The real debate over economic reforms in India
March 23, 2007
By Dipankar Basu (updated)
The debate over economic “reforms” in India has been going on for quite a long time now. This long and heated debate has been centered around the effects of what has been called “economic reforms”, a sharp change in the policy regime governing the Indian economy. It might be useful to recall that the policy regime in India gradually started changing right after Rajiv Gandhi came to power towards the end of 1984; of course the change was considerably accelerated after Manmohan Singh, the current prime minister, became the finance minister in the Congress government in 1991. Since then there has been no looking back; whether it is a coalition government led by the centrist Congress or led by the right-wing Bharatiya Janata Party (BJP), economic reforms have continued apace. In fact, consensus about the necessity and desirability of reforms is evident across the whole political spectrum, ranging from the right-wing BJP to the social democratic communist parties, CPI and CPI(M). Of course there are subtle differences in emphasis and speed of implementation, with the social democrats trying to play an oppositional role at the federal level while adopting those same policies in the states under their rule, notably West Bengal. It is as an attempt to forcefully impose this policy regime on the people of West Bengal, where a broad coalition of social democratic forces has been in power for the last three decades, that we must try to understand the recent brutalities of the State in Singur and Nandigram.
The main thrust of the policy change comprising “economic reforms” was a move towards according greater role to market forces in the economy and came in many guises. For instance it meant the lowering most tariff and non-tariff barriers to promote the trade of goods and services across Indian borders; it meant liberalizing many legal procedures related to investment, corporate taxation, trade, commercial banking, stock market activity and most importantly the hiring and firing of labour; it meant the disinvestment of public assets like public sector units, which in most cases meant selling off public assets built with tax receipts over the years at below-market prices to private capital; it meant an uncritical adoption of “fiscal fundamentalism”,i.e., paying especial attention to the balancing of the budget or at least making some serious efforts at reducing the government budget deficit; it meant the gradual entry of foreign capital into the Indian economy (both as FDI and as portfolio investment); it meant a gradual retreat of the State from the provision of social services like health and education and also meant the simultaneous encouragement of private capital to enter into these areas and many more similar changes. Compared to even the pseudo-socialist policy framework that had been established after the British departed in 1947, the new policy regime meant a massive swing in the direction of unfettered capitalism. And this could not but generate debate, vigorous and heated debate.
The debate centered around the effects of such changes; and since the effects of these policy changes would become clear only after some years, the debate almost wholly concerned itself with predictions, with the future. The crucial question was whether this new set of policies would benefit the economy as the proponents asserted or would lead to disaster as the critics pointed out. Ranged on both sides were the who’s who of the Indian economics and policymaking community. Arguing for the reforms were noted economists Jagdish Bhagwati, T N Srinivasan, Montek Ahluwalia, Manmohan Singh, Arvind Panagariya, Bibek Debroy, Surjit Bhalla, Shubhashish Ganguli and many others; on the other side of the table were equally distinguished economists like Prabhat Patnaik, C P Chandrashekhar, Jayati Ghosh, Praful Bidwai, Ashok Mitra, Amiya Bagchi and others.
Most critics of the economic “reforms” had argued that the adoption of the above set of policies would be disastrous for the Indian economy. They had argued that opening up the Indian economy to trade would lead to “deindustrialization”, i.e., foreign goods would flood our markets and displace locally produced goods leading to closing down of local industries and thus increasing unemployment in the Indian economy. This, they had argued, would lead to a fall in the growth rate of the Indian economy (once the pent-up consumption expenditure boom was over) and lead to a fall in the economy’s overall productivity. They had argued that the poverty rate as measured by the head count ratio (the proportion of the people whose annual consumption expenditure fall below the poverty line) would increase and that income and wealth inequality would also increase dramatically. They had argued that the investment rate in the Indian economy would drop and lead to a shrinking of the capital goods sector. The proponents had, on the other hand, argued exactly the opposite; they had argued that the new policy regime would lead to growth in the economy and reduction of poverty.
Fifteen (or twenty if we start from the mid 1980s) years down the line, the evidence is at best mixed; if anything the empirical evidence seems to bear out the proponents’ claims more than the critics’. The growth rate in the Indian economy (as measured by the growth rate of the per capita income) has certainly increased over the last two decades; opening up the economy has not led to deindustrialization (in fact our exports have increased as also our imports). The Indian economy does not have a large current account deficit which means that we have not been flooded with foreign capital. In fact, over the last few years, outward FDI from India has increased rapidly and in 2006, the Indian economy was a net outward FDI originator. Savings and investment rates have also dramatically increased. And probably most importantly, the poverty rate has consistently declined over the last twenty years; the rate of decline had itself declined in the nineties before picking up again in the last six years. But along with this we also have increasing income inequality, acute rural distress, a degrading environment and most importantly a stagnation in some of the most important indicators of well-being (like the infant mortality rate, the maternal mortality rate, the life expectancy at birth, the primary and secondary enrollment rates and many others).
