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.

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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.
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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.

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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

Nazi Literature in South America and India

Roberto Bolano in his recently translated novel Nazi Literature in the Americas weaves an entire literary universe filled with imaginary writers and their writings.Not all writers were,however, fans of Hitler or other Nazi leaders or even their ideology. Bolano’s biographies of these imaginary writers, inspired in a way by Borges’ Book of Imaginary Beings, are short- the longest runs into a few pages, the shortest about a page in length. Marked by sharply etched portraits of the writers and of their equally imaginary writings, the novel reads like a racy potboiler, except that there is no evident plot in the novel. Only the last story (which readers of Bolano’s novel Distant Star will be familiar with because it is a summary of the same novel) is somewhat longer and has Bolano himself speaking in the first person and somewhat gives the clues to the underlying impulses behind the novel.

In this he recounts the story of Ramirez Hoffman, a Chilean air plane pilot who seemingly heralded a ‘new era’ in Chilean arts after the coup against Salvador Allende’s socialist government and the establishment of Augusto Pinochet’s military dictatorship. Hoffman’s poetry is written in the sky using smokes from his air plane thus announcing the new blend of technology and arts as Chile was ‘recovering its manhood’ under a military dispensation.Some of Hoffman’s poems, all one liners written on the skies, read as follows:

“YOUTH…YOUTH”
“GOOD LUCK TO EVERYONE IN DEATH”
“LEARN FROM FIRE”
“Death is friendship”
“Death is Chile”
“Death is responsibility”
“Death is growth”
“Death is communion”
“Death is cleansing” and so on till “Death is resurrection” and the generals themselves realize that something is amiss. It is, however, something far more macabre that leads to his downfall.

Bolano’s prose is marked by the alacrity of flash fiction (which to me is one of the most important developments in literature in the internet age), but nevertheless carries forward the tradition of the serious novel. The absence of an explicit plot in the story does not mean that there is no plot- as a post- modern reading would suggest. Instead, the plot is hidden below the surface, like an underground river.

The point that he makes is that Nazi- like brutality has a long lineage, and it resides perceptibly and imperceptibly in literature as well. Literature is, therefore, a battlefield in the recovery of humanity and is not outside the realm of politics, and neither is politics outside the realm of poetry and literature.

Reading the novel, I could not but relate very much to India where, interestingly, it is rather normal to have politicians, in the tradition of rulers of the past like Bahadur Shah Zafar and Nawab Wajid Ali Shah, to double up as poets and writers. It is therefore not unusual that two major contemporary politicians- Atal Bihari Vajpayee and Narendra Modi, former Prime Minister and a present Chief Minister of Gujarat respectively, belonging to what is easily the closest we have to a fascist political movement, the Bharatiya Janata Party, have some claim to being poets.

To look for Nazi literature in India, one does not need biographies of imaginary writers. In India, they live among us, in our times. The question of literature and politics being separate also does not arise. They are so intricately tied up that both are the same. The nightmare and the muse.

Related Posts on Roberto Bolano

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NREGA- The Road Ahead

A group of researchers working with Samaj Pragati Sahayog in Dewas district of Madhya Pradesh writing in the latest issue of EPW (alternate link) focus on how the NREGA (National Rural Employment Guarantee Act) marks a shift from any earlier rural development schemes and how it needs to progress. They assess the learning from the last two years of its implementation and forcefully reiterate why it must be implemented, and not scrapped.

Some of the key things that they highlight are:

  • it is a development programme and not a dole programme chipping in with crucial public investments for creation of durable public assets. Its emphasis on water conservation, drought and flood proofing is critical for rural transformation in the most backward areas of the country
  • it makes a complete break with past practices of hiring contractors, the worst oppressors of the rural worker
  • There is a meticulous process for social audit
  • An unprecedented emphasis on transparency and social audits

The key challenges in implementing the scheme in some of the districts that the researchers have surveyed are:

  • Lack of professionals and under- staffing in fulfilling the scheme. At many places staff has not been appointed at all or NREGS responsibilities have been added to existing staff like BDOs and JEs. They quote the recent CAG report that finds that 52% of the 513 gram panchayats it surveyed had not appointed EGAs (Employment Guarantee Assistant)
  • Bureaucratic delays
  • Lack of peoples’ planning and grassroots social activism
  • Inappropriate payment rates since the NREGA uses the old Schedule of rates meant for work through contractors and makes it difficult for gram panchayats to cost work
  • No real social audits taking place at the grassroots level

There are quite a few proposals that the paper makes for speeding up delivery as promised by the NREGA. These include staffing the scheme appropriately (the paper provides a detailed calculation for costing), creating personnel capacity by introducing 1 year diploma courses for implementing the NREGA and above all recommend the use of information technology to bypass bureaucratic delays and provide transparency.

