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Posted by Radical Notes July 11, 2008 at 11:21 am in Finance, USA, Imperialism, Economy
Sam Gindin and Leo Panitch
It is time to take stock. The centrality of the American economy to the capitalist world – which now literally does encompass the whole world – has spread the financial crisis that began in the U.S. housing market around the globe. And the emerging economic recession triggered in the U.S. by that financial crisis now threatens to spread globally as well.
Capitalism has had an incredible run – politically and culturally as well as economically – since the stagflation crisis of the 1970s. The resolution of that crisis required, as economists put it at the time, ‘reducing expectations’ of the kind nurtured by the trade union militancy and welfare state gains of the 1960s. This was accomplished via the defeats suffered by trade unionism and the welfare state since the 1980s at the hands of what might properly be called capitalist militancy. This was accompanied by dramatic technological change, massive industrial restructuring alongside labour market flexibility and the over – all discipline provided by ‘competitiveness.’
That discipline brought with it an enormous increase in economic inequality, the spread of permanent working class insecurity and the subsumption of democratic possibilities to profitable accumulation. But this did not mean capitalism was no longer able to integrate the bulk of the population. On the contrary, this was now achieved through the private pension funds that mobilized workers savings, on the one hand, and through the mortgage and credit markets that loaned them the money to sustain high levels of consumer spending on the other. At the centre of this were the private banking institutions that, after their collapse in the Great Depression, had been nurtured back to health in the postwar decades and then unleashed the explosion of global financial innovation that has defined our era.
The question begged by the current crisis is whether capitalism’s capacity to integrate the mass of people through their incorporation in financial markets has run out of steam. That the fault line should have appeared in ’sub-prime’ mortgage loans to African-Americans is hardly surprising – this has always been the Achilles’ heel of working class incorporation into the American capitalist dream. But an economic earthquake will actually only result if there is a devaluation of working class assets in general through a collapse of housing prices and the stock and bonds in which their retirement savings are invested.
The state and financial crises
We are by no means there yet. The role being played to prevent just this by the Federal Reserve, very much acting as the world central bank in light of the global implications of a U.S. recession, should once and for all dispel the illusion that capitalist markets thrive without state intervention. It was through the types of policies that promoted free capital movements, international property rights and labour market flexibility that the era of free trade and globalization was unleashed. And this era has been kept going as long as it has by the repeated coordinated interventions undertaken by central banks and finance ministries to contain the periodic crises to which such a volatile system of global finance inevitably gives rise.
The Fed has repeatedly poured liquidity into its financial system at the first sign of trouble. The question is whether the capacity of the system to go on integrating ordinary Americans though the expansion of investor and credit markets in this way has reached its limit. This was indeed suggested by the Bush administration’s sudden (non-military) Keynesian turn with a $150 billion fiscal stimulus. However, that fiscal stimulus at the federal level may be undone at the state level, especially with municipal government cutbacks, given their massive dependence on property taxes. The way financial institutions that specialized in selling risk insurance on municipal bonds were enveloped in the credit crisis has further compounded the problem. This indeed brings to mind the extent to which it was municipal governments that were on the front lines of the Great Depression.
But while the U.S. may very well move into a recession, which even when it ends may mark the beginning of a new era of slower growth, this is very different from a Depression. While there is no doubt that mortgages in black communities and for the working poor more generally will be tightened, it seems most likely that banks, competing for markets, will continue to extend credit to working families more generally. we need to remember that the top twenty per cent and their families are extravagant consumers. While growing inequalities are grotesque, the left has consistently underestimated the extent to which the rich can sustain overall spending. The ‘correction’ in the dollar (alongside the strength of U.S. manufacturing in the higher-tech sectors) has already led to offsetting growth in markets abroad; U.S. exports have been growing at double-digit rates over the past few years.
Finally, the U.S. state may revive its capacities for substantive infrastructural spending, if only to stimulate the construction industry now that the housing boom is over. Indeed, even from the perspective of competitiveness and accumulation there is a long-neglected need to rebuild U.S. infrastructure – as the collapsed levies of New Orleans and the collapsed bridges of Minneapolis dramatically showed. The type of state intervention that brought us financial globalization is not well suited to this, but this crisis may finally force some renewal of state capacities in this respect, even within the overall framework of neoliberalism.
Finance and Neoliberalism
There is an understandable tendency on the left to take hope in capitalism’s current dilemmas. The extreme liberalization of finance (and along with it the era of neoliberalism) seems discredited. Finance today appears as no more than high-flying speculation – absurdly wasteful and ultimately not sustainable. U.S. corporations remain profitable, but with the credit crunch, who will buy the goods? Discredited as well, it therefore appears, is the U.S. capacity to keep its own house in order, never mind lead the process of globalization. Yet before we assume that the openings created by this crisis place us on the verge of a matching new oppositional politics, we need a more careful reading of our times. While the new openings provide the space for a new politics, we need to soberly appreciate the problematic link between such openings and a radical response.
To begin with, as immoral and irrational as finance might seem, financialization has been absolutely essential to the making and reproduction of global capitalism. Second, the growing consensus that finance must be re-regulated is hardly an attack on finance or neoliberalism more generally. Rather, it is about the engineering of finance so it can continue to be ‘innovative’ in the service of both itself and non-financial capital. Third, whatever problems the U.S. currently faces, its dominance will not fade because of a crisis in housing or a lower exchange rate; it does us no good to underestimate the staying power of the American capitalist empire.
It is not only finance but capitalism in general that rests on speculation. Behind a new firm or a new product rests the ’speculation’ that it can be sold at a cost and price that generates profit. Behind the distinction between finance and the ‘productive sector’ is therefore something else: the notion that finance speculates in pieces of paper, not in providing goods or real services; it is a parasitic drain on the economy, not a constructive addition to it.
The problem with this line of thinking is that it mistakes what is rational from the perspective of certain moral criteria with what is rational within capitalism. The financial system is necessary to capitalism’s functioning. The discipline finance has imposed in the neoliberal era on particular capitalists and workers has forced an increase in U.S. productivity rates by way of increased exploitation, the more efficient use of each unit of capital, and the reallocation of capital to sectors that are most promising - all from the standpoint of profits, of course.
The penetration by American finance of foreign countries and the inflow of foreign capital into the U.S. has given the U.S. access to global savings, shored up its role as the greatest global consumer and reinforced the U.S. state’s power and options. Especially important, financial markets have come to provide non-financial corporations with mechanisms for managing their risks, and comparing and evaluating diverse investment opportunities in a highly complex global economy. Absent this role, globalization – at least to the extent we have experienced it - would not have been possible. Finally, as emphasized earlier, the ‘democratization’ of American finance has given workers access to finance as savers and debtors, thereby contributing to their integration into, and dependence on, each of capitalism and finance.
This does not mean that the explosion of finance is not a highly contradictory process. Highly volatile financial markets inevitably generate financial crises. Rather, it shifts the question from whether financialization is irrational to whether its contradictions can be managed insofar as the crises can be contained. What working classes do in this context will be crucial to answering this question.
The Dialectics of Regulation
Finance cannot exist without regulation and the U.S. financial sector, even before the latest crisis, was the most heavily regulated of any section of the U.S. economy. In fact, the dynamics of finance cannot be understood apart from how regulation shapes financial competition, how banks and other financial institutions try to escape or reshape that regulation, and the state’s subsequent counter-responses. The current dilemma for American regulatory institutions lies in how to re-regulate finance so as to overcome its costly and dangerous volatility without undermining finance’s needed innovative capacity.
We need to be clear that this is about re-engineering finance to strengthen capital accumulation, not control it in the name of a larger public interest. To place democratic regulation of finance on the agenda would require asking: ‘regulation for what purpose?’ and so would mean going far beyond finance itself. It would mean raising the fundamental question of social control over investment and therefore get to the heart of power in a capitalist society.
