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SOME ECONOMIC CHARACTERISTICS OF CONTEMPORARY
CAPITALISM
1. The process of capital accumulation can be conceptually envisaged as
occurring in two distinct and alternative ways. I shall call the first of these
"accumulation through expansion". Capital exists at any time in numerous large
and small blocs. When accumulation occurs through an expansion of each of
these blocs, though admittedly at very different rates, and without displacing
production outside of the capitalist sector (whether State production or precapitalist
production), then we have "accumulation through expansion".
"Mainstream" growth theory,
in all its versions, sees the process ofaccumulation exclusively as "accumulation through expansion". Marxian
economics too recognizes that accumulation over certain stretches of time may
take the predominant form of "accumulation through expansion"1. As distinct
from this however one can visualize an alternative process, which I shall call
"accumulation through encroachment". Here certain blocs of capital grow
through the displacement (meaning either expropriation, or purchase at
"throwaway prices" or snatching away the space) of other blocs, or through the
displacement of pre-capitalist production, or through the displacement of State
sector production, or through the sheer appropriation of common resources that
have hitherto not formed part of private property.
To be sure, these two processes are never fully separate in concrete terms.
Indeed one of Marx's basic propositions (Marx 1978, 584-9) was that the
processes of capital accumulation, of an increase in the scale of production and
of "centralization of capital" (of which the growth of one bloc of capital through
the displacement of other blocs is an important mechanism) were intertwined
and mutually-related processes, so that "accumulation through encroachment",
in the sense of "centralization of capital" at any rate, was always round the
corner even when "accumulation through expansion" happened to be occurring.
Encroachment through "centralization" in other words was an integral part of
the accumulation process. Rosa Luxemburg (1963) went even further to argue
that "encroachment" on the domain of the pre-capitalist producers was at all
times an integral part of the accumulation process. These two phenomena,
namely encroachment upon the domain of the petty producers and
encroachment upon the domain of the smaller capitalists, have in any case a
family resemblance between them, which Marx (1978, 714) had himself
highlighted (though unlike Luxemburg he saw the two phenomena as
temporally separate, the first being confined to the period of the "primary
accumulation of capital").
1Marx (1974, 263) talks of "this constant expansion of capital, hence also an
expansion of production, on the basis of the old method of production which goes quietly on
while new methods are already being introduced at its side..".
But even though "accumulation through encroachment" in the inclusive
sense of the term is always an integral part of the accumulation process, so that
the pure reign of "accumulation through expansion" is rare, and at best
transitory, a conceptual distinction between the two is useful. And a crucial
feature of contemporary capitalism is a vast increase in the relative importance
of "accumulation through encroachment". To say this is not to claim that the
more familiar phenomena such as expansion of the existing capital stock
financed by the flow of profits, technological progress embodied in new
equipment, or innovations of altogether new spheres of production, have ceased
to exist; it is merely to assert that alongside these familiar phenomena (which in
any case underlie "normal" centralization) there has been a veritable upsurge of
"accumulation through encroachment".
All over the capitalist world, and especially in the third world,
"disinvestment" of State sector equity and "privatization" of State sector assets,
invariably at "throwaway" prices, is a pronounced phenomenon. This is nothing
else but private enrichment at the expense of the State, or private accumulation
through an expropriation of State assets. Likewise all over the capitalist world,
especially the third world, public utilities like water and energy, and public
provisioning of social services like education and health, have increasingly
become domains of private sector operation and hence provinces of private
accumulation of capital. Mineral resources, the control over which had been
wrested by third world States after de-colonization through bitter struggles are
now once again passing under the control of Multinational Corporations, the
most classic example of this being oil. Agriculture everywhere is being "opened
up" to multinational seed and marketing companies. Through a variety of means
ranging from "contract farming" (under which the peasants get tied to MNCs);
to outright expropriation of land; to purchase of land at "throwaway prices"
from peasants reduced to penury, under the twin impact of higher input prices
(more generally the withdrawal of State support) and reduced output prices; to
the reduction of peasants to the status of inferior tenure-holders through the
process of entrapment in debt; through all these means agri-business, catering to
the demand emanating from the advanced capitalist countries, is displacing
peasant agriculture. Likewise the removal of protectionist barriers erected by
the third world nation-State is leading to an expropriation of small capitalists
unable to withstand competition of imported goods produced by the MNCs.
