By Prabhat Patnaik

The BJP-led government has just got parliament to pass a legislation permitting up to 100 percent foreign equity-ownership in India’s insurance sector. This, the Prime Minister has announced, marks the beginning of a major “reform” in India’s financial sector, towards presumably much greater private, including foreign, ownership of financial institutions. This would doubtless mark a significant reversal of the policy towards this sector that has been pursued in the post-independence period.

The IMF, the World Bank, various other agencies of international finance capital, and the U.S. administration, have all been demanding such a reversal for a long time. In fact, a senior U.S. government official had suggested to the Government of India that even if privatization of the entire financial sector was not immediately possible, the government could “send a signal” by just privatizing the State Bank of India. The Congress-led government, despite its penchant for neoliberal “reforms”, nonetheless balked at the idea. The BJP, being a more ruthless servitor of Indian corporate interests, which are now more or less congruent with the interests of globalized capital, is planning to go ahead with imperialist-demanded “reforms”, that is, to push the financial sector in the direction of privatization and foreign domination, from which it had been extricated after independence.

There were very good reasons for such extrication and it may be useful to examine these reasons. First, the financial market does not distinguish between “production” and “speculation”, a distinction that can be understood as follows: if an asset is acquired for “keeps”, that is, for the income stream it promises to yield over a period of time, then that constitutes acquisition for “production”; but if the asset is acquired with the objective of selling it very soon afterwards at a higher price, so that the buyer has no interest in the income, and hence in the production, stream it yields, then that constitutes “speculation”. Now, private financial institutions, driven entirely by commercial considerations, do not distinguish between these two activities, and hence lock up a part of their resources in speculation at the expense of production; a third world economy can scarcely afford this.

Second, even within the realm of production, private financial institutions systematically discriminate between different borrowers in the matter of giving loans. In colonial times, Indian entrepreneurs were systematically discriminated against when they sought finance from banks that were then largely foreign-owned; Indian corporate houses in due course set up their own banks in order to garner finance for their own businesses, but these in turn excluded other borrowers. In particular, small producers, farmers, craftsmen and such like were all excluded from these sources of institutional finance.

Since finance represents command over capital, how this finance is distributed, that is, who gets this finance, which regions it goes to, what activities it is used for, determines the rate and pattern of development of a country; and the systematic exclusion that private financial institutions practised, entailing the exclusion of certain sectors, and of producers engaged in these sectors, acted to distort not only the pattern of development but even to constraint it.

It follows that if finance is to be deployed for production rather than speculation, if it is to be deployed for the development of sectors like agriculture and petty production, then private ownership of financial institutions is singularly incapable of achieving this task; state ownership becomes necessary for this purpose, that is, for effecting economic development in a balanced manner that is in accordance with certain social priorities.

This basic insight had informed the Indian development trajectory prior to the introduction of neo-liberal “reforms”, because of which the Imperial Bank of India had been nationalized in 1955, the life insurance business in 1956, 14 major private banks in 1969, and six other private banks in 1980. This shift towards state ownership of the financial sector also led to a flow of institutional finance towards agriculture that was quite unprecedented, and that made possible the Green Revolution and India’s food self-reliance. In the early sixties India had become dependent on food imports from the U.S. and hence vulnerable to manipulation by U.S. imperialism; the achievement of food self-reliance in that context was a remarkable feat which imperialism continues to attempt to reverse to this day.

It is also because of this fact of predominant state ownership of the financial sector that when the U.S. housing “bubble” collapsed, throwing the entire financial system of the capitalist world into a crisis, India was one of the few countries that was more or less untouched by it. With the exception of the ICICI Bank, the Indian banks had very little foreign assets in their portfolios, and hardly any toxic assets. State ownership had prevented putting millions of depositors’ funds into jeopardy.

Economic liberalization had to an extent undermined the robustness of India’s financial system earlier: certainly, the magnitude of institutional finance flowing into peasant agriculture directly had come down greatly, and a host of intermediaries, who borrow from banks and lend to peasants at much higher, indeed exorbitant, rates of interest, had come up. But the BJP-led government wants apparently to finish off whatever remains of this robustness by accelerating the process of privatization and foreign domination of India’s financial sector.

The arguments officially advanced for abandoning the foreign equity cap in the insurance sector are completely lacking in credibility. One argument is that it would bring in more direct foreign investment into the insurance sector, causing a significant enhancement in its reach and quality, and thereby contribute to development; but if the funds garnered from customers are used for speculative ventures abroad, then it neither contributes to India’s development nor protects customers’ safety. Likewise, the claim that customers would now no longer be tempted to hold assets like gold or real estate, but would hold insurance policies that would be a means of channelling finance for productive purposes, loses its validity if, as is likely, finance is diverted for speculative purposes or to serve monopoly ends through a takeover of smaller enterprises, or through a jacking up of profit margins (and in the process stoking inflation).

The government of course may be entertaining the hope that its insurance reform would boost the “state of confidence” of international financiers in the Indian economy, and thereby contribute towards stemming the financial outflow that is currently occurring, which has made the Indian rupee the weakest currency in Asia. But the proximate reason for the financial outflow is the imposition of stiff tariffs on Indian goods by Donald Trump which creates expectations of a decline in the value of the rupee, and hence actually contributes to such a decline. No amount of financial sector liberalization would negate this outflow as long as Trump’s demand for his “pound of flesh”, in the form inter alia of opening up the Indian economy to freer imports of American dairy products, is not met. The BJP-led government is chary of provoking the farmers who have taught it a lesson once earlier; but no amount of “peace offerings” in the form of opening up the financial sector would suffice to appease Trump and stem the outflow of finance.

In fact, if anything, opening up the financial sector to multinationals and private players would have the very opposite effect of making an even larger financial outflow possible, and hence be counter-productive from the point of view of preventing the rupee’s fall.

What this shows is the absolute limit that the pursuit of neo-liberalism has reached in India. Neo-liberalism has brought great hardship to the peasantry and the petty producers; what Trump is demanding is that this hardship should be further extended and intensified. The immediate alternative that India would face if it refuses to do so is a further fall in its already declining currency value, that would stoke inflation and ultimately bring it under IMF tutelage, as has happened with several of our South Asian neighbours.

The point is not what India should choose between these two options; the point is to overcome the very situation that restricts India’s choice to just these two options. And that requires calling Trump’s bluff by imposing stiff tariffs on American goods, and controls on financial outflows. This of course would presage a paradigm shift in policy, away from neo-liberalism towards greater self-reliance. But the BJP-led government does not have the spine for such a bold move; instead it will use fascistic methods to cover up its eventual capitulation to Trump. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

The unemployment situation is worse today than it has ever been in post-independence India. There are two distinct elements that have contributed to this situation. One is the fact that the output recovery from the fall caused by the pandemic-linked lockdown has not been accompanied by a comparable employment recovery. In fact, even though the gross domestic product in 2023-24 is estimated to be larger than in 2019-20 by about 18 per cent, employment has shown zero growth over the last five years according to the Centre for Monitoring the Indian Economy. This fall in the employment-intensity of GDP is because the recovery in output has been much less pronounced in the small and medium scale enterprises than in large-scale ones and the former are much more employment-intensive than the latter.

There is however an additional factor. Even by 2019 the unemployment situation had become serious; in fact the unemployment rate in 2019 was higher than at any time since the inflationary recession that followed in the wake of the first oil-price hike in 1973. This second factor has nothing to do with the pandemic and the uneven recovery from it across sectors; it is associated instead with the immanent tendencies of a neoliberal regime. What is striking is the fact that even though official statistics show a near-doubling of the average growth rate of GDP between the earlier dirigiste regime and the neoliberal one, the rate of growth of the number of jobs has halved between the two regimes.

The reason for this decline in the rate of growth of employment which has made this rate even lower than the average rate of growth of the labour force over the neoliberal period, lies in the much faster growth in labour productivity which has occurred as a result of the greater openness of the economy. Greater openness has increased competition among producers across countries for the Indian market leading to the introduction of faster technical change; and that typically entails a faster rise in labour productivity. Added to this has been the unleashing of an agrarian crisis owing to the withdrawal of government support from peasant agriculture; and that in turn has uprooted large numbers of peasants from their traditional calling, forcing them to migrate to cities where they have swollen the number of frustrated job-seekers.

Put differently, the neoliberal regime served to introduce relatively unfettered capitalism into the Indian economy; and unfettered capitalism necessarily generates larger unemployment. The mechanism through which this happens needs to be noted. Suppose in a given period, the existing capital stock would produce 100 units of output using 100 labourers, but a new technology becomes available that doubles labour productivity; then the 100 units of output will now be produced using only 50 labourers, and the remaining 50 will become unemployed. Precisely because of this rise in unemployment, the wage-rate of the employed labourers will not be any higher than before, so that the total wage-bill itself will get halved on account of the rise in labour productivity, thereby raising the share of profits. This increase in income inequality, or the shift from wages to profits, results in a reduction in consumption (since a larger percentage of wages than of profits is devoted to consumption), and hence in aggregate demand, causing an over-production crisis that further increases unemployment.

In fact this is where the well-known English economist David Ricardo had gone wrong. While accepting that the introduction of machinery (i.e., technological change) caused unemployment, he had thought that the higher profits arising from such introduction would raise investment and hence the output and employment growth-rate, because of which the decline in employment would only be temporary; over time, the time-profile of employment after the introduction of machinery would in fact overtake the time-profile of employment before the introduction of machinery. Machinery in other words, while temporarily causing unemployment, is better for employment in the long-run. But Ricardo was a believer in Say’s Law and never took cognizance of any demand problem, which is why he never visualised that higher ex ante profits do not lead to larger investment; on the contrary, greater profits at the expense of wages lead to lower demand and hence lower investment. It follows therefore that the initial unemployment caused by technological change gives rise to further, larger, unemployment under unrestricted capitalism.

Indeed, unrestricted capitalism is characterised by perennial mass unemployment, which is far in excess of what the system requires as the minimum level of the reserve army of labour; and technological change is responsible for this as it necessarily creates magnified unemployment. Technological change under socialism by contrast has the effect of reducing the drudgery of work and increasing the leisure-time of the work-force without any reduction in the wage-bill. In the above example for instance, where technological change doubles labour productivity, in a socialist economy it would not give rise to unemployment, but rather to a reduction in working-hours by half, while employment remains the same and workers get the same wage-rate as before. It is not surprising that the only countries in modern times that have experienced full employment (even labour shortage) are the Soviet Union and the old Eastern European socialist countries; all capitalist countries by contrast have been invariably saddled with mass unemployment. And neoliberalism, by introducing relatively unrestricted capitalism, had brought India to such a pass, long before the pandemic appeared on the horizon.

It is not a person’s fault if he or she is unemployed; it is the fault of the social arrangement within which that person lives: the social arrangement has proved incapable of providing that person with employment. The question then arises: what can be a democratic demand on employment? By democratic demand I mean a demand that does not just ask for socialism (for that would mean a postponement of any relief for the unemployed); what I mean is a demand based on the proximate needs of the unemployed, but not limited by merely what unrestrained capitalism can permit.

The fact that society must take responsibility for unemployment (and the consequent poverty) that afflicts individuals has already been grudgingly conceded by even bourgeois political formations in India, which talk of providing a “basic minimum income” to everyone. But the proposed basic minimum income, apart from being utterly meagre, is also subject to scuttling at any time; what is more, it is in the nature of largesse on the part of the government, a favour that this or that government is doing to the people. The people however are not mendicants; they must get employment (or, in its absence, a full wage, not some paltry unemployment allowance) as a matter of right, in keeping with their dignity as citizens of the country.

Recognition of such a right to employment, which must be universal, constitutionally-guaranteed, and justiciable, on a par with the political and civil rights already guaranteed in the constitution, would not cost the country more than 3 per cent of the GDP at the most. Even an elementary calculation can establish this. If the weighted average wage to be given to an unemployed worker is taken to be Rs 20,000 per month, then, assuming 10 per cent unemployment rate, or roughly 4 crore unemployed, the requirement of financial resources, if all the unemployed are paid this wage-rate, would be Rs 9.6 lakh crores, which comes to 3.2 per cent of the officially estimated GDP at current prices for 2023-24.

The very handing over of purchasing power to so many unemployed persons however will create demand for goods that will generate larger output and hence employment (since the economy is at present demand-constrained), so that only a fraction of the unemployed will need to be paid this wage from the government budget; the rest will get jobs because of the spending by the beneficiaries. The demand on the exchequer therefore will be much less than 3.2 per cent of GDP. Assuming that paying a wage to one person will create a demand for goods that would provide employment to one other additional person, the amount the government needs to spend becomes exactly half of Rs 9.6 lakh crores, i.e., Rs 4.8 lakh crores, which is just 1.6 per cent of GDP. What is more, the additional production of Rs 4.8 lakh crores, will also generate some tax revenue for the government; and if the tax inflow is assumed also to be spent by the government in the same period, then even the 1.6 per cent of GDP does not have to be raised entirely through additional taxation. The requisite additional taxation will be smaller, less certainly than even 1.5 per cent of GDP. This much of financial resources can be raised merely through a 0.8 per cent wealth tax imposed on the wealth of the top 1 per cent of India’s population! This burden is so small that not providing such a right to employment (through a parliamentary enactment, as in the case of the MGNREGS, in case a constitutional amendment appears difficult) seems a criminal abdication of responsibility. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Argentina’s new president Javier Milei proposes to use US dollars as the currency of his country, while abolishing its central bank altogether. What is involved in this proposal is not just maintaining a fixed exchange rate between the dollar and the domestic currency, but an abolition of the domestic currency altogether. The maintenance of a fixed exchange rate does not preclude the central bank of the country printing more of the domestic currency whenever there is a demand for more domestic currency, while using an array of instruments to ensure that there is no shift to dollars from the domestic currency so that its exchange rate remains fixed; but “dollarisation” means a complete shift to dollars by abolishing both the domestic currency and the central bank that is normally entrusted with the responsibility of printing it.

An example will make the difference clear. Suppose at the given level of the gross domestic product, of prices and the interest rate, the total demand for money happens to be 100 units of domestic currency, while its supply is 90; then the central bank can print 10 units of additional domestic currency with impunity, without any fear of this additional printing upsetting the fixed exchange rate vis-à-vis the dollar; but in the case of a “dollarised” economy where the dollar alone is the currency used, if the demand for dollars at the given level of GDP, of prices and the interest rate, happens to exceed the supply of dollars in the economy, then there is no question of printing any additional dollars since that can only be done by the US central bank and not by the central bank of the country in question, which in any case has been abolished altogether. In such a case the only options available to the country are: either obtain dollars by whatever possible means (by borrowing from abroad or selling the country’s assets if necessary) to maintain the level of GDP; or curtail the GDP until the demand for dollars falls to equal the supply of it; or some combination of the two. The option of obtaining a larger supply of the currency by simply using the central bank is ruled out.

A country’s external indebtedness in other words goes up (or its material wealth goes down by being sold to foreigners), not just because it spends more than its income (as is often the case under normal circumstances and expressed in a current account deficit on the balance of payments), but also because its demand for the circulating medium increases relative to the supply for it.

This entails a doubling of the contractionary squeeze on the economy if the level of external debt is not to increase. Suppose to start with, the economy is in equilibrium, and then its exports rise in a particular period by 10 dollars; if its imports are 10 per cent of GDP then (ignoring other current account items), its GDP can rise only by 100 dollars without requiring any increase in its external debt. This is the first contractionary squeeze on the economy, namely the curtailment of the increase in its GDP so as to balance its external account. But if the ratio of currency (or what is called reserve money) to the GDP also happens to be 10 per cent for the purpose of circulating the GDP, then for sustaining an increase of 100 dollars of GDP, an additional 10 dollars would be required. Since these 10 dollars cannot be domestically printed, an increase of 100 dollars in GDP cannot be sustained if external indebtedness is not to increase.

The increase in GDP in this case can only be 50 dollars, for only then will the additional demand for dollars, 5 for imports and 5 for circulating the GDP, equal the amount of dollars earned through exports. This is the second squeeze on the GDP, arising from the need for the circulating medium. The country’s dollar earnings in other words will now have to pay both for its imports and for its requirement of the medium of circulation. By abolishing the domestic currency altogether and hence the possibility of a central bank printing this domestic currency to provide for the requisite supply of the medium of circulation, and adopting instead the currency of a foreign country as its medium of circulation when that foreign country’s central bank is under no obligation to print currency to satisfy our requirement for an increased amount of the medium of circulation, we introduce an additional constraint on a country’s GDP which would now have to be doubly squeezed.

This double squeeze would have to be effected through cuts in welfare expenditure, cuts in salaries of government officials, cuts in pensions, cuts in wages of workers, and of course cuts in employment. In other words, the adoption of the dollar as the country’s currency when these dollars are printed abroad, with the country having no control over their supply, except to the extent that it earns them through exports alone (if its external indebtedness is not to increase or domestic assets are not to be sold to foreigners), necessarily means greatly intensified misery for its population. And if these modes of assault on the population are not employed immediately because dollars are borrowed from abroad, then that only postpones the assault; it does not prevent the assault.

Why then does a government resort to such an absurd step of replacing its own domestic currency by the US dollar? The ostensible reason in Argentina’s case is the extremely high rate of inflation, running at around 150 per cent per annum. Since under capitalism the only antidote to inflation (whether this is explicitly admitted or not) is the creation of unemployment and the effecting of a wage cut, Javier Milei is resorting to this antidote with a vengeance. But the chicanery behind this needs to be exposed.

The previous right-wing president Macri had taken a large external loan to manage Argentina’s balance of payments deficit, much of which was used to finance private capital flight from that country. When the time came to start paying back that loan, the balance of payments was seriously strained; and this strain was also accentuated by the flight of capital undertaken by the Argentine rich. The depreciation of the currency that ensued caused a cost-push inflation owing to the rise in the local currency costs of imported inputs which got passed on to final goods prices.

Now, in a society where wages are indexed to prices, and workers are generally organised into strong trade unions, even a slight nudge to inflation quickly causes a sharp rise in prices, owing to the absence of the sort of “cushion” that a vast army of unorganised workers provides. It is not surprising therefore that inflation in Argentina became so rapid within a short time. The Milei government proposes to control this inflation not by introducing curbs on capital flight, not by stabilising the exchange rate through introducing appropriate trade controls to overcome the foreign exchange shortage, not by implementing any direct price control, but by launching a massive attack on the Argentine working class and its trade unions. In other words, Milei’s policy proposal amounts to a most vicious form of class attack on the working class of that country. The working class is made to bear the burden of the repatriation of wealth by Argentina’s rich from that country to the metropolitan centres.

Javier Milei is the latest addition to the list of neo-fascist rulers that are coming up in various parts of the world. This upsurge of neo-fascism is a reflection of the crisis of neoliberalism, in the context of which the big bourgeoisie is entering into an alliance with fascist elements to maintain its hegemony and to attack the working class. The neo-fascist rulers that are coming up in the present conjuncture however can only change the form of the crisis, from, say, inflation to the imposition of unemployment and income compression on the workers, as is being proposed in Argentina, but cannot resolve the crisis.

In fact, as the crisis intensifies and the rate of growth of exports slows down even further for countries like Argentina, the Argentine neo-fascist strategy will greatly increase the burden on the workers in the form of unemployment and income compression: the double contractionary squeeze referred to above will become even more suffocating for the people. What is needed is a resolution of the crisis by transcending the neo-liberal regime itself. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

A country with relatively unrestricted trade will face two problems: the first is a balance of payments problem because its exports are insufficient relative to its imports. And the second, the creation of unemployment, and more generally of domestic resources remaining idle, because domestic goods cannot compete with imports.

These two are not identical problems. There can be unemployment even when there is no import surplus.

During the colonial era domestic “deindustrialisation” caused massive unemployment of artisans and craftsmen even though the Indian economy did not have an import surplus. In what follows I shall concentrate only on the employment question.

The fact that unrestricted trade creates domestic unemployment is quite obvious. Yet there is a general impression that free trade is a good thing, and an utterly spurious argument is advanced to create this impression. This argument states that countries should specialise in the production of those goods where they have a “comparative advantage”; if each country does this, then world output would be larger than otherwise, so that all countries can profit.

This free trade argument based on “comparative advantage” is a complete fiddle. It assumes that in each country there is always full employment of all resources, including labour-force, irrespective of whether it is engaging in trade or not. It follows that if all resources, including its labour-force, are fully employed before and after trade, then all that trade involves is a mere redirection of resources from one kind of use to another; it cannot by assumption cause the unemployment of any resource including a country’s labour-force.

Once we reject this assumption however, as we must since it has no basis either in facts or in theory, the potentially deleterious implications of free trade for a country become clear.

There is a very simple way of seeing this. Suppose the total production capacity of the world economy is 100 units; if total demand in the world economy is 80 units, then 20 units of world output would remain unrealised, and hence, under capitalist conditions, unproduced. The resources that remain unemployed as a result will be distributed among the countries in a certain manner.

A question may be raised here. Keynes, afraid of the workers being disillusioned with capitalism because of the unemployment it generates and hence moving towards socialism, had suggested State intervention in a capitalist system to raise the level of aggregate demand and hence employment; why can this not be attempted at the world level itself in which case no country would be left with unutilised resources even in the event of free trade?

The very simple and obvious answer to this question is that for this to happen there has to be a world State with a world government, which there isn’t under capitalism. And in countries where resources remain unutilised because the world demand is not large enough, if their particular states attempted to raise demand in those economies to create larger unemployment, then under free trade conditions this extra demand might “leak out” resulting in additional imports and hence an unsustainable trade deficit. If these countries did not have free trade and could protect their economies, then their governments could expand domestic aggregate demand and hence employment. But their hands get tied because of free trade.

The fact that under a free trade regime a country’s government cannot intervene to raise aggregate demand and hence employment, but has to accept meekly the fall-out of the consequences of whatever the level of world demand happens to be, means that employment, whether in a particular country or at the world level, might well be lower with free trade than if countries could resort to protection. This totally negates the fundamental argument for free trade. This argument, it may be recalled, hinged on the fact that each country, specialising in producing only those goods where its comparative advantage lay, would increase world output which would be potentially beneficial for all countries; but this argument collapses once we recognise that post-free-trade world output might be lower than pre-free-trade world output if the level of world aggregate demand in the former situation shrinks compared to the latter.

What, it may be asked, does the post-free-trade world aggregate demand depend upon? The primary determinant of world aggregate demand is the demand generated within the leading capitalist country, in the present context the United States, which enjoys a degree of autonomy in generating demand even when this demand “leaks out” to other countries. This is because it does not have to worry about a trade deficit as its currency is generally considered to be “as good as gold” and it can simply print money to finance its external deficits which the rest of the world would be willing to hold.

It is for this reason that consumption plus investment plus government expenditure in the United States becomes the primary determinant of world aggregate demand. Government expenditure of the US in particular is important here because it has a certain autonomy: it can be turned on like a tap. In this sense the US State, despite being a nation-state, can potentially act, and even actually acts up to a point, as a surrogate world-state in conditions of contemporary capitalism.

There is however a contradiction here which is now beginning to make itself felt. While the US State can act as a surrogate world state, it is not a world state; it remains, everything said and done, a nation-state after all. If the US State increases domestic aggregate demand which “leaks out”, then, even though the US may not have any problems in financing its external deficit, it gets indebted while financing its external deficit. And it gets indebted while generating employment, most of which is located abroad. An enlarging through larger government expenditure of US aggregate demand therefore, while it may not raise any technical problems for the US in the sense of being unsustainable, militates against its narrowly national point of view, which its State cannot ignore as it is after all a nation-state. Its nation-state role in short comes in the way of its surrogate world-state role.

This contradiction is now reaching an acute form. During the pandemic the US ran large fiscal deficits to finance the provision of relief to their populations. Even after the pandemic was over, the US was keen to continue with relatively larger fiscal deficits for reviving domestic aggregate demand, but was somewhat thwarted by the recent upsurge of inflation. But once this upsurge abates, there is likely to be a stimulus to domestic demand in the US by State expenditure, but this would be accompanied by protectionism to prevent any “leaking out” of demand to other countries. In fact, the US for some time has been moving towards protectionism, most clearly directed against China, but also vis-à-vis other third world countries.

Some have called this move towards protectionism in the US “de-globalisation” but that is not correct. While there is this tendency to introduce protectionism, no restrictions are being placed by the US on the movement of finance capital; indeed, on the contrary, any third world country imposing capital controls faces victimisation by the US. Such contradictions, however, do not bother the US. After all, it is a country that is going protectionist even while preaching the virtues of free trade to the rest of the world. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

In an economy like ours where the work-force is not neatly divided into “the employed” and “the unemployed”, and instead there is massive and growing casualisation of work, measuring unemployment is a tricky business. It necessarily means asking a person how much work that person got over a certain period in the past, because of which the unemployment measure varies depending on what period is taken into account and how much work over this period is taken to constitute employment. The National Sample Survey accordingly has three different concepts: usual status, weekly status and daily status; the NSS however, apart from conceptual issues relating to its definitions, carried out its large sample survey every five years while its annual survey was based on a much smaller sample, because of which it gave at best annual figures.

Researchers therefore have increasingly used the figures provided by the Centre for Monitoring the Indian Economy, a non-official organisation, which carries out a sample survey every month (an urban survey is conducted every week) asking people whether they were employed on the date of the survey. The unemployment rate is defined as the ratio of those who were unemployed but willing to and seeking work to the total number of the labour force, comprising the employed(the work force) and the unemployed. One may have reservations about its measure, but the CMIE gives a consistent set of figures over time that can be used for analysing trends.

