Category Archives: Economics

Why Capitalism has, and survives crisis

Benjamin Kunkle has a fine review of David Harvey‘s recent book the Enigma of Capital, in which he also broadly reviews related literature by classical Marxist authors, including John Bellamy Foster’s Ecological Rift: Capitalism’s War on Earth.

LRB · Benjamin Kunkel · How Much Is Too Much?

The trouble is already there to see. Imagine an economy consisting of a single firm which has bought means of production and labour power for a total of $100, in order to produce a mass of commodities it intends to sell for $110, i.e. at a profit of 10 per cent. The problem is that the firm’s suppliers of constant and variable capital are also its only potential customers. Even if the would-be buyers pool their funds, they have only their $100 to spend, and no more. Production of the total supply of commodities exceeds the monetarily effective demand in the system. As Harvey explains in The Limits to Capital, effective demand ‘is at any one point equal to C+V, whereas the value of the total output is C+V+S. Under conditions of equilibrium, this still leaves us with the problem of where the demand for S, the surplus value produced but not yet realised through exchange, comes from.’ An extra $10 in value must be found somewhere, to be exchanged with the firm if it is to realise its desired profit.

Continue reading

The Myth of Micro Finance

Nirmalya Biswas, writing in Mainstream, explains the ‘micro finance’ model has been touted in recent years as a means of poverty ‘alleviation’ is in fact another means to exploit the poor. Neo- liberalism, the contemporary face of capitalism, tries to solve the problems it creates by the same factors that cause its crisis. On the one hand, there is a surplus of capital, on the other hand there is a surplus of the poor. Micro financing apparently tries to solve the problems of the poor but in reality is just another means of multiplying the return on capital.

Similar too is the recent interest expressed by the Tatas and others to create housing for the poor in Mumbai.

Micro Credit appears to be pro-poor in form but in content it is actually anti-poor to the core. The adverse clauses of the loan agreement are carefully kept hidden in a ‘sugar-coated’ loan package. The ‘ever-trusted’ media censors certain pertinent information in fear of full disclosure of the evils of Micro Credit. The penniless poor listens to no reason but gracefully accepts the loan offer to avail the ‘cash inflow’ and solve the present crisis temporarily. The taste of its bitterness becomes palpable only when the installments fall due.
Continue reading

A Neo Liberalism Primer

David Harvey, the social theorist known for his work in diverse areas, published his book A Brief History of Neo- Liberalism couple of years back. The book is really short and succinct- I happen to be reading it right now, and hopefully, more will follow on the subject. Meanwhile, here he covers the same issues in an interview.
But here’s the interesting thing: it’s unreasonable to think that actually the US imposed neoliberalization on Mexico. What happened was that the US was putting noeliberalizing pressures on Mexico and an elite inside of Mexico seized the opportunity to say: yes, that’s what we want. So it was a coalition between the elite in Mexico and the US Treasury/IMF that put together the kind of neoliberalization package that came to Mexico in the late 1980s. And actually if you look at the pattern, it’s very rare for there to be a straight imposition of neoliberalizing policies through the IMF or the US. It’s nearly always an alliance between an internal elite, as it had been in Chile, and US forces that put this thing together. And it’s the internal elite who are as much to blame for neoliberalization as the international institutions.

Markets Forget Nothing, and Learn Nothing

David Bensman writing in the Dissent Magazine points to five major lessons from the impending collapse of US economy (link via Bookforum) and summarizes:

An earlier generation believed that the world learned its lessons from the Great Depression. Governments created regulatory agencies to rein in irrational exuberance and make sure that the fundamentals—a stable currency and sound financial institutions—served the needs of the real economy by making it possible to buy, sell, trade, and invest. In this chastened world, governments regulated banks so that investors could borrow to build new factories and inventors could raise funds to build prototypes.

Neo-liberalism turned this world on its head. By deregulating financial markets, neo-liberal ideology cast financial institutions as our primary innovators—the principal engines of wealth creation. America returned to the pre-New Deal days chronicled by Thorstein Veblen, when financiers hobbled engineers, when mergers and acquisitions (they were called trusts and monopolies back then) provided the fast track to profits and glory, when conspicuous consumption represented greatness.

More than a decade ago, James Tobin suggested that taxing global currency transactions would be a grand way to restrain speculation while raising money for development. Today, Dean Baker, chronicler of the real estate bubble, suggests a similar tax on stock transfers. Neo-liberals and their apologists will condemn this approach as a sure way to retard capital formation. Let’s hope that people have finally learned their lessons from neo-liberalism’s recurring fiascos. It is time to get real.

The March of Neo Liberalism in India

The current issue of Frontline has a series of articles on ‘The March of Neo liberalism‘, including one by economist Utsa Patnaik on the agrarian crisis.

