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DOI: 10.1177/0486613412458650

2013 45: 201 originally published online 21 September 2012Review of Radical Political EconomicsSerdal Bahe and Benan Eres

IndustryCompeting Paradigms of Competition: Evidence from the Turkish Manufacturing

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Review of Radical Political Economics45(2) 201224

2012 Union for RadicalPolitical Economics

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DOI: 10.1177/0486613412458650rrpe.sagepub.com

58650 RRPXXX10.1177/0486613412458650Reviewof RadicalBahceand Eres

1Department of Public Finance, Ankara University, Ankara, Turkey2Department of Economics, Ankara University, Ankara, Turkey

Date received: November 14, 2010Date accepted: January 17, 2012

Corresponding Author:

Benan Eres, Department of Economics, Faculty of Political Sciences, Ankara University, Ankara, Turkey.

Email: [email protected]

Competing Paradigms ofCompetition: Evidence fromthe Turkish Manufacturing

Industry

Serdal Bahe1and Benan Eres2

Abstract

This study aims at the empirical investigation of the different conceptualizations of competi-tion with the data available for Turkish manufacturing from 1980 to 2001. The analysis specifi-

cally takes into account the classical/Marxian view of competition, which rigorously recognizesthe dynamic and turbulent nature of capitalist competition and is based on the concept ofregulating capital. Time series analysis is conducted in order to test for the persistence of

profit rate differentials among 3-digit classification of the manufacturing industries. The analysis,by differentiating between the intra- and inter-industry competition, addresses the classical/Marxian emphasis on the inter-industry trends of equalization. For this purpose, industry-based

data instead of firm-based data are used. Lastly, the incremental rate of profit as the return toregulating capital is taken as the basis for establishing what is actually equalized in the courseof competitive process. The analysis is conducted both for the average and incremental rates

of return for a comparative view. The results show that while the average rate of profit showssignificant persistence in most of the industries, the incremental rate does not. These results arein accordance with the classical/Marxian long-run center of gravity dynamics.

JEL Classifications:B12, B51, D41, D49, L10, L60

Keywords

competition, classical/Marxian theory, neoclassical theory, regulating capital, persistence of profit

rate differentials, incremental rate of profit, Turkey.

1. Introduction

Competitive process lies at the heart of almost all theoretical investigations of the marketeconomy. Classical/Marxian, neoclassical, Keynesian, and many other explanations of how themarket economy operates all depend upon a conceptualization of competitive process (McNulty1967, 1968; Semmler 1984a; Tsaliki and Tsoulfidis 1998). However, the subtle differences


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202 Review of Radical Political Economics 45(2)

between the understandings of competition developed by these different traditions have far-reaching consequences in the resulting interpretation of processes of price formation, distribu-tion, and consequently the long-run performance of the capitalist economies.

The neoclassical theory of competition, crystallized in the theory of perfect competition, has

been extensively criticized, often with references to the classical economic theory that it assumesto descend from (McNulty 1967). Two basic tenets of competition, as conceived by classical/Marxian economic theory, are argued to be the dynamic and turbulent nature of competition(Shaikh 1982, 2008; Botwinick 1993). Neoclassical theory views perfect competition as anactual state where the economy is be stationed without being disturbed frequently. In contrast,the classical view asserts that disturbance is the actual state of the economy and the state at which

profit differentials among units cease to exist is a mere center of gravity(Semmler 1984a, 1984b;Dumnil and Lvy 1993). This classical/Marxian feature corresponds basically to the dynamicnature of capitalist competition. Equalization, on the other hand, is characterized by the pro-cesses of tendential regulation as opposed to the general equilibrium on which the neoclassical

perspective rests. As Shaikh argues, the Marxist notion of competition defines a process, not a

state (Shaikh 1982). Similar distinction is made by Machovec (1995: 10): [The classicals]main focus was on the importance of the process itself, not on its consummation.

Competition involves a wide range of decisions made by competing units in the market. AsShaikh argues these decisions are given for survival in a dynamic and brutal war (Shaikh 1980:76, 1982: 77). For survival, each is forced to invest in the lowest cost techniques as opposed tothe oldhigher cost techniques. Thus the decisions made, and hence the competitive processitself, in general create a turbulent environment as opposed to a calm and gradual adjustmenttowards a dormant state as implicitly visualized by the theory of perfect competition.

Another point distinguishing the two conceptualizations is related to the distinction betweeninter- and intra-industry competition. According to the classical/Marxian conceptualization the

two have very different effects (Shaikh 2008; Hollander 2008: 28-38). The warlike environmentof competition among firms operating in the same line of business has a tendency for rate ofreturns to deviate from the average. That is the gist of competing in the first place (Shaikh 1982;Botwinick 1993). Inter-industry competition, on the other hand, produces the process of equal-ization through the movement of capital in and out of different industries in the quest for higherreturns. The general view of the neoclassical approach is well known to rest mostly on behavioralanalysis. The firm, whether representative or not,1 is the central focus. However, firm-levelempirical investigations are prone to fail in differentiating between inter- and intra-industry com-

petition (Glick and Ochoa 1990). This distinction has also another significant aspect to it. Thefirm-level analysis is open and mostly resorts to the so-called quantitative theory of competi-

tion (Weeks 1981). The number and/or the magnitudes of the firms in a line of business aretaken as the immediate and most significant indicators of degree of competition. However, theinter-industry perception has also an advantage over the firm-based neoclassical approach inrecognizing the possibility of increase in the degree of competition in means of more efficientflow of funds from low return to high return industries within the same large firms, operating indifferent lines of business (Clifton 1977).

Later non-orthodox conceptualizations of capitalist competition, starting from the devel-opment of the idea of imperfect competition in the 1930s following Sraffas attack on the neo-classical concept of perfect competition, have been from the beginning arrested by their reliance

1That is also to say, whether the analysis of the whole economy is based on n times the representative firm,

or not.


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Bahce and Eres 203

on perfectly competitive markets as the theoretical and empirical point of reference (Clifton 1977;Tsoulfidis 2010: 222-25). The efforts evolved into a set of states or behavioral patterns placedon a spectrum between two polar states of perfect competition and monopoly. These models ofimperfect competition still do not directly address the nature of capitalist competition as it is expe-

rienced in the real world and conceptualized by the classical/Marxian tradition. All of the statesare defined as contrasted to a perfectly competitive ideal. Consequently, what they devised issimply a gradual and relative series of states of markets each taking its place in an order of howmuch, and to a lesser extent how, competition is hindered. In this sense, the heterodox approachesto capitalist competition, although developed as a response to the implausibility and incompetenceof the theory of perfect competition, fail to acknowledge the fact that the actual act of competitionis but to hinder competition at the expense of rivals.2However masterly these models have beendeveloped, they still cannot reflect the dynamic nature of competition as tendential regulationaround a center of gravity. Furthermore, the heterodox models of imperfect competition inherittheir clearly defined states of equilibrium from their point of departure, i.e. the perfectly competi-tive market. Hence, they too imply a calm adjustment process to their respective equilibria,

whether socially optimum or not, and/or with excess capacity or not.One significant variant of the Marxian view of capitalist markets is based on the overstating

of warlike capitalist competition into a historical degeneration towards total disappearance of theclassical/Marxian (as well as neoclassical) process of competition without any reversal. This iscentral to the theoretical core of neo-Marxism. Postwar economic stability, with centralized andconcentrated capital objectified in large conglomerate firms as the central agent, gave way to aview based on the lack of competition as the rule of the capitalist growth process. Furthermore,this era is distinguished from the earlier periods of world capitalism, and presented in a theoreti-cal reassessment in which the price formation has no longer any connection to what classicaleconomists and Marx had visualized as the modus operandi of the capitalist mode of production