The latest CMIE figures given for October 2023 show that the unemployment rate in the country stood at 10.05 per cent; the rural unemployment rate was 10.82 percent while the urban unemployment rate was 8.44 per cent. The overall unemployment rate was not only higher than in the previous month when it was 7.09 per cent, but was the highest since May 2021 when there had been a sharp spike (the previous sharp spike had been in 2020 because of the lockdown decreed by the Modi government in the wake of Covid-19).

This naturally has given rise to much discussion about the growing unemployment crisis in the economy; but I wish to explore another aspect altogether of the CMIE figures. Since the CMIE-estimated unemployment rate appears to change noticeably from one month to the next, my focussing on a different aspect of the CMIE figures to establish the growing unemployment crisis, rather than the monthly unemployment rate, has a certain rationale.

According to the CMIE chief, India’s work-force (which is synonymous with the number of employed persons) has remained virtually stagnant at a little over 400 million over the last five years, which means that employment has not increased at all. In October 2023, when the unemployment rate went up so sharply, the total labour force too had shown a sudden increase, and simple calculation shows that the absolute number of employed persons had remained unchanged compared to earlier (indeed it is this which explains why the unemployment rate went up so sharply). Thus the stagnation in the numbers employed is a reality in the Indian economy in recent years.

It is this which also explains the rise in unemployment rate that has occurred since 2019. The unemployment rate according to the CMIE which was 5.27 per cent in 2019 rose to 8 per cent in 2020, and remained at 5.98 per cent and 7.33per cent respectively in the next two years; and it has gone up still further in 2023. This rise in unemployment rate has been a result of the fact that while the labour force has increased, the numbers employed have remained unchanged in absolute terms. And this rise in labour force in turn has been the outcome of the working age population increasing without any offsetting fall in the labour participation rate.

Many commentators have attributed this stagnation in employment, and the rise in unemployment rate, to the incomplete recovery of the economy from the fall induced by the pandemic. This, if it is not to be a tautological proposition, must refer to the real Gross Domestic Product; but while GDP recovery after the pandemic has been undoubtedly slow, belying the government’s boast about “India being the fastest growing country in the world”, this fact alone cannot explain the stagnation in employment numbers. Compared to 2019, for instance, real Gross Domestic Product has increased by about 16 percent in 2023 (assuming a 6 per cent growth rate for 2023); if despite the GDP increase, employment has not increased, then this says something about the nature of the growth process, rather than just the slowness of it. In fact what the Indian experience shows is that the proposition that unemployment can be overcome if only the growth rate is accelerated, is utterly invalid; it all depends on how growth is brought about.

The absolute stagnation of employment is because the nature of growth has changed in the last few years compared to earlier, which has made growth less employment-generating. The small-scale and petty production sector which in any case was facing adversity because of neoliberalism that entailed a withdrawal of State support from this sector and exposed it to unrestricted foreign competition, had its woes compounded by the Modi government’s decision to demonetise currency notes and to introduce the Goods and Services Tax. On top of all this, the draconian lockdown ordered by the government in response to Covid-19 had a further devastating impact on this sector. It has not recovered from the crisis it faced owing to all these factors. The revival of growth in the economy in the post-Covid period has left this sector, which is the most employment-intensive sector of the economy, still reeling under a crisis. It is this uneven revival of GDP growth that is responsible for employment lagging behind, to a point where its growth has actually been almost zero.

It follows that the whole range of economic measures that the BJP government has in its kitty are incapable of generating much employment in the economy. These measures centre around providing incentives of various kinds to capitalists in order to make them invest more, so that the GDP growth rate gets accelerated. These measures however are infructuous for two very distinct reasons: first, in an oligopolistic market, investment depends upon the expected growth in the size of demand, and unless steps are taken to increase demand, simply giving more money to capitalists does not raise investment; they just pocket the money given to them without undertaking any additional investment. What is more, in so far as the transfers to capitalists are financed by cutting government expenditure elsewhere (in order to keep the fiscal deficit within stipulated limits),since the capitalists do not spend the entire amount of transfers handed out to them, there is a net shrinkage of demand which is contractionary for the economy and hence counterproductive. But secondly, even if such transfers could increase capitalists’ investment and hence GDP growth, the sectors where such increase would occur are not particularly employment-intensive; government measures are not oriented towards promoting the small-scale and petty production sector where employment in the economy is concentrated.

Ironically, while handing over tax concessions to capitalists in the name of promoting employment, the government does not itself undertake the necessary expenditure involved in filling the large number of vacancies that exist within the government sector. The ostensible reason for this is fiscal constraint; but the fiscal constraint itself is caused, among other things, by the tax concessions given to the capitalists. Also, ironically, when the unemployment rate is on the rise, especially rural unemployment rate as the October figures indicate, the government is cutting down on the Mahatma Gandhi National Rural Employment Guarantee Scheme.

The BJP government, with its ruthless class-bias in favour of the big bourgeoisie, has always been opposed to the MGNREGS. On one pretext or another it has been trying to roll back this scheme; and now allegations of corruption have become a new excuse for curtailing this scheme. The CMIE data, while highlighting the growing unemployment crisis, also expose the utter absurdity of the BJP government’s thinking on unemployment. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

All fascistic outfits have one common characteristic: they reject outright all evidence that goes against the narrative they spin; and the Hindutva elements in power in India are no exception. Their narrative presents India as the fastest growing economy in the world where the people never had it so good; but if evidence collected by international agencies or even by the government’s own agencies shows otherwise, then that evidence must be wrong. The credo of India’s fascistic Hindutva outfit is simple: the reality is what Modi says, if evidence shows otherwise then it must be wrong, and, most likely, the product of a nefarious terrorist conspiracy.

There is a fundamental difference between an outright rejection and a critique. If the Hindutva elements critiqued the evidence, then that would be a perfectly worthwhile activity, since all critique is intellectually productive: it leads either to a refinement of the method of collecting evidence, or to a different interpretation of the available evidence from the one commonly read into it, or to a redirection of focus to an altogether different body of evidence; it leads in short to a deepening of understanding. But engaging in any such intellectual activity, such as a critique of the evidence, is beyond the capacity of the Hindutva elements; they can only reject outright any evidence contrary to their spin, without ever explaining why a particular piece of evidence should not be taken into account for assessing the validity of their claims.

I shall illustrate my point with reference to three such episodes of rejection of evidence by the Modi government. The first relates to the 2017-18 National Sample Survey on consumer expenditure. These surveys, it may be recalled, had been designed by Professor P C Mahalanobis the distinguished statistician of the country way back in the 1950s; every five years there was a large sample survey which in fact was the largest regular periodic sample survey in the world, and which, notwithstanding all its limitations that are bound to exist in any such exercise, provided valuable material for generations of researchers in India and abroad.

The 2017-18 quinquennial survey, however, reportedly showed a dismal picture with regard to poverty in the country, because of which the Modi government not only prevented the findings of the survey from becoming public, but ended these surveys altogether. From what had “leaked out” before the suppression occurred, the real per capita rural consumer expenditure had declined by as much as 9 per cent between 2011-12 and 2017-18, on the basis of which the proportion of rural population unable to access 2200 calories per person per day (the original official benchmark for defining rural poverty) was estimated to have increased from 68 per cent in 2011-12 to 78.5 per cent in 2017-18.

Instead of being alarmed by this evidence, or even testing its verisimilitude by conducting a fresh survey (as the UPA government had done in 2011-12 because of the high levels of poverty shown by the original quinquennial survey of 2009-10), or setting up a committee of experts to examine the implications of the survey and the possible remedial measures that could be adopted, the NDA government just suppressed the findings and abandoned all future surveys! This is the typical fascistic response to evidence contrary to their claims.

My second example relates to the National Family Health Survey 5 which was conducted over the period 2019-21. This showed that compared to the previous NFHS 4 which was carried out in 2015-16, the incidence of anaemia in both children and women, which was already very high, had registered an alarming increase. While 59 per cent of children between the ages of 6 months and 59 months were anaemic in 2015-16, the figure for 2019-21 had risen to 67 per cent. What is more, the incidence of moderate to severe anaemia had risen from 30.6 per cent to 38.1 per cent between these two dates, while the incidence of mild anaemia had remained unchanged at 28.4 and 28.9 per cent respectively. Likewise among women (up to age of 49 years) there had been an increase in the incidence of anaemia between these two periods from 53 per cent to 57 per cent; the increase in moderate to severe anaemia was from 28.4 per cent to 31.4 percent. Even among men up to the age of 49 years, where the incidence of anaemia was much lower and rose by a smaller margin, from 23 per cent to 25 per cent, the incidence of moderate to severe anaemia rose from 5 per cent to 8 per cent. Rural children and adults showed a higher incidence of anaemia than the average, and children of anaemic mothers were at a higher risk of being anaemic.

What was the government’s response to these findings? Instead of showing any concern over these alarming findings, calling experts to discuss their veracity and implications and also the urgent steps to be taken to reverse the trend, which any government with an iota of concern for the people would have done, it simply suspended on a trumped-up charge the director of the institution, the International Institute of Population Studies, that had carried out the NFHS.(The trumped-up nature of the charge is evident from the fact that the suspension was lifted when the director resigned). That again was the typical fascistic response.

My third example relates to the Global Hunger Index. The Index for 2023 shows India occupying the 111th rank among a total of 125 countries for whom it is compiled (it is not compiled for countries with low levels of hunger); what is more, India’s rank is lower than that of our immediate neighbours, Pakistan (102nd), Bangladesh (81st), Sri Lanka (60th) and Nepal (69th), and has been falling over time.

Again, what was the government’s response to these extremely disturbing findings? Not an iota of shock, not an iota of concern, but simple outright rejection, with one cabinet minister even making utterly ill-informed and facetious remarks about them. The Global Hunger Index is calculated from four parameters: undernourishment, under-five mortality rate, child stunting (height compared to age) and child wasting (weight compared to height). Even if one accepts for a moment the government’s claim that these parameters are heavily influenced by the state of children rather than of adults, the index still shows that the state of children is abysmal in India compared to the rest of the world; this in other words does not constitute any ground for ignoring the finding of the GHI.

The minister had facetiously claimed that she too was hungry because she was travelling the whole day and would have said so if telephoned to inquire about her state of nutrition; the under-nutrition information going into the construction of the GHI, which was based on polling 3000 respondents in India, was therefore suspect, warranting a rejection of the GHI as a whole.

Three points however need to be made in this context: first, under-nutrition is only one of four parameters entering the GHI; second, even for assessing under-nutrition the GHI relies not just on polling respondents but also on food balance sheets of each country, derived from official data themselves; and third, the reason for polling respondents lies precisely in the discontinuation of the consumer expenditure surveys that the BJP government itself has ordered.

It should be remembered that India’s rank in the GHI, though sliding over time, has been abysmally low for quite a while, even before the consumer expenditure surveys were discontinued by the BJP government and the method of polling respondents was perforce resorted to. The coexistence of acute and growing hunger, together with high rates of GDP growth, has in other words been a perennial feature of the neo-liberal regime, even before the fascistic elements had come to power; they have only continued and accentuated the trend. The claim that polling respondents to assess hunger is responsible for showing India in a poor light is therefore additionally flawed, in addition to the above-mentioned reasons, for two further reasons: first, this method is used for all countries, not just for India, since other countries do not have the elaborate sample surveys that India used to have; and second, India’s low rank is not caused by the polling respondents method, for it predates the use of this method.

The fact that so many different indices prepared by so many different agencies, each using different sources, point to a state of acute and growing nutritional deprivation in India, even when GDP growth has apparently been occurring at a high rate, is a matter to be taken seriously. The fact that the fascistic government of the country, instead of showing any concern, simply rejects this evidence, shows its true colours. At this rate it will only destroy the entire statistical infrastructure of the country that had been erected with such great care. (IPA Service)

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By Prabhat Patnaik

The central government’s hounding of Newsclick reminds one of the children’s story about a tiger and a goat drinking water from the same stream. The tiger, wanting an excuse to attack the goat, accuses it of muddying the water it is drinking; when the goat points to the impossibility of this, as the tiger is upstream and the water is flowing not to the tiger but away from it, the tiger says: “well, your father had muddied the water I was drinking”.

The Modi government has been after Newsclick for months. The Delhi police had searched its founder Prabir Purkayastha’s office and house for evidence of financial misdemeanour for weeks on end; despite all its efforts it could not find evidence to bring any charges against Newsclick, not surprisingly since no such misdemeanour had been committed. Now, it has invoked a completely fresh charge, the charge of terrorism, has harassed scores of Newsclick employees including service providers, and arrested Prabir Purkayastha and Amit Chakravarty under the Unlawful Activities Prevention Act (UAPA), which is so draconian that any relief for the arrestee is extremely difficult, even when the charges are palpably ludicrous, as they are in the present case.

This change of track on the part of the Delhi police has not been the government’s own original idea. It has come to the government from an utterly malicious article published in the New York Times which accused a wealthy businessman, who is a US citizen, named Neville Roy Singham, of being close to the propaganda machine of the Chinese government and of using large sums of money to disseminate Chinese propaganda through a multiplicity of outlets among which Newsclick found a passing mention.

The NYT article is malicious, because it gives no evidence of the violation of any US law; but uses a series of suggestions and innuendos to build up a scenario of Chinese world-wide operations, allegedly mounted through persons like Singham, to push Chinese propaganda. Singham had declared in an e-mail to the NYT: “I categorically deny and repudiate any suggestion that I am a member of, work for, take orders from, or follow instructions of any political party or government or their representatives. I am solely guided by my beliefs, which are my long-held personal views.” The NYT article does not directly refute this claim; nor does it make any direct allegations of violation of any American laws by either Singham or any of the organisations allegedly funded by him. (See the informative article by Caitlin Johnstone in Monthly Review Online, August 12, 2023). But it presents a set of incidental details, each without any pertinence on its own, none directly making any accusations of malfeasance against Singham or any of the organisations allegedly linked to him, but all adding up together to present an illusion of malevolence on a global sale orchestrated by the Chinese authorities.

If Singham has done nothing illegal, and even the NYT article does not directly say he has, the organisations he has supported in the US have not done anything illegal either; nor have they promoted any Chinese “propaganda” other than taking a generally anti-imperialist Marxist position. What is mischievous and dishonest about the NYT article is that it implicitly and through innuendos equates anti-imperialism with Chinese propaganda; and herein lies the scope for McCarthyite witch-hunts that it opens up. Not surprisingly, Senator Marco Rubio in a letter to the US attorney general Merrick Garland has already demanded that American Leftist anti-war groups should be investigated because “they are tied to the Chinese Communist Party (CCP) and operating with impunity in the United States” (quoted in Johnstone).

Unlike the NYT article which was constrained to making only innuendos, presumably under the instructions of NYT’s lawyers keen to avoid legal action against it, the Delhi police has no such constraints; and it is armed with a law (the UAPA) under which it would not be called upon to defend whatever accusations it makes against individuals or organisations, for months if not years. So, it is emboldened on the strength of the same NYT article to make wild and baseless claims about Newsclick being used for promoting Chinese propaganda. I say “baseless” because as a regular reader of Newsclick I have come across no instance of Newsclick publishing anything remotely linked to any specifically Chinese government position, other than what constitutes a general Left or Marxist perspective on international affairs. It has of course a general respect for the Chinese revolution; but every third world anti-imperialist worth his or her salt must have such respect anyway.

This entire episode demonstrates two kinds of dialectics at work. The first is the dialectics between “liberal” and “fascistic” McCarthyism. The NYT is considered a “liberal” newspaper, even though it generally supports US imperialist wars all over the world; and a fundamental tenet of liberalism according to its proponents is the acceptance of diversity of views and opinions in society and of freedom to propagate such views within the confines of the accepted laws of the land. For the NYT to publish an article that, no matter what constraints it imposes upon itself as a fig-leaf, clearly encourages McCarthyite witch-hunts of anti-imperialist, anti-war, left-wing groups, and thereby strengthens fascistic elements in society, underscores the first kind of dialectics.

It is in conformity with the fact that the instruments used for repressing Left and democratic movements by the fascistic forces when they enter government are often forged by the liberal bourgeois elements that had preceded them: it is noteworthy in this context that the dreaded and thoroughly misused UAPA in India was first introduced by the liberal bourgeois government of Manmohan Singh, though of course the Modi government now uses it, after passing an amendment, against individuals and not just against organisations. This dialectics between liberal anti-communism and fascistic repression must not be lost sight of.

The second kind of dialectics is demonstrated by the fact that a “liberal” move towards a McCarthyite witch-hunt initiated in the US has its repercussion in India and is carried forward by a fascistic government here. This globalisation of McCarthyism is a phenomenon specific to the current era of globalisation. The Red Scare created by the fake Zinoviev Letter in 1924 in Britain which had led to the defeat of Britain’s first labour government under Ramsay Macdonald, had been essentially a British phenomenon. Likewise Senator McCarthy’s witch-hunt in the US in the 1950s which left an indelible imprint on American society, was essentially an American phenomenon that did not have any substantial direct global repercussions. But in the current era of globalisation, the impact of any such “manufactured” Red Scare does not remain confined to the country of its origin; it is used, often quite viciously, in other parts of the world.

The NYT may claim that its article did not make any direct, actionable accusations against Singham or the organisations to which he may have contributed, but in any third world country, like India under the present Modi dispensation that has been freely applying a draconian law like the UAPA, such an article can be, and has been used, to dreadful effect against individuals with progressive world views, who have the courage to speak ‘truth to power’ and keep alive the democratic spirit. The NYT cannot be oblivious of such an impact that its article will have in the contemporary era; the fact that it nonetheless went ahead and published such an article is a telling comment on contemporary western liberalism.

Invoking the China bogey is the form that McCarthyism takes in the present era. And the Modi government which insists that not an inch of Indian territory has been lost to China of late, seeks ironically to exploit the anti-China mood, generated by reports of actual loss of such territory, for a McCarthyite targeting of what remains of an independent media in the country.

If liberalism is to be genuinely ant-fascist, then it must shed its propensity to generate Red Scares, and, more generally, its McCarthyite predilections; this is especially necessary in the present era when McCarthyism has a tendency to get rapidly globalised, and when the world capitalist crisis has created a fertile ground for the growth of fascism everywhere in the world, fascism that can derive sustenance from such McCarthyite witch-hunts. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

One of the most intriguing questions at present is why Europe’s political leadership has become complicit in what appear to be US efforts at undermining European economies. The well-known American investigative journalist Seymour Hersh, having already provided evidence that the United States was responsible for the blowing up of the Nord Stream gas pipeline, has now revealed that this blowing up was not even linked to the war in Ukraine; it was a deliberate move on the part of the Biden administration to ensure that Europe remained dependent on US gas despite its being far more expensive, rather than become dependent on the much cheaper Russian gas.

The blowing up of the pipeline therefore was not just an assault on EU economies, especially Germany, whose costs of production would go up across the board because of it; it was also a direct subversion of a policy which the German government itself had launched. And yet there is not an iota of criticism, or even of disapproval couched in polite diplomatic language, by any German political leader of this act of economic sabotage directed against Germany.

What is more, in anticipation of the time when higher energy costs would really begin to bite (when the current subsidies being given by the German government to compensate for the higher energy price are ended), and in view of the generally uncertain energy outlook, there is a relocation of production that is taking place, away from Germany to the United States. And yet there is not a squeak from any German political leader on this brazen assault on the German economy. The question is: why?

While a proper answer must await further research, one element of the answer seems clear, namely, a large number of European politicians have been on the pay-roll of giant corporates of US origin; they are integrated into an international financial oligarchy associated with globalised capital, and they have little concern for national interests.

Rudolf Hilferding in his classic work Das Finanzkapital had talked of a personal union between the magnates of banks and those of industry, constituting the financial oligarchy. The financial oligarchy also had personal union with the personnel of the State, whereby the same individuals migrated with ease from one establishment to the other; this was one of the mechanisms that ensured that State policy was always framed so as to promote the interests of the financial oligarchy.

Hilferding however was writing in the context of national finance capitals. In the era of globalisation when finance capital has become globalised, while the State remains a nation state, the personal union between State personnel and international finance capital for promoting the interests of the latter must necessarily mean a degree of unconcern on the part of State personnel for the condition of the nation itself, which basically means for the condition of the working people within the nation. And this is what we actually find.

The examples of personal union between current leading European politicians and global corporates, many of them originating from America, are quite striking. Friedrich Merz, the leader of the Christian Democrats in Germany, and in that capacity the leader of the opposition in Germany, has extensive business interests, is a billionaire, and has served on several boards including the American BlackRock investment company. France’s current president Emmanuel Macron was an investment banker at the Rothschild financial group where he had brokered a deal between Nestle’ and Pfizer leading to the former’s acquisition of the latter’s baby food division.

The latest and most brazen instance is to be found in Greece, where Stefanos Kasselakis, an executive of Goldman Sachs, the American investment company, has just been elected the leader of Syriza, a supposedly Left-wing Party which had been in power earlier and is currently the biggest party of the opposition. Kasselakis has not been in politics before, knows next to nothing of the problems of Greece, has absolutely no familiarity with or ideological affinity towards the Left, and has generally avoided raising any major issues during his election campaign. His election was made possible by changing Syriza’s Party Constitution so that anybody could become a member of Syriza at short notice and therefore eligible to vote in the leadership contest. There is every likelihood of Kasselakis being elected the next prime minister of Greece; indeed this was his main selling point during the election campaign for Syriza leadership.

The point of this new crop of European leaders having been executives of corporates of American origin is not that they promote American interests at the expense of their own country’s interests, but that they are not bound by any considerations of national interests at all; instead they defend and promote the interests of globalised capital. Their position as corporate executives makes them committed to the interests of globalised capital, and hence committed to the political defence of globalised capital, which they believe can be provided only by unity among imperialist states. TransAtlantic unity therefore occupies a far more important place in their minds than it did in the minds of an earlier generation of European politicians.

We are seeing the emergence ofa new kind of politician, outside of the fascist fold, in the imperialist countries; and this is most evident in Europe, of which Britain’s Tony Blair was an early example. These politicians are often drawn from the corporate world, and often move back and forth between the corporate and political worlds. They have no ideology other than a commitment to neo-liberalism and a deep hostility towards the working class, even when they nominally belong to the Left or to Left-of-Centre parties: Tony Blair was a Labour prime minister, Emmanuel Macron was the finance minister in a “socialist” government, and Kasselakis has been elected to lead a “Left” party. And of course they have little concern for the interests of the nations they lead.

They are in short completely different from the De Gaulles and the Willy Brandts of yesteryear, who had ideologies, though different from one another, who worked in their national interests as they perceived it, and who were willing to stand up to the Americans. Apart from their political, as opposed to corporate, backgrounds, they also had attitudes more in tune with a period predating the hegemony of globalised finance capital.

The unity of imperialist states appears particularly urgent to this new crop of corporate-bred politicians in a period of crisis for (neo-liberal) capitalism. What is often seen as a threat to metropolitan capitalism arising from the tendency towards “multipolarity” misses this context of capitalist crisis; closing ranks among imperialist states is seen to be essential as a means of surviving the challenge that is likely to arise, as much from the domestic working class as from the third world, in the face of this crisis.

This quest for unity among imperialist states, even at the expense of “national interests”, however, opens the way for the ascendancy of fascism in metropolitan countries, since the fascist elements still talk of “national interests” and hence still strike a chord with the workingclass. It is another matter that if they come to power they line up behind their domestic big business and hence pursue the same economic and foreign policies as the preceding liberal bourgeois governments had been doing; the case of Meloni in Italy only confirms this proposition. But when in opposition they invoke the nation and project themselves as its defenders.

This is globalised capital’s “heads I win, tails you lose” strategy in the metropolis in the face of the crisis. The idea is to cordon off politics in the metropolis within the binary of a “fascism-versus-liberal bourgeois” choice. The liberal bourgeois governments whose leaders are corporate executives themselves, rally to the defence of globalised capital through promoting a unity among imperialist states; if they get rejected by the people, then the only alternative that is presented before the people is the fascist alternative that invokes the nation but does the bidding of globalised capital. Its invoking of the nation takes the form not of opposing globalised capital but of opposing the immigrants, against whom, in typical fascist fashion, it arouses popular anger, holding them responsible for the travails faced by the majority of workers, owing to the capitalist crisis. It is for the authentic Left, not the one led by corporate executives, to expose and defeat this “heads I win, tails you lose” strategy of globalised capital. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

At the Johannesburg summit of the BRICS countries, it was decided to expand the group beyond its original five, namely, Brazil, Russia, India, China and South Africa, to include six more countries. These are: Argentina, Egypt, Iran, Ethiopia, Saudi Arabia and the United Arab Emirates. These six it appears were chosen out of a list of twenty-two countries which had been keen to join the BRICS grouping. What is more, government sources in South Africa which currently chairs BRICS have revealed that as many as 40 countries have been interested in joining the group. The question naturally arises: why has BRICS suddenly become so popular?

Many have seen BRICS as an attempt on the part of some large countries, excluded from “the high table” of imperialist countries, to assert themselves and play a more significant role in world affairs, a role in keeping with what they think they deserve. But BRICS is a highly disparate body: Russia and China are permanent members of the UN Security Council with veto powers anyway, with one of them being currently engaged in a war with countries of the “high table” and the other being vilified as their “main enemy”; so the question of their feeling “excluded” simply does not arise. And as for the remaining members, BRICS, as a body, has not played any key role in any world situation since its formation; so, these remaining members too can scarcely be seen as mere aspirants for a bigger role in world affairs (for, had they been, they would have been more pro-active). Likewise, just acquiring greater importance cannot be the motive behind so many countries wanting to join the BRICS.

