Abstract
As finance capital becomes multinational, it begins to exercise enormous influence on individual countries, by its capacity to shift away from a country that refuses to subordinate itself to its demands. As a result of the concessions it is able thus to extract, for example, free trade, withdrawal of welfare subsides, tax concessions to the rich, labour ‘reform’, and so on., inequalities have grown as real income of the working (and workless) populations decline, while profits rise. ‘Crisis’ in this situation becomes a normal phenomenon.
Capitalism prior to the current globalisation had been characterised by three basic features. 1 First, labour did not have free mobility from the ‘south’ to the ‘north’; indeed it still does not have it. The ‘long nineteenth century’, stretching until the First World War, had seen two large waves of migration across the globe. There was a migration from Europe to the temperate regions of white settlement like Canada, the United States, Australia and New Zealand where the migrants occupied land by dispossessing the original inhabitants. This fact kept up their own standard of living and hence the ‘reservation wage’, and consequently the actual wage, back home. This was a ‘high wage temperate-to-temperate region migration’.
There was a second wave of migration at the behest of capital that was from tropical or subtropical countries like India and China to other tropical regions where the migrants were employed as coolies or indentured labourers on mines, plantations and construction projects. The countries from which these migrants came had witnessed substantial ‘deindustrialisation’, in the form of the destruction of traditional craft production by the import of manufactures from the capitalist metropolis which had thrown large numbers of people out of work and intensified the pressure on the limited land mass. This had led to extraordinarily depressed real wages. This second wave of migration, therefore, was a ‘low wage tropical to tropical region migration’. 2
Each of these waves involved approximately 50 million people but they were kept strictly separate. Tropical labour was not only allowed to move freely to Europe, but it was also restrained from moving to the temperate regions of white settlement. Even when in the post-Second World War years migration occurred on a larger scale than before from the ‘south’ to the ‘north’, it still remained controlled migration, regulated in accordance with the needs of capital. There was no free labour mobility.
The second feature of pre-globalisation capitalism was that capital did not move freely from the ‘north’ to the ‘south’. It moved only to plantations, mining, export activities and the infrastructure required for such activities, such as railways (where typically the rates of return were guaranteed by the colonial state). There was no capital migration in any significant sense to manufacturing, despite the lower real wages prevailing in the ‘south’ (for reasons just mentioned). Why there was so little migration of capital from the ‘north’ to set up manufacturing units in the ‘south’ has been much discussed. We need not enter that discussion here, we merely note the fact that capital from the ‘north’ did not move freely to the ‘south’ despite there being no juridical restraints upon its doing so.
The third feature was that the import of manufactured goods produced in the ‘south’ was taxed heavily in the north. Because of this the emerging local capitalists, even if they did manage to set up manufacturing units within the ‘south’ (despite the numerous hurdles placed in their way by the colonial regimes) were precluded from entering the ‘northern’ markets. They were confined at best to their own local markets; and even there they had to face competition from ‘northern’ manufactured goods without being given any protection.
The net result of these three features was that the world economy became ‘segmented’ into two parts, an important consequence of which was that the real wages in the ‘north’ were not restrained by the massive labour reserves of the ‘south’. To be sure, there was a reserve army of labour located within the ‘north’ too (capitalism can never function without such a reserve army), which restrained ‘northern’ wages, but its size being relatively small, its restraining influence on ‘northern’ wages was not so absolute as to tie these wages down to some ‘subsistence’ level.
Put differently, world capitalism had two reserve armies of labour: there was a relatively small one in the ‘north’ which, though it restrained wages, did not prevent their rise, through trade union action, with increases in labour productivity. Then there was a huge reserve army in the ‘south’ which prevented wages there from rising above a bare subsistence level (and thereby helped to achieve price stability in the metropolis by preventing any autonomous cost-push for raw materials), but did not restrain ‘northern’ wages owing to this fact of segmentation. What this segmentation meant, therefore, was that while real wages in the ‘north’ rose with labour productivity, real wages in the ‘south’ continued to stagnate at a bare subsistence level under the pressure of its massive labour reserves. Segmentation thus entailed a spatial dichotomy between what in common parlance came to be known as the ‘developed’ and the ‘underdeveloped’ economies.
