Review of Radical Political Economics

http://rrp.sagepub.com/ Competing Paradigms of Competition: Evidence from the Turkish Manufacturing Industry
Serdal Bahe and Benan Eres Review of Radical Political Economics 2013 45: 201 originally published online 21 September 2012 DOI: 10.1177/0486613412458650 The online version of this article can be found at: http://rrp.sagepub.com/content/45/2/201

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458650
Political EconomicsBahce and Eres

RRPXXX10.1177/0486613412458650Review of Radical

Competing Paradigms of Competition: Evidence from the Turkish Manufacturing Industry

Serdal Bahe1 and Benan Eres2

Review of Radical Political Economics 45(2) 201224 2012 Union for Radical Political Economics Reprints and permissions: sagepub.com/journalsPermissions.nav DOI: 10.1177/0486613412458650 rrpe.sagepub.com

Abstract This study aims at the empirical investigation of the different conceptualizations of competition with the data available for Turkish manufacturing from 1980 to 2001. The analysis specifically takes into account the classical/Marxian view of competition, which rigorously recognizes the dynamic and turbulent nature of capitalist competition and is based on the concept of regulating 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 to regulating capital is taken as the basis for establishing what is actually equalized in the course of 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 shows significant persistence in most of the industries, the incremental rate does not.These results are in accordance with the classical/Marxian long-run center of gravity dynamics. JEL Classications: B12, B51, D41, D49, L10, L60 Keywords competition, classical/Marxian theory, neoclassical theory, regulating capital, persistence of prot rate differentials, incremental rate of prot, Turkey.

1. Introduction
Competitive process lies at the heart of almost all theoretical investigations of the market economy. Classical/Marxian, neoclassical, Keynesian, and many other explanations of how the market economy operates all depend upon a conceptualization of competitive process (McNulty 1967, 1968; Semmler 1984a; Tsaliki and Tsoulfidis 1998). However, the subtle differences
1 2

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

Date received: November 14, 2010 Date accepted: January 17, 2012 Corresponding Author: Benan Eres, Department of Economics, Faculty of Political Sciences, Ankara University, Ankara, Turkey. Email: eres@politics.ankara.edu.tr

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between the understandings of competition developed by these different traditions have farreaching consequences in the resulting interpretation of processes of price formation, distribution, 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 assumes to 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 an actual 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 dynamic nature of capitalist competition. Equalization, on the other hand, is characterized by the processes 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. As Shaikh 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 to the old higher cost techniques. Thus the decisions made, and hence the competitive process itself, in general create a turbulent environment as opposed to a calm and gradual adjustment towards a dormant state as implicitly visualized by the theory of perfect competition. Another point distinguishing the two conceptualizations is related to the distinction between inter- and intra-industry competition. According to the classical/Marxian conceptualization the two have very different effects (Shaikh 2008; Hollander 2008: 28-38). The warlike environment of competition among firms operating in the same line of business has a tendency for rate of returns 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 equalization through the movement of capital in and out of different industries in the quest for higher returns. The general view of the neoclassical approach is well known to rest mostly on behavioral analysis. The firm, whether representative or not,1 is the central focus. However, firm-level empirical investigations are prone to fail in differentiating between inter- and intra-industry competition (Glick and Ochoa 1990). This distinction has also another significant aspect to it. The firm-level analysis is open and mostly resorts to the so-called quantitative theory of competition (Weeks 1981). The number and/or the magnitudes of the firms in a line of business are taken as the immediate and most significant indicators of degree of competition. However, the inter-industry perception has also an advantage over the firm-based neoclassical approach in recognizing the possibility of increase in the degree of competition in means of more efficient flow of funds from low return to high return industries within the same large firms, operating in different lines of business (Clifton 1977). Later non-orthodox conceptualizations of capitalist competition, starting from the development of the idea of imperfect competition in the 1930s following Sraffas attack on the neoclassical concept of perfect competition, have been from the beginning arrested by their reliance