The problem with this explanation moreover is that it is quite oblivious of the political economy underlying the current world situation which is marked by an economic crisis of world capitalism, a crisis that even conservative and establishment economists are calling a “secular stagnation”.

In this situation of crisis, the old international institutions appear singularly inadequate, and the imperialist countries seem quite incapable of modifying them, or altering them, or making new institutional innovations, to cope with the situation. The BRICS appears in this context as an innovation of promise. The popularity of BRICS in other words is a manifestation of the crisis, an expression of lack of confidence in the imperial arrangement that has existed till now, to cope with the crisis. This does not make BRICS an “anti-imperialist” grouping: some countries within it are no doubt anti-imperialist but countries like Egypt, Ethiopia, Saudi Arabia and the UAE, can by no stretch of imagination be said to be revolting against imperialism by joining BRICS. While not anti-imperialist, they are looking at an alternative arrangement of promise which they think can provide them with crucial support in the days to come.

In the expanded BRICS that exists now there are three distinct kinds of countries (these are not mutually exclusive): countries against which imperialism has imposed unilateral “sanctions” or punitive protectionist measures; oil and natural gas producing countries; and countries that are already experiencing hardships in the midst of the current world crisis or are likely to do so in the coming days. China, Russia and Iran exemplify the first category; Russia, Iran, Saudi Arabia and the UAE exemplify the second; and Egypt, Ethiopia, Argentina the third (with Brazil and India being worried about the unfolding crisis and keen on alternative arrangements).

For countries that are subject to unilateral imperialist sanctions that are imposed even without any Security Council clearance, BRICS provides a potential arrangement for by-passing these sanctions. In that sense the inclusion of Iran in BRICS is perhaps more significant than any other measure adopted at the Johannesburg summit. Iran has not only been subjected to severe sanctions, but was the first country that was excluded from having to access to its own foreign exchange reserves held in metropolitan banks, which was in clear contravention of the capitalist rules of the game devised by the imperialist countries themselves. Since then such acts of international “brigandage” have become quite common, with Russia being the latest victim in the wake of the Ukraine war: it too was not allowed to access its own foreign exchange reserves held in foreign banks. Joining BRICS enables these “sanctioned” countries to break out of the vice in which imperialism wishes to trap them.

The oil and natural gas producers find the prices of their products falling because of the world recession and have been trying to shore up these prices by curtailing output in response to reduced demand. This is against the explicit wishes of the United States. Indeed, on one occasion, it had sent several emissaries, including even Biden himself, to Saudi Arabia to request that country to oppose an output cut at the then forthcoming OPEC+ meeting; but this US pressure had not worked. Since then there have been more occasions when OPEC+ has announced output cuts. If the oil producers are to have sufficient autonomy in future to decide on oil output in defiance of US wishes, then a diversification of their relations away from exclusive dependence on the US, without necessarily becoming antagonistic towards that country, seems essential. For them, joining BRICS is a means of such diversification.

For the third group of countries, that is, Egypt, Argentina and Ethiopia which have severely ailing economies and Brazil, India and South Africa whose economies, though also ailing, are less severely afflicted, the attraction of BRICS lies elsewhere, namely in the possibility of local-currency trade that by-passes the dollar. Brazil and China have recently entered into such a local-currency trade arrangement, as have India and the UAE; and more such arrangements are likely among BRICS members in the coming days which constitutes a major attraction for joining BRICS.

The relative currency values among countries entering into such arrangements are fixed, and the dollar is not needed either as the unit of account or as the medium of circulation in trade between them. Such arrangements, by effectively enlarging the availability of the circulating medium among these countries, and making such enlargement the outcome of decisions taken by the countries themselves (which can increase their money supplies at will), facilitate trade for them, which is no longer constrained by any dollar shortage.

This however answers only half the problem; what is required in addition is that the balance of trade between such countries should be settled by the surplus country buying goods and services from the deficit country, if not immediately then at least over a period of time. In other words, local-currency trade enlarges the stock of liquidity in the world economy but does not overcome the problem of external debt arising from trade between countries entering into such an arrangement.

When BRICS encourages such bilateral trade arrangements, where balances are also settled not by a build-up of debt of the deficit country but by buying more goods from it, it would have made a significant contribution towards improving the functioning of the world economy; it would then be a real alternative to the imperialist-dominated world economic order.

The new director of the BRICS Bank, Dilma Rousseff, the former president of Brazil, has made it clear that the bank has no intention of giving loans for debt settlement or debt servicing, either to the third world in general or to member countries; it would not reduce the third world’s need therefore for going to the IMF for this purpose and suffering from the “austerity” imposed by it. But she is keen on expanding local-currency trade and also on providing infrastructure lending to third world countries, which would go some way in loosening the hold of imperialist-dominated institutions.

There has been much discussion among Left circles in member countries about what exactly BRICS means for imperialism. Some argue that while it is anti-imperialist, it is not anti-capitalist; but even to call it anti-imperialist is a gross over-statement. A grouping with leaders like Modi, MBS (of Saudi Arabia) and Sisi (of Egypt) cannot possibly be called anti-imperialist. What it does however is to weaken, at least to some extent, the monopoly stranglehold of imperialist institutions on the world economy; and that certainly is a positive development. It does not itself constitute a blow against imperialism, but it creates a setting that is more favourable for the working people of the world to strike a blow against imperialism. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

When BJP rule in the country is dead and gone, a good deal of the damage it has caused to the Indian society, polity and economy will no doubt be reversed. But there are at least two areas where such reversal will be difficult: one is the architectural vandalism it has perpetrated. This vandalism began with the destruction of the Babri Masjid, which, quite apart from stoking communal animosity, was an instance of barbarism: no civilized and sensitive group would wantonly destroy a 400-year old structure; and this vandalism has continued with the insertion of a structure next to the parliament building that destroys the carefully planned old layout. (The fact that it was a colonial regime that had conceived it is not a justification for such vandalism).

The other area where the damage inflicted by the BJP government has been massive and whose reversal will be as difficult is the destruction of universities; and it is this which concerns us here. A university is not just a set of buildings where teaching takes place; any coaching centre can have these. A university above all is a space which values thought, and creating an ethos where thought is valued, takes time. Such spaces are especially difficult to create in a third world society; and it is to India’s credit that it had managed to create a few such spaces. A contributory factor no doubt was the size of the country: academics from neighbouring countries often lament that their countries simply lack the scale to build a proper academic atmosphere; but an even more important factor in India was a generally shared respect for serious thought in society, whether or not one agrees with a particular school of thought.

Fascistic outfits which are themselves devoid of any serious thought, also lack respect for serious thought. It is little wonder then that the BJP government is hell-bent on systematically destroying the few spaces that exist in the country for serious thought. Its assault on universities will do incalculable damage to the country.

This assault which had begun with public universities has now extended even to private universities. Central universities like the University of Delhi which arguably had among the best undergraduate teaching programmes in the world, the Jawaharlal Nehru University which pioneered an academic discourse in the social sciences in India that challenged the hegemony of the metropolis, and Viswa Bharati which was infused with the vision of Rabindranath Tagore, are now reduced to mere shadows of their former selves. By appointing as vice chancellors persons whose primary qualification is loyalty to the RSS, by making sub-standard appointments to faculty positions in the desire to “take-over” universities by filling them with their loyalists, by doing exactly the same with respect to student intake, by ensuring that the various academic bodies are filled with “yes-men” by making out-of-turn appointments as deans and chairpersons and giving numerous extensions to them in these positions, the BJP establishment has not only destroyed the vibrant democratic ethos that prevailed in these universities earlier. It has not only let its favoured goons terrorise opponents with impunity, but has inevitably lowered the academic standards in these once-prestigious centres of learning. And to cap it all these universities are also being starved of funds.

Now its reach has even extended to private universities, which had come up during the decline of public universities. What Ashoka University has reportedly done must be quite unparalleled anywhere. A member of its economics faculty had written an academic paper suggesting on the basis of a careful analysis of data that there might have been manipulation of election results in some constituencies in the 2019 parliament election. Universities are precisely the places where papers like this get written; but not only did the BJP army of trolls come down like a ton of bricks on the faculty member, but the university quite gratuitously put out a statement dissociating itself from the paper. Further, it turns out that the university’s governing body, where its donors are represented, sat in judgement over this purely academic paper and even suggested some modifications in it. The faculty member has submitted his resignation, and his department has objected to the university’s behaviour and threatened protest action if the faculty member is not reinstated.

A bunch of businessmen, which is what the donors of private universities typically tend to be, sitting in judgement over an academic paper is completely unheard of. And it is not as if the authorities of Ashoka University, and even the donors themselves, are unaware of it. But they chose to intervene in academic matters because of their fear of the government. It is the central government’s hostility to any criticism, even in the form of an academic paper, that is being relayed through the governing body and the university authorities, to the academic faculty.

It is patently obvious that no university worth its name can function under these conditions. At this rate if an academic paper for instance argues that poverty in India, instead of declining as claimed has actually increased during a certain period that overlaps with BJP rule, then its author will be censured and asked to revise its conclusions. If a paper argues on the basis of data that because of the agrarian crisis the per capita real income in rural India has gone down during a certain period that overlaps with BJP rule, then that too will have to be “revised” in conformity with the government’s wishes. Research under these conditions will become synonymous with simply publicising the BJP government’s hand-outs about its own achievements; and since teaching in a university is invariably nourished by research, the death of research will also mean the atrophy of teaching, and hence the death of the university.

Some may feel that this is an over-statement, that in all private universities, donors and university authorities (it is often difficult to allocate exact responsibility) exercise immense influence on the university’s academic life. They certainly influence appointments. In North American universities in the old days scholars of Jewish origin were often discriminated against; nowadays anyone sympathetic to the Palestinian cause is at a disadvantage. Marxists of course are always victims of discrimination, so much so that Paul Sweezy had even stopped accepting invitations from several universities to become a visiting professor because he had heard that his visiting stints were being used as an excuse to deny tenure to young Marxist scholars who had earlier been temporarily recruited to teach.

There are however two basic differences between such instances of donor-driven or authorities-driven discrimination or victimisation that occur in many private universities abroad and what we have just witnessed in India. First, in all such instances of discrimination or victimisation it is rare to find any evidence of government intervention or threat behind the actions of university authorities; these actions may express donors’ prejudices, including prejudices in favour of the ruling establishment, but not political arm-twisting. Second, the instances of discrimination and victimisation in private universities abroad rarely take the form of its donors or authorities “investigating” an academic research paper and asking its author to make changes in it. Research papers are peer-reviewed and follow an entirely independent trajectory towards publication, where there may of course be explicit or implicit interference to change their content; but this has nothing to do with the university authorities or donors. What is unfolding in Ashoka University is thus extremely unusual; it reflects the ascendancy of a fascistic state that simply cannot tolerate any criticism, however implicit and however academic, of its actions or of the process that brought it to power, and puts pressure to have such criticism withdrawn.

But this virtually rules out all research in the social sciences. These disciplines are concerned with society and hence, crucially, with the formation of governments and the outcome of government action; if scholars cannot study them to arrive at conclusions they consider truthful (and the academic world has its own mechanisms for assessing the truthfulness of such conclusions) then research in the social sciences becomes impossible. Eventually this will also extend to the natural sciences, where any research throwing doubts on the pet superstitions of the Hindutva elements will invite demands for recantation. This will destroy the raison d’être of universities in the country, reducing them at best to mere coaching centres.

The Modi government is given to much drum-beating about its vision for India as an atmanirbhar (self-reliant) country; but no country can be self-reliant if its universities have been effectively destroyed. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

ON April 3 this year, the minister of state for planning, Rao Inderjeet Singh, said in the Rajya Sabha that the government had no data after 2011-12 for estimating poverty, and therefore had no idea how many people had been lifted out of poverty since then. On July 18 however the UNDP announced that between 2005 and 2019, India had lifted 415 million persons out of poverty; it had of course no information for the post-pandemic period, but for the pre-pandemic period what it said generated much hype. What was missed in this hype however was not only that the UNDP’s concept of poverty was vastly different from what is usually meant by the term, but also that the UNDP concept is neither theoretically robust nor statistically well-founded. The euphoria created by it was simply false.

India’s official poverty estimates, though no longer directly based on nutritional deprivation, still take nutrition as a point of departure; and the NSS large sample consumer expenditure surveys provide the statistical basis for these estimates. There has been no poverty estimate for the years after 2011-12 because: the results of the next survey, for 2017- 18, were suppressed by the central government and there have been no further surveys since then.

The UNDP by contrast takes a number of indicators, assigning them specific weights to arrive at a composite measure. Among these indicators are: whether the body-mass index is below 18.5kg/m2; whether any child below the age of 18 has died in the family in the previous five years; whether any household member aged “school entrance age plus six years” or older, has completed at least six years of schooling; whether any school-aged child is not attending school up to the age at which he or she would complete class eight; and so on.

Now, in any society undergoing “modernisation” these indices should be showing an improvement: the death-rate for children under eighteen drops; peer pressure and aspirations make parents send their children to school (especially if school attendance entitles a child to free mid-day meals); completing at least six years of schooling becomes quite common even when children drop out of school later; and so on. The satisfaction of all these criteria however is perfectly compatible with the family’s real income shrinking, in the sense of commanding a smaller and smaller bundle of goods. In other words even when families are becoming worse off, and hence even when poverty in the country, as usually understood, is increasing, the UNDP measure could show a decline in poverty.

Put differently, the UNDP measure, which is supposed to reflect what it calls “multi-dimensional poverty”, makes a decline in poverty virtually synonymous with “modernisation”. Genuine poverty however is concerned not with the mere occurrence of “modernisation” but with the question of who bears the cost of modernisation, whether the working people or the rich. And nothing in the UNDP measure is at all concerned with this latter question.

The fact that “modernisation” has been occurring rapidly in India, and substantially under the aegis of the State, is undeniable; and it is this which shows up in the UNDP measure. But poverty, as commonly understood, is concerned, as we have seen, with the costs of modernisation: whether the fiscal means for the social provisioning for “modernisation” come at the expense of the working people’s consumption; and whether for “modernising” their lives in keeping with the changing times the family has to experience a decline in its living standard that is manifested above all in its food consumption (since whenever the family’s budget gets stretched it usually cuts back on its food consumption).

This incidentally is the rationale for taking nutrition as the basic criterion for estimating poverty. It is not as if nutrition is all that counts (as is assumed wrongly by those who accuse scholars emphasizing nutritional deprivation as “calorie fundamentalists”); but nutritional deprivation is the litmus test that shows up overall immiserisation. Nutritional intake is a proxy for real income, indeed a better indicator of it than deflating money income by some necessarily questionable consumer price-index. Worsening nutritional intake (except at the top where such intake is deliberately reduced for health reasons to avoid “over-consumption”), is a fairly reliable symptom of the family becoming worse off.

Of course, UNDP officials would argue that they are not ignoring undernutrition; after all 1/6 weight of the index they prepare is given to nutrition. But what they mean by nutritional deprivation is something quite different. They mean not a decline in calorie or protein intake, but the “body-mass index” of a person falling below 18.5 kg/m2. Nutritional deprivation in terms of reduced calorie or protein intake has a number of effects: it reduces the capacity to work; it makes the person prone to diseases, and so on. A reduction in the body- mass index can be one such effect. The UNDP therefore takes just one possible consequence of nutritional deprivation, a fall in BMI, and that too only when its value falls below a threshold, namely 18.5 kg/m2, and makes that the sole criterion of assessing such deprivation.

In fact, a reduction in BMI per se does not mean that it would necessarily fall below 18.5 kg/m2. Nutritional deprivation can go on for quite some time, without the body- mass index falling below the specified threshold. For instance, a person who is 5 ft.8 inches tall has to lose 18.8 kgs before his BMI goes down from 25 kg/ m2 to 18.5 kg/m2; and skimping on food can bring about such a loss of weight only over a rather prolonged period. Nutritional deprivation in short can affect a person’s well-being and health without being captured in the UNDP poverty measure; and this is in addition to the fact that it has been assigned a low weight of only 1/6.

The contrast between the UNDP estimate and what is revealed by the NSS large sample survey comes out clearly from the following. The UNDP estimated that in 2005-06 there were 645 million people in India who were “multi-dimensionally” poor and that this number had dropped to 370 million by 2015-16. This means that 275 million people had been lifted out of poverty between these two dates (and another 140 million were to be lifted out of poverty between 2015-16 and 2019-20.

The 75th Round of the NSS survey in 2017-18 by contrast pointed out that in rural India between 2011-12 and 2017-18, the per capita real spending on all goods and services, fell by 9 per cent, a finding so startling that the central government withdrew the data from the public domain mere hours after releasing it. (The fall of 9 per cent quoted here is from the summary results that some individuals had managed to download, before these were removed; some discussion of these results also appeared in the press at the time).

The proportion of rural population not able to access 2200 calories per person per day, which was the original benchmark actually applied by the Indian Planning Commission for estimating rural poverty, was 68 per cent in 2011-12. This itself had gone up from 58 per cent in 1993-94; but by 2017-18 this figure had gone up further to an estimated 77 per cent. Thus, over a part at least of the period during which the UNDP estimates that millions were lifted out of “multi-dimensional” poverty, there was such a sharp increase in rural poverty, as the term has been always understood, that the government of India decided, no doubt opportunistically, to suppress the data altogether!

So far we have talked of rural poverty. On the eve of the pandemic the “usual status” unemployment rate in India had reached a level higher than at any time during the previous 45 years, from which one can safely infer that poverty, as normally understood, could not have declined, but is likely to have increased, taking urban and rural areas together, contrary to the impression given by the UNDP.

The foregoing is a criticism not of the UNDP’s measure per se, but of calling it a measure of poverty. What has been happening to poverty is a hotly debated issue in India. The UNDP has jumped into this debate with a rosy picture of poverty-removal, but by using the term ‘poverty’ in a completely different sense from everybody in this debate. Unless one keeps this difference firmly in mind, one would be hard put to explain how a country that has slid to the 107th rank among the 121 countries in the World Hunger Index in 2022, could simultaneously have seen hundreds of millions of people “lifted out of poverty”!(IPA Service)

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By Prabhat Patnaik

Fascistic elements exist in every modern society, but usually as fringe, marginal or minor elements. They move centre-stage only when they get the support of monopoly capital which provides them with ample money and media coverage; and this happens when there is a capitalist crisis that substantially increases unemployment and puts a question mark on the hegemony enjoyed by monopoly capital until then. The role of the fascistic elements in such a situation is to provide a diversion of discourse, so that the basic distress of living under a capitalism afflicted by crisis, is sought to be covered up through the spread of hatred and antagonism against some hapless religious or ethnic or linguistic minority; in addition of course there is the use of State repression when fascistic elements come to power, as well as the unleashing of their own fascist thugs as vigilante groups against the targeted minority, and against thinkers, intellectuals, political opponents and independent academics.

India conforms entirely to this pattern. There is however an additional element associated with the rise of fascistic groups to political power. Within monopoly capital it is a newly emerging element, the “new monopoly bourgeoisie”, that acquires a particularly close relationship with the fascistic groups. Daniel Guerin, the well-known French anarcho-Marxist, had argued in his book Fascism and Big Business, that in Germany the newly-emerging monopoly capitalists in spheres like steel, producer goods, armaments and munitions had provided particularly solid backing to the Nazis in the 1930s, compared to the older monopoly capitalists engaged in spheres like textiles and consumer goods.

To say this is not to suggest that the latter group did not support the Nazis; in fact Michael Kalecki the well-known economist talks of the Nazi regime as a partnership between fascist upstarts and big business without drawing any distinctions within the latter. It is a fact however that the new monopoly groups provide much more pro-active, much more aggressive support to the fascistic elements. Likewise in Japan, it was the emerging new group of monopoly capitalists, the Shinko Zaibatsu firms such as Nissan and Mori, that was far more aggressive in supporting the Japanese military-fascistic regime in the 1930s than the old Zaibatsu consisting of houses like Mitsui, Mitsubishi and Sumitomo who had earlier been in the forefront of Japanese industrialisation.

Again it is not a question of the old monopoly houses not supporting the fascistic regime; they obviously did (Mitsubishi after all was involved in ship-building). And this support was the reason why the post-war American occupation regime in Japan under General Douglas MacArthur also disbanded the old zaibatsu houses (it is another matter that they resurfaced in a different guise subsequently). But it was the new monopoly houses whose support for the military-fascistic regime was total, absolute and far more aggressive.

Here again India conforms entirely to this pattern. The new monopoly houses like the Adanis and the Ambanis have been far more pro-active in their support for the Modi regime, and have in turn benefitted immensely from such support, compared to the old and established monopoly houses, though the latter have not been in anyway reluctant to extend their support, with the head of the Tatas even visiting the RSS headquarters in Nagpur to underscore that house’s proximity to the Hindutva regime.

The Modi government’s close nexus with the new monopoly elements in particular and with monopoly capital in general has often been described as “crony capitalism”. This description however understates the closeness of the nexus between the fascistic elements in power and monopoly capital, especially new monopoly capital. It misses the specific, sui generis nature of this relationship that is better described as a corporate-Hindutva alliance. It amounts to using a blanket term that is applicable to all of modern capitalism to the specific situation of ascendancy of fascistic elements, and thereby misses its specificity.

In fact all capitalism is crony capitalism in a certain sense: there are certain “rules of the game” that have to be followed, but within those rules discretion is exercised in favour of “cronies”. For instance, for getting a contract, an applicant must fulfil certain minimum criteria, but among all who fulfil these criteria those who have the right “connections” or have the right public school education, or the right “background”, get the contract. The award of contracts under capitalism in other words is never entirely blind; but this lack of blindness, this systematic practice of favouritism, occurs within a certain set of “rules of the game”.

Under monopoly capitalism of course this relationship between monopoly capitalists and the state becomes far closer. Rudolf Hilferding in his opus Das Finanzkapital had talked of a “personal union” between banks and industrial capital and the formation on this basis of a “financial oligarchy”, and had suggested a similar “personal union” between the “financial oligarchy” and the State. Executives of multinational corporations are appointed to senior State positions; and likewise senior State personnel shift smoothly to multinational corporations in senior executive positions. State policy thereby gets tailored to take care of the interests of monopoly capitalists. All this however still occurs within certain “rules of the game” which continue to be maintained, no matter how tilted in favour of the monopoly capitalists.

Even when the CIA staged a coup in Guatemala to topple Jacobo Arbenz whose land reforms had hurt the United Fruit Company of the US, or when the CIA and MI-6 staged a coup against Premier Mossadegh of Iran because he nationalised the oil industry, thereby displacing the British oil company, Anglo-Iranian, from the pre-eminent position it had occupied till then, the aggressive States were acting in defence of the interests of particular monopoly capitalists; but there was no disowning of the “rules of the game” and no owning that a coup had been staged to defend particular monopoly interests. In fact, to this day the British government formally denies having anything to do with the coup that toppled Mossadegh and brought the Shah of Iran to power.

The emergence of fascistic elements to power however changes all this. It entails a fundamental shift, namely a jettisoning of the “rules of the game”. This is clearly evident in the Indian case. When the prime minister asked the French government to accept a newly created firm by Anil Ambani as the local manufacturer of the Rafael aircraft, there was no question of any global tender, and no question of satisfying any minimum criteria. In fact even the public sector manufacturer was by-passed, for which no explanation was ever offered.

Likewise when, despite the Hindenburg revelations, no inquiry is ordered into the affairs of the Adani group, what we have is an abrogation of the “rules of the game”. It is reported that the BJP government is planning to select some firms and build them up to be “winners” in competition with other countries’ firms, which is indicative of a very close nexus between monopoly capital, especially new monopoly capital, and the State. There will be no “rules of the game” that will be followed in picking these potential “winners”; it will simply entail State help for building up the empires of monopoly capitalists with whom the Hindutva elements have entered into an alliance.

On the other side, the new monopoly elements reciprocate by ensuring that the Hindutva government gets full media support. It is hardly surprising that the remaining stray TV channel that had been somewhat independent of the government is bought up by the Adanis so that the process of garnering unanimous media support for the corporate-Hindutva alliance is completed.

It would be a patent understatement to call this entire process, reminiscent of what Mussolini had called “a fusion of state and corporate power”, as merely a case of “crony capitalism”. In fact any talk of “crony capitalism” itself presupposes that there is a “pure”, “non-crony” capitalism which normally prevails but which is transgressed under the rule of the Hindutva elements. There is in fact no such animal; all capitalism is “crony capitalism”, but the relationship between the state and capital changes over time and becomes much closer under monopoly capitalism. Capitalism in the period of fascistic rule represents however, a further qualitative transformation of this relationship, where the rule itself is exercised by a corporate-Hindutva alliance. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

How exactly is the dollar’s status as reserve currency related to imperialism? This question has two parts: how this status of the dollar is related to US imperialism, and how it is related to the overall imperialist arrangement. The dollar’s being a reserve currency makes it (and dollar-denominated assets in general) a medium of wealth-holding in the world economy, a role that precious metals, like gold, and to a lesser extent silver, have played historically. Currencies have for a long time played this role by being convertible to gold at a fixed rate, which was also the case under the post-war Bretton Woods system. The dollar at present is not so convertible officially; nonetheless the world’s rich consider the dollar to be as good as gold in two ways.

