Political Econ of Growth. Paul A. Baran
and with a proper standard of plant maintenance (i.e. taking account of necessary shutdowns for repairs, etc.). Plants which are shut down have been excluded, so that they do not count as excess capacity. The capacity so (conservatively) defined is thus lower than the “rated capacity” usually given by trade statistics and based on technical estimates. The Brookings Institution found that “in general … in the years from 1925 to 1929 available plant was used between 80 and 83 percent of capacity.”17 The study cautions that “probably not all the additional productivity indicated as possible by the above figures could have been realized, for there were striking differences in the potential capacity of the different branches of industry, and if each industry would run to its full capacity, huge surpluses of some goods would no doubt soon pile up.”18 Yet as the authors of the study realize, “if new productive effort were directed toward coordinating the various industries,” this disproportionality could be markedly reduced, if not altogether eliminated. They do not estimate the volume of output that could have been produced given such coordination. Even in its absence, however, “an output of 19 percent greater than was realized would have been possible. Stated in terms of money, this increased productivity would have approximated 15 billion dollars”—i.e. nearly 20 percent of the national income in 1929.
No excess capacity studies of a similar scope have been undertaken during the postwar period. From such scattered data as are available it would seem, however, that even in the unprecedentedly prosperous years following the end of the Second World War excess capacity in American industry assumed tremendous proportions. Calculations by one investigator suggest that merely 55 percent of capacity (conservatively estimated) was in use in the boom year 1952.19 This does not include the prodigious quantities of food, the production of which is prevented by various control schemes, or which is allowed to spoil, to be destroyed, or fed to animals.
All estimates of capacity (and excess capacity) are highly tenuous. Apart from suffering from the inadequacy of the underlying statistical information, they depend on what definition of capacity is adopted, on the degree of utilization that is assumed as “normal,” and on the extent to which market, demand, and profit considerations are taken into account in deciding on the magnitude of the excess. Yet difficulties encountered in the measurement of a phenomenon should not be permitted to obscure the existence of the phenomenon itself; in any case, they do not matter in the present context where our purpose is not to assess the magnitude of the potential economic surplus in any particular country at any particular time, but merely to outline the forms in which it exists.
Equally clearly discernible is the waste of resources caused by various aspects of monopoly and monopolistic competition. The potential economic surplus under this heading has never been analyzed in its entirety, although its components have been frequently referred to in the literature. There is first and probably foremost the output foregone in view of underutilization of economies of scale stemming from irrational product differentiation. No one, to my knowledge, has undertaken to calculate the aggregate saving that would be realized if a great number of purely nominally different articles were to be standardized, and if their production were concentrated in technically the most efficient and economic plants. Whether we look at automobiles and other consumers’ durable goods such as refrigerators, stoves, electrical appliances, and the like, or whether we think of products such as soaps, toothpastes, textiles, shoes, or breakfast foods, there can be little doubt that standardization and mass production could appreciably lower the unit costs of output. To be sure, instances can be found where even under monopolistic conditions firms are operating technologically optimal-size plants, where, in other words, no further economies of scale can be realized in the present state of technology. There is ample reason to believe, however, that such cases are relatively rare, and that limitations of the market for individual trademarks, and of capital available to individual firms, account for plant sizes that are less (and frequently considerably less) than what would be rational. The continuous existence and proliferation of small, inefficient, and redundant firms—not merely in industry but in particular in agriculture, distribution, and service trades—result in an amount of waste of human and material resources the magnitude of which can hardly be fully assessed.20
The multiplication of facilities and the squandering of resources called forth by irrational smallness of enterprises have their counterpart in the waste on the part of monopolistic giants who, shielded by their monopolistic positions, need not bother with minimizing costs or with maximizing efficiency. We have to consider in this connection the large so-called overhead costs of corporate business with their skyrocketing expense accounts, their exorbitant salaries paid to executives making no contribution to the firms’ output but drawing revenues on the strength of their financial connections, personal influence, or character traits making them particularly adapted to corporate politics.
Nor should one overlook the imponderable but perhaps most valuable potential asset that is being systematically despoiled by monopolistic business: the human material ground up in the degrading, corrupting, and stultifying mill of vast corporate empires, and the ordinary man and woman whose entire upbringing and development are being warped and crippled by continuous exposure to the output, the propaganda, and the sales efforts of big business.21
Even more elusive is the benefit to society that could be derived from scientific research if its conduct and exploitation were not subject to profit-oriented business control or armaments-oriented government control.22
This kind of support and administration of scientific work heavily influences its general outlook, its choice of subjects, and the methods that it employs. Demoralizing and disorienting scientists, depriving them of genuine stimuli for creative work, it hampers and distorts the development of science. Determining at the same time the mode of utilization of scientific achievements, it limits severely the benefits resulting from scientific progress. Whether in reference to atomic energy and to public utilities, to substitutions among materials or to manufacturing processes, evidence abounds that the productive employment of technical possibilities is frequently and seriously stymied by the interests of the sponsors of technological research.
This myriad of more or less readily identifiable forms in which the potential economic surplus hides in the complex spiderweb of the capitalist economy has never been subjected to a systematic investigation, let alone a statistical assessment. Not that economists have not in the past attempted to expose the waste and irrationality permeating the capitalist order. They treated them, however, as imperfections and frictions of the system that could be overcome by suitable reforms, or as anachronistic residues from pre-capitalist times that could be expected to disappear in the course of capitalist development. Lately, as it has grown increasingly obvious that waste and irrationality, far from being fortuitous blemishes of capitalism, relate to its very essence, it has become fashionable to minimize the importance of the entire problem, to refer to it as a “minor matter” which is of no concern to our age of plenty.23
The last but by no means least important is the fourth heading in our catalogue of the forms in which potential economic surplus is hidden in the capitalist economy. This is the output lost to society through unemployment of human and material resources caused partly by the inadequacy of coordination of productive facilities, but mainly by insufficiency of effective demand. Although it is very difficult, if not impossible, to disentangle those two causes of unemployment, imputing to each the share for which it is responsible, it is most useful for analytical purposes to keep them clearly apart. The former, usually referred to in economics as “frictional” unemployment, was alluded to above. It appears as displacement of workers occasioned either by shifts in the composition of market demand or by the introduction of labor-saving devices of various kinds, accompanied by discarding of productive plant and equipment. While both the manpower and the facilities involved are capable of being converted to useful employment and thus of being reintegrated into the productive process, in the capitalist economy such conversion, if it takes place at all, proceeds even under the most favorable circumstances with a great deal of delay and waste. Under conditions of rational planning such losses may not be entirely avoidable; they could, however, be greatly reduced.
More important still, in fact next to military spending the most important single cause for the continuous existence of a large gap between potential and actual surplus, is the unemployment resulting