(Baran and Sweezy 1966). This new vision has spread like a wildfire among especially the leftwing ranks of the developmentalist intellectuals of the developing world. But unlike wildfire, ithas a long lasting legacy which assumes a priorithe monopolistic structures as the central tenetof understanding and evaluating the development of world capitalism. Although it has been chal-lenged to a great extent by the world economic crisis of the 1970s, at the maturing period ofwhich the typical concentrated firm started to crumble almost everywhere (Botwinick 1993), thefollowing neoliberal period has still been characterized by concentrated markets by many leftleaning analysts with special reference to monopoly capital. Certainly the increasing influence oftransnational companies on the one hand, and financialization of the world economy at a histori-cally unprecedented scale on the other, have even further strengthened this view. We will briefly

revisit this point when addressing the long period assessment of the Turkish economy.The turbulent dynamism attributed to capitalist competition by the classical/Marxian con-ceptualization constitutes a compounded characterization. In other words, it is not conceptuallyrelevant and meaningful to differentiate between the dynamic and turbulent nature

2The heterodox approaches mentioned do not include the Austrian variant. The Austrian schools distinc-

tive approach to capitalist competition also rests on an extensive critique of neoclassical economics, which,

in means of the theory of competition, crystallizes in Schumpeters analysis of the non-equilibrium dynam-

ics of capitalistic accumulation. Yeager (1997) presents a very brief comparison of neoclassical and

Austrian perspectives, concluding with a complementarity between the two. A more comprehensive treat-

ment of the concept of competition from the Austrian point of view is provided by Kirzner (1978). A more

recent study contrasting the neoclassical concept of perfect competition to both classical and Austrian

conceptions of competition with special reference to the entrepreneur is Machovec (1995).


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of competition. As can be seen from the above discussion, what makes the classical/Marxianconcept of competition different from neoclassical and other heterodox approaches is itsacknowledgment of the ugly nature of the competitive process as the usual course of capital-ist markets, i.e. that competition is undertaken by design to distort as much as possible the

competition as depicted by the model of perfectly competitive markets.

3

Turbulent dynamismis the result of this process. Thus, without liberating the perception from its dependence on thefantasy of perfect competition, any approach, through utilizing this and that technique, address-ing simply the dynamic and/or turbulent nature of the competition, will still be incapable ofreaching factual conclusions. With this point in mind, however, in the survey of literature andaddressing the empirical investigations of the competition, the distinction between dynamic andturbulent nature may prove useful. The next section briefly summarizes the literature on a spe-cific line of investigation undertaken since the late 1980s for testing theoretically defined com-

petition. These studies improve the mainstream analysis by acknowledging at least the dynamicaspect of capitalist competition.

2. Persistence of Rate of Return Differentials: Survey of a

Specific Line of Investigation

The pioneering work by Mueller (1986) on the empirical investigation of the persistence ofprofit rate differentials, which is based on a time series analysis as contrasted to the static cross-sectional analysis of the relation between market-power and profitability, opened a field ofinvestigation (see Glick and Ehrbar (1990) for a very brief survey of the literature beforeMuellers contribution). A volume has been edited by Mueller (1990) containing a number ofarticles each testing the validity of the profit rate equalization hypothesis for different economies(United States, Canada, Japan, UK, and West Germany). The same line of analysis has since

been conducted for many economies: Ehrbar and Glick (1990) for the United States; Rigby(1991) for Canada; Lianos and Droucopoulos (1993) for Greece; Kambhampati (1995) for India;Tsaliki and Tsoulfidis (1995) for Greece; Goddard and Wilson (1996, 1999) for the UK;Maruyama and Odagiri (2002) for Japan; Yurtolu (2004) and Kaplan and Aslan (2008) forTurkey; Gschwandtner (2005) and Cuaresma and Gschwandtner (2008) for the United States,McMillan and Wohar (2009) for the UK;4Geroski and Jacquemin (1988) for France, Germanyand the United States; Glen, Lee, and Singh (2001) for India, Malaysia, South Korea, Brazil,Mexico, Jordan, and Zimbabwe; Vaona (2010) for Denmark, Finland, Italy, and the UnitedStates; among others. Although there are considerable differences between each study, theycommonly recognize the persistence of the rate of return differentials along considerable time

3The ugly nature is maybe most horrifyingly and masterfully depicted by the exploits of Karol

Borowiecki and his associates in Andrzej Wajdas film The Promised Land(1975). This depiction of the

entrepreneur also marks the contrast between the classical/Marxian and the Austrian concepts of market,

both sharing significant aspects of the critique of the neoclassical static, perfectly competitive model.

Machovec (1995: 12) is not unaware of this distinction when stating that the role of the entrepreneur

as the driving soul of the process of competition was clearly recognized in various degrees of sophistication

(though not glamourized) by most leading British writers (emphasis added).4Cuaresma and Gschwandtner (2008) and McMillan and Wohar (2009) test not simply the persistence but

time-varying persistence of differentials. In these studies, the existing methodology is improved through

letting the estimates of the firm-specific constant and the estimate of the speed of adjustment to vary over

time.


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Bahce and Eres 205

spans and try to explain and reconcile the empirical findings with theory. In most of these stud-ies, especially in their interpretation of the existence of persistence, the lack of competition, i.e.imperfect competition, is either openly suggested or indicated. This suggests that the aim oftesting for persistence in these studies boils down to finding out whether the unit of analysis is

perfectly competitive or not.

5

Since the results overwhelmingly show that there is no conver-gence, the only conclusion that could be drawn from the results, in a neoclassical theoreticalsetting, is but lack of competition. It is clear from these interpretations that the studies do nottheoretically recognize that the persistence of rates of return may as well point out that there islively competition going on, as argued above. Furthermore, borrowing from the literature ofimperfect competition, two broad explanations for persistence were basically made: the industryapproach, which assumes identical cost structures, and the firm approach, which allows for costcompetition among firms (Mueller 1986). This very broadly implies the introduction of certain

behavioral (cooperation, rivalry) and institutional (concentration, barriers, economies of scale)variables in the analysis. Another way taken is to test whether the persistent deviations are sig-nificantly related to the risk differentials. In general terms, the risk differentials among economic

units, for which persistence is tested, may be easily attributed to unit specific characteristics,reminiscent of the above mentioned behavioral and institutional explanations based on the the-ory of imperfect competition.6

These studies have great superiority over the cross-section investigation of the causal relationbetween certain quantity indicators of market power and profitability. Testing for the equaliza-tion hypothesis is centered on the question of equalization of the average rates of return amongfirms. They address the dynamic nature of competition to a certain degree. However, their expec-tations from the results of the models reflect their theoretical reliance on perfect competition astheir standard, and imperfect competition as the alternative interpretation. Also their failure todifferentiate between inter- and intra-industry competition reflects the underlying view of these

studies, which is far from embracing the turbulent dynamism defined above.The technique introduced by Mueller, on the other hand, provides a common ground on which

neoclassical convergence as well as classical/Marxian tendential equalization hypotheses couldbe tested.7The latter has been undertaken with careful reference to the distinction between twoapproaches and appropriate modifications. Christodoupoulos (1995) for the OECD countries,Shaikh (2008) for the United States, and Tsoulfidis and Tsaliki (2005, 2010) for Greece test for

5The comparative studies among them have a natural advantage over others. The comparison is usually

made according to the different speeds of adjustment either between economies or between industries.

