The First Professor K.K.Subrahmanian Memorial
Lecture
Thrissur, October 16, 2012
Introduction
Let me, at the outset, thank the organizers of
this First Lecture in memory of Professor K.K.Subrahmanian, for inviting me to
deliver the Memorial Lecture.
I had the privilege of knowing KKS as he was
affectionately known while I spent a year in the Centre for Development Studies
in 1976. I had already heard of him. In subsequent years, I learnt a great deal
by studying his painstaking and careful empirical work on the key issue of
foreign direct investment in India. KKS’s work was not only of high quality in
terms of its empirical content.[1]
It was also informed by a theoretical perspective firmly rooted in the
principle of national technological self-reliance. He challenged, especially in
his later years, the neoliberal orthodoxy which saw FDI as both indispensable
to India’s economic growth and invariably beneficial to the Indian economy. What
was a broad consensus up to the early 1970s on the limited role that both
international trade and FDI could play in Indian development was being
challenged by the work of early neoliberals such as IMD Little and James
Mirleesin their OECD manual on project evaluation and the work sponsored by
OECD to promote free trade such as the Little, Scitovsky and Scott volume of
1971.[2]
By the end of the 1980s and the beginning of the 1990s, many economists in
India had given up their earlier healthy scepticism concerning the welfare and
development implications of the unfettered operation of markets and their
recognition of the importance of the role of the State in economic development.
Some, in marriages of convenience, had overnight turned into vigorous ‘free-marketeers’!
But KK was not one of them. He remained steadfast in retaining a critical
perspective on the pros and cons of foreign investment in Indian development.
He also remained committed to the perspective of self-reliant technological
development of India and recognized the key role that the State and its
policies would have to play in achieving such development. It is a privilege
for me to deliver the First Memorial Lecture in the name of such a principled
economist, who remained progressive and pro-people in his outlook throughout.
The broad theme I have chosen for this Lecture
is ‘India and the Global Capitalist Crisis’, a theme that I believe would have
been of considerable interest to KKS.
The
Global Capitalist Crisis
The current global recession- now admitted as
severe by even the ruling classes in the advanced capitalist countries, to the
extent of calling it the ‘Great Recession’, though the dreaded D-word,
‘Depression’ is studiously avoided by them – began in 2007, with the US economy
officially going into recession in the last three months of 2007. It shot into
prominence with the collapse of the Lehmann Brothers in September 2008. More
than four years later, the economic and financial crisis of global capitalism
is still with us. It has now reached a stage where, instead of a slow but
sustained recovery, the capitalist world economy is seen as most likely to end
up with a serious second downturn, widely referred to as the ‘double dip’
recession. What this prolonged crisis has done is to expose the absurdity of
the arrogant claim made by capitalist ideologues at the time of the collapse of
the Soviet Union in 1991that the future of mankind lay with capitalism. The
past two decades have demonstrated that capitalism cannot solve any of the
problems facing humanity from poverty to unemployment to inequality to
corruption to the destruction of the planet’s climate and its natural
resources. Worse, imperialist globalization of the last two decades has
impoverished the vast majority of the world’s working people and the poor
countries while massively further enriching a tiny, super rich minority of the
world’s population, some of whom are located in the world’s poorer countries. The
crisis has had serious implications for the Indian economy and for the working
people of India, slowing down growth and worsening unemployment and poverty,
even while inflation continues to devastate the lives of people and the
agrarian crisis shows no sign of ending with lakhs of farmers committing
suicides and stagnation in output and productivity. In this Lecture, we will
trace, in outline, the major developments in the world capitalist economy over
the past two decades and more, and briefly discuss their implications for the
economic strategy pursued by the ruling classes in India as well as their
consequences for working people.
