Neoliberalism: An era of growth sans justice

Neoliberalism, which could garner support for itself by promising a better tomorrow for all in its growth phase, has entered a period of prolonged stagnation leading to mass deprivation and inequality. Neo-fascism is its new political prop.

Slums in the Kajupada area of Borivali in Mumbai, against the backdrop of skyscrapers. The neoliberalism period has increased income inequality.

NEOLIBERAL ECONOMISTS ARE IN THE habit of arguing that the acceleration of gross domestic product (GDP) growth after 1991 lifted “millions” of people out of poverty, but the pandemic has pushed them back. When reminded of the dire situation that had prevailed even before the pandemic, they blame Prime Minister Narendra Modi’s demonetisation and “faulty” manner of introducing goods and services tax (GST). Their narrative is that neoliberalism was fine until Modi came along like a bull in a china shop.

This narrative is simply false. Not that Modi has not played havoc with the economy, but people’s acute distress long predates Modi, who has only worsened the situation. In fact, the entire neoliberal period has seen alongside an acceleration in GDP growth an increase in the relative magnitude of deprivation in its most elemental form, that is, nutritional deprivation.

Poverty in India used to be officially defined, but not since it has become an ideological issue, with reference to nutritional norms—2,200 calories per person a day in rural areas and 2,100 calories in urban areas. The proportions of the rural population falling below these norms in 1993-94 and 2011-12 (both years of large sample surveys of the National Sample Survey (NSS) Office) were 58 and 68 per cent respectively; the corresponding figures for urban India were 57 and 65 per cent respectively. Thus, not just absolute numbers but the percentages of the population falling below the nutritional norms defining poverty have risen significantly over the years of neoliberalism.

This is important because all evidence suggests that when people become better off, they consume, directly and indirectly (via processed foods, and meat into which foodgrains enter as feed grains), more foodgrains, at least up to a certain level of income, and have a higher calorie intake. From this, one can infer not just exclusion but immiserisation of vast masses of people precisely during the neoliberal era of high growth.

Decline in real consumption

Matters have become worse after 2011-12. Between 2011-12 and 2017-18, again two NSS large sample survey years, there was a decline in per capita real consumption expenditure of 9 per cent in rural India, which was so startling that the government decided to suppress the NSS data altogether (the above-mentioned drop was reported in some newspapers that got hold of “leaked” data). It even decided to discontinue the NSS in its old form completely, thus putting an end to the world’s largest scientific sample survey that had been designed by P.C. Mahalanobis.

Thus, the “millions” being lifted out of poverty are part of an ideological narrative spun by the Bretton Woods institutions, which assiduously promote neoliberalism everywhere. On the contrary, there has been a growth of acute distress among the people in the neoliberal period.

This should not surprise us. While per capita agricultural output in real terms has hardly increased over the neoliberal period, the price paid per unit of the consumption basket of the agriculture-dependent population (whose components perforce have been changing) has increased relative to the price received per unit of produce. This is not discernible in the usual terms of trade figures but emerges when we consider the effects of privatisation of education and health care that has pushed the prices of these services sky high. Peasants and agricultural labourers, still accounting for almost half the country’s workforce, when faced with such exorbitant prices for essential services, have got into debt and skimped on foodgrain consumption, causing the nutritional deprivation just mentioned.

There is, however, a refusal even on the part of the literati to accept this phenomenon of growing distress. This inter alia has an intellectual explanation: the discourse in development economics continues to be dominated by a paradigm, first advanced by W. Arthur Lewis, which sees the growth of the “modern” sector of the economy as pulling labour out of the “traditional” sector; the only connection between the two sectors in short is seen in terms of one-way labour movement, from which it follows that if the “traditional” sector continues to remain saddled with labour reserves despite a growing “modern” sector, then the panacea lies in still faster growth of the “modern” sector. This paradigm has had an influence on development thinking in general, including even on sections of the Left.