First, unlike commodities it has negligible carrying costs; and second, its value in terms of commodities is not expected to decline secularly, notwithstanding year-to-year fluctuations in this value. This is ensured by having an adequately large reserve army of labour (to keep down dollar wages in the US) and by imposing income compression, through political compulsion and through IMF “conditionalities”, on third world primary commodity producers to keep down their prices.

But if the dollar is considered “as good as gold” by the world’s wealth holders, then in effect it makes the US sit on an inexhaustible gold mine, with which it can finance its current account deficits, without having to depreciate its currency. To be sure, the dollar is not the only currency in terms of which the world’s wealth is held; there are other currencies like the euro, the pound sterling, and the yen in terms of which (or in assets denominated in terms of which) the world’s wealth is also held. But all these currencies become vehicles for wealth-holding only because their values in terms of dollars are not expected to decline secularly. These other advanced countries adjust their levels of aggregate demand and hence rates of unemployment in order to ensure that their currencies do maintain their relative values vis-à-vis the dollar, and hence that these expectations continue to be sustained. The wealth-medium status of these other currencies in short is derived from that of the dollar; it is the dollar that is the basic “as-good-as-gold” currency, and this fact allows the US to finance its current deficits without any hitch.

But why should such deficits arise in the first place? Throughout the history of capitalism, the leading capitalist country has generally maintained a current account deficit vis-à-vis other emerging capitalist powers, giving them access to its own market (even when these rival powers have protected themselves against the leading country) in order to accommodate their ambitions, and thereby maintain its own leadership role; in fact it is a condition for its being the leader that it should run a current account deficit vis-à-vis them. When Britain was the leader of the capitalist world, it ran a persistent current account deficit vis-à-vis continental Europe and the United States, which were then emerging as rival powers. But Britain offset its deficits vis-à-vis these countries through an unrequited appropriation of the large gold and exchange earnings from the world by its colonies, by imposing administered liabilities on them, a process that is rightly called a “drain”. This was supplemented by pushing out deindustrialising exports to its colonies and semi-colonies, so much so that taking its balance of payments as a whole it was actually able to show a current account surplus, that is, undertake capital exports. Ironically it was making capital exports to those very countries (taken as a group) vis-à-vis which it had current account deficits, namely continental Europe, the US and other temperate lands of white settlement.

The US cannot extract a “drain” today on the same scale; nor can it make sufficient deindustrialising exports to third countries (countries other than the emerging capitalist powers); it perforce therefore has to run an overall current deficit, which it meets by printing dollars (or exporting dollar-denominated IOUs). The dollar’s reserve currency role therefore is crucial for the US to maintain its hegemony vis-à-vis the capitalist world.

It is also what determines the level of activity within the US and hence in the entire capitalist world. While every other country is constrained by the fact that its government cannot increase aggregate demand through larger expenditure, as it had done during the Bretton Woods period, because globalised finance capital imposes a limit on its fiscal deficit relative to its GDP, the US is free of this constraint; there can hardly be a financial flight from the US since its currency is deemed to be “as good as gold”. Therefore, barring “asset price bubbles”, expenditure by the US government is what determines, for any given level of income distribution in the world, the level of activity in the capitalist world economy. The US government may itself choose to limit its expenditure to avoid getting into debt vis-à-vis the rest of the world (through the latter’s holdings of dollars and US government bonds); but it is not constrained to do so. What it does is a matter of its policy, and it determines what happens to output and employment in world capitalism.

This entire matter can be looked at in a different way. Let us suppose for a moment that the dollar was not a reserve currency. Then the US would have to attempt to eliminate its current account deficit through a depreciation in the external value of the dollar. Such a depreciation, if it is to be effective and not just dissipate itself through an equivalent rise in money wages and prices within the country, would necessarily squeeze real wages, which would arouse domestic working class resistance (to counter which unemployment would have to be increased sufficiently to beat down workers’ wage-bargaining strength); and even if depreciation becomes effective by weakening the workers’ resistance, it would arouse retaliation from other advanced capitalist countries at whose expense the US would be expanding its sales for reducing its current account deficit.

Thus if the dollar was not a reserve currency then the US could not remain the leader of the capitalist world; it would be engaged in a beggar-my-neighbour conflict vis-à-vis other advanced capitalist countries (each trying to snatch markets from others),and facing even stronger workers’ resistance than it does today. And if unemployment within the US was raised to beat down the workers’ wage-bargaining strength, then this would mean a lower level of economic activity for the capitalist world as a whole. (The effect of such reduced levels of economic activity in other advanced capitalist countries could not have been countered through larger state intervention there, since such State activism within each country is not possible in a world of globalised finance).

This also explains why the dollar’s role as a reserve currency is beneficial for the system as a whole, not just for the US but for the entire advanced capitalist world. It is what gives coherence to the system and makes it function smoothly. But it is also what sustains the entire imperialist arrangement, for the system rests on imperialism.

The dollar, as the reserve currency, is not only a medium of wealth-holding but also a medium of circulation. In fact it cannot be a medium of wealth-holding without also being a medium of circulation; countries need dollars for trading with one another. If there is a scarcity of any raw material or tropical wage good produced within the third world relative to its demand in the world market, then its price rises. But obviously the overall extent of such inflation will be higher in an economy where it is the only product, or even the only major product, than in an economy where it is just one input into a whole range of products, i.e., within the third world economy compared to the advanced capitalist economies where there is substantial value addition. Because of this higher inflation, there would be capital flight in anticipation of a depreciation of the third world currency relative to dollar, which would cause an actual depreciation that may go on and on. Tostem such depreciation, “austerity” measures would then be imposed upon the third world, greater unemployment would be generated, and incomes would be compressed.

The growing wage goods and raw material needs of the metropolis as a whole therefore are met, even when there is no increase in their output, through compressing incomes and hence demand for such wage goods and raw materials within the third world itself. This would not happen if the third world did not use dollars and traded largely within itself. Dollar hegemony thus constitutes the basis of contemporary imperialism.

This hegemony is currently under threat. Trading arrangements with local currencies, or with new currencies such as what the BRICS countries are reportedly planning to introduce, are gaining ground, encouraged in particular by the number of countries against whom the advanced capitalist countries have imposed “sanctions”. Not that a collapse of dollar hegemony is imminent; but a process of its decline over time has been surely initiated. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

How exactly is the dollar’s status as reserve currency related to imperialism? This question has two parts: how this status of the dollar is related to US imperialism, and how it is related to the overall imperialist arrangement. The dollar’s being a reserve currency makes it (and dollar-denominated assets in general) a medium of wealth-holding in the world economy, a role that precious metals, like gold, and to a lesser extent silver, have played historically. Currencies have for a long time played this role by being convertible to gold at a fixed rate, which was also the case under the post-war Bretton Woods system. The dollar at present is not so convertible officially; nonetheless the world’s rich consider the dollar to be as good as gold in two ways.

First, unlike commodities it has negligible carrying costs; and second, its value in terms of commodities is not expected to decline secularly, notwithstanding year-to-year fluctuations in this value. This is ensured by having an adequately large reserve army of labour (to keep down dollar wages in the US) and by imposing income compression, through political compulsion and through IMF “conditionalities”, on third world primary commodity producers to keep down their prices.

But if the dollar is considered “as good as gold” by the world’s wealth holders, then in effect it makes the US sit on an inexhaustible gold mine, with which it can finance its current account deficits, without having to depreciate its currency. To be sure, the dollar is not the only currency in terms of which the world’s wealth is held; there are other currencies like the euro, the pound sterling, and the yen in terms of which (or in assets denominated in terms of which) the world’s wealth is also held. But all these currencies become vehicles for wealth-holding only because their values in terms of dollars are not expected to decline secularly. These other advanced countries adjust their levels of aggregate demand and hence rates of unemployment in order to ensure that their currencies do maintain their relative values vis-à-vis the dollar, and hence that these expectations continue to be sustained. The wealth-medium status of these other currencies in short is derived from that of the dollar; it is the dollar that is the basic “as-good-as-gold” currency, and this fact allows the US to finance its current deficits without any hitch.

But why should such deficits arise in the first place? Throughout the history of capitalism, the leading capitalist country has generally maintained a current account deficit vis-à-vis other emerging capitalist powers, giving them access to its own market (even when these rival powers have protected themselves against the leading country) in order to accommodate their ambitions, and thereby maintain its own leadership role; in fact it is a condition for its being the leader that it should run a current account deficit vis-à-vis them. When Britain was the leader of the capitalist world, it ran a persistent current account deficit vis-à-vis continental Europe and the United States, which were then emerging as rival powers. But Britain offset its deficits vis-à-vis these countries through an unrequited appropriation of the large gold and exchange earnings from the world by its colonies, by imposing administered liabilities on them, a process that is rightly called a “drain”. This was supplemented by pushing out deindustrialising exports to its colonies and semi-colonies, so much so that taking its balance of payments as a whole it was actually able to show a current account surplus, that is, undertake capital exports. Ironically it was making capital exports to those very countries (taken as a group) vis-à-vis which it had current account deficits, namely continental Europe, the US and other temperate lands of white settlement.

The US cannot extract a “drain” today on the same scale; nor can it make sufficient deindustrialising exports to third countries (countries other than the emerging capitalist powers); it perforce therefore has to run an overall current deficit, which it meets by printing dollars (or exporting dollar-denominated IOUs). The dollar’s reserve currency role therefore is crucial for the US to maintain its hegemony vis-à-vis the capitalist world.

It is also what determines the level of activity within the US and hence in the entire capitalist world. While every other country is constrained by the fact that its government cannot increase aggregate demand through larger expenditure, as it had done during the Bretton Woods period, because globalised finance capital imposes a limit on its fiscal deficit relative to its GDP, the US is free of this constraint; there can hardly be a financial flight from the US since its currency is deemed to be “as good as gold”. Therefore, barring “asset price bubbles”, expenditure by the US government is what determines, for any given level of income distribution in the world, the level of activity in the capitalist world economy. The US government may itself choose to limit its expenditure to avoid getting into debt vis-à-vis the rest of the world (through the latter’s holdings of dollars and US government bonds); but it is not constrained to do so. What it does is a matter of its policy, and it determines what happens to output and employment in world capitalism.

This entire matter can be looked at in a different way. Let us suppose for a moment that the dollar was not a reserve currency. Then the US would have to attempt to eliminate its current account deficit through a depreciation in the external value of the dollar. Such a depreciation, if it is to be effective and not just dissipate itself through an equivalent rise in money wages and prices within the country, would necessarily squeeze real wages, which would arouse domestic working class resistance (to counter which unemployment would have to be increased sufficiently to beat down workers’ wage-bargaining strength); and even if depreciation becomes effective by weakening the workers’ resistance, it would arouse retaliation from other advanced capitalist countries at whose expense the US would be expanding its sales for reducing its current account deficit.

Thus if the dollar was not a reserve currency then the US could not remain the leader of the capitalist world; it would be engaged in a beggar-my-neighbour conflict vis-à-vis other advanced capitalist countries (each trying to snatch markets from others),and facing even stronger workers’ resistance than it does today. And if unemployment within the US was raised to beat down the workers’ wage-bargaining strength, then this would mean a lower level of economic activity for the capitalist world as a whole. (The effect of such reduced levels of economic activity in other advanced capitalist countries could not have been countered through larger state intervention there, since such State activism within each country is not possible in a world of globalised finance).

This also explains why the dollar’s role as a reserve currency is beneficial for the system as a whole, not just for the US but for the entire advanced capitalist world. It is what gives coherence to the system and makes it function smoothly. But it is also what sustains the entire imperialist arrangement, for the system rests on imperialism.

The dollar, as the reserve currency, is not only a medium of wealth-holding but also a medium of circulation. In fact it cannot be a medium of wealth-holding without also being a medium of circulation; countries need dollars for trading with one another. If there is a scarcity of any raw material or tropical wage good produced within the third world relative to its demand in the world market, then its price rises. But obviously the overall extent of such inflation will be higher in an economy where it is the only product, or even the only major product, than in an economy where it is just one input into a whole range of products, i.e., within the third world economy compared to the advanced capitalist economies where there is substantial value addition. Because of this higher inflation, there would be capital flight in anticipation of a depreciation of the third world currency relative to dollar, which would cause an actual depreciation that may go on and on. Tostem such depreciation, “austerity” measures would then be imposed upon the third world, greater unemployment would be generated, and incomes would be compressed.

The growing wage goods and raw material needs of the metropolis as a whole therefore are met, even when there is no increase in their output, through compressing incomes and hence demand for such wage goods and raw materials within the third world itself. This would not happen if the third world did not use dollars and traded largely within itself. Dollar hegemony thus constitutes the basis of contemporary imperialism.

This hegemony is currently under threat. Trading arrangements with local currencies, or with new currencies such as what the BRICS countries are reportedly planning to introduce, are gaining ground, encouraged in particular by the number of countries against whom the advanced capitalist countries have imposed “sanctions”. Not that a collapse of dollar hegemony is imminent; but a process of its decline over time has been surely initiated. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

The estimates of India’s Gross Domestic Product for the fourth quarter of 2023 were released on May 31. These show a growth rate of 6.1 per cent over the fourth quarter of the previous year, which is higher than the 4.4 per cent growth that the October-December quarter had recorded over the corresponding quarter of the previous year. Taking the year 2022-23 as a whole, the growth rate of GDP over the previous year comes to 7.2 per cent, higher than the 6.8 per cent expected earlier by both the IMF and the Reserve Bank of India.

The fact that the GDP figure has turned out to be a shade higher than expected earlier, makes not an iota of difference to one’s assessment of the current state of India’s economy. It still means that between 2019-20 and 2022-23, even ignoring the lockdown-induced sharp drop in GDP that occurred in 2020-21, the compound annual point-to-point growth rate of GDP comes to a meagre 2.85 (it was 2.7 per cent on the basis of the earlier fourth quarter expected growth rate); and it is still the case, according to almost every observer, that the 2022-23 growth rate cannot be sustained in 2023-24 because of a slowing down of the growth of various components of aggregate demand. The fact that the Indian economy is being afflicted by stagnation is thus quite indubitable.

The government however, true to its character, has unleashed a propaganda barrage on the basis of the latest GDP figures. Its claim is that India is now the fastest growing economy among the major economies of the world; and that this fact testifies to its deft handling of the economy. What it omits to mention is that among the major economies of the world India had the sharpest drop in GDP during the year 2020-21 that witnessed the pandemic-induced lockdown; its lock-down had been the most draconian of all. The climb back to even the pre-pandemic level of GDP therefore entails an extraordinarily high growth-rate from the low base to which it had sunk. The fact, as mentioned earlier, that if we completely ignore the pandemic year and the one of recovery that immediately follows, and simply compare the pre-pandemic year 2019-20 with a normal post-pandemic year 2022-23, we find an annual growth rate of merely 2.85 per cent, is indicative of a state of stagnation rather than of growth, let alone of impressive growth.

The latest GDP figures however highlight even more markedly a disturbing phenomenon that has been noted by many. The GDP in real terms in 2022-23 is 13.37 per cent larger than in 2018-19; but the unemployment rate according to the data made available by the Centre for Monitoring the Indian Economy (CMIE) was 6.3 per cent in 2018-19, and climbed up to 7.9 per cent in March 2023. Why should the unemployment rate climb up in a period when the GDP is increasing, by no means impressively as we have just seen, but certainly at a rate higher than the rate of growth of population to which the rate of growth of the work-force is linked? In fact the labour force participation rate, that is, the ratio of the labour force to working-age population, has not increased during this very short period. So, why should the unemployment rate increase so sharply?

Indeed the fact that the rise in unemployment rate is not because of any sudden increase in labour supply, but rather because of a fall in labour demand, is confirmed by another piece of evidence from the CMIE. This shows an absolute decline in the number of persons employed, from 408.9 million in 2019-20 to 407.6 million in March 2023. This absolute decline suggests three things: first, the recovery from the economic trough reached in 2020-21 has been more pronounced in less employment-intensive activities and less pronounced in the more employment-intensive activities, such as the unorganised sector that continues to languish because of the blows it received during the lock-down, not to mention the earlier blows in the form of demonetisation and the GST. Secondly, there is a continuous increase in labour productivity that is occurring in the economy, with digitisation increasingly replacing human activity; since the rate of growth of employment is simply the excess of the rate of growth of output over the rate of growth of labour productivity, this fact ipso facto lowers the rate of growth of employment. Thirdly, there have been actual lay-offs in a number of spheres in response to reduced demand for labour, or as a means of enforcing austerity; this would explain the sudden declines we find in the number of employed persons, for instance from 409.9 million in February 2023 to 407.6 million in March.

Some of these very factors however which explain the rise in the unemployment rate also suggest why the GDP growth for Q4 of 2022-23, and hence for 2022-23 as a whole, is itself overestimated. With the new method of estimating GDP, the preliminary estimate, of the sort we now have for Q4 of 2022-23, is arrived at by assuming that the observed growth-rate of organised sector activities, holds also for the non-agricultural unorganised sector. In other words, since data for the unorganised sector take time to come in, the preliminary estimate is made when very little data are available for this sector; because of this the organised sector data are assumed to hold for both sectors taken together. But since the unorganised sector has been badly hit, especially during the pandemic, from which it has not recovered, this method of attributing the organised sector’s growth to both sectors taken together, has the effect of exaggerating the overall growth rate of the economy.

Even within the organised sector, it is the data on the financial performance of listed companies within the private corporate sector, which are available on a quarterly basis, that have an overwhelming weight in the measurement of the growth rate of the sector as a whole; and this gives an additional upward bias to the GDP growth rate figure. This growth figure will no doubt be adjusted downwards later if the CSO is given a free hand and if it is conscientious, but for the time being the exaggerated figure of growth serves the Modi government’s propaganda needs well.

But even as the figures stand, what is absolutely striking is that the growth rate of the manufacturing sector (gross value added) for the year as a whole over the previous one, comes to an abysmal 1.3 per cent. It is the agricultural sector (4 per cent) whose output is subject to wide fluctuations, and the service sector within which “trade, hotels, transport, communications and services related to broadcasting” (14 per cent) have grown the fastest, that have driven up the overall growth rate.

This is significant. The service sector generally thrives on the basis of surplus value generated within the material commodity producing sectors, which is why Adam Smith had categorised workers engaged in the service sector as “unproductive workers”, and also why in the Soviet Union and other East European socialist countries, service sector output was not included in GDP estimation. In addition, service sector growth often reflects the mere commoditisation of a range of activities earlier carried out within the household, and hence does not reflect any genuine addition to the level of activity. Besides, estimating service sector output is fraught with difficulties, especially in the unorganised segment of it. For all these reasons, a high growth-rate of the service sector, especially when it is accompanied by a stagnation of manufacturing, is not necessarily a thing to celebrate.

Besides, the argument that the extrapolation of organised sector’s growth to the unorganised sector exaggerates the actual growth rate, applies with particular force to the service sector. The working people generally spend their incomes, apart from food, on manufactured goods and on the output of the unorganised service sector. The fact that manufacturing output has been virtually stagnant, while unorganised service sector output is unlikely to have done any better, suggests that the consumption of the working people has remained extremely subdued. Added to this is the fact that the growth in government expenditure has been literally stagnant in real terms. Gross fixed capital formation has gone up no doubt, but such growth in investment can scarcely be sustained if consumption and net exports are lagging behind.

The consumption of the working people being subdued is the most disquieting feature revealed by the GDP statistics, which no amount of crowing about India being “the fastest growing economy” in the world, can possibly hide. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Most people, including even trained economists, fail to appreciate the fact that an exchange rate depreciation, if it is to work in reducing the trade deficit in a capitalist economy, must necessarily hurt the working class by lowering the real wage rate. A capitalist economy, looking at it differently, improves its trade balance, for which it must improve its competitiveness, by lowering the real wage rate; and an exchange rate depreciation is one way of doing so.

Most textbooks in economics do not mention this fact. They are written from the point of view not only of bourgeois economics in general, but of a bourgeois economics that invokes a model of a capitalist economy that is far removed from reality. They see this economy as consisting of a set of markets in each of which a price-rise is supposed to lower excess demand. The foreign exchange market is one such; and the text books simply say that as long as the demand and supply curves have the right shape in this market (so that excess demand is lowered through a price-rise), an exchange rate depreciation, which is the same as a rise in the price of foreign exchange, lowers the excess demand for foreign exchange, namely lowers the trade deficit. This is where their analysis of an exchange rate depreciation usually ends; and then they move on to discussing under what conditions the curves have the right shape.

This entire mode of analysis however is flawed. Most economies need imported inputs, usually oil and natural gas; the oil-producing economies on the other hand need a range of non-oil raw materials which they cannot grow themselves but cannot do without. The imported inputs, together with labour and domestically-produced current inputs, constitute the list of current inputs. And in all capitalist economies, the prices of commodities are determined as a mark-up over the costs of current inputs per unit of output. This is of course true under monopoly capitalism. This is how oligopolists operate; they fix prices in this manner and let the level of demand at this price determine what is produced. Some argue that capitalism even in the earlier period was characterised by such price-fixing, and that the classical political economists’ conception of free competition (which Marx took over) where the producers accepted a price impersonally determined by the market, was not a realistic picture. But this discussion is not germane to the present issue; the basic point here is that in any modern economy, prices are fixed by oligopolists as a mark-up over the unit prime cost.

Now, suppose a currency depreciates by 10 per cent; then the local currency prices of all imported inputs go up by 10 per cent, and therefore the part of unit cost arising from imported inputs in the production of any final good goes up by 10 per cent. If real wages were to remain unchanged, then money wages will have to keep going up proportionately as prices rise; and in such a case prices will ultimately rise by 10 per cent in local currency, with money wages also rising by 10 per cent and hence unit labour cost too also rising by 10 per cent. (The unit prime cost arising from domestically-produced inputs rises in the same ratio as the final produced goods price and therefore will also rise, automatically, by 10 per cent). But if local currency prices rise by 10 per cent following an exchange rate depreciation of 10 per cent, then this means there has been no real effective depreciation whatsoever; and hence not an iota of difference will be made to the trade deficit.

If domestic prices rise by 10 per cent following an exchange rate depreciation of 10 per cent, then the prices of export goods in terms of foreign currency would remain unchanged; and hence there is no question of any increase in the quantity of exports owing to their becoming cheaper. Likewise, if domestic prices rise by 10 per cent following an exchange rate depreciation of 10 per cent, then the local currency price of imported goods would rise by 10 per cent, the same as domestically produced goods, in which case there is no question of any reduction in the quantity of imports. It follows therefore that with no increase in the quantity of exports and no decrease in the quantity of imports, the trade deficit measured in foreign currency remains unchanged.

An absolutely essential condition for an exchange rate depreciation to work therefore (and this is only a necessary condition with no guarantee that its fulfilment will actually improve the trade balance) is that domestic prices must not rise at the same rate as the price of foreign exchange owing to an exchange rate depreciation. And this can happen only if money wages do not rise by the same proportion as the final goods prices; that is, if there is a fall in the real wage rate.

This can be seen as follows. If, say, a 10 per cent exchange rate depreciation is to make any difference to the trade balance, then the domestic prices must rise by less than 10 per cent, say, by 7 per cent, for only then would there be some real effective depreciation. For this to happen, the unit prime cost must rise by 7 per cent, as the mark-up by the capitalists is a given ratio. Now, the unit prime cost has two relevant components: the unit labour cost and the unit imported-input cost (unit home-produced input cost rises in the same ratio as the final goods price and therefore need not be considered separately here). Therefore, for the unit prime cost to rise by 7 per cent, since the unit imported-input cost rises by 10 per cent, the unit labour input cost must rise by less than 7 per cent, say by 5 per cent. With given labour coefficients in production this can happen only if money wages rise by 5 per cent, when prices rise by 7 per cent; that is, when real wages fall.

Of course, there can be real effective exchange rate depreciation, with domestic prices rising by less than the 10 per cent rise in the price of foreign exchange, even with real wages remaining unchanged, if the profit margins of the capitalists could be lowered. But this is precisely what is not possible in a capitalist economy. This can happen in a socialist economy where the enterprises, mostly State-owned, can be directed to charge lower profit margins, so that a real effective exchange rate depreciation can be brought about with no fall in the real wage rate; but in a capitalist economy, the profit-margin is not amenable to any reduction. A real effective exchange rate depreciation therefore necessarily imposes a squeeze on the real wage.

But even assuming that the workers are not strong enough to resist such a reduction in their real wage rate, there is no reason to expect the trade balance to improve: if the trade balance is to improve then domestic employment and output will increase, but this would mean a reduction in output and employment in some other countries at whose expense this economy would be increasing its market-share. If those countries retaliate by depreciating their exchange rates in the same proportion, then there would be no change in market shares and no change in trade balances either.

When the competing countries depreciate their exchange rates in retaliation, the real wages go down in those countries as well. This mode of reducing trade deficit therefore, when no country is making any independent effort to raise the level of demand through income redistribution in favour of the workers or through larger government expenditure, simply results in each squeezing its workers to no avail.

The attempt to raise domestic employment at the expense of rivals, through an exchange rate depreciation (that is supposed to work through reducing the trade deficit) is called a “beggar-my-neighbour” policy. The pursuit of “beggar-my-neighbour” policies by several capitalist economies raises employment nowhere while reducing the real wage rate everywhere.

