The World Economic Crisis and India
Prof K. S. Chalam
The subprime crisis in USA during 2008 is considered to be the most devastating economic event in recent history that has surpassed the 1929 Depression. The honeymoon period advocated by Neo-classical Economists for globalisation was not seen anywhere reckoning while Nobel Laureates like Krugman noted in The Economist July, 2009 that“the financial crisis is a mockery of assumptions.. Professors need to think about the context within which markets work.” It has exposed the conspiracy of the Neo-imperialist forces to capture the world economy by deceit through the so called monetary policy of IMF and World Bank. It is reported that the Dow Jon’s Stock Market Index reached 14000 points in 2007 due to the financial manipulations of dishonest bankers in the USA and crumbled to 6600 by 2009. It is estimated by Goldman Sachs that every $100 billion loss would result in a corresponding reduction in$1 trillion bank lending. This had adversely affected consumption and business investments in the US and resulted in Great Recession. This was all due to five important financial giants who control power to regulate not only the American economy but the World as a whole through their operations. They are; Lehman Bros, Merrill Lynch, J.P Morgan Chase, Morgan Stanley, Goldman Sachs and few others. (It is reported in the media they are now involved in funding both Republicans and Democrats in US elections). However, they have attributed the debacle to Housing mortgage companies like Fannie Mae and Freddie Mac in USA who were responsible for US credit default swaps. Several millions of middle class and poor Americans lost their savings and the Federal system was forced to enter the market and announced economic stimulus package of $168 billion in 2008 and again $850 billion in 2009 to infuse investors’ confidence to halt the collapse of the American Capitalism. This has happened with state support and with tax payer’s money. This is the biggest mockery about which the campaigners of free trade like Indian origin Economists like Jagadish Bhagwathi have offered very little and further recommended ‘less state and more governance’ to PM Modi, forgetting that it was the State that saved the honour of Americans.
We can see the unprecedented social movements like Capture Wall Street; We don’t pay Tax, collapse of some debtors in Europe like Greece, Portugal etc during 2008-15 as an indication of what Marx, Lenin and several others have predicted in the past about capitalism and Imperialism. Out of several concepts that Marx had developed in his treatise, one aspect of Falling Rate of Profit, and Lenin’s exposition of Imperialism seem to be relevant now to understand the present Economic Crisis. There has been a debate on the relevance of Falling Rate of Profit of Marx in the present conditions when wages have risen over a period of time and profits surge. There are three important academic developments in the Marxian Political Economy. The German scholar and economist Michael Heinrich in his “An Introduction to the Three Volumes of Karl Marx’s Capital” published by Monthly Press in 2012 and in his expository article in April 2013, brought out a contentious revelation. The maligned theory of crisis of falling rate of profit in Capital, according to Heinrich is an edited version of Engels and not that of Marx. As a German, Heinrich had access to all of Marx’s material and found that 1865 manuscripts of Marx were edited by Engels heavily revising to construct the third chapter on “Law”. He has condensed it to divide it in to 4 subsections and the original 7 chapters were reorganised in to 7 parts. Then what is the problem? Heinrich argues that Marx was still researching and trying to understand the dynamics of capitalist system and the law was only a disparate theory and not a comprehensive Law. The fact that he tried to use mathematical examples to explain the falling rate of profit with the increase in constant capital and declining surplus value ( with lower number of workers due to increase in productivity etc) is only a discrete attempt. He has also explained that Marx was collecting data and information (even learnt Russian) to understand the American system of capitalism where presence of interest bearing capital and credit have dissipated the tendency of falling rate of profit. Therefore, we need to understand the essence of Marx’s argument and not the actual events.
The arguments of Heinrich are contested by Michael Roberts through his blog. According to Roberts, the falling rate of profit even within the given theory is proved in the UK and USA. He has estimated the rate of profit by using the standard Marxist concepts of organic composition of capital, surplus value and rate of profit in the two most advanced capitalist countries during 1963-2008. He found that profits fell by 28%, organic composition rose by 20% and surplus value fell by 19% during 1963-75 in the UK. It is estimated that between 1996 and 2008, profits fell by 11%, organic composition rose by 16% and surplus value remained secularly stagnant in the US. It is in this context, we may cite what Lenin has said about Imperialism exactly a century ago in 1916 as they appear to be relevant now.He has said that there are five essential features that need to be satisfied for a modern imperialism to exist. They are;
- The concentration of production and capital developed to such a high stage that it created monopolies, which play a decisive role in economic life.
- The merging of bank capital with industrial capital, and the creation, on the basis of this “finance capital,” of a “financial oligarchy.”
- The export of capital, which has become extremely important, as distinguished from the export of commodities.
- The formation of international capitalist monopolies, which share the world among themselves.
- The territorial division of the whole world among the greatest capitalist powers is completed.
Elaborating on Lenin, Bukharin has said that imperialism is the result of two conflicting tendencies in modern capitalism. Competition tends to give rise to the concentration and centralization of capital, and as this process develops, the state comes to play an increasingly active role in managing the economy. Bukharin argued that there is, in fact, a tendency for capital and the state to merge together on the national level to form what he called “state capitalist trusts.” We have seen in 2008 how US government has bailed out the capitalists through a government package with taxpayer’s money.