That 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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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 placed on a spectrum between two polar states of perfect competition and monopoly. These models of imperfect competition still do not directly address the nature of capitalist competition as it is experienced in the real world and conceptualized by the classical/Marxian tradition. All of the states are defined as contrasted to a perfectly competitive ideal. Consequently, what they devised is simply a gradual and relative series of states of markets each taking its place in an order of how much, and to a lesser extent how, competition is hindered. In this sense, the heterodox approaches to capitalist competition, although developed as a response to the implausibility and incompetence of the theory of perfect competition, fail to acknowledge the fact that the actual act of competition is but to hinder competition at the expense of rivals.2 However masterly these models have been developed, they still cannot reflect the dynamic nature of competition as tendential regulation around a center of gravity. Furthermore, the heterodox models of imperfect competition inherit their clearly defined states of equilibrium from their point of departure, i.e. the perfectly competitive 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 the classical/Marxian (as well as neoclassical) process of competition without any reversal. This is central to the theoretical core of neo-Marxism. Postwar economic stability, with centralized and concentrated capital objectified in large conglomerate firms as the central agent, gave way to a view 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 theoretical reassessment in which the price formation has no longer any connection to what classical economists 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 left wing ranks of the developmentalist intellectuals of the developing world. But unlike wildfire, it has a long lasting legacy which assumes a priori the monopolistic structures as the central tenet of understanding and evaluating the development of world capitalism. Although it has been challenged to a great extent by the world economic crisis of the 1970s, at the maturing period of which the typical concentrated firm started to crumble almost everywhere (Botwinick 1993), the following neoliberal period has still been characterized by concentrated markets by many left leaning analysts with special reference to monopoly capital. Certainly the increasing influence of transnational companies on the one hand, and financialization of the world economy at a historically 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 conceptualization constitutes a compounded characterization. In other words, it is not conceptually relevant and meaningful to differentiate between the dynamic and turbulent nature

The heterodox approaches mentioned do not include the Austrian variant. The Austrian schools distinctive 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 dynamics 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 treatment 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/Marxian concept of competition different from neoclassical and other heterodox approaches is its acknowledgment of the ugly nature of the competitive process as the usual course of capitalist 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 dynamism is the result of this process. Thus, without liberating the perception from its dependence on the fantasy of perfect competition, any approach, through utilizing this and that technique, addressing simply the dynamic and/or turbulent nature of the competition, will still be incapable of reaching factual conclusions. With this point in mind, however, in the survey of literature and addressing the empirical investigations of the competition, the distinction between dynamic and turbulent nature may prove useful. The next section briefly summarizes the literature on a specific line of investigation undertaken since the late 1980s for testing theoretically defined competition. These studies improve the mainstream analysis by acknowledging at least the dynamic aspect 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 of profit rate differentials, which is based on a time series analysis as contrasted to the static crosssectional analysis of the relation between market-power and profitability, opened a field of investigation (see Glick and Ehrbar (1990) for a very brief survey of the literature before Muellers contribution). A volume has been edited by Mueller (1990) containing a number of articles 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) for Turkey; Gschwandtner (2005) and Cuaresma and Gschwandtner (2008) for the United States, McMillan and Wohar (2009) for the UK;4 Geroski and Jacquemin (1988) for France, Germany and 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 United States; among others. Although there are considerable differences between each study, they commonly recognize the persistence of the rate of return differentials along considerable time

The 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). 4 Cuaresma 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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spans and try to explain and reconcile the empirical findings with theory. In most of these studies, 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 of testing 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 convergence, the only conclusion that could be drawn from the results, in a neoclassical theoretical setting, is but lack of competition. It is clear from these interpretations that the studies do not theoretically recognize that the persistence of rates of return may as well point out that there is lively competition going on, as argued above. Furthermore, borrowing from the literature of imperfect competition, two broad explanations for persistence were basically made: the industry approach, which assumes identical cost structures, and the firm approach, which allows for cost competition 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 significantly 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 theory of imperfect competition.6 These studies have great superiority over the cross-section investigation of the causal relation between certain quantity indicators of market power and profitability. Testing for the equalization hypothesis is centered on the question of equalization of the average rates of return among firms. They address the dynamic nature of competition to a certain degree. However, their expectations from the results of the models reflect their theoretical reliance on perfect competition as their standard, and imperfect competition as the alternative interpretation. Also their failure to differentiate 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 could be tested.7 The latter has been undertaken with careful reference to the distinction between two approaches 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

The 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 in the analysis. However still, what they can answer further is how much imperfect competition is in one economy or industry as compared to others. 6 Shaikh (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. 7 However, 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 theoretical point of reference is regulating capital which captures the idea of dynamic turbulence (Shaikh 2008). To this end, the partial dynamism of Muellers methodology is improved by two modifications. 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 opposed to 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 embody the best-practice conditions of production (Shaikh 2008: 167). Accordingly, one might expect from the rates of returns on such investments, at industry level, to have dynamic tendential equalization, rather than the average rates of return, which takes both vintage capital and new investment into consideration. To sum up regarding the critique of the existing literature with reference to the two modifications, testing for equalization with average rates at firm level actually tests for a 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. Time series analysis that covers a period from 1982 to 2000 is conducted. The level of analysis is the 3-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 further enables us to test for both the neoclassical rate of return equalization hypothesis and classical conceptualization of competition, and develop a complementary interpretation of the results. Before presenting the data and the model used, the next section addresses developments in the Turkish economy for the period under consideration and discusses the validity of the period and unit 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 months before, and initiated immediately after the September 1980 military takeover. The motto was getting the prices right (Boratav, Yeldan, and Kse 2001). That meant dissolution of the structures, regulations, and institutions of the previous era of import substitution industrialization. The first move was trade liberalization accompanied by a huge devaluation and the introduction of 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 as governed more and more by market forces. Consequently, competition should be expected to make its existence felt gradually stronger during the period. In other words, the Turkish economy from the 1980s onward constitutes an appropriate environment for the investigation of validity of different understandings of competition. This study does not cover the whole economy but only the manufacturing industry. The primary reason for this is the availability of appropriate data. The secondary reason is related to the differences between competitive processes in reproducible and non-reproducible product industries (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 in the former the lowest-cost regulates price formation (as argued above), in the latter highest-cost regulates price formation (Botwinick 1993; Bina 2006; Hollander 2010). The manufacturing