Thus for these studies it is not fair to say that the existence of perfect competition is the only question inthe analysis. However still, what they can answer further is how much imperfect competition is in one

economy or industry as compared to others.6Shaikh (2008) also points to the risk differentials between U.S. manufacturing industries. Hence, the risk

differentials as the explanation for the persistence of rates of return by themselves do not imply the lack

of competition. On the contrary, given Shaikhs classical/Marxian position, this suggests that it is not the

explanations of persistence, if detected, that differentiate the classical/Marxian and neoclassical/heterodox

approaches, but whether the conceptualization of competition is based on a hypothetical perfect state or

not.7However, it is most significant to stress that this empirical test cannot simply by itself provide a final

judgment concerning the universal validity of any of these hypotheses. The interpretation of the results,

based on theoretical distinctions, also matters. For instance, an empirical finding of persistence can be

interpreted at one extreme as the lack of competition, or at the other as the escalated level of competition,

as argued above.


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the persistence of return differentials using the same technique. In these studies, the theoreticalpoint of reference is regulating capital which captures the idea of dynamic turbulence (Shaikh2008). To this end, the partial dynamism of Muellers methodology is improved by two modifi-cations. The first is simply conducting the analysis at the industry level, as opposed to the firm

level. The second is to test the tendential equalization of the regulating rates of profit, as opposedto the average rates of profit.Investment decisions, hence the movement of capital, which is the basis for the equalization,

are basically made on expected rates of return on those potential new investments that embodythe best-practice conditions of production (Shaikh 2008: 167). Accordingly, one might expectfrom the rates of returns on such investments, at industry level, to have dynamic tendential equal-ization, rather than the average rates of return, which takes both vintage capital and new invest-ment into consideration. To sum up regarding the critique of the existing literature with referenceto the two modifications, testing for equalization with average rates at firm level actually tests fora process which fundamentally operates on another variable and at a different level.

This study aims at investigating the process of equalization of the rates of return among

Turkish manufacturing industries. The above mentioned points are taken into account. Timeseries analysis that covers a period from 1982 to 2000 is conducted. The level of analysis is the3-digit ISIC Rev. 2 classification for the manufacturing industries. The analysis is conducted for

both the average and the incremental rate of profit (which are explained below). This furtherenables us to test for both the neoclassical rate of return equalization hypothesis and classicalconceptualization of competition, and develop a complementary interpretation of the results.Before presenting the data and the model used, the next section addresses developments in theTurkish economy for the period under consideration and discusses the validity of the period andunit of analysis for such an inquiry.

3. Development of a Market Economy

The Turkish economy has gone through a massive restructuring, announced only a few monthsbefore, and initiated immediately after the September 1980 military takeover. The motto wasgetting the prices right (Boratav, Yeldan, and Kse 2001). That meant dissolution of the struc-tures, regulations, and institutions of the previous era of import substitution industrialization.The first move was trade liberalization accompanied by a huge devaluation and the introductionof a scheme of export subsidies. The initial successful export performance gave out eventually

by 1988, when the Turkish government was forced to eliminate the scheme of export subsidies(ni 1991). Then the capital account was fully liberalized in 1989. However, privatization of

public sector enterprises had to wait until the late 1990s to be fully undertaken (Boratav 2003).This course of restructuring marks the hasty development of a fully market-oriented economy.Thus the period from the early 1980s onward is a period one could naturally conceive of asgoverned more and more by market forces. Consequently, competition should be expected tomake its existence felt gradually stronger during the period. In other words, the Turkish econ-omy from the 1980s onward constitutes an appropriate environment for the investigation ofvalidity of different understandings of competition.

This study does not cover the whole economy but only the manufacturing industry. The pri-mary reason for this is the availability of appropriate data. The secondary reason is related tothe differences between competitive processes in reproducible and non-reproducible productindustries (such as mineral extraction, oil, agriculture, energy), as recognized by the classical/Marxian view. The difference regarding the regulating capital for these two is striking. While inthe former the lowest-cost regulates price formation (as argued above), in the latter highest-costregulates price formation (Botwinick 1993; Bina 2006; Hollander 2010). The manufacturing


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Bahce and Eres 207

industry constitutes the most compact set of reproducible product industries, and choosing itenables the inquirer to avoid this distinction. Still, it is important to point out that taking onlythe manufacturing industries made the analysis somehow limited to the extent that it does notaccount for the capital leaving the manufacturing industry altogether for higher returns and the

resulting expected process of equalization of the rate of return between manufacturing and non-manufacturing industries. One important development during the period under consideration,regarding capital mobility between the two, is the new and commonly observed feature ofincreased financialization of the capitalist process of accumulation. This development has beenmostly held responsible for taking funds away from productive industries (Gezici 2007; Demir2007, 2009). It is clear that financialization and other such developments that have overalleffects on the manufacturing industry do not necessarily have direct effects on the mobility offunds amongindustries unless they specifically create persistent differences in means of accessto liquidity and relative relief from uncertainty across different manufacturing industries. Onthe contrary, Cliftons argument concerning the increase in competition due to improved andmore efficient channels of funding (Clifton 1977) is also applicable to the financialization argu-

ment and penetration of foreign capital. Furthermore, in a long period analysis such as this,even if different industries are affected differently from the external shocks such as trade and/or financial liberalization, since the analysis seeks to test whether the effects of shocks are with-ered away through movements of capital, there is no immediate need to take such developmentsinto empirical consideration (through, for instance, non-linearizing the autoregressive relation

by introducing period dummies or adopting time-varying versions of the econometric model).However, in cases where persistence is detected, instead of the above mentioned micro levelabstract aspects of imperfect competition, it is a lot more reasonable to trace the explanation inconcrete historical developments that have direct effects on capital accumulation, such as finan-cialization, deregulation, privatization, and opening up of the economy. We leave such impor-

tant considerations for further studies.The next section gives brief descriptions of the average and the incremental rate of return and

on how these variables are constructed from the Turkish data. Then the following section intro-duces the model that is used to test for the equalization hypotheses. The last section reports theresults and presents our interpretation.

