Challenges to the global economy

Print edition : December 09, 2016

At a Walmart wholesale store in Zirakpur on the outskirts of Chandigarh.Retail capital is akin to merchant capital tending to subjugate even industrial capital, one of the authors in the book observes. Photo: Bloomberg

Outside the Bombay Stock Exchange in Mumbai. Currency trading is one of the most profitable activities for capitalist corporations. Photo: Arunangsu Roy Chowdhury

In this tribute to their teacher, Prabhat Patnaik’s former students put together a volume that covers three major themes: the internal contradictions of capitalism, the growth of the Indian economy and the feasibility of socialism.

PRABHAT PATNAIK, a frequent contributor to Frontline, is currently Professor Emeritus at Jawaharlal Nehru University and has been one of India’s most renowned economists and public intellectuals. The volume under review contains essays contributed entirely by Patnaik’s former students, especially those whom he guided in their doctoral work. It is a fitting tribute to a teacher who inspired them by his commitment to scholarship and involvement in public affairs. Apart from an excellent introduction by the editors, there are 19 chapters in the book, making the reviewer’s task difficult.

The editors have indicated that there have been three major themes in Patnaik’s voluminous writings: the growth of the Indian economy, the internal contradictions of capitalism, and the feasibility of socialism. In this review, I shall follow that lead, although that would mean not identifying individual contributors. Critical reviews of individual papers are sure to appear in professional journals. I urge research scholars to go through the papers carefully for the data that have been assembled, the methodology that has been adopted and the rigour of analysis that has been followed.

As the performance of the Indian economy now is closely linked to global capitalism, let me start with the chapters dealing with the contemporary phase of capitalism. What has been happening to global capitalism since the meltdown of 2008 and its immediate aftermath? One of the papers explains vividly that in August 2011, the rating agency Standard & Poor’s cut the rating of U.S. Treasury bonds from AAA to AA+. It may not have appeared to be anything drastic, but it was the first time since 1917 that U.S. Treasury Bills lost their highest rating.

The fact is that with all its power and might, the U.S. today is the most indebted nation in the world. However, since those who are the country’s creditors, especially China, prefer to hold their surplus (earned by exporting goods to the U.S.) in U.S. dollars, indebtedness is not a source of much worry for the debtor country, though sovereign debts of other countries (Greece, for instance) became a matter of heavy burden for their citizens and of political instability as well.

Walmart phenomenon

In a world where there is no genuine international currency and most countries are on floating rates, currency trading is one of the most profitable activities for capitalist corporations. To put it in general terms, what is good for capitalists is not necessarily good for nations, including capitalist nations.

There is a related phenomenon, which is brought out by another paper. Even in countries such as the U.S., capital now finds it advantageous to move into trade rather than production. Witness the Walmart phenomenon. It buys and sells. While buying goods from wherever in the world they are available, it uses its economic power to weaken producers, and while selling goods, it wipes out smaller retailers. It is both national and transnational. Retail capital is akin to merchant capital tending to subjugate even industrial capital, observes the author. In this sense, global capitalism is undergoing a major transformation.

“We find the First World in the Third, the Third World in the First, and the Second almost nowhere at all,” quotes another writer in the book. Everywhere the authority of national governments appears to be giving place to the buying and selling power of big corporations. Even foreign direct investment is increasingly a matter of mergers and acquisitions.


A third feature of today’s global capitalism is what is increasingly referred to as “financialisation”, whereby profit-making and accumulation take place not through the production of commodities but through transactions in financial assets. Finance, which in its early stages was an attempt to mobilise past savings and make credit available for production involving long gestation periods, has become a directly profit-making activity.

A couple of chapters in the volume explain how this has happened and what its implications are. In the early stages, assets pledged to secure a loan remained essentially as security to be made use of in case of default. But with the increase in their volume, it was found that these could be traded too as securities and such trade became an additional source for profit. Then new salable claims were derived from such securities, and these “derivatives” came to have a market of their own whose volume soon overtook the value of goods and services produced, thus setting up a competition between production and transaction as the source of profit.