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industry constitutes the most compact set of reproducible product industries, and choosing it enables the inquirer to avoid this distinction. Still, it is important to point out that taking only the manufacturing industries made the analysis somehow limited to the extent that it does not account 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 nonmanufacturing industries. One important development during the period under consideration, regarding capital mobility between the two, is the new and commonly observed feature of increased financialization of the capitalist process of accumulation. This development has been mostly held responsible for taking funds away from productive industries (Gezici 2007; Demir 2007, 2009). It is clear that financialization and other such developments that have overall effects on the manufacturing industry do not necessarily have direct effects on the mobility of funds among industries unless they specifically create persistent differences in means of access to liquidity and relative relief from uncertainty across different manufacturing industries. On the contrary, Cliftons argument concerning the increase in competition due to improved and more efficient channels of funding (Clifton 1977) is also applicable to the financialization argument 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 withered away through movements of capital, there is no immediate need to take such developments into 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 level abstract aspects of imperfect competition, it is a lot more reasonable to trace the explanation in concrete historical developments that have direct effects on capital accumulation, such as financialization, deregulation, privatization, and opening up of the economy. We leave such important 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 introduces the model that is used to test for the equalization hypotheses. The last section reports the results 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 Shaikhs simple definitions. The choice of the indicator of profitability or rate of return, average or incremental, has certainly significant effect on the analysis (for the comparison of the performance of different indicators, see Glick 1985; Glick and Ehrbar 1988). Shaikh and Christodoupoulos explain their choice with reference to the simplicity and availability of the data. This choice also has 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 of capital stock tied to production (Shaikh 1997: 395, 2008: 174). In the literature there are other further deductions from the numerator, such as interest payments and rent payments. For such a study the criterion for adopting such deductions is simply whether these payments out of profits differ among industries due to legal or natural barriers for access to certain resources (cheap credit, scarce natural resources, etc.) that would hamper competition. It is impossible from the data to ascertain such distinctions. In many studies the size of the firm and whether it is a part of a 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 may be exploiting certain resources at the expense of others. This does not translate into inter industry persistence of such advantages. Thus, we are content with the suggested version of the rate of profit and use it as the average rate of return for the manufacturing industries: ROPit = Pit VAit Wit NTit = (1) K it K it

where Pit stands for profits of industry i at time t, while Kit is the total capital stock of the same industry. VAit shows the gross value added. Wit is the total wage payments of industry i at 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 manufacturing plant (for the whole population). A distinction is made between non-operating income and operational profits, and value added does not include non-operating income. The data were compiled according to the ISIC Rev. 2 classification up until 2001.8 The compiled results are available in the Turkish Annual Manufacturing Surveys (AMSs). The lack of industry level capital stock data compatible with the AMS data made the calculation of the profit rate cumbersome. In order to get the capital stock of the industry i at time t, we multiplied the total capital stock of the manufacturing industries (Kit) with the corresponding industrys share in total horse power usage (HPit): K it = K t HPit (2)

The total manufacturing capital stock figures are from Eres (2005), which is an expanded version of the series calculated according to the perpetual inventory method (OECD 2001) by Cihan, 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 rate of return on investments in the best-practice conditions of production, i.e. the return on regulating 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 is simply the ratio of the incremental amount of profit to the corresponding change in the capital stock, namely to the gross investment of the previous period: IROPit = Pit Pit 1 I it 1 (3)

Here Iit-1 is the investment level in industry i at time t-1 and IROPit is the incremental rate of profit. The investment data are again from the AMSs. We deflated the variables, except capital stock, by industry output price deflators (1994=100) provided in the surveys. The capital stock is deflated by the investment price indices provided in Cihan, et al. (2005).