4. Average and Incremental Rates of Profit

The rate of return, in this study, is constructed in line with Christodoupouloss and Shaikhssimple definitions. The choice of the indicator of profitability or rate of return, average or incre-

mental, has certainly significant effect on the analysis (for the comparison of the performanceof different indicators, see Glick 1985; Glick and Ehrbar 1988). Shaikh and Christodoupoulosexplain their choice with reference to the simplicity and availability of the data. This choice alsohas an advantage in that a similar analysis could easily be conducted for many economies and

provides ground for comparative evaluation.The average rate is constructed as the ratio of the profits accrued to the investor after the wage

costs and indirect business taxes are deducted from the total value added to the total amount ofcapital stock tied to production (Shaikh 1997: 395, 2008: 174). In the literature there are otherfurther deductions from the numerator, such as interest payments and rent payments. For such astudy the criterion for adopting such deductions is simply whether these payments out of profitsdiffer among industries due to legal or natural barriers for access to certain resources (cheapcredit, scarce natural resources, etc.) that would hamper competition. It is impossible from thedata to ascertain such distinctions. In many studies the size of the firm and whether it is a part ofa conglomerate group has usually been used to approximate for such distinctions. However,


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industry level analysis does not necessitate such distinctions. Some firms or group of firms maybe exploiting certain resources at the expense of others. This does not translate into inter industrypersistence of such advantages. Thus, we are content with the suggested version of the rate ofprofit and use it as the average rate of return for the manufacturing industries:

ROP P

K

VA W NT

Kit

it

it

it it it

it

= =

(1)

wherePitstands for profits of industry iat time t, whileK

itis the total capital stock of the same

industry. VAitshows the gross value added. W

itis the total wage payments of industry iat time t

and NTit is net indirect business taxes. Turkish Institute of Statistics (TK) collects data via

annual surveys on value added (after net indirect taxes) and wage payments for each manufac-turing plant (for the whole population). A distinction is made between non-operating income andoperational profits, and value added does not include non-operating income. The data were

compiled according to the ISIC Rev. 2 classification up until 2001.8The compiled results areavailable in the Turkish Annual Manufacturing Surveys (AMSs). The lack of industry levelcapital stock data compatible with the AMS data made the calculation of the profit rate cumber-some. In order to get the capital stock of the industry iat time t, we multiplied the total capitalstock of the manufacturing industries (K

it) with the corresponding industrys share in total horse

power usage (HPit):

K K HPit t it = (2)

The total manufacturing capital stock figures are from Eres (2005), which is an expanded ver-

sion of the series calculated according to the perpetual inventory method (OECD 2001) byCihan, et al. (2005). The industry shares of horse power usage are calculated again from the data

provided in the AMSs.As the above discussion suggests, industry average rate of return, here indicated by the rate of

profit, is not the variable that the forces of competitive process are imposed upon; rather the rateof return on investments in the best-practice conditions of production, i.e. the return on regu-lating capitals, is the subject for competition. From this line of argument Shaikh (1997, 2008)suggests incremental rates of profit as the best proxy for the return on regulating capitals; it issimply the ratio of the incremental amount of profit to the corresponding change in the capitalstock, namely to the gross investment of the previous period:

IROP P P

Iit

it it

it

=

1

1

(3)

Here Iit-1

is the investment level in industry iat time t-1andIROPitis the incremental rate of

profit. The investment data are again from the AMSs. We deflated the variables, except capitalstock, by industry output price deflators (1994=100) provided in the surveys. The capital stockis deflated by the investment price indices provided in Cihan, et al. (2005).

8Since 2002 the raw data are compiled according to the NACE product group classification, which is

impossible to convert to ISIC classification without access to the raw data.


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Bahce and Eres 209

5. The Model

In order to question the validity of the rate of return equalization hypothesis, we will follow aprocedure which covers two steps. In the first step we will look at the persistence of the average

rate of profit differentials. Then, an analysis of the persistence of incremental rate of profit dif-ferentials follows. These two steps, in their logical order, try to question first whether the profitrate differential exists in the long run and short run, and consequently, if it exists, whether thereis a countertendency of equalization via investment (capital flows). In order to find the answersto these two questions, we benefit from a partial adjustment model (Muller 1986).

In the set up for the partial equilibrium model, we use the following basic model:

m mit t i it = + + (4)

Above, mitdenotes the (average or incremental) rate of return of sector iat time t, while m

tis

the industry-wide rate at time t, or mean (average or incremental) rate for the whole manufactur-

ing industry.9irepresents the industry-specific component of rate of return which deviates theindustry rate from the industry-wide rate. The industry-wide rate also reflects the cyclical andtrend components which have been equally common for all the sectors. In this context, the mag-nitude of and any change in this component are irrelevant to our discussion. The basic concernhere is the deviation from this component. For this, equation (4) can be rearranged to reflect therelation between the industry deviation and industry-specific components:

it it t i it m m= = + (5)

In the above equation, itis the deviation of the industry rate from the average. Rate of return

equalization necessitates i = 0 and E(it) = 0. The effects of random and temporary shocksgenerally do persist for more than one period and this makes the assumption of E(

it) = 0 ques-

tionable. Therefore, it is reasonable to assume that ithas an autoregressive process in the first

order:10

it i it it u= + 1 (6)

i is the convergence coefficient. It shows the degree of persistence of the random shock

in the previous period. For the competitive hypothesis to hold, the absolute value of the

9There are two alternatives here: either unweighted or weighted average rate could be used. We prefer to

use the former. Using the latter may overestimate the effect of the rate in a particular industry due to its

overwhelming share in total value added. Generally, investment decisions are made primarily through

considerations of the relative rates of return of different industries with less attention to the relative size of

the industry. Market size and profit opportunities are seldom strongly related to the relative share of the

industry in total value added.10By using the Schwartz-Bayesian Information Criterion (SBC), we looked for the appropriate order for the

autoregressive process up to order 3. For ROPitseries, except for one industry, SBC for AR(1) is the lowest

for all the industries. For IROPit

series, SBC for AR(3) takes the lowest value for four, while it indicates

AR(2) process best for three and AR(1) process for the remaining 20 industries. Since, for both series, SBC

criterion indicates that AR(1) process is appropriate for most of the industries, we apply this lag

structure.


11/25


convergence coefficient should be less than 1 and uit~ N(0,2).11Combining (5) with (6)

yields the following equation:

it i i i it it u= + +( )1 1 (7)

Denoting the estimated coefficients of equation (7) as ^and ^,we can rewrite the relation foreach industry in the following form:

t t t

u= + +

1 (8)

In the long run, if the assumption that competition drives all rates to the same level is true, thenthe series of industry mean deviation rates should converge to zero. In order to find the conver-gence value of

t, we assume that in the long run, oscillations of this series will halt and

t=

t-1

= ^(the steady state level). Moreover, this convergence value will be free of any randomshock; i.e. u

it

converges to zero in the long run. Then, the long-run level of deviation can be

obtained as follows:

=

1 (9)

If competition tends to equalize the inter-industry rates in the long run, then ^will be signifi-cantly not different from zero,12whereas s are equal to zero. This means that there are noindustry-specific conditions which result in the deviation of the industry profit rate from theindustry-wide average. On the other hand, if competition fails to bring about such an equaliza-tion, ^will be significantly different from zero, which means that for the corresponding indus-

try is different from zero. In this case, the degree of deviation also depends on the convergencecoefficient,

^. If this coefficient gets closer to zero, the deviation will decrease, which means that

if the degree of persistence of random shocks decreases, then the deviation from the industry-wide average will get smaller.

We estimate (8) for both average (ROP) and incremental (IROP) rates of profit in theirmean deviation form as outlined in equation (5). By using ROP series, we aim at questioningthe validity of the rate of return equalization hypothesis. Then, by using the IROP series, whichis accepted to reflect the classical theory of competition, we test for the validity of tendentialequalization.

