Part VI: The Structure of U.S. Profits in the Post-War Period

Before we look at the post-War period in detail, I want to devote some time to looking at the changing structure of US profits during the period 1929-2000.

Graph 7

Source: Based on Bureau of Economic Analysis data

Graph 7 reveals that US manufacturing profits were by far the largest contributor to overall US profits from the beginning of the 20th century, until about the end of the 1960s, except for a few years during the 1930s when overall profits fell badly. But since then, service sector profits (and here we include financial profits) and profits from abroad have become increasingly important⁴⁷. Graph 8 shows the same thing but with also showing the total amounts of profits changing over time.

Graph 8

Source: BEA data. Note Service sector defined as transportation, public utilities, wholesale and retail trade and health, education, etc (not financial services, which is shown separately)

It is also noteworthy from Graphs 7 and 8 that manufacturing profits did well during World War II -although financial profits grew from 1939 to 1945 they were still very small compared with manufacturing profits. However, it should be borne in mind that immediately after WW2 (i.e. in 1946) there was a fall in total profits. After that, the Korean and Vietnam Wars appear to have coincided with short-lived increases in the contribution of manufacturing profits to total profit.

Graph 9

In Graph 9 we see clearly that financial profits overtook manufacturing profits in 1991 and profits from abroad also overtook manufacturing profits in 2001.

Meanwhile, the rest of the world, including the industrialized countries, has been investing heavily in the United States. 1980 is the year when America’s net international investment position grew to its highest point in nominal dollar terms⁴⁸, when it was put at US$ 360.8 billion. It fell rapidly during the first half of the 1980s and stood at US$ 54.3 billion in 1985. The trend continued, however, and a year later (in 1986) America’s net international investment position had turned negative at US$ -36.2. By 1992, this figure had fallen drastically to US$ -431.3 billion, and during Clinton’s first Administration it fell even further to US$ -521.5 billion in 1996. By 2002, it was heading towards US$ -2.5 trillion. Although U.S. assets abroad have gone on growing, foreign-owned assets in the United States have grown even faster.

In 1975, the Japanese auto industry held only 10% of the U.S. market; today, it has about 30% of the U.S. market. In the U.S. auto market, domestic makers in 1960 had a 95.9% share; by 1970 it was 82.8%; by 1980, 72.9%. Meanwhile, the U.S. share of the world auto market fell from 22.5% in 1960 to 17.5% in 1970 and to 11.4% in 1980.

Graph 10

Note the course of profits shown above from 1929 till the early 1940s there is fairly steady growth, with some volatility. From then until about the end of the 1960s much faster growth is associated with greater volatility. After that growth continues but the volatility is even greater, especially for the oil and coal industry. (These figures are not adjusted for inflation.) The last period appears to be a reflection of the shift away from a fixed exchange-rate system at the beginning of the 1970s and the subsequent increases in oil prices carried out by OPEC.

It is important to note that the declining share of manufacturing in total profits from the late 1960s (similar but far more prolonged than what happened in the mid-1930s -see graph 7) was associated with a tremendous increase in volatility, i.e. that although total profits went on growing (graph 9), uncertainty about which sector -and particularly which manufacturing industry -would produce high profits and where losses would be suffered. At the same time, these fluctuations tended to offset one another to a certain extent. Note also that while the oil/coal refining industry (i.e. not extraction) certainly made massive profits (undoubtedly associated with monopolistic practices), it also suffered the most dramatic losses (in the 1980s). In fact a large part of the profits earned by it would seem to be a transfer from the other sectors (predatory practices thanks to monopolistic power), which suffered falling profits during that period. Since then, the petroleum and coal sector has been heaving up and down in terms of profits, but (until 2001) had never got anywhere close to its massive earnings of the 1970s, a situation that arguably may be changing.

However, the oil and coal (manufacturing) sector did not experience the worst losses -that privilege went to the U.S. auto industry, which has suffered from globalization perhaps more than any other American industry.

It seems likely that such volatility and uncertainty -the result of growing world abundance and Capital’s way of dealing with this -threw many companies increasingly into the hands of the financial sector. At the same time, investors would be protected better from such volatile returns by diversifying their investments -both movements would have increased the strength of the financial sector, and we certainly observe that the latter occurred (see graph 7). As we know, the financial sector grew increasingly complex and massive during the 1980s and 1990s (see “Abundance, Poverty and Power”, Section ).

As the service sector has become increasingly prosperous, it is worth looking at its major segments (excluding the financial part) to see how they moved between 1929 to 2000. Graph 11 shows this:

Graph 11

A similar picture emerges as that for manufacturing, i.e. significant growth associated with increasing volatility. However, this pattern appears to have begun earlier, i.e. back in the 1930s. Transportation then appears to have been at the head of the race for profits, but its short reign of power there was quickly eclipsed by the retail and wholesale trade segments, and later by the others so that for much of the period, transportation was the smallest contributor of the various segments. There is a generalized collapse in profits towards the end of the period.

Finally, a graph showing the primary sector broken down in farming activities and extraction (which includes petroleum extraction as well as mining) plus construction:

Graph 12

Again, volatility increases but at different stages -the extraction sector is volatile from the start, but also becomes more volatile at the end of the 1960s, after a fairly smooth decline from the mid-1950s. Farming appears to have become a slightly bigger contributor to profits in the 1970s and after 1984 is less noticeably volatile, but certainly more so from the1970s on. Construction, whose profits grow the most, making it far more important than the extractive industries, is also extremely volatile from the 1970s. None of the extraction industries have a very large impact on total profits any more in the United States.

N.B. This is a continuing project. We welcome comments, corrections, suggestions, criticisms from readers.

NOTES

⁴⁷ Mirroring the change in economic structure which occurred over the same period of time.

⁴⁸ Data from U.S. Bureau of Economic Analysis.