Since 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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5.The Model
In order to question the validity of the rate of return equalization hypothesis, we will follow a procedure 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 differentials follows. These two steps, in their logical order, try to question first whether the profit rate differential exists in the long run and short run, and consequently, if it exists, whether there is a countertendency of equalization via investment (capital flows). In order to find the answers to 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:

mit = mt + i + it (4)

Above, mit denotes the (average or incremental) rate of return of sector i at time t, while mt is the industry-wide rate at time t, or mean (average or incremental) rate for the whole manufacturing industry.9 i represents the industry-specific component of rate of return which deviates the industry rate from the industry-wide rate. The industry-wide rate also reflects the cyclical and trend components which have been equally common for all the sectors. In this context, the magnitude of and any change in this component are irrelevant to our discussion. The basic concern here is the deviation from this component. For this, equation (4) can be rearranged to reflect the relation between the industry deviation and industry-specific components:

it = mit mt = i + it (5)

In the above equation, it is 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 shocks generally do persist for more than one period and this makes the assumption of E(it) = 0 questionable. Therefore, it is reasonable to assume that it has an autoregressive process in the first order:10

it = i it 1 + uit (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

There 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. 10 By using the Schwartz-Bayesian Information Criterion (SBC), we looked for the appropriate order for the autoregressive process up to order 3. For ROPit series, 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.

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convergence coefficient should be less than 1 and uit ~ N(0,2).11 Combining (5) with (6) yields the following equation: it = i (1 i ) + i it 1 + uit (7)
^

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

t = + t 1 + ut (8)

In the long run, if the assumption that competition drives all rates to the same level is true, then the series of industry mean deviation rates should converge to zero. In order to find the convergence 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 random shock; i.e. uit 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 signifi12 cantly not different from zero, whereas s are equal to zero. This means that there are no industry-specific conditions which result in the deviation of the industry profit rate from the industry-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 industry is different from zero. In this case, the degree of deviation also depends on the convergence ^ coefficient, . 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 industrywide average will get smaller. We estimate (8) for both average (ROP) and incremental (IROP) rates of profit in their mean deviation form as outlined in equation (5). By using ROP series, we aim at questioning the validity of the rate of return equalization hypothesis. Then, by using the IROP series, which is accepted to reflect the classical theory of competition, we test for the validity of tendential equalization.

6. Results 6.1.The Average Rate of Profit

Figure 1 shows the industry-wide average rate of profit in mean deviation form, between 1980 and 2000. It roughly shows the trend of the average from which the industry rates

The 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:
2 1 Var ( ) = Var ( ) + (1 ) 2 1

11

1 Var () + 2 2 1 (1 )

Cov(, )

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

deviate. As the figure indicates, the average rate shows oscillations throughout the 1980s and displays 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 banking crisis while the decline in 1999 should be accounted for by the prolonged effects of both the Russian and the East Asian crises. However, it should be noted that this figure should not be taken as the general picture of the pace of profitability in the Turkish manufacturing industries. 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).13 These longer-run studies point out a declining trend with significant cyclical volatility. The post-1980 period is characterized as the revival of profitability, largely attributed to the capital friendly restructuring of the economy, whereas the early 1990s marks the end of distributional bias against labor which is reflected in the drastic fall of profitability. Manufacturing sector profitability, on the other 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 in 1996. 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 standard deviation of the rate of profit.14 The mean rates for 21 industries are negative while the remaining eight industries show positive deviation. Tobacco manufactures industry (314) has the largest 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 average rate of profit in mean deviation form. With significant deviations from the industry-wide

13

There 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). 14 Petroleum 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.

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Table 1. The Statistical Properties of Average Rate of Profit (ROP) in Mean-Deviation Form and Ranking of Industries. Industry 311. Food Animal feed and other food prod. 312.  313. Beverage 314. Tobacco 321. Textiles 322. Wearing apparel 323. Leather 324. Footwear 331.  Wood and cork products 332. Furniture and fixtures Paper and paper products 341.  342. Printing and publishing 351. Industrial chemicals 352. Other chemicals Petroleum and coal products 354.  355. Rubber 356. Plastic products 361.  Pottery, china and earthenware 362.  Glass and glass products 369.  Other non-metallic mineral prod. 371. Basic iron and steel 372.  Basic non-ferrous metals 381. Fabricated metals 382. Machinery 383.  Electrical machinery 384. Transport equipment 385.  Professional and scientific prod. 390.  Other manufacturing products Mean -0.250 -0.270 0.521 2.590 -0.237 0.346 -0.279 -0.112 -0.365 -0.204 -0.376 0.249 -0.290 0.388 0.519 -0.239 -0.275 -0.058 -0.135 -0.354 -0.364 -0.353 -0.182 -0.165 0.082 -0.122 -0.042 -0.022 Standard Deviation 0.071 0.074 0.237 1.502 0.061 0.404 0.080 0.204 0.079 0.094 0.096 0.288 0.097 0.243 0.179 0.075 0.066 0.127 0.111 0.084 0.109 0.109 0.057 0.082 0.106 0.080 0.491 0.118 1981 Ranking 13 19 3 1 17 6 20 23 27 10 26 7 16 4 2 24 28 12 5 21 22 25 14 15 8 11 18 9 1990 Ranking 21 19 2 1 16 4 20 22 27 14 25 5 24 6 3 18 17 8 10 26 28 23 15 12 7 11 13 9 2000 Ranking 18 17 2 1 19 11 22 10 24 13 26 6 23 3 4 21 20 14 16 25 28 27 15 12 7 9 8 5