The story starts from 1991 when Manmohan Singh as Finance Minister started hounding farmers by reducing the fertilizer subsidy, cutting development expenditures so sharply that per capita GDP actually fell in one year and the death rate rose in one State, virtually doubling the issue prices of foodgrains from the Public Distribution System over three years in order to cut the food subsidy (which predictably boomeranged since the poor were priced out and the first episode of build-up of 32 million tonnes of unsold food stocks took place by 1995).

During the NDA period, the complete submission of the government to U.S. pressure and rapid removal of protection to agriculture between 1996 and 2001 – before the deadline set by the World Trade Organisation, resulted in farmers being exposed to the fury of global price declines. Between 1996 and 2001, prices of all primary products (cotton, jute, food grains and sugar) fell by 40 to 60 per cent and farmers who had contracted private debts in particular, became insolvent. The syndrome of hopelessly-indebted farmers committing suicides in Andhra Pradesh and Punjab started in 1998 and rapidly spread to other areas where cultivation of cash and export crop was predominant. The crash in pepper, coffee and tea prices came a few years later after 1998 and farmer suicides in Kerala and insolvency of tea estates in West Bengal date from around 2002.

Most alarming is the situation of the Scheduled Castes and Tribes, among whom extreme poverty has increased dramatically during the reform decade, with over three-fifths moving under the lowest level of intake, 1800 calories, by 2004-05 in urban India.

Meanwhile, at Foreign Policy, its editor Moises Naim asks whether the world can afford to feed the growing middle class in China and India.

If they don’t find the bread, perhaps they can eat cake, while the children of the poor will be fed via mid- day meals according to the Indian Finance Minister

“If we continue to grow at this rate, India would be among the most prosperous countries in the world” dominating in education, services and goods….

“Next year, thanks to growth, I will provide Rs 15,100 crore for this scheme. Similarly, in 2003-04 we had provided Rs 1,175 crore for the mid-day meal scheme.

The “growth” he is referring to is the 8-10 percent annual growth rate during the “reform” decades, of course. The amounts mentioned for his schemes are drops in the ocean of poverty that may engulf the small islets of “growth” in urban India, sooner than later. Of late, I have been wondering if I need to go back and re- read Mao’s thesis on the villages encircling the cities.

As to India soon dominating the world in education, it is a joke in a country with the world’s largest illiterate population and the UPA government’s continuing disinterest in it.

(you need to register at the outlook site to eat the cake… read the article in the link)

A Common Indian is a Poor Indian

In this article (pdf) in the latest issue of EPW (alternate location), economists Arjun Sengupta et al contest the official levels of poverty and indicate that 75% of Indian population is poor, which is twice the official figure. This means a staggering 836 million as of 2004–05.

The difference in the approach is their criteria for measurement of poverty that they insist needs to measure relative poverty as opposed to absolute poverty. Also interesting is the authors’ analysis by community (SC/ST, OBCs and Muslims- the overlap between poverty and these communities is evident.)

I do hope this stirs up debate around the jingle of ‘trickle down’ economics that one has heard over the last two decades and recognize the darkness in the noon of unprecedented growth rates.

Our estimate that a little more than three-fourths of the Indian people are poor and vulnerable in 2004-05, based on a value that is double the official poverty line, is consistent with other estimates. For example, the World Development Report 2006 of the World Bank reports 35 per cent of the Indian population as living below the extreme poverty line of one PPP $ per day.

The notion of an absolute minimum of a basket of goods yielding a calorie value plus some essential items loses most of its significance in a growing economy relative to per capita income. Poverty should be reckoned in relative terms to capture the inequalities in the system. There is nothing absolute about an absolute minimum for a poverty line when the economy is on a growth path of an unprecedented kind. That this point has not been factored, not just in India but even in some other countries with much faster rates of growth (e g, China), perhaps reflects an eagerness to show a declining trend in poverty or, for that matter, the magic of “trickle down” growth. There is no doubt that the case for revisiting the poverty line could become stronger as the economy continues to grow.

Technorati Tags: , , ,

Budget Bonanza for the Indian Farmer!

The Rs. 60,000 crores loans waiver to the small and marginal farmer is little more than the corporate taxes foregone by the government in a year. Yet, we have IBNLive pose a rhetorical question in a most dramatic manner.
On the day when Finance Minister P Chidambaram unveiled his seventh budget – and his fifth for the UPA government – he left everybody stunned with a Rs 60,000 crores waiver of loans for small and marginal farmers.This has left open two huge questions – where is the money coming from, and if this year’s Budget is an attempt to get re-elected. (source)

No one, however, seems to be “stunned” at the thought of who bears the brunt of the taxes not paid by the corporates.

If you ask me, we should have elections every two years…

Update: See Madhukar’s excellent post on the topic