Some Issues in the Sraffian View of Competition: Starting from Clifton

ABSTRACT

The article seeks to advance discussion about the nature of competition and of the ‘firm’ consistent with a classical-Sraffian perspective on relative prices and distribution. Discussion focuses primarily on the work of James Clifton published from the late 1970's. Clifton's insights have a direct bearing on issues at the heart of broader Sraffian research: how relative prices are anchored by the mobility of capital; whether the rate of profit should be interpreted as the exogenous distributive variable in the Sraffian price system; and, the forces which govern the ‘normal’ rate of profit, including the causal significance of the rate of growth. While Clifton's approach lends support to the interpretation of the rate of profit as a target rate of return, the article takes issue with Semmler's explanation as being endogenous to the price system. An alternative exogenous explanation of the target rate by reference to the rate of growth from Eichner is also considered, but rejected, despite the similarities between the insights of Clifton and Eichner into corporate pricing. Some useful implications from Clifton's analysis—as to the modeling of classical competition and gravitation—are also drawn out.

KEYWORDS:

• Sraffian
• competition
• Clifton

JEL CODES:

• B24
• B51
• L2

Acknowledgments

This article extends the discussion advanced in White (2011) presented to the 2010 Conference on the Fiftieth Anniversary of the Publication of Sraffa's Production of Commodities (Rome) and the 2011 Conference of Australian Society of Heterodox Economists (Sydney). I am indebted to participants at both conferences as well as to three anonymous referees for helpful suggestions, without thereby implicating them.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 Glick and Ochoa (1988) allude to a connection between the classical-Sraffian approach and the structure-conduct-performance paradigm of industrial organisation theory. A more recent attempt to bring together a Sraffian approach and the ‘theory of the firm’ is Opocher and Steedman (2015, p. 9) with the focus being on the comparative statics of full-equilibrium across industries though one which does ‘not commit to any specific context, or market structure or competitive process’. By contrast, the focus in this article is on the nature of the firm and competition—consistent with a Sraffian approach—seen against the backdrop of the evolution of the modern corporation.

2 A point also emphasized by Glick and Ochoa (1988), particularly in respect of the apparent schism between neoclassical price theory and research on applied industrial organisations.

3 A position supported by others (e.g. Eichner 1983, p. 146) including some working in more orthodox directions (e.g. Marris 1983, p. 674). Comparatively recent literature dealing with the importance of shareholder value in setting corporate goals might be thought to provide some qualification to the last sentence in the citation from Clifton. That literature suggests at the very least a less-passive role for credit market intermediaries and institutional shareholders compared with management in engineering capital mobility. Useful overviews of this literature are provided by Thompson (1998), Froud et al. (2000), Hein and Van Treeck (2010), and Kliman and Williams (2015).

4 An anonymous referee pointed out that the relationship between competition at different levels—specifically, intra and inter-industry levels—has been addressed over a number of years by Anwar Shaikh, and most recently in Shaikh (2016, pp. 264–272) which emphasises the divergence between intra-industry profit rates, simultaneously with the classical mobility of capital between industries pushing ‘regulating’ rates of profit across industries in the direction of equality. The regulating profit rate need not be the average profit rate for an industry. In Clifton's analysis the closest counterpart to Shaikh's regulating rate of profit would be the corporate divisional rate of return adjusted for the effects of the cycle on profitability. This is discussed in more detail below. Certainly, the conception of two different levels of competition going on side-by-side is not inconsistent with this article's arguments nor with Clifton's.

5 Thus the proposition put by Lee (1994–95, p. 315) that Clifton is arguing that ‘business enterprises are directly setting long-period prices’ looks more like a caricature of Clifton's position, certainly if, as it appears, Lee means by the latter term the relative prices of the Sraffian system.

6 In other words, this comparison was done in such a way as to eliminate from the picture short-term disturbances and in that sense look beyond current market conditions. The point that the relevant rate of return is one calculated on an average or ‘normal’ or ‘standard’ rate of capacity utilization over a number of cycles – as is Brown's economic return attainable—is fairly uncontroversial now within the Sraffian-inspired literature; (cf. Ciccone 1986). The use of normal cost or cost at a standard volume is also prevalent amongst the case studies on pricing reviewed by Lee (1994–5, Part I, p. 328). It is argued in Section Five that this characterization of the capital mobility process does have interesting implications for how one might formally model the gravitation of prices in relation to long-period levels, or what is sometimes referred to as the ‘cross-dual dynamics’ implied by the classical view of competition.

