and royalty-type fees which were proportionally very small components of the national income when he lived. Over the last 150 years, however, the role of the state in the economy increased in almost every country in the world. Around 1850, the average share of government spending in GDP in the advanced capitalist economies was around 5%; in 1870, a bit above 8%; on the eve of World War I, just under 10%; just before the outbreak of the second world war, around 20%; by 1950, nearly 30%; and today the average is around 35-40%.[citation needed]
[edit] Five interpretations of surplus valueSurplus-value may be viewed in five ways:
as a component of the new value product, which Marx himself defines as equal to the sum of labor costs in respect of capitalistically productive labor (variable capital) and surplus-value. In production, he argues, the workers produce a value equal to their wages plus an additional value, the surplus-value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation (consumption of fixed capital) and intermediate goods used up (constant capital inputs). Labor costs and surplus-value are the monetary valuations of what Marx calls the necessary product and the surplus product, or paid labour and unpaid labour. Surplus-value can also be viewed as a flow of net income appropriated by the owners of capital in virtue of asset ownership, comprising both distributed personal income and undistributed business income. In the whole economy, this will include both income directly from production and property income. Surplus-value can be viewed as the source of society's accumulation fund or investment fund; part of it is re-invested, but part is appropriated as personal income, and used for consumptive purposes by the owners of capital assets (see capital accumulation); in exceptional circumstances, part of it may also be hoarded in some way). In this context, surplus value can also be measured as the increase in the value of the stock of capital assets through an accounting period, prior to distribution. Surplus-value can be viewed as a social relation of production, or as the monetary valuation of surplus-labour - a sort of "index" of the balance of power between social classes or nations in the process of the division of the social product. Surplus-value can, in a developed capitalist economy, be viewed also as an indicator of the level of social productivity that has been reached by a population.
[edit] Five measures of the rate of surplus valueAccording to Marx's theory of exploitation, living labour at an adequate level of productivity is able to create and conserve more value than it costs the employer to buy; which is exactly the economic reason why the employer buys it, i.e. to preserve and augment the value of the capital at his command. Thus, the surplus-labour is unpaid labour appropriated by employers in the form of work-time and outputs, on the basis that employers own and supply the means of production worked with. The commercial function of labour is only to conserve their value, add value to them, and transfer value.
According to Marx's labor theory of value, human labor is the only source of net new economic value, but is also indispensable for the conservation and transfer of economic value (maintenance and redistribution of capital assets). Asset revaluations according to this theory only redistribute claims to product-value which has already been created previously.
The rate of surplus-value in production is defined by Marx as the volume of surplus-value produced by the workforce divided by the variable capital (or labour-costs) expended to produce it (the ratio S/V). This is very roughly equivalent to the profits/wages ratio, though there is debate in Marxian economics about what exact profit and wage measures should be used. After all, total labour costs often involve far more than wage payments, and profits can be "grossed" and ""netted" in different ways.
Alternative measures Marx cites are:
surplus value divided by the value of labour-power, surplus labour divided by necessary labour [the value of] unpaid labour divided by [the value of] paid labour, expressible in hours worked or money units the surplus product divided by necessary product. (see Das Kapital, vol. 1, chapter 28). The five measures of the rate of surplus value mentioned do not all refer to the same thing exactly (see further rate of exploitation and surplus product). However, the basic meaning of the rate of surplus value is always the rate of exploitation of living labour-capacity, i.e. the net yield obtained from the employment of living labour. Marx usually assumed in his models that the rate of surplus-value would be the same in all industries, different rates being equalised to a general norm in an open market for capital and labour. In reality, this is probably not the case, i.e. the rates may vary.
Some authors have interpreted this "rate of exploitation" as a purely economic or commercial concept (in the sense of "labor utilisation", the use of a resource) while others see it primarily as a moral or political concept referring to the domination of a social class which commands labour in virtue of ownership of capital assets.
[edit] Equalization of rates of surplus valueMarx believed that the long-term historical tendency would be for differences in rates of surplus value between enterprises and economic sectors to level out:
"If capitals that set in motion unequal quantities of living labour produce unequal amounts of surplus-value, this assumes that the level of exploitation of labour, or the rate of surplus-value, is the same, at least to a certain extent, or that the distinctions that exist here are balanced out by real or imaginary (conventional) grounds of compensation. This assumes competition among workers, and an equalization that takes place by their constant migration between one sphere of production and another. We assume a general rate of surplus value of this kind, as a tendency, like all economic laws, as a theoretical simplification; but in any case this is in practice an actual presupposition of the capitalist mode of production, even if inhibited to a greater or lesser extent by practical frictions that produce more or less significant local differences, such as the settlement laws for agricultural labourers in England, for example. In theory, we assume that the laws of the capitalist mode of production develop in their pure form. In reality, this is only an approximation; but that approximation is all the more exact, the more the capitalist mode of production is developed and the less it is adulterated by survivals of earlier economic conditions with which it is amalgamated " - Capital Vol. 3, ch. 10, Pelican edition p. 275.
[3]
This is why he felt justified assuming a uniform rate of surplus value in his models of how surplus value would be shared out under competitive conditions.
[edit] Complicating factors in assessing surplus valueComplicating factors in assessing surplus-value are:
state intermediation, where profit and wage income is taxed on the one side, and supplemented on the other with subsidies and grants of various kinds; Backwardation of certain physical goods in which time and presence are drivers of price. employee and employer contributions to social security and health schemes (wage costs and total labour costs may not be equal); price inflation applying to wage goods, profit and capital goods; creative accounting and tax avoidance or evasion techniques which misrepresent how much value has really been created. income obtained from what Marx called "fictitious capital" or what now are often called "bubble" phenomena. unsold inventories of net outputs which contain surplus-value. These phenomena often make it difficult to calculate what the real net wage income is, and what the real net profit income is; there may be a very significant difference between gross income and disposable income.
In modern society, the complexity of transactions can often seem almost impenetrable or opaque. People may become less concerned with issues of exploitation, rather their concern may just simply be with defending their entitlement to a secure real net income ("take home pay") from the work they do, or from any other source.
How the exchange between capital and labour happens to be viewed, depends greatly on the balance of power between employers and employees, and on the ability for all parties to the exchange to make gains from the trade in human labor. People would not usually trade unless they made a positive gain by it, but obviously the gains could be very unequally distributed among different parties to the trade. The more real net income capitalists and workers lose, the more concerned they become about fair exchange and exploitation.
[edit] Origin of the forms of surplus-value in tradeSurplus-value is not a fixed category but a dialectical, developing one, because the forms in which new value is created and appropriated, and the way the burdens of productive work are shifted between strata of the population, change over time. There is obviously a big difference between simple commodity producers exchanging agricultural surpluses in a village market, and "fast money" in today's global money markets.
Historically, Marx argues, surplus-value originated outside production in the first commercial forms of exchange - usury, merchant, rentier and bank capital and their associated lending operations. Thus, the first forms of surplus-value include (leaving aside extortion and robbery etc.) profits from simple commodity production, merchants' profit from "buying cheap and selling dear" or unequal exchange, certain types of rent imposed on production, and interest on loans extended by financiers, bankers and usurers. In Europe, "share" certificates of the joint-stock type date from the 16th century, although in some or other form share-type financial obligations already existed much earlier.
In ancient and feudal society, the ability to appropriate surplus-value from trade in commodities and capital was usually strongly regulated, and limited by the state and religious authorities; a universal market where almost everything could be bought and sold freely using money did not exist.