They conclude:

Over the last 20 years, governments so committed to an agenda of reforms for the corporates, appear to have absolutely nothing to offer to their main constituency, the rural poor. On the contrary, with the pressure on the state to shrink, expansion in scale of programmes is increasingly attempted using under-paid, poorly qualified “worker-volunteers”.5 Corners must be cut when it comes to the rural poor. Anything for them, it appears, can be of the lowest quality. Of course, we must also recognise that even during the Nehru-era, rural development was never seen as a professional activity. The legacy of Gandhian anti-state anarchism, where people know best and can manage their affairs on their own, without any external help, only reinforced this tendency.The left, fighting for the very right of the public sector to survive, appears to have become so defensive as to completely overlook the need for reforms, long overdue in a sector marked by massive corruption and complete non-accountability towards the “public”.

The NREGA ranks among the most powerful initiatives ever undertaken for transformation of rural livelihoods in India. The unprecedented commitment of financial resources is matched only by its imaginative architecture that promises a radically fresh programme of rural development. However, for NREGA to realise its potential, it must focus on raising the productivity of agriculture in India’s most backward regions. This can then lead further to the creation of allied livelihoods on the foundation of water security. This is also the only way we can envision a decline in the size of the work guarantee over time, as public investment under NREGA leads to higher rural incomes, that in turn spurs private investment and greater incomes and employment

Read the full paper at EPW or here. 

Link to Govt of India’s site on NREGA

Related Post: A Chinese Road for Rural India

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A Chinese Road for ‘Rural India’

Sagarika Ghose’s Farming the Colonial Dream  purports to be a criticism of policy makers, “leftist intellectuals and politicians” as well as certain type of journalists. In essence what the article suggests is that wasteful schemes like the National Rural Employment Guarantee Scheme (NREGS) need to be discarded, agriculture needs to be liberalized and mass migration from rural hinterland encouraged to enable the people to move into manufacturing.

In the course of her ‘argument’, Ghose takes a few potshots at un- named “celebrated journalists who have made the “rural areas” into their personal visiting cards” as well as “careerists of poverty, the vote-seeking politician, and the westernized romantic.” There is nothing in the article that, however, suggests that she herself belongs to a different universe. Perhaps as not to be accused of being a ‘Westernized romantic’ herself, she deftly alludes to the Chinese way where mass migration from the villages to the cities is ostensibly paving the way for the uplifting of the impoverished rural masses.

After having disarmed the windmills, Ghose goes on to demolish the NREGS lock, stock and barrel for an aim which was never intended for the NREGS. She accuses the NREGS of “ignoring a basic right of every Indian, that is the right to migrate …The right to migrate is an inalienable right and applies to every Indian equally.” Not just that, “according to the NREGA, the rural poor must stay trapped in their socially unequal and violent villages, and undertake meaningless exercise in earthworks to be then handed a paltry wage”.

Wow! The NREGS seems to be having a dramatic impact on rural India !  This, however, is not really the case. Recent reports, suggest that the scheme with Rs. 15,000 crore in its first year has been nothing short of a failure benefiting just about 7- 10 percent of the intended beneficiaries (link). (Jean Dreze and associates on NREGA).  She herself is closer to the mark when she acknowledges later in the same article that “the NREGA, at best is a semblance of a safety net for the absolutely destitute, that those surviving by eating worms on riverbanks, can be assured of some food for a few days, if that.” If that is the case why accuse it of holding back the “rural masses” from the urban paradise in the first place?

One, however, cannot disagree with Ghose’s assertion on the “socially unequal and violent village”, but the urban landscape hardly offers a better picture for the migrant poor. With the prices of houses in cities sky rocketing, even the middle classes outside the IT and BPO sector shudder at the thought of owning a flat. For the urban poor, in the absence of any worthwhile housing schemes by the government, the situation is deteriorating fast. In the 1980s and 1990s, China was alone in the developing world to construct decent housing for the urban poor. Even then, the population of slum dwellers in China is as high as 193.8 million, or 37.8 of the urban population, compared with India’s slum population of 158.4m constituting about 55.5 percent of urban dwellers. (Planet of Slums by Mike Davies, page 24).

