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University of Warwick institutional repository: http://go.warwick.ac.uk/wrap A Thesis Submitted for the Degree of PhD at the University of Warwick http://go.warwick.ac.uk/wrap/60315 This thesis is made available online and is protected by original copyright. Please scroll down to view the document itself. Please refer to the repository record for this item for information to help you to cite it. Our policy information is available from the repository home page. Monopoly Capitalism, Profits, Income Distribution and Unionism. Martin J. Conyon. f ( 0 I ' v" ' I» September 1991. , \ i ,',,' ,_ , A Thesis Submitted for the Degree of Doctor of Philosophy at the University of Warwick CONTENTS Page List of Tables. v List of Figures. vii Acknowledgements viii Declaration. ix Abstract. x Chapter 1 Introduction. 1 Chapter 2 Profitability, income distribution and the degree of monopoly : recent U.K. experience. 5 2.1. Introduction. 5 2.2. Income distribution and the profit rate. 6 2.3. Income distribution, capacity utilisation, and the degree of monopoly 9 2.3.1. Monopoly capitalism, the profit rate and income distribution. 9 2.3.2. A stylised model of monopoly pricing and factor shares. 11 2.4. Recent U.K. evidence. 14 2.4.1. The degree of monopoly. 14 2.4.2. Proximate causes of the changes in the degree of monopoly. 16 2.4.3. Capacity utilisation, overhead costs and wages. 18 2.5 British corporate sector profitability and the functional distribution of income, 1963-1989 : introduction. 19 2.6. The decomposition of the rate of profit. 21 2.7. Data description. 23 2.8. The empirical decomposition of the corporate profit rate. 25 2.9 Implications and conclusions. 28 Chapter 3 The nature of the capitalist enterprise: contractual versus radical explanations. 38 3.1 Introduction. 38 3.2 Firms and economic theory. 39 3.3 The firm as a symmetric contractual arrangement. 43 3.3.1 Walrasian explanations. 43 3.3.2. Contractual explanations. 45 3.3.3. The symmetry thesis within contractual explanations of the firm. 47 3.3.4. Proprietorship and the capitalist enterprise. 52 3.4 The firm as an asymmetric relationship between capital and labour. 54 3.4.1. Marxist and radical explanations. 54 3.4.2. Power and asymmetry between capital and labour. 55 3.5. The essence of the capitalist enterprise. 57 3.5.1. Monopoly capitalism and democracy within the enterprise. 62 3.5.2. Impediments to achieving greater economic democracy. 65 3.6. Implications and conclusions. 70 Chapter 4 Monopoly capitalism, oligopoly theory and union power. 72 4.1. Introduction 72 4.2. Monopoly capitalism and competition. 72 4.3. Structure conduct performance and the degree of monopoly. 75 4.4. Caveats in using structure conduct performance as a basis for monopoly capitalism. 78 4.4.1. Equilibrium and causation. 78 4.4.2. Collusion, structure and the degree of monopoly. 82 4.4.3. The planned use of capacity. 87 4.5. Monopoly capitalism, rivalry and collusion. 95 4.5.1. The evolution of cooperation. 97 4.6. Union power and oligopoly theory. 104 4.7. Implications and conclusions. 109 Chapter S Profit margins and collusion: an empirical investigation using British micro data. 110 5.l. Introduction. 110 5.2. Some theoretical perspectives 112 5.3. Some existing evidence. 115 5.3.l. Direcdy retrieving estimates of apparent collusion. 117 5.3.2. Collusion as a function of market structure. 119 5.4. Modelling strategy and test procedure. 121 5.5. Data description. 124 5.6. Evidence on collusion and market structure. 125 5.7. Implications and Conclusions. 129 ii Chapter 6 Union Power and the Determination of Profit Margins : An empirical Investigation Using U.K. Manufacturing Industry Data. 139 6.1. Introduction. 139 6.2. Unions and profitability: a review of the empirical literature. 140 6.3. Profit margins, market structure, and the role of the labour market. 144 6.4. A modelling strategy. 149 6.5. The empirical impact of unions on industry profit margins. 151 6.6. Market structure and the empirical formulation of the profit margin. 155 6.7. Alternative modelling strategies of profit determination. 156 6.8. Estimates using alternative formulations of the margin. 159 6.9. Implications and conclusions. 161 Chapter 7 Profit Margins, Successive Oligopoly and Union Power. 167 7.1. Introduction. 167 7.2. Profit margins and successive oligopoly power. 168 7.3. Trade union power in successively related industries. 176 7.4. Previous empirical results. 181 7.5. Variable and data construction. 184 7.6. Modelling strategy. 185 7.7. Estimated models of buyer power on seller profitability. 188 7.8. Implications and conclusions. 193 Chapter 8 Trade Union Power, Concentration and the Functional Distribution of Income. 199 8.1 Introduction. 