Originally, as Marx explicitly notes, commercial trade emerged at the boundaries of economic communities based on a non-capitalist mode of production, and it is only when commerce begins to dominate and regulate the bulk of production itself, that it becomes clearer that the ultimate source, or substance, of all surplus-value is really surplus-labour.
The processes whereby capitalist commerce conquers direct control of production (instigating the capitalist mode of production) are however very lengthy and complicated ones; all kinds of socio-economic obstacles ("market rigidities") must be cleared away, and new institutions created, before all the necessary factors of production can be freely bought and sold as inputs and outputs. A good example of that is modern China.
[edit] Appropriation of surplus-value from productionBoth in Das Kapital and in preparatory manuscripts such as the Grundrisse and Results of the immediate process of production, Marx shows how commerce by stages transforms a non-capitalist production process into a capitalist production process, integrating it fully into markets, so that all inputs and outputs become marketed goods or services. When that process is complete, the whole of production has become simultaneously a labor process creating use-values and a valorisation process creating new value, and more specifically a surplus-value appropriated as net income (see also capital accumulation).
In fact, Marx argues that the whole purpose of production in this situation becomes the growth of capital, i.e. that production of output becomes conditional on capital accumulation. If production becomes unprofitable, capital will be withdrawn from production sooner or later.
This means, systemically, that the main driving force of capitalism becomes the quest to maximise the appropriation of surplus-value augmenting the stock of capital. The overriding motive behind efforts to economise resources and labor is to obtain the maximum possible increase in income and capital assets ("business growth"), and provide a steady or growing return on investment.
[edit] Absolute and relative surplus valueAccording to Marx, absolute surplus value is obtained by increasing the amount of time worked per worker in an accounting period. Marx talks mainly about the length of the working day or week, but in modern times the concern is about the number of hours worked per year.
In many parts of the world, as productivity rose, the working classes forced a reduction in the workweek, from 60 hours to 50, 40 or 35 hours; but casualisation and flexibilisation of working hours also permits higher paid workers to work less (a fact of concern to statesmen who worry about international competitiveness, i.e. if we don't work harder our country will lose business).
Relative surplus value is obtained mainly by
reducing wages — this can only go to a certain point, because if wages fall bellow the ability of workers to purchase their means of subsistence, they will be unable to reproduce themselves and the capitalists will not be able to find sufficient labor power. reducing the cost of wage-goods by various means, so that wage increases can be curbed. increasing the productivity and intensity of labour generally, through mechanisation and rationalisation, yielding a bigger output per hour worked. The attempt to extract more and more surplus-value from labor on the one side, and on the other side the resistance to this exploitation, are according to Marx at the core of the conflict between social classes, which is sometimes muted or hidden, but at other times erupts in open class warfare and class struggle.
One will often hear a Marxist talking about class struggle, but in reality there is a big difference between class conflict and class struggle. A class conflict may exist and fester for a long time, without classes being able and willing to organise any mass struggle actively. Employers may provoke a strategic fight in order to demolish workers' militancy in a critical area; or, mass revolts of workers are sparked off by moral outrage about some event, or because conditions have become intolerable. No easy generalisations are possible, especially because the moods, feelings and inclination to act of social classes can change very rapidly; bursts of mass action can take most people by surprise.
Production versus realisation of surplus-valueMarx distinguished sharply between value and price, in part because of the sharp distinction he draws between the production of surplus-value and the realisation of profit income. Output may be produced containing surplus-value (valorisation), but selling that output (realisation) is not at all an automatic process.
Until payment from sales is received, it is uncertain how much of the surplus-value produced will actually be realised as profit from sales. So, the magnitude of profit realised in the form of money and the magnitude of surplus-value produced in the form of products may differ greatly, depending on what happens to market prices and the vagaries of supply and demand fluctuations. This insight forms the basis of Marx's theory of market value, prices of production and the tendency of the rate of profit of different enterprises to be levelled out by competition.
In his published and unpublished manuscripts, Marx went into great detail to examine many different factors which could affect the production and realisation of surplus-value. He regarded this as crucial for the purpose of understanding the dynamics and dimensions of capitalist competition, not just business competition but also competition between capitalists and workers and among workers themselves. But his analysis did not go much beyond specifying some of the overall outcomes of the process.
His main conclusion though is that employers will aim to maximise the productivity of labour and economise on the use of labour, to reduce their unit-costs and maximise their net returns from sales at current market prices; at a given ruling market price for an output, every reduction of costs and every increase in productivity and sales turnover will increase profit income for that output. The main method is mechanisation, which raises the fixed capital outlay in investment.
In turn, this causes the unit-values of commodities to decline over time, and a decline of the average rate of profit in the sphere of production occurs, culminating in a crisis of capital accumulation, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.
[edit] The significance of the mass of surplus valueMost Marxist discussions focus on the rate of surplus value, but for businessmen, the growth of the mass of surplus-value, or the profit volume produced (denoted here as P) is just as important, or even more important. The growth of P depends on the growth of the volume of output in an accounting period, and the volume of sales turnover.
We can illustrate the point with a simplified example. If:
K = total capital invested P = total net profit volume realised r = the rate of profit (i.e. P/K), and assuming (perhaps unrealistically) that a sum equal to P is reinvested (with or without the aid of credit) with zero price inflation, we can construct a series of annual business results, starting off with K= 1 million and r = 10% where the profit rate declines by a constant 0.1% per annum:
year 1: K = 1,000,000; P = 100,000; r = 10% year 2: K = 1,100,000; P = 108,900; r = 9.9% year 3: K = 1,208,900; P = 118,472; r = 9.8% We see here that within two years at least, an 18.5% increase in annual profit volume has occurred, even although the rate of profit decreased by 0.2%. In other words, there's nearly one-fifth more income to disburse to the owners of the capital, although the rate of return fell slightly.
What this simplistic example really implies is that, provided market sales keep growing and business expands, a slight fall in the profit rate on capital may not be a point of concern. After all, capital assets have grown, but more importantly, the total volume of revenue that can be distributed has grown.
However, if the total profit volume created in a capitalist economy stops growing, this becomes a real problem (as highlighted by Henryk Grossman). Because in that case, profitability must fall across the board, and business income is reduced everywhere.
In some Marxist crisis theories (e.g. by Grossmann, Louis C. Fraina and Paul Mattick), the root cause of economic crisis is precisely that the growth of profit volume is eclipsed by the decline of the profit rate in production, the result being that the total profit volume that can be distributed stagnates or falls.
The overall implication is that market expansion is critical for the total volume of surplus-value that can be distributed as profit. Total business income can increase, even although the profit rate on capital invested falls, if markets keep growing. The logical outcome of that is globalisation, i.e. the systematic removal of all barriers to trade world-wide to facilitate market expansion.
[edit] Surplus value and taxationIn general, business leaders and investors are hostile to any attempts to encroach on total profit volume, especially those of government taxation. The lower taxes are, other things being equal, the bigger the mass of profit that can be distributed as income to private investors. It was tax revolts that originally were a powerful stimulus motivating the bourgeoisie to wrest state power from the feudal aristocracy at the beginning of the capitalist era.
In reality, of course, a substantial portion of tax money is also redistributed to private enterprise in the form of government contracts and subsidies. If that had not been the case, the tax take would never have been permitted to rise to a quarter or a third of gross product. Capitalists may therefore be in conflict among themselves about taxes, since what is a cost to some, is a source of profit to others. Marx never analysed all this in detail; but the concept of surplus value will apply mainly to taxes on gross income (personal and business income from production) and the trade in products & services. Estate duty for example rarely contains a surplus value component, although profit could be earned in the transfer of the estate.