The process of economic growth and development is more complex than either the well-known proponents or the critics would have us believe; both present only half-truths. When proponents of “reforms” ask us to look at the facts, they want us only to see that the poverty rate (as measured by the head count ratio) has declined; they do not want us to see that this decline has not been accompanied by an improvement in the measures of social well-being, they do not want us to understand the reasons behind the acute rural distress that has led to farmer suicides on such a large scale. The overemphasis on economic growth and the head count ratio by the proponents tries to discount years of research that has drawn our attention to the inherent limitations of this rather narrow measure of development and poverty.
Equally dishonest, I feel, are the intellectuals associated with the official, social democratic left. Faced with evidence that goes against their earlier pronouncements, they continually shift their stands without as much as acknowledging possible problems in their formulations. Notice how they have shifted their discourse on poverty: from poverty decline they have gradually moved onto the rate of poverty decline. Recall that most of them had started the debate by asserting that poverty would increase; once empirical evidence shows that it has not, they have started talking about how the rate of decline has itself declined! Recall also that they used to never focus attention on the indicators of social well-being that they find so important now; issues like education and health were looked at with little more than derision, matters for the “development economists” and not for radicals. Radicals indeed.
To put the whole debate in proper perspective it is important to realize that at bottom, the process of economic development is broadly a matter of increasing the productivity of social labour; and this, we know since Adam Smith and the classical political economists, can be best achieved by increasing the division of labour. Institutions which can support an extended division of labour will lead to increasing labour productivity and thus create grounds for general prosperity in the economy. I think there is much of relevance in classical political economy that can shed light on current debates and let me make a small digression into the writings of Adam Smith. Duncan Foley’s recent book, “Adam’s Fallacy: A Guide to economic Theology”, contains an extremely lucid, well-informed and critical introduction to classical political economy and I will borrow briefly from Foley’s account to motivate the point that I want to highlight.
What makes a nation prosperous, asked Adam Smith at the beginning of his inquiry into the causes of the wealth of nations. His answer is profound because of its stark simplicity: the extent of the division of labour. Not the abundance of natural resources, not the amount of precious metals like gold and silver, but the extent of the division of labour within a country determines the potential prosperity that it can offer its citizens. Behind this assertion lies the understanding - shared by all classical political economists - that the ultimate source of wealth is the labour that goes into the process of social production. The extent of the division of labour, by determining the productivity of that labour, ultimately determines the potential wealth of any nation.
In Smith’s account, the division of labour refers to “the breaking down of useful production into a series of separate tasks, each of which can be accomplished separately from the other”. It is important to realize that Smith sees the division of labour occurring at two very different levels, one at the level of the enterprise and the other at the level of society as a whole. The first, which Smith calls the detail division of labour refers to the process by which production within a firm is broken up into separate tasks; it is the detail division of labour that finally creates the conditions for the introduction of machinery into the production process. But the division of labour also occurs at the aggregate or societal level; this is what Smith refers to as the social division of labour, which is the process by which “parts of a complex production process can be separated into different points of production, which may be located in different firms, or even different geographic regions”.
Smith’s account of the causes of the wealth of nations is completed by positing a positive feedback loop between the division of labour, labour productivity and the extent of the market; this link, when and where it can take hold, operates as a positive feedback loop. Widening extent of the market (i.e., growth in effective demand) supports an increasing division of labour, which increases the productivity of labour, leading to falling prices and rising real incomes. Growth in real income increases the extent of the market in turn, completing the virtuous spiral.
Notice how, in narrating this story of economic development, Smith the political economist has almost imperceptibly melted into Smith the theologian of capitalist social relations; this is the critical point that Foley helps us understand. For hidden within his “objective” description of the workings of a capitalist economy are two implicit value-laden propositions. First, that the process of technological progress and economic growth - the virtuous spiral of economic development - is beneficial for all members of society, i.e., it is autonomous and class-neutral: how else could it be morally justified? And second, that the defining institutions of capitalism - private ownership of the means of production, and markets - are the only ways to support a society-wide, complex division of labour with its attendant benefits in terms of high labour productivity.