The
Rise of Finance Capital
Following a long period of relatively rapid
economic growth (of 5 per cent per annum compound) from the end of the second
world war in 1945 till about 1973, the world capitalist economy entered a
period of relatively much slower growth from the recession of 1974-75. This was
the beginning of the period of the rise to dominance of finance capital. The
enormous profits accumulated by the giant transnational corporations over the
long boom, the rise in deposits in the banks in the advanced capitalist
countries from the investments made by the OPEC (Organization of Petroleum Exporting
Countries) and the big oil companies that benefited from the huge rise in the
price of petroleum in October 1973, and the savings of working people in the
advanced capitalist countries as they approached retirement that were put into
mutual funds, pension funds, provident funds and so on –all these led to an
enormous accumulation of finance and thus liquidity in the international
economy. Finance capital that thus emerged in a big way from the mid/late 1970s
onward wanted to break down national barriers to movement of finance on private
account across national borders. This was the beginning of the present phase of
financial globalization that has caused so much havoc around the world.
Simultaneously, the advanced capitalist countries, especially the USA and the
UK, under Reagan in the US and Thatcher in the UK, put in place policies with
three objectives:
·
to weaken the socialist world
by initiating an aggressive arms race forcing the USSR to spend on defence by
diverting resources which would otherwise have been spent on meeting the rising
cultural and material needs of people[3]
·
to deal with the crisis of
slow growth and high inflation – ‘stagflation’ - by attacking and breaking the trade union
movement, the iconic instances being Reagan’s breaking of the unions in the
civil aviation sector in the US and Thatcher’s attack on the militant workers’ unions in the mining sector of the UK
economy.
·
to pass the burdens of the
economic crisis in the advanced countries on to the developing countries
through trade and debt policies, culminating in the third world debt crisis of
the 1980s and after, and the Uruguay round of trade negotiations that led to
the highly iniquitous WTO agreements of 1995 and after.
Financial
Globalization and India
The rise to dominance of finance capital had
important consequences for the developing countries including India. On the one
hand, by strengthening the grip of imperialism on the third world through debt
and trade policies, it considerably reduced the space for autonomous policy
making in the third world. By weakening the socialist countries and ultimately
contributing to the collapse of the East European and Soviet economies by the
end of the 1980s, imperialism weakened the third world further, as the
bargaining power of the latter declined with the decline of the advanced
socialist economies and their dependence on the advanced capitalist countries
for technology, markets and finance deepened.[4]
Added to this was of course the class character of most third world regimes
that were unwilling to raise resources for development by taxing the rich but
happy to borrow
internationally, utterly indifferent to the burdens this would
imply for their own working people. But there was another, somewhat contradictory
implication of financial globalization for some countries of the third world.
The larger ones, like India, with a fairly large domestic market, an educated
work force large in terms of absolute numbers even if very small as a
proportion of the population, and some degree of development of financial
infrastructure, were able to attract financial flows, provided they were
willing to accept the conditions set by international finance capital. Further,
the rise of the Internet and the revolution in information and communication
technology opened up some possibilities of earning foreign exchange without
running into the kind of opposition in the advanced countries that large scale
immigration would have invited, since the service providers could be located in
India while the clients were in the advanced capitalist world.[5]
India had already been softened up by a large
IMF loan provided in 1981. By the end of the 1980s, India had seen a decade of
rapid economic growth financed by large scale government spending, based on
both domestic and international borrowing. By 1991, the strategy of borrowing
to finance growth while liberalizing imports led to both a crisis of budgetary
resources and a crisis in the balance of payments, worsened by the developments
in the Persian Gulf and capital flight from India. India was now ‘ripe for the
taking’. With the setback to socialism in Eastern Europe and USSR, the leaders
of India’s capitalist path of development moved toward a much closer
collaboration with foreign finance capital, and the era of neoliberal reforms
began in 1991.[6]
Neoliberal India: The track record
It is now more than 20 years since India began
implementing the neoliberal policies of liberalization, privatization and
globalization (LPG, for short). What have been the consequences?How have India
and Indians fared during the two decades of neoliberal reforms?