In the context of the failed promises of the past quarter century and the current crisis, to see the above issue go completely unmentioned in the Democratic primary debate may not be surprising given the absence of even a trade union campaign around this, but it bespeaks an impoverishment of American politics that in fact goes all the way back to the New Deal. The issue of economic democracy that had been placed on the political agenda alongside the New Deal’s public infrastructure projects was set aside for the remainder of the century after the FDR administration’s self-described ‘grand truce with capital’ in the late 1930s.
It will, therefore, not do to resort to the abstractions and obfuscations of calling for ‘re-regulation’ or a ‘new, new deal.’ It is the undemocratic power of private control over investment that needs to be put on the agenda.
American Empire in Crisis
Four particular aspects of the limited fall-out from the present crisis demand more serious reflection on the left. First, the fact that this crisis surfaced in the context of strong profits and low debt loads in the non-financial sector is important, and this accounts for the limited damage thus far.
Second, it is notable that despite the IMF calling this the most serious banking crisis since the Great Depression, we have not seen a series of banks failures. This is certainly linked to the interventions of the U.S. Fed, but it also speaks to the strength of private U.S. financial institutions. In no other country could such a crisis have unfolded without massive financial bankruptcies.
Third, it is especially worthy of note that no major state saw an opportunity in the crisis to challenge or undermine the American state. Rather, their integration into global capitalism meant that they identified this crisis as their crisis as well. They effectively recognized the U.S. central bank as the world’s central bank and cooperated with it in coordinating internationally repeated provision of liquidity to the banks. As in the previous instances of financial crises during the 1980s and 1990s, this reproduced and extended the American state’s leading role in managing global capitalism.
The fourth, and most important factor is the remarkable ‘imperial flexibility’ the U.S. has by virtue of the weakness of its working class. Had, for example, U.S. workers insisted on higher wages to compensate for rising food and oil prices and the devaluation of their homes and taken advantage of the competitive space offered by a falling dollar, the Fed would have had to cope with the fear of inflation and this might have meant higher rather than lower interest rates. And that could very well have aggravated the crisis and risked a financial meltdown. But rather than the working class demanding more, it in fact showed restraint or, in the case of the autoworkers, accepted the greatest concessions the union has ever made.
The more important question is, therefore, not the economics of crisis but its politics. How will the working class respond to the crisis? If credit continues but becomes more costly; if the loss of private pensions, negotiated health care, and the devaluation of homes force people into having to reduce consumption to shore up their savings; if food and oil prices leave less discretionary spending – if this is the near-term future, will workers rebel? Or will workers once again tighten their belts to preserve what is left from their past gains? And if frustrations are expressed politically, will the politics be limited to a longing for the good-old days before the crisis or before Bush?
Absent what Alan Sears, at the recent Great Lakes Graduate Students Conference at York, called ‘an infrastructure of resistance’, any opposition that does surface is most likely to be localized and contained rather than built on. A coherent alternative is no just a set of economic policy proposals but a political movement that can develop the popular appreciation and capacities for radical democratic control over investment. There should be no illusion that a recession, or even a depression, will necessarily bring the issue of economic democracy back onto the U.S. political agenda. It would require a transformation of American politics to do so – and that, like the current economic crisis, would as well have global implications.
Sam Gindin teaches political economy at York University.
Leo Panitch teaches political economy at York University and is editor of The Socialist Register.
Courtesy: The Bullet
Posted by Radical Notes May 26, 2008 at 12:49 pm in Poverty, Economy
A growing middle-class is considered to be an indicator of prosperity. According to one of the proponents of the neoliberal capitalist euphoria in India, Gurcharan Das (India Unbound) - “the most striking feature of contemporary India is the rise of a confident new middle class”. According to him the middle-class in India is 20% of the population now, obviously under the impact of “open economy”. Further, “If our country’s economy grows 7% over the foreseeable future and if the population increases annually by 1.5%, if the literacy rate keeps rising and if we assume the historical middle-class growth rate of the past 15 years, then half of India will turn middle class between 2020 and 2040. Das concludes that “to focus on the middle class is to focus on prosperity. This is unlike in the past, when our focus has been on redistributing poverty. This does not mean that we are becoming callous. On the contrary, the whole purpose of the enterprise is to lift the poor — and lift them into the middle class”. And how is this growing middle-classness measured? Obviously the measurement “is ownership of consumer products”.
If the secret of the billionaires’ wealth is not more gadgets and things at home, but their ability to control over the majority’s means and conditions of production, then why should more gadgets and things at home be the parameters of judging the poor’s poverty? Even if we find consumerism rising - with new gadgets cropping up in the home of the new poor, it only increases her material and mental destitution and dependence - this is not a sign of enrichment. Absolute Poverty (not just relative poverty with growing divide between rich and poor, which is generally recognised) is increasing, as people are more and more dispossessed, alienated from their means of production, losing control over the conditions of production and reproduction. It was in this sense that Marx saw “Labour as absolute poverty; poverty not as shortage, but as total exclusion of objective wealth”. It is “labour separated from all means and objects of labour, from its entire objectivity”.
In fact, does not the following story published in The Times (May 19, 2008) show THE END OF THE MIDDLE CLASS in the ‘centre’ of world capitalism (even by the standards of bourgeois economists)?
Soaring food prices have led to a growing number of middle-class New Yorkers joining an unusual organisation that “dumpster dives” in rubbish bins for food.
The trash tours form part of a growing movement called “Freegans”, which is rapidly increasing in popularity as New Yorkers find it harder and harder to make ends meet.
Freegans – a name derived from the words “free” and “vegan” – sift through garbage cans and bin bags in the evenings looking to find edible food and discarded items such as shelving or kitchen appliances that can be reused.
Janet Kalish, a high school teacher from Queens and member of the freegan.info movement, which organises dumpster dives and trash tours, told The Times that the numbers were increasing. “We are seeing more people dumpster dive – some people who were not in a position before to worry about food prices and now they have to. We are seeing more people come on our trash tours,” she said.
Ms Kalish said that freegans did not sift through household rubbish – “that really is garbage, you know, half-eaten food and old food” – but through the refuse of New York’s fast-food businesses such as Dunkin’ Donuts, Starbucks, Pret a Manger and the supermarket chains D’Agostino and Gristedes.
“The companies tend to put leftover food in black plastic bags on the sidewalk at about 9 in the evening. About an hour later, the garbagemen come and take it away. We try to get there first. It is not as shocking as it sounds. Once food is in the garbage, it’s just a big bag of food.
“Because it is on the kerb, it’s not on private property so there’s no issue of trespassing,” she added.
Ms Kalish, who said that she did not know how many Freegans there were in New York, insisted that she had never been ill because of food reclaimed from bins, but added that she would always tell new dumpster divers never to touch meat. “It could have gone off and, besides, meat is always more dangerous.” Another freegan, who declined to be named, said: “I’ve always taken five or six packets of sandwiches on my way home from work from the Pret a Manager near the office. There’s nothing disgusting about it. They are sealed sandwich packets. I put them in my bag, eat one myself, offer them to colleagues or friends and give them to homeless people on the subway on the way home. Food is so expensive now, I can’t afford not to. I reckon I save myself $50 [£25] a week from dumpster diving and going through the garbage.”
Ms Kalish added: “Bananas are a real find. You open the bag and you can’t believe what you are seeing – maybe 100 beautiful bananas that have been thrown out probably because the store got a new shipment in and this lot weren’t as fresh.”
Over the past two years Americans have had to contend with soaring food and fuel prices triggered by increased demand for ethanol, the clean biofuel.
Washington has pumped subsidies to American farmers as an incentive to grow grain for producing ethanol, which is made from fermenting corn. As the price of grain rose, the cost of maintaining dairy herds rocketed. Milk prices have doubled in America since 2006, the cost of grain has soared and the rising price of oil has increased distribution costs for other types of food such as fresh fruit and vegetables.