To my mind, this is where the critique of economic “reforms” should really be located, not where the social democratic left has placed it. If India manages to establish the institutions of capitalism properly, then there is no doubt that this can lead to technological progress and economic growth. This growth will also lead to a decline in the poverty rates, much like that has happened in Korea and is currently happening in Vietnam or China. If this is true then why oppose economic reforms? This is a legitimate question which the social democratic left does not even attempt to answer. To my mind, the opposition to economic reforms lies in opposing the claim that capitalism is the only way to support an economy-wide complex division of labour. It is to take account of the cost of economic development alongside the benefits. It is to assess the class-nature of these costs and benefits in an already class-divided society. We must ask ourselves: will we oppose a development path that reduces poverty rates but only at the cost of increasing inequality? Economic development through capitalist industrialization (whose logic is, what Marx famously called, ” Accumulate, accumulate! That is Moses and the prophets!”) will lead to dislocations of millions of lives in the medium and short run, though in the long run, the economy-wide poverty rate might go down. The question really before us is this: are we ready to ignore these medium and short-run costs for the long-run benefits which might materialize only in decades or even longer? Are we ready to accept a dispensation where the costs of economic development are disproportionately borne by those who will rarely, if ever, get to enjoy the benefits of that development?
March 23rd, 2007 at 7:45 pm
I’ll get back on this as soon as I’ve had time to digest it. Looks promising for a nice discussion!
March 23rd, 2007 at 8:45 pm
Very well written. I will try to add if I find something useful.
March 24th, 2007 at 12:32 pm
Dear Dipankar,
I have two major points of disagreement with this write up. I shall try to be as brief as possible.
1. “At bottom, the process of economic development is simply a matter of increasing the productivity of labour” and Adam Smith’s ideas regarding division of labour and extension of market.
Are we not discounting the role of effective demand here? You have mentioned demand in describing the virtuous cycle. But if Say’s law holds, and supply creates its own demand, then one need not be much worried about availability of markets. I wonder why Smith factored in markets. Is Smith, the practical observer, in contradiction with Smith, the theologist of capitalism? You may be in a better position to answer.
In poor economies is development simply a matter of increasing productivity of labour? Or is it about increasing employment as well? The equation which connects growth of productivity of labour to growth of output is,
growth of output = growth of labour productivity + growth of employment.
The wretched employment conditions in rural (as well as urban) economy are well known. To raise output (rise in output will produce a higher surplus to be distributed) therefore, one may have a strategy of creating greater effective demand, instead of solely focussing on raising labour productivity.
One may wonder why the planned economies focused so much on heavy industrialisation? The answer may be the following.
Underdeveloped economies are woefully short of capital stock. Higher state investment does two jobs (a) raising effective demand (b) raising productivity by equiping labour with more and better capital equipments.
2. “If India manages to establish the institutions of capitalism properly, then there is no doubt that this can lead to technological progress and economic growth. This growth will also lead to a decline in the poverty rates, much like that has happened in Korea and is currently happening in Vietnam or China…”
Are we not giving capitalism much more credit than the due? Is there anything called proper capitalism? To my mind, Marxist critique of capitalism goes beyond high inequality and worsening living standards of the poorest, which are bound to occur in the wake of capitalist development. The criticism — informed by Lenin’s theory of Monopoly Capital, Mao’s semi-colonial, semi-feudal State, as well as the Dependency School — sees capitalism in developing coutries as incapable of performing the role accomplising the bourgeois revolution.
Examples abound. Take the colonial period. Sops were thrown to imperial capital, close to zero tariff rates existed on imports. In short, the freest market regime we ever had. Deindustrialisation, falling per capita income and living standards were the results. Or take Latin America. Politically independent for roughly 200 years. There were cycles of protectionist regimes and free market regimes. Where are they now? You have cited China, Korea and Vietnam. But State was/is very much in an intevening role there. In case of Korea the benevolent gaze of US allowed Korea market access to US. One also needs to examine the question of democracy which is supposed to be a companion of free market. I also wonder how you will fit in Africa.
You know all my arguments. Do you believe that time has come to revise the old Marxist formulations?
March 24th, 2007 at 11:11 pm
How is proliferation of division of labour ensured under an industrialization scheme (like in Singur) which systematically throws people out of employment? Specially with heavily automated factories which are designed such to keep production costs low?
March 26th, 2007 at 10:26 pm
Debarshi has raised two very important points; let me try to respond to them in the order that he has raised them. The first point also relates to Kasturi’s question.