In addition, however, it also contributed to bolstering the internal demand within the global ‘north’. The rise in real wages along with labour productivity helped to prevent the emergence of the problem of demand deficiency, a fact underscored by Joan Robinson in her introduction (1963) to Rosa Luxemburg’s Accumulation of Capital. A rise in real wages along with labour productivity to be sure is neither a necessary nor a sufficient condition for thwarting a possible deficiency of demand: after all, even with a constant share of wages and even with all wages being consumed, demand deficiency can still arise because of a waning of the drive to invest; and likewise euphoric expectations about prospective profits among capitalists can push up investment to a point where even a declining wage share does not cause a deficiency of aggregate demand. But a rise in real wages does help in boosting aggregate demand: it keeps the value of the Keynesian multiplier higher than would have been the case in the absence of such a rise, and hence the level of demand higher than it would have been for any given level of investment.
The current globalisation has broken down this segmentation of the world capitalist economy. Even though labour from the ‘south’ is still not free to move ‘north’, capital from the ‘north’ is now moving ‘south’ to locate plants there for exports to the world market as a whole, including ‘northern’ markets which are now open to such exports from the ‘south’. This also means, however, that the workers in the ‘north’ are now exposed to the baneful consequences of the massive labour reserves of the ‘south’.
One obvious implication of this has been the decline in the strength of trade unions in the advanced countries. The essence of workers’ ‘combinations’ in the form of trade unions, as Marx (1976) had noted in The Poverty of Philosophy, is to restrict competition among workers. Globalisation, by exposing the workers in the advanced countries to competition from the workers from the ‘south’, undermines the trade unions in the former. Quite apart from the effects of the relocation of actual plants from the ‘north’ to the ‘south’, the very threat of such relocation hangs like Damocles’ sword over the workers of the ‘north’, limiting thereby the strength of their trade unions.
The second related implication is that the real wages of the workers in the advanced countries can no longer rise with labour productivity; under the pressure of the massive labour reserves of the ‘south’, they tend to remain stagnant. They do not, of course, tend towards equality with the real wages of the ‘south’ (since there is a certain temporal irreversibility about real wage levels, for political reasons if nothing else), but the vector of world real wages, consisting of wages both in the ‘north’ and in the ‘south’, tends to remain unchanged, even as labour productivity increases in the world economy. It is not surprising that in the United States in the last three decades or more the real wage rates have remained stagnant even in absolute terms (Stiglitz 2013).
The stagnation in the vector real wages even as labour productivity increases in the world economy implies an increase in the share of the surplus. This amounts to an increase in the income inequalities in the world. When the surplus is realised, that is, there are no demand problems, the rise in inequality is obvious. But even when the surplus is not realised owing to inadequate demand, the relative income distribution between the capitalists and the workers in the world economy shows a rise in inequality. World income inequalities in fact would continue to rise in the era of globalisation unless the world labour reserves get progressively exhausted. This, however, is not happening, and is not even likely to happen in the foreseeable future under conditions of capitalism.
The other implication of this rising share of surplus is an ex ante tendency towards ‘under consumption’, which follows from the fact that workers devote a larger proportion of their incomes to consumption compared to capitalists. Such an ex ante tendency does not mean an actual ex post occurrence of crisis and stagnation on account of it. State intervention in demand management can always ward off such a tendency (indeed, Baran and Sweezy (1966) had argued in the context of post-war America that military expenditure played a major role in keeping up the level of aggregate demand in that economy despite an ex ante tendency towards under-consumption stemming from a rising share of surplus).