199 8.2 The economics of wage share. 201 8.2.1 Kalecki: the degree of monopoly and wage share 201 8.2.2 Cowling and Molho : the degree of monopoly, concentration and wage share 203 8.3 Union bargaining power and labours share. 204 8.4 Existing empirical evidence. 2f17 8.5 Model specification and data description. 210 8.5.1 Model specification and data, 1975-1986 210 8.5.2 Model specification and data, 1985 214 iii 8.6 Some new results on the determination of labours share 215 8.6.1 The determination of labours share 1975-1986 215 8.6.2 The determination of labours share in 1985 218 8.7 Implications and conclusions. 223 Chapter 9 Concluding comments. 234 Appendlxes. 239 References. 261 iv list of Tables Table 2.1 U.K factor income distribution 1960-1989 30 Table 2.2 Gross operating surplus as a percentage of gross value added in manufacturing sectors across OECD countries. 31 Table 2.3 Rates of return before interest and tax at current replacement cost 32 Table 2.4 Rates of return in a sample of sectors in the U.K. economy. 33 Table 2.5 U.K. data 1970-1988. 34 Table 2.6 The rate of profit and real income in the British corporate sector. 35 Table 2.7 Rates of growth of basic contribution variables : full period between cycle and phase averages 36 Table 2.8 Rates of growth of adjusted contribution variables : full period between cycle and phase averages 36 Table 2.9 Rates of growth of adjusted contribution of capacity capital ratio: full period, between cycles, and phase averages 37 Table 2.10 Rates of growth of adjusted contribution of capacity profit share : full period, between cycles, and phase averages 37 Table 3.1 Share of foreign enterprises in total employment and sales of U.K. manufacturing 1975-1988. 68 Table 3.2 sectoral distribution of the share of foreign enterprises in the sales of total U.K. manufacturing. 69 Table 5.1 Tests of Cournot and homogeneous behaviour among manufacturing firms 133 Table 5.2 Tests of Cournot and homogeneous behaviour among manufacturing firms for each industry 133 Table 5.3 Conjectural elasticities of 182 firms in British manufacturing. 134 Table 5.4 Estimates of the degree of apparent collusion for 75 large manufacturing firms 136 Table 6.1 Data definition and variable means 1983-1986 163 Table 6.2 Estimated Profit Margins Equations 1983-1986. 164 Table 6.3 Bias induced from the omission of labour market variables. 165 Table 6.5 Estimates of the impact of concentration on margins in 90 U.K. manufacturing industries 1983-1986. 166 v Table 7.1 Means and standard deviation of key variables. 195 Table 7.2 Margins determination and the impact of buyer concentration 1984-1985. 196 Table 7.3 Margins determination (OLS) and the impact of buyer concentration and buyer trade unionism 1984-1985 197 Table 7.4 Margins determination (IV) and the impact of buyer concentration and buyer trade unionism 1984-1985 198 Table 8.1 Summary of key empirical evidence on the determination of wage share. 224 Table 8.2 Sample Means and Standard Errors of Variables for the Period 1975-1986.203 226 Table 8.3 Means and standard errors for key variables 1973-1986. 227 Table 8.4 Correlation matrix for key variables for the sample period 1975-1986 228 Table 8.5 The determination of wage share: Ordinary Least Squares and Least Squares Dummy Variable Results for British Manufacturing 1975-1986. 229 Table 8.6 The determination of Labour Share in British Manufacturing 1975-1986. Estimation of Models by Two Stage Least Squares. 230 Table 8.7 The determination of labours share in British manufacturing in 1985 : estimation method ordinary least squares. 231 Table 8.8 The determination of labours share in British manufacturing in 1985 : estimation method instrumental variables. 232 Table 8.9 Elasticities of wage share with respect to concentration and trade unionism 233 vi List of Figures. Figure 2.1 Real income and the rate of profit in the British Industrial and Company Commercial sector, 1963-1989. 35 Figure 4.1 Reaction functions for a Cournot Duopoly. 80 Figure 4.2 Time path of firm i's expected profits 85 Figure 5.1 Average annual profit margins in 182 British manufacturing companies 1970-1986 131 Figure 5.2 Average market shares in 182 British manufacturing companies 1970-1986 131 Figure 5.3 Average concentration in 182 British manufacturing companies 1970-1986 132 Figure 5.4 Average union density in 182 British manufacturing companies 1970-1986 132 Figure 5.5 Distribution of apparent collusion in V.K. manufacturing firms. 135 vii Acknowledgements. During the time spent researching for this thesis I have benefited enormously from the advice, help, and encouragement from colleagues and friends in department of Economics at Warwick University and elsewhere.

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