1. My understanding about Adam Smith’s account of economic development (derived largely from Foley’s recent book) is the vituous cycle that I had referred to earlier: increasing extent of the market leading to higher division of labour leading to higher productivity leading to higher potential properity and further increase in the extent of the market. Now, in this cycle, “extent of the market” is what might be called “effective demand”. Since this figures so prominently in the whole account, I don’t think Smith ignores the demand side.
Say’s Law is a sleight of hand that is introduced later, mainly to justify the long-term benefits of technological progress (or even free trade) and to ask the readers to ignore the short and medium run costs of technological unemployment.
Thus, course economic development must include an increase in employment alongside rising productivity; that is one sure way to increase the extent of the market and support and increasing society-wide division of labour. I used the term “labour productivity” as a synonym for the society-wide division of labour, not in the narrow sense of the ratio of total output to total labour time; if that has caused any confusion, then that is my mistake.
Your comments on the uses of capital investment in poor economies is apt; I think, it should be augmented by noting that poorer economies are short not only of physical capital stocks but also of human capital. Hence, the government should not only invest in machinery but also in education, health and in providing other social services for the population like housing, insurance, public transportation, etc.
2. Capitalism cannot be separated from the capitalist State; it is the responsibility of the State to ensure that the institutions of capitalism - private property and markets - are organized properly, that they “work”; it is the State that “regulates” capitals to see to it that the interests of Capital is secure.
All cases of successful capitalist transition, without exception, have seen the State intervening in the interests of Capital. So, there is no question of separating the State from the markets; that separation is not very useful in understanding reality.
There is lot of sound theory in the Marxist theoretical tradition; one can hardly deny the use of Lenin or Mao’s penetrating analyses. But we must use lot of care to use the categories developed in other contexts and for specific purposes. In this context I would like to advance two ideas for further discussion:
(i) rather than using the notions of semi-feudal and semi-colonial as a fixed characteristic of a particular State or capitalist class, I think it might be better to understand imperialism as primarily a global system of unequal development. No nation forever need have a fixed characteristic; what is really important is the relative levels of development the world over and the incorporation of local capitals within the international division of labour and commodity chains.
(ii) that the capitalist class cannot accomplish the bourgeois revolution need not imply that the socialist revolution must wait for its completion; probably we already have capitalism without a bourgeois revolution? And perecisely because of the absence of the bourgeois revolution this capitalism is so deformed, so inhuman, so brutal.
So the struggle should probably be to replace this brutal, aggressive, deformed capitalism with a libertarian socialist economy rather than to prop it up by social democratic politics.
March 27th, 2007 at 12:01 am
Theoretically, it is impossible to dispute that increase in productivity is good. That increase in productivity has a negative impact on employment in general is also not necessarily true. The unemployment problem is a combination of many factors – outdated labor laws, politicizing government jobs, lack of concern for small and medium scale enterprises to name a few. In principle, there can be sectoral reallocation of labor. Also in theory, division of labor is not limited by the market if you can export your surplus. The East Asian examples that are figuring time and again are mostly examples of the so-called export-led growth. On the other hand, it is also true that planned economy can produce better results, because one can plan and maintain those sectoral balances.
Unfortunately, reality lies in between all these. The so-called market-driven strategies do not necessarily work - either because the agriculture in the developed world is still heavily protected, or because the manufacturing is dominated by countries who are either more productive (hardly believable) or work under such a regimented system that cannot be matched by democratic systems. I think West Bengal’s industrialization strategy is a good reference point here. The government vows to give land at a rock-bottom price, promises to waive taxes and the companies promise to produce at a very competitive price. Who is bearing the cost? The common people who do not have a say in the policy making. Therefore, we have to make a choice – whether we uphold people’s rights or go after dreams of making goods cheaper than China. To me the choice is obvious – people’s right to self-determination with respect to their own will or property cannot be compromised. This does not necessarily mean that Adam Smith was wrong. This means that global reality does not allow us to pursue such strategy without compromising citizens’ rights. Coming back to where we started, under this scheme of things, productivity isn’t even increasing ( they are not saying that TATA will make more cars from the same resource, just that it will be cheaper). It is just an artificial way of lowering the cost, something unsustainable in the long run. Ironically, a complex democracy is also not very healthy for planned development either. Too much lobbying, favoritism, regionalism and most importantly lack of market test make it harder to be an efficient economy.