First, the annual rate of growth of the gross
domestic product (GDP) of the economy was already close to 6 per cent per year
from the mid 1980s. Between 1991 when the reforms were accelerated, widened and
deepened, and 2003, the average annual growth rate of GDP was no higher than in
the period from 1985 to 1990. However, from 2003-04 to 2007-08, the GDP grew
more rapidly at about 8 per cent. With the global economic crisis of 2008, the
growth rate between 2008-09 and 2011-12 is not likely to exceed 7 per cent by
much.[7]
One can argue that even an average of 6 to 7
per cent growth rate of GDP is impressive when many countries, including the
developed capitalist countries, are growing at much lower rates and only China
is growing at between 9 and 10 per cent per year for over three decades now. The issue, however, is not just the rate of
growth, but the nature and composition of growth and its implications for
different socio-economic classes. There are major concerns in this regard.
First,
it is the service sector that is growing most rapidly. The share of the service
sector in India’s GDP is now close to 60 per cent. The secondary sector has
grown at much lower rates than the service sector and has also shown
instability. Its share in GDP is only around 25 per cent, much lower than in
China. The share of the primary sector –agriculture and allied activities,
forestry and fishing, and mining and quarrying – has declined to somewhere
around 17 per cent.
Second,
while the decline in the share of the primary sector in GDP is to be expected
as an economy modernizes and industrializes, the point to be noted with concern
is that the share of the labour force in the primary sector, at almost 50 %, is
much higher than its share in GDP. By contrast, services sector contributes close
to 60 per cent of GDP, but its share of employment is less than 30 per cent.
Third,
the last two decades have seen a huge and continuing agrarian crisis, with over
250,000 farmers committing suicide in just the decade from the late 1990s to
the late 2000s. Growth in agriculture and in food grains has been the lowest
since independence during this reform period, with the annual growth rate being
just 0.6 per cent between 1994-95 and 2004-05. The recovery since 2004-05 has
not been steady nor is it sustainable with present policies.
Agriculture and the rural economy have been
devastated by neoliberal policies that have:
·
Slashed subsidies to
agricultural inputs including fertilizers, pesticides, credit, energy and
transport, leading to sharp increases in input costs
·
Removed restrictions on
imports of agricultural produce, causing
both a collapse of prices for farm produce at certain times and greatly
increased price fluctuations throughout
·
Reduced the supply and
increased the costs of bank and cooperative credit to agriculture and allied
activities
·
Cut back on development
expenditure to meet the demands of foreign finance capital for low budget
deficits, in the process weakening rural infrastructure, farm extension, farm
research and halting the expansion of irrigation critical to agricultural
growth
·
Weakened food security by
imposing a targeted public distribution system, excluding millions of the poor
from access to food at affordable costs.
Fourth,
the growth in employment during the reform period has been smaller than in the
decade preceding the reforms. Moreover, practically all the increase in
employment over the last two decades has been in informal jobs that are not
only often at very low wages, but carry no welfare benefits, are completely
insecure with no protection for workers, involve long working hours and deny
workers the right to form unions and fight for better wages and working
conditions. All the increase in manufacturing productivity, brought about by
rapid mechanization, has gone to swell profits while wages remain subdued. For
instance, between the mid 1980s and mid 2000s, the share of profit in value
added in organized manufacturing, for instance, has gone up from around 40 % to
around 80 %. On top of the rural and agrarian crisis and the crisis of massive
and increasing unemployment, we have had very high rates of inflation,
especially in food articles and in some other essential commodities as a result
of deregulation, indiscriminate opening up of the economy, promotion of futures
markets and unbridled speculation.[8]
Fifth,
the reforms have led to a much greater integration of the Indian economy with
the world capitalist economy. For instance, the combined share of exports and
imports in the Indian economy in India’s GDP was only 14 % in 1991. It is now
practically 50 per cent of GDP. In addition, because the reforms allowed free
entry and exit of foreign finance capital, there is a much greater degree of
instability in the economy, with foreign institutional investors bringing money
into the country to make quick and huge profits in Indian stock markets and
taking them out quickly. While foreign capital makes huge profits in this
manner by speculating in the stock market, there is no benefit to the Indian
economy as no wealth is created by trading mostly in already existing shares.