6. Results

6.1. The Average Rate of Profit

Figure 1 shows the industry-wide average rate of profit in mean deviation form, between1980 and 2000. It roughly shows the trend of the average from which the industry rates

11The normality assumption fails to hold for only four industries for ROP and two for IROP. Nevertheless,

the interpretation of the results is not disturbed, since these industries do not produce significant F-tests.12

The asymptotic variance of for the t-test is calculated as follows:

Var Var Var ( ) ( )( )

( )

=

+

+

1

1 12

1

1

2

2

2

( )

( , )1 2

Cov


12/25

Bahce and Eres 211

deviate. As the figure indicates, the average rate shows oscillations throughout the 1980s anddisplays an increasing tendency throughout the 1990s, except for the years 1994 and 1999.The decline in 1994 can be attributed to the severe domestic public finance and bankingcrisis while the decline in 1999 should be accounted for by the prolonged effects of both theRussian and the East Asian crises. However, it should be noted that this figure should not betaken as the general picture of the pace of profitability in the Turkish manufacturing indus-tries. It is the unweighted average of the average rates of profit. For more detailed studies on

the analysis of capital accumulation in Turkey regarding the rate of profit, see Altok (1998),Eres (2005, 2007), Memi (2007), and Karahanoullar (2009).13These longer-run studies

point out a declining trend with significant cyclical volatility. The post-1980 period is char-acterized as the revival of profitability, largely attributed to the capital friendly restructuringof the economy, whereas the early 1990s marks the end of distributional bias against laborwhich is reflected in the drastic fall of profitability. Manufacturing sector profitability, on theother hand, shows a rapid and continuous increase after 1979 up until the late 1980s peak(1988/9). Again a drastic fall in 1991 is followed by a recovery, reaching another peak in1996.

Table 1 gives statistical information about the industry average rates of profit and the ranking

of the industries according to their profitability. The first two columns give the mean and stan-dard deviation of the rate of profit.14The mean rates for 21 industries are negative while theremaining eight industries show positive deviation. Tobacco manufactures industry (314) has thelargest deviation on average of the whole period. The lowest value is observed for the paper and

paper products industry (341). The last three columns outline the ranking according to the aver-age rate of profit in mean deviation form. With significant deviations from the industry-wide

Figure 1.Industry-wide (unweighted average) average rate of profit.

13There are also a number of studies that are based on profitability indicators other than rate of return

on capital stock, such as mark-up rate, profit margin, and profitability trend: ahinkaya (1993);

zmucur (1992, 1995); Metin-zcan, et al. (2000); Onaran and Yentrk (2002); Eres and Kaya-Bahe(2009).14Petroleum refineries industry (353) is excluded from all calculations due to its extraordinary structure.

Throughout the period there are at most five firms operating at the same time in this industry.


13/25


Table 1.The Statistical Properties of Average Rate of Profit (ROP) in Mean-Deviation Form and Rankingof Industries.

Industry MeanStandardDeviation

1981Ranking

1990Ranking

2000Ranking

311. Food -0.250 0.071 13 21 18

312. Animal feed and other food prod. -0.270 0.074 19 19 17

313. Beverage 0.521 0.237 3 2 2

314. Tobacco 2.590 1.502 1 1 1

321. Textiles -0.237 0.061 17 16 19

322. Wearing apparel 0.346 0.404 6 4 11

323. Leather -0.279 0.080 20 20 22

324. Footwear -0.112 0.204 23 22 10

331. Wood and cork products -0.365 0.079 27 27 24

332. Furniture and fixtures -0.204 0.094 10 14 13

341. Paper and paper products -0.376 0.096 26 25 26342. Printing and publishing 0.249 0.288 7 5 6

351. Industrial chemicals -0.290 0.097 16 24 23

352. Other chemicals 0.388 0.243 4 6 3

354. Petroleum and coal products 0.519 0.179 2 3 4

355. Rubber -0.239 0.075 24 18 21

356. Plastic products -0.275 0.066 28 17 20

361. Pottery, china and earthenware -0.058 0.127 12 8 14

362. Glass and glass products -0.135 0.111 5 10 16

369. Other non-metallic mineral prod. -0.354 0.084 21 26 25

371. Basic iron and steel -0.364 0.109 22 28 28

372. Basic non-ferrous metals -0.353 0.109 25 23 27

381. Fabricated metals -0.182 0.057 14 15 15

382. Machinery -0.165 0.082 15 12 12

383. Electrical machinery 0.082 0.106 8 7 7

384. Transport equipment -0.122 0.080 11 11 9

385. Professional and scientific prod. -0.042 0.491 18 13 8

390. Other manufacturing products -0.022 0.118 9 9 5

average, the equalization of the rate of return among sectors would imply a continuous shift inthe structure of profit hierarchy. However, as Table 1 shows, except for some minor alterationsin the ranking from 198115to 1990, and from 1990 to 2000, in general the order of the industriesseems to be intact. Spearman and Kendall rank correlation tests also support this conclusion. Ourestimates have shown that the profitability ordering in 1981 had significant correlation with theordering in other years. Spearman test statistics fell to the lowest point at 66 percent in 1995 (yet

15Although our data start with the year 1980, we preferred to take 1981 as the benchmark year. With cul-

minating political and economic turmoil during the first three quarters and the September military takeover,

the year 1980 constitutes an exceptional break in Turkeys economic and social life. Moreover, the manu-facturing industry had continued to experience severe import shortages throughout most of 1980.


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Bahce and Eres 213

significant at 1 percent), and the Kendall test statistic dropped at most to only 52 percent in 1995,and again significant at 1 percent.16 These results point out significant stickiness in rankingamong industries, when the rate of return is taken as the average rate.

The calculations show that, out of 29 (including petroleum refineries (353)) industries only

nine have alternating signs.

17

While for five of the remaining 20 industries the average rate inmean deviation is positive, for the other 15 it is negative throughout the whole period.Moreover, out of nine industries with alternating signs, only four alternate more than fourtimes during the 20-year period. This suggests that the average rate of profit does not reflectthe turbulent nature of competition as suggested by the classical approach.18This result is inline with the argument that the competitive process operates on the return to regulating capitalrather than on the average rates of return in the industry. It is also not surprising to find out thatthose industries with persistently positive values of deviation are traditionally concentratedsectors.19

Table 2 gives the estimation results for equation (8) by using ROP series. The second columngives the results of the Augmented Dickey-Fuller (ADF) test for each industry. ADF statistics

for 23 out of 28 industries reject the null hypothesis of unit root. is found to be statisticallysignificant for 21 industries. is significant also for 21 industries. The mean of the convergencecoefficient of all the industries is 0.477 and 12 out of 28 industries have higher than averageconvergence coefficients. It is interesting to note that this average figure for the convergencecoefficient is a lot more like developed economies as compared to developing economies, theresults for which are compiled and presented in Glen, et al. (2001). The highest convergencecoefficient is of the other chemicals industry (0.8165), while the transport equipment industryhas the lowest value (0.09211) in absolute terms. The sixth column gives the estimated long-runaverage rates of profit (see equation (9)). These long-run values are overwhelmingly statisti-cally significant except for four industries.20The long-run rates for seven industries are positive

and the highest value belongs to the tobacco industry. The last two columns give the ranking ofthe sectors according to the long-run profit rates and the profit rates in 1981. The mean changeof position from the ranking in 1981 to ranking according to the long-run profit rate is nearly3.29 positions. In ranking according to the long-run profit rates, the place of three industries(314, 321, and 352) remains the same as in 1981. Moreover, the position of nine industries hadchanged only by one place in the ranking. In total, the change of position for 19 industries was

below the average of 3.29 positions. In light of these findings, we conclude that there are per-sistent long-run average rate of profit differentials and these differentials prevented any radicalalteration in profit hierarchy in the Turkish manufacturing industry. These results confirm the