About the second point, I do not know what is a/the “proper” execution of capitalism. Modern theory is too technical to summarize here, but it does assign an important role to the State, mainly in terms of regulating, solving market failures and providing incentives for the actors. I personally think that state intervention should be discussed on a case by case basis rather than making a sweeping generalization. Clearly it’s none of a State’s business to act as a broker for MNCs. Therefore, while I am aware of the perils of free markets, I am cautious about state intervention in curing effective demand and planning investments also. Fifty years of state intervention has created a small, well-paid, unproductive organized sector and a huge unprotected, undocumented, un-lobbied-for unorganized sector. But that is a different debate in itself.
In response to Kasturi: I think the issue is not so much of employment-replacement, but more of self-determination. If you recall that CPM moron in “Abadbhumi”, he argues that housewives from the displaced families can work as domestic helps in the new multistoried buildings. Even if there were more such jobs than families displaced, I would take that an outrage to the self-esteem of those displaced people.
March 28th, 2007 at 4:05 pm
Dear Dipankar,
I am still not very clear about the second point. You will pardon me for being repititive. My contention was, to put it bluntly, the write up seemed to be pretty at peace with the march of Capital in poor countries. There will be rising inequality, degradation and brutalisation of the lower rungs. But in the long run, it seemed, things might smooth out. Our opposition to the neoliberal project springs from the injustices which bound to occur in the short run.
So far as my understanding goes, one should also consider the possibility that things may not look up in the long run. Theories of imperialism suggest the same. Capitalism, without the State, is a myth (recent rumbling within the mainstream economics testify to the same). I fully agree with you on this point. Capital, with the State and other paraphernalia, creates a matrix of political and economic relations which ensures that the colony never experiences the kind of capitalist development which blesses the metropolis. One may also be sceptical about the possibility of a colony-unassisted birth of capitalism.
If this is the position we share, can we be certain that there would be any long run benefit at all? (incidentally, there are some who doubt if poverty rate has at all gone down during the last five decades: http://www.macroscan.org/anl/jan07/anl060107Poverty_Neoliberalism.htm)
Perhaps, you are hypothesising that even if a country is internally or externally colonised and is placed at some point on the global system of unequal development (I find Arundhati Ray’s description of India colonising itself useful), it may be possible for it to attain long run benefits –- at the cost of short run costs. I am not very sure about this. I also doubt –- from this end of the stick at least –- if capitalism has any non-brutal, benign form. Primitive accumulation was a rage in England during the birth of classical capitalism. Currently it is ruling the roost in India.
March 28th, 2007 at 5:24 pm
Dear Debarshi,
I agree with most of what you have said and probably your recent most post helps me clarify my thoughts even further. I think you have misunderstood my critique of neoliberalism: I have suggested that we should oppose neoliberalism even if it entails economic growth and reduction of poverty. This, I believe, is a critique (or opposition) of neoliberalism giving it all the benefits of doubt. We should attack it at its stronghold: economic growth.
What you have suggested is an attack on a weaker version of neoliberalim: you have said that economic growth and poverty reduction is not possible in a ex-colony like India under neoliberal policies. If that is the case, then we should ofcourse oppose neoliberalism. I have suggested that we should oppose it even if neoliberalism leads to growth and poverty reduction!
And the reason is that capitalist growth, even at its best, is undesirable. Capitalist institutions support and foster the economics of greed and competition; we must replace that with the economics of equitable co-operation, merely another name for libertarian socialism. Even at its best, capitalism means extranalization of costs on those who are least capable of bearing them and accrual of benefits to those who have borne hardly any of the costs. Primitive accumulation is precisely the inauguration of this process at the birth of capitalism. As you have rightly put it: “Primitive accumulation was a rage in England during the birth of classical capitalism. Currently it is ruling the roost in India”. Hence, I totally agree with you that capitalism is never benign and non-brutal. And that is why I ask that we re-orient our struggles for the establishment of socialism instead of the vague rhetoric of social-democratic capitalism (as the official Left does).
On the issue of whether poverty has decreased in the last two decades or not, I have gone through Utsa’s piece. He main point is to redefine the poverty line keeping the nutritional norms in mind (2400 kcal for rural and 2100 kcal for urban areas); with this redefinition, one gets the result that current poverty rates in rural India is 75 percent and in urban India is 49 percent. Moreover, one sees that the poverty rate has not decreased since 1973-74; it had declined in the mid-eighties but then jumped back up during the neoliberal era.
I was not aware of this literature and thought the point rather important; the article as such is shrouded in unnecessary rhetoric. But a little search showed that this idea is not novel. Jaya Mehta has been arguing along these lines for a long time, and you can get the main ideas in a five page commentary in EPW (instead of going through 53 pages). See
(1) EPW Commentary: July 01, 2000.