Generally, Marx seems to have regarded taxation imposts as a "form" which disguised real product values. Apparently following this view, Ernest Mandel in his 1960 treatise Marxist Economic Theory refers to (indirect) taxes as "arbitrary additions to commodity prices". But this is something of a misnomer, and disregards that taxes become part of the normal cost-structure of production. In his later treatise on late capitalism, Mandel astonishingly hardly mentions the significance of taxation at all, a very serious omission from the point of view of the real world of modern capitalism since taxes can reach a magnitude of a third, or even half of GDP (see E. Mandel, Late Capitalism. London: Verso, 1975)
[edit] Surplus value and the circuits of capitalGenerally, Marx focused in Das Kapital on the new surplus-value generated by production, and the distribution of this surplus value. In this way, he aimed to reveal the "origin of the wealth of nations" given a capitalist mode of production. However, in any real economy, a distinction must be drawn between the primary circuit of capital, and the secondary circuits. To some extent, national accounts also do this.
The primary circuit refers to the incomes and products generated and distributed from productive activity (reflected by GDP). The secondary circuits refer to trade, transfers and transactions occurring outside that sphere, which can also generate incomes, and these incomes may also involve the realisation of a surplus-value or profit.
It is true that Marx argues no net additions to value can be created through acts of exchange, economic value being an attribute of labour-products (previous or newly created) only. Nevertheless trading activity outside the sphere of production can obviously also yield a surplus-value which represents a transfer of value from one person, country or institution to another.
A very simple example would be if somebody sold a second-hand asset at a profit. This transaction is not recorded in gross product measures (after all, it isn't new production), nevertheless a surplus-value is obtained from it. Another example would be capital gains from property sales. Marx occasionally refers to this kind of profit as profit upon alienation, alienation being used here in the juridical, not sociological sense. By implication, if we just focused on surplus-value newly created in production, we would underestimate total surplus-values realised as income in a country. This becomes obvious if we compare census estimates of income & expenditure with GDP data.
This is another reason why surplus-value produced and surplus-value realised are two different things, although this point is largely ignored in the economics literature. But it becomes highly important when the real growth of production stagnates, and a growing portion of capital shifts out of the sphere of production in search of surplus-value from other deals.
Nowadays the volume of world trade grows significantly faster than GDP, suggesting to Marxian economists such as Samir Amin that surplus-value realised from commercial trade (representing to a large extent a transfer of value by intermediaries between producers and consumers) grows faster than surplus-value realised directly from production.
Thus, if we took the final price of a good (the cost to the final consumer) and analysed the cost structure of that good, we might find that, over a period of time, the direct producers get less income and intermediaries between producers and consumers (traders) get more income from it. That is, control over the access to a good, asset or resource as such may increasingly become a very important factor in realising a surplus-value. In the worst case, this amounts to parasitism or extortion. This analysis illustrates a key feature of surplus value which is that it accumulated by the owners of capital only within inefficient markets because only inefficient markets - i.e. those in which transparency and competition are low - have profit margins large enough to facilitate capital accumulation. Ironically, profitable - meaning inefficient - markets have difficulty meeting the definition a free market because a free market is to some extent defined as an efficient one: one in which goods or services are exchanged without coercion or fraud, or in other words with competition (to prevent monopolistic coercion) and transparency (to prevent fraud).
[edit] Measurement of surplus valueThe first attempt to measure the rate of surplus-value in money-units was by Marx himself in chapter 9 of Das Kapital, using factory data of a spinning mill supplied by Friedrich Engels (though Marx credits "a Manchester spinner"). Both in published and unpublished manuscripts, Marx examines variables affecting the rate and mass of surplus-value in detail.
Some self proclaimed Marxist thinkers like Geoffrey Pilling and Ira Gerstein have argued that surplus value "cannot be measured", but that was demonstrably not the view of Marx and Engels themselves. The real question was how accurately it could be measured, and this depended on the publicly available data. We can develop statistical indicators of trends, without mistakenly conflating data with the real thing they represent, or postulating "perfect measurements or perfect data" in the empiricist manner. If theory is not disciplined by valid data, it becomes metaphysical, rather than being scientific.
Since the pioneering studies by Marxian economists like Eugen Varga, Charles Bettelheim, Joseph Gillmann, Edward Wolff and Shane Mage, there have been numerous attempts by Marxian economists to measure the trend in surplus-value statistically using national accounts data. The most convincing modern attempt is probably that of Professors Anwar Shaikh & Ahmet Tonak [4].
Usually this type of research involves reworking the components of the official measures of gross output and capital outlays to approximate Marxian categories, in order to estimate empirically the trends in the ratios thought important in the Marxian explanation of capital accumulation and economic growth: the rate of surplus-value, the organic composition of capital, the rate of profit, the rate of increase in the capital stock, and the rate of reinvestment of realised surplus-value in production.
The Marxian mathematicians Emmanuel Farjoun and Moshé Machover argue that "even if the rate of surplus value has changed by 10-20% over a hundred years, the real problem [to explain] is why it has changed so little" (quoted from The Laws of Chaos; A Probabilistic Approach to Political Economy (1983), p. 192). The answer to that question must, in part, be sought in artifacts (statistical distortion effects) of data collection procedures. Mathematical extrapolations are ultimately based on the data available, but that data itself may be fragmentary and not the "complete picture".
Experienced financial analysts are, however, liable to shake their heads at these kinds of Marxian empirical estimates from official data. As regards total profit volume, statisticians use survey data, administrative records, and tax data to estimate it, consistent with a standard definition of gross product and capital transactions. But this may include or exclude items at variance with real business practice. Some types of transactions are disregarded, while imputations are made for other transactions. Almost always tax data is the main source of generic profit estimates, but tax data typically understate true profitability.
Or, if the rate of profit is measured as a ratio between the total profit component in value added and fixed capital, what is ignored is that capital assets include more than fixed assets, and that profit income includes more than the value added component. So to assess profit volume or profitability, really the problem has to be looked at using a variety of different measures and a variety of difference sources (national accounts data, tax data, direct surveys, company reports and circumstantial evidence).
As against that, it can also be shown statistically that most time series of different profit measures from different sources will show the same historical trends (see e.g. the research by Dumenil & Levy).
[edit] Different concepts of surplusIn neo-Marxist thought, Paul A. Baran for example substitutes the concept of "economic surplus" for Marx's surplus value. In a joint work, Paul Baran and Paul Sweezy define the economic surplus as "the difference between what a society produces and the costs of producing it" (Monopoly Capitalism, New York 1966, p. 9). Much depends here on how the costs are valued, and which costs are taken into account. Piero Sraffa also refers to a "physical surplus" with a similar meaning, calculated according to the relationship between prices of physical inputs and outputs.
In these theories, surplus product and surplus value are equated, while value and price are identical, but the distribution of the surplus tends to be separated theoretically from its production; whereas Marx insists that the distribution of wealth is governed by the social conditions in which it is produced, especially by property relations giving entitlement to products, incomes and assets (see also relations of production).
In Capital Vol. 3, Marx insists strongly that
"the specific economic form, in which unpaid surplus labour is pumped out of direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of the conditions of production to the direct producers -- a relation always naturally corresponding to a definite stage of the methods of labour and thereby its social productivity -- which reveals the innermost secret, the hidden basis of the entire social structure, and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state. This does not prevent the same economic basis -- the same from the standpoint of its main conditions -- due to innumerable different, empirical circumstances, natural environment, racial relations, external historical influence, etc. from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances."
This is a substantive - if abstract - thesis about the basic social relations involved in giving and getting, taking and receiving in human society, and their consequences for the way work and wealth is shared out. It suggests a starting point for an inquiry into the problem of social order and social change. But obviously it is only a starting point, not the whole story, which would include all the "variations and gradations".
