Time for change

Published : Apr 10, 2009 00:00 IST

IN THE CENTRAL Hall of Parliament. Notwithstanding all exhortations to "keep development above politics", a euphemism for getting a consensus around the neoliberal agenda, such a consensus proved elusive.-V. SUDERSHAN

IN THE CENTRAL Hall of Parliament. Notwithstanding all exhortations to "keep development above politics", a euphemism for getting a consensus around the neoliberal agenda, such a consensus proved elusive.-V. SUDERSHAN

THE triumph of neoliberalism in India was never complete. The nationalised banks continued to remain state-owned; key public sector companies were not privatised; pension funds were not handed over to speculative finance capital; the currency was not made fully convertible; and the financial sectors holding of foreign assets, other than the foreign exchange reserves of the Reserve Bank of India (RBI), continued to remain minuscule. In short, the two interlinked and mutually reinforcing processes underlying neoliberalism, namely, the dismantling of the public sector and integration with global finance, remained arrested.

This happened not for want of trying by the proponents of neoliberalism. Every means, fair and foul, was adopted, including crash measures, for insurance privatisation for instance, by a government in its last days that had even been reduced to a minority. But they floundered in the face of stiff opposition by the trade unions, especially those in the financial sector, by the political Left, and by the progressive intelligentsia. The glee with which the neoliberal establishment greeted the break between the Left and the United Progressive Alliance (UPA) and the alacrity with which it demanded that the neoliberal agenda should be rushed through after this break only underscore the significance of the Lefts resistance to neoliberalism. But even that resistance was not enough. Even the half-triumph of neoliberalism was enough to widen the hiatus in Indian society and shake modern Indian society to its very foundations.

The formation of a modern Indian nation out of an extraordinarily disparate population riven by millennia of caste, class, gender and other forms of oppression is one of the marvels of our times. It was made possible through the prolonged anti-colonial struggle that was founded upon an implicit social contract. This implicit social contract, which had been occasionally articulated earlier, notably in the Karachi Congress Resolution of 1931, was sought to be given expression to in the Constitution of the Republic. And central to it were: electoral democracy based on universal adult franchise, secularism, civil liberties, the end of caste and gender oppression, and the building of an egalitarian society. An economic regime that produces some of the worlds top billionaires at one end and thousands of peasant suicides on the other is a violation of that social contract; it endangers the foundation of the modern Indian nation. And neoliberalism constituted such a violation, above all by withdrawing state support from peasant and petty production.

Peasant and petty production can survive the onslaught of capitalism only through the active intervention of the state, and such survival must be ensured in a society like ours. The reason is not that the travails of the people in the process of transition from a declining petty production economy to an emerging capitalist one become unbearable when they are between jobs, and that the decline therefore needs to be fine-tuned. It does, but that is not the reason. The reason is that in the present conditions such a transition is simply not possible. The capacity of such capitalist development to generate employment is so low that not protecting peasant and petty production against displacement by such capitalist development can only produce a growing army of unemployed and underemployed paupers, that is, absolute immiserisation at one pole together with the growth of wealth at another.

Indeed the higher the rate of growth of the capitalist sector, the greater will be the scale of such absolute immiserisation, insofar as the higher growth impinges even more strongly on the petty production sector. The view that the solution to the persistence and even accentuation of poverty lies in the achievement of even higher rates of economic growth is thus erroneous; the higher growth itself can be, and has been, the cause of the accentuation of poverty.

The amelioration of poverty requires a state that prevents the decimation of petty production by capitalist development, that undertakes significant expenditure to provide welfare benefits to the entire working population and augment the social wage in both capitalist and non-capitalist sectors. The neoliberal state, by its very nature, cannot do this; indeed it does the opposite.

The term neoliberal state may cause surprise. After all, Nehruvian dirigisme and neoliberalism are often seen as two alternative possible policy sets that are available to the same state, that is, the same state is seen to be capable of pursuing either the one or the other. But this is a mistake. The transition from one policy to the other entails a change in the class configuration underlying the state, a change in the nature and composition of the dominant classes themselves, and hence also a change in the nature of the state. During the 1930s, for instance, when import-substituting industrialisation was undertaken in Latin America, replacing the earlier export-oriented strategy, this shift was accompanied by major political upheavals. It was not just a switch from one policy to another; this switch was part of a shift from one kind of state to another. The shift from Nehruvian dirigisme to neoliberalism in India was part of a worldwide shift from dirigiste to neoliberal regimes; in the advanced countries this shift was marked by the end of Keynesian demand management. This worldwide shift was the result of a process of globalisation of finance

Nation-states pursuing dirigiste policies had to bend to the caprices of international finance capital in order to prevent the flight of finance (unless they showed the political resolve to delink themselves altogether from the realm of globalised finance, which bourgeois states typically did not). Neoliberal policies, of sound finance (involving at best a small specified fiscal deficit); of trade and financial liberalisation; of rolling back the state from its interventionist role (except in the interests of finance capital); of privatising public sector units; and such like represented the interests and outlook of international finance capital.