(2) http://gamma.nic.fi/~otammile/povindia.htm
(3) Alternative Economic Survey, 2001-02
When I looked further into the literature, I saw that this idea has been debated for a long time. Currently I am trying to read the important articles that have dealt with this issue: there might be theoretical or empirical reasons why nutritional norms are not used for the construction of poverty lines. I am not very clear on this issue as yet; it requires more investigation.
The following references are important (I am trying to get hold of them):
(1) EPW Research Foundation (1993): “Poverty levels in India: Norms, Estimates and Trends”, August 21.
(2) Dasgupta Partha and Debraj Ray (1990): “Adapting to Undernourishment: The bIological Evidence and It’s Implication”, in The Political Economy of Hunger by Dreze and Sen, Vol. I
On the issue of poverty and inequality in India, I have found Deaton and Dreze’s article most comprehensive and useful. Their conclusion was that “poverty decline in the 1990s proceeded more or less in line with earlier trends” which was consistent with independent evidence on per capita expenditure from the National Accounts, state domestic products and agricultural wages; inequality (among regions, states, between urban and rural and within urban areas) increased dramatically in the 1990s; development indicators showed mixed results. Hence they concluded “We find no support for sweeping claims that the nineties have been a period of ‘unprecedented improvement’ or ‘widespread impoverishment’”.
Here is the reference:
Deaton, Angus and Jean Dreze (2002): “Poverty and Inequality in India: A Re-examination”, September 07.
A very useful, non-technical introduction to poverty analysis (without much of the useless rhetoric) can be found here:
http://www.princeton.edu/~rpds/downloads/deaton_povertymeasured.pdf
Hope this clarifies matters and takes the debate forward.
March 28th, 2007 at 8:10 pm
Debarshida,
I am little confused about your concern with “march of capital” in the South and reference to “capitalist development that blesses the Metropolis”. Do you mean that the real issue is to change the way capitalism is practiced in poor countries?
March 28th, 2007 at 11:49 pm
Dipankarda,
Wanted your response on this. When you say
“The question really before us is this: are we ready to ignore these medium and short-run costs for the long-run benefits which might materialize only in decades or even longer?”,
one thing that you do not address is the
issue of compensation mechanisms. Is it
possible to think of compensation mechanisms
that will weaken this trade-off for those
who are affected?
I think it is important to address this question because this is what most of the outpouring of emotions against Nandigram amounts to: capitalist
industrialization should continue but those
who would lose their land must be brought
on board as partners in the process. In fact,
if you look carefully, this is also what the
national government and the CPI(M)’s policy
posturing on SEZ’s have been in the last few
days, suggesting that they have been “listening” to “aggrieved intellectuals”. In a nutshell,
it is extremely important at this juncture
to dissect this position, otherwise a great
political opportunity to create a democratically-minded alternative to the CPI(M)in West Bengal
will soon be lost.
Personally, I think there are several ways in
which this position can be challenged. First
of all, the idea of democratic deliberation
in which decisions are arrived at consensually
completely ignores the power that is exercised
simply through the ability to argue forcefully. It is hard to imagine that ordinary peasants will
be able to match up on this count to the seasoned Alimuddin-trained (I should also add JNU-trained) rhetoricians that the CPI(M) will
undoubtedly bring to the discussion table.
Second, there is the bigger issue of a commitment problem. It seems to me that
whatever compensation mechanism is devised
will involve a commitment on the part of the state to honor some future exchange. Who
will enforce this commitment if the state
violates it? The judiciary? All talk of
an activist judiciary notwithstanding, the
fact is that the average case before the
Indian court system drags on for years.
These are some thoughts. It is ofcourse
critically important to think about
what an alternative economic model
to capitalist industrialization should
be, which has been the tenor of the
discussion so far. I have merely tried
to bring a more explicitly political
perspective to the discussion.
March 29th, 2007 at 6:59 am
Perhaps this is why CPI(M) is so weary about “outsiders”. Though examples abound in the rest of India also.
March 29th, 2007 at 9:55 am
Certainly, there is a need to go back to the basics and leave out the social-democratic left in India and their analyses…
May be it is necessary to read Adam Smith in terms of political geography - the virtuous spiral of labour and market demand which he describes happens in a concrete geographic world of social relations where state has the last-instant capacity to guide capital into a particular space and mobilise resources from other spaces. This is where Marx brings out what is concealed in Smith and to some extent in Ricardo.