[edit] Criticism of Marx's conceptSome economic historians argue that Marx did not discover the concept of surplus-value, because other political economists (e.g. Karl Rodbertus-Jagetzow) had already discovered it first. There is some truth in this, but as against that, Marx only claimed that he had theoretically refined and systematised existing notions of added value, removing inconsistencies and apologistic theories (he himself claimed little originality, and normally carefully documented "who said it first"; he was among the first economic thinkers to use an extensive apparatus of footnotes - see Karl Marx and World Literature, by S. S. Prawer. New York: Oxford University Press, 1977). His theoretical presentation is far superior though to that of his contemporaries, as economic historians acknowledge.
A substantive, foundational criticism of Marx's concept of the surplus product and surplus-value was made by Harry W. Pearson in the 1950s in his essay, "The economy has no surplus". Another modern, more sophisticated critique of the concept is by Helen Boss (see references).
An alternative criticism is by Steve Keen, who argues that the economy does have a surplus, but that it can arise from numerous different sources. Specifically, he claims that "mathematics and Marx's philosophy confirm that surplus value - and hence profit - can be generated from any input to production" (Debunking Economics, p. 298). Thus Marx's view that economic value is a human attribution or comparison, and that only human labour can conserve, transfer and create value is rejected.
The most fundamental criticism of Marx's theory of value is offered by Austrian economics, which holds that the value is purely subjective, and cannot be derived from labor, surplus or otherwise. The labor itself can be productive, resulting in creation of goods which are desired by other people, or destructive, merely wasting resources on creation of goods nobody wants - this phenomenon was quite evident in the socialist economies. Thus, we can say if something has value only by observing voluntary exchange between people. When such exchange is prevented, there is no way to tell if the labor is creative or destructive, and so it is impossible to direct the efforts towards creation of value. This impossibility of economic calculation was famously proposed by Ludwig von Mises in 1929 as the reason for imminent failure of socialist economies, in stark contrast to predictions of Marx's theory.
[edit] The moral and power dimension of surplus valueA typical textbook-type example of an alternative interpretation to Marx's is provided by Lester Thurow. "In a capitalistic society", he argues in an Concise Encyclopedia of Economics article, "profits - and losses - hold center stage." But what, he asks, explains profits?
There are five reasons for profit, according to Thurow:
capitalists are willing to delay their own personal gratification, and profit is their reward. some profits are a return to those who take risks. some profits are a return to organizational ability, enterprise, and entrepreneurial energy some profits are economic rents - a firm that has a monopoly in producing some product or service can set a price higher than would be set in a competitive market and, thus, earn higher than normal returns. some profits are due to market imperfections - they arise when goods are traded above their competitive equilibrium price. The problem here is that Thurow doesn't really provide an objective explanation of profits so much as a moral justification for profits, i.e. as a legitimate entitlement or claim, in return for the supply of capital.
He adds that "Attempts have been made to organize productive societies without the profit motive (...) [but] since the industrial revolution... there have been essentially no successful economies that have not taken advantage of the profit motive." The problem here is again a moral judgement, dependent on what you mean by success. Some societies using the profit motive were ruined; profit is no guarantee of success, although you can say that it has powerfully stimulated economic growth.
Thurow goes on to note that "When it comes to actually measuring profits, some difficult accounting issues arise." Why? Because after deduction of costs from gross income, "It is hard to say exactly how much must be reinvested to maintain the size of the capital stock". Ultimately, Thurow implies, the tax department is the arbiter of the profit volume, because it determines depreciation allowances and other costs which capitalists may annually deduct in calculating taxable gross income.
This is obviously a theory very different from Marx's. In Thurow's theory, the aim of business is to maintain the capital stock. In Marx's theory, competition, desire and market fluctuations create the striving and pressure to increase the capital stock; the whole aim of capitalist production is capital accumulation, i.e. business growth maximising net income. Marx argues there is no evidence that the profit accruing to capitalist owners is quantitatively connected to the "productive contribution" of the capital they own. In practice, within the capitalist firm, no procedure exists for measuring such a "productive contribution" and for distributing the residual income accordingly.
In Thurow's theory, profit is mainly just "something that happens" when costs are deducted from sales, or else a justly deserved income. For Marx, increasing profits is, at least in the longer term, the "bottom line" of business behaviour: the quest for obtaining extra surplus-value, and the incomes obtained from it, are what guides capitalist development (in modern language, "creating maximum shareholder value").
That quest, Marx notes, always involves a power relationship between different social classes and nations, inasmuch as attempts are made to force other people to pay for costs as much as possible, while maximising one's own entitlement or claims to income from economic activity. The clash of economic interests that invariably results, implies that the battle for surplus value will always involve an irreducible moral dimension; the whole process rests on complex system of negotiations, dealing and bargaining in which reasons for claims to wealth are asserted, usually within a legal framework and sometimes through wars. Underneath it all was an exploitative relationship.
That was the main reason why the real sources of surplus-value were shrouded or obscured by ideology, and why Marx thought that political economy merited a critique. Quite simply, economics proved unable to theorise capitalism as a social system, at least not without moral biases intruding in the very definition of its conceptual distinctions. Hence, even the most simple economic concepts were often riddled with contradictions. But market trade could function fine, even if the theory of markets was false; all that was required was an agreed and legally enforceable accounting system. On this point, Marx probably would have agreed with Austrian economics -no knowledge of "markets in general" is required to participate in markets.
The German equivalent word "Mehrwert" means simply value-added (an output measure), but in Marx's value theory, the extra or surplus-value has a specific meaning, namely the amount of the increase in the value of capital upon investment, i.e. the yield regardless of whether it takes the form of profit, interest or rent.
Marx himself regarded the reduction of profit, interest and rent income to surplus-value, and surplus value to surplus labour as one of his greatest theoretical achievements.
For Marx, the gigantic increase in wealth and population from the 19th century onwards was mainly due to the competitive striving to obtain maximum surplus-value from the employment of labor, resulting in an equally gigantic increase of productivity and capital resources. To the extent that increasingly the economic surplus is convertible into money and expressed in money, the amassment of wealth is possible on a larger and larger scale (see capital accumulation and surplus product).
In the Communist Manifesto, Marx and Engels wrote:
The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground -- what earlier century had even a presentiment that such productive forces slumbered in the lap of social labor?Theory of surplus valueThe problem of explaining the source of surplus value is expressed by Friedrich Engels as follows:
"Whence comes this surplus-value? It cannot come either from the buyer buying the commodities under their value, or from the seller selling them above their value. For in both cases the gains and the losses of each individual cancel each other, as each individual is in turn buyer and seller. Nor can it come from cheating, for though cheating can enrich one person at the expense of another, it cannot increase the total sum possessed by both, and therefore cannot augment the sum of the values in circulation. (...) This problem must be solved, and it must be solved in a purely economic way, excluding all cheating and the intervention of any force — the problem being: how is it possible constantly to sell dearer than one has bought, even on the hypothesis that equal values are always exchanged for equal values?" [1]
Marx himself also put the problem as follows:
"If the exchange-value of a product equals the labour-time contained in the product, then the exchange-value of a working day is equal to the product it yields, in other words, wages must be equal to the product of labour. [20] But in fact the opposite is true. Ergo, this objection amounts to the problem, -- how does production on the basis of exchange-value solely determined by labour-time lead to the result that the exchange-value of labour is less than the exchange-value of its product? This problem is solved in our analysis of capital." [2]
Marx's solution was to distinguish between labor-time worked and labor power. A worker who is sufficiently productive can produce an output value greater than what it costs to hire him. Although his wage seems to be based on hours worked, in an economic sense this wage does not reflect the full value of what the worker produces. Effectively it is not labour which the worker sells, but his capacity to work.