And everywhere common resources like forests or water or pastures or fallow
land under common use are increasingly being taken over as private property.
One can reel off examples of each of these phenomena from every country; and
they all fall under the rubric of "accumulation through encroachment" whose
decisive and pervasive emergence is a hallmark of contemporary capitalism.
2. This burgeoning of "accumulation through encroachment" is in turn the
direct result of the pursuit of "neo-liberal" policies. "Neo-liberalism" operates in
this respect in two distinct ways. The first way, which is much written about, is
the pursuit of policies that remove restrictions on the movement of goods and
capital across borders. "Trade liberalization" ousts small domestic producers
from the market and generally engenders domestic "de-industrialization" (in the
sense of increasing unemployment through shrinking domestic industrial
activity); and liberalization of capital flows allows MNCs to buy up domestic
producers through a combination of carrot-and-stick methods. The second way
is through the imposition of "deflationary policies", especially on government
expenditure, as part of the neo-liberal agenda. This, by negating Keynesian
demand management and lowering the level of aggregate demand in the world
economy, leads to centralization of capital on a global scale, a shift in the terms
of trade against the peasantry and third world primary commodity producers
who become easy preys for expropriation, and a rolling back of the State sector
which becomes increasingly privatized and whose domain gets opened up as a
province of private accumulation2. In short, deflation is accompanied by
accumulation through encroachment.
This deflation, needless to say, is not confined to the third world; it is a
global phenomenon. And the main driving force behind it is international
finance capital which has emerged in an altogether new form in the recent years.
The global tendency towards the adoption of deflationary policies has often
been called "a retreat of the State". This is a misnomer: what we are witnessing
is not a "retreat of the State" but a change in the nature of its intervention, from
intervention carried out for the ostensible benefit of the "people as a whole", to
intervention carried out in defence of the interests of international finance
capital, with the support of the latter's local components which increasingly
encompass the bulk of the large bourgeoisie, upper bureaucracy, and a
collaborationist "globalized" elite.
Since the term "finance capital" was used extensively around the time of
the first world war by a host of writers, it is worth emphasizing that
contemporary finance capital differs fundamentally from what those writers had
discussed (notwithstanding the differences among them). First, it has an
overwhelmingly speculative character. This is different from the "finance
capital" of the earlier period which was seen as the "coalescence of bank and
industrial capital ", or as "capital controlled by banks and employed by
industrialists ", and hence, by implication, pursuing an objective dictated by the
fact of this link with industry. Secondly, its behaviour is not necessarily related
to certain perceived strategic interests specific and exclusive to the nation of its
origin, because of which calling it "international" is more appropriate than
identifying it in its different fragmented forms as "German", "British" or
"American". And, thirdly it operates not in a world broken up by inter-
2For a more extensive discussion of the implications of global deflation see Patnaik
(2002).
metropolis rivalry, contributing to a further promotion and consolidation of such
rivalry, but rather in a world where such rivalry is muted, and the very
"international" character of this finance capital is inter alia an important factor
behind this mutedness (since it wishes to operate over an entire undivided
world).
At the same time, however, any focus on “finance capital", no matter of
what sort, often conjures up an entity which is separate and detached from the
world of production, so that focussing on this entity gives the impression as if
the other entities like MNCs have somehow become of secondary importance.
This impression is erroneous. The financial structure is a superstructure on
capitalism, not detached from it but enmeshed with it, putting its own imprint
upon it, so that the MNCs for instance do not become secondary, but themselves
become "financialized", imbued also with the desire for speculative gain. In
addition they also gain from the opening up of the world to the free flow of
commodities and capital, through the process of "accumulation through
encroachment". In short, the relevant distinction at the top ceases to be one
between industry and finance or between productive capital and speculative
capital or between entrepreneurs and rentiers. The possibility of "accumulation
through encroachment" (including at the expense of small domestic capitals
within the metropolis) brings about a commonality of purpose among all of
them which overcomes these distinctions.