But here we come to another important aspect of the current globalisation. The globalisation of capital, above all of finance capital, entails that in a world of nation-states, every such state must willy-nilly pursue such policies as are demanded by finance capital, for otherwise it faces the prospect of finance capital leaving its shores en masse and unleashing a financial crisis upon its economy. And finance capital is invariably opposed to state intervention in demand management for keeping up the level of activity in the economy.
Finance capital, contrary to what is often presumed, is not opposed to state intervention as such, but it demands such intervention only in its own exclusive interest. It is certainly opposed to state intervention in demand management, thereby stabilising the economy at close to full employment. And this opposition is expressed through its insistence upon ‘sound finance’ (which holds that governments should balance their budgets, or at the most have a fiscal deficit not exceeding a certain fixed percentage of GDP). Since governments are restrained from increasing taxes in a world of globalised finance (as this would drive finance capital away), and also from increasing their borrowings (because of the pressure to adopt ‘sound finance’, or what is nowadays called ‘fiscal responsibility’), they cannot intervene directly to raise aggregate demand, and hence cannot offset the ex ante tendency towards ‘underconsumption’ that the de-segmentation of the world economy brings in its wake.
Finance capital’s opposition to state intervention for raising the level of activity had already been evident to Keynes. In 1929 when Lloyd George, on Keynes’ suggestion, had asked for a public works programme financed by government borrowing to overcome unemployment (then at 10 per cent in Britain), the British Treasury, under the influence of the City, had opposed it. The argument it advanced was that this would generate no net employment since such borrowing would ‘crowd out’ private investment to an equal extent. This was a patently wrong argument; in fact Joan Robinson (1966) has called this argument the ‘humbug of finance’. But it was expressive of the opposition of finance to state intervention for raising employment.
The reason for this opposition goes to the very core of capitalism. It lies in the fact that any institutionalisation of state intervention in demand management serves to delegitimise the social role of capitalists (‘if we need the state to rectify the system then why do we need the capitalists at all?’). It particularly delegitimises the capitalist financiers who constitute in Keynes’ words ‘functionless investors’ (1949: 376). This opposition which was always there but could be overcome in a certain conjuncture (the post-second world war years), becomes decisive when the state remains a nation-state while finance becomes international. Keynes had been aware of such a possibility: while advocating state intervention in demand management, he had wanted that ‘finance above all must be national’ (1933). Globalisation upsets this scenario.
The only antidote to stagnation under these circumstances—when there are no colonial markets ‘on tap’, 3 and when state intervention in demand management is undermined by the opposition of globalised, or international, finance capital—is provided by the formation of ‘bubbles’. Indeed in the period since the decline of Keynesian demand management, while the average growth rate of the advanced capitalist world has come down, such growth as has occurred has owed its occurrence to a set of bubbles in the United States, in particular, the ‘dotcom bubble’, followed by the ‘housing bubble’.
It follows that the view which attributes the current global economic crisis to the formation of bubbles and argues that regulatory measures to prevent such bubbles would produce a crisis-free capitalism, misses a central point, namely that in the absence of such bubbles contemporary capitalism would be permanently mired in stagnation and mass unemployment. Bubbles today provide the only basis for booms even though their collapse causes recessions and slumps. The predicament of contemporary capitalism therefore arises not from the fact that it has experienced bubbles together with their inevitable collapse, both of which were avoidable; it arises from the fact that it needs precisely such bubbles to obtain whatever relief it can from stagnation and mass unemployment.
The global economic crisis thus consists not in the collapse of the bubble but in the fact that capitalism is caught in this structural predicament, where it will continue henceforth to experience protracted stagnation and mass unemployment, relieved occasionally by the temporary palliative offered by a bubble.