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

Although our data start with the year 1980, we preferred to take 1981 as the benchmark year. With culminating 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 manufacturing industry had continued to experience severe import shortages throughout most of 1980.

15

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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 ranking among 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 in mean 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 four times during the 20-year period. This suggests that the average rate of profit does not reflect the turbulent nature of competition as suggested by the classical approach.18 This result is in line with the argument that the competitive process operates on the return to regulating capital rather than on the average rates of return in the industry. It is also not surprising to find out that those industries with persistently positive values of deviation are traditionally concentrated sectors.19 Table 2 gives the estimation results for equation (8) by using ROP series. The second column gives 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 statistically significant for 21 industries. is significant also for 21 industries. The mean of the convergence coefficient of all the industries is 0.477 and 12 out of 28 industries have higher than average convergence coefficients. It is interesting to note that this average figure for the convergence coefficient is a lot more like developed economies as compared to developing economies, the results for which are compiled and presented in Glen, et al. (2001). The highest convergence coefficient is of the other chemicals industry (0.8165), while the transport equipment industry has the lowest value (0.09211) in absolute terms. The sixth column gives the estimated long-run average rates of profit (see equation (9)). These long-run values are overwhelmingly statistically significant except for four industries.20 The long-run rates for seven industries are positive and the highest value belongs to the tobacco industry. The last two columns give the ranking of the sectors according to the long-run profit rates and the profit rates in 1981. The mean change of position from the ranking in 1981 to ranking according to the long-run profit rate is nearly 3.29 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 had changed 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 persistent long-run average rate of profit differentials and these differentials prevented any radical alteration in profit hierarchy in the Turkish manufacturing industry. These results confirm the
16 17

The results of the Spearman and Kendall rank correlation test are provided in the appendix (A.1). These 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. 18 The same result can also be observed from Figure 2 in appendix 2 (A.2). 19 These are (313) beverage, (314) tobacco, (352) other chemicals, (353) petroleum refineries, (354) petroleum and coal products industries. There are a number of studies on classification of the industries according 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 threshold that makes use of the same survey data. 20 These are wearing apparel industry (322), footwear industry (324), professional and scientific products industry (385), and other manufacturing industries (390).

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Table 2. Estimation Results for Industry Average Rate of Profit in Mean Deviation Form.
Industry 311. Food 312.  Animal feed and other food prod. 313. Beverage 314. Tobacco 321. Textiles 322. Wearing apparel 323. Leather 324. Footwear 331.  Wood and cork products 332. Furniture and fixtures 341.  Paper and paper products 342.  Printing and publishing 351. Industrial chemicals 352. Other chemicals 354.  Petroleum and coal products 355. Rubber 356. Plastic products 361.  Pottery, china and earthenware 362.  Glass and glass products 369.  Other non-metallic mineral prod. 371. Basic iron and steel 372.  Basic non-ferrous metals 381. Fabricated metals 382. Machinery 383. Electrical machinery 384. Transport equipment 385.  Professional and scientific prod. 390.  Other manufacturing products ADF -3.495** -3.662** -2.652*** -2.381*** -3.376** -1.359 -2.100 -1.772***a -4.328***b -3.122** -3.733**b -3.336** -2.715*** -4.518*b -4.912* -2.319 -2.766*** -2.042**a -1.813 -4.260**b -3.659**b -3.180***b -2.909*** -1.824 -2.749*** -3.875* -2.410**a -3.411** -0.19712* -0.19509* 0.24531 0.31581*** R
2

1981 Ranking Ranking 19 21 2 1 17 5 22 11 25 16 28 6 23 4 3 18 20 10 14 24 27 26 15 13 7 12 9 8 13 19 3 1 17 6 20 23 27 10 26 7 16 4 2 24 28 12 5 21 22 25 14 15 8 11 18 9

0.067 -0.26119* 0.137 -0.28513* 0.191 0.203 0.099 0.603 0.226 0.506 0.438 0.090 0.567 0.085 0.335 0.683 0.021 0.142 0.135 0.164 0.52136* 2.85487* -0.24993* 0.33559 -0.30025* -0.10482 -0.39697* -0.20652* -0.43006* 0.27381* -0.32394* 0.48890** 0.51170* -0.25180* -0.28318* -0.07026