Petty production sector undermined

What it ignores is the political economy, pioneered by Marx and emphasised by Rosa Luxemburg, that capitalist development spontaneously and invariably encroaches on the petty production sector. The dichotomy is not between a “modern” and a “traditional” sector but between a capitalist and petty production sector, with the former having an immanent tendency to undermine the latter even as its expansion increases the employment it provides. Thus, the relationship between the two sectors covers not just one sector pulling labour out of another as Lewis visualised but a host of other ties: the capitalist sector selling goods and services at the expense of the other sector (as when Amazon displaces the neighbourhood shop); its taking away land from the other to establish factories and real estate projects; its getting the other to produce the goods it wants to sell both in the domestic and the international markets; its selling inputs needed by the other at prices and under conditions that it dictates; and its getting the state to reduce fiscal support for the other so that more budgetary resources come its own way.

Under the dirigiste regime that had prevailed earlier, the state had in various ways protected the petty production sector against encroachment by the capitalist sector; this protection goes with neoliberalism. State intervention to support cash-crop prices had gone with the cessation of the market intervention function through procurement, of the various official Boards dealing with cash crops such as tea, coffee rubber, and spices; for food crops, however, the support system had continued, but the Modi government is now winding it up through its three notorious farm laws, against which peasants have been agitating for over nine months since December 2020 at Delhi’s borders with its neighbouring States. As peasants get exposed to price crashes, they get into debt that they cannot pay back, which has led to the suicide of over four lakh peasants since 1995; they become unviable over time, joining the ranks of job-seekers in urban areas.

The forcible displacement of peasants from land that the capitalist sector acquires for its projects and the acquisition for mineral development of land that had earlier sustained the tribal population are other obvious examples of encroachment by the capitalist sector over the petty production (or pre-capitalist) sector. Marx had called this entire process of encroachment “primitive accumulation of capital”. Neoliberalism, which entails unfettering capitalist development (what former Prime Minister Manmohan Singh, using a Keynesian term, calls unleashing the “animal spirits” of the capitalists), also means unleashing primitive accumulation of capital and hence displacing labour that had been employed in the sector being encroached upon. In fact, between the 1991 and 2011 Censuses, the number of “cultivators” has fallen by 15 million; they have either joined the ranks of “agricultural labourers” or migrated to cities in search of non-existent jobs.

Disguised unemployment

The term “non-existent” is quite apposite. Relatively free cross-border movement of goods and services also implies a removal of restrictions on the introduction of technological change, for otherwise domestic producers get outcompeted by imports. Technological change also gets a further impetus from the growth of income inequality (which we discuss below). Since the Indian rich emulate the lifestyles of the affluent in the metropolitan countries, as they get richer there is a growing pressure to introduce new goods and processes, which means a faster process of technological-cum-structural change that is imitative of the metropolis. Such technological-cum-structural change is essentially labour saving, which implies that for any GDP growth rate the rate of growth of employment keeps slowing down.

Employment growth is tricky to measure because of disguised unemployment (which spuriously boosts employment figures). Even so, however, one should not be surprised by the finding that a doubling of the GDP growth-rate from 3.5-4 per cent on average during the dirigiste era to 7-8 per cent during the neoliberal era has been accompanied by a halving of employment growth from about 2 per cent per annum for the earlier period to 1 per cent during the later one, which is even lower than the rate of population (and hence the workforce) growth. Hence, let alone absorbing the peasants and petty producers displaced by primitive accumulation of capital, the employment growth during the neoliberal era was not even large enough to absorb the natural growth of the workforce. The relative size of the labour reserves increased.

There is a mistaken belief that while capitalism destroys the pre-capitalist sector through primitive accumulation of capital, it eventually absorbs most of those displaced by such destruction into the ranks of the active army of labour. This is simply untrue.

Europe avoided such a situation where the uprooting of workers through primitive accumulation of capital only increases the relative size of the unemployed and underemployed in the total workforce, and hence the relative magnitude of poverty and distress, through massive emigration to the temperate regions of white settlement. Fifty million Europeans migrated between the end of the Napoleonic wars and the First World War to places such as the United States, Canada, Australia and New Zealand. Since this experience cannot be replicated by today’s Third World countries, unfettered capitalist development in their case will only increase the scale of poverty and unemployment. To believe otherwise is to mistake something specific to the European experience as a general tendency under capitalism.

