Ann Markusen’s Profit Cycles, Oligopoly, and Regional Development, if anything, represents a quite clever finessing of the Robinson/Chamberlain/Sweezy variant of “imperfect competition” into the regional economics sphere (if such a thing can be said to exist). Of course, that means it is essentially useless if what you’re interested in is a workable theory of industrial location/geography or, especially, empirical analysis.
Markusen’s “profit cycle” theory of regional development and change depends, primarily, on how much you’re willing to buy the aforementioned “imperfect competition” thesis, which appears here as “oligopoly”. More on this in a moment, but it is important firstly to let Markusen speak for herself a bit, particularly on the differences between profit cycle theory structuralism and “traditional theories” which depend solely on elaborations upon supply and demand curves. Of these, she writes:
“they inadequately cope with long-run structural change and with innovation in particular [oh yes, Schumpeter is very much in the mix here]; they demote corporate decision makes to relatively passive agents whose spatial behavior is dictated by free market conditions; and they ignore the increasingly ubiquitous behavior of oligopoly as an important distortion in the market economy”.
Instead, the profit cycle theory elevates “business strategies in the lead role”, and, as a corollary, insisting that “profitability has very different determinants at different historical moments”. This history element is important; befitting her status as a schematoid imperfect competition-er, she also undertakes the construction of a stagic outlay of regions (which is primarily to say, regions insofar they are understood by the dominating, singular presence and activity of a distinct industry; think of the classic American ones here, such as New England textiles or perhaps Detroit auto, but this last one is a bit difficult considering capital good inputs (rubber, steel, etc.)). This historical model has four “sequential profitability experiences” which each “dictate different responsive strategies”. The first is of superprofits, courtesy of Mandel (check out those Marxist bona fides!), an era in which innovation entrepreneurialism (check out those Schumpeterian bona fides!) and artisinal production undertaken at a loss of a product with sufficient performance in consumption finally manages to undertake production at scale (not necessarily mass production, however. This stage is characterized by spatial agglomeration for the innovating firms, as they draw inputs and a labor force into their orbit (we may say this period characterizes much of the great migration period in American history, from the perspective of labor at least). This stage sees the capitals/firms in question enjoying market dominance by virtue of their innovation in process or product and, of course, may be (artificially) sustained/extended via patents and IP law.
After the superprofits sequence comes an era of “normal profits” (relative, as far as I can tell, the ARP in the national economy, given the tendency to equalize rates of profit between productive sectors). This epoch “corresponds to the competitive economic model and produces relatively conventional pressures to cut costs and move toward optimal scale production”, aka, is a period of more or less “perfect competition” with universal market information available, low incidence of price-setting and low barriers to market entry and exit. Somehow. Anyway, this phase is spatially defined by dispersion. Firms grow in size and diminish in number, though apparently naturally, and may move “closer to their markets” or expand additional production into other markets, or to, you know, escape organized labor riding the high of conciliatory management from the superprofits era, now intolerable given the falling rate of profit. In general, this is a period of capital flight, vertical integration, &c.
Following the “normal profit” era is a fourth stage of normal-plus or normal-minus profit, determined by the presence of “successful oligopoly” in the former sense or “excessive competition” in the latter. In Markusen’s telling, two paths appear before the industry in the course of history, as normal profit turns sour in the face of “undue concentration”, “predatory competition” or a “new substitute product or process”. One path leads to oligopoly: “normal-plus”. This is (of course, given her theoretical provenance) typical, “the most common form of contemporary industry structure”. The formation of oligopolies will permit the same to jack up their profits again “by the classical maneuver of restricting output and raising price”. The solidity of un-amortized fixed capital investment however prohibits any great innovations, but the normal-plus profits may enable investment further afield even if the high proportion of the organic composition of capital intra-industry appears dour for any further relative surplus value squeezing in an oligopoly’s own production processes. The basic idea here is that an oligopoly is of sufficient size that they can artificially sustain profits within their sector by ‘fine-tuning’ it – elevating demand, somehow, dissolving labor in order to keep profits high, or perhaps lobbying politically to limit import intrusion by foreign capitals (see the auto industry). This is, of course, an era of the much-hated monopoly or imperfect competition. Spatially, industry collapses and slows down regardless of whether oligopoly is achieved or condition intensifies. This is the place where Massey and Meegan’s landmark studies of British industrial employment, or really the experience of the 70s/80s in Euro-American countries in general, appear as the obvious referent. In “Industrial Restructuring versus the Cities”, Massey and Meegan point out 4 general trends of this period:
closure of most labor intensive plants
intensification via reduction of workers
partial standardization (automation and deskilling)
shift to mass production techniques
After the normal-plus/minus era comes a final, autumnal era of negative profit, defined by extensive layoffs, selling of plant, closures, etc. The trends above carry over and intensify here, finally reaching a point of total devastation – that is, the sector/industry is now superannuated.