0.29339** 0.43726*** 1.50291** 0.47356** -0.17658 0.29348 0.06931 0.79347* ** -0.14358 0.52181** -0.03041 0.70984* -0.15655** 0.60565* -0.14473* 0.29919 -0.12458** 0.71031* 0.19725** 0.27960 -0.15358* 0.52591* 0.08971 0.81650* * 0.58576 -0.14473 -0.14448* 0.42620*** -0.17631** 0.37738*** -0.03969 0.43509*** -0.05512** -0.17203** -0.12589** -0.12317** -0.11321* -0.05243*** 0.05166*** -0.11243* -0.01427 -0.02338 0.70947* 0.55418* 0.70601* 0.70359* 0.41801*** 0.70828* 0.41378*** 0.09211 0.53126** 0.10503

0.521 -0.18972** 0.334 -0.38588* 0.500 0.544 0.195 0.521 0.173 0.009 0.283 -0.42820* -0.41554* -0.19453* -0.17973* 0.08812*** -0.12383* -0.03044

0.009 -0.02613

Notes:a 3 lags. No constant [critical values -2.66(10%). -1.95(5%). -1.6 (1%)] b No trend [critical values -4.38 (10%). -3.6 (5%). 3.24 (1%)] *: Significant at 1%. **Significant at 5%. ***Significant at 10%.

above mentioned tentative analysis regarding the statistical properties of the average rate of profit. 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 relation 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 and indicators of market power and possible determinants of productivity. Now, we turn to the statistical properties and the estimation results for the incremental rate of profit, which shows a fundamentally different picture.

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Table 3. The Statistical Properties of Incremental Rate of Profit (IROP) in Mean-Deviation Form and Ranking of Industries. Industry 311. Food 312. Animal feed and other food prod. 313. Beverage 314. Tobacco 321. Textiles 322. Wearing apparel 323. Leather 324. Footwear 331. Wood and cork products 332. Furniture and fixtures 341. Paper and paper products 342. Printing and publishing 351. Industrial chemicals 352. Other chemicals 354. Petroleum and coal products 355. Rubber 356. Plastic products 361. Pottery, china and earthenware 362. Glass and glass products 369. Other non-metallic mineral prod. 371. Basic iron and steel 372. Basic non-ferrous metals 381. Fabricated metals 382. Machinery 383. Electrical machinery 384. Transport equipment 385. Professional and scientific prod. 390. Other manufacturing products Mean -0.250 -0.180 0.179 4.841 -0.600 -0.244 0.579 0.640 -0.238 1.098 0.071 -0.529 -0.325 0.095 -0.576 -0.067 -0.323 -0.424 -0.532 -0.815 -0.575 -0.561 -0.049 -0.517 0.108 -0.240 -1.236 0.667 Standard Deviation 1.555 2.641 4.062 18.006 1.002 2.520 2.304 4.268 2.163 8.248 2.951 1.762 2.651 1.505 4.021 2.115 1.002 1.508 1.123 1.147 1.747 1.825 1.331 1.557 1.644 1.692 5.632 3.247 1983 Ranking 26 2 4 28 16 8 10 14 17 20 11 18 19 24 3 1 25 13 22 23 5 12 9 21 6 15 27 7 1990 Ranking 7 28 25 2 16 17 27 23 21 13 15 6 26 10 12 20 11 18 19 14 24 22 9 1 3 4 8 5 2001 Ranking 17 24 5 1 11 6 3 28 22 27 13 18 2 23 26 15 20 21 25 12 8 16 10 14 7 19 9 4

6.2.The Incremental Rate of Profit

The incremental rate of profit, as compared to the average rate, exhibits a significantly different behavior. Table 3 summarizes the statistical properties of the incremental rate of profit in mean deviation form for 28 industries. The first striking difference is the relatively high levels of standard deviation as compared to the average rate in mean deviation form. While there is only one industry (tobacco and tobacco products) whose standard deviation is larger than one for the average rate, standard deviation figures for the incremental rate are larger than one without exception. Some industries have extremely high standard deviations, such as the manufactures 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