Increase in income inequality

The non-exhaustion, indeed increase in relative size, of labour reserves implies that no segment of the working people experiences an improvement in its living conditions, not even unionised workers, in whose case there is an additional loss of bargaining strength arising from privatisation of public sector enterprises. At the same time, however, labour productivity everywhere increases because of the vastly accelerated rate of technological change that we discussed earlier. The result is a substantial increase in the share of economic surplus in output, which entails an increase in the share of those who live off the surplus, namely, the propertied rich and their hangers-on, who have much higher incomes than the working people. It is this which underlies the observed increase in income inequality in the period of neoliberalism.

One indicator of this is the rise in the share of national income going to the top 1 per cent of the population. Thomas Piketty and Lucas Chancel, who estimate this share from income tax data, find that it is higher of late (their latest estimates are for 2013-14 and 2014-15) than at any time since income tax was introduced in India in 1922; by contrast this share had fallen to as low as 6 per cent in 1982. The dirigiste period had thus seen a reduction in income inequality which neoliberalism has reversed. (It is not without significance that some date the introduction of neoliberal “reforms” to the mid-1980s).

This rise in inequality is of course a worldwide phenomenon, and the crisis and stagnation of the world economy are linked to this. Since surplus earners consume a lower proportion of their income than working people, who more or less consume all of it, any shift of income distribution from the latter to the former, as is implied by rising income inequality, has the effect of lowering consumption and hence aggregate demand in any period (since investment in the period is given, determined by past decisions). This lowers the employment and output profiles, which in turn brings down investment over time, unleashing stagnation.

State spending can counteract such stagnation, but only if it is financed by a budget deficit or by taxes on surplus earners: if financed by taxing working people who consume their entire income anyway, it does not add an iota to aggregate demand and is ineffective in countering stagnation. But a neoliberal economy does not permit such financing of state spending.

‘Animal spirits’ of finance capitalists

Such an economy is open to more or less free cross-border movement of capital, including finance, which makes its nation state kowtow to the whims of this globalised finance: if it disobeys its dictates, then finance can leave its shores en masse creating acute economic difficulties. And globalised finance capital is not only opposed to the taxing of capitalists to finance higher state spending; it is opposed to fiscal deficits for stimulating the economy, as such action undermines the social legitimacy of capitalists, especially financial capitalists, whose “animal spirits” then become irrelevant for the health of the economy.

In the absence of the stimulus of state spending, the only counter to the stagnationist tendency immanent in neoliberal capitalism is provided by asset price “bubbles”. But such “bubbles” cannot be simply ordered, which is why after the collapse of the housing “bubble” in the U.S. the world economy has been mired in a protracted stagnation that has afflicted Third World economies as well. The recent slowing down of the Indian economy is a reflection of this, which Modi, being an obedient follower of neoliberalism, has only compounded through his attempts to raise the share of surplus even further, in the belief that it will boost “animal spirits”. Paraphrasing Marx one can say that the working people in India are now suffering from both the accelerated growth under neoliberalism and the stagnation it has unleashed.

Alliance with neo-fascism

The political implications of this stagnation are striking. Situations of crisis and unemployment are invariably associated with the growth of fascism. The crisis of neoliberalism has seen the emergence of neo-fascism all over the world, including India, through an alliance between neoliberalism and neo-fascism. When neoliberalism was in its growth phase, it could garner support for itself by promising a better tomorrow for all. This appeared plausible, what with the talk of “millions” being lifted out of poverty. But with neoliberalism entering prolonged stagnation, a new prop is needed to support the neoliberal regime; and this is provided by its alliance with neo-fascism.

Thus, a corporate-Hindutva alliance comes into being in India, with new corporate houses (rather like the shinko-zaibatsu in Japan) taking the lead in forging it. This alliance brings about a discourse shift, with hatred against the “other” taking centre stage and concern over material living conditions pushed into the background, to the convenience of the neoliberal order and its domestic corporate backers.

Unlike the 1930s, however, when a crisis had also brought corporate-backed fascism to power that had provided some relief to workers (before the horrors of war were unleashed) by overcoming unemployment through a militarisation drive financed by government borrowing, the current ascendancy of neo-fascism cannot provide any relief against unemployment to the working people, for reasons already mentioned.

The inculcation of hatred and the use of repression, therefore, become the only two weapons in its hands, which makes it particularly dangerous. Neoliberalism after 30 years of immiserisation of the working people now threatens them with the loss of their fundamental rights and civil liberties, which were precious gains they had made through the anti-colonial struggle.