At the same time, there is a palpable slowing down of the growth of the
world economy on account of the global pursuit of deflationary policies. Indeed
this slowing down is precisely the other side of "accumulation through
encroachment". The period of protracted post-war boom (the so-called "Golden
Age of Capitalism") was by contrast a period when such encroachments were
comparatively limited, a prominent State sector made its appearance
everywhere, and third world economies, behind protectionist barriers, recorded
rates of growth unprecedented in their recent history. The universalization of
neo-liberal policies and the ubiquitous pursuit of deflation which reflected the
rise to prominence of international finance capital, changed all that.
Keynesian demand management policies which underlay the protracted
post-war boom presupposed national capital controls (a necessary condition for
the activism of the nation-State in matters of aggregate demand, output and
employment), and a suppression of rentier interests within the nation (Keynes
(1949, 376) had asked for the "euthanasia of the rentier" whom he characterized
as "the functionless investor"). The conjuncture within which Keynesian
demand management policies flourished (marked by greater political assertion
by the working class), and the global regime produced by this conjuncture (the
Bretton Woods system) ensured the satisfaction of these conditions. But the
emergence of the new form of international finance capital during the "Golden
Age" period itself contributed inter alia to a change in conjuncture.
In retrospect, the period of the post-war boom must be seen as an
aberration in the "normal" functioning of capitalism, brought about by the very
substantial threat posed in the post-war context by socialist, working class and
third world nationalist politics to the very survival of metropolitan capitalism,
rather than as a new kind of "normal functioning", as so many writers at the
time had imagined. With the change in conjuncture and the subsidence of these
threats, capitalism resumed its policies of "sound finance", the "orthodox role of
the State" and "accumulation through encroachment", of which the palpable
fall-out today are high levels of unemployment, and an open aggressive drive
towards a re-acquisition of control over third world markets and resources with
the help of the local collaborating bourgeoisie.
3. Why, it may be asked, does capitalism adopt "sound finance" as its
normal State policy? The usual answer to this question is given in terms of the
antipathy of finance capital towards an interventionist State ensuring high levels
of activity. The fact that international finance capital is in a dominant position in
the contemporary world economy can then explain both why "sound finance"
has come back into vogue after the Keynesian interlude, and also why it is so
effectively enforced: finance being international, if a nation-State chooses to
ignore its caprices, and jettisons "sound finance" and deflationism in pursuit of
higher employment, then finance will move out of the country, precipitating a
liquidity crisis and bringing the government to its knees. This fact keeps nation-
States in thraldom to the caprices of international finance capital. But then the
basic question remains: why does finance capital have this antipathy at all and
oppose Keynes-style interventionism?
Three obvious answers can be given to this question: first, a high level of
activity brings in its train the fear of inflation and exchange rate depreciation,
which, in a world typically characterized by non-indexed rates of return on
financial assets, frightens speculators. Given this fact it is not surprising that
they feel comfortable with lower levels of activity. Secondly, cuts in State
expenditures and fiscal deficits are typically accompanied by disinvestment and
privatization of State assets which can then be bought up "for a song" by
rentiers and financial interests; and the same is true of the assets of small
capitalists too. This fact also underlies finance capital's preference for
deflationary policies as opposed to Keynes-style expansionary ones. Thirdly, as
Kalecki (1943, 1971) had argued long ago, capitalists in general do not want the
level of activity and employment to become "too high", for then the "workers
will get out of hand" and the "sack will lose its meaning". And they certainly do
not want a high level of activity to be brought about through State investment,
and hence through the existence of a State sector, since the social legitimacy of
capitalism gets undermined by the existence and functioning of a State sector. If
this is true of capitalists generally, then it is infinitely more true of the financial
interests who constitute in Keynes' phrase "functionless investors" with very
tenuous social legitimacy to start with anyway.