This month, Wal-Mart, the world’s biggest retailer, was forced to ration long-grain rice to protect supplies. It said that businesses such as restaurants were hoarding the grain because they were anxious that the price would continue to rise.
Harvard University estimated last year that Middle America was suffering its worst financial hardship since the 1950s as families were forced to struggle with rising food and fuel costs, tightening credit conditions, sliding residential property prices and soaring healthcare premiums.
Posted by Radical Notes March 23, 2008 at 10:03 pm in Economy
Rick Wolff
The intimate partnership between mainstream economics and right-wing ideology has long trumpeted the wonderful efficiency of markets. In these partners’ fantasy, markets are truly wondrous coordination mechanisms that perfectly match the supply of goods and services to what buyers demand. All this happens, they say with immense self-satisfaction, without the intervention of any government or collective authority (which would, they insist darkly, abuse the power to make such interventions). It must be difficult for these partners now to contemplate how markets first produced and then spread the current financial disasters across the globe.
US markets began the process in 2000 by rapidly generating many more home mortgages and mortgage-backed securities than before. Profit-driven mortgage brokers greatly increased the number of home mortgages. Profit-driven banks saw huge fees in converting these mortgages into securities and selling them to investors in financial markets around the world. To do that, the banks entered the market for security ratings and paid the providers of these, corporations like Moody’s and Standard and Poor’s, to supply high ratings. The rating companies complied and made huge profits in that market. The banks also purchased insurance policies (”guaranteeing” these mortgage-backed securities’ principal and interest payments) in the market for them. The insurance companies made much money selling those policies.
No conspiracy was needed to produce the real-estate bubble nor its current, devastating implosion. Just the normal workings of profit-driven markets sufficed to do the job.
Meanwhile, the labor market in the US since 2000 kept real wages from rising. So, many workers could not keep up their mortgage payments, especially when the market prices for food and fuel soared. They stopped their mortgage payments. The banks, hedge funds, and others who had purchased the highly-rated, insured mortgage-backed securities discovered that the market had sold them bad investments. Trying to sell these bad investments, they discovered that there were few buyers. Mortgage-backed securities’ prices collapsed. That’s how markets work. The lowered prices of mortgage-backed securities reduced the wealth of the banks, hedge funds, and other investors around the world who still owned them. The collapsing market for mortgage-backed securities commenced to terrorize all the world’s financial movers and shakers starting in the second half of 2007.
When banks, hedge funds, and wealthy investors get hurt, they immediately use markets to try to shift the pain onto others. Banks sought to recoup losses from their bad investments by withdrawing credit from individuals and businesses and/or charging more for the loans they provided to them. In economic language, the mortgage-backed securities’ collapse was spread to the credit markets generally. And that brought the disaster to credit-dependent individuals and businesses that had had nothing to do with mortgages or real estate. The market mechanism thus spread terror to vast new populations.
As credit markets extended the mortgage-backed securities disaster, via constricted credit to other borrowers, those borrowers had in turn to reduce their purchases in the consumer and capital goods markets. The linked markets proved to be a very effective mechanism enabling the mortgage-backed security crisis to provoke an economy-wide recession in the United States. Since the US is the largest market in the world for commodities produced everywhere, its recession will spread — by means of the market — to produce economic turmoil and suffering globally. The world’s markets comprise a terror network, a system for producing economic disaster and delivering it to every corner of the planet.
Much like other kinds of religious fundamentalism, market fundamentalism — the dogma that markets guarantee efficiency and prosperity — has wrecked economies and lives. Plato and Aristotle explained the dark side of markets thousands of years ago. They and countless others since then have shown how and why markets repeatedly destroy the bonds of community and undermine social cohesion. Yet the market fundamentalism of recent decades blinded leaders and many followers to the known failures of markets. They and we will now pay a heavy price for their blindness.
I am not saying that markets must never be used as ways to distribute some products and some productive resources. That would simply be a reverse fundamentalism. Rather, lets recognize that markets have strengths and weaknesses and act accordingly. Just as we know government intervention and planning needs checks and balances to avoid its pitfalls, markets need all sorts of checks and balances to avoid their horrors. The worship of markets “free” from constraints and controls is bad witchcraft the world can no longer afford.
In any case, markets, whether controlled more or less, are not our economy’s only basic problem. How markets work is shaped by how we organize production. Our economic system organizes production in ways that do more damage than markets. Production occurs mostly in corporations run by boards of directors (usually 15-20 individuals). Those boards receive the profits made from the goods and services produced by the workers. Those boards decide what to do with those profits. Those boards manipulate markets to enhance their profits and to maintain their position atop the corporate system. In contrast, the workers — the majority in every enterprise — do not get the profits their labor produces nor have they any say in what is done with them. In the market as organized by boards of directors, workers get too little in wages and pay too much in prices.
This system places conflict and conflict of interests right in the heart of production. Boards of directors work to get more out of workers while paying them less; the workers want the opposite. What a way to organize production!
Class conflict on the job spills over into markets. “Reforms” imposed on markets in the wake of their current meltdown will fail if we do not change the organization of production. Suppose we reorganized production so that those who produce the goods are also those who receive the profits and decide on their use. Suppose in this way US workers achieve what polls show they want — to be their own bosses on the job. Suppose every job description obliges the worker holding that job to participate in collective discussion and decision on how to use the enterprise’s profits.
As their own bosses, workers could effectively insist that markets be just as controlled and limited to serve the majority as corporations and governments should be.
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Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006).
Posted by ravikumar December 19, 2007 at 11:53 am in International Relations, Economy
Rick Wolff
Capitalism is. The leftists who target neoliberal globalization denounce privatization, free markets, unfettered mobility of capital, and government deregulations of industry. They propose instead that national or supra-national governments control and regulate market transactions and especially capital movements, increase taxes on profits and wealth, and even own and operate industry. “All in the interests of the people,” they say, democratically.
Yet Marx’s critique of capitalism never focused on government regulations, interventions, and state-owned industries. They were never his solutions for the costs, injustices, and wastes of capitalism. Instead, Marx targeted and stressed capitalism’s “class structure” of production. By this he meant how productive enterprises were internally organized: tiny groups of people (boards of directors) who appropriated a portion — the “surplus” — from what the laborers produced and the enterprise sold. Marx defined such surplus appropriation as “exploitation.” And, as Marx said, capitalist exploitation can exist whether those appropriators are corporate boards of directors (private capitalism) or state officials (state capitalism).
Marx opposed capitalism’s exploitative class structure of production on political, ethical, and economic grounds. He preferred a communist alternative where productive workers functioned as their own board of directors, collectively appropriating and distributing the surpluses they produced. Equality and democracy, he argued, required the abolition of exploitation as a necessary condition of their realization.
Capitalism as a system has always and everywhere gone through phases, repeated swings between two alternative forms. Private capitalism is the neoliberal, “laissez-faire” form: government intervention in economic affairs is minimized, and individuals and businesses interact largely through voluntary market exchanges. The other form is state-interventionist, “social democratic,” welfare-state capitalism: government manages the economy by regulating what the private capitalists can do or by sometimes even taking over their enterprises to turn business decisions into government decisions.
Every few decades, in every capitalist country, whichever of these two forms has been in place runs into serious economic difficulty. Workers lose jobs, incomes decline, enterprises fail, and so on. The cry arises that “something must be done.” Those feeling the least pain and making good money prefer to let the existing form of capitalism correct itself. Those hurting the most and losing money demand more drastic change. When this second group prevails politically, the existing form of capitalism is ended and the other installed. A few decades later the same drama is played out in reverse.
