Political Economist

http://www.newschool.edu/cepa/

 

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 of

accumulation 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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