But the opposition of finance capital alone cannot explain capitalism's
preference for deflationism, especially when industrial capital, no matter how
much it ideologically dislikes State activism in matters of employment, stands
so much to gain from it (at least until a level of employment is reached where
the workers get "out of hand"). There is however a powerful additional factor
which also contributes to deflationism. Let us now turn to it.
A capitalist economy cannot function without a stable medium of holding
wealth. In an idealized textbook picture of an isolated national economy this
role is performed by money backed by the State. But in the concrete world
economy, the money of one particular economy, typically the most powerful
capitalist economy of the time, is chosen to constitute this medium. Its de jure
stability used to be assured, but not any longer, by linking it to gold which has
historically been the most favoured medium of wealth holding; but its de facto
stability is assured, whether now or earlier, by ensuring inter alia that
commodity prices do not rise inordinately in terms of it. This requires, first, that
the domestic workers in the leading economy must not get "too strong" to
precipitate a wage-price spiral on their own, and secondly, that primary
commodity prices must be kept in check so that no wage-price spiral is
precipitated on this score. This latter requires not just control over raw material
sources, but, additionally, control over world demand, through deflation3. In the
colonial period, this deflation was specifically targeted towards the colonies and
third world economies4. In the period of hegemony of international finance
capital, this deflation is general, encompassing both developed and third world
economies, and excluding only the leading economy itself (at present the U.S.),
whose currency, being "as good as gold", places it under no obligation to pursue
deflationary policies.
For this reason deflation and "sound finance" have always been a part of
the baggage of capitalism. The question is often asked: why do the governments
of metropolitan capitalist economies choose inflation control as an objective
over higher employment5? The answer is that they really have no choice in the
3. Marx (1974, 118) had written: “It is therefore quite possible, and under a developed
system of capitalist production even inevitable, that the production and increase of the portion
of constant capital consisting of fixed capital, machinery etc. should considerably outstrip the
portion consisting of organic raw materials, so that demand for the latter grows more rapidly
than their supply, causing their prices to rise.” Deflation according to our argument is
resorted to even before such price rise can actually occur.
4For the role of deflation in the colonial context see U.Patnaik (1999).
5Professor Hicks had asked this question at the Golden Jubilee Conference of the
Indian Statistical Institute, Calcutta (see Bose et.al. 1982). His answer was as follows:
inflation occurs through a series of price-hikes and for an average economic agent, since
every price-hike other than his own appears directed against him (even if he is not a loser at
the end of the entire round of price-hikes), inflation appears to be a more menacing
phenomenon than unemployment; governments take this perception of the economic agents
into account, and hence, for political reasons, are more concerned about inflation than
matter: inflation control is essential for the stability of the wealth-holding
medium, and hence for the stability of capitalism; if in the process of achieving
price-stability, much higher levels of unemployment are generated, then they
simply have to be accepted.
The caprices of international finance capital therefore find spontaneous
expression in the policies being imposed all over the world by the leading
capitalist economy of our time. This action of the latter on the other hand is not
a whimsical or capricious one. It is to preserve the value of the wealth of a vast
number of wealth-holders, including citizens of other capitalist economies. It
commands support therefore even in economies being deflated, both because
the financial interests located within these economies prefer deflationary
policies, and also because the preservation of the value of wealth, through the
preservation of the value of the leading currency, is important for all. The
leading economy in this sense acts as the champion of the interests of
international finance capital, of all its constituent fragments located within the
various national economies, including those of the third world, even though the
result of its actions is high unemployment, relative stagnation of the world
economy and pervasive "accumulation through encroachment."
4. We have so far highlighted certain features of the new phase of capitalism
by contrasting it with the period of Keynesianism, and suggested that it entails a
throwback to the more "normal" pre-Keynesian capitalist policies of deflation,
"accumulation through encroachment" and a degree of predatoriness6. Let us
now turn to a major difference between the pre-Keynesian period and the new
phase of capitalism.