There is no doubt some limitations in the theories of Marx and Lenin when applied to the twenty first century, but the basic formulation of the fact that rising organic composition of capital would increase the rate of surplus value, remains valid. The contemporary financial crisis as predicted by Lenin as a phenomenon of financial oligarchy controlling the world is the order of the day. It is interesting to note that IMF Chief Lagarde reported to have said that there are only just 85 persons who control half of the World’s Wealth (including few Indians). Along with several such reports and data sets on the accumulation of wealth and capital in few hands, scholars like Thomas Piketty have published analytical studies on the ‘Capital in the Twenty First Century” after the crisis in 2013. Piketty’s study is acclaimed as one of the important contributions of the century that would continue to influence our economic thinking. He was Adviser to Tsipras government in Greece till recently,is considered as a Marxist thinker and or influenced by his writings.
Piketty has brought out clearly that the average rate of growth per capita output was 0.8 per cent per year from 1700 to 2012 or 0.1 per cent in the period 1700-1820, 0.9 per cent in 1820-1013 and 1.6 per cent in 1913-2012 at global level. Citing Robert Gordon, Piketty says that the rate of growth of per capita output is destined to slow in most advanced countries, starting with United States, and may sink below 0.5 per cent per year between 2050-2100. The important contribution of Piketty appears to be his law like account that, if the rate of return on capital is higher than the rate of growth of an economy, the inequalities bound to persist and increase. However, the inequality with respect to labour is found to be moderate while it is extreme with respect to capital. He has developed a new concept called patrimonial capitalism, where it is noted how the children of billionaires inherit property without any corresponding merit possibly. It is estimated that at least three quarters of the financial assets held in tax havens are from rich countries. The study has clearly demonstrated in a different jargon that 20th century capitalism has increased the inequalities and raised the concentration of capital in the hands of few as projected by Marx in 19th century. Perhaps the result is seen in terms of periodic crisis in the system as distinguished from that of the so called Business Cycles explained by Neo-classical economists.
Interestingly, we have supporting evidence from a typical UNO trade association UNCTAD. It has published very surprising results contradicting the votaries of free trade. The report for 2012 has noted that the trade between advanced and the developing countries has caused inequalities in the latter. The estimates of proportion of top quintile share of income to the bottom quintile show that inequalities are higher in developing countries than in developed countries like the UK. It is supported by the Gini ratios (measure of inequality) ranging from 35% in USA to 50 % in Malaysia and India coming in between with 32.5%. It is noted by the Report, that inequality of personal income distribution is generally more pronounced in developing countries than in developed or transitional economies. As in developed countries, the income gap narrowed during the first three decades after the Second World War, but during the period 1980–2000 there was a general increase in inequality in all developing regions.
India is no more an independent country after 1991, though it is a republic with a written Constitution. The ruling classes and their institutional super structure including the judiciary seem to be interested to maintain the traditional inequalities and help preserve the same in modern period. The imagined contradictions between Capital and Religion as arrived at by some on the basis of the European experience seem to be subsumed with innovations of a typical social category of people in India. The emergence of the three Ms, Media, Money and Mafia has eased the methods of doing business with co-option of middle classes who are the beneficiaries of liberalisation. Poverty levels particularly among the Dalits, Adivasis, Artisans and sections of Muslim minorities have not declined and in fact the inequalities widened. Privatisation of education, health and liberalisation of labour laws broadened the disparities between the poor and the rich. The frustration among the unemployed youth of this proletarian class due to unemployment, discrimination and humiliation set them on par with victims of capitalism in America, Africa, Middle East and other Asian nations who are in search of an effective campaign that might bring them together for a united struggle for emancipation. As Piketty said, “Parliamentary institutions and government of laws were never merely the bourgeois institutions that Marxist intellectuals used to denounce before the fall of Berlin Wall.Yet, it is also clear that the ups and downs of prices and wages, incomes and fortunes, help to shape political perceptions and attitudes and in return these representations engender political institutions, rules, and policies that ultimately shape social and economic change. It is possible, and even indispensable, to have an approach that is at once economic and political, social and cultural, and concerned with wages and wealth.” How do we do it is the greatest challenge left to the present Intellectual class. We hope those who are present here need to ponder over this phenomenon and chart out a programme of action.
Thus, the studies of scholars belonging to Marxist and Non-Marxist persuasions have brought out clearly that the contemporary World is in the grip of grave economic crisis signified not only through 2008 Recession but also through spreading inequalities world over, calling for an assertion that the trend should be stopped right now. India being linked with World capitalist operations through MNCs and sovereign commitment by successive governments through free trade, the day is not too far to reach a precarious situation once the remittances of the middle classes stop with change in the policy of the West. The consequences of the world economic crisis need to be disseminated by every conscious Indian, irrespective of political conviction as the imminent threat is universal.
(Paper presented at the All India Progressive Forum conclave during 13-14 August 2016)
(The author is a former member of the Union Public Service Commission (UPSC))