If the Smith model has to be replicated elsewhere, its politico-geographic-historic space too has to be already there. Therefore, there is no subject as such economics and the continent of economics is necessary economic history.
March 29th, 2007 at 3:20 pm
Dipankar, clarified, thanks. I also believe West Bengal provides an example how social democratic attempts in a poor country soon degenerates into capitalism.
Prabal, my concern is not how capitalism is practiced in poor countries. Capitalism, to me, is an unequal way of organising soical life. It creates wealth for some and destitution for the rest. When a country, as a whole, benefits from it, it is believed to have experienced capitalist development. The mirror image of that ‘development’ is the set of drained out colonies. The existence of the stagnation in the colonies does not imply capitalism is not present there, or that it is not practised ‘properly’ there. It simply means that the colonies are at the receiving end of the unequal system.
March 29th, 2007 at 3:51 pm
is it possible to characterize the extent of ‘capitalist’ development in a country like india ?
March 29th, 2007 at 9:17 pm
Debarshida,
I can see your center-periphery argument, though “country, as a whole” benefitting is unclear as there are holes of poverty in rich countries also. Though I think some amount of inequality is inevitable - partly because of how people react to incentives and partly because of randomness of nature. This has nothing to do with economics imperialism.
March 29th, 2007 at 9:17 pm
Debarshida,
I can see your center-periphery argument, though “country, as a whole” benefitting is unclear as there are holes of poverty in rich countries also. Though I think some amount of inequality is inevitable - partly because of how people react to incentives and partly because of randomness of nature.
March 30th, 2007 at 1:17 am
Dipankarda,
Just to buttress my earlier arguments. There
is in fact a tradition in political philosophy
which has been highly skeptical of deliberative
processes. The philosopher Rousseau, atleast
in my reading, saw any form of communication
before voting on social alternatives as a corrupting influence.In his normative universe, the public forms its opinions independently, votes and somehow the general will is articulated through this process. I always found this idea very fascinating though in my mind I have not completely unraveled the logic behind it. Maybe now is the right time to revisit this strain in Rousseau’s thought. At the least it
will help us problematize “getting peasants on
board”-type of arguments which frankly is becoming annoying by the day. It almost seems
like a balm that many liberal intellectuals
are using to somehow get them over this crisis
and help them resume normal lives.
Also, to connect my arguments to the general
discussion you have been having with Debarshida,
I was wondering if one can view mechanisms like
deliberation or compensation as the defining
features of social-democratic politics? The problem is other political ideologies may also have elements of these so maybe it is not a distinctive aspect of social-democratic politics.
I’m not sure, but its certainly worth pondering
over.
March 31st, 2007 at 10:50 am
I started following this interesting discussion rather late but would like to make a few layman’s observations. A crucial point which seems to have not been considered in detail in this discussion on the “neo-liberal” economic reforms in India is globalization. What Dipankar has stated about Adam Smith’s observation that “division of labour” being the cause of prosperity of an economic system (by “economic system” I refer to anything from an enterprise to a society or a national economy, better word), is true, because in division of labour lies the efficiency of extracting profit, and for generating the so-called virtuous spiral. Although Adam Smith describes this division of labour as “parts of a complex production process can be separated into different points of production, which may be located in different firms, or even different geographic regions”, he considers this division to still work in a sort of unified economic system, as in a corporation or a national economy. But I think that globalization, and particularly the globalization of the “division of labour”, adds a new dimension to this, which we must appreciate to understand the nature of neo-liberal “reforms”.
I’ll try to clarify the point which I have so clumsily put. By globalization of the division of labour I mean that the process of social production, which today includes both manufacturing and services, is no more restricted to a single unified economic system such as a national economy, but is spread out around the world. This is old hat, but the crucial point is that a dominant capitalist economy, like the economies of the North, is based on a world-wide division of labour, where, because of the greater efficiency that it gives to the process of extraction of profits, the costs of production have been externalized. This is epitomized by the economy of the USA, the most developed capitalist economy, where manufacturing has been greatly externalized (to countries like China) and services have been externalized (to countries like India). I think the reason why this has been done is basically to go out of the “virtuous spiral”, because with increased efficiency of production and rise of “social needs” of workers, the rise in wages (or the rise in the expectation of wages) has been such as to make the extraction of profit inefficient. On the other hand, removal of the processes of production from the national economy would result in a stop in the rise of incomes, unemployment, reduction in purchasing power, contraction of the market and social upheaval, all of which is detrimental to the capitalist system. So, cost of commodities and services have to be kept low enough, such that the majority of people, regardless of the fact of decreasing or stagnant incomes, still have the purchasing power to meet their social needs and to sustain and expand the market. Today, the USA has the most unequal economy in the industrialized world, with I think 10% of the population owning 60% of the nation’s wealth, but this rising inequality seems not to have significantly affected the purchasing power of 90% of the population. So, the solution to this dual problem, of maintaining the efficiency of the process of profit extraction and of sustaining the market, was globalization. Globalization would externalize not only the costs of production, but also the forces of production, and would also maintain the supply of cheap goods and services, that would keep the economy running. I think we have to consider the nature of economic reforms in India against this backdrop, because therein lies their fallacy.