When a booming private capitalism in the US hit a stone wall in 1929, the country shifted over into welfare-state capitalism. When the 1960s and 1970s produced crises in that welfare-state capitalism, the country shifted over to private capitalism (neo-liberalism). Now, after thirty years of globalized private capitalism yield proliferating difficulties, too many leftists have joined the chorus that sees the only solution in yet another swing back to welfare-state capitalism. The legacy of Coolidge and Hoover was overthrown by FDR’s chorus. The legacy of the New Deal was overthrown by Ronald Reagan’s chorus. The Reagan-Bush legacy may now be overthrown by Clinton, Obama, et al. Such phased reversals between capitalism’s two forms occur nearly everywhere, varying only with each country’s particular conditions and history.
As forms, private and state capitalism are oscillating phases of the capitalist system. When one phase cannot solve its problems, the solution has been a shift to the other phase. Thus, crises of capitalism have so far avoided provoking the alternative solution of a transition out of capitalism. Yet that transition was precisely Marx’s goal. He aimed to persuade workers that oscillations between state and private capitalism were not the best solutions to capitalism’s failings, at least not for workers.
Many leftists today catalog the awful results of 25 years of neoliberal dominance: economic and social crises punctuating ever deeper inequalities of wealth, income, and power across and within most nations. They cite the burst investment bubbles, unsustainable debt explosions, collapsed credit markets, threats of recession, crumbling social services, unsafe commodity production, and so forth. They propose “solutions”: governments — national or maybe now supranational — must be recalled by a democratic upsurge to their proper role. Governments should limit, control, regulate, or replace private capitalist enterprises in the interests of the people.
This way of thinking repeats the left’s mistakes in the 1930s. Then, when private capitalism had imploded into the Great Depression, deteriorating conditions turned most Americans against the likes of Republican Herbert Hoover and toward Democratic FDR. A new era of government economic intervention took the name, Keynesian economics. However, New Deal Keynesianism always left in place the private boards of directors of the capitalist corporations that dominated the US economy. Those boards remained as the receivers of the surplus produced by their workers — the corporations’ “profits.” They used those profits to grow the corporations, to make still more profits, to pay higher salaries to top officers, to influence politics, and so on.
Welfare-state capitalism in the US imposed taxes, regulations, and limits on — and mass employment alternatives to — those private corporations. But by leaving their boards of directors in place as the receivers and dispensers of corporate profits, the welfare state signed its own death warrant. The boards of directors had the desire and the means to undo the welfare state. It took them a while to change public opinion and build a rich and powerful movement led by business to achieve their goals. In the Reagan administration and since, enabled by a crisis of the welfare state in the 1960s and 1970s, they succeeded in switching the US and beyond back to a phase of private capitalism we call “neoliberal globalization.”
Understandably, many people cannot see beyond capitalism’s two phases or the debates, struggles, and transitions between them. But leftists who see no further — who criticize neoliberal globalization and advocate a warmed-over welfare-state Keynesianism — have abandoned Marx’s critical anti-capitalist project. They have become just another chorus for yet another oscillation back to the welfare state form of capitalism.
The working classes need and deserve better than that, now more than ever.
Rick Wolff is Professor of Economics at University of Massachusetts at Amherst. He is the author of many books and articles, including (with Stephen Resnick) Class Theory and History: Capitalism and Communism in the U.S.S.R. (Routledge, 2002) and (with Stephen Resnick) New Departures in Marxian Theory (Routledge, 2006). He contributes regularly for Monthly Review.
Posted by Dipankar Basu July 7, 2007 at 1:49 pm in Labour, Economy, India
In an article in the Business Standard a couple of months ago, economic commentator T N Ninan pointed to some of the important emerging trends in the Indian economy, what he called the “mega trends”. In his words, these trends deserve to be called “mega trends” because they “cannot easily be reversed, have large ripple effects, and … therefore will define the future”. While these “mega trends” are important for throwing up interesting empirical regularities, these can be equally well, if not better, understood within a Marxist paradigm, a paradigm built on looking at reality from the perspective of labour. Adopting the perspective of labour is important for another reason: it allows us to see the incompleteness, the one-sidedness of bourgeois economic analysis. It is only by complementing Ninan’s “mega trends” with some important but neglected trends that are often invisible to bourgeois economists (which I merely point to at the end) that we can get a better understanding of the evolution of Indian economy and society.
The first trend - “acquiring of scale” in Ninan’s words - refers to the growing “concentration and centralization” of Indian capital, a process that inevitably accompanies the development of capitalism. The growth of concentration and centralization is leading to the much talked about growth of “self-confidence” of Indian capital, buttressed no doubt with incursions into foreign territories. As Ninan points out, Indian capital was acquiring “three overseas companies a week, through 2006.”
The second trend - “spread of connectivity and awareness” according to Ninan - refers to the technological development accompanying the growth of capitalism; Ninan limits himself to the technological developments in the communications sector but it can easily be extended to other sectors of the economy too. But there are several important reasons to focus on the transportations and communications sector. First, an increasing efficiency of communications and transportations is essential for a smooth and efficient completion of the numerous “circuits of capital”; the increasing volume of surplus value being generated in the economy needs well functioning circuits of capital to be realized into profit. Second, technological development of the communications technology, especially information technology, is important for the establishment of the networks through which finance capital exerts its influence over the economy. Third, and related to the earlier, is the necessity of swift and reliable communications to support all the processes that facilitates the “concentration and centralization of capital”.
The third trend - “the growth of the middle class” in Ninan’s analysis - if put into proper perspective, refers to two things: (1) the increasing inequality that inevitably comes along with the growth of capitalism, and (2) the changing nature of the Indian working class. What Ninan refers to as the “middle class” is really the fraction of the Indian working class (though it does not want to see itself as part of the working class) that acquires high wage employment in the “leading” sectors of the economy by acquiring skills useful for capital.
The fourth trend - what Ninan calls the “growing problems of growth” - refers to the serious environmental problems created by a regime dominated by the logic of capital accumulation. As the problem of global warming caused by increasing concentrations of greenhouse gases in the Earth’s atmosphere has come into focus, it has become clear that cosmetic changes and technological solutions will not be enough to deal with the whole range of environmental problems under capitalism. What will be required is a wholesale, radical socio-economic transformation, in other words, a transition to socialism. It will become increasingly important for radical political forces representing the interests of capital to come to grips with this issue in India and other underdeveloped economies undergoing rapid (dependent) capitalist development.
The fifth trend - “India’s growing openness to the world” according to Ninan - refers to the growing penetration of the Indian economy by imperialist capital; being supplemented by the growing “export of capital” from India to foreign economies, the two together points to the growing “interpenetration” of imperialist and Indian capital and the incorporation of the Indian capitalist class into the global ruling bloc. The penetration of imperialist capital underlies the oft-forgotten “dependent” nature of the capitalist development in India, a capitalism which cannot, almost axiomatically, benefit the majority of the population.
The sixth trend - what Ninan sees as “the continuing dominance of youth” - refers to the demographic backdrop of capital accumulation in India. The fact that a large proportion of the population will be part of the workforce (if they manage to get employed at all!) will mean that huge reserves of labour will be readily available for capital to exploit and extract surplus value. It will be a long time before these reserves dry up and increasing wages start eating into the profit rates, a process that seems to have already started in China.
It is not, as Ninan asserts, that these “mega trends” will “define” the future in a mechanical sense; it is rather the case that these trends will define the framework within which the class struggle will unfold. For it is the class struggle which will ultimately “define” the future of India. But even in the sense of defining the framework of class struggle, Ninan’s characterization is inadequate because it leaves out labour from the picture, other than in a marginal sense. How will India’s working class evolve over the next few years or decades? What are the trends, working silently but decisively, that can be observed in the evolution of the Indian working class? To even attempt to pose this question adequately, one will have to look at the agricultural sector of the Indian economy and all the forms of labour associated (directly or indirectly) with it. Ninan, quite remarkably, has nothing to say about the sector of the economy which continues to employ (directly or indirectly) the majority of the working people in India!