16The results of the Spearman and Kendall rank correlation test are provided in the appendix (A.1).17These are (322) wearing apparel, (324) footwear, (342) printing and publishing, (361) pottery, china and

earthenware, (362) glass and glass products, (383) electrical machinery, (383) transport equipment, (385)

professional and scientific products, and (390) other manufacturing industries.18The same result can also be observed from Figure 2 in appendix 2 (A.2).19These are (313) beverage, (314) tobacco, (352) other chemicals, (353) petroleum refineries, (354) petro-

leum and coal products industries. There are a number of studies on classification of the industries accord-

ing to the concentration ratios. See Boratav and Yeldan (2005) for a distinction between competitive and

imperfectly competitive (oligopolistic) sectors with a 0.3 CR4 threshold. See also Eres and Kaya Bahe

(2009) for the distinction between highly concentrated and unconcentrated sectors with a 0.5 CR4 thresh-

old that makes use of the same survey data.20These are wearing apparel industry (322), footwear industry (324), professional and scientific products

industry (385), and other manufacturing industries (390).


15/25


above mentioned tentative analysis regarding the statistical properties of the average rate ofprofit. Results, although conducted at industry level, are similar to Yurtolus (2004) findings:the average rate of profit shows persistent differences. Without reference to the distinction

between average and regulating capital, this might be regarded as evidence for the positive rela-tion between profitability and market power and consequently the lack of competition. Yurtolu(2004) takes this way and investigates the reasons for persistence with a set of variables andindicators of market power and possible determinants of productivity. Now, we turn to the sta-

tistical properties and the estimation results for the incremental rate of profit, which shows afundamentally different picture.

Table 2.Estimation Results for Industry Average Rate of Profit in Mean Deviation Form.

Industry ADF R2 ^^

Ranking1981

Ranking

311. Food -3.495**

-0.19712*

0.24531 0.067 -0.26119*

19 13312. Animal feed and other food

prod.-3.662** -0.19509* 0.31581*** 0.137 -0.28513* 21 19

313. Beverage -2.652*** 0.29339** 0.43726*** 0.191 0.52136* 2 3

314. Tobacco -2.381*** 1.50291** 0.47356** 0.203 2.85487* 1 1

321. Textiles -3.376** -0.17658 0.29348 0.099 -0.24993* 17 17

322. Wearing apparel -1.359 0.06931 0.79347* 0.603 0.33559 5 6

323. Leather -2.100 -0.14358** 0.52181** 0.226 -0.30025* 22 20

324. Footwear -1.772***a -0.03041 0.70984* 0.506 -0.10482 11 23

331. Wood and cork products -4.328***b -0.15655** 0.60565* 0.438 -0.39697* 25 27

332. Furniture and fixtures -3.122** -0.14473* 0.29919 0.090 -0.20652* 16 10

341. Paper and paper products -3.733**b -0.12458** 0.71031* 0.567 -0.43006* 28 26

342. Printing and publishing -3.336** 0.19725** 0.27960 0.085 0.27381* 6 7351. Industrial chemicals -2.715*** -0.15358* 0.52591* 0.335 -0.32394* 23 16

352. Other chemicals -4.518*b 0.08971 0.81650* 0.683 0.48890** 4 4

354. Petroleum and coal products -4.912* 0.58576* -0.14473 0.021 0.51170* 3 2

355. Rubber -2.319 -0.14448* 0.42620*** 0.142 -0.25180* 18 24

356. Plastic products -2.766*** -0.17631** 0.37738*** 0.135 -0.28318* 20 28

361. Pottery, china andearthenware

-2.042**a -0.03969 0.43509*** 0.164 -0.07026 10 12

362. Glass and glass products -1.813 -0.05512** 0.70947* 0.521 -0.18972** 14 5

369. Other non-metallic mineralprod.

-4.260**b -0.17203** 0.55418* 0.334 -0.38588* 24 21

371. Basic iron and steel -3.659**b -0.12589** 0.70601* 0.500 -0.42820* 27 22

372. Basic non-ferrous metals -3.180***b -0.12317** 0.70359* 0.544 -0.41554* 26 25381. Fabricated metals -2.909*** -0.11321* 0.41801*** 0.195 -0.19453* 15 14

382. Machinery -1.824 -0.05243*** 0.70828* 0.521 -0.17973* 13 15

383. Electrical machinery -2.749*** 0.05166*** 0.41378*** 0.173 0.08812*** 7 8

384. Transport equipment -3.875* -0.11243* 0.09211 0.009 -0.12383* 12 11

385. Professional and scientificprod.

-2.410**a -0.01427 0.53126** 0.283 -0.03044 9 18

390. Other manufacturingproducts

-3.411** -0.02338 0.10503 0.009 -0.02613 8 9

Notes:a3 lags. No constant [critical values -2.66(10%). -1.95(5%). -1.6 (1%)]bNo trend [critical values -4.38 (10%). -3.6 (5%). 3.24 (1%)] *: Significant at 1%. **Significant at 5%. ***Significant at 10%.


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Bahce and Eres 215

6.2. The Incremental Rate of Profit

The incremental rate of profit, as compared to the average rate, exhibits a significantly differ-ent behavior. Table 3 summarizes the statistical properties of the incremental rate of profit inmean deviation form for 28 industries. The first striking difference is the relatively high levelsof standard deviation as compared to the average rate in mean deviation form. While there isonly one industry (tobacco and tobacco products) whose standard deviation is larger than onefor the average rate, standard deviation figures for the incremental rate are larger than onewithout exception. Some industries have extremely high standard deviations, such as themanufactures of beverages (4.062), manufactures of tobacco and tobacco products (18.006),

manufactures of furniture and fixtures (8.248), manufactures of petroleum and coal products(4.021), and professional and scientific products (5.632). This shows the high level of

Table 3.The Statistical Properties of Incremental Rate of Profit (IROP) in Mean-Deviation Form andRanking of Industries.

Industry MeanStandardDeviation

1983Ranking

1990Ranking

2001Ranking

311. Food -0.250 1.555 26 7 17

312. Animal feed and other food prod. -0.180 2.641 2 28 24

313. Beverage 0.179 4.062 4 25 5

314. Tobacco 4.841 18.006 28 2 1

321. Textiles -0.600 1.002 16 16 11

322. Wearing apparel -0.244 2.520 8 17 6

323. Leather 0.579 2.304 10 27 3

324. Footwear 0.640 4.268 14 23 28

331. Wood and cork products -0.238 2.163 17 21 22

332. Furniture and fixtures 1.098 8.248 20 13 27

341. Paper and paper products 0.071 2.951 11 15 13342. Printing and publishing -0.529 1.762 18 6 18

351. Industrial chemicals -0.325 2.651 19 26 2

352. Other chemicals 0.095 1.505 24 10 23

354. Petroleum and coal products -0.576 4.021 3 12 26

355. Rubber -0.067 2.115 1 20 15

356. Plastic products -0.323 1.002 25 11 20

361. Pottery, china and earthenware -0.424 1.508 13 18 21

362. Glass and glass products -0.532 1.123 22 19 25

369. Other non-metallic mineral prod. -0.815 1.147 23 14 12

371. Basic iron and steel -0.575 1.747 5 24 8

372. Basic non-ferrous metals -0.561 1.825 12 22 16

381. Fabricated metals -0.049 1.331 9 9 10

382. Machinery -0.517 1.557 21 1 14

383. Electrical machinery 0.108 1.644 6 3 7

384. Transport equipment -0.240 1.692 15 4 19

385. Professional and scientific prod. -1.236 5.632 27 8 9

390. Other manufacturing products 0.667 3.247 7 5 4


17/25


oscillations in the incremental rate in mean deviation form. Furthermore, the last two columnsof Table 3 provide good evidence for a continuous shift in structure of hierarchy amongmanufacturing industries. The Spearman and Kendall tests provided in appendix 1 support thisconclusion. For the Spearman test there are only two years (1990 and 1994) for which thevalues are statistically significant (at 5 percent and 10 percent levels, respectively). And forthe Kendall test, only the years 1990, 1994, and 1999 give statistically significant relation