We talked earlier of the fact of the currency of the leading economy of
the capitalist world in a particular historical epoch, being considered de facto if
not de jure "as good as gold", and constituting, for this reason, a stable medium
of wealth-holding for the capitalist world as a whole. For an economy, and
hence its currency, to occupy this position, it must have superior military, and
hence economic, might. Notwithstanding this might, however, it invariably
experiences, after a certain stage, a current account deficit vis a vis the other
major capitalist economies. An important condition for the stability of the
capitalist system is that when such deficits arise, the leading economy must
learn to live with them. If it did not persist with having such deficits, and
thereby accommodating the products of the other major capitalist economies
within its own (and its satellites') market, then the growth prospects of these
economies would be damaged, leading to intensified protectionism, struggle
unemployment. Professor Hicks’ invocation of agents' psychology however appears tame and
unconvincing.
6. Since the inter-war years were a period of protracted crisis for capitalism and hence
in a sense “abnormal”, our reference to “normal” pre-Keynesian policies refers to pre-first
world war capitalism.
among capitalist powers, disruption of the international monetary system, and
an enveloping of the capitalist world in serious economic and political crises.
Indeed the "leading role" of the leading capitalist economy consists precisely in
its willingness and ability to tolerate such persistent deficits vis a vis the other
major capitalist economies, and thereby keep the system as a whole going.
Britain had continued to have large trade and current account deficits vis
a vis Continental Europe throughout the late nineteenth and early twentieth
centuries, and with the U.S. in the pre-first world war period (when the U.S.
started repaying its debt); and this willingness on her part to persist with the
current account deficit vis a vis these "newly-industrializing" economies of the
time was a condition for the continuation of the diffusion of capitalism to these
new centres, for the survival of the Gold Standard, and for the sustenance of the
long late-Victorian and Edwardian boom. Likewise the U.S. has for several
years been running a persistent current account deficit not just with the other
major capitalist countries, not just with the "newly industrializing countries" of
today like China and East Asia, but in fact with the entire rest of the world taken
together. And herein lies the difference.
While running a persistent current account deficit vis a vis the major
capitalist economies of the pre-first world war years, Britain did not build up
any debt against herself. On the contrary she used her colonial possessions like
India, against whom she built up a contrived current account surplus, not only
to settle her current account deficit vis a vis the major capitalist economies but
even to make substantial capital exports7. These capital exports were to the
temperate regions of White settlement, visavis which the tropical colonies like
India had substantial current account surpluses.
The two main forms of the “contrived” current account surplus which
Britain had visavis India were: the "drain of wealth" (so called by the anticolonial
economists in India at the start of the twentieth century) or the
impounding and transfer to the metropolis of a part of the surplus value
produced in India under the head "Home Charges" which were supposed to
represent payment for the import of "good administration" by India; and the
deliberate "keeping open" of the Indian market for the import of British textiles
even at the expense of jobs of Indian artisans. (In fact Britain's current account
surplus vis a vis India kept growing until it assumed enormous proportions
during the first world war, but the changed correlation of forces after the war,
entailing inter alia a massive Japanese thrust in the Indian market, apart from
the growth of India's own industrial sector, closed this option for Britain and
was a major factor behind the breakdown of the Gold Standard and the
instabilities of the inter-war period culminating in the Great Depression.8)
7. For a discussion of the role of colonies like India in settling British balance of
payments, see S.B.Saul (1970).