Posted by Dipankar Basu July 5, 2007 at 6:21 pm in Finance, USA, Economy
A view that is very popular among the votaries of capitalism rests on the alleged efficiency of the financial markets of a “well functioning” capitalist economy. Financial markets, it is claimed, provide the prime mechanisms for channeling funds from savers to the most efficient investment projects, thereby increasing the overall efficiency of the economy. Lack of well-developed financial markets are often interpreted as markers of underdevelopment and economic stagnation. That this is not always the case, that financial markets are unusually prone to “irrational exuberance”, that financial booms and busts are part of the regular functioning of financial markets if often forgotten by this fundamentalist viewpoint.
A more nuanced version of this view is marked by a more measured view towards financial markets. Proponents of this view start by asserting that the financial system is composed of two parts: financial markets and the web of interdependent financial institutions. They recognize the fact that financial markets, by themselves, are often unable or unwilling to perform several important functions (like collecting, processing and disseminating reliable information about borrowers; providing liquidity services; offering deposit and check-writing facilities) required for the smooth functioning of an advanced capitalist economy. Hence, they recognize the important role of institutions, especially financial institutions (like commercial banks, insurance companies, mutual funds, etc.), within the architecture of advanced capitalism. But very often they also go on to assert that the financial system works best if left to itself; that government intervention in the financial system creates unnecessary inefficiencies. When confronted with the evidence of endemic instability of the financial system, they argue that crises and problems have led, over the years, to the development of a host of institutions that are capable of dealing with such episodes; it is both unnecessary and undesirable for the State to regulate the financial system, they claim.
A closer look at the history of the financial system in the US - the leading capitalist nation today - will demonstrate that such a view is seriously misleading; the government has always had to intervene to put the financial house in order. In fact one can go further and assert that the financial system cannot properly function without supervision at crucial moments by the State, if not constant supervision. Let me illustrate this with three well-known historical instances when the State had to step in to deal with the endemic instability of the financial system in the US. These historical instances are important, apart from illustrative purposes of this article, for at least two more reasons. One, they are the defining interventions in the financial system of the US; the financial system as we know it today has been largely shaped by these interventions and the institutions created at those moments. Two, they destroy the facile opposition that is often constructed, both by the Right and even some on the Left, between private capital and the State; the State is an institution created to protect the interests of capital as a whole even though, on occasion, it has to act against some capitals (some firms or industries or even some sectors of the economy). These instance demonstrate clearly that even when the State acted against some financial firms or sectors it was doing so to save and strengthen the capitalist system.
The first major instance of government intervention stands at the very foundational moment of the modern financial system in the US. The unregulated banking industry in the US led to massive bank failures in the late 19th century: waves after waves of bank failures where savers lost their deposits and lenders could not borrow to meet their needs; this led the Congress to create the Federal Reserve System (the Central Bank of the US) in 1913.
Within less than two decades we come to the second major intervention: creation of the FDIC. In the late 1920’s, the US economy was into the biggest downturn it had ever faced: the Great Depression. During this traumatic period, there were thousands of bank failures again (along with a huge stock market crash) and confidence in the whole financial system was greatly eroded. The Congress again stepped in to create the FDIC (Federal Deposit Insurance Corporation) which was meant to deal with the problems that the unregulated banking industry could not handle: bank runs.
The third major intervention (also made around the time of the Great Depression) had been to restrict competition in the banking industry (i.e., to force some form of branching restrictions across geographical regions) and also to restrict the areas into which a commercial bank could enter (basically to separate commercial and investment banking to prevent conflict of interest).
The last instance of government intervention is important because over the last few decades, these laws and the supporting institutions have been generally nibbled away at. For instance, the Glass-Steagall Act of 1933 had created a “wall” separating commercial and investment banking; from the 1970s onwards the growing power of finance has been continuously trying to attack and change this very important law. Finally in 1999, the Gramm-Leach-Bliley Financial Services Modernization Act repealed the Glass-Steagall Act!
The effects are already coming to the fore in the form of major banks’ (like J P Morgan Chase’s) involvement in financial frauds and other irregularities (see the Spring 2007 issue of Dollars & Sense). For instance, Chase was one of the banks which had systematically assisted Enron in its accounting frauds. It had also, in its role as an underwriting agent - one of the main functions of an investment bank - sold Enron stocks to the public knowing full well that Enron was in bad shape. This is precisely the kind of “conflict of interest” that the Glass-Steagall Act was meant to take care of. Now that it has been thrown out, we can expect many more instances of such irregularities.
The bottom line is that I do not share in the optimism about the US financial system (which many people seem to harbour), nor do I think that there is any evidence for such optimism. To suggest that the US financial system has managed to take care of the problems of instability is to willfully ignore well-known empirical evidence. Here are a few: the Savings and Loan (S&L) crises through the 1980’s, the wave of bank failures in the late 1980’s, the stock market crash of 1987, the LTCM scandal in 1998 (when the Fed had to step in to bail out a major financial firm), the dotcom bubble and bust, the imminent meltdown in the sub-prime mortgage market …one could go on and on; but let us look a bit more closely at only two of these well-known episodes of financial trouble: the LTCM fiasco and the sub-prime mortgage meltdown currently underway in the US.
LTCM (Long Term Capital Management), a very famous financial firm of the late 1990s in the US had been feted by Wall Street as one of most technologically sophisticated financial firms in existence; after all it had offered close to 40% annual returns for two years in a row and had towering figures from theoretical finance among its founding members. It was a “hedge fund” formed in 1994 and had, among its founder member two Nobel laureates in Economics: Myron Scholes and Robert Merton. Within four years LTCM was on the verge of collapse! More details about the the rise and fall of LTCM can be found here (there are lots of useful references at the end of this article; among others, there is a very nice PBS documentary on the whole episode which is worth watching.)
A little note about “hedge funds” might not be inappropriate at this point. A “hedge fund” is, to be brief and simple, a financial institution which pools the money of a few very rich individuals and then invests it around the world to make huge profits. Membership to hedge funds is not open; it’s stocks don’t trade in the financial markets; it is always very secretive about how it invests and also about who its investors are. Usually the smallest amount of money that is required by an individual to become part of a hedge fund (i.e., an investor who is one of the many whose money has been pooled into the hedge fund) is $1 million. In most cases, it is much higher. If we look at hedge funds from the point of view of ordinary citizens, we cannot escape the well-known (and increasingly well-recognized) fact that they are notorious for creating instability in financial markets, especially in the low and middle income economies. Their huge size and ability to move funds very rapidly gives them undue power and influence over small and medium economies (now even large economies are facing the music of hedge funds), whose macroeconomic stability is severely jeopardized by their investment strategies.
Coming back to the stunning LTCM collapse, it is important to remember that the Federal Reserve Bank of New York had to step in to arrange credit for its bailout. If the Fed had not intervened to bail out the tottering giant, it might have led to a asset price deflationary spiral leading to a string of failing firms and lost jobs and lost output and macroeconomic instability. For the purposes of this essay, it is merely necessary to note that the financial system could not deal with this problem on its own!
Let us now move on to the second story, a story that is still unfolding: the sub-prime mortgage lending crisis in the US. Referring to the sub-prime mortgage meltdown that is currently underway in the US, a recent report by the Centre for Responsible Lending has estimated that more than 1 million low-income families have lost their homes on net (i.e., after accounting for those who have gained home ownership) over the past nine years. Have the banks and financial firms that created this crisis lost much? It is doubtful whether the banks originating the mortgages, the focus of all the attention in the mainstream press, have really lost anything.
