The authors are among the leading economists globally known for their critical assessments of capitalism. And the blurb of the book says: “Mainstream economics sees capitalism as an isolated and closed system. In this pathbreaking book, the authors Utsa Patnaik and Prabhat Patnaik argue that this is both historically false and logically untenable. An essentially money-using economy like capitalism is inconceivable unless set in a pre-capitalist setting which it dominates and modifies for its own purposes.”
The interested reader will get some insight into what to expect. By its very nature the book is by scholars and for scholars. A review of the book may not, therefore, be of interest to lay readers. This is particularly so about Parts II and III and to some extent Part IV. However, for anyone who is interested in the present state of capitalism, including the one in our country, there are valuable insights in the rest of the book, especially Parts IV, V and VI. This exposition, therefore, concentrates on them.
Part IV is about money. The issue discussed is whether money is just a medium of exchange facilitating transactions, or whether it is something that people want to hold for its own sake, let us say, as a form of wealth. And, what if there is some entity that combines both these aspects, a facilitator of transactions and a form of wealth? According to the authors, that is exactly what finance does.
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For a long time, immediately after the First World War, gold played this role, and was referred to as the ‘gold standard’, with transactions between countries being settled through gold. The gold standard had a chequered history and by the end of the Second World War, the U.S. dollar replaced gold as medium for inter-country transactions. This was because the U.S. administration was in a position to convert any national currency into gold for a fixed dollar price. This arrangement lasted until the early 1970s when the U.S. was no longer in a position to honour its commitment.
From then on, currency transactions became a flourishing activity controlled by private agencies, inaugurating the era of finance. The International Monetary Fund (IMF) tried to step in. According to the authors, “all these meant a change in the role of the IMF, from merely being an occasional lender to countries undergoing balance of payment stress and advising them to undertake ‘stabilisation’, to becoming an instrument of international finance capital, to get countries to undertake ‘structural adjustment’ which would open them up to unrestricted global flows in goods, services, and capital, including above all finance.”
They continue: “Opening economies to global financial flows entailed a change in the relative weights of the nation state, and the new globalised finance capital” (p. 261). The state tried to assert itself, but rapidly spreading finance, with the active support of multinational corporations, found ways to get the state to become an ally, mainly by threatening to move out to another country.
A quick survey of the origin and rapid spread of capitalism that the authors provide in many chapters is necessary here. Let us recall that for long the only ‘economic’ activity of humans was for what was necessary for survival, gathering fruits and nuts. This was followed by the cultivation of food grains—early agriculture. Merchants soon surfaced as the first professional class, storing food and travelling beyond traditional settlements. In the long feudal history of humans, there were these two distinct groups, cultivators and merchants.
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Feudalism itself had two classes, landlords who possessed the land and workers who did the actual cultivation getting enough grain for their survival. At a certain stage, landlords in England found that there was a demand for wool in certain parts of the European continent and that it would be more profitable to enclose their land, populate it with sheep, get the wool off them and sell the wool in Europe. The workers thus thrown out became those who had nothing other than their labour to make a living.
Technological innovation, especially the use of steam for industrial activity, laid the basis for the ‘industrial revolution’, with capital looking for profit using the plentiful workers who were forced to sell their labour for a living. If this is right, the productive stage of capitalism was an accidental consequence of science and technology. Under global transactions made possible through finance, capitalism is returning or going forward to merchant capitalism.
What is the role that the state is playing in this new stage of capitalism? Has the state withdrawn, as some neoliberal supporters of the present argue? That is not the case. What has happened is a change in the nature of the state intervention, assert the authors in one of the crucial chapters (Chapter 17). “The essence of neoliberalism consists in a dual change in the class configuration and an accompanying change in the nature of the state and its modus operandi…. Contemporary globalisation implies… that within each country, not just in metropolitan countries but in others as well, there is a financial oligarchy or what we would prefer to call a corporate financial oligarchy which is globalised in the sense of going all over the world in quest of gain instead of seeking an exclusive economic territory of its own ” (p.269, italics as in the text).
In turn, within each capitalist economy there are effectively two groups, the globalised corporate financial oligarchy and the rest consisting of small capitalists, petty producers, peasants and craftsmen whose patron the state becomes. The state is dependent on the former and becomes the champion of ‘the small man’. Priorities are clear too: wherever there is a conflict between the two groups, the state makes it evidently clear that it leans towards the former.
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Corporate finance, in the meanwhile, is discovering that because of lower wages in the former colonies, it is to their advantage to locate production in them. China, and to some extent India, have been the major beneficiaries of this thinking. After these countries opened up (India initially in the 1980s and substantially after the ‘Reforms’ of the 1990s), they could celebrate the big increase in gross domestic product (GDP). In effect, however, it reflects largely the growing income and wealth of the top income groups (conveniently referred to as ‘the middle class’), who imitate the lifestyle of the metropolitan areas. Down below it is a different story as revealed by the increasing suicide of the peasants.
This, however, is only temporary triumph of capitalism. Its inherent difficulty today is that it lacks an exogenous stimulus that could provide a floor to revive itself. It only has bubbles that provide revival for a while. Upward asset prices provide these bubbles, here today and gone tomorrow, as the financial crisis in the U.S. during the first decades of the century showed. Individual states may try to protect domestic capital, but capitalism is no longer domestic: finance capital ensures its global flow. Capitalism will not die, it will limp along, with the state trying to provide some prop up. Such is the background to fascist tendencies visible in many parts of the world. Finance capital lends its support to such tendencies, thus making fascism acceptable to large sections of the population, impressed by visible and much publicised ‘development’ agenda and achievements.
After making these assessments, the authors turn to socialism as a possible alternative to capitalism. There is a chapter devoted to capitalism in history. Against the feudal background, capitalism was a progressive order. However, this was not the case of colonial countries where capitalism coexisted with the conservative ethos. In the former colonies, therefore, some alternative has to be found.
It is against this background that the authors turn to socialism. Recalling the situation that Lenin found himself in Russia during the early years of the 20th century, they say that the capitalists there made common cause with the feudal elements fearing that any attack on feudal property would be interpreted as an attack on property per se, including their own property. They, therefore, formed an alliance with the landlords. This is the situation in many third world countries today.
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What if a progressive party were to come to power with the support of the working classes? It will have to face the fury of finance capital which controls capital outflows that no party in power can afford to happen. The options then would be to tax the rich heavily and to impose restrictions on imports too, thereby depending on the domestic market for economic growth. In turn this will call for land redistribution and developing agriculture along cooperative and collective lines with the consent of the peasants.
The authors add: “This kind of development trajectory we have outlined appears to have little to do with socialism. But if socialism is seen as the ultimate destination of a trajectory of development, then its pursuit must be characterised by the measures we have just discussed. But even the pursuit of such a trajectory will face serious obstacles.” (p. 341)
The authors outline some of these obstacles. The first is that the party, or even a coalition of parties committed to the agenda, will find it difficult to come to power. But if it does, “then financial outflows will become a torrent”. There may be coups instigated by external forces. If that does not happen, there will be propaganda about what capitalism has achieved: it has developed productive forces and even reduced absolute poverty. “What we shall witness, in other words, is not necessarily wars and death camps, but a more or less protracted period of falsification of society, from which socialism alone can rescue mankind.” (p.350).
The book, one of the most scholarly works on capitalism, ends on that statement of hope.