with the ranking of the base year 1983.Figure 2 shows the industry-wide annual unweighted average incremental rate of profit. Its

oscillatory character can be clearly seen when it is contrasted to Figure 1. The extremely narrowband within which the oscillations take place presents rough evidence for the specific nature ofthe average as the center of gravity. This can further be observed from Figure 2 in appendix 2(A.2), which shows the industry incremental rate of profit in mean deviation form. ContrastingFigure 2 (A.2) to the same graph for the average rate of profit Figure 1 (A.2) reveals the behav-ioral difference of the two. Calculations show that there is no single industry whose incrementalrate in mean deviation form does not alternate in sign. Out of 29 industries (including petroleumrefineries industry (353)), only for two is the number of alterations less than seven times. For

seven industries it is more than 10 times.These properties of the incremental rate of profit show qualities that the classical approachexpects from an indicator of return on regulating capital: it has turbulent dynamics around acenter of gravity.

There are two lines of furthering results for the ROP presented above in the literature. Theneoclassical view either immediately jumps to the conclusion of imperfect competition asopposed to perfect competition regarded as the natural course of markets, or further investigatesfor the parallel trends in concentration by introducing institutional and structural variables.Similarly the alternative view has two variants. The first is related to a general description of the

phase of capitalist development as monopoly capitalism. This line of argument is basically builtupon the same persuasion that imperfect competition rules the capitalist markets. On the otherhand, the second line of thought rests mostly on the risk differentials among industries that wouldaccount for the persistence of profit rate differentials. This line tries to explain the persistencewhile still clinging to the validity of the classical competitive process. Our study takes theclassical/Marxian view, the empirical application of which is formulated by Shaikh and repeats

Figure 2.Industry-wide (unweighted average) incremental rate of profit.


18/25

Bahce and Eres 217

the same analysis with incremental rates instead of average rates. In other words, in order toevade falsifying straightforward conclusions, we also look at the repercussions of capital flows

across the industries with a focus on the return to regulating capital. For this, we estimated equa-tion (8) for IROP series. Table 4 gives the estimation results.The second column in Table 4 shows the ADF test results for each industry and the test results

point to the rejection of the hypothesis of unit root without exception. As can be observed fromTable 4 the coefficients of determination are very low, indicating that the relation between the cur-rent incremental rate and its lagged level is not meaningful for almost all the industries. This sug-gests that the model that attributes an intertemporal relation between past and present values of thedeviations for the industries is unable to explain the actual facts. In other words, the magnitude ofdeviation of the incremental return is not related to the deviations in the past. This disproves the

persistence for the IROP.The comparison of the results for ROP and IROP can also be seen from Table 4. The last two

columns give the estimated long-run rates of return for average and incremental rates respectively.These rates for the average rate of profit are statistically significant for 20 industries at 1 percent,two industries at 5 percent, and another one at 10 percent, out of a total 28. For the incrementalrate of profit, on the other hand, there are only five industries for which the estimated long-run

Table 4.Estimation Results for Industry Incremental Rate of Profit in Mean Deviation Form.

Industry ADF R2 ^(IROP) ^(ROP)

311. Food -4.722* -0.18127 -0.18552 0.0330 -0.1529 -0.26119*

312. Animal feed and other food prod. -

5.184

*-

0.44996 -

0.18510 0.0394 -

0.3797 -

0.28513

*

313. Beverage -6351* 0.12805 -0.42356*** 0.1824 0.0899 0.52136*

314. Tobacco -2.754*** 5.56433 0.22364 0.0378 7.1672 2.85487*

321. Textiles -4.047* -0.66730** -0.05582 0.0029 -0.6320** -0.24993*

322. Wearing apparel -6.372* -0.45616 -0.41612*** 0.1797 -0.3221 0.33559

323. Leather -4.018* 0.57188 -0.02926 0.0008 0.5556 -0.30025*

324. Footwear -4.513* 0.82118 -0.18708 0.0306 0.6918 -0.10482

331. Wood and cork products -4.394* -0.26861 -0.13791 0.0174 -0.2361 -0.39697*

332. Furniture and fixtures -5.912* 1.70812 -0.38336 0.1437 1.2348 -0.20652*

341. Paper and paper products -3.690** 0.01112 0.06474 0.0041 0.0119 -0.43006*

342. Printing and publishing -4.554* -0.62229 -0.17566 0.0281 -0.5293 0.27381*

351. Industrial chemicals -5.653* -0.61072 -0.46002*** 0.1655 -0.4183 -0.32394*

352. Other chemicals -3.381**

0.16039 0.04746 0.0018 0.1684 0.48890**

354. Petroleum and coal products -3.814** -0.75122 0.05437 0.0030 -0.7944 0.51170*

355. Rubber -5.406** -0.34494 -0.12027 0.0206 -0.3079 -0.25180*

356. Plastic products -1.648***a -0.14762 0.58352** 0.2360 -0.3545 -0.28318*

361. Pottery, china and earthenware -5.530* -0.59719 -0.37872 0.1261 -0.4331 -0.07026

362. Glass and glass products -3.146** -0.50413 0.03609 0.0009 -0.5230*** -0.18972**

369. Other non-metallic mineral prod. -3.851* -0.80395** 0.00352 0.0000 -0.8068** -0.38588*

371. Basic iron and steel -5.542* -0.85995** -0.24181 0.0679 -0.6925** -0.42820*

372. Basic non-ferrous metals -6.847* -0.86987** -0.50165** 0.2464 -0.5793** -0.41554*

381. Fabricated metals -2.983*** -0.12522 0.25497 0.0611 -0.1681 -0.19453*

382. Machinery -5.235* -0.63134 -0.30170 0.0842 -0.4850 -0.17973*

383. Electrical machinery -3.647** -0.01469 0.12622 0.0171 -0.0168 0.08812***

384. Transport equipment -3.603** -0.25997 0.03519 0.0011 -0.2694 -0.12383*

385. Professional and scientific prod. -4.441* -1.30797 -0.10336 0.0107 -1.1854 -0.03044

390. Other manufacturing products -3.144* 0.46541 0.23057 0.0525 0.6049 -0.02613

*: Significant at 1%. **Significant at 5%. ***Significant at 10%.