Let me remind readers that the “sub-prime” mortgage meltdown refers to the market for mortgage loans (i.e., loans for buying real estate) supposedly for low-income households without good credit histories. The rule of the game, as it evolved over the last decade, was that the house that is bought with the mortgage loan is used as collateral for the loan so that whenever a family fails to make a single monthly payment (there might be a little variation on this), it leads to “foreclosure” and the bank that had made the loan takes possession of the house to recoup its losses.
But why the term “sub-prime”? The attribute of “sub-prime” comes from the fact that most of these loans made on this market are at above-average (much above the market interest rate for mortgages) interest rates and at very onerous terms; the term contrasts this market with the “prime” mortgage market where loans are available at much lower interest rates. In most cases, these “sub-prime” loans are made in bad faith because the concerned families are “convinced” of the suitability of high-interest rate and “coaxed” into the loans at unreasonable terms. More often than not big banks use various kinds of methods to consciously keep out low-income families from the “prime” mortgage market (where they might have got loans at reasonable rates and terms); most of these families, needless to say, are either African-American or Latinos. Once, in this way, these families have been pushed out of the “prime” mortgage market and into the “sub-prime” market, the same banks turn into loan sharks and strip the low-income families to their bones. It is, therefore, hardly surprising that many families are unable to meet the monthly payments of the mortgage and lose their house and most of their life’s savings. That is what has been documented by the Centre for Responsible Lending and that is what is creating havoc in the lives of many working-class Americans.
These are but two small instances of the operation of financial system under advanced capitalism; one can very easily multiply them ad nauseum. The evidence, if one cares to look, strongly suggests that the US (or any other capitalist economy for that matter) will have to learn to live with inescapable instability; these episodes are as much part of life under capitalism as are economy-wide business cycles. Of course, under capitalism, the overwhelming cost of these episodes of financial and other forms of instability will be always borne by the working people. Hence, all political formations claiming to represent the interests of the working people must vociferously argue for the regulation of the financial system without taking recourse to the false opposition between the State and capital.
Posted by Radical Notes June 27, 2007 at 10:20 am in West Bengal, Economy, India
Pothik Ghosh
There was a time when the spectre of communism haunted private property, but times have changed. The spectre of private property haunts communism now. Even as the ‘communist’ government of West Bengal resorted to state terrorism in Nandigram to acquire land from unwilling villagers to jump-start industrialisation for ‘development’, Communist China passed a law that would make right to private property legally enforceable for the first time since the 1949 revolution. The legislation, which is meant to give people a stake in their assets and protect them from a capricious party bureaucracy that has used the proxy of state ownership to dispossess many of them, seems to be a markedly different response to development than that of their CPI(M) comrades in Bengal.
There are, of course, obvious limits to how far the common citizens of China can go with the law. Given the infamous unaccountability of the Chinese state, it’s most likely to be used by its avaricious political elite to legalise its ownership over assets acquired, in the name of the state and public good, by expropriating individual citizens.
Therefore, in terms of the final solution, the responses of the communists of China and West Bengal to the question of ownership have turned out to be not so different after all. The two cases are, however, not strictly comparable. For one, while post-revolutionary China has always been a one-party state, the Left Front has come to power in West Bengal and held on to it by participating in the Indian system of multi-party electoral democracy.
For another, LF-ruled West Bengal has always recognised the legally established form of mixed ownership of property in India. Yet, the vengeance with which the Indian state has often used the principle of eminent domain to dispossess traditional socio-economic communities in order to acquire land for ‘development’ and ‘public good’ emphasises its institutional affinity for the ideology and rhetoric of state socialism. It would, therefore, make perfect sense to historically examine the ’socialist’ discourse on ownership of property.
State ownership cannot truly socialise property because of the way the state structurally is: an alien authority dispensing governance to a passive population. Public ownership of property is thus the ownership of bureaucracies, and ensembles of vested interests. Such institutionalised diminution of public participation by the modern state holds true even in a representative electoral system like India’s.
On the other hand, legally enforceable right to private property, even if it were to exist as a fundamental right, would not lead to a participatory democracy. The dangers that the new Chinese law poses, bears that out. Even as the disintegration of stratified pre-capitalist communities has always led to legalised private property and capitalism, such breakdown has not always yielded by itself even functional democracy.
The link between private property and democracy is much more tenuous than commonly accepted. While the 19th century Prussian model of Junker capitalism - where landlords and companies expropriated the peasantry from above and legalised property so acquired as their own - will certainly not yield democracy; the 19th century US way, where private property was established through the emergence of small-to-medium independent farmers from below, is a case of capitalistic ownership coinciding with the formal democratic project.
It was not without reason that Russian social democrats Plekhanov and Lenin championed the latter, rejected the former (enforced by liberals like Stolypin in Russia), and yet managed to distinguish themselves from the Populists and Narodniks, who opposed Stolypin’s reforms because it destroyed the traditional peasant community. Clearly then, asset redistribution programme was not merely an end in itself for the social democrats. It was of even greater consequence to them precisely because it engendered the possibility of an alternative conception of political power than that embodied by the modern state.
Lenin and his fellow-travellers’ quest, at least till the October Revolution of 1917, was as much socialisation of economic assets as an alternative political structure that was more democratic than any. The reason they envisaged the two together was because they understood the individual’s freedom from the community both as his freedom from the oppressive bonds of the community and from its protection. Their vision was to reconcile the question of individual liberty (rights) with that of communitarian protection (social entitlements). The social democrats knew that only universal empowerment would arm people with the capacity to both facilitate and participate in modern development.
The unfortunate part of the story is that as the movement progressed, the search for an alternative political structure became subordinate to the nature of ownership of property. This was largely because the Bolshevik Revolution, just like other similar Left-led movements that occurred later elsewhere, was forced by the exigencies of modern politics to concentrate on dealing with the might of the pre-revolutionary state and emphasised the seizure of state power as its cardinal goal. As a result, it was rendered incapable of imagining configurations of power outside the framework of the modern state.
The horrors of collectivisation of agriculture in the erstwhile USSR of 1920s must be ascribed to this derailment of political imagination. The alternative cannot, however, be a utopian community of subsistence farmers. Land and capital will have to be consolidated to make both agriculture and the larger socio-economic order more productive and viable. Chinese historian Qin Hui’s is opposed to both the ‘Leftists’, who favour state ownership; and ‘liberalisers’, who are all for privatisation.
In an interview to the New Left Review, the communist dissident has accurately likened the former to Russian Populists and the latter to Stolypin-style liberals. The opposition between the two, as is evident in China and, to a lesser extent, India, is false. They actually complement and fulfil each other. The real issue then is that of finding an alternative political culture and institutional structure, which will drive development through democratic management of the commons.
A modified version of the article was published in The Economic Times
Posted by Radical Notes June 13, 2007 at 3:14 pm in Bangladesh, Economy
S. Nazrul Islam
Economists are famous for making ambiguous, guarded, and qualified statements. However, at times a spade needs to be called a spade. Press reports indicate that the wheels of the government machinery are turning towards an approval of the Tata investment proposal.
This is one such occasion when clear statements need to be made, and here is one statement — the Tata investment proposal is not good for Bangladesh, and neither the current (unelected) nor the future (elected) government should approve it. Since this is not the place for a detailed and technical discussion, I will present 5-points against the Tata investment proposal in the following blunt manner.
Export of gas in embodied form
The Tata investment proposal is basically a proposal to export Bangladesh’s gas in another form. Under this proposal, the gas will be used to produce steel and fertiliser, much of which will be exported to India and other parts of the world.
How can Bangladesh agree to such a proposal when she herself is in dire need of her limited gas reserves to meet current and, in particular, future domestic demand? According to reports, Tata is demanding a 20 year guarantee of gas supply at a concession price.
The Daily Star of May 15 reports that the executive chairman of the Board of Investment (BOI) is advocating Kafco formula as the model to follow in deciding the price at which gas will be supplied to Tata plants.