8. For an elaborate discussion on this, see Patnaik (1997, Chapter 11).
The U.S. by contrast, having no colonies to "drain" surplus away from, is
sinking into debt. Its current account deficit is not just vis a vis the major
capitalist countries, or vis a vis the "newly-industrializing" economies of today;
it is vis a vis the rest of the world as a whole. If it curtails this deficit by
deflating its own economy (it has been under no compulsion to deflate for the
sake of appeasing international finance capital, since, its currency, being
considered "as good as gold", puts it on a different footing from other capitalist
economies), then it will precipitate a domestic as well as a global recession. If it
curtails this deficit by imposing protectionist measures, then the entire trade and
financial regime that has been built up of late, will become unsustainable, which
again will threaten the economic and political stability of capitalism. It cannot
also curtail this deficit by depreciating the dollar, since, apart from being
difficult to achieve in a world with "market determined exchange rates", this
will induce inflationary pressures, and entail wealth losses, both of which will
jeopardize the position of the dollar as the reserve currency, and threaten the
stability of the system as a whole. Not surprisingly therefore it is trying to
achieve the same end, of reducing its current account deficit, by coercing Asian
economies like China to revalue their currencies upwards.
In a world characterized by deflationary government policies, where
fiscal deficits, except in the leading country, are eschewed, any such revaluation
of exchange rates amounts to solving the problem of the leading country by
enforcing a reduction of activity in the revaluing economies. The point is
obvious: imagine a world with only two economies, the “leader” and the
“other”. Using subscripts 1 and 2 respectively for these two economies, since
(I-S)1 = (S-I)2
where the l.h.s. is the current deficit of economy 1, a revaluation of currency by
2 reduces the net export demand for its products and its hence output and
savings. As a result the r.h.s. is reduced, which in turn means a reduction in the
l.h.s.; that is, the net borrowing of the leading economy is brought down, with
no reduction, rather on the contrary an increase, in its activity, through the
imposition of a reduction in activity in 2. The leading economy therefore
reduces its borrowing compared to what it might have been otherwise, witnesses
an increase in its activity, and yet ensures that wealth-holders who hold their
wealth in its currency or currency-denominated assets, experience no actual
capital losses. (True, the value of the other currency has gone up relatively, but
the value of the leading currency in terms of commodities has not gone down,
as might have happened if it had depreciated instead of the other currency
appreciating). It is not surprising therefore that the U.S. is recommending
currency appreciation to the Asian economies in particular, with whom it has
substantial current deficits.
Such appreciation however would convert the current global deflation
into a veritable recession. The difference between the pre-first world war years
and today consists therefore in this: unlike in that period when the leading
capitalist power could draw on the expropriated surplus value of colonies to
offset its own current account deficits vis a vis the major capitalist powers and
hence keep the system going, today the leading capitalist power's current
account deficits are vis a vis all groups of countries, since it has no colonies of
that kind to draw surplus values from; and even a reassertion of political control
over the third world is unlikely to yield a "drain of surplus value" on the
requisite scale. Mankind has proceeded beyond the stage where old-fashioned
colonial "drain" of the kind that the British imposed on India can be carried out
with impunity.
What this means is the following: the system can be kept going at its
current low growth rates but a price for it has to be paid in the form of growing
U.S. indebtedness. If the latter is to be curtailed, then currency appreciations
may have to be imposed on a host of unwilling economies, and even if they do
succumb to pressure, the global deflation would turn into a veritable slump.
Even if the leading economy is able to insulate itself from such a slump, that
still would not mean that the system as a whole does not get engulfed in a crisis.
The new phase of capitalism in short has brought the system to the brink of a
major crisis.
5. The view that the new phase of capitalism is associated much more than
before with accumulation through encroachment may be accepted by many, but
its implications are not always understood. All accumulation, it may be argued,
is associated with the growth of poverty, if for no other reason then at least
owing to the fact that an enlargement of capital would necessarily go hand in
hand with an absolute enlargement in the size of the reserve army; and the
reserve army above all is the site for poverty and destitution. But when
accumulation takes the form, to a pronounced degree, of accumulation through
encroachment, then the growth of poverty which accompanies the process of
accumulation must be even more serious. And yet what is remarkable about the
new phase of capitalism is that it justifies the adoption of neo-liberal policies,
which is a euphemism for bringing countries under the hegemony of
international finance capital, in the name of eliminating poverty. State sector
assets are privatized in the name of improving "efficiency" which is supposed to
usher in faster growth and eliminate poverty; State assistance to the peasantry is
done away with in the name of making the peasantry adjust better to the market
opportunities opening up, so that it can experience higher growth and hence
reduce poverty; deflationary policies are imposed in the name of accelerating
private investment and hence growth in the economy which would supposedly
impact favourably on poverty: tax reductions are supposed to attract foreign
investment and promote enterprise while a fiscal deficit is supposed to "crowd
out" private investment. Indeed the entire obsession with the stock market is
jsutified by the claim that "market sentiment" must be buoyant for high growth
to occur and for poverty, consequently, to go down.