Imagine a worker who is hired for an hour and paid $10. Once in the capitalist's employ, the capitalist can have him operate a boot-making machine using which the worker produces $10 worth of work every fifteen minutes. Every hour, the capitalist receives $40 worth of work and only pays the worker $10, capturing the remaining $30 which, after deduction of costs (the leather, depreciation of the machine, etc.) leaves a residual, i.e. surplus value or profit.
The worker cannot capture this benefit directly because he has no claim to the means of production (e.g. the boot-making machine) or to its products, and his capacity to bargain over wages is restricted by laws and the supply/demand for wage labour. Hence the rise of trade unions which aim to create a more favourable bargaining position through collective action by workers.
[edit] Definition of surplus valueTotal surplus-value in an economy (Marx refers to the mass or volume of surplus-value) is basically equal to the sum of net distributed and undistributed profit, net interest, net rents, net tax on production and various net receipts associated with royalties, licensing, leasing, certain honorariums etc. (see also value product). Of course, the way generic profit income is grossed and netted in social accounting may differ somewhat from the way an individual business does that (see also Operating surplus).
Marx's own discussion focuses mainly on profit, interest and rent, largely ignoring taxation and royalty-type fees which were proportionally very small components of the national income when he lived. Over the last 150 years, however, the role of the state in the economy increased in almost every country in the world. Around 1850, the average share of government spending in GDP in the advanced capitalist economies was around 5%; in 1870, a bit above 8%; on the eve of World War I, just under 10%; just before the outbreak of the second world war, around 20%; by 1950, nearly 30%; and today the average is around 35-40%.[citation needed]
[edit] Five interpretations of surplus valueSurplus-value may be viewed in five ways:
as a component of the new value product, which Marx himself defines as equal to the sum of labor costs in respect of capitalistically productive labor (variable capital) and surplus-value. In production, he argues, the workers produce a value equal to their wages plus an additional value, the surplus-value. They also transfer part of the value of fixed assets and materials to the new product, equal to economic depreciation (consumption of fixed capital) and intermediate goods used up (constant capital inputs). Labor costs and surplus-value are the monetary valuations of what Marx calls the necessary product and the surplus product, or paid labour and unpaid labour. Surplus-value can also be viewed as a flow of net income appropriated by the owners of capital in virtue of asset ownership, comprising both distributed personal income and undistributed business income. In the whole economy, this will include both income directly from production and property income. Surplus-value can be viewed as the source of society's accumulation fund or investment fund; part of it is re-invested, but part is appropriated as personal income, and used for consumptive purposes by the owners of capital assets (see capital accumulation); in exceptional circumstances, part of it may also be hoarded in some way). In this context, surplus value can also be measured as the increase in the value of the stock of capital assets through an accounting period, prior to distribution. Surplus-value can be viewed as a social relation of production, or as the monetary valuation of surplus-labour - a sort of "index" of the balance of power between social classes or nations in the process of the division of the social product. Surplus-value can, in a developed capitalist economy, be viewed also as an indicator of the level of social productivity that has been reached by a population.
[edit] Five measures of the rate of surplus valueAccording to Marx's theory of exploitation, living labour at an adequate level of productivity is able to create and conserve more value than it costs the employer to buy; which is exactly the economic reason why the employer buys it, i.e. to preserve and augment the value of the capital at his command. Thus, the surplus-labour is unpaid labour appropriated by employers in the form of work-time and outputs, on the basis that employers own and supply the means of production worked with. The commercial function of labour is only to conserve their value, add value to them, and transfer value.
According to Marx's labor theory of value, human labor is the only source of net new economic value, but is also indispensable for the conservation and transfer of economic value (maintenance and redistribution of capital assets). Asset revaluations according to this theory only redistribute claims to product-value which has already been created previously.
The rate of surplus-value in production is defined by Marx as the volume of surplus-value produced by the workforce divided by the variable capital (or labour-costs) expended to produce it (the ratio S/V). This is very roughly equivalent to the profits/wages ratio, though there is debate in Marxian economics about what exact profit and wage measures should be used. After all, total labour costs often involve far more than wage payments, and profits can be "grossed" and ""netted" in different ways.
Alternative measures Marx cites are:
surplus value divided by the value of labour-power, surplus labour divided by necessary labour [the value of] unpaid labour divided by [the value of] paid labour, expressible in hours worked or money units the surplus product divided by necessary product. (see Das Kapital, vol. 1, chapter 28). The five measures of the rate of surplus value mentioned do not all refer to the same thing exactly (see further rate of exploitation and surplus product). However, the basic meaning of the rate of surplus value is always the rate of exploitation of living labour-capacity, i.e. the net yield obtained from the employment of living labour. Marx usually assumed in his models that the rate of surplus-value would be the same in all industries, different rates being equalised to a general norm in an open market for capital and labour. In reality, this is probably not the case, i.e. the rates may vary.
Some authors have interpreted this "rate of exploitation" as a purely economic or commercial concept (in the sense of "labor utilisation", the use of a resource) while others see it primarily as a moral or political concept referring to the domination of a social class which commands labour in virtue of ownership of capital assets.
[edit] Equalization of rates of surplus valueMarx believed that the long-term historical tendency would be for differences in rates of surplus value between enterprises and economic sectors to level out:
"If capitals that set in motion unequal quantities of living labour produce unequal amounts of surplus-value, this assumes that the level of exploitation of labour, or the rate of surplus-value, is the same, at least to a certain extent, or that the distinctions that exist here are balanced out by real or imaginary (conventional) grounds of compensation. This assumes competition among workers, and an equalization that takes place by their constant migration between one sphere of production and another. We assume a general rate of surplus value of this kind, as a tendency, like all economic laws, as a theoretical simplification; but in any case this is in practice an actual presupposition of the capitalist mode of production, even if inhibited to a greater or lesser extent by practical frictions that produce more or less significant local differences, such as the settlement laws for agricultural labourers in England, for example. In theory, we assume that the laws of the capitalist mode of production develop in their pure form. In reality, this is only an approximation; but that approximation is all the more exact, the more the capitalist mode of production is developed and the less it is adulterated by survivals of earlier economic conditions with which it is amalgamated " - Capital Vol. 3, ch. 10, Pelican edition p. 275.
[3]
This is why he felt justified assuming a uniform rate of surplus value in his models of how surplus value would be shared out under competitive conditions.
[edit] Complicating factors in assessing surplus valueComplicating factors in assessing surplus-value are:
state intermediation, where profit and wage income is taxed on the one side, and supplemented on the other with subsidies and grants of various kinds; Backwardation of certain physical goods in which time and presence are drivers of price. employee and employer contributions to social security and health schemes (wage costs and total labour costs may not be equal); price inflation applying to wage goods, profit and capital goods; creative accounting and tax avoidance or evasion techniques which misrepresent how much value has really been created. income obtained from what Marx called "fictitious capital" or what now are often called "bubble" phenomena. unsold inventories of net outputs which contain surplus-value. These phenomena often make it difficult to calculate what the real net wage income is, and what the real net profit income is; there may be a very significant difference between gross income and disposable income.
In modern society, the complexity of transactions can often seem almost impenetrable or opaque. People may become less concerned with issues of exploitation, rather their concern may just simply be with defending their entitlement to a secure real net income ("take home pay") from the work they do, or from any other source.