Critical values for ADF test: No trend. One lag. -3.75 (1%). -3 (5%). -2.63(10%)a: No constant. No trend. Two lags. -2.66 (1%). -1.95 (5%). -1.6(10%)


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figure is statistically significant (three at 5 percent and one at 10 percent). For these five industries,however, the models explanatory power as indicated by the coefficient of determination isextremely low. The industries, for which the estimated values of are statistically significant, areless in number and roughly correspond to those for which the long-run rate is significant. The only

industry with a reasonably high coefficient of determination (0.246) and significant persistence(-0.58) is the basic non-ferrous metals industry. This result is in line with the classical argumentthat the rates of incremental return among industries do not exhibit persistent differentials.

7. Conclusion

The aim of this study is to test the two different perceptions of the competitive process in acapitalist economy: the neoclassical hypothesis of equalizing convergence and the classical

process of tendential equalization. As discussed above, while the former is based on the theoryof perfect competition, the latter is based on a conception of a competitive process, whichessentially takes place when the dormant lifelessness of perfect competition is disturbed.

The fundamental point of distinction between the two is captured by the concept of regulat-ing capital. This concept is incorporated into the empirical analysis through the distinction

between inter- and intra-industry competition as well as introducing the incremental rate ofprofit as opposed to an average indicator of profitability. The partial adjustment model is usedto contrast the results of the average and incremental rates of profit. The comparison suggeststhat the persistence of the rate of profit differentials among industries is clearly discernablefor the average rate of profit and totally lacking for the incremental rate of profit. This in turnsuggest that, for the Turkish manufacturing industries between the years 1980 and 2000,the competitive process as perceived by the classical/Marxian approach was in place and theconsequential tendential equalization was realized. The detected persistence in case of the

average rate of profit, on the other hand, is in line with previous studies by Yurtolu (2004)and Kaplan and Aslan (2008). These results offer grounds for discussion on a number of

points.First, the results clearly give support to the classical/Marxian literature of empirical investiga-

tion of capitalist competition by providing evidence from the Turkish manufacturing industries.Second, the empirical findings regarding the contrast between the results for average and

incremental rates of profit contribute to the revealing of the theoretical distinction between theclassical/Marxian and neoclassical conceptions of the competitive process, at least by addinganother case to the empirical literature.

Third, although the comparative analysis can give direct support only to the different conse-

quences of the two approaches in empirical studies, but not to the theoretical superiority of oneover the other, given the implied necessity of the existence of capitalist competition obvious foreven the most unrefined observation of the general and long period realities of capital accumula-tion, i.e. the fall and rise of different industries, concentrated or not, the classical/Marxianapproach proves to be the most appropriate in explaining the actual process.

Last but not least, it is quite common in the academic heterodox literature as well as criticalpolitical writing to define the Turkish economy as monopoly capitalism. Starting with the veryconstruction of the Turkish bourgeoisie by the Republican era (1923-32), the fact that capitalaccumulation has been directly and/or indirectly assisted by the state fed the legitimacy ofadopting the template of monopoly capital in explaining the Turkish case. Furthermore, theview led by the huge literature on the inefficiency of the import substitution strategy of indus-trialization, which Turkey had adopted in 1962 and liquidated in 1980, with all the shenani-gans about rent seeking, financial deepening, getting the prices right, and so on, has beencuriously carried to the plane of the critique of Turkish capitalism in a fashion almost identicalto the strange Marxian analysis based on imperfect competition. The rise of the conglomerate


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Bahce and Eres 219

firms on the foundations of post-tatism private capital accumulation also strengthened thispersuasion. The setup was ready and there when capital struck back in 1980. The partial liqui-dation of the conglomerate structures and rise and fall of different industries of the economyhave not been enough on the side of the left to seriously question the concept of monopoly

capital. Many studies, although acknowledging the mentioned liquidation and irrelevance ofcertain aspects of this approach, still retain the idea of dominance of monopolistic structuresin the Turkish economy.21Among other things, they do so by referring to a mountain of studies

based on quantitative analysis of market power and concentration. Our results constitute asignificant challenge to this view.

Appendix 1

Spearman and Kendall Rank Correlation Tests for ROP and IROP

ROP IROP

Spearman Kendall Spearman Kendall

1980 0.8566 0.7037 1983 1 1

1981 1 1 1984 -0.0345 -0.0053

1982 0.9715 0.8677 1985 -0.2841 -0.1905

1983 0.9059 0.7725 1986 -0.2222 -0.1852

1984 0.8659 0.7249 1987 -0.0038 -0.0053

1985 0.8872 0.7566 1988 -0.2124 -0.1534

1986 0.8424 0.6878 1989 0.2195 0.1429

1987 0.8128 0.6614 1990 -0.4187** -0.3016**

1988 0.8281 0.6508 1991 -0.1407 -0.0847

1989 0.8161 0.6349 1992 -0.1117 -0.0952

1990 0.8741 0.7143 1993 -0.2999 -0.2169

1991 0.8615 0.6825 1994 0.3448*** 0.2434***

1992 0.8309 0.6667 1995 -0.2239 -0.1852

1993 0.8144 0.6455 1996 0.0531 0.0529

1994 0.6995 0.5344 1997 0.1034 0.0741

1995 0.6623 0.5185 1998 -0.1779 -0.1481

1996 0.7926 0.6243 1999 -0.3169 -0.2381***

1997 0.7433 0.5767 2000 0.0471 0.0423

1998 0.7258 0.5608 2001 0.0952 0.0688

1999 0.7953 0.6138

2000 0.8112 0.6296

Note: All the test statistics are significant at 1%, for ROP series**: Significant at 5%, for IROP series***: Significant at 10%, for IROP seriesUnmarked: Statistically insignificant, for IROP series

21Among many, two recent studies which exemplify this attitude and unconscious loyalty to the over-

whelming influence of the monopoly capital theory are Ekiz (2010) and ztrk (2010). Ekiz, after an

almost complete critique of superfluous duality between perfect competition and monopoly in Marxian

lines, employs the basic tenets of theories of monopoly capital and tools of imperfect competition for

addressing the Turkish cement industry. ztrk on the other hand goes further to use the concept of finance

capital in analyzing the Turkish economy, in the course of which he more or less successfully points out

certain shortcomings of the approach.


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A.2. Figure 1.Average Rates of Profit in Mean Deviation Form (1980-2000).a baExcluding 314 (tobacco) and 353 (petroleum refineries), for both of which the average rate of profit in mean devia-tion form takes positive and extraordinarily large values for the whole period.bThe figures are presented here to signify the different behavior of average and incremental rates in general; it is not

possible to follow individual industries from the figures. Thus, the full legend is not given to save space and avoid un-necessary information. It is available from the authors upon request.

A.2. Figure 2.Incremental Rates of Profit in Mean Deviation Form (1983-2001).ccExcluding 353 (petroleum refineries)

Appendix 2


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Bahce and Eres 221

Acknowledgments

During the course of writing this paper, we greatly benefited from the comments and suggestions from the

participants of the first URPE roundtable session on alternative theories of competition at the 36thEastern

Economic Association annual meeting, and Ankara University, Economics Department seminars. We areindebted to Seil A. Bahe and Ahmet H. Kse for their invaluable comments on earlier drafts. We would

also like to thank the editorial review board of theRRPEfor their comments and suggestions that greatly

improved the presentation and the content of the paper.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or

publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

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