In many ways, what Markusen achieves here is a rather simplistic translation of monopoly capitalism theses into spatial regions. As noted above, her history is a heavily schematized, one-size-fits-all response, laced with the fear of the 80s in which it was written. However, it’s important to note that her own particular admixture of competition theories is absolutely the bedrock upon which her history and spatial forms operate. The procession of monopoly/oligopoly into perfect competition and (hopefully) back again allows for a clever elision of actual capitalist dynamics, as evidenced by the “case studies” that round out the book. Further, her terms of analysis perform an excellent trick: dependent solely on job numbers, she is able to selectively dodge the question of actual productive output, and finally, ends up attributing the actions of firms as rational responses, giving into a psychological profile of personifications of capital raging against a collapse in demand until they die. That’s the Schumpeterianism for you.
Here I turn to Botwinick’s Persistent Inequalities for a corrective with respect to accumulation. An adherent to Shaikh’s “real competition” thesis, he allows us to make several corrective comments, while at the same time addressing the all-important question of how competition impacts labor, given his focus on differential wage and profit rates, and therefore the vagaries of employment taken broadly.
Botwinick is, of course, extremely critical of imperfect competition/oligopoly in general – deriding it as merely the inverse of perfect competition. That is to say, the two are not opposed, but both depend on a neoclassical staging of competition: an infinite number of infinitely small firms, assuming zero fixed capital outlays required for entry, and ultimately stupid because abstractions of this magnitude ultimately removed any need or inducement or indeed even a way to actually lower prices in the great genteel scrum of the market. Imperfect competition merely tweaks this formula, making similar assumptions but elevating one firm to a position in which they act as a sectoral price setter.
This is flawed, even more so, because it starts with the smallest possible firm as the quantum of its outlook. Marx, according to Botwinick, begins with large scale firms already – those in which the production process is the most developed, the most mechanized, and the most capital-intensive. These are the regulating capitals, and establish by virtue of their employment of best practices of the moment their regulatory capacity. The status of regulating capitals forces newcomers in the field to adopt/follow along with established best practices. These set prices, but not in the neoclassical sense that a monopoly does. Instead, they establish a temporary tendency and baseline for technical entry concerning fixed capital outlays, as well as serve as equalizers of profit rates across industrial sectors. This means that, furthermore, that fixed capital requirements differ between industries, that these are set and maintained by specific players within those industries (not immortal necessity), and, finally, that the entire cycle itself may expand or contract depending on the industry in question, tying physical plant into industry lifespan, in lieu of Markusen’s demand-side view.
Here, sufficient fixed capital investment has already, historically, formed the objective basis of the labor process, meaning that accumulation is fundamental to this understanding. Contra Markusen’s approach, where fixed capital only appears in the second stage after a period of entrepreneurial playing around, Marx insists that it isn’t until production begins with capital objects that a firm’s activity can even be understood as production at all. Additionally, the schematic Markusen holds to, in which a firm develops a single, innovative product, is absurdly naive, some hero entrepreneur stories about computers/phones/etc. notwithstanding. In most cases, a firm enters into a market space already defined by a brutal war between other capitals, in which each endeavors to realize as much surplus value as possible and capture the largest market share to the explicit detriment of other capitals. There is no great sectoral allegiance, but a devastating war of attrition. Marx in “Wage-Labor and Capital”:
“The same commodity is offered for sale by various sellers. Whoever sells commodities of the same quality most cheaply, is sure to drive the other sellers from the field and to secure the greatest market for himself. The sellers therefore fight among themselves for the sales, for the market. Each one of them wishes to sell, and to sell as much as possible, and if possible to sell alone, to the exclusion of all other sellers…Industry leads two great armies into the field against each other [sellers and buyers], and each of these again is engaged in a battle among its own troops in its own ranks. The army among whose troops there is less fighting carries off the victory over the opposing host.”
Ok, I’m finally wrapping this up. Anyway, what is at the heart of Markusen’s outlook is the possibility and promise of equilibrium, among sellers. Any historical movement is illusory for her, just as Schumpeter’s is, where business cycles occur but always return to a legible state of cyclic renewal, in accordance with what Henryk Grossman identified as a “statics” model which tries to palm itself off as dynamic. On the other hand, competition is not a steady state, but is instead a war, yes, dominated by “moving centers of gravity” according to Shaikh. And finally, the focus on production by way of consumption in her account means neither are actually touched, and firms find themselves trapped in a dance according to the whims of the market as a whole, but left with no choice but to continue, where in reality firms supervise the production process, expand, diversify, and are in general extremely adept at wiggling their way out of industry collapse. They don’t go down with the ship!
That said, adopting Shaikh’s “real competition” model is much dicier when it comes to questions of industrial geography. I’m not sure there’s really an easy out here – maybe Massey’s spatial divisions of labor would correspond nicely, but I haven’t undertaken such a reading of it yet. Guess I’ll have to try that.