How the exchange between capital and labour happens to be viewed, depends greatly on the balance of power between employers and employees, and on the ability for all parties to the exchange to make gains from the trade in human labor. People would not usually trade unless they made a positive gain by it, but obviously the gains could be very unequally distributed among different parties to the trade. The more real net income capitalists and workers lose, the more concerned they become about fair exchange and exploitation.
[edit] Origin of the forms of surplus-value in tradeSurplus-value is not a fixed category but a dialectical, developing one, because the forms in which new value is created and appropriated, and the way the burdens of productive work are shifted between strata of the population, change over time. There is obviously a big difference between simple commodity producers exchanging agricultural surpluses in a village market, and "fast money" in today's global money markets.
Historically, Marx argues, surplus-value originated outside production in the first commercial forms of exchange - usury, merchant, rentier and bank capital and their associated lending operations. Thus, the first forms of surplus-value include (leaving aside extortion and robbery etc.) profits from simple commodity production, merchants' profit from "buying cheap and selling dear" or unequal exchange, certain types of rent imposed on production, and interest on loans extended by financiers, bankers and usurers. In Europe, "share" certificates of the joint-stock type date from the 16th century, although in some or other form share-type financial obligations already existed much earlier.
In ancient and feudal society, the ability to appropriate surplus-value from trade in commodities and capital was usually strongly regulated, and limited by the state and religious authorities; a universal market where almost everything could be bought and sold freely using money did not exist.
Originally, as Marx explicitly notes, commercial trade emerged at the boundaries of economic communities based on a non-capitalist mode of production, and it is only when commerce begins to dominate and regulate the bulk of production itself, that it becomes clearer that the ultimate source, or substance, of all surplus-value is really surplus-labour.
The processes whereby capitalist commerce conquers direct control of production (instigating the capitalist mode of production) are however very lengthy and complicated ones; all kinds of socio-economic obstacles ("market rigidities") must be cleared away, and new institutions created, before all the necessary factors of production can be freely bought and sold as inputs and outputs. A good example of that is modern China.
[edit] Appropriation of surplus-value from productionBoth in Das Kapital and in preparatory manuscripts such as the Grundrisse and Results of the immediate process of production, Marx shows how commerce by stages transforms a non-capitalist production process into a capitalist production process, integrating it fully into markets, so that all inputs and outputs become marketed goods or services. When that process is complete, the whole of production has become simultaneously a labor process creating use-values and a valorisation process creating new value, and more specifically a surplus-value appropriated as net income (see also capital accumulation).
In fact, Marx argues that the whole purpose of production in this situation becomes the growth of capital, i.e. that production of output becomes conditional on capital accumulation. If production becomes unprofitable, capital will be withdrawn from production sooner or later.
This means, systemically, that the main driving force of capitalism becomes the quest to maximise the appropriation of surplus-value augmenting the stock of capital. The overriding motive behind efforts to economise resources and labor is to obtain the maximum possible increase in income and capital assets ("business growth"), and provide a steady or growing return on investment.
[edit] Absolute and relative surplus valueAccording to Marx, absolute surplus value is obtained by increasing the amount of time worked per worker in an accounting period. Marx talks mainly about the length of the working day or week, but in modern times the concern is about the number of hours worked per year.
In many parts of the world, as productivity rose, the working classes forced a reduction in the workweek, from 60 hours to 50, 40 or 35 hours; but casualisation and flexibilisation of working hours also permits higher paid workers to work less (a fact of concern to statesmen who worry about international competitiveness, i.e. if we don't work harder our country will lose business).
Relative surplus value is obtained mainly by
reducing wages — this can only go to a certain point, because if wages fall bellow the ability of workers to purchase their means of subsistence, they will be unable to reproduce themselves and the capitalists will not be able to find sufficient labor power. reducing the cost of wage-goods by various means, so that wage increases can be curbed. increasing the productivity and intensity of labour generally, through mechanisation and rationalisation, yielding a bigger output per hour worked. The attempt to extract more and more surplus-value from labor on the one side, and on the other side the resistance to this exploitation, are according to Marx at the core of the conflict between social classes, which is sometimes muted or hidden, but at other times erupts in open class warfare and class struggle.
One will often hear a Marxist talking about class struggle, but in reality there is a big difference between class conflict and class struggle. A class conflict may exist and fester for a long time, without classes being able and willing to organise any mass struggle actively. Employers may provoke a strategic fight in order to demolish workers' militancy in a critical area; or, mass revolts of workers are sparked off by moral outrage about some event, or because conditions have become intolerable. No easy generalisations are possible, especially because the moods, feelings and inclination to act of social classes can change very rapidly; bursts of mass action can take most people by surprise.
Production versus realisation of surplus-valueMarx distinguished sharply between value and price, in part because of the sharp distinction he draws between the production of surplus-value and the realisation of profit income. Output may be produced containing surplus-value (valorisation), but selling that output (realisation) is not at all an automatic process.
Until payment from sales is received, it is uncertain how much of the surplus-value produced will actually be realised as profit from sales. So, the magnitude of profit realised in the form of money and the magnitude of surplus-value produced in the form of products may differ greatly, depending on what happens to market prices and the vagaries of supply and demand fluctuations. This insight forms the basis of Marx's theory of market value, prices of production and the tendency of the rate of profit of different enterprises to be levelled out by competition.
In his published and unpublished manuscripts, Marx went into great detail to examine many different factors which could affect the production and realisation of surplus-value. He regarded this as crucial for the purpose of understanding the dynamics and dimensions of capitalist competition, not just business competition but also competition between capitalists and workers and among workers themselves. But his analysis did not go much beyond specifying some of the overall outcomes of the process.
His main conclusion though is that employers will aim to maximise the productivity of labour and economise on the use of labour, to reduce their unit-costs and maximise their net returns from sales at current market prices; at a given ruling market price for an output, every reduction of costs and every increase in productivity and sales turnover will increase profit income for that output. The main method is mechanisation, which raises the fixed capital outlay in investment.
In turn, this causes the unit-values of commodities to decline over time, and a decline of the average rate of profit in the sphere of production occurs, culminating in a crisis of capital accumulation, in which a sharp reduction in productive investments combines with mass unemployment, followed by an intensive rationalisation process of take-overs, mergers, fusions, and restructuring aiming to restore profitability.
[edit] The significance of the mass of surplus valueMost Marxist discussions focus on the rate of surplus value, but for businessmen, the growth of the mass of surplus-value, or the profit volume produced (denoted here as P) is just as important, or even more important. The growth of P depends on the growth of the volume of output in an accounting period, and the volume of sales turnover.
We can illustrate the point with a simplified example. If:
K = total capital invested P = total net profit volume realised r = the rate of profit (i.e. P/K), and assuming (perhaps unrealistically) that a sum equal to P is reinvested (with or without the aid of credit) with zero price inflation, we can construct a series of annual business results, starting off with K= 1 million and r = 10% where the profit rate declines by a constant 0.1% per annum:
year 1: K = 1,000,000; P = 100,000; r = 10% year 2: K = 1,100,000; P = 108,900; r = 9.9% year 3: K = 1,208,900; P = 118,472; r = 9.8% We see here that within two years at least, an 18.5% increase in annual profit volume has occurred, even although the rate of profit decreased by 0.2%. In other words, there's nearly one-fifth more income to disburse to the owners of the capital, although the rate of return fell slightly.
What this simplistic example really implies is that, provided market sales keep growing and business expands, a slight fall in the profit rate on capital may not be a point of concern. After all, capital assets have grown, but more importantly, the total volume of revenue that can be distributed has grown.