But the unregulated entry and exit of foreign finance capital only causes great
instability in the financial and currency markets and the integration of
India’s economy through trade and capital flows makes us far more vulnerable to
external shocks emanating from any part of the world capitalist economy.
All evidence, from the national sample surveys,
the national family health surveys and various other surveys done across the
country, shows that the reforms have not made a significant impact on the depth
and severity as well as the wide spread of poverty, even though the government
often claims the contrary. There has been no significant reduction in
malnutrition, and the indicators even show a worsening in some parts of the
country and among socially and economically vulnerable sections
.
Global
Crisis: India’s Rulers in Panic Mode
With the current global economic crisis showing
no sign of ending soon, the Indian economy is in for rough weather. Neoliberal
policies of the last two decades have made the economy more vulnerable to the
global crisis. We have seen the value of the rupee in relation to the US dollar
fall rapidly in recent months, and in recent weeks, desperate measures by the
government to halt the slide. The global recession has led to India’s export
growth being halted, and recently, turning negative. Meanwhile, the rapid rate
of import liberalization since 1991 is causing a serious trade deficit. With
remittances from Indians abroad not growing to make up the gap, and with
footloose finance capital exiting India rapidly, the global capitalist crisis
has already led to a slowing down of the growth rate. In panic, our rulers want
to offer more and more incentives to foreign finance capital to attract them
into the country.
In recent weeks, the government of India has
clearly pressed the panic button and announced a series of measures with the
sole objective of pleasing foreign finance capital and in the bargain hoping to
raise the ‘animal spirits’ of large Indian capital. In complete violation of
the norms of parliamentary democracy, the government has permitted FDI in
retail trade when the overwhelming majority in parliament opposed the move in
this direction in October –November 2011. It must also be noted that
theParliamentary Committee on FDI, including its Congress members, has
unanimously rejected multi-brand FDI in retail. This violates an assurance
given by the then finance minister on the floor of the parliament that the
government would move on FDI in multi-brand retail only after obtaining a
political consensus. Further, two key provisions in the Union Budget of 2012-13
are being reversed. The question of General Anti Avoidance Rules (GAAR) has
been referred to what one may, without intending personal offence, call a ‘slot
machine’ committee, where you will get the result you want as you would get the
music you want from a juke box! The whole thing is in cold storage, and
investors have in effect been assured that all is fair in the game of tax
evasion. Likewise, efforts are under way to annul the effect of legislation
passed by parliament intended to check tax evasion through a measure that
retrospectively amended the Income Tax Act, and to negotiate with the concerned
business entity soft terms that would minimise or altogether eliminate its tax
liability. Steps to raise FDI caps in civil aviation and insurance have been
announced, and foreign airline companies have been allowed to hold and raise stakes
in Indian airline companies. Pension funds are to be privatised, and FDI
allowed as well. In effect, further privatization and ‘denationalization’ of
the financial sector in the sense of enhanced participation of foreign business
entities is being rapidly pushed. Of great concern is the fact that, while none
of these measures has majority support in parliament, a government that is de
facto in a minority status, is going about announcing all these ‘reforms’. It
is a scenario eerily reminiscent of 1991-96 when too the minority government
with NarasimhaRao as prime minister and Manmohan Singh as finance minister
pushed through major neoliberal measures that had not found a place even in the
Congress party’s election manifesto in 1991.[9]Where
is the Indian economy, and its formally democratic polity, going?
What
does the future hold?
It is here that the events in the advanced
capitalist countries become very relevant. Following the financial crisis of
2008, governments in the West bailed out the big financial firms, the very
firms that had been at least partly responsible for the financial meltdown.
