Dear readers,
“Capitalism is like dancing on the edge of an abyss. Finance capitalism is smarter—it’s one step ahead.” Ha-Ha? Well, there is some truth in this joke, especially in India today, where we stand face-to-face with a kind of finance capitalism that’s a deadly cocktail of lawlessness, unaccountability, and moral laxity.
Granted, India is a growing economy today—it clocked in 7 per cent growth in 2022. Currently, India is the world’s fifth-largest economy. Analysts and government sources tell us that it is on track to surpass Japan and become the third-largest global economy, with a projected GDP of $7.3 trillion, by 2030.
However, evidence suggests this growth has not been shared evenly. India remains home to the world’s largest poor population and has a high level of income inequality. The richest 1 per cent of the population controls a large majority of the wealth, while the vast majority have seen little improvement in their lives. The gap between the rich and the poor has only widened in recent years. According to Oxfam’s Commitment to Reducing Inequality Index, India has moved up six places to rank 123 out of 161 countries for reducing inequality but continues to be among the lowest performers.
Part of the reason for these anomalies is the fact that India’s growth owes much to the finance markets now. Financial markets, financial services, and allied sectors are some of the biggest contributors to India’s growth story now. This is happening at a time when sectors like agriculture and manufacturing are performing poorly. India’s manufacturing sector for the past decade has accounted for just 17 per cent of the economy, even though in the most recent past it has showed signs of some expansion.
The message is clear. India is getting closer and closer to finance capitalism. To understand why this has problems for the country, we must tell you about Judith Stein. Her 2010 book Pivotal Decade: How the United States Traded Factories for Finance in the Seventies, published right after the global financial crisis that originated in the US with the collapse of the financial services behemoth Lehman Brothers, has some pointers for India today.
In the book, Stein explained that to understand the economic crisis of the 2000s, America must go back to the 1970s when the country officially ended its focus on factory-powered growth. This was the time of post-war liberalism, which was created by the New Deal, including new constraints and safeguards on the banking industry. This period had high wages, regulated capital, and economic growth with less inequality. When oil prices went up and there was economic competition from Japan and Germany, the US economy was hurt. New policies were needed, both internationally and domestically. But instead of fighting unemployment, the government fought inflation. According to Stein, this was the start of the age of finance, which led to deregulation, free trade, low taxes, and weak unions. These factors caused inequality and the worst recession in 60 years.
Sounds familiar?
Let’s explain a little more. Several analysts tell us that three crucial components marked India’s LPG era—or the liberalisation, privatisation, and globalisation period starting with the 1990s. The first was the systematic dismantling of the public sector. This, along with the scrapping of the license raj, paved the way for a boom in private ownership and startup culture. This period also marked the decline in agriculture and manufacturing. Even though there have been half-hearted attempts such as Make in India to lift the manufacturing sector—which was mainly powered by small and medium enterprises—the country saw an organic decline in manufacturing output too, especially from the SMEs, which were the anchor of India’s manufacturing sector.
The third component, which resulted from a combination of all these factors, is the rise of what experts call oligarchic capitalism powered by financial markets and speculative capital. The rise of oligarchic capitalism, an advanced and uglier version of crony capitalism according to some economists, is a recent phenomenon in India. Here, a small group of wealthy individuals or businesses exert excessive influence over the political and economic system, often to their own advantage. This concentration of power can lead to various negative consequences, including increased inequality, reduced competition, corruption and cronyism, erosion of democracy, and economic instability.
In the third and crucial volume of Das Kapital, Karl Marx throws up some salient features of this kind of finance capitalism: “It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators, and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation. It is private production without the control of private property.”
Clearly, this is where India stands today. Lawless financial capitalism that favours a few haves and ignores a majority of the have-nots is pushing the country to the brink, a crisis that Frontlinesets out to examine in its latest issue. As economist Ashoka Mody observes in his opening analysis, India’s lawless financial capitalism has fostered a culture of scams, cheered on by the state; and this has infused an alarming disregard for ethical conduct and public accountability. It’s important to tame it before it becomes too big to fail and smarter, savvier, finance capitalism pushes us into an abyss from which we might never get out.
We welcome you all to join the debate. Read the essay and as always write back to us with your comments,
Wishing you a great week ahead,
For Team Frontline,
Jinoy Jose P.
We hope you’ve been enjoying our newsletters featuring a selection of articles that we believe will be of interest to a cross-section of our readers. Tell us if you like what you read. And also, what you don’t like! Mail us at frontline@thehindu.co.in
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