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

oscillations in the incremental rate in mean deviation form. Furthermore, the last two columns of Table 3 provide good evidence for a continuous shift in structure of hierarchy among manufacturing industries. The Spearman and Kendall tests provided in appendix 1 support this conclusion. For the Spearman test there are only two years (1990 and 1994) for which the values are statistically significant (at 5 percent and 10 percent levels, respectively). And for the 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 narrow band within which the oscillations take place presents rough evidence for the specific nature of the 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. Contrasting Figure 2 (A.2) to the same graph for the average rate of profit Figure 1 (A.2) reveals the behavioral difference of the two. Calculations show that there is no single industry whose incremental rate in mean deviation form does not alternate in sign. Out of 29 industries (including petroleum refineries 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 approach expects from an indicator of return on regulating capital: it has turbulent dynamics around a center of gravity. There are two lines of furthering results for the ROP presented above in the literature. The neoclassical view either immediately jumps to the conclusion of imperfect competition as opposed to perfect competition regarded as the natural course of markets, or further investigates for 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 built upon the same persuasion that imperfect competition rules the capitalist markets. On the other hand, the second line of thought rests mostly on the risk differentials among industries that would account for the persistence of profit rate differentials. This line tries to explain the persistence while still clinging to the validity of the classical competitive process. Our study takes the classical/Marxian view, the empirical application of which is formulated by Shaikh and repeats

Bahce and Eres

Table 4. Estimation Results for Industry Incremental Rate of Profit in Mean Deviation Form.
Industry ADF -0.18127 -0.44996 0.12805 5.56433 -0.66730** -0.45616 0.57188 0.82118 -0.26861 1.70812 0.01112 -0.62229 -0.61072 0.16039 -0.75122 -0.34494 -0.14762 -0.59719 -0.50413 -0.80395** -0.85995** -0.86987** -0.12522 -0.63134 -0.01469 -0.25997 -1.30797 0.46541 -0.18552 -0.18510 -0.42356*** 0.22364 -0.05582 -0.41612*** -0.02926 -0.18708 -0.13791 -0.38336 0.06474 -0.17566 -0.46002*** 0.04746 0.05437 -0.12027 0.58352** -0.37872 0.03609 0.00352 -0.24181 -0.50165** 0.25497 -0.30170 0.12622 0.03519 -0.10336 0.23057 R2 0.0330 0.0394 0.1824 0.0378 0.0029 0.1797 0.0008 0.0306 0.0174 0.1437 0.0041 0.0281 0.1655 0.0018 0.0030 0.0206 0.2360 0.1261 0.0009 0.0000 0.0679 0.2464 0.0611 0.0842 0.0171 0.0011 0.0107 0.0525
^ (IROP)

217

^ (ROP)

311. Food -4.722* 312.  Animal feed and other food prod. -5.184* 313. Beverage -6351* 314. Tobacco -2.754*** 321. Textiles -4.047* 322. Wearing apparel -6.372* 323. Leather -4.018* 324. Footwear -4.513* 331.  Wood and cork products -4.394* 332. Furniture and fixtures -5.912* 341.  Paper and paper products -3.690** 342. Printing and publishing -4.554* 351. Industrial chemicals -5.653* 352. Other chemicals -3.381** 354.  Petroleum and coal products -3.814** 355. Rubber -5.406** 356. Plastic products -1.648***a 361.  Pottery, china and earthenware -5.530* 362.  Glass and glass products -3.146** 369.  Other non-metallic mineral prod. -3.851* 371. Basic iron and steel -5.542* 372.  Basic non-ferrous metals -6.847* 381. Fabricated metals -2.983*** 382. Machinery -5.235* 383. Electrical machinery -3.647** 384. Transport equipment -3.603** 385.  Professional and scientific prod. -4.441* 390.  Other manufacturing products -3.144*

-0.1529 -0.3797 0.0899 7.1672 -0.6320** -0.3221 0.5556 0.6918 -0.2361 1.2348 0.0119 -0.5293 -0.4183 0.1684 -0.7944 -0.3079 -0.3545 -0.4331 -0.5230*** -0.8068** -0.6925** -0.5793** -0.1681 -0.4850 -0.0168 -0.2694 -1.1854 0.6049

-0.26119* -0.28513* 0.52136* 2.85487* -0.24993* 0.33559 -0.30025* -0.10482 -0.39697* -0.20652* -0.43006* 0.27381* -0.32394* 0.48890** 0.51170* -0.25180* -0.28318* -0.07026 -0.18972** -0.38588* -0.42820* -0.41554* -0.19453* -0.17973* 0.08812*** -0.12383* -0.03044 -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%)

the same analysis with incremental rates instead of average rates. In other words, in order to evade 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 equation (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 from Table 4 the coefficients of determination are very low, indicating that the relation between the current incremental rate and its lagged level is not meaningful for almost all the industries. This suggests that the model that attributes an intertemporal relation between past and present values of the deviations for the industries is unable to explain the actual facts. In other words, the magnitude of deviation 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 incremental rate of profit, on the other hand, there are only five industries for which the estimated long-run