But that is not all. The reduction in real wages can, under certain circumstances, even lead to a reduction in employment everywhere because of the associated reduction in aggregate demand. It is a symptom of the irrationality of capitalism that a group of countries vying with one another to improve their positions by pursuing “beggar-my-neighbour” policies, may ultimately end up with each country becoming worse off than before.

It is a sign of the hopelessness induced by the current capitalist crisis, that, notwithstanding the experience of the 1930s, voices are audible in the US today which seek a revival of the US economy through a depreciation of the dollar. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Under pressure from globalised finance capital, most countries of the world have enacted legislation fixing the size of the fiscal deficit as a proportion of GDP; generally it is 3 percent, and in India it is 3 per cent for the centre and 3 per cent for the states. The US however has no such legislation; instead what it has is a ceiling on the absolute stock of public debt that can be held at any point of time. This is a very odd procedure, for as the economy grows, this ceiling has to be revised, and, not surprisingly, since 1960 the debt ceiling has been raised, revised or extended 78 times.

It currently stands at $31.4 trillion; and this limit has been reached, forcing the Biden administration to approach Congress to raise it. But the Congress dominated by the Republicans refuses to do so in a routine manner; it insists on certain budgetary cuts being carried out, which Biden, though willing to negotiate after the ceiling is raised, is unwilling to do as a precondition for it. This is the cause of the present impasse. Unless it is resolved, the Biden administration is holding out the prospects of a default on interest payments on past public debt, and on salaries for government employees.

There are two separate issues here. One relates to the rationale for government borrowing. When a government borrows rather than raising tax revenue for financing its expenditure, this fact is indicative of its unwillingness to tax the rich. In the US, as everywhere else in the world, the period of neoliberal capitalism has witnessed a substantial increase in income and wealth inequality, and raising taxes on the rich, whether through the corporate profit tax or through a wealth tax, should be the obvious way of raising resources to finance government expenditure.

Balancing public expenditure with equivalent taxation, even if levied on the rich, will not reduce wealth inequality. Since the working people are more or less constrained to balance their income with their consumption, it is the rich who carry out the bulk of the savings in any economy. Government spending of, say, $100, if financed by borrowing, puts an additional savings of $100 into the hands of the rich (if we ignore foreign transactions for a moment), without their having done anything to earn these extra $100, which the government then borrows. Expenditure financed by borrowing therefore increases wealth inequality, while expenditure financed by taxation does not. Expenditure financed by equivalent taxation simply leaves wealth inequality where it was to start with.

The fact that neither the Biden administration nor the Republican-majority Congress is considering heavier taxation of the rich, is symptomatic of complete bourgeois dominance over US politics; they both conduct the debate leaving out this alternative. Biden issues dire threats about government employees going without salaries, never once mentioning the possibility of raising taxes on the rich; and the Republicans never once justify their intransigence by suggesting that taxes on the rich should be raised instead.

All this is hardly surprising in the leading bourgeois economy of the world. There is however a second issue here that merits attention. Going beyond the immediate disagreement between the Biden administration and the Republicans, there is a deeper underlying difference in economic understanding and economic strategy. The two approaches can be called respectively the “liberal bourgeois” and “orthodox bourgeois” approaches.

The former has an awareness of the long-term impasse to which neoliberal capitalism has entered; and would like a revival of Keynesian policies in the US. It is not averse to enlarging the fiscal deficit, for which the debt-ceiling has to be revised. Of course its demand to raise the debt-ceiling is not motivated directly or immediately by the desire to adopt expansionary policies; but the demand to raise this ceiling and its outlook on the need for expansionary policies are interlinked. True, such policies have been put on the backburner at present because of the upsurge in inflation that has occurred in the US and in the world as a whole.

The “liberal bourgeois” approach does not see inflation control as the sole or over-riding objective of economic policy. A reduction in unemployment and the achievement of a high level of economic activity are also considered important policy objectives; these will come on to the agenda the moment inflation has been reduced to “manageable” levels. It follows that while inflation-control remains a matter of immediate concern, the imposition, for this purpose, of an acute recession on the economy through a drastic curtailment of government expenditure is sought to be avoided.

By contrast, the “orthodox bourgeois” position sees inflation control as the over-riding objective. It favours cuts in government expenditure incurred on “transfers” to the working people, or on welfare schemes meant for them. These cuts are thought of as necessary not just for achieving control over inflation but as a perennial feature of economic policy.

Keynes himself had to contend with this “orthodox bourgeois” position, articulated in his time by City of London, the financial centre of Britain. In fact, the point of his theory was to show that in a situation of unemployment and unutilised capacity, namely in a situation of demand constraint, a fiscal deficit, ignoring possible balance of payments implications, does no harm whatsoever (other than increasing wealth inequality when compared to tax financed government spending, as noted above); it certainly does not “crowd out” private investment as the City of London and the British Treasury (influenced by the City) were arguing.

Keynes himself was a defender of the capitalist system. But he was writing in the shadow of the Bolshevik Revolution, and he believed that unless the system provided higher employment, the disgruntled workers, inspired by the Soviet example, would overthrow the system. In fact, the main difference between the “orthodox bourgeois” position (reminiscent of that of the City in the 1930s) and the “liberal bourgeois” position (whose lineage can be traced back to Keynes), lies precisely in this: the former believes in coercion, including through a massive reserve army of labour, to cow down workers into acquiescing in the preservation of the system, while the latter believes in enlisting workers’ support, through the avoidance of massive unemployment and through appropriate “transfers” towards them, for the system’s preservation.

It is these two differing perspectives that are implicit in the current American debate over raising the debt-ceiling. The “liberal bourgeois” position which entails significant State intervention in the capitalist system runs contrary to the spontaneous tendencies of capitalism; this is why Keynesianism was overthrown by the neoliberal regime in the first place. The attempt to revive it when neoliberalism has run into a dead-end, will also run into severe contradictions, and will be a still-born one.

I shall mention just one particular contradiction here. The balance of payments implications of a fiscal deficit were mentioned above in passing; to the extent that the demand caused by larger US government spending partly “leak out” abroad, in the form of higher import demand, when such spending is financed by larger borrowing, it enlarges the balance of payments deficit. Larger, borrowing-financed, government spending therefore presupposes that foreigners are willing to hold US government bonds against the extra goods they sell to meet this higher US import demand.

This presupposition of course is valid as long as the dollar remains the world’s reserve currency, considered universally to be “as good as gold”. But if the US imposes sanctions, not just against an odd “hostile” country, but against scores of countries, then it begins to wear thin. In fact, three things happen: first, the US forgoes the possibility of importing from these countries, which means a rise in its cost of production, and a continuation of inflationary pressures. Secondly, it encourages the getting together of “sanctioned” and “non-sanctioned” countries to form bilateral arrangements that eliminate the dollar as medium of circulation and hence reduce the willingness of all these countries to hold dollar-denominated assets. And third, the fact that a country that holds dollar-denominated assets may suddenly face sanctions which “lock” its holding of such assets, preventing their use by it, also increasingly makes the dollar an unattractive currency to hold.

An obvious problem with the “liberal bourgeois” position of the Biden administration is that its bourgeois liberalism is at sharp variance with its “sanctions” against a large chunk of the world that area fall-out of “neo-con” imperialist aggressiveness. The US cannot ride for long a Keynesian and a “neo-con” boat simultaneously in today’s world. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

The data on unemployment brought out by the Centre for Monitoring the Indian Economy (CMIE) present a grim picture. Not only has the unemployment rate increased sharply for some years now, starting from even before the pandemic, but the figure which had shot up during the pandemic has not come down much despite the recovery that has occurred in the level of GDP from its trough.

The unemployment rate which was 4.7 per cent in 2017-18, rose to6.3 per cent in 2018-19. It shot up during the lockdown associated with the pandemic: in December 2020 for instance, it was 9.1 per cent. Since then it has come down a little but not as much as one would have expected even from the truncated output recovery that we have experienced. It was 8.3per cent in December 2022, came down to 7.14 per cent in January 2023, but has again climbed up to 7.8 per cent in March, the latest month for which we have CMIE data.

The GDP recovery has been stunted, but the GDP estimate for2022-23 is still supposed to be 8.4 percent higher than in 2019-20 and 12.95per cent than in 2018-19. Yet, despite GDP being 12.95 per cent higher, the unemployment rate at the end of 2022-23 is higher at 7.8 per cent compared to 6.3 per cent for 2018-19. Since the work-force in these four years could not have increased by more than, or even as much as, 12.95 per cent, the obvious conclusion is that employment per unit of GDP has come down between 2018-19 and 2022-23. This in turn could not have happened through any significant technical change being introduced within particular activities over such a short period.

One can infer therefore that the current higher unemployment rate compared to before the pandemic can be attributed to the two following factors: one, that the recovery has occurred primarily in sectors and activities which are not employment-intensive; that is, the petty and small-scale sectors that are employment intensive, have been left out of the ambit of the recovery. And, two, there have of late been significant lay-offs whether in response to reduced demand or in response to the imposition of “austerity”.

There is direct evidence provided by CMIE of such lay-offs. It estimates that the actual number of employees declined from 409.9 million in February to 407.6 million in March. Incidentally in 2019-20 the total number of employed persons in India was 408.9 million, which means that the absolute number of persons employed in March 2023 was lower than in 2019-20. This is a grim scenario, where, let alone additional jobs being created to absorb additions to the work-force, the existing number of jobs itself has declined in absolute terms.

It is ironical in this context to come across government spokesmen claiming an improvement in the employment situation in the country. These spokesmen present two arguments: one, that the CMIE data are untrustworthy and are at variance with what the official Periodic Labour Force Surveys suggest which is an improvement in the employment situation; and, two, the fact that the demand for employment under the MGNREGS has gone down is also indicative of such an improvement.

Both these arguments however lack substance. A major difference between PLFS and CMIE data on employment is that the former includes unpaid work in domestic economic activities within the term employment, which the latter does not. But the problem with including unpaid work in domestic activities is that when there are lay-offs or reduced employment possibilities outside, in short precisely when the family’s fortunes are taking a nosedive, and family members are being excluded from outside employment and forced to remain at home sharing whatever work is available within the household, PLFS will not show any increase in unemployment. It cannot in other words distinguish between enforced confinement to the home and gainful employment in domestic activities.

The CMIE is free of this shortcoming; and therefore, even though its exclusion of unpaid work in domestic activities means that one category of work, namely gainful employment in domestic activities, gets excluded, it has the merit of capturing in a consistent manner what exactly is happening to paid employment opportunities in the economy. And since these go down in a period of growing unemployment, the CMIE measure provides a reasonably accurate proxy for the overall unemployment scenario.

Likewise, the fact that there has been some return to towns of persons who had trudged to villages because of the enforced deprivation of both residence and incomes during the ill-thought-out lockdown associated with the pandemic, is not a matter of dispute. A reduction in the massive burden that had fallen on the MGNREGS because of the lockdown therefore should come as no surprise. But while this may mean some reduction in the unemployment rate compared to the period of the lockdown, it does not deny either a rise in this rate compared to the pre-pandemic levels, or the fact of an altogether meagre decline of this rate compared to the lockdown period.

Besides, because of the wage arrears on MGNREGS that have built up because of the central government’s unwillingness to make timely wage payments, the keenness even among the unemployed workers to seek work under this scheme has gone down somewhat. The demand for work under MGNREGS therefore has become a poor indicator of the magnitude of unemployment. In fact it is ironical that while the union government delays wage payment to MGNREGS workers, leading to their unwillingness to offer themselves for employment under this scheme, this very fact of their unwillingness is then used by the same government to claim that the unemployment situation has improved!

One normally expects unemployment figures to be correlated to the average real income figures for the working people as a whole, and even with the average real income of the self-employed workers. This is because the self-employed group is where the reserve army of labour is typically concentrated, and a decline in employment, resulting in a rise in the proportion of the reserve army, would tend to lower the average real incomes in the self-employed sector. And it is interesting that the government’s own PLFS data show that the average real income of self-employed workers in April-June quarter of 2022, for which we have data, while slightly higher than during the trough reached during the lockdown, was below its level during April-June 2019, both in rural and in urban India (Chandrasekhar and Ghosh, Macroscan). This only tends to confirm the CMIE findings on unemployment.

What India’s unemployment statistics reveal is something fundamental, namely that neoliberal capitalism can never be the social arrangement that can overcome the problem of unemployment in our country. The votaries of “economic liberalisation” had sold the people of India a dummy: since a certain degree of diffusion of economic activity had occurred from metropolitan capitalist economies to a few small countries of east and south-east Asia resulting in a significant using up of their comparatively small labour reserves, they argued that this strategy could be successfully replicated everywhere, that if only things were “left to the market” and the government withdrew from its interventionist role, except in favour of big capital, then India too would be on the road to “full employment” and prosperity.

Of course a capitalist economy can never attain “full employment’, since it can never function without a reserve army of labour, but at least a substantial using up of the labour reserves under neoliberalism was promised, which deceived even many progressive people. And the argument succeeded in “rolling back” the State that had come into being in third world countries after decolonisation and that had adopted a relatively autonomous stance vis-à-vis metropolitan capital and imperialism in general.

There were two obvious fallacies with this argument: one, taking the third world as a whole, the diffusion at the margin of some activities from the metropolis could not possibly use up its vast labour reserves; it might do so in some small countries with relatively small labour reserves, but not in countries like India with huge labour reserves. Two, when neoliberal capitalism got into a crisis, as was inevitable with capitalism, there was no mechanism to bring this crisis to an end, in which case working people in countries like India that adopted a neoliberal regime would be doomed to an endless period of suffering. What we are seeing today in India is only a vindication of this proposition.

Overcoming unemployment is not a matter of applying a few “fixes” to a regime of neoliberal capitalism. It is a matter of moving to a completely different socio-economic order that not only functions without a reserve army of labour, but that also permits conscious State intervention on behalf of the working people. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Government officials never tire of repeating that India is currently the fastest growing major economy in the world. What they never mention is the fact that India had witnessed perhaps the sharpest absolute drop in GDP among the major economies of the world in 2020-21 because of its draconian lockdown; and the current growth-rate is exaggerated by the low base caused by that drop from which it is being counted.

If we compare 2021-22 GDP with that of 2019-20 which precedes the lockdown then it is only 1.5 percent higher; and since the 2022-23 GDP is estimated both by the IMF and the Reserve Bank of India to be 6.8 percent higher over the previous year, this would mean that the 2022-23 GDP will be only 8.4 percent higher than in 2019-20. Hence the annual compound growth rate over the three years from 2019-20 and 2022-23, even ignoring the absolute drop in between, is only2.7 percent! Further, even this meagre recovery from the drop is not being sustained: the 2023-24 growth rate is expected to be below that of 2022-23.

Almost all agencies have downgraded their growth rate forecasts for 2023-24; and almost all of them put this growth below the growth rate for 2022-23. The IMF for instance expects the Indian economy to grow at 5.9 percent in 2023-24 which is considerably lower than its figure of 6.8 percent for 2022-23. It is this expected slowing down that is relevant, not the absolute figures which are neither conceptually not statistically very meaningful: indeed a former chief economic advisor to the union government had suggested that the entire set of growth rate figures, even focussing on the GDP that is itself a flawed concept, had been significantly exaggerated. Such a slowing down is now generally expected; and the fact that, even after an utterly stunted recovery from the lockdown, there is general expectation of a further deceleration of the growth rate, is of great significance.

Indeed the expected growth rate will be even lower because of a new development, viz. the recently announced OPEC+ cut in oil output by one million barrels per day, which would become effective from May1 and which comes over and above the two million barrels per day cut announced in October last year. This would affect India’s growth rate in at least two distinct ways: one, it would make inflation control in the US that much more difficult, forcing a further increase in US interest rates, which would lead to a depreciation of the rupee vis-à-vis the dollar, accentuating inflation in India; to prevent financial outflows from India and the ensuing depreciation of the rupee, the interest rate in India too would have to be raised which would have the effect of lowering the growth rate. Two, even leaving aside the effect mediated through the US, a rise in oil price would have a directly growth-lowering effect: the expenditure stream on national output gets reduced because of a reduction in net exports (arising from a rise in the import billowing to the oil price-rise).

But even leaving aside the latest oil price hike, the growth rate is still expected to slow down; in fact, according to the RBI’s estimate even the growth rate of 4th quarter GDP in 2022-23 is going to be less than that of the 3rd quarter, 4.2 percent compared to 4.4 percent. The question is: why is India’s meagre recovery from the pandemic-linked drop in output petering out?

The basic reason has to do with the nature of a neo-liberal economy. Private consumption in such an economy keeps getting reduced as a proportion of output because of the increase in income inequality that occurs; this means that private consumption, other than what may occur independently of income, cannot provide a stimulus for income growth. Private investment on the other hand depends on the expected growth in the size of the market for which the actual growth rate of the economy provides an indicator; this means that private investment too cannot provide an independent stimulus for growth. Government expenditure too is limited as a proportion of income because fiscal deficit as a proportion of GDP is limited; it cannot therefore provide an independent stimulus for growth unless the government can raise the tax-GDP ratio by taxing the rich, which global finance dislikes. It follows therefore that the stimulus for growth under neo-liberalism comes from only two sources: net exports, and asset price bubbles which can give rise to an increase in consumption independently of income.

But in a world economy where there is general stagnation and even a tendency towards recession (engineered everywhere as an antidote to inflation), exports, far from increasing, will themselves experience slowing growth. And asset price bubbles are not very effective in generating additional consumption demand within our economy; they enrich at best a thin stratum of persons whose consumption demand largely leaks out abroad. It follows therefore that there is no reason to expect an increase in the growth rate of the Indian economy; on the contrary the tendency will be for a decline in growth rate because of slowing investment growth and slackening consumption demand owing to growing income inequality. Even the IMF attributes the expected slowdown in India’s economic growth to sluggish private expenditure, both on consumption and investment, and the general stagnation in the world economy which is slowing down export growth. Government expenditure growth, itself lacklustre, cannot offset the slowdown caused by these factors.

Even within its overall limitations however there is a way that the government could stimulate the economy; and that is by changing the composition of government expenditure. To appreciate this point, consider two different ways that the government can spend the same amount, say Rs 100; it can spend it by providing transfers to working people, or alternatively it can spend the amount on modern infrastructure projects, as the 2023-24 union budget plans to do. If a hundred rupees is handed to the working people, then more or less all of it will be spent; and it will be spent on goods and services which are produced mainly in the small-scale sector where the profit margins (and hence savings per unit of income generated) are generally lower. On the other hand if the same amount is spent on modern infrastructure projects, then at every stage, both at the beginning and at every round of expenditure that is subsequently generated, the amount spent will be less; there will always be larger leakages into savings and imports. This means that the “multiplier” effects of spending on modern infrastructure will be less than those of spending on transfers to the working people.

It follows that even when the total government expenditure cannot be increased, how exactly it is spent can still make a difference to aggregate demand, and hence to the growth rate of the economy. And public expenditure that takes the form of transfers to the working people or that augments the welfare of the working people, has a larger multiplier effect than public expenditure incurred for any other purpose.

Two clarificatory comments are needed here. First, this argument will not be valid if the economy is constrained on the supply side, if for instance there is a shortage of infrastructure that is holding up the growth rate; but that is not the case in India at present. Our economy is constrained on the demand side, as even the IMF concedes. Second, it maybe thought that any transfers to the poor or working people will create a larger demand for foodgrains, of which there are stocks held by the government that will be run down; such transfers therefore will have no multiplier effects. But the weight of this argument is much less at present than earlier because in the context of the pandemic the government has been pushed into providing foodgrains to several poor households, so that the extent of grain deprivation now is not as large as usual. At the margin therefore any transfers to the working poor would create demand for goods and services whose output can be expanded, and this would have substantial multiplier effects as claimed above.

Larger multiplier effect entails the creation of larger employment. It follows therefore that even within the constraints imposed by a neo-liberal regime on government expenditure as a proportion of GDP, by ruling out both greater taxes on the rich and a larger fiscal deficit, there is still some elbow room for the government through changing the direction of government expenditure. Such a change would not only expand income and hence reverse the decline in the growth rate, but would also generate larger employment which is a desideratum in itself, and also provide relief to the working people currently groaning under the weight of the economic crisis. The Modi government however has concern only for crony capitalists, not for the working people. (IPA Service)

Courtesy: People’s   Democracy

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By Prabhat Patnaik

Except in war-time, capitalism invariably seeks to control inflation by creating a recession; and this is so even when the inflation has been caused by an autonomous increase in capitalists’ profit-margins which are downward inflexible and hence would not be reduced by a recession. This strategy is pursued because a recession invariably lowers the demand for primary commodities and hence their prices; this serves to lower inflation. Likewise a recession increases the unemployment rate and thereby reduces the bargaining strength of the employed workers, which means that the workers do not get wage increases to compensate them for the rise in their cost of living; this also serves to lower the rate of inflation.

If we think of three claimants on the output produced in a capitalist economy, namely the capitalists, the workers and the suppliers of primary commodities in the form of food and current inputs, then inflation can be said to arise because the claims on output of the three together exceed the output itself. Anti-inflationary policy under capitalism invariably consists therefore in lowering the shares of the latter two groups, and not of the capitalists, by lowering their bargaining strength through a recession.

It is significant that even liberal American economists, who concede that the workers have been the victims of the current inflation, still recommend controlling money wage increases, that is, further increasing the burden on the workers, as the means of controlling inflation. Since this is the logic of capitalism and the liberal economists’ outlook is confined exclusively to capitalism, they see capitalism’s way of controlling inflation as the only possible way. And it is also clear from this that capitalism’s motivation for controlling inflation lies not in any sympathy for the workers being squeezed by it (for then it would not be seeking to control inflation at their expense), but in the fact that inflation hurts financial interests; the real value of the assets held by the financial oligarchy is lowered by inflation.

I mentioned above two groups at the expense of whom inflation is sought to be controlled under capitalism. But if one of these groups succeeds in resisting a squeeze upon itself, then the system needs to squeeze the other group even more drastically for controlling inflation; and for doing so it would need to impose an even more drastic recession. This is exactly what seems to be happening at present.

On April 2, the OPEC+ countries, consisting of the 13 OPEC members and 11 other non-OPEC oil-producing countries that include Russia, decided to curtail their oil output by 1 million barrels per day from May onwards until at least the end of the current calendar year. This cut comes over and above the cut announced by OPEC+ in October last year to the tune of 2 million barrels per day. That cut had occurred despite massive lobbying by the United States against it. Joe Biden, the US president, had sent several of his cabinet ministers to Saudi Arabia, a leader of OPEC and a close ally of the US, and had even visited that country in person, to persuade it to avoid such a course of action; but to no avail. Even against the present cut the US had exerted immense pressure, but again to no avail. These output cuts in short are testimony to the decline in US hegemony that has taken place of late.

The argument given by OPEC+ for the announced curtailment in output is that the demand for oil is getting reduced because of the recession. In other words, they argue that when there is a reduction in demand for oil, the producers are better off if output rather than the price is curtailed, which indeed is what they are enforcing. Their argument can be understood as follows: suppose there is a 10 per cent reduction in demand at the going price; if output is curtailed by 10 per cent, then the price remains unchanged, and their total revenue also falls by 10 per cent. But if they let the output remain unchanged and let the price fall until demand and supply are equalised, then the fall in price will be more than 10 per cent, and therefore the revenue will fall by more than 10 per cent. This is because the demand for oil is price-inelastic (indeed this is exactly what price-inelasticity of demand means). Incidentally, it is this price-inelasticity of the demand for oil which makes oil multinationals raise their profit margins and hence prices whenever they think they can get away with it.

The producers therefore are better off by curtailing output when there is a recession-induced reduction in demand than by keeping output unchanged and letting the price adjust to equate demand with supply. This is the OPEC+ argument for cutting output; and already even before the output cut has come into effect, there is a 6 per cent increase within a week in the price of crude oil in anticipation of it. Even the equity prices of some oil multinationals have also started going up.

If oil prices are kept up through cuts in crude output then the effect of an engineered recession in bringing down the inflation rate is correspondingly reduced. This means that the extent of recession will have to be even greater, in order to enforce an even greater restraint on the real wages of workers and on the share of other non-oil raw material and food producers. But the share of non-oil raw material and food producers in output being already rather low, the brunt will have to be borne by the wage earners. The point is: will the working class in the capitalist world, especially in the advanced capitalist countries allow this to happen? To the extent that they do not, the recession that is the capitalist panacea for inflation will have to be even greater.

The resistance of the working class however is not just to a squeeze on real wages; it is also to greater unemployment. And if the recession becomes too deep, that will provoke significant working class action. Europe is already racked by a wave of strikes; in fact no major European country is currently free of significant strike-struggles. If the recession deepens then the working class, under the pincer attack of inflation and unemployment, will become even more militant.

But that is not all. If the recession deepens then banks would become further stressed. Already there is considerable stress being experienced by the banking system in the advanced capitalist world, with two American banks having gone down. With a deepening recession and the ensuing defaults on bank-loans, matters will become even more serious.

All this points to an important fact. A whole set of conditions underlie the apparently smooth functioning of capitalism, and if the fulfilment of any of these conditions is impaired, then it sets off a chain reaction that seriously threatens the stability of the entire system. The hegemony of the US-led metropolitan imperialism over the world economy is one of these conditions. Because this hegemony has been so pervasive, so taken for granted, most analysts even fail to notice its relevance; but a crack in it, such as the relative assertiveness of Saudi Arabia that we are witnessing of late, the fact of its no longer toeing the American line, is seriously threatening the stability of the system.