However, if the total profit volume created in a capitalist economy stops growing, this becomes a real problem (as highlighted by Henryk Grossman). Because in that case, profitability must fall across the board, and business income is reduced everywhere.
In some Marxist crisis theories (e.g. by Grossmann, Louis C. Fraina and Paul Mattick), the root cause of economic crisis is precisely that the growth of profit volume is eclipsed by the decline of the profit rate in production, the result being that the total profit volume that can be distributed stagnates or falls.
The overall implication is that market expansion is critical for the total volume of surplus-value that can be distributed as profit. Total business income can increase, even although the profit rate on capital invested falls, if markets keep growing. The logical outcome of that is globalisation, i.e. the systematic removal of all barriers to trade world-wide to facilitate market expansion.
[edit] Surplus value and taxationIn general, business leaders and investors are hostile to any attempts to encroach on total profit volume, especially those of government taxation. The lower taxes are, other things being equal, the bigger the mass of profit that can be distributed as income to private investors. It was tax revolts that originally were a powerful stimulus motivating the bourgeoisie to wrest state power from the feudal aristocracy at the beginning of the capitalist era.
In reality, of course, a substantial portion of tax money is also redistributed to private enterprise in the form of government contracts and subsidies. If that had not been the case, the tax take would never have been permitted to rise to a quarter or a third of gross product. Capitalists may therefore be in conflict among themselves about taxes, since what is a cost to some, is a source of profit to others. Marx never analysed all this in detail; but the concept of surplus value will apply mainly to taxes on gross income (personal and business income from production) and the trade in products & services. Estate duty for example rarely contains a surplus value component, although profit could be earned in the transfer of the estate.
Generally, Marx seems to have regarded taxation imposts as a "form" which disguised real product values. Apparently following this view, Ernest Mandel in his 1960 treatise Marxist Economic Theory refers to (indirect) taxes as "arbitrary additions to commodity prices". But this is something of a misnomer, and disregards that taxes become part of the normal cost-structure of production. In his later treatise on late capitalism, Mandel astonishingly hardly mentions the significance of taxation at all, a very serious omission from the point of view of the real world of modern capitalism since taxes can reach a magnitude of a third, or even half of GDP (see E. Mandel, Late Capitalism. London: Verso, 1975)
[edit] Surplus value and the circuits of capitalGenerally, Marx focused in Das Kapital on the new surplus-value generated by production, and the distribution of this surplus value. In this way, he aimed to reveal the "origin of the wealth of nations" given a capitalist mode of production. However, in any real economy, a distinction must be drawn between the primary circuit of capital, and the secondary circuits. To some extent, national accounts also do this.
The primary circuit refers to the incomes and products generated and distributed from productive activity (reflected by GDP). The secondary circuits refer to trade, transfers and transactions occurring outside that sphere, which can also generate incomes, and these incomes may also involve the realisation of a surplus-value or profit.
It is true that Marx argues no net additions to value can be created through acts of exchange, economic value being an attribute of labour-products (previous or newly created) only. Nevertheless trading activity outside the sphere of production can obviously also yield a surplus-value which represents a transfer of value from one person, country or institution to another.
A very simple example would be if somebody sold a second-hand asset at a profit. This transaction is not recorded in gross product measures (after all, it isn't new production), nevertheless a surplus-value is obtained from it. Another example would be capital gains from property sales. Marx occasionally refers to this kind of profit as profit upon alienation, alienation being used here in the juridical, not sociological sense. By implication, if we just focused on surplus-value newly created in production, we would underestimate total surplus-values realised as income in a country. This becomes obvious if we compare census estimates of income & expenditure with GDP data.
This is another reason why surplus-value produced and surplus-value realised are two different things, although this point is largely ignored in the economics literature. But it becomes highly important when the real growth of production stagnates, and a growing portion of capital shifts out of the sphere of production in search of surplus-value from other deals.
Nowadays the volume of world trade grows significantly faster than GDP, suggesting to Marxian economists such as Samir Amin that surplus-value realised from commercial trade (representing to a large extent a transfer of value by intermediaries between producers and consumers) grows faster than surplus-value realised directly from production.
Thus, if we took the final price of a good (the cost to the final consumer) and analysed the cost structure of that good, we might find that, over a period of time, the direct producers get less income and intermediaries between producers and consumers (traders) get more income from it. That is, control over the access to a good, asset or resource as such may increasingly become a very important factor in realising a surplus-value. In the worst case, this amounts to parasitism or extortion. This analysis illustrates a key feature of surplus value which is that it accumulated by the owners of capital only within inefficient markets because only inefficient markets - i.e. those in which transparency and competition are low - have profit margins large enough to facilitate capital accumulation. Ironically, profitable - meaning inefficient - markets have difficulty meeting the definition a free market because a free market is to some extent defined as an efficient one: one in which goods or services are exchanged without coercion or fraud, or in other words with competition (to prevent monopolistic coercion) and transparency (to prevent fraud).
[edit] Measurement of surplus valueThe first attempt to measure the rate of surplus-value in money-units was by Marx himself in chapter 9 of Das Kapital, using factory data of a spinning mill supplied by Friedrich Engels (though Marx credits "a Manchester spinner"). Both in published and unpublished manuscripts, Marx examines variables affecting the rate and mass of surplus-value in detail.
Some self proclaimed Marxist thinkers like Geoffrey Pilling and Ira Gerstein have argued that surplus value "cannot be measured", but that was demonstrably not the view of Marx and Engels themselves. The real question was how accurately it could be measured, and this depended on the publicly available data. We can develop statistical indicators of trends, without mistakenly conflating data with the real thing they represent, or postulating "perfect measurements or perfect data" in the empiricist manner. If theory is not disciplined by valid data, it becomes metaphysical, rather than being scientific.
Since the pioneering studies by Marxian economists like Eugen Varga, Charles Bettelheim, Joseph Gillmann, Edward Wolff and Shane Mage, there have been numerous attempts by Marxian economists to measure the trend in surplus-value statistically using national accounts data. The most convincing modern attempt is probably that of Professors Anwar Shaikh & Ahmet Tonak [4].
Usually this type of research involves reworking the components of the official measures of gross output and capital outlays to approximate Marxian categories, in order to estimate empirically the trends in the ratios thought important in the Marxian explanation of capital accumulation and economic growth: the rate of surplus-value, the organic composition of capital, the rate of profit, the rate of increase in the capital stock, and the rate of reinvestment of realised surplus-value in production.
The Marxian mathematicians Emmanuel Farjoun and Moshé Machover argue that "even if the rate of surplus value has changed by 10-20% over a hundred years, the real problem [to explain] is why it has changed so little" (quoted from The Laws of Chaos; A Probabilistic Approach to Political Economy (1983), p. 192). The answer to that question must, in part, be sought in artifacts (statistical distortion effects) of data collection procedures. Mathematical extrapolations are ultimately based on the data available, but that data itself may be fragmentary and not the "complete picture".
Experienced financial analysts are, however, liable to shake their heads at these kinds of Marxian empirical estimates from official data. As regards total profit volume, statisticians use survey data, administrative records, and tax data to estimate it, consistent with a standard definition of gross product and capital transactions. But this may include or exclude items at variance with real business practice. Some types of transactions are disregarded, while imputations are made for other transactions. Almost always tax data is the main source of generic profit estimates, but tax data typically understate true profitability.
Or, if the rate of profit is measured as a ratio between the total profit component in value added and fixed capital, what is ignored is that capital assets include more than fixed assets, and that profit income includes more than the value added component. So to assess profit volume or profitability, really the problem has to be looked at using a variety of different measures and a variety of difference sources (national accounts data, tax data, direct surveys, company reports and circumstantial evidence).