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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 is extremely low. The industries, for which the estimated values of are statistically significant, are less 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 argument that 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 a capitalist economy: the neoclassical hypothesis of equalizing convergence and the classical process of tendential equalization. As discussed above, while the former is based on the theory of perfect competition, the latter is based on a conception of a competitive process, which essentially 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 regulating 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 of profit as opposed to an average indicator of profitability. The partial adjustment model is used to contrast the results of the average and incremental rates of profit. The comparison suggests that the persistence of the rate of profit differentials among industries is clearly discernable for the average rate of profit and totally lacking for the incremental rate of profit. This in turn suggest 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 the consequential 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 investigation 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 the classical/Marxian and neoclassical conceptions of the competitive process, at least by adding another case to the empirical literature. Third, although the comparative analysis can give direct support only to the different consequences of the two approaches in empirical studies, but not to the theoretical superiority of one over the other, given the implied necessity of the existence of capitalist competition obvious for even the most unrefined observation of the general and long period realities of capital accumulation, i.e. the fall and rise of different industries, concentrated or not, the classical/Marxian approach 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 critical political writing to define the Turkish economy as monopoly capitalism. Starting with the very construction of the Turkish bourgeoisie by the Republican era (1923-32), the fact that capital accumulation has been directly and/or indirectly assisted by the state fed the legitimacy of adopting the template of monopoly capital in explaining the Turkish case. Furthermore, the view led by the huge literature on the inefficiency of the import substitution strategy of industrialization, which Turkey had adopted in 1962 and liquidated in 1980, with all the shenanigans about rent seeking, financial deepening, getting the prices right, and so on, has been curiously carried to the plane of the critique of Turkish capitalism in a fashion almost identical to the strange Marxian analysis based on imperfect competition. The rise of the conglomerate

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firms on the foundations of post-tatism private capital accumulation also strengthened this persuasion. The setup was ready and there when capital struck back in 1980. The partial liquidation of the conglomerate structures and rise and fall of different industries of the economy have 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 of certain aspects of this approach, still retain the idea of dominance of monopolistic structures in the Turkish economy.21 Among other things, they do so by referring to a mountain of studies based on quantitative analysis of market power and concentration. Our results constitute a significant challenge to this view.

Appendix 1 Spearman and Kendall Rank Correlation Tests for ROP and IROP
ROP Spearman 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 0.8566 1 0.9715 0.9059 0.8659 0.8872 0.8424 0.8128 0.8281 0.8161 0.8741 0.8615 0.8309 0.8144 0.6995 0.6623 0.7926 0.7433 0.7258 0.7953 0.8112 Kendall 0.7037 1 0.8677 0.7725 0.7249 0.7566 0.6878 0.6614 0.6508 0.6349 0.7143 0.6825 0.6667 0.6455 0.5344 0.5185 0.6243 0.5767 0.5608 0.6138 0.6296 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 IROP Spearman 1 -0.0345 -0.2841 -0.2222 -0.0038 -0.2124 0.2195 -0.4187** -0.1407 -0.1117 -0.2999 0.3448*** -0.2239 0.0531 0.1034 -0.1779 -0.3169 0.0471 0.0952 Kendall 1 -0.0053 -0.1905 -0.1852 -0.0053 -0.1534 0.1429 -0.3016** -0.0847 -0.0952 -0.2169 0.2434*** -0.1852 0.0529 0.0741 -0.1481 -0.2381*** 0.0423 0.0688

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

Among many, two recent studies which exemplify this attitude and unconscious loyalty to the overwhelming 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.

21

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a Excluding 314 (tobacco) and 353 (petroleum refineries), for both of which the average rate of profit in mean deviation form takes positive and extraordinarily large values for the whole period. b The 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 unnecessary information. It is available from the authors upon request.

A.2. Figure 1. Average Rates of Profit in Mean Deviation Form (1980-2000).a b

A.2. Figure 2. Incremental Rates of Profit in Mean Deviation Form (1983-2001).c

c

Excluding 353 (petroleum refineries)

Bahce and Eres Acknowledgments

221

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 36th Eastern Economic Association annual meeting, and Ankara University, Economics Department seminars. We are indebted 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 the RRPE for 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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Author Biographies
Serdal Bahe is an Assistant Professor of Economics in the Department of Public Finance of the Faculty of Political Sciences at Ankara University, Turkey. He teaches public economics, public finance, and graduate level microeconomic theory. His research interests include political economy of energy and taxation, and class-based income distribution. He obtained his BS in computer engineering, and PhD in economics from the Middle East Technical University. Benan Eres is an Assistant Professor of Economics in the Department of Economics of the Faculty of Political Sciences at Ankara University, Turkey. He teaches economic growth, development economics, and graduate level political economy. His research interests include the political economy of competition and technological development, and the economics of the profit rate. He obtained his BA in economics from the Middle East Technical University, and PhD in economics from the University of Utah.