While this saved the financial giants, the governments became heavily indebted
in the process. Today, several countries in Europe –Greece, Ireland, Spain,
Italy, Portugal and so on, the list is growing –are imposing severe austerity
on their working people to repay financiers who had lent them money to bail out
the banks earlier. In the US, the long crisis has led to real (not the
official) unemployment rates well into double digits. It is much worse in
countries like Greece and Spain, with youth unemployment rates close to 50 % in
Greece. All this is causing massive protests by working people.
The period since the onset of the
current global crisis has seen increasing anger among working people in the
developed capitalist countries against the financial elite and the governments
seen as pampering them. People’s protests have taken different forms. In recent
months, a spectacular protest movement has emerged: The Occupy Movement. It
began initially in New York where protesters occupied the headquarters of
global finance capital: Wall Street, demanding that investment banks and other
financial corporations who had caused the financial crisis of 2008 with their
reckless operations and speculative gambles should be brought to book and not rewarded
with bail-out funds as had happened in the US. The movement then rapidly
expanded, not only geographically, but also in terms of its agenda and its
demands. From ‘Occupy Wall Street’ (OWS), it became a more general Occupy movement.
The movement spread
not only to many cities and smaller towns in the US and elsewhere, but
attracted an entire cross section of society, including students facing severe
loan repayment problems on educational loans, home owners facing foreclosures
on their home mortgages, unemployed persons laid off in the wake of the
economic crisis, poor people of all races protesting cutbacks in welfare
benefits and so on. The anger of the people was not only at their own plight
because of the nature of the economic system that had forced them into
unemployment or unsustainable debt or giving up their desire to pursue formal
education. It was also at the fact that those who had been responsible for the
financial and economic crisis in the first instance - the banks and the
financial speculators – were being rewarded with bail-outs and tax cuts for the
super- rich were continuing, even while the resulting budgetary deficits were
cited as undesirable and as a reason for cutting back on welfare programmes.
The OWS/Occupy movement has come up with a brilliantly catchy slogan that
sharply highlights the increasing inequality and injustice under the neoliberal
economy and the patently undemocratic nature of the system: ‘We are the 99 per cent’!
This helped
focus attention on the blatantly unequal, unjust and plutocratic nature of the
neoliberal capitalist economy and the unresponsiveness of the government to the
demands of the overwhelming majority - the 99 % - of the population. The slogan
has captured in an exceptionally sharp manner the fact that the system serves
the interests of a tiny minority and not that of the ordinary working people or
even the so-called middle class.
For more than two years now, the
Greek working class, under the militant leadership of the Communist Party of
Greece and other progressive political forces, has battled the attempts of the
Greek government and international finance capital to impose huge burdens on
the working people of Greece in the wake of an economic crisis for which the
Greek workers were in no way responsible.[10] As
neoliberal governments have been slashing welfare provisions, privatizing
pensions, reducing unemployment benefits and attacking hard won rights of
working people, ever since the collapse of socialist regimes in Eastern Europe
and the USSR, working class struggles have been on the rise in Europe. However,
what is distinctive about the struggles since the economic crisis that began in
2008, and especially in recent months, has been the scope and width of these
struggles and their spread to segments of the working population not involved
in a big way in struggles earlier. Whether it was the struggle of French
students who fought back, with the help of the entire working class movement, a
legislation that would have made it easy for employers to dismiss them in their
first employment or the struggles of workers in practically all the
European countries on the pension issue
or the recent sustained struggles of the Greek workers and mass mobilizations
against the austerity programmes imposed by a pliant Greek government under the
diktats of finance capital and the
bigger European powers, Germany and France, or the historic strikes of public
sector employees in Britain in 2011 and 2012, it is increasingly clear that we
are entering a period of working class militancy in the developed capitalist
world. Such struggles, in themselves, do not of course guarantee the
strengthening of progressive forces, and can in fact be utilized by the right
wing ‘parties of order’ against working people and to promote xenophobia and
fascism. But, given that neoliberal policies are increasingly discredited,
having had a free run for over two decades now, there is certainly a better
prospect of a more progressive shift in the balance of political forces in
these countries.