As against that, it can also be shown statistically that most time series of different profit measures from different sources will show the same historical trends (see e.g. the research by Dumenil & Levy).
[edit] Different concepts of surplusIn neo-Marxist thought, Paul A. Baran for example substitutes the concept of "economic surplus" for Marx's surplus value. In a joint work, Paul Baran and Paul Sweezy define the economic surplus as "the difference between what a society produces and the costs of producing it" (Monopoly Capitalism, New York 1966, p. 9). Much depends here on how the costs are valued, and which costs are taken into account. Piero Sraffa also refers to a "physical surplus" with a similar meaning, calculated according to the relationship between prices of physical inputs and outputs.
In these theories, surplus product and surplus value are equated, while value and price are identical, but the distribution of the surplus tends to be separated theoretically from its production; whereas Marx insists that the distribution of wealth is governed by the social conditions in which it is produced, especially by property relations giving entitlement to products, incomes and assets (see also relations of production).
In Capital Vol. 3, Marx insists strongly that
"the specific economic form, in which unpaid surplus labour is pumped out of direct producers, determines the relationship of rulers and ruled, as it grows directly out of production itself and, in turn, reacts upon it as a determining element. Upon this, however, is founded the entire formation of the economic community which grows up out of the production relations themselves, thereby simultaneously its specific political form. It is always the direct relationship of the owners of the conditions of production to the direct producers -- a relation always naturally corresponding to a definite stage of the methods of labour and thereby its social productivity -- which reveals the innermost secret, the hidden basis of the entire social structure, and with it the political form of the relation of sovereignty and dependence, in short, the corresponding specific form of the state. This does not prevent the same economic basis -- the same from the standpoint of its main conditions -- due to innumerable different, empirical circumstances, natural environment, racial relations, external historical influence, etc. from showing infinite variations and gradations in appearance, which can be ascertained only by analysis of the empirically given circumstances."
This is a substantive - if abstract - thesis about the basic social relations involved in giving and getting, taking and receiving in human society, and their consequences for the way work and wealth is shared out. It suggests a starting point for an inquiry into the problem of social order and social change. But obviously it is only a starting point, not the whole story, which would include all the "variations and gradations".
[edit] Criticism of Marx's conceptSome economic historians argue that Marx did not discover the concept of surplus-value, because other political economists (e.g. Karl Rodbertus-Jagetzow) had already discovered it first. There is some truth in this, but as against that, Marx only claimed that he had theoretically refined and systematised existing notions of added value, removing inconsistencies and apologistic theories (he himself claimed little originality, and normally carefully documented "who said it first"; he was among the first economic thinkers to use an extensive apparatus of footnotes - see Karl Marx and World Literature, by S. S. Prawer. New York: Oxford University Press, 1977). His theoretical presentation is far superior though to that of his contemporaries, as economic historians acknowledge.
A substantive, foundational criticism of Marx's concept of the surplus product and surplus-value was made by Harry W. Pearson in the 1950s in his essay, "The economy has no surplus". Another modern, more sophisticated critique of the concept is by Helen Boss (see references).
An alternative criticism is by Steve Keen, who argues that the economy does have a surplus, but that it can arise from numerous different sources. Specifically, he claims that "mathematics and Marx's philosophy confirm that surplus value - and hence profit - can be generated from any input to production" (Debunking Economics, p. 298). Thus Marx's view that economic value is a human attribution or comparison, and that only human labour can conserve, transfer and create value is rejected.
The most fundamental criticism of Marx's theory of value is offered by Austrian economics, which holds that the value is purely subjective, and cannot be derived from labor, surplus or otherwise. The labor itself can be productive, resulting in creation of goods which are desired by other people, or destructive, merely wasting resources on creation of goods nobody wants - this phenomenon was quite evident in the socialist economies. Thus, we can say if something has value only by observing voluntary exchange between people. When such exchange is prevented, there is no way to tell if the labor is creative or destructive, and so it is impossible to direct the efforts towards creation of value. This impossibility of economic calculation was famously proposed by Ludwig von Mises in 1929 as the reason for imminent failure of socialist economies, in stark contrast to predictions of Marx's theory.
[edit] The moral and power dimension of surplus valueA typical textbook-type example of an alternative interpretation to Marx's is provided by Lester Thurow. "In a capitalistic society", he argues in an Concise Encyclopedia of Economics article, "profits - and losses - hold center stage." But what, he asks, explains profits?
There are five reasons for profit, according to Thurow:
capitalists are willing to delay their own personal gratification, and profit is their reward. some profits are a return to those who take risks. some profits are a return to organizational ability, enterprise, and entrepreneurial energy some profits are economic rents - a firm that has a monopoly in producing some product or service can set a price higher than would be set in a competitive market and, thus, earn higher than normal returns. some profits are due to market imperfections - they arise when goods are traded above their competitive equilibrium price. The problem here is that Thurow doesn't really provide an objective explanation of profits so much as a moral justification for profits, i.e. as a legitimate entitlement or claim, in return for the supply of capital.
He adds that "Attempts have been made to organize productive societies without the profit motive (...) [but] since the industrial revolution... there have been essentially no successful economies that have not taken advantage of the profit motive." The problem here is again a moral judgement, dependent on what you mean by success. Some societies using the profit motive were ruined; profit is no guarantee of success, although you can say that it has powerfully stimulated economic growth.
Thurow goes on to note that "When it comes to actually measuring profits, some difficult accounting issues arise." Why? Because after deduction of costs from gross income, "It is hard to say exactly how much must be reinvested to maintain the size of the capital stock". Ultimately, Thurow implies, the tax department is the arbiter of the profit volume, because it determines depreciation allowances and other costs which capitalists may annually deduct in calculating taxable gross income.
This is obviously a theory very different from Marx's. In Thurow's theory, the aim of business is to maintain the capital stock. In Marx's theory, competition, desire and market fluctuations create the striving and pressure to increase the capital stock; the whole aim of capitalist production is capital accumulation, i.e. business growth maximising net income. Marx argues there is no evidence that the profit accruing to capitalist owners is quantitatively connected to the "productive contribution" of the capital they own. In practice, within the capitalist firm, no procedure exists for measuring such a "productive contribution" and for distributing the residual income accordingly.
In Thurow's theory, profit is mainly just "something that happens" when costs are deducted from sales, or else a justly deserved income. For Marx, increasing profits is, at least in the longer term, the "bottom line" of business behaviour: the quest for obtaining extra surplus-value, and the incomes obtained from it, are what guides capitalist development (in modern language, "creating maximum shareholder value").
That quest, Marx notes, always involves a power relationship between different social classes and nations, inasmuch as attempts are made to force other people to pay for costs as much as possible, while maximising one's own entitlement or claims to income from economic activity. The clash of economic interests that invariably results, implies that the battle for surplus value will always involve an irreducible moral dimension; the whole process rests on complex system of negotiations, dealing and bargaining in which reasons for claims to wealth are asserted, usually within a legal framework and sometimes through wars. Underneath it all was an exploitative relationship.
That was the main reason why the real sources of surplus-value were shrouded or obscured by ideology, and why Marx thought that political economy merited a critique. Quite simply, economics proved unable to theorise capitalism as a social system, at least not without moral biases intruding in the very definition of its conceptual distinctions. Hence, even the most simple economic concepts were often riddled with contradictions. But market trade could function fine, even if the theory of markets was false; all that was required was an agreed and legally enforceable accounting system. On this point, Marx probably would have agreed with Austrian economics -no knowledge of "markets in general" is required to participate in markets.
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