Their pursuit accordingly entailed a shift in the character of the state, from one standing above classes and mediating between them (even while being a bourgeois state) to one that acted predominantly in the interests of the upper echelons of the bourgeoisie that was integrated with international finance capital. Expecting such a state to defend and protect petty production, to undertake welfare expenditure and to raise social wages, that is, to ameliorate poverty, is a chimera.

True, in India the transformation in the nature of the state was never complete. The framework of democracy constrained the march of neoliberalism, since within this framework the neoliberal agenda could never muster sufficient support for its total triumph; and yet this framework itself could not be jettisoned either. Notwithstanding all exhortations to keep development above politics, a euphemism for getting a consensus around the neoliberal agenda, such a consensus proved elusive. And yet even this half-triumph of neoliberalism, this semi-transformation of the state, was quite enough to do considerable damage, above all through its withdrawal of support to peasants and petty producers.

The cut in subsidies increased the input costs for the peasantry; the withdrawal from the goal of social banking reduced institutional credit to agriculture, throwing the peasantry back to the mercy of moneylenders for loans at exorbitantly high interest rates; the virtual winding up of extension services increased the peasantrys direct exposure to, and dependence upon, multinational companies; trade liberalisation made the peasantry vulnerable to the vagaries of world market prices; the progressive dismantling of the domestic procurement mechanism removed even such protection as the growers of crops covered by the Commission for Agricultural Costs and Prices (CACP) could have got; and above all public expenditure deflation in the countryside reduced rural purchasing power drastically.

The upshot was not just agricultural stagnation and a decline in per capita foodgrain output in the period after the beginning of the 1990s; it was also a decline in per capita foodgrain absorption, which was even steeper than the output decline. The squeeze on purchasing power in rural India was so drastic that notwithstanding the declining per capita output, foodgrain stocks got built up whenever procurement operations were in force. And what was true of the peasants was equally true of other sections of petty producers as well. Squeezed between cheap imports on the one hand and rising input costs on the other, they experienced significant absolute impoverishment, to a point where their return per labour day fell below even the lowest minimum wage.

The tragedy, however, lies in the fact that the very same people who had been immiserised during the boom will get further immiserised during the crisis that is now upon us, the crisis that has been precipitated worldwide by the triumph of neoliberalism itself. The same neoliberal dispensation that had squeezed vast masses of the population during the boom has now precipitated a crisis in the course of which this squeeze will intensify.

But the crisis also spells the end of neoliberalism. It is obvious that the only way out of the global crisis is through fiscal stimuli in the form of increased government expenditures, which, to be effective, have to be coordinated across countries, and which, to be politically acceptable, have to be directed towards the welfare of the people. Such a coordinated stimulus, which would violate the tenets of sound finance and re-establish the proactiveness of the state, is obviously anathema for international finance capital and is being resisted by it. This resistance, however, only prolongs the crisis and strengthens the rejection of its ideology, neoliberalism, which is the cause both of the crisis and of its persistence. Neoliberalism clearly has reached the end of its tether.

In India, however, a novel effort is being made to rescue it. The government agrees that a fiscal stimulus has to be provided to get the economy out of the crisis, since all efforts at using monetary policy to revive demand have come a cropper. But in discussing the nature of this fiscal stimulus it emphasises larger viability gap funding for public-private-partnership (PPP) projects in the infrastructure sector. Larger government expenditure, in other words, should take the form of handing over larger amounts of funds to private capitalists in the name of developing infrastructure. Since PPP with viability gap funding was very much a part of the neoliberal agenda, this amounts to promoting neoliberalism even while apparently retreating from it, in a Keynesian direction, through having a larger fiscal deficit.

This strategy is not just futile in the present context, when the inducement to invest is so low that even larger government munificence is unlikely to help in inducing larger private investment, but also undemocratic, in a double sense. First, infrastructure being a portmanteau concept, promoting infrastructure development can mean anything from building a road in a village to building a five-star hotel; typically, the projects that are promoted in the name of infrastructure development prioritise the latter rather than the former, thereby ignoring peoples priorities. Secondly, the expenditure of public money is better done directly through a government accountable to the public than through transfers to private capitalists, the need for which is never established and the use of which is never monitored.

An appropriate fiscal stimulus, in the form of larger government expenditure on health, education, sanitation, drinking water, rural infrastructure, agricultural development, food security, and price support for the peasants and petty producers, will necessarily require controls over cross-border financial flows to prevent capital flight. It will also require an appropriate regime of protection which defends peasants and other primary commodity producers against the crash in world prices, which defends petty producers against cheap imports, and in general against the beggar-my-neighbour policies of other countries, and which ensures that the leakages of the impact of the fiscal stimulus are minimised.

All these entail a retreat from neoliberalism. But this retreat cannot be seen only as a temporary one. Overcoming the crisis has to be linked to an alternative development trajectory, a trajectory of peasant agriculture-led growth, which requires an economic regime altogether different from neoliberalism. The neoliberal regime, in other words, has to be buried for ever, which in turn is possible only if we shake off the hegemony of international finance capital. The struggle against neoliberalism, which had restricted its triumph to only a half-triumph, now needs to get intensified to roll it back altogether.

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