In a series of elections in France,
Greece, urban Italy and a German province, the electorate has voted massively
against the austerity policies of the ruling classes. While, in some instances,
the right wing parties have been able to capitalize on the crisis, the trend
has on the whole been to the Left.
These developments are most encouraging for
the progressive forces in India opposing neoliberal policies. Just as the
ruling class policies over the last two decades have made the Indian economy
more vulnerable to global shocks, the global upsurge against neoliberal
policies can strengthen the fight in India against these policies, rendering
the ruling classes vulnerable in turn.
The Left-led Indian working class movement and
the peasant movement as well as movements taking up the demands of women,
dalits, tribals, students and youth, have all consistently fought LPG policies
for over two decades. During some periods, such as when the first UPA
government was dependent for its survival on the support of the Left parties,
it was possible to stop moves towards further liberalization to some extent. It
was also possible to secure some gains in the form of the NREGA and the Forest
Rights Act. But things have grown much worse under the present UPA regime,
which is pursuing neoliberal policies vigorously at a time when they are being
discarded in many other parts of the world. The working class, which has led
the struggle against neoliberal policies and in defence of the public sector,
not only in the areas of industry and finance, but more generally, across all
sectors including in education, health and so on, has an important role to play
in the coming period in the struggle against neoliberal policies.
Most importantly, the future holds the
possibility of developing international solidarity among working people and
their movements in the global fight against neoliberal capitalism, in the wake
of the militant upsurge of working people in Europe, North America and the
rising tide of struggles here in India as well.
[1]See his early, outstanding
contribution: Subrahmanian, K K (1972): Import of Capital and Technology: A Study of Foreign Collaboration in
Indian Industry (New Delhi: Peoples Publishing House).
[2]SeeIMD
Little &
JA Mirlees (1974), Project Appraisal
and Planning for Developing Countries(OECD)and Ian
Little, TiborScitovsky and Maurice Scott,Industry
and trade in some developing countries (Oxford
University Press for the O.E.C.D. Development Center, 1970.) The implicit ‘free
market’ approach was also to be found in work on the Indian Economy by
JagdishBhagawati,T.N.Srinivasan, Vijay Joshi and others.
[3]Recall Pershing and Cruise
missiles and the star wars called by the misleading name of ‘strategic defense
initiative’.
[4]It must be
clarified that the collapse of the socialist regimes of Eastern Europe and the
USSR was due to many complex factors, and the internal ones were of course most
important. The point being made here is that the rise of finance capital and of
the neoliberal regimes of Reagan and Thatcher also had a role to play in the
collapse.
[5]For a clear
exposition of the implication of changes in the international economy with the
rise to dominance of finance capital for the development strategy adopted by
the ruling classes in India, see C.P.Chandrasekhar and JayatiGhosh (2004), The Market that failed, LeftWord Publications,
New Delhi
[6]It is
interesting to note that the programme of the Communist Party of India
(Marxist), as originally adopted in 1964 and as updated in 2000, characterizes
the State in India as the state of the bourgeoisie and the landlords, led by the
big bourgeoisie, increasingly collaborating with foreign finance capital. In my
view, this has turned out to be a remarkably prescient assessment.
[7] GDP growth rates have fluctuated to some
extent between 1991 and 2012, as shown below:
Period GDP Growth Rate,%(approx.)
1991-1997 6 %
1998-2003 4.5 %
2003-2008 8.5 %
2008-2012 6.5 %
[8]The attribution by
leading government officials, including ‘reputed’ economists, of
unprecedentedly high rates of food inflation to ‘rising rural incomes’ and
supply-demand imbalances is not only an
instance of blaming the victims, but completely off the mark as well.
[9]That the
minority Congress government of 1991 later secured a majority in parliament
through measures widely regarded as dubious is another story.
[10]For a lucid
exposition of the Eurozone crisis, see the excellent article by
C.P.Chandrasekhar entitled ‘End of Europe’ on the website
http://www.networkideas.org/news/nov2011/news30_Europe.htm
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