The fact that unlike the past the real wages of workers both in the advanced and the underdeveloped countries remain pressed down without experiencing any absolute increases, and also the fact that the capitalists from the ‘emerging economies of the south’ are closely integrated with international capital, has persuaded many to argue that ‘imperialism’ is no longer a relevant category. 4 The spatial dichotomy between two segments of the globe, with the capitalists and the workers in one witnessing material advance and the capitalists and the workers in the other excluded from the prospects of such advance, which characterised the earlier ‘imperialism’, no longer holds; what we have instead is an integration of capitalists of both segments into a globalised entity and the workers of both suffering from their subjection to the massive labour reserves of the ‘south’. Hence the term ‘imperialism’, they argue, no longer remains meaningful. Instead of a horizontal segmentation, we have a vertical division between international finance capital, on one side, with which the corporate-financial oligarchies of different countries are integrated, and the workers of both the ‘north’ and the ‘south’, stuck at different levels of subsistence, on the other.
This argument, however, misses an important point. Imperialism refers not so much to a spatial dichotomy as to a certain structural relationship. This relationship, I argue below, has not changed.
Capitalism being a pre-eminently money-using economy, where wealth is held in money or in money-denominated financial assets, a degree of stability in the value of money in terms of commodities is essential for its functioning (Patnaik 2014). If there is a rise in commodity prices, for instance, which is expected to persist, then wealth-holders would either move to commodities directly, or, what is more likely, to an asset like gold which has a low ‘carrying cost’ compared to most commodities but whose value in terms of commodities is widely believed to remain more or less constant over time (whence the expression ‘as good as gold’). They would in other words move away from money, rendering it useless as a means of holding wealth, and hence ultimately worthless.
This need for a degree of stability in the value of money increases, if anything, in the era of globalisation, precisely because the weight of financial assets is far greater than ever before, a phenomenon that has given rise to the term ‘financialisation’. Keynes’ famous remark in The Economic Consequences of the Peace (1919) that ‘Lenin is said to have declared that the best way to destroy the capitalist system is to debauch the currency ... Lenin was certainly right’, becomes particularly apposite in the era of globalisation.
One way of ensuring that there is no debauchment in the value of money is to have an adequate reserve army of labour which ensures that money wages do not increase autonomously. In addition, however, since capitalism requires a host of commodities that are produced largely outside of the metropolis proper, most notably oil but also a range of tropical commodities, it becomes necessary to ensure that the money prices of these commodities too do not increase over time.
These, however, are commodities which are subject to ‘increasing supply price’ for given money wages, either because they are exhaustible resources, or because the land on which they are produced is fixed in size. The case of oil which falls into the first category is too well known to need elaboration. Let us therefore focus on the second set of commodities, though the argument below applies to both sets.
The size of the tropical land mass which grows a number of commodities that can neither be grown in the metropolis nor be done without is given. Land-augmenting investment (such as irrigation) and land-augmenting technical change are no doubt possible, but such change typically requires state investment. The regime of ‘sound finance’, under the current globalisation, precludes this.
With a given tropical land mass, meeting the growing metropolitan demand for tropical products, which arises as a result of capital accumulation, without raising their prices and hence jeopardising the value of money, becomes a serious problem for capitalism. It resolves this problem by ensuring that the absorption of such commodities (or of other commodities from which land can be shifted to the production of such commodities) by those outside the metropolis is suitably restricted. The mechanism through which this is achieved is ‘income deflation’, that is squeezing the incomes of those located outside the metropolis, including even the petty producers themselves who produce these goods, so that their absorption goes down, in order to make more of these goods available to meet the growing demands of the metropolis. Imperialism is associated, above all, with the imposition of income deflation on the ‘outlying regions’.
In the colonial period, this was done through the colonial taxation system and also the ‘deindustrialisation’ referred to earlier which entailed the displacement of domestic petty producers by the imported goods from the metropolis. In the contemporary period, this is done through the imposition of ‘austerity measures’, the reduction in government expenditure which would otherwise put purchasing power in the hands of the poor and the working population of the third world. In short, income deflation in the current period is imposed through the plethora of neo-liberal policies pursued by the state. These austerity measures no doubt are also imposed on the working population of the metropolis itself, but they are more widely imposed on the working people of the ‘outlying regions’.