World capitalism has been in a crisis for a long time, ever since the collapse of the housing bubble in 2008. It is a hallmark of the crisis that attempts to resolve it in one form simply give rise to a crisis in some other form. The original manifestation of the crisis was in the form of a stagnation; even establishment economists like Lawrence Summers the former US treasury secretary have now started talking of a “secular stagnation”. But the attempt to overcome this stagnation by pumping in extraordinarily cheap credit to the system over a long period of time, and then by running enormous fiscal deficits in the wake of the pandemic, brought on the current inflation. The Ukraine war, a fall-out of the effort to maintain western hegemony over the world, accentuated this inflation. And now the effort to curb this inflation is threatening western hegemony over the world, as well as the control exercised by metropolitan capital over its domestic working class. What we are witnessing in short is a coming apart of the conjuncture that underlay the stability of neoliberal capitalism. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

For a large part of the dirigiste period, the gross domestic product of the Indian economy grew at a rate of around 4 per cent per annum or less, which, though an improvement compared to the colonial era that had witnessed virtual stagnation, was not very impressive. This low steady growth over a prolonged period of time was facetiously referred to as the “Hindu rate of growth” by many economists (perhaps because with this rate an eternity would be required for any noticeable social transformation). After an acceleration in GDP growth starting in the 1980s and sustained subsequently as the dirigiste regime was substituted by neoliberalism, the economy’s growth rate has again started slowing down, prompting the former RBI governor Dr Raghuram Rajan to suggest recently that we are perhaps slipping back into an era of the “Hindu rate of growth”.

The fact that the growth rate of the economy was slowing down even before the pandemic is undeniable; and so is the fact that the recovery after the pandemic, which of course had meant a sharp drop in output, has been quite feeble. All this would lend support to the view that the economy is slipping back to a state of comparatively low growth. But our point here is not to assess statistically how the current growth rate compares with that of the dirigiste era, and whether it can be legitimately called the “Hindu rate of growth”, using the term only to denote a statistical phenomenon; it is to underscore the fact that there is a fundamental difference between the comparatively low growth-rate of the earlier period and that of the current period.

To appreciate this difference one must draw a distinction between a “supply-constrained system” and a “demand-constrained system”. In the latter case, the output in any period is determined by the level of aggregate demand; and likewise the time-sequence of this output across periods, i.e., its growth rate, is determined by the growth rate in the level of aggregate demand. In no period is output constrained by either the full capacity use of the available stock of equipment, or the full employment of the available work-force, or by the shortage of critical inputs like foreign exchange or foodgrains.

In other words, output in a demand constrained system is well below its potential determined from the supply side; and this is so in every period. By contrast, in a supply-constrained system output in any period is given by the maximum feasible level given by supply-side constraints; and the growth rate is the maximum feasible, given the growth over time of the binding constraint.

As the Polish Marxist economist Michal Kalecki had pointed out long ago, classical capitalism is a demand-constrained system while classical socialism is a supply-constrained system; the former is always characterised by a “slack” in the sense of a simultaneous existence of idle capacity, unemployment and the easy availability of foodgrains and foreign exchange, while the latter has no such “slack”, and hence no waste of resources that a “slack” implies.

Though the dirigiste period in India was characterised by the development of capitalism from within the so-called planned economic regime, planning itself meant that the economy was not demand constrained. The Indian economy in the dirigiste period was not synonymous with classical capitalism, which came into existence only with the introduction of neoliberal “reforms”. It was free of any “slack”, since the emergence of any “slack” was followed immediately by an increase in demand stimulated by higher public expenditure, especially public investment, through a larger fiscal deficit if necessary; there were no constraints on the fiscal deficit imposed by international finance capital, since the economy had strict capital controls which made it free of any arm-twisting by international finance capital. The constraints on public investment and on the overall growth rate of the economy arose on the supply side, specifically because of the limitations of foodgrain availability (which could not be overcome through imports because of the dearth of foreign exchange). The economy was always characterised by a certain rate of inflation arising from incipient excess demand in the foodgrain market. But there was no “slack”, and hence no waste, in the economy.

By contrast, the neoliberal period has been characterised by the existence of a perennial “slack”, which cannot be eliminated because the government that can do so is constrained in its expenditure by a shortage of financial resources arising from limits not only on taxing the rich, but also on the fiscal deficit; both of these limits are imposed by globalised finance. Almost throughout the neoliberal period, the economy has been saddled by idle capacity, massive unemployment, huge unsold foodgrain stocks, and also large foreign exchange reserves (built up through the inflow of foreign financial investment). Thus while the economy during the dirigiste period was a supply-constrained one, the economy during the neoliberal period has been a demand-constrained one. The neoliberal period therefore has seen a perpetual existence of waste which is irrational.

But that is not all. The rate of growth of per capita demand for foodgrains depends upon two factors: the per capita rate of growth of GDP, and what is called the average income elasticity of demand for foodgrains, which depends upon the distribution of income across classes, with a rise in income inequality having a dampening effect on the demand for foodgrains. Between the dirigiste period and the neoliberal one, the rate of growth of the supply of foodgrains has not increased; if anything it has been slightly lower. It follows therefore that if earlier there was always a shortage of foodgrains while now there are huge stocks of them, then it must be that the rate of growth of the demand for foodgrains has come down between then and now. But since the rate of growth of per capita GDP is estimated to have increased between then and now, the only reason that the rate of growth of the demand for foodgrains could have decreased is because income inequality has increased significantly during the neoliberal period compared to the dirigiste one.

It thus follows from the fact that the dirigiste period was supply-constrained (primarily through a shortage of foodgrains) while the neoliberal period has been demand-constrained, that there must have been a significant increase in inequality in the latter compared to the former. And this is exactly what figures show. To take just one example, Piketty and Chancel estimate that the share of the top 1 per cent of the population in national income had declined in the post-independence period, reaching a low of 6 per cent in 1982, but has increased since then to reach 22 per cent in 2014-15 (the latest year for which estimates are available). This last figure represents the highest level in the entire period since 1922 when the income tax was introduced for the first time (all these estimates are based on income tax data and hence are available only for the period after1922). This result is so overwhelming that no matter what reservations one may have about Piketty and Chancel’s methods of estimation, one can scarcely doubt its veracity.

Thus even if the economy is once again experiencing a so-called “Hindu rate of growth” now as it had done earlier, the economy now is demand constrained as distinct from being supply-constrained that it had been earlier; and it is characterised by a significant increase in inequality now compared to earlier.

There is however an additional factor here. In a demand constrained system if growth slows down, then in the absence of an exogenous stimulus such as an acceleration in the global growth rate, it keeps slowing down; the initial slowdown entails a rise in the degree of unutilised capacity and this has the effect of further lowering the rate of investment and hence the rate of growth. The so-called “Hindu rate of growth” earlier could be a sustained phenomenon, but the so-called “Hindu rate of growth” now cannot be sustained for long; it would cause a further slowdown, in which case with the increase in inequality that has already occurred and is also likely to continue, the conditions of the working people will become even worse.

Raghuram Rajan was concerned about the fact that the economy would be getting back to the growth rate that it had experienced in the dirigiste period; but such getting back will be much worse for the working people than it had been earlier. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Finance Minister Nirmala Sitharaman made a misleading statement the other day that is not expected from a responsible member of the union cabinet. Talking about the resource transfer to the states in the recent budget, she said that the magnitude of transfer had been raised “sharply”. Now, this statement, while creating the impression that the centre has been very “generous’’, gives absolutely no figures on any actual increase in transfer from the centre that would support the claim. An examination of the figures shows that no matter what category of transfer is considered, there is a decline in the magnitude of transfer to the states as a proportion of the Gross Domestic Product in the budget. In short the budget carries further forward the process of centralisation of resources that has been assiduously promoted by the Modi government.

Take the share of the tax revenue that devolves to the state governments out of the total tax revenue that accrues to the centre. The 14th Finance Commission (FC), it may be recalled, had raised the states’ share to 42 per cent of this total tax revenue. Even at that time the centre, while making much of the fact that it was uncomplainingly accepting the FC’s recommendation, had cut down transfers of other kinds that are outside the purview of the FC, to ensure that total transfers to the states from the centre declined, instead of rising, as a proportion of GDP. Since then, even the share of total tax revenue devolving to the states has been falling. It was 36.6 per cent in 2018-19, 33.2 per cent in 2021-22, and 31.2 per cent in the revised estimates for 2022-23; the budget estimates for 2023-24 provide only 30.4 per cent. The mechanism through which this deception is carried out is by the centre increasingly using special levies in the form of cesses and surcharges which are not shareable with the states for raising additional resources. The share of such levies in total tax revenue has doubled from about one tenth in 2011-12 to one-fifth in 2021-22

But the decline in tax devolution has occurred not just relative to total tax revenue of the centre; it has also occurred relative to GDP, and the recent budget represents a continuation of this trend. The budget is based on the assumption that GDP in 2023-24 will be 10.5 per cent higher in nominal terms compared to 2022-23. But the tax devolution from the centre to the states proposed in the budget has increased from Rs 948,406 crore (RE) to Rs 1021,448 crore, that is by only 7.7 per cent, which is lower than the rate of growth of GDP. The magnitude of such devolution relative to GDP will fall from 3.47 per cent to 3.38 per cent. The finance minister’s claim of the transfer rising “sharply” therefore is not borne out if we look at the tax-devolution part of the transfer, which has actually fallen both as a proportion of total taxes accruing to the centre and as a proportion of GDP.

Let us look now at the total transfer. This includes four kinds of transfer: the share of states in the total taxes collected by the centre (or what we have called “devolution” above); the transfers under specific heads such as special assistance as loans to states for capital expenditure, special assistance to the north-east, and so on; transfers on account of centrally-sponsored schemes and other central schemes; and grants recommended by the Finance Commission for specific purposes such as for the health sector, or for local bodies and so on.

The total transfers taking all these into account came to Rs 17.11 lakh crores in the revised estimates for 2022-23 and are supposed to go up to Rs 18.63 lakh crores according to the budget estimate for 2023-24, that is by 8.88 per cent; but this order of increase is again well below the 10.5 per cent by which the GDP in nominal terms is assumed to go up. As a proportion of GDP therefore the share of total transfers from the centre to the states is budgeted to fall from 6.267 percent in 2022-23 (RE) to 6.174 percent (BE) in 2023-24.

The centralisation of resources that has been occurring under the Modi government is not just an accidental phenomenon; nor is it the outcome of a mere turf battle where the centre seeks by devious means to keep a larger share of the available meagre resources for itself (meagre because the rich are not sufficiently taxed). It is in keeping with the basic ideology of every fascistic regime in history in the world, though in the specific Indian case, this fact is sought to be camouflaged under catchy terms like “cooperative federalism”. Centralisation as a general feature of the fascistic outfit is not only true of its own organisational arrangement but also of the governmental arrangement under it. This is because such a regime does not believe in responding to the thought-out demands of the people who have given them the responsibility of exercising power, rather once it has acquired power, it believes in manipulating the people and diverting them into periodic religious-communal frenzy, by generating hatred for some minority groups that are portrayed as the “other”.

A fascistic regime therefore always inverts the relationship of power, ignoring its responsibility to the masses, and apotheosises the “leader”. This is the reason for the absence of collective leadership under a fascistic regime; this is also the reason that the “leader” resorts in his public speeches and utterances not to reasoned argumentation that appeals to the intellect of the people, but to theatrics designed to sway their emotions.

In short, any reasoned settlement of conflicting claims over resources by the centre and the states is typically not the way that a fascistic regime proceeds; rather it centralises resources under various pretexts. And when the centre is run by a fascistic outfit, while states are run by opposition parties that do not subscribe to its ideology, this innate tendency towards the centralisation of resources (and of power) is further supplemented by the centre’s desire to squeeze the opposition-ruled states.

There is an additional powerful reason for such centralisation. A fascistic regime invariably entails a close relationship between the regime and some favoured monopoly groups. This is obviously true in India and has been borne out very recently by the government’s complete silence, and lack of any action, over the alleged financial misdemeanours of its most favoured monopoly group, the Adanis. Centralisation of resources is a way of diverting resources from being used for the needs of the people to expenditures that directly or indirectly benefit the favoured monopoly group(s).

This year’s budget is a perfect example of this. While the “recovery” from the pandemic has left private consumption comparatively repressed, entailing a perpetuation of great distress for the people, the budget does absolutely nothing to alleviate this distress; on the other hand the central government, while keeping the growth of its total expenditure below the assumed rate of growth of nominal GDP, has raised capital expenditure on a whole range of infrastructure projects, in most of which the Adanis have an interest. Therefore they would either be associated with the government in executing these projects, or provide various inputs for these projects; the idea behind such an increase in capital expenditure by the centre in short is to create markets for the Adanis and their ilk.

Of course, the tendency towards the centralisation of public resources is not exclusive to a fascistic regime. It characterises monopoly capitalism in general for the very reasons we have discussed above, namely the desire to ensure that such public resources are used to provide markets to monopoly houses instead of being “frittered away” in providing relief to the working people! In a fascistic regime however this tendency gets greatly accentuated: the people are kept occupied with religious communalism and are deemed not to require any improvement in their material standard of life, while resources are channelled in ways that benefit a few hand-picked monopoly houses. Little wonder then that the Modi regime has carried such centralisation to great extremes. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Gautam Adani’s calling Hindenburg’s allegations of fraud against him an attack on the Indian nation is a matter of particular significance. Just before this episode, the BBC documentary on Modi had been labelled a product of the colonial mindset by the government and hence also construed to be an attack on the Indian nation. Adani would not have dared to equate himself with the nation, exactly the way Modi had done, unless he was certain that Modi would concur with such equating. Both Modi and Adani in short see the irrespective selves, and each other, as the embodiments of the nation. The Modi-Adani alliance which is the core of the Corporate-Hindutva alliance, is the nation in their perception. The fortune of the nation, it follows, requires Modi to remain politically supreme and Adani to flourish in the economic realm. The nation cannot afford otherwise!

Indeed Modi’s ideology lies precisely in this total inversion of reason. The Modi-Adani duo, it follows, can never be accused of acting immorally or unethically, since whatever they do is ipso facto in the nation’s interest, and the nation’s interest is always supreme except in the eyes of “anti-nationals” or of the “nation’s enemies”; so the accusation of immorality or unethical behaviour can never be laid at their door. Adani’s invoking nationalism was debunked by Hindenburg on the grounds that fraud does not disappear if the fraudster shrouds himself in a nationalist cloak; this would be true if the nation’s interest was somehow independently and objectively defined, but if the nation’s interest is simply taken to be identical with the interest of the Modi-Adani duo, then this accusation loses validity. Adani’s defence was based precisely on assuming this identity.

The Modi government’s economic policy has often been termed, rightly, as being utterly callous towards the people, and utterly devoted to serving the interest of “cronies”. The fact that nationalised financial institutions like the State Bank of India and the Life Insurance Corporation of India have been blatantly used to promote the project of building up a private empire, has often been a target of attack. The fact that tax breaks have been provided to big capital and such breaks have been offset by curtailing welfare expenditure for the poor, a patently class-biased policy which even bourgeois governments would feel chary of pursuing in an open manner, has been seen, quite rightly, as an illustration of “cronyism”. But it is “cronyism” with a difference; it is “cronyism” buttressed by an ideology that it helps build the “nation”(though of course in accordance with a majoritarian view of the “nation”).It is, in short, “cronyism” sanctified by the idea of building up a (Hindu)“nation”.

With the Modi government therefore “crony capitalism” is not what it is normally supposed to mean, namely a perverse and illicit attempt to build up the fortunes of a few chosen and favourite capitalists, which everyone agrees is wrong but which is practised nonetheless either because there is no accountability or because it is thought to have been sufficiently camouflaged. “Crony capitalism” under the Modi dispensation by contrast is elevated to the status of an economic strategy and is pursued confidently as being in the “national interest”.

Some have wondered whether the South Korean strategy of promoting chaebols constitutes a parallel to the Modi government’s promotion of the Adanis and the Ambanis (as historian Adam Tooze has done in The Wire).There is however a basic difference. In the case of South Korea, as in the case of post-war Japan, there was a whole paraphernalia of State institutions that liaised with the monopoly groups, both to guide the latter’s decision-making and also to facilitate the latter’s empire-building. It was in short an institutional arrangement; in the Indian case there is no arrangement in place, just a close nexus between the supremo and the business tycoon which implicitly opens all doors for the latter.

This is also the difference between the Indian case and the case of Nazi Germany where too there had been a close nexus between the leaders of the ruling party and business houses. But in Nazi Germany prior to the war (during the war, of course, production across different units had to be coordinated and had to meet specific targets, for which there was a degree of “planning”), different Nazi leaders were aligned to different business houses amongst whom there was rivalry. Some business houses lost out when the particular leaders with whom they were closely associated lost influence, a phenomenon captured in Luchino Visconti’s film The Damned.

This was a very different scenario therefore from the Indian one where there is one indisputably top leader having a close nexus with one particular business house which in turn registers sensational growth. Thus, while the close nexus between the political leadership and big corporate capital is a common feature of all fascist and fascistic governments, because of which Mussolini is supposed to have defined fascism as the “merger of State and corporate power”, within this broad picture the Indian case represents a sui generis phenomenon.

Capitalism however is not sufficiently subject to manipulation to be fully dominated even by an alliance between a couple of top business and political magnates. If capitalism within a country could be cordoned off completely, then it is arguable that within this cordoned off domain the writ of that politician-tycoon alliance could run unhindered by the spontaneity of capitalism. But such cordoning off, always difficult, becomes impossible when we are dealing with a globalised system.

The business tycoon remains loath to remain confined to the domestic economy, for then he runs the risk of losing out to other tycoons in the competitive race, and hence being swallowed by them. And the moment the tycoon, cossetted at home by proximity to the political leader, ventures to step on to the international arena, the details of his business activities become susceptible to close supervision by other tycoons. International competition now takes over, and any transgression of capitalist business ethics is not only drawn attention to but also becomes open to penalisation. This happens not because of any respect for such ethics, but because of rivalry between different business magnates. This is exactly what has happened to the Adanis.

This business house itself may be saved by the extension of support from the State, though even such support becomes difficult when the affairs of the business house are subject to the glare of international “opinion”;the difficulty is greatly enhanced when a country’s economy requires substantial amounts of foreign financial inflows to manage its balance of payments: such inflows will dry up if foreign financial investors get scared by the demonstration of incompetence on the part of the regulatory authorities of the country that allowed even fraudulent means of amassing wealth to go unpunished.

But even if this business house survives, the Modi government’s cockiness would be gone. Not instituting an inquiry into the affairs of the Adani empire would be impossible, for it would be an act lacking any credibility in global financial circles; likewise an inquiry that finds the Adanis to be pure and lily-white will carry no credibility in global financial circles. Hence the Adanis will have to face some punitive action no matter how light. When the crony faces punitive action, the “boss” will find it difficult to continue the same relationship with that particular crony; and it would be difficult for the government even to advance the claim any longer that the “nation” is being well-served by the Modi-Adani alliance, and, by implication, by the Corporate-Hindutva alliance.

This entire episode has been a particular manifestation of the contradiction between the globalisation of capital and any notion of the nation-State, including what purports to be, though implicitly, a “Hindu” nation-State. The contradiction arises not because globalisation is a rectifying process that brooks no wrong-doing; it arises because under globalisation competition between capitals occurs at a level where no single nation-State can snuff it out. (IPA Service)

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By Prabhat Patnaik

The most outstanding feature of the Indian economy today is the sluggish increase in real consumption expenditure. Between 2019-20 and 2022-23 for instance the per capita real consumption expenditure has grown by less than 5 per cent which is less than the rate of growth of the gross domestic product. Even the meagre recovery from the depths of the pandemic in short has been investment-led rather than consumption-led. This has two obvious problems: first, such a recovery is patently unsustainable; it would simply lead to a pile-up of unutilised production capacity, of unused infrastructure, and hence of unrecoverable loans by banks that would inevitably choke off the recovery, apart from threatening the stability of the financial system itself. Second, the basic rationale of growth is to improve the living conditions of the masses; and if the level of consumption of the masses remains stagnant, then there is little point to this growth.

The primary task before the 2023-24 budget therefore was to stimulate consumption in the economy, for which there had to be above all an increase in social sector expenditure: an obvious reason for instance that foodgrain stocks lie unused with the FCI, in a country reeling under the impact of hunger, is the lack of purchasing power in the hands of the people after they have paid exorbitantly for basic healthcare, housing, education and other such pressing needs. But this is precisely what the budget has not done; on the contrary what it has done, is to squeeze government expenditure on the social sectors in order to make resources available for increasing capital expenditure even further. The most shocking instance of this is the sharp drop in MGNREGS expenditure to Rs 60,000 crores, where it was a decade ago, and which amounts to only about half of the Rs 112,000 crores that had been seen in 2021-22. Since the new proof of work on this scheme now requires internet connectivity that does not exist in much of rural India, the inevitable conclusion is that the government wants to wind up this scheme altogether!

Even though the government tom-toms its “achievement” in providing 5kg of free foodgrains per month to 81crore people, there is an actual sharp reduction even in the nominal food subsidy by 31 per cent compared to the revised estimates for 2022-23, which would mean squeezing one segment of the poor in order to subsidise another. Likewise, on rural development there is a reduction even in the nominal outlay. On education and health, there are small increases in outlay in nominal terms, but when inflation is taken into account these sectors would witness a decline in real terms.

All this is not surprising given the anti-consumption and hence anti-poor stance of the government. The striking feature of the 2023-24 budget is that government expenditure including transfers to states is expected to increase at a rate lower than the gross domestic product; its share is supposed to fall from 15.3 percent in 2022-23 (revised) to 14.9 percent, a fall almost matching the fall in the ratio of the fiscal deficit from 6.4 per cent to 5.9 per cent.

The parsimony in stimulating consumption is reflected also in the decline in transfers to state governments. Transfers to the states in 2021-22 amounted to Rs 460,575 crores, which came down to Rs 367,204 crores in 2022-23; this was further cut to Rs 307,204 crores according to the revised estimates. The current budget provides only Rs 359,470 crores, which, far from making good the shortfall in 2022-23, is even lower than the budget estimates for the last year. Since the state governments are substantially responsible for expenditure on social welfare, the Centre, itself niggardly in this respect, has imposed niggardliness on the state governments as well, through its deliberate centralisation of resources that palpably undermines the federal structure.

Within the reduced central expenditure relative to GDP, there has been a sharp increase in capital expenditure. The finance minister made much in her speech of this increase in capital expenditure from Rs 7.5 lakh crores to Rs 10 lakh crores, citing this as the panacea for the scourge of unemployment that currently afflicts India. What she glossed over however were four basic points: first, exactly the same amount of money, if spent on the social sector, would have at least the same employment effect; second, this sum, if spent on the social sector would have been directly beneficial for the working people, in whose case, as the Economic Survey presented to the parliament the previous day has admitted, there has been an absolute decline in real wages. Third, the multiplier effects of expenditure that (via larger social sector spending) directly or indirectly augments the purchasing power in the hands of the working people, are much greater than the effects of public capital expenditure, so that the impact on unemployment, of an identical amount spent on the social sector would have been far greater than when it is spent as capital expenditure. And fourth, much of capital expenditure “leaks” out abroad in the form of imports of capital goods, unlike in the case of a boost to the consumption of the working people, which further strengthens the point about the asymmetric employment effects of the two modes of spending.

The import dependence of capital expenditure has increased in recent years under the neoliberal dispensation, which is a major reason for the stagnation in the country’s own capital goods sector despite the investment-led recovery that we have been witnessing of late. In the absence of greater protection of the domestic capital goods sector, expecting larger capital expenditure to generate any noticeable larger domestic employment is just a pipe-dream. The budget, instead of providing greater protection from imports, has on the contrary lowered customs duties on a range of imports; to claim under these conditions that the proposed step up in capital expenditure will boost employment to any significant extent, is sheer chicanery.

What is more, between the two ways of spending, through larger capital expenditure or larger social expenditure, since the former is more import-intensive, it will only worsen the balance of payments problem toward which the country is headed. India’s export growth has suffered because of the world recession, despite a massive depreciation of the rupee; and the current account deficit for the latest quarter for which we have data has been in excess of 4 per cent of GDP. The government could have killed at least three birds with one stone if it had increased social expenditure instead of boosting capital expenditure: it would have directly improved the people’s lot; it would have boosted employment to a far greater degree; and it would have kept the balance of payments current deficit in check. Instead, it chose an option that is patently much worse.

So far I have only compared two options before the government, arguing that it chose the worse one; but of course the government is not confined just to these two options. The ratio of government revenue to GDP, according to the government’s own estimates, is likely to remain unchanged next year compared to the current fiscal year. But the fact that there has been a massive increase in income and wealth inequality is well-known, and in a period of rising inequality, even in the absence of a wealth tax, the ratio of tax revenue to GDP should show an automatic increase; with a wealth tax or other revenue-raising efforts at the expense of the rich, this should be even more pronouncedly the case. What is remarkable about the budget is the absence of any serious revenue-raising measures.

The budget of course has provided income tax relief to certain segments of the salaried classes; but its myopia in two senses is quite amazing: one, its utter indifference to the need to raise government revenue as a proportion of GDP in a period of sharply increasing income and wealth inequalities; and two, its utter indifference to the need to provide larger social expenditure which could boost purchasing power with the working people and its emphasis instead on capital expenditure whose employment generating effect largely leak out abroad.