This is tragic indeed! He should read some of the articles written by Prof. Nurul Islam to know that Kafco has proved, and is proving, a bleeding wound for the government exchequer. Extension of the Kafco formula to Tata will simply increase the bleeding.
The proposed Tata investment is of the predatory type, aimed at taking away the limited amount of non-renewable mineral resource (namely gas and coal) that the country has. It is, therefore, not a good idea.
Very limited employment expansion
The proposed Tata investment will not lead to any sizeable employment expansion, and hence, there will not be any appreciable “trickle down” benefit from this investment. The steel plant, the fertiliser plant, and the power generation plant, are all very capital intensive, employing at best a few thousand people, many of whom will be coming from outside the country.
In a country of 150 million, several thousand jobs will hardly make an impact. Tata investment is not aimed at utilising Bangladesh’s renewable and abundant resource, namely the labour force.
The Tata investment is, therefore, entirely different from foreign investments coming to the garments, textile, and other labour-intensive industries (in SEZ and EPZs) which together are creating hundreds of thousands of job for Bangladeshis.
While Bangladesh may welcome foreign investment aimed at utilising the country’s renewable resource, labour, it should be equally wary about Tata’s predatory proposal. Equating these two types of foreign investments would be a grave mistake for Bangladesh.
Very feeble forward and backward linkages
The Tata investment will benefit Bangladesh very little in terms of forward and backward linkages. The reach and width of the forward linkage is very limited because most of the steel and gas produced will actually be exported to India and other destinations.
There is not much of backward linkage either. All the machineries for the plants will basically come from outside. There will be very little input demand to be met from Bangladesh’s domestic sources, other than, of course, gas and coal.
So, instead of providing a big boost to the entire economy, the Tata plants will remain as an enclave without much of a link with the rest of the economy, an enclave whose main purpose will be to siphon away the country’s mineral energy resources.
Wrong industrial structure
Tata investment will be a step toward a wrong industrial structure in Bangladesh. The other day even Indian Prime Minister Manmohan Singh lamented India’s oligopolistic and government patronage-dependent industrial structure (see The Daily Star of May 14). Being one of the largest industrial houses of India, Tata is the pre-eminent member of this oligarchy.
When India herself is regretting, it will be a grave mistake on the part of Bangladesh to gravitate toward an oligarchic industrial structure by approving the Tata investment proposal.
In the case of Bangladesh, the damage will be all the greater because Tata is a foreign entity. If allowed to go ahead, Tata investment will lead to a lopsided industrial structure dominated by a foreign giant.
This is exactly the kind of industrial structure that Bangladesh should avoid. Bangladesh may, instead, follow Taiwan’s example of fostering a non-oligarchic industrial structure populated by numerous small and medium sized plants and companies.
Taiwan’s non-oligarchic and more competitive industrial structure has served her well, as the comparative experiences of Taiwan and Korea in the face of the Asian financial crisis at the end of the 1990s amply demonstrated.
While the chaebols-dominated Korean economy plunged into a deep recession, Taiwan was hardly affected by the crisis. Chaebols were oligarchic and dependent on government patronage, exactly the characteristics of the proposed Tata investment.
In the case of Korea, at least the chaebols were national companies. In case of Bangladesh, Tata is a foreign company.
Worrisome influence on the nation’s body politic
The final point arises from the fact that, in many respects, Bangladesh is still a weak state. This state already finds it difficult to withstand the predatory onslaughts of domestic capitalists.
It will find it even more difficult to withstand the influence and pressure of a giant like Tata, which will in general enjoy the support and sympathy of the state of India. In fact, the commercial interest of Tata may emerge as an additional complication in the good neighbourly relationship between Bangladesh and India.
Having occupied a significant industrial and physical space inside the country, the company will be in a position to exert considerable influence on the state and body politic of this nation, and it is difficult to be sure that this influence will always be beneficial.
The way Tata is trying to get its investment proposal approved during the tenure of the current interim, unelected government does not bode well in that respect.
Above are the 5-points against Tata. Of course, all these points can be further elaborated and substantiated. In fact, Prof. Wahiduddin Mahmud’s report on the Tata investment proposal, published earlier by this newspaper, does so in many respects.
There are also other discussions and analyses available. However, the important point is that if bureaucrats and other decision makers develop private interests in the project, then no amount of argumentation and analyses will help, because they will simply play deaf and blind and do their own thing.
The current government’s anti-corruption drive has been targeted so far mainly toward politicians. However, many bureaucrats, too, had an important role in the corruption, embezzlement, and selling-out of national interests to foreign companies that the nation witnessed in the past years. It is difficult to believe that they have all rectified themselves.
The present government has set the good precedence of confiscating ill-gotten wealth and bringing such wealth back to the country from outside. What this means is that, sooner or later, those who want to enrich themselves at the expense of the nation can be brought to book.
They should know that the people of Bangladesh, including non-resident Bangladeshis (NRBs), are watching. The remittance money sent home by NRBs has now reached almost $6 billion per year, exceeding the country’s combined net export!
Tata’s total investment figure, which many suspect looks bigger on paper than its actual worth, pales by comparison with the investment that NRBs are making in their country each year, and they are not planning on remitting the investment income!
So, for the Bangladesh economy, NRB remittance is the real source of investment, and the authorities should try to make the best use of this resource.
NRB remittance, together with the garments export earning, is keeping Bangladesh afloat. Both of these owe to Bangladesh’s main renewable resource, namely labour. The government should focus on making the best use of investment, both domestic and foreign, that is labour-intensive.
It should save the country’s limited quantity of mineral resources for optimum domestic use. It should, therefore, say “Thank you, but no!” to the Tata investment proposal.
COURTESY: Meghbarta
Posted by Dipankar Basu June 2, 2007 at 1:32 pm in Economy, India
1. The Indian economy is currently undergoing a boom, a moderately long boom for a less developed economy: “between 1999-2000 and 2006-07, the gross domestic product (GDP) in constant prices increased at an average annual rate of nearly 7 per cent. And for the past three years, the economy has been growing at 8 per cent.” This boom is a profit-led boom, where surging profits of the Indian corporate sector is leading the growth in savings and investment. This seems to be a far cry from the general economic “stagnation” in the “semi-colonies” predicted by the classical theories of imperialism. Of course, this growth is accompanied by growing inequality; capitalists are gaining more than workers and big capitalists are gaining more than the small-sector capitalists. This is a situation which had occured in Argentina, Brazil and Chile (and Mexico and Iran possibly) about four decades earlier and continues to this day; this is what has been called “dependent development”: dependent, to take account of the continued operation of imperialism (through various channels) and development to take account of the non-trivial industrial development (as opposed to the earlier periods of general economic stagnation and no industrial development). Would this (the move from semi-colonial stagnation to dependent development) change the agenda for radical social transformation?
2. A mark of the recent trend in the Indian economy are the new economic kings, the new capitalist moguls whose wealth (in purchasing power parity terms) would equal those of the richest in the First World. Here is a typical example of the rising wealth of the new capitalists. It is important to reiterate that these are capitalists and not feudal lords, and they are (or will, in the near future, be) calling the shots in India. Is it not capitalism, dependent capitalism to be sure, that is the dominant mode of production in the Indian socio-economic formation?
3. One area of the Indian economy which is going to see a lot of turmoil in the coming months is the retail sector. Recall that the retail sector directly employs about 8 percent of the workforce; the indirect employment is probably much larger. Most of the “firms” in this sector are what are called the “mom-and-pop” shops; these are small family-owned and managed businesses, often employing very outdated technology (transportation, storage, etc.). Big corporate entities, both Indian and foreign, have already started entering this market which is estimated to be around $250 billion! Two interesting things can be expected to happen here. One, big corporate entities entering and wiping out the mom-and-pop shops will considerably increase the technological level of the retail sector; it will lead to a huge growth of the productive forces. Two, Indian big capital, represented by Reliance, is going to fight for this huge market against the Walmart-Bharati enterprises combine which is a foreign capital led alliance. Given these two facts, how will the revolutionary forces consistently oppose this development while (a) accepting the primacy of the development of productive forces for social transformation and (b) adhering to their anti-imperialist stance.