The structural relations underlying imperialism which entail the imposition of income deflation to restrict the absorption of tropical goods (or more generally of goods with an increasing supply price at given money wages) by non-metropolitan users, do not lose their importance one iota in the era of globalisation. If anything, they become even more important than before (the current emphasis everywhere on ‘inflation targeting’ only underscores the relevance of this point).
The imposition of income deflation necessarily leads to absolute impoverishment among the working people of the ‘outlying region’ in a very specific sense. If the size of the tropical land mass is given and land productivity does not change much because of the fiscal constraints on the state imposed by globalised finance, then reduced absorption of tropical goods by the local population must necessarily entail a reduction in per capita food grain absorption (so that land devoted to food grains can now be used for producing more of those crops which are demanded in the metropolis). Hence, growing hunger becomes a necessary accompaniment of globalisation, which is exactly what has been happening across the entire third world from sub-Saharan Africa to South Asia.
In India, for example, per capita food grain availability (defined as net production minus net addition to government stocks plus net imports) was around 200 kg per year (in ‘British India’) at the beginning of the twentieth century. It declined to 136 kg by the time of independence in 1947. The post-colonial dirigiste regime raised it (for India as a whole) to around 180 kg by the end of the 1980s. But with the onset of neo-liberal policies, it has declined again to around 160 kg now, which is roughly the level it had reached in the quinquennium before the Second World War. 5
The increase in income inequality we have touched upon above, because of the vector of real wages not increasing even as labour productivity rises in the world economy, is therefore only a part of the picture. In addition to it, there are two other factors: first, there is a reduction in ‘public provisioning of goods and services’ which reduces the real wage rate, inclusive of the social wage, still further; then there is a reduction in the incomes of peasants (and petty producers in general) on account of austerity measures (entailing cuts in subsidies) which increase their input costs relative to the output price.
The squeeze on the petty producers constitutes a process of primitive accumulation of capital in ‘flow’ terms. This both leads to, and is also superimposed upon, a process of primitive accumulation of capital in ‘stock’ terms, namely, a separation of petty producers from their means of production. 6 The displaced petty producers move to towns in search of jobs which are non-existent; and this creates a further downward pressure on the real wages in the periphery, and hence by inference in the metropolis as well. And to the extent that reduced profitability of production by the peasants (they are even unable to carry on simple reproduction, resulting in mass suicides as in India where over 20,000 peasants have taken their lives over the last 15 years), reduces food grain output further, the extent of hunger and absolute poverty increases to an even greater extent.
The situation, in short, is not just one where income inequalities in the world economy increase: such increase is accompanied by growing hunger and absolute impoverishment of the world’s working population at one pole, together with an enormous growth of surplus at another. The situation of absolute impoverishment becomes even more acute because of the crisis and stagnation that, as I have argued above, characterise the era of globalisation.
Let me now turn to the politics of the situation. The fact that nation-states in the era of globalisation are constrained willy-nilly to pursue the same set of economic policies, the ones demanded by international finance capital, also implies that different political formations within the nation-state, unless they are prepared to delink the country from the vortex of globalisation, have more or less the same agenda in economic matters. Since any such delinking entails high transitional costs for the economy, hardly any political formation, and certainly no bourgeois political formation, dares to contemplate any degree of delinking. In matters directly affecting their material lives therefore the people are denied any electoral choice, even in polities characterised by formal electoral democracy. There is in short a ‘closure’ of politics, so that no matter whom they elect the same economic policies continue to be pursued.
Since the globalised economy suffers from persistent economic crises, except for brief periods of ‘bubble’-sustained excitement (and during these too, with employment generation falling far short of the number of job-seekers, the process of absolute immiserisation does not abate), the co-existence of people’s quotidian hardships with the lack of any hope on their part to alleviate these hardships through electoral intervention, creates a disillusionment among them with electoral democracy, and so provides a fertile ground for fascism.