To call this budget myopic however, as I have done, is perhaps to miss the point. The infrastructure sector is where its “crony capitalists” have a special interest; spending on the infrastructure sector therefore is a way of helping its “cronies”. And this particular government, on its past performance, can hardly be expected to put the interests of the economy as a whole, let alone those of the working people, above the interests of its crony capitalists. (IPA Service)

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By Prabhat Patnaik

All regimes based on class antagonism require a discourse to legitimise class oppression and this discourse in turn requires a vocabulary of its own. The neoliberal regime too has developed its own discourse and vocabulary and a key concept in this vocabulary is “populism”. This concept is given great currency by the media, which is peopled by members drawn from the upper middle class who have been major beneficiaries of the neo-liberal regime and have therefore developed a vested interest in its continuation. So pervasive is the reach of this concept that even well-meaning and progressive members of the literati have fallen victim to its abuse and employ the term with the pejorative connotation typically imparted to it by the corporate-owned media.

The term “populism” of course is not an invention of the neo-liberal intelligentsia. It has been used much earlier but with a meaning very different from what is given to it now. The Russian Narodniks for instance were called “populists” by Russian Marxists, including Lenin, but the term was used to denote the fact that the Narodniks did not make class distinctions within the mass that they indiscriminately called the “people”. The idea was not to discredit the use of the term “people”, for Lenin himself used the term “working people” to denote workers and peasants; it was to avoid the obliteration of distinctions among them which needed to be theoretically drawn. Under neo-liberalism, however, the term is used to refer to any appeal made to any segment of the working people, whether to mobilize them on grounds of religious chauvinism or by making fiscal transfers to them.

The term “populism” in its current use, therefore, covers both fascist and semi-fascist appeals to the people on issues that deliberately camouflage their oppression, as well as all attempts to secure some gains for them to alleviate their oppression. The former is sometimes called “Right-wing populism” while the latter is called “Left-wing populism”. The ideological obfuscation is obvious here: not only is there no class perspective behind the use of the term, but by treating both “Left-wing” and “Right-wing” populism on a par as unwholesome tendencies, there is a privileging of the “middle”, i.e., a liberal bourgeois position as the only “sensible” one. A concept used in a rigorous theoretical critique with regard to the cognition of a mass entity, as was the case with the Russian Marxists, has now been converted into an apotheosis of the liberal bourgeois position.

This is not just a case of obfuscation; it is positively misleading as well. The hallmark of the fascist, neo-fascist and semi-fascist positions that are labelled “Right-wing” populism is that they have nothing to offer by way of economic benefits to the masses. By contrast, what is called “Left-wing” populism demands welfare state measures, and, at the very least, economic transfers to the people; by putting the two on a par and debunking “populism” in general, the dominant discourse essentially debunks all economic transfers to the people. It, therefore, advances a position according to which any economic concessions made to the people must be eschewed and the government’s focus must be entirely on the growth of the GDP; since transfers to the people eat into resources that could have been used for making investments which would have accelerated growth, such transfers are a waste, made under duress only because of electoral compulsions, but otherwise utterly unwise. An extension of this logic is the argument that any attempt on the part of the government to reduce economic inequality in society is also unwise.

This discourse is perfectly in keeping with a neo-liberal regime. Before it was introduced, nobody would have been critical if an agenda of reducing inequality and eliminating poverty had been advanced. In fact, Indira Gandhi won an election on the slogan of Garibi Hatao; of course, she did not do it, but the criticism against her was not that she advanced the slogan but that she did not do it. Amartya Sen had argued long ago that devoting just 5 per cent of GDP would eliminate poverty in India and that the country should do it by foregoing total consumption by an amount equal to just one year’s GDP growth (which was then about 5 per cent per annum). Reduction in inequality and the elimination of poverty were thus considered primary tasks before the economy during the dirigiste period; but not so now, even though there has been a massive increase in income and wealth inequality under the neo-liberal regime. And recourse to the pejorative use of the term “populism” is a means of debunking all such demands for greater egalitarianism, an ideological weapon in the hands of corporate capital and the burgeoning upper middle class to beat down all proposals for economic transfers to the poor.

Prioritising economic growth has always been a feature of bourgeois economics, but with a difference. Adam Smith had argued for the removal of state interference that, he believed, stood in the way of economic growth, even though he knew perfectly well that the benefits of this growth would not come to the working class. In his view an increase in the wealth of the nation was an important goal per se; where he differed from his predecessors was in arguing that this wealth consisted not in the acquisition of gold and silver but in the accumulation of capital stock that could be used for producing goods. David Ricardo too was all for the accumulation of capital stock and hence for the growth of output, even though he knew that there was a limit to such accumulation. (Indeed, Karl Marx had lauded Ricardo for advocating accumulation even though the latter believed that such accumulation would run into a cul-de-sac when what was called a stationary state was reached). Ricardo also believed that the workingclass would not be benefitted by such accumulation.

The reason why both Smith and Ricardo thought that the workingclass would not be benefitted by such accumulation is because any improvement in its condition tended to bring forth an increase in its population. The only way that workers could benefit from capital accumulation, therefore, was if they restricted their propensity to procreate. But that was a matter that they alone could influence, though the classical economists were in favour of their becoming better off through restricting their population growth. The classical advocacy of growth however was independent of whether workers benefitted from it.

The current advocacy of growth is different. Nobody today believes that the conditions of the working people are miserable because they procreate too much; nobody believes that their conditions cannot be improved through the efforts of the State by bringing about income transfers in their favour. And yet such transfers are sought to be avoided by neo-liberal bourgeois economists on the grounds that they would jeopardise economic growth. The classical advocacy of growth is taken over by modern neoliberals, but without the classical economists’ sympathy for the workingclass. Thus, the bourgeoisie’s class animosity against the workingclass is now reflected in the attitudes of the economists as well.

The emphasis on growth to the exclusion of economic transfers to the poor, which are sneeringly labeled as “populist measures”, is doubly offensive to the poor. On the one hand it prevents an improvement in their living standard that could have been achieved if the transfers had taken place; on the other hand, the quest for growth invariably involves a number of projects that entail the ousting of peasants and labourers from the land that they cultivate, and of people at large from their habitats, which leaves them even worse off than they were to start with. True, employment is created on such projects and also in downstream activities created by them; but the displaced are scarcely the beneficiaries from such employment generation, and even the employment that is created often falls short of the employment that is destroyed. And rehabilitation of the displaced people that is promised when the project is undertaken is scarcely ever realised. If growth was being effected under the aegis of collectives of the people themselves, through for instance peasant collectives themselves starting industrial projects, then matters would be different; but that is not the way that growth occurs under capitalism.

The debunking of welfare state measures by referring to them pejoratively as “populist”, and emphasising GDP growth exclusively as the objective of state policy, are cynically anti-people; but that is the hallmark of neo-liberalism. (IPA Service)

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By Prabhat Patnaik

The IMF managing director Kristalina Georgieva has now openly admitted that the year 2023 will witness the slowing down of the world economy to a point where as much as one-third of it will see an actual contraction in gross domestic product. This is because all the three major economic powers in the world, the US, the European Union, and China, will witness slowdowns, the last of these because of the renewed Covid upsurge. Of the three, Georgieva believes, the US will perform relatively better than the other two because of the resilience of its labour market; indeed the greater resilience of the US labour market provides some hope for the world economy as a whole.

There are two ironical elements in Georgieva’s remarks. The first is that the best prospects for the world economy today, even the IMF concedes if only implicitly, lie in workers’ incomes in the US not falling greatly. For an institution that has systematically advocated cuts in wages, whether in the form of remunerations or of social wages, as an essential part of its stabilization-cum-structural adjustment policies, this is a surprising, though welcome, admission. Of course Georgieva, many would argue, is seeing US labour market resilience only as the result of US’s economic performance and not as its cause. But her considering it a “blessing” (though not an unmixed one for reasons we shall soon see)leaves one in no doubt that the demand-sustaining role of workers’ incomes is also being recognised by her.

Some may contend that stabilisation-cum-structural adjustment policies of the IMF are typically meant for economies that are in crisis, as a means of overcoming such a crisis, not as a panacea for growth, so that seeing a change in IMF’s understanding in this regard may be unwarranted. But what the IMF is now saying is certainly out of line with what it usually says; it is in effect conceding that a resilient labour market in the US is beneficial for its growth, which begs the question: why should other economies too not attempt to have resilient labour markets even when they are in crisis, and tackle their crises through other, more direct, means like import controls and price controls? Conceding that the resilience of the US labour market can be beneficial for its economy, and hence for the world economy as a whole, thus fundamentally runs counter to what the IMF generally stands for, at least in the current neoliberal times.

The second ironic element in her remarks is her recognition that such a resilient labour market, while being beneficial for US growth, will simultaneously keep up the inflation rate in the US, forcing the Federal Reserve Board to raise interest rates further. This has two clear implications. First, it means that the US growth rate, while being less affected for the time being, will inevitably be constricted in the months to come as the Fed raises the interest rate. The US performing relatively better in 2023 is thus not a phenomenon that will last long. Since any poor performance by the US will have an adverse effect on the world economy as a whole, this amounts to saying that the world recession will worsen in the months to come, unless China’s Covid situation improves substantially. It amounts to saying in other words, that even if 2023 will only see a third of the world economy facing recession, a much larger swathe of it will fall victim to recession later. This is certainly the most dire prediction made about the prospects of world capitalism at the present juncture by any major spokesperson of it.

The World Bank too has been warning of a serious recession looming over the capitalist world and discussing in particular its implications for third world economies. In September 2022it put out a paper in which it expected a 1.9 per cent growth of the world economy in the year 2023. But both the IMF and the World Bank attribute the looming recession primarily to the Ukraine war and the inflation it has given rise to (and also in passing to the pandemic); the response to that inflation in the form of an all  round increase in interest rates is what underlies the current threat of recession. There is no recognition by these institutions of any problem arising from the neoliberal economy that could be underlying the looming crisis.

This analysis first of all is erroneous. Long before the Ukraine war, inflation had reared its head as the world economy had started recovering from the pandemic. At that time such inflation had been attributed to the disruption in supply chains caused by the pandemic, though many had differed from this analysis even then. They had pointed out that, more than any actual disruption, the inflationary upsurge owed much to the jacking up of profit-margins by large corporations in anticipation of shortages. The Ukraine war occurred against this backdrop of an ongoing inflation, and added to it quite gratuitously as the western powers imposed sanctions against Russia.

A look at the movement of crude oil prices confirms this conclusion that the Ukraine war is not the genesis of the inflationary upsurge. The rise in brent crude prices occurred primarily in 2021 as the world economy started recovering from the pandemic: the rise between the beginning of 2021and the end of that year was by more than 50 per cent, from 50.37 dollars per barrel to 77.24 dollars per barrel; the corresponding rise in 2022, during which the Ukraine war occurred, was from 78.25 to 82.82, i.e. by 5.8 per cent, which is less than the current inflation rate in most advanced capitalist countries, even though inflation is generally claimed to have been driven by oil prices. True, immediately after the imposition of sanctions against Russia, world oil prices shot up, reaching a high of 133.18 dollars per barrel during 2022, but then they came down quite sharply as we have seen, so that simply blaming the Ukraine war for the price-rise is not only misleading (as it is not the war per se but the sanctions that were responsible) but also erroneous (as prices should have come down when the price-rise induced by the sanctions abated).

It is not just the analysis of the Bretton Woods institutions that is flawed. Even more noteworthy is the fact that they have no perception whatsoever, even within the terms of their own analysis, of how this world recession is going to end. If, as they believe, it is the Ukraine war that is responsible for the looming recessionary crisis, then they should, at the very least, have hoped for an early end to it. That however is unacceptable to western imperialism which wants the war to drag on so that Russia is “bled” into submission; this is why the twin institutions express no opinions on the need for ending the war. But even if they chose to remain silent on the question of ending the war, they could have expressed some opinion about tackling the inflationary crisis in some other way than by raising interest rates and unleashing a recession. The IMF and the World Bank however are so committed to free markets that they cannot contemplate any other inflation-control measure(such as direct price-control), even as they lament the recessionary effects of interest rate hikes.

Likewise, even as the World Bank president David Malpass commiserates with debt-encumbered third world countries which are going to be badly hit in the coming months, and even says that a large chunk of their debt burden has arisen because of the high interest rates themselves, there is not a word in his speech in favour of lowering interest rates. Both the Bretton Woods institutions in other words are long on commiserations but short on concrete measures to help the world’s poor.

This is not just a symptom of timidity. It points to something deeper, namely the genuine impasse in which world capitalism finds itself today. If the structure of western imperialism as it has evolved over the years is to be kept intact, then the metropolitan countries have to keep the Ukraine war going, in which case inflation at the current pace becomes unavoidable in the absence of an engineered recession, and the consequent unemployment. World capitalism’s taking this route therefore should not cause any surprise; the point is to resist it. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

India’s current account deficit for the second quarter (July-September) of 2022-23 has reached a massive $36.4 billion which is 4.4 per cent of the gross domestic product, higher than at any time in the last nine years. It is only in October-December 2012 that the absolute level of the current deficit had been $32.6 billion which was 6.7 per cent of the GDP.

By contrast the current account deficit had been $18.2 billion in the first quarter of 2022-23 or 2.2 per cent of GDP, and $9.7 billion or 1.3 per cent of GDP in the second quarter of 2021-22, i.e., exactly a year ago. In other words compared to the first quarter itself there has been a doubling of the current account deficit as a percentage of GDP which is a whopping increase; compared to the second quarter a year ago the increase in GDP percentage is more than three times.

Quite apart from the sheer size of the current account deficit, there are at least three reasons why the balance of payments is a cause for serious concern. First, the reason for the increase in the current account deficit, by as much as $18.2 billion compared to the previous quarter, is an increase in merchandise trade deficit, that is, in the excess of imports over exports of goods. The merchandise trade deficit increased by over $20 billion, from $63 billion to $ 83.5 billion, between the first and the second quarters.

According to the Reserve Bank of India this increase was for two reasons: first, the increase in oil prices that has occurred in the wake of the Ukraine war and pushed up our import bill; and, second, the lacklustre performance of our exports because of the slowing down of the world economy. Economic commentators in the media have adduced other factors, like the weak rupee and the revival of domestic demand, for the widening of the merchandise trade deficit, but these are erroneous assertions: a weak rupee should, if anything, improve rather worsen the trade deficit; and the revival of demand has not been so pronounced as to widen the deficit so much, since the GDP growth itself which is the primary source of income has been low.

The problem with the factors identified by the RBI is that they are not going to go away soon. The Ukraine war is not just a conflict between two countries over some bilateral issues. It has to do with the shape that imperialism will have in the future and therefore has a decisive significance; because of this imperialism will resist any easy and amicable solution to the war. Likewise, the inflation that had made an appearance even before the war but has now become exceedingly serious in the metropolitan economies as a consequence of it, is being sought to be combated through the creation of recession and unemployment; this again will be a long drawn-out affair. It follows therefore that the merchandise trade balance will continue to remain as adverse as in the second quarter of 2022-23 for quite some time.

The second cause for concern is that this merchandise trade deficit has occurred in the midst of a sharp decline in the exchange rate of the rupee amounting to as much as 10 per cent over the calendar year 2022. Normally, an exchange rate depreciation is supposed to improve the trade balance. Such an improvement of course takes time, so that the simultaneous occurrence of a worsening of the trade balance and an exchange rate depreciation should not be a matter of surprise. But the persistence of a large deficit invariably creates expectations of an exchange rate depreciation, which in turn give rise to an actual exchange rate depreciation by causing financial outflows. Since neither of the factors mentioned by the RBI as underlying the widening trade deficit at present, is going to be affected by any exchange rate depreciation, its impact on the deficit will be marginal even after sufficient time has elapsed, in which case we are entering a period of freefall for the rupee. It is already being called one of the weakest currencies in Asia, but this state of affairs is going to persist, perpetuating inflation in the country through the cost-push effect emanating from imported inputs.

It may be thought that India’s large foreign exchange reserves should prevent such a free fall of the rupee, but even the current fall has occurred despite nearly a hundred billion dollars being spent by the RBI in its efforts to stabilise the rupee. In the second quarter of 2022-23 itself there was a $25 billion decline in reserves. The depletion of reserves therefore cannot prevent a fall in the rupee; what is more, as the level of reserves declines, speculation against the rupee will escalate, making matters even worse. It follows therefore that despite our large reserves India’s balance of payments have become a serious cause for concern.

The third reason why the balance of payments situation portends ill for the economy is as follows: the yawning merchandise trade deficit has occurred in a situation of low GDP growth. The first quarter (April-June) GDP growth in 2022-23 over the corresponding quarter of 2021-22 had been 13.5 per cent, reflecting recovery from a Covid-induced trough. But the second quarter growth has been just 6.3 percent compared to the second quarter of 2021-22. The growth in gross value added (GVA) in the second quarter, which measures the actual increase in production, ignoring the effects of tax changes that GDP incorporates, was even lower, just 5.6 per cent. The reason for the slowdown in growth was a slowing down of the manufacturing sector which was not an episodic development but a persisting one (People’s Democracy, December 25). India’s creeping industrial stagnation in short is pulling down its GDP growth rate, and the rise in merchandise trade deficit has occurred despite this growth slowdown.

The rise in trade deficit will almost certainly entail a further rise in the interest rates in India. This will be done keeping several objectives in mind: for attracting global capital for financing the deficit; for reducing the deficit by curtailing domestic demand; and for curbing the inflation unleashed by a declining rupee. Neoliberal capitalism has just this one instrument, which creates recession and unemployment, for combating multiple economic woes and it is going to be used vigorously in the coming days. That however will only worsen the growth rate of GDP and accentuate unemployment and distress in the economy. The fact that the yawning merchandise trade deficit is occurring not because of any pronounced boom in the economy but rather in the midst of a creeping industrial stagnation, therefore augurs ill for the economy.

Some may argue that there is nothing new in the current situation, that in 2012-13 the country had faced a similar predicament when the tapering off of bond purchases by the Federal Reserve Board of the United States, indicating a tightening of US monetary policy, had caused a similar widening of the merchandise trade deficit (as mentioned earlier) and a fall in the rupee; but that, while heralding a period of economic difficulties for the country, had not precipitated any insurmountable crisis. Why should a similar situation be a matter of such serious concern now?

There is a fundamental difference between then and now. The world economy is currently afflicted by high inflation unlike then, because of which there is a general rise in interest rates everywhere and the entire world economy is going into a precipitate recession. At that time the RBI had responded to the situation by raising India’s interest rate, while other countries were not increasing rates, which was why the RBI’s response succeeded in preventing a crisis. But now, a rise in the interest rate by the RBI simply would not work because all capitalist countries are raising interest rates; this general rise in interest rates will bring about a world recession and hence keep our merchandise trade deficit high for quite some time, thereby precipitating a continuing economic crisis in India as suggested above.

All this is indicative of the cul-de-sac that neoliberal capitalism has run into, and the severe challenge to the hegemony of western imperialism that has emerged. World capitalism in short is currently in a state which creates new possibilities of transcending it. But if instead of seizing such an opportunity our economy remains stuck within a regime of neoliberal capitalism, and seeks to overcome its predicament merely by resorting to bailouts through borrowing, then that will only accentuate in future the economic crisis which the country is facing at present. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

The fact that income and wealth inequalities have increased quite dramatically under the neo-liberal regime is beyond dispute. The empirical work by Piketty’s team bears out the increase in income inequality. They use income tax data to infer about the share of the top 1 per cent of the population of a country in its national income. One may raise objections to this method of estimation, but the conclusions are so overwhelming that one can scarcely quarrel with them. In India’s case for instance Piketty and Chancel find that the top 1 per cent which accounted for just 6 per cent of national income in 1982 increased its share to over 22 per cent in 2013 and a similar figure in 2014, the latest year for which they have estimates. In fact the share in 2013 was the highest it has ever been since income tax was introduced in India in 1922.

Piketty’s theoretical explanation for such increases in income inequality however is totally untenable, as it is based on the presumption that a capitalist economy always operates at full employment, which is not only empirically false but also logically flawed, for in such a case the system would lack any disciplining device without which production cannot occur under it. One does not have to go far however to find a proper theoretical explanation for the increase in income inequality: the removal of all constraints on technological-cum-structural change under a neo-liberal economy increases the rate of growth of labour productivity to a level where, notwithstanding whatever increase occurs in GDP growth, the rate of growth of employment falls compared to earlier and also falls below the natural rate of growth of the work-force, so that the relative size of the labour reserves in the work-force increases; this keeps the real wage rate tied to a subsistence level even as the rise in labour productivity growth increases the share of surplus in total output, and hence the level of income inequality. Piketty’s findings about an increase in personal income inequality are rooted in this increase in class income inequality that neo-liberalism entails (see also Economic Notes in People’s Democracy December 8).

Likewise there has been a dramatic increase in wealth inequality under neo-liberalism at least in the countries of the global south. Between 2000 and 2021, according to Credit Suisse data, wealth inequality increased even in the United States; but this increase was less pronounced than the increase in countries like India and Brazil. True, wealth inequality estimates are always somewhat dicey, since they are influenced by stock market fluctuations. In a period of stock market boom not only does the estimate of total wealth gets artificially inflated even when there has been no change in the physical stock of assets; but, since the rich are much more active in the stock market, their share in wealth also goes up, showing an increase in wealth inequality which gets reversed in a period of stock market collapse. Even so however when India shows an increase in the share of the top 1 per cent in total wealth from around 32 per cent in 2000 to 40.6 per cent in 2021, and when Brazil shows an increase from around 43 per cent in 2000 to 49.3 per cent in 2021, this increase cannot be explained by any evanescent accrual of capital gains to the top 1 per cent of the population. There are clearly more fundamental factors at work.

One such fundamental factor is the rise in income inequality itself that is rooted in the rise in the share of economic surplus in output. If we leave aside the accrual of transitory capital gains, any rise in wealth occurs through savings. This may at first sight appear odd: it may be thought that the rise in wealth would occur only through investment in physical assets; but saving may occur, and hence a rise in wealth, even when there is no investment in a country during a particular period, if it lends these savings abroad, that is, increase its wealth in the form of claims on another country. When the share of the rich in national income rises, since the rich save a higher proportion of the income accruing to them than the poor, their share in the total savings of the country rises even faster. This means that the share of the rich at the margin in the increase in a country’s wealth rises compared to what it had originally been, which means that their share in a country’s total wealth increases. A rise in income inequality in other words ipso facto entails a rise in wealth inequality.

A second factor works in the same direction, and that is what Marx had called “centralisation of capital”. Because of technological-cum-structural change, business shifts over time from small capital to big capital. This happens because new processes and products become available over time which require a growing minimum size of capital for their introduction and which therefore can only be introduced by big capital and not small capital, leading over time to a shift of business from the latter to the former. This shift has exactly the same effect as the rise in the share of economic surplus in total output discussed above: with the shift of business there is also a shift in the distribution of profits from small to big capital (that is, if small capital at all remains in business and is not totally eliminated in which case its entire profits are captured by big capital); since the proportion of savings out of profits is higher for big capital than for small capital, this raises the share of savings in output and also the share of the top 1 per cent within total savings and hence at the margin in total wealth. Wealth concentration therefore is simply implicit in the process of centralisation of capital.

So far we have been talking of changes in wealth concentration at the margin through changes in the distribution of savings. It may be asked: what if investment falls short of savings at the base level of capacity utilisation so that there is a realisation problem? But if there is a realisation problem, i.e., if there is insufficient demand when output is produced at the base level of capacity utilisation, then the realised savings will be lower than the savings that would have been generated from output at the base level of capacity utilisation; but its distribution across classes, i.e., between petty producers and the big capitalists, or between small capitalists and big capitalists, will remain the same as if all of it was being realised. The tendency towards wealth concentration therefore would remain unaffected by whether or not there is a realisation problem.

A third factor works towards making wealth distribution more unequal, in addition to the two we have mentioned till now. And that is what Marx had called primitive accumulation of capital, which covers not only cases where land is acquired from peasants gratis or at throwaway prices by big capital, but also cases where any land acquired at the then prevailing market price increases in value when industrial units are set up on them or townships are built upon them. This case of an increase in the price of land may at first sight be thought of as being identical with capital gains made on the stock market; but there is a basic difference: while stock market booms may collapse reversing the capital gains, land prices have generally only an upward movement. The acquisition of land even in such cases therefore has to be seen as primitive accumulation, since the peasants are paid a price way below the now-prevailing market price of land (that enters into the calculation of wealth).

The numerous ways that public resources are transferred gratis into the pockets of big capitalists are these days an important source of primitive accumulation of capital. This is done in the name of providing incentives for promoting growth, which is supposed to benefit everyone. But quite apart from such open ways of effecting increasing wealth inequality, big capital also engages in various forms of skulduggery for this purpose. There are instances of communal riots being engineered so as to evict people from their land that is then acquired at a throwaway price by big capital not necessarily directly but at some remove.