The boom thus generated could not last very long and could only lead to a collapse, as in 2008, first in the U.S. and soon spreading to centres in Europe and Asia where stock markets were enthusiastically responding to the “new financial architecture” initiated in the U.S. When markets collapsed deeply hurting production activities also, the state had to step in to revive the system. However, the calamity brought out some hidden truths—transactions in stock markets are the surest way to ensure adequate liquidity in the system and, more important, being in the nature of claims to wealth, they are the quickest way for the rich to become richer still. Accumulation is no longer the aim of producing capitalists, but of the wealthy for whom transactions in claims to wealth are the easiest way to make quick profits and accumulate wealth. That is the new phase of global capitalism, not only across nations but within nations as well.

The chapters directly discussing with the growth of the Indian economy deal with some of the implications of this transformation of capitalism.

While the formal opening up of the Indian economy to global capitalism in the early 1990s led to a perceptible increase in the growth of the gross domestic product (GDP), the pattern of that growth has some disturbing aspects. One of the clearest of them has been the neglect of the agricultural sector.

One of the writers points out that the share of agriculture in total GDP has come down sharply from over 50 per cent in the 1950s to around 14 per cent in 2014. That by itself is not a matter of concern. In fact, the primary sector losing its share in GDP over time is to be expected. However, in the Indian case, what is distressing is that it happened without a significant reduction in the share of the workforce out of that sector, and to the extent it happened it was more into the services sector dominated by transactions of various kinds. The reason for the phenomenon is also fairly clear: the sharp fall of public investment in agriculture since the reforms of 1991, of which a major plank has been the withdrawal of the state from the economy.

It has had serious consequences also, for instance, the fact that the per capita availability of foodgrains now is less than what it was 60 years ago.

The distorted growth pattern has had its impact on landholdings, too, with well over 90 per cent of the holdings being below one hectare and the combined numerical share of marginal and small farmers going up from 75 per cent in the early 1960s to over 90 per cent at the dawn of the new century. These changes explain to some extent why there is so much visible distress in rural areas and unprecedented movement of workers into urban areas.

Jobless growth

Another theme that has been dealt with is what has come to be known as “jobless growth”. One of the contributors points out that while gross value added in the organised sector grew by 7 per cent per annum between the 1980s and 2004-05, the growth of employment in that sector was only 0.9 per cent. It is widely known that the organised sector accounts for only around 8 per cent of the workforce, with the rest being in the unorganised or informal sector. A related aspect of the employment scene is the fact that both in the private and in the public segments of the organised sector employment is becoming increasingly on a specified contract basis, thus “informalising” the organised sector as well.

Three chapters deal with the related issues of education and inequalities. One of them shows how in an unequal society poorer households aspiring to catch up with the lifestyles of their richer counterparts may end up in a long-run poverty trap. Another points out that providing access to higher education could be an important measure in mitigating poverty. A third insists that reduction in educational inequality does not necessarily reduce income and wealth inequalities and argues that inheritance of wealth is a major factor responsible for inequalities and for perpetuating them. However, there is no discussion about the glaring and growing inequalities throughout the world as an unavoidable feature of capitalist growth, especially its latest financial thrust.

What is missing in the volume is a treatment of the third theme identified by the editors, the feasibility of socialism. This is rather disappointing because Patnaik has written extensively on the topic, and some of his writings on this have been brought together in his Re-envisioning Socialism (2011).

The introduction has a section dealing with Patnaik’s critique of capitalism and his thinking on socialism. Patnaik’s views on socialism have been unconventional. For instance, he does not agree with the position held by some Marxists of the historical inevitability of socialism, although he strongly argues the case for socialism as it is the “full flowering of democracy” and the only conceivable alternative to capitalism. Even more controversial will be his position that socialism calls for not only the transformation of society as a whole but the transcendence of the individual as well because “the individual can become a subject only in a society in which he transcends self-interest”. One hopes Patnaik will write more on this theme and that not only his admirers but also his opponents will join in the discussion on a socio-economic alternative to capitalism.

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