This disillusionment results, on the one hand, in their awaiting a ‘messiah’, someone who would deliver them miraculously from their quotidian misery, and, on the other hand, in their falling prey to the propaganda that their misery is caused by some particular group, such as immigrants, or a religious or ethnic minority, which is ‘stealing’ their jobs or benefits. Since marketing such a ‘messiah’ typically requires the help of the corporate-owned media, and since blaming some minority rather than the neo-liberal policies for the people’s miserable predicament, divides the people and suits the corporate-financial oligarchy within the country that is closely integrated with international finance capital, corporate control over politics increases immensely.
A condition is thus created both for ‘a merger of corporate and state power’ (which is supposed to have been Mussolini’s description of fascism) and for the location of an ‘enemy within’ (which was the Nazi description of Jews and gypsies). Paradoxically, in short, the crisis arising from the pursuit of neo-liberalism to the benefit of the corporate-financial oligarchy is used by the very same oligarchy to increase its hold over the polity and to undermine bourgeois democratic institutions. The period of globalisation, in general, and of global economic crisis in particular, is characterised by a tendency towards fascism which combines corporate control over the polity with the targeting of minorities for oppression and ghettoisation.
The use of the term ‘fascism’ here may not find favour with many, since fascism typically invokes extreme nationalism (though the ‘nation’ so invoked is not an inclusive concept but deliberately excludes that segment of the population which is presented as the ‘enemy within’). The fascist elements apparently stand, within the bourgeois system, not for an integration into a global order, but for a withdrawal from the global order. The scenario sketched above, of corporate power based on the ghettoisation and persecution of minorities, but of corporate power that is integrated with globalised finance capital, does not, it would appear, therefore, to qualify for the label of ‘fascism’.
This conception of fascism, however, may have been apposite for the 1930s but not for today. This is because the corporate-financial oligarchy of any country in that period operated within a context of inter-imperialist rivalry and hence glorified the idea of the ‘nation’ as a means of mobilising domestic support for getting ahead in that rivalry. The context today is entirely different, when we do not have nation-based finance capitals vying with one another, as was the case then, but an international finance capital that is not nation-based. This transition from then to now is itself a result of the enormous centralisation of capital that has taken place within world capitalism since that time. But its upshot is that in today’s world the interests of the corporate-financial elite of any country are closely bound up with globalisation rather than the rolling back of it. And since the essence of fascism is the concentration of political power in the hands of the corporate-financial oligarchy, camouflaged no doubt as the promotion of the interests of the ‘nation’ sans the ghettoised minorities, contemporary fascism does not envisage any retreat from globalisation.
It one raises the objection that the numerous outfits in Europe, from the National Front in France to the BNP (and more recently UKIP) in Britain, which advocate withdrawal from the European Union, can thus never come under the term ‘fascism’, one needs to point out that any degree of dissociation from the European Union does not necessarily involve an exit from the globalised economy.
For this very reason of its links with corporate finance, and so with globalisation, fascism, which acquires strength especially in the context of the acute crisis of livelihoods in Third World countries, is utterly incapable of providing any solution to this crisis, not even a ‘fascist’ solution (as Hitler had done through rearmament in the unemployment-hit Germany of the 1930s). It can resort to armaments expenditure, and even unleash local wars, but within a regime of globalisation which insists upon ‘austerity’, so that such measures too, by merely shifting resources from other uses, will provide no solution to the crisis. They are likely even to compound it.
I referred earlier to the ‘closure of politics’; fascism in the third world, while mobilising popular support on the plea that it is breaking out of this ‘closure’, actually does no such thing. It represents a phoney break from the ‘closure of politics’. Its acceptance of the fact of integration of the economy into the vortex of global financial flows prevents its adopting any economic programme radically different from that of non-fascist bourgeois parties and hence any programme capable of making a difference to the crisis-affected condition of the people.