7 In this regard the target rate of return practice, where it is used, appears to be a longer term strategy behind pricing (Lanzillotti, 1958, p. 923) though some qualification to this is provided by Clifton (1983, p. 555)), which also fits more neatly with the Sraffian approach, with its emphasis on the longer-term factors affecting pricing.

8 As alluded to earlier, Sraffa's own analysis leaves the determination of distribution somewhat open, whereas different Sraffian approaches have taken alternatively the real wage as exogenous to the price system while others have stressed the superiority of taking the rate of profit as exogenous. Following through the implications of Clifton's analysis, among that of others, lends support to the latter alternative.

9 The variety of goals/motivations underpinning pricing at least prima facie appears to fit with a variety of motivations underpinning institutional “investors”’ allocation of “capital” via the process of stock selection in a modern corporate setting (Thompson 1998, p. 7). The wider significance of this fact is taken up in Section Five.

10 Interestingly, as noted by Thompson (op.cit., p. 6), the era of ‘shareholder value’ since the 1980's appears to have reinforced any tendency among corporations for explicit rate of return targets.

11 Semmler's analysis is partly about the extent to which target rates of return reflect market power, a position seemingly at odds with rates of return being fully determined by technical conditions and the real wage.

12 The imperative was one of financial control: ‘comprehensive financial policies are necessary in business organizations which employ large amounts of capital’ (Brown, quoted by Clifton 1983, p. 27).

13 Quite independently that is of the problems with taking the real wage as the exogenous distributive variable in the Sraffian system.

14 Clifton himself draws a parallel here with ‘the work on sacrificing behavior pioneered by Simon and by Cyert and March’ (1983, p. 32).

15 No exhaustive treatment of these literatures is entered into here. Instead the focus is solely on elements of these literatures which have a direct bearing on the discussion to this point.

16 This view has some limited support in the case studies surveyed by Lee (1994–5).

17 Similar views about growth as the overarching goal of the corporation can be found in Shapiro (1981, p. 85) and in Mueller (1972, pp. 205–206).

18 A position supported by Shapiro (1981, p. 91): ‘revitalization of the growth process … [requires] the capital mobility which diversification involves.’

19 In effect, the rate of return for the corporation as a whole would depend on profit rates earned in each of its constituent divisions along with the divisional composition of its overall capital stock. Short of profit rates being equal across divisions, a change in the relative size of the capital stocks (in value terms) would impact on the corporate rate of profit.

20 This treatment implicitly assumes that the ‘regulating’ (Shaikh 2016) rate of profit corresponds to the average rate of profit.

21 However, since the corporate target rate may differ between corporations, the ‘average financial conditions’ of large corporations provides a second type of regulating force feeding back on corporate target rates themselves.

22 It is perhaps not surprising that Clifton would refer to the GM pricing process as a ‘the first institutional emergence of prices of production in capitalist development’ (1983, p. 30).

23 A position which finds support in the studies surveyed in Lee (1994–5, p. 101) and also in Shapiro (1981, p. 86). The uncoupling of the dynamics of relative prices from the dynamics of profit rates also has implications for the stability of cross-dual dynamics (cf. White 2015, pp. 149–152). Clifton's view also provides a means of cutting through some of the debate around the theoretical significance of long-period prices to the extent that this is assessed in terms of deviations of actual or market prices in relation to long-period prices (see for example the discussion in Shaikh 2016, pp. 364–367).

24 In relation to capital market intermediaries (e.g. investment bankers, professional funds managers) Folkman et al. (2006, p. 10) have observed that as a group ‘they are not a unitary, calculating, collective subject with one straightforward agenda’. Interestingly though, Froud et al. (2000, pp. 9–10) note some empirical evidence to support the view that the influence of capital market intermediaries has not necessarily constrained corporate management growth strategies.