This entire line of argument is questionable. Not only is there no positive
association between favourable "market sentiments" and higher investment and
growth (the theoretical link between the two in any case had been demolished
by the cognition of the role of effective demand), but, what is more, when the
growth process is the fall-out of accumulation through encroachment, the claim
that higher growth results in poverty reduction becomes a baseless one. If Latin
America and Africa, where even the growth claims are extremely modest,
provide classic illustrations of the poverty-accentuating effects of neo-liberal
policies, India too does precisely the same, notwithstanding claims of high
growth in her case under the neo-liberal dispensation.
Just one figure would suffice to make the point. The proportion of the
rural population in India which had a consumption level of less than 2400
calories per person per day was 75 percent in 1999-2000 compared to 56
percent according to similar data in 19973-74 (neo-liberal policies were
introduced in India from 1990-91 onwards). Even if we take the FAO
recommended bare minimum necessary consumption of 1800 calories per
person per day, then while there were only three states in 1999-2000 where
more than one-third of rural population could not even meet this minimum, the
number of such states in 2004-05 has increased to eight. The accentuation of
rural poverty in India during precisely the years of the neo-liberal regime when
growth rates are claimed to have been remarkably high, underscores the vacuity
of the arguments justifying neo-liberalism in the name of fighting poverty.
But it is not only that the claims advanced regarding poverty removal in
the new phase of capitalism fail to convince; the very theoretical premises on
which the case for neo-policies is argued are questionable. And yet these
questionable premises have common currency these days: all the measures
which it proposes in the name of "efficiency", promotion of growth, and poverty
removal, are based on the acceptance of Say's Law, and hence the premise of
the impossibility of a deficiency of aggregate demand. The deflationism
imposed by the very same policies which presume this, however, serves to
perpetrate and perpetuate this very deficiency of aggregate demand.
6. The new phase of capitalism on the one hand turns large segments of the
third world bourgeoisie into collaborators. In several of these countries the
struggle for decolonization had been fought under the leadership of the
domestic bourgeoisie or proto-bourgeoisie, which, after independence, had tried
to pursue a path of relatively autonomous capitalist development. While allying
itself with domestic landlordism, while compromising with the big capitalist
powers, it had nonetheless retained a degree of autonomy. Using the postcolonial
State to promote capitalist development, and pursuing non-alignment in
foreign policy which enabled it to use the Soviet Union to keep metropolitan
capitalist pressures in check, it had managed to adhere to this path with a
consistency which misled even an acute observer like Kalecki (1972) into
believing that such regimes (which he characterized as "intermediate" and
mistakenly thought were being led by the petty bourgeoisie) were a durable
phenomenon of the contemporary world. But the internal contradictions of such
regimes, combined with the collapse of the Soviet Union, and the emergence of
international finance capital keen to prise open third world economies, altered
the perspective of the third world bourgeoisie. From a position of relative
autonomy it moved towards greater collaboration with metropolitan capital; and
from a dirigiste economic strategy it moved to embrace neo-liberalism. The
hiatus was no longer between the third world nation and imperialism, as was the
case during and following the struggle for independence, but between
international finance capital with its local bourgeois collaborators on the one
hand and the mass of workers, peasants, agricultural labourers, petty producers
and small capitalists on the other.
Perhaps the most significant feature of the new phase of capitalism is the
squeeze it imposes on the rural economy of the third world countries where the
bulk of the population of these countries lives. It is this fact which also provides
the principal source of resistance to capitalism in its new phase.
Prabhat Patnaik
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