All these ways of deliberately effecting an increase in wealth inequality get a fillip in the period of neo-liberalism. All objections to them are brushed aside by the neo-liberal apotheosis of private expropriation as benefitting everyone, while simultaneously vilifying public enterprise. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

There are two defining and portentous features of the current world economic situation. One, which is well discussed, is the world-wide increase in interest rates in response to the pervasive inflationary upsurge; it would indubitably generate recession and unemployment, which, notwithstanding all protestations to the contrary, is the real objective behind it. The second feature, which is less discussed, is the outflow of finance from elsewhere in the world to the US that is contributing to a strengthening of the dollar vis-à-vis virtually all other currencies, with the sole and ironical exception of the Russian rouble. While all major currencies are weakening against the dollar, including the euro and the pound-sterling, what concerns us here in particular is the weakening of third world currencies, of which the rupee is a prime example.

In the current calendar year an estimated $200 billion has already flown out of India which amounts to a third of India’s exchange reserves. These reserves themselves have been drawn down by over $100 billion by the Reserve Bank of India in its bid to shore up the rupee against the dollar; but despite such drawing down the rupee has depreciated by about 10 per cent.

There is a belief that financial flows across nations are determined primarily by interest rate differentials, so that the current inflow into the US is a result of the US having raised its interest rates to a greater extent than other countries. From this it follows that when the other countries raise their interest rates by as much as the US has done, they would no longer face such capital outflows. This however is not true. While interest rate differentials no doubt have an effect on financial flows, there is something even more basic that influences such flows; and that is the state of euphoria among the financiers. When their expectations are euphoric, they move into countries in the periphery (some countries not all); but when their expectations are gloomy they prefer to move back to their home base, the United States. And a crucial factor affecting their euphoria or gloom is the level of US interest rates.

When American interest rates are low, the entire system ipso facto is flush with cheap liquidity which then goes all over the world in search of opportunities for profitable deployment; but when the US raises its interest rates, there is a tightening of liquidity and a fear of world recession, and finance flies back to its home base. It follows that while the US interest rate is close to zero and India’s is, say, 3 per cent, there will be a larger flow of finance to India than when the US interest rate is close to 6 per cent and India’s close to 9 per cent, even though the interest rate differential between the US and India is the same in both cases.

The fact that any jitteriness in financial circles, such as what the prospect of a world recession invariably introduces, drives finance to its home base, the United States, was demonstrated in the wake of the 2008 financial crisis. The US had been at the very epicentre of that crisis, its financial system filled with “toxic” assets consisting of loans made to borrowers who could not possibly repay; and yet the financial crisis, instead of resulting in a flow of finance out of the US, led immediately to a flow of finance back to the US from all over the world, including even from countries like India that had barely any exposure to “toxic” assets!

The main reason for the current financial inflow into the US that is strengthening the dollar lies of course in the rise in the US interest rates. But this rise matters not so much because it makes the US a more profitable destination for financial deployment; it matters because it portends a period of world recession that makes finance extremely jittery. In other words, world capitalism is entering into an altogether new phase in which third world economies will witness a persistent outflow of finance, even if they raise their interest rates in tandem with the American rates.

This would make the approaching crisis particularly acute for them. They would suffer not only from the recessionary effects of higher domestic and foreign interest rates; they would also suffer in addition from the fact that their debt rescheduling would become more expensive, and their current account deficits on the balance of payments would become more difficult to finance. All this would invite draconian “austerity” measures from international finance capital via its watchdogs like the IMF and the World Bank that would inevitably be approached for “assistance”.

This new phase of world capitalism will also affect countries like India adversely, despite their not being as heavily indebted to external lenders, as of now, as many other third world countries. Till now India has had easy access to external finance for managing its current account deficits under the neoliberal regime. In the immediate aftermath of “liberalisation” this was because the country’s earlier “closedness” to financial inflows made globalised finance eager to tap the various opportunities it provided when it did open up. Subsequently when American interest rates were driven down to zero to stimulate a recovery from the recession engendered by the financial crisis, finance, not surprisingly, flowed into India and other third world countries that offered much higher rates of return.

As a result, the rise in India’s GDP growth rates compared to the earlier dirigiste period witnessed at the beginning of this century could be sustained without any constraints arising from the side of the balance of payments. In fact for nearly a decade between 2002 and 2012, the exchange value of the rupee vis-à-vis the dollar remained remarkably stable, even when the country was experiencing an unprecedented upsurge in GDP growth rate. It is a separate matter that this upsurge brought no improvement in the living conditions of the working people, but whatever its effects it was unconstrained by any balance of payments difficulties. Indeed, on the contrary, so large was the scale of inflow of finance relative to the current account deficit that the Reserve Bank of India had to add to the country’s foreign exchange reserves to prevent an appreciation of the rupee. Such an appreciation would have caused a totally gratuitous “debt-financed deindustrialisation”, that is, an outcompeting of domestic producers by foreign suppliers because of an appreciating rupee even as the country’s external indebtedness to foreign financiers was going up.

That phase of neoliberalism is now over. Not only would India not experience GDP growth of that order of magnitude anymore because of a demand constraint arising from the massive growth of inequalities both within the country and internationally, a fact that has already become apparent for quite some time, but even this lower rate of GDP growth owing to the demand-constraint would itself become unsustainable because of balance of payments difficulties.

The extraordinary rapidity with which balance of payments difficulties can bring a country to its knees is illustrated in India’s neighbourhood itself, with Sri Lanka providing a classic example. Considered just the other day a “middle income country” that had graduated from its low income status, its economy is now beset with mounting external debt and an acute shortage of foreign exchange that makes it a mendicant before the International Monetary Fund which imposes onerous conditions of “austerity”. Imperialist propaganda makes all such “riches to rags” stories in the third world appear exclusively as fall-outs of local corruption, of the shenanigans of the likes of the Rajapaksas; but while these shenanigans no doubt play their role, focussing only on them and missing the structural infirmities introduced by neoliberalism is the height of folly.

A characteristic feature of neoliberal capitalism is that the living conditions of vast masses of the working people are determined by the whims and caprices of a bunch of financial speculators. The jitteriness of a bunch of financial speculators in the face of the inflationary upsurge and its sequel will bring in its wake acute hardships for the working people of the third world. The draconian austerity measures that would be imposed on these countries because of their balance of payments difficulties would mean that the people who scarcely got any benefits from the efflorescence of neoliberalism become ironically the victims of its decay. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

What is called OPEC+ that is the13 members of the Organisation of Petroleum Exporting Countries (OPEC) together with 11 other petroleum exporting countries led by Russia, decided on October 5 to cut their oil production by 2 million barrels per day, starting from November. The US had been pressing OPEC not to take this decision. There had been hectic lobbying by the US to prevent this outcome, and several visits by top US officials to Saudi Arabia, including even by President Joe Biden, to press home the point. And yet OPEC decided otherwise; not surprisingly, this decision has been called in the western media “a slap on Biden’s face”.

The reason why the Americans were so keen to prevent a cut in OPEC output is three-fold: first, the consequent rise in world oil prices will exacerbate inflation in the US and elsewhere, leading to a pervasive rise in interest rates to counter it; this will further enhance the threat of a recession including in the US economy. Secondly, even leaving aside these effects that would take time to materialise, the rise in energy prices will have the immediate effect of hurting and hence annoying American consumers, which will have an adverse impact on the Democratic Party’s electoral prospects in the coming November elections to the Congress and the Senate in that country. Thirdly, there is the fear that any output contraction by OPEC will help Russia by increasing its oil revenue; and the US does not want such an increase because it defeats the very purpose of the sanctions that have been imposed on Russia in the wake of the Ukraine war.

So serious is the last of these considerations that the US officials visiting Saudi Arabia had been posing the issue as one where that country had to choose between America and Russia. And the OPEC decision to cut output has been seen as having a geopolitical significance, involving a cooling off in US-Saudi Arabia relationship.

The fact that a cut in oil output will help Russia is not in doubt. Indeed it will help Russia more than any other country. This is because several countries in OPEC+ have not been producing their full quota of oil. This group includes not only Nigeria and Angola, which have not made adequate investments in the past to boost their oil output, but also Russia, which has been producing less than its quota owing to the sanctions. The decision to reduce output by 2 million barrels a day, which will mean a reduction in the production quotas for all the participant countries, will still leave the Russian quota above what it currently produces. Russia therefore will not be cutting any output because of this decision. On the other hand, the ensuing rise in world oil prices will benefit Russia, so that its oil revenue will not just go up, but go up the most among all the major oil producing countries. For the US which has been spearheading the drive to impose sanctions on Russia to bring it to its knees, this represents a clear setback.

Why then did the OPEC decide to cut output? The argument they put forward for the cut is ironically analogous to the very argument that the metropolitan countries advance against the cut. The metropolitan countries’ argument states that the cut would aggravate inflation and hence lead to a rise in interest rates and herald a serious recession; OPEC’s argument is that the rise in interest rates that is occurring will cause are cession that will lower the demand for oil and hence its price, to forestall which there must be a cut in oil output. OPEC’s idea in short is to stabilise the world oil price in the face of the looming recession.

Typically when there is a reduction in demand for primary commodities but supplies do not fall as much, there is a fall in the prices. During the Great Depression of the 1930s for instance there was a sharp fall in the prices of primary commodities relative to manufactured goods, so that the terms of trade worsened for primary commodities, including for agricultural products. As a result, the peasantry everywhere, including in India, had got into debt; and this distress of the peasantry had radicalised it into participating actively in the anti-colonial struggle.

This fall in prices when there is a fall in demand with supply remaining unchanged is called “price adjustment”. As against this, when there is a fall in demand for a primary commodity, supply can be correspondingly reduced and prices kept unchanged, which is called “quantity adjustment”. What the OPEC is attempting is quantity adjustment in the oil market, while what the Americans want from them is price adjustment.

Of the two kinds of adjustment in primary commodity markets, quantity adjustment is likely to be much better from the point of view of the producers. An example will make this clear. Suppose demand falls by 10 per cent; if supply is also reduced by 10 per cent, with the price remaining unchanged, then the revenue of the producers falls by 10 per cent. But if the supply remains unchanged but the price is allowed to fall, the fall in price will be more than 10 per cent to keep demand unchanged (which is the same as saying that the demand for primary commodities is price-“inelastic”).Suppose the price falls by 20 per cent; in that case the revenue would have fallen by 20 per cent as well.

Price adjustment therefore would have brought in less revenue than quantity adjustment; in addition it would also have meant more costs than in the case of quantity adjustment, because there have been no output cuts. For both these reasons price adjustment is the worse option for producers.

OPEC’s decision therefore is not the product of any malicious intent, or any desire to cock a snook at the US, but makes perfect sense from their point of view. Of course, the fact that they have been able to stand up to the pressure being exerted by the US to keep output unchanged, is a sign of the changing times, of the challenge to US hegemony that is emerging even among countries that were its staunchest allies till the other day.

It is true that crude oil prices have been coming down of late. The price of Brent Crude, for instance, which was $120 per barrel in June this year, had come down to well below $100 by the time the OPEC decision was made. But then, it would be asked, would this decision not raise the inflation rate? Significantly, during the period of accelerating inflation, the corporate profit margins, including of the manufacturers of petro-products, have been increasing. Now, if crude oil prices rise, and this rise is merely “passed on”, then profit-margins remain unchanged and the ensuing inflation can be said to have been caused by the rise in crude prices. But if profit-margins also rise, then it is corporate greed, and not the rise in crude prices, that constitutes the immediate cause behind the inflation.

The fact that corporate greed has been the proximate factor behind the current upsurge in inflation in the metropolitan capitalism has been quite widely recognised. In fact in Britain there was a strong demand for raising taxes on oil companies that was articulated even by the centrist Liberal Democrats; but the then Prime Minister Boris Johnson turned it down.

What the US would like is a situation in which the rise in interest rate that is supposed to counter inflation via a reduction in aggregate demand works through two channels, not just one: first, by causing unemployment so that the workers’ bargaining strength is weakened to a degree where they cannot defend themselves against inflation through a corresponding rise in money wages; and second, by reducing primary commodity prices, especially oil that is so important for consumers, so that the consumer price-index is kept in check.

The idea in short is to control inflation in the metropolis at the expense of the workers and the primary commodity producers. What is never on the agenda is any reduction of, or even control over, the rising corporate profit-margins that constitute the proximate reason for the inflation. An output cut by oil producers prevents the working of the second of the above channels by preventing a price-fall in crude oil.

The US has announced that in November there would be a release of 10 million barrels of oil from American reserves to counter any price effects of the OPEC decision. That may take care of the November elections in America; but after November, even the American consumers will be further squeezed by the unfolding crisis. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

The estimates of Gross Domestic Product for the April-June quarter released by the government of   India on August 31 paint a dismal picture of the Indian economy. Since the GDP in real terms (at 2011-12 prices) shows an increase of 13.5 per cent over the first quarter GDP a year ago, and since 13.5 per cent appears an impressive figure, official spokespersons have been putting a cheerful gloss over it. But a closer look reveals an economy getting further bogged down in a state of stagnation.

The economy, it may be recalled, had contracted sharply in 2020-21 because of the pandemic and the associated lockdown that was particularly draconian in India, and the recovery in 2021-22 had been incomplete from the trough reached a year ago. The 2022-23 first quarter figures therefore had assumed particular significance as an index of the economy’s underlying resilience, especially since the impact of Covid-19, though not altogether absent, had lessened to such an extent that 2022-23 could be taken as a “normal” post-pandemic year. And the comparison here should be not with 2021-22 or 2020-21, both of which were affected by the pandemic, but with 2019-20 which was the last “normal” pre-pandemic year.

The first quarter GDP in 2019-20was Rs 35.85 lakh crores, and the first quarter GDP in 2022-23 has been estimated at Rs 36.85 crores, which is only 2.8 per cent higher. The economy in short is stagnating even at a time when the pandemic has largely abated and can no longer be held responsible for it. Some official economists have expressed satisfaction that at least the GDP figure has crossed what it was in the first quarter of 2019-20; but there has been a gap of three years in-between, during which the population has increased and the capital stock has expanded. Simply crossing the GDP of three years ago therefore is no cause for celebration; on the contrary, it reflects a situation of crisis. Put differently, between the pre-pandemic “normal” and the post-pandemic “normal”, the per capita GDP has fallen, even though the per capita capital stock has expanded.

It must also be remembered that 2019-20 itself was not a great year for the Indian economy. In fact the first quarter GDP in 2019-20 had increased by only 5 per cent over the previous year’s first quarter, compared to 8 per cent in the comparable period of the previous year, causing much disquiet among official economists. The stagnation that was setting in during 2019-20 has thus persisted, and has even got intensified now.

The pandemic was an extraneous imposition upon this picture of stagnation; it muddied the picture and gave rise to the false impression that all the economic travails were because of the pandemic, that there was nothing fundamentally wrong with the underlying economy. But once this extraneous imposition is removed, we are back with the underlying stagnation, belying all the breezy official optimism. This stagnation is a matter of grave concern because even when growth brings misery to the working people, as it did in India during the heyday of the neo-liberal period, stagnation brings even greater misery.

The basic reason for this stagnation is the stagnation or decline in the purchasing power in the hands of the working people that occurs in a neoliberal economy because of growing income inequality. In this specific instance however the rise in private consumption expenditure between the first quarters of 2019-20 and 2022-23has been higher than the growth rate of the GDP. True, the consumption of the working people has been languishing for want of adequate purchasing power, but the consumption of the rich and the well-to-do, which had got restricted perforce during the pandemic, has now increased suddenly; and this has pulled up the total private consumption expenditure. The immediate cause for the stagnation in GDP therefore lies elsewhere: there are two additional factors that prevent a higher level of aggregate demand and hence a higher GDP. These are: a stagnation in government consumption expenditure, and an increase in the trade deficit, i.e. in the excess of imports over exports.

While private consumption expenditure in real terms (at 2011-12 prices) increased between the first quarter of 2019-20 and that of 2022-23 from Rs 19.74 lakh crores to Rs22.08 lakh crores, and while gross fixed capital formation increased from Rs 11.66 lakh crores to Rs 12.78 lakh crores, government consumption expenditure declined marginally from Rs 4.21 lakh crores to Rs 4.14 lakh crores. At the same time the excess of imports over exports increased from Rs1.62 lakh crores to Rs 2.98 lakh crores. The ratio of trade deficit to GDP (this is calculated by taking both magnitudes at current prices) increased from 4per cent in the first quarter of 2019-20 to 5.3 per cent in the first quarter of 2022-23. If the same ratio of trade deficit to GDP had obtained in the first quarter of 2022-23 as in 2019-20, then the growth rate in GDP between these two quarters would have been 4.1 percent and not the 2.8 per cent that has actually occurred.

Thus the two immediate additional factors that worked to accentuate the stagnation of the economy, over and above the basic problem of growing income inequality, were: first, fiscal conservatism that kept down government consumption (i.e., non-investment) expenditure; and second, the fact that a much larger proportion of aggregate expenditure “leaked out” abroad in the form of imports. And both fiscal conservatism and unrestricted openness to imports are features of a neo-liberal regime, as is the basic problem of growing income inequality. Neo-liberalism not only underlies the long-term stagnation of the economy, owing to the growing income inequality that is an imminent tendency under it; but it also underlies the additional factors that accentuate this stagnation. What is more, this stagnation will become worse in the days to come for at least two reasons.

The first has to do with the fact that investment will not be sustained at its present level if GDP continues to stagnate. Since between 2019-20and 2022-23, there has hardly been any increase in GDP, the production capacity that existed in 2019-20 is quite adequate to produce what is being currently produced. But meanwhile investment has continued to occur; and even if we leave out the investment that may have occurred for replacing capacity that is being retired because of age, and also the investment that embodies new processes, a certain amount of investment must have occurred that has added to capacity and that would now remain unutilised. In other words, the investment that has occurred during this period of GDP stagnation would have increased the level of unutilised capacity in the economy. Because of this growth in unutilised capacity, investment must decline in the days to come, contributing further to a lowering of aggregate demand and hence of output.

The second reason has to do with the increase that is occurring in the trade deficit, which is also leading to a widening of the current account deficit. In a situation where finance is flowing away from countries in the periphery to the metropolis, meeting an increasing current account deficit becomes even more difficult, giving rise to a further depreciation of the rupee, which in turn raises the rate of inflation in the economy. The typical response to an acceleration in the rate of inflation is to cut back on government expenditure and to raise the interest rate, which is exactly what will keep happening here. These are fundamentally recessionary measures whose effect is to reduce the bargaining power of the working people, so that the inflationary process is resolved at their expense.

There is a further point here. When the current account deficit widens, expectations build up among the financiers that the rupee will further depreciate, which actually leads to an outflow of finance, so that these expectations become self-fulfilling; and the same scenario, of acceleration in inflation and recessionary measures to control such inflation, unfolds. The stagnation of the economy therefore is likely to become further accentuated.

The widening of the trade deficit at this juncture is the most ominous new development in the Indian economy. The tendency towards stagnation was already there even before the pandemic; what we then had in addition was an upsurge in inflation, globally and in India as well; and now we have a widening of the trade and current account deficit on top of all this. The economy in short is getting engulfed in a crisis that is becoming ever more comprehensive; and there is no solution to it within the parameters of neo-liberalism. (IPA Service)

Courtesy: People’s Democracy

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By Prabhat Patnaik

Economists distinguish between two kinds of inflation: “demand-pull” and “cost-push”. Demand-pull inflation is said to occur when there is excess demand in a situation where supply cannot be augmented, because full capacity output has been reached in one or more crucial sectors. Wartime inflation is a classic example. In India during the pre-neoliberal, dirigiste period, inflation was often the result of insufficient foodgrain output relative to demand, arising from a poor harvest.

Cost-push inflation on the other hand occurs when supplies can be augmented, as the economy is nowhere near full capacity in key sectors, but one of the classes tries to raise its share of output, by demanding a higher price for the input it provides, while other classes are unwilling to lower their shares, giving rise to a tug-of war, which manifests itself through inflation.

But no matter what kind of inflation we are talking about, it can always be controlled at the expense of the working class; and, what is more, under capitalism it is invariably controlled at the expense of the working class. If it is demand-pull inflation, then the excess demand when supplies cannot be augmented is eliminated by squeezing the consumption demand of the working class, that is, by ensuring that money wages do not rise in tandem with prices. And if it is cost-push, then reducing the share of wages, by taking steps to reduce the bargaining power of the workers, again provides a means of ending the tug-of-war. Thus, not allowing wages to rise in tandem with prices is capitalism’s cure for any inflationary upsurge.

To be sure, inflation control can be achieved exactly in the same way by squeezing the share of the primary commodity producers, mostly located in the third world; and historically it has been the most commonly used method of inflation-control in the metropolis. But precisely because of its rampant use, by now the share of the primary commodity producers in the global gross value of output has shrunk to such a low level (not because primary commodities have become any less important), that any further shrinking of it will not be particularly effective in controlling inflation. Under mature capitalism therefore inflation control cannot be achieved except at the expense of the working class (apart no doubt from primary commodity producers).

The fact that inflation is sought to be controlled by squeezing the share of the working class, does not mean that the working class was responsible for starting the inflationary process. In fact the two phenomena have nothing to do with one another. Even when the cost-push gets started with an autonomous increase in the profit margin, as is the case with the current inflation in the US, this process can be, and is sought to be, ended by squeezing the share of wages, that is, by ensuring that money wages do not rise in tandem with prices. In the US the share of wages has clearly gone down because of inflation, as the inflation is profit-margin-push, but everybody from the Federal Reserve Board to even liberal economists, sees a further squeeze in the wage-share as the solution for inflation.

What is called “anti-inflationary policy” under capitalism is simply a way of ensuring that the share of wages goes down appropriately. Take for instance the rise in interest rates. It is supposed to reduce excess demand by discouraging borrowing from banks; but its effects are scarcely confined to reducing demand alone and not reducing capacity utilisation and employment. A rise in interest rates in short has an anti-inflationary effect even in a situation of shortages, including self-inflicted shortages as is the case now because of the sanctions against Russia, substantially through a reduction in the bargaining power of the workers by causing larger unemployment; and when there are no shortages but only cost-push causing inflation, the effect of a rise in interest rates is exclusively through the generation of unemployment and recession.

This however is not an easy process: there is no automaticity about the reduction in workers’ wage claims as unemployment increases. The resilience of the workers does get adversely affected by unemployment; but it also depends on a host of other factors. This means that their resistance to a reduction in their share may continue even when there is an increase in unemployment. In any case, the point to note here is that inflation invariably generates an upsurge in working class militancy and struggles.

This is exactly what we find today in many of the advanced capitalist countries, especially in Europe. Britain of course is the classic example. The inflation rate in Britain in the month of July reached 10.1 per cent compared to July the previous year, which is a 40-year high; and Britain is currently afflicted by a spate of strikes, by railway workers, postal workers and dock workers, demanding higher wages to offset the erosion of purchasing power because of inflation. Even lawyers and teachers are demanding higher pay as inflation soars and is expected to reach 13 percent later this year.

Likewise in Spain, Greece, and Belgium, workers are demanding higher wages to offset inflation, which in the Eurozone reached 8.9 per cent in July. Even Germany which has been less afflicted by strike action in the past compared to other European economies, is witnessing strikes demanding higher wages. Workers in the transport sector in both the Netherlands and in Germany have been on strike, the railways in the case of Netherlands and the airlines in Germany. This situation is going to become worse as winter approaches, since sanctions against Russia that reduce the flow of oil and natural gas to Europe will have their most devastating impact then.

Strikes by workers affect supplies of various goods and services, so that even if inflation originally was not caused by supply shortages, such shortages inevitably appear because of the strikes and carry forward the inflationary process.

Strikes on this scale had not appeared in the advanced capitalist world for decades. With the global adoption of the neo-liberal regime, capital had appeared supremely dominant; and even though the share of wages had declined over this period in most countries, workers’ resistance had dwindled because of greater competition among them induced by the free mobility of capital across the world. If European workers for instance went on strike demanding higher wages, then capital which was already relocating to the low-wage Asian economies, simply hastened this process of relocation, which moderated wage demands in the metropolis.

After the financial crisis of 2008, since the recovery in the advanced capitalist countries, especially in Europe, was slow and at best partial, a further constraint was introduced on workers’ militancy; unemployment greatly reduced the bargaining strength of the workers. Likewise, after the collapse of Eastern European socialism, cheaper labour became available in the Western part of the continent because of migration from the east to the west, which acted as a further stimulus to competition among workers and kept down wages in the European Union.

The current inflation therefore marks a sea-change in this scenario. Since inflation affects all workers, whether from the east or the west, whether with permanent jobs or partially-employed, whether belonging to the active army of labour or the reserve army, it tends to mute the contradictions that existed among different segments of workers earlier, and hence also the competition among them. The sheer desperation produced by rising costs of living increases the militancy among workers, whose manifestations are becoming visible in Europe. The process of controlling inflation at the expense of the working class therefore is proving to be a far more difficult job for capitalism.

The irony of the situation however lies in the fact that a good deal of this acceleration of inflation has occurred in the wake of the Ukraine war. Not that inflation was absent earlier, or was not accelerating, but this acceleration has got a strong boost from the war. The monthly inflation rate in the European Union(obtained through a comparison with the price-level of the corresponding month a year earlier), which had increased from 3.2 per cent in August 2021 to 5.6 per cent in January 2022,has reached 9.8 per cent in July 2022.The Ukraine war is not just a conflict between two neighbouring countries; it is the outcome of the desperation of imperialism in the face of its crumbling dominance. Imperialism in short is attempting to shore up its dominance by squeezing the working class in the metropolis; but this will only push the metropolis into greater difficulties. (IPA Service)

Courtesy: People’s Democracy

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