4. I want to return to Marx’s famous letter to Vera Zasulich in relation to the question of the socialist revolution in Russia. In the draft letter to Vera Zasulich, Marx had specifically mentioned that the Russian peasant commune could be used for the development of a higher form of social ownership and labour, i.e., socialist labour and that defending and deepening the communes should be an express task of the revolutionary movement of the working class. In the preface to the second edition of the Communist Manifesto, Marx and Engels added a crucial condition for this possibility to materialise.
“The Communist Manifesto had, as its object, the proclamation of the inevitable impending dissolution of modern bourgeois property. But in Russia we find, face-to-face with the rapidly flowering capitalist swindle and bourgeois property, just beginning to develop, more than half the land owned in common by the peasants. Now the question is: can the Russian obshchina, though greatly undermined, yet a form of primeval common ownership of land, pass directly to the higher form of Communist common ownership? Or, on the contrary, must it first pass through the same process of dissolution such as constitutes the historical evolution of the West? The only answer to that possible today is this: If the Russian Revolution becomes the signal for a proletarian revolution in the West, so that both complement each other, the present Russian common ownership of land may serve as the starting point for a communist development (Source). ”
If we juxtapose this assertion to the debate about the possibility of building socialism in one country then we come up against an inconsistency. Let me elaborate.
It is well-known that the Bolsheviks gave a call for a socialist revolution in Russia in 1917 with the express recognition that the Russian revolution could only be sustained if it “becomes the signal for a proletarian revolution in the West, so that both complement each other”; the Bolsheviks were especially anxious about the outcome of the German revolution. Thus, both the call for the socialist revolution and the movement for the strengthening of the peasant commune (to be used as a springboard for the construction of a higher form of socialized labour) rested on the hope of support from proletarian revolutions in the West. The Bolsheviks gave the call for a socialist revolution but did not give a call for strengthening and deepening the peasant communes. Why?
5. This is a nice picture of the enduring (and possibly growing) strength of the anti-capitalist strand within the anti-globalization struggle.
Posted by Dipankar Basu May 12, 2007 at 11:42 pm in Agrarian Question, Economy, India
The first thing that probably needs to be clarified in the study of agrarian structure in India (and other parts of the periphery) is to understand agrarian structure as an articulation of various modes of production under which socially necessary labour is being undertaken. The concept of socio-economic formation, as an articulation of various modes of production, but distinct from the concept of mode of production itself might prove useful here. I feel that this is a very important point that is often ignored in much Marxist theorising.
Once we agree to understand agrarian structure as an articulation of various modes of production, several questions immediately arise. One, what are the various modes of production that are articulated in various forms in India today? Capitalist and pre-capitalist modes. That much is clear and widely agreed upon.
The next important question, of course, is this: which is the dominant mode of production in this social formation, in this complex reality formed by the articulation of the capitalist and pre-capitalist modes of production? Which, in other words, is the mode that is dominating the others, shaping the others so as to fulfill it’s own needs of reproduction? Which is the dominant and which is the dominated mode of production? In this regard, the tentative hypothesis that I would like to advance is the following: contemporary Indian reality suggests that the capitalist mode of production is the dominant mode. It is capitalism, decidedly of a dependent variety, that is calling the shots in India today. All vestiges of pre-capitalist modes are articulated to the capitalist mode and are serving its needs in various ways. But it would be a mistake to allow the vestiges of these pre-capitalist modes to define social reality in rural India, its agrarian structure.
The question that will naturally follow is this: how to explain the stagnation in Indian agriculture? How to explain the rising rural distress? This is an extremely important question, but I don’t think it is necessary to take recourse to semi-feudalism to explain rural stagnation and distress. Dependent capitalism, of the type that has developed elsewhere in the periphery of the world capitalist system, is precisely a capitalism which entails stagnation, pauperisation and distress for the majority while a small minority grows at a very high rate. That has happened in Brazil, Argentina, Chile and is now happening in India. This is another tentative hypothesis that I would like to advance.
A very close friend of mine, who has been studying agrarian relations in Punjab for some time now drew my attention to three very important characteristics of rural reality in Punjab. These are: (a) the intrusion of ideological factors like “social pride” into the process of mechanization of agriculture (he informed that the possession of tractors in contemporary Punjab is more a matter of “social pride” of the peasantry than any capitalist incentives arising from production conditions); (b) the existence of a class of middlemen who procure agricultural product from peasants and also function as money-lenders, thereby givng rise to partially interlinked markets; and (c) the widespread use of migrant labour in agriculture.
What are the implications of these three characteristics for our understanding of agrarian structure in contemporary India? I would tend to interpret these three characteristics as the many factors, among others, which reproduce capitalist stagnation; I do not see this as providing evidence of the presence of semi-feudal relations in rural India.
The question that immediately came to mind regarding the first charateristic is this: What is the material basis of the “social pride” that comes from the ownership of tractors? An answer suggests itself almost naturally. The tractor manufacturer would gain enormously from the widespread existence of such “social pride”. Let us recall several campaigns by the local capitalist class (for example the “hamara Bajaj” campaign) where ownership of scooters and motorcycles and four-wheelers and tractors are given other, social meanings (like national pride, etc.)? Could something like that be in operation in Punjab too?
Existence of a large class of middlemen is important but does not really lend support to any semi-feudal thesis. The class of middlemen, to my mind, are representatives of mercantile capital; a class which makes profit by buying cheap and selling dear. It is important to remember that they have come up under the shadows of a partially paternalistic State and the pressure of rich and middle peasants for minimum price policies. Through them mercantile capital is getting accumulated in rural India. The fact that the credit market is partially interlinked to the product market through this class reminds me of the “putting out system” during the early phases of the industrial revolution in England. But, this system, I am told, has made a comeback through various kinds of “contract farming” in other parts of India too. For instance, Pepsi Co, HLL, Procter and Gamble and many other companies often do the same. They provide credit and other inputs to the farmers and the contract is that they will buy the product at pre-arranged prices. So, even though markets are getting interlinked, it is in a context that is very different from those studied in the early 1970’s by Amit Bhaduri and others. In this case, the capitalist character of many of the participants is beyond all reasonable doubt. So, instead of understanding this as an instance of semi-feudal relations of production, it is probably more helpful to see this as the specific manner in which the articulation to dependent capitalism takes place.
The importance of migrant labour, as my friend pointed out, can hardly be denied. But as I have suggested earlier, while it is important to understand the articulation of modes of production, it is equally important to identify the dominant mode? Moreover, the existence and growth of migrant labour, footloose labour according to Jan Breman, also seems to suggest that the various kinds of bonds that tied down labour to a particular plot of land or village or area is loosening. Doesn’t that gradually erode the semi-feudal basis of power in the rural areas?
Another related question that often comes to mind is this: are big and powerful feudal landlords left in India today, other than in small pockets? Does social, economic and cultural power in rural India reside with the class of feudal landlords? I have serious doubts that it does. I think, instead, that the social and economic power of the landlord class has been largely eroded. Rural power now rests in the hands of the middle and rich peasants, not in the hands of landlords. To a minimum that seems to be the case in large parts of India: Punjab, Haryana, Western UP, TN, Andhra, Karnataka, Kerala, West Bengal, Gujrat, Maharashtra. Therefore another question arises immediately: does this define the character of rural India or do the remnants of semi-feudal power in pockets of Bihar, Orissa, Eastern UP, MP, Chattisgarh, Jaharkhand define rural India?
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