So, let me consider that the economic “reforms” in India leads to the process of capitalist industrialization which, although at immense short term costs, would lead to general prosperity in a space of 20-25 years. That might be acceptable to many people, of course you cannot have long term benefit without some short term costs. But what type of an economy are the policies building up in the meantime? Therein lies the crux of the matter. We are building up what I call a “service economy”, an economy designed to serve the “dominant economy” based upon a globalized division of labour. The economy will serve the purposes of globalization which I have enumerated earlier, to externalize the processes of production (in the case of India it will be mostly the service sector) of the dominant economy and to act as a source of supply of cheap commodity (again, in the form of cheap white collar labour in the case of India). Moreover, any social unrest tied to this process will become a problem of the state running the service economy, as we have seen in NAndigram and everywhere else in the world. This service economy, servicing the global capitalist system and superimposed on the national economy, will increasingly have resources allocated to itself from the traditional economy…in the form of land, power, subsidies, tax breaks etc., because of its apparently high returns (leaving aside the fact that the class which will profit from this economy is also the ruling class). The proposed Tata small cars factory in Singur is a beautiful case in point. I was talking to a friend of mine in Kolkata about a month back who has three car dealerships in the city. According to him, the largest purchaser of passenger cars in the city now are not individuals, but companies which maintain fleets of cars to transport employees of software/BPO firms to Salt Lake. The small cars rolling out of Tata’s assembly line will supply the needs of these people. So what is the bottomline…Singur represents the removal of a resource (land) from the real economy (agriculture) to service transporters who will service ITES firms who will service the dominant economy in the USA. The short term costs are apparent, 10000 people will lose their means of livelihood. But will there be long term benefits, will it lead to an overall rise in prosperity, will it lead to the “virtuous spiral”? I don’t think so, and therein lies the fallacy of these economic policies. To keep the system profitable for global capital, the reason why in the first place the division of labour was globalized, the service economy has to remain relatively underdeveloped, to remain as a source of cheap goods and services. For real incomes to rise up in the, wages have to increase, but that will replicate the process that already happened in the dominant economy, so that cannot happen. To keep the wages low, there has to be a constant pool of the unemployed, so that people are always ready to come into the service economy at low wages. To keep the production process profitable, there has to be a continous reallocation of resources, in the forms that we have seen…land, subsidies, electricity etc. as a result of which state expenditure on the social sector has to reduce. And the superimposed service economy, employing a small number of people, will drive up the prices of commodities, which we have seen happen in everything from education to real estate, further impoverishing people. Therefore not in 20-25 or a 100 years, but possibly never, will these policies result in an increase of general prosperity, because they are enmeshed in a global system predicated on maintaining the service economy “underdeveloped”. It is something which I compare to thermodynamics. Energy flows from a source to a sink, but only along a gradient. Wealth can also flow only along a gradient, from the producers to the accumulators, and global flow of wealth from the service economies to the dominant economies, can only be maintained if the gradient of inequality is maintained. To draw an imperfect analogy, something that has already been referred to in this discussion, we can look at the relationship between the colonies and the imperialist countries. That relationship was also based on a sort of division of labour, although not to the extent that globalization has done today, but that never resulted in the prosperity of the colonies vis-a-vis the colonizing economy. It resulted in a net drain of wealth, although it gave rise to a small prosperous class of landlords etc. whose economic functions were centered around servicing the dominant economy again, mostly in the form of providing raw materials. The analogy is imperfect, but I think is the indicator of the fallacy underlying the process of capitalist development which the neo-liberal policies have ushered in in India.
April 1st, 2007 at 10:41 am
It would be better if Partho’s comment is put as another article, with the same title as Dipankar’s while also subtitling it as “a response to Dipankar Basu” etc. That would do justice to both the comment and Dipankar’s article, and also to the reader who has to scroll down so much to read Partho’s comment.