Worse still is Ghose’s recipe. Liberalize the agriculture sector, she says, which for her means abolishing ceiling laws that impact the farmers’ mobility. Not a word for the landless, not a word for land distribution as if something like land reforms did not exist. If at all it exists, it does so only in the sense of ‘buying and selling of land’. While accusing others of ‘glorifying a monolithic rural India’, she herself does no better.

What does one do for those who do not own any land at all? Though the landless do not seem to exist in her article, implicitly Ms Ghose’s recipe for them is to send them to the cities, along with those smart farmers who can now easily sell off their land under a liberalized agriculture. In that, Ms Ghose discovers the solution in China. 

Follow the Chinese path, she declares. No, not that of the Chinese Revolution but its counter- revolution in the era of ‘colourless cats':

That only 20 per cent of our GDP comes from an occupation in which 60 per cent of Indians are trapped against their will, should wake up the babus and ministers to the fact that agriculture equals poverty and the only way out is to follow the Chinese example by creating avenues to allow the millions to move out of agriculture into mass producing industry. China has done exactly this with tremendous success. The descendants of Mao have got over their “farmer glorification legacy” far quicker than us.

The trouble with those who call for copying China today is that they want the thin icing without the cake, that is to copy everything minus the Chinese Revolution itself !

She ignores what is practically an urban nightmare in China. Overwhelming migration from rural areas, a reversal of the 1960s forced migration, has led to increasing social problems. While uprooting the people from their villages and providing cheap, unprotected labour in a country that does not permit forming of labour unions for unrestricted exploitation so severe that in many areas, there is a reversal in trends with people migrating back to villages (link). The example of the Chinese peasants who are ostensibly migrating to the cities to become productive clogs for industries manufacturing everything from diapers to electronics for the Western consumers, is a cruel joke which would be hilarious were it not just sad in its implications.

To the chimera of the rural migration to Chinese cities, this is what Li Changping has to say in his essay The Crisis in the Countryside (One China, Many Paths ed. Chaohua Wang, page 213-14):

But the new regulations also meant that the peasant could not alter his or her rural registration status. Economically they ensured a huge supply of cheap labour to developed regions along China’s coastline, as some 80 million peasants rushed to join its booming cities. Socially, however, the result has been a set of injustices that have got steadily worse. …”

In the same book He Qinglain (page 179-80) points to the increasing tendency to form criminal gangs in urban China.

The large number of wandering peasants in Chinese cities and suburban areas are also a well- spring of various forms of criminal activity in the PRC today. The majority- over 75 percent- of criminals in big cities such as Beijing, Guangzong and Shenzhen, are non- resident ‘three-have-nots’. …three demographic features defined these peasant offenders. The majority- 64.5 percent were unmarried; most- 59 percent- had criminal skills; and not a few- 16.5 percent- had been in jail before… the most shocking finding of the survey, however, is the changing motivation behind peasant criminality in recent years. Previously, many peasants displayed clear signs of psychological imbalance, which had led to conflict with the law without any deliberate aim of challenging it. By contrast, majority of those caught after 1996 had committed crimes with the conscious intention of breaking the law and defying moral prohibitions. ‘Since other people are living a highly enjoyable life’, one prisoner said, ‘I, who am lonely and impoverished, should be able to find some stimulus and relaxation too.’

That is the direction that the Chinese path leads to. This is at a time of an overall boom in the manufacturing sector and the absence of a recession in the developed world, which is what has sustained China’s growth. One wonders what the situation will be at a time of decline.

Whatever be Ghose’s motivations for such a misdirected ‘solution’ for rural Indians, the fact is that rural India has always subsidized the city. Those who claim that India needs to move away from its ‘socialist’ past are actually treading an extreme version of broadly the same path as the ruling classes have followed since Jawaharlal Nehru’s time, using whatever little pretensions it had to being ‘socialist’, as a punching bag.

The fact is that the total outlay for rural development is measly as compared to the incentives given to the industry that is producing some of the world’s richest people even as the rest patiently await their promised trickled down share. In a recent article, economist Kamal Nayan Kabra observes that the “public expenditure on rural development … in the Net National Product that used to be 3.6 percent for a population of 70 percent has come down after liberalisation and is just 2.7 percent…. Similarly, the share of total public expenditure in agricultural and allied activities, including irrigation and flood control, that used to be 37 percent in the First Plan total expenditure has come down to 16.5 percent in the Tenth Plan period.” In contrast, the corporate tax foregone (Rs. 50,000 crores in 2006-07) by the Union government last year is only trivially less than the total amount spent by both Union and state governments on all rural development schemes. (link)

People like Ms Ghose would like the amount for rural development to come down further so that the largesses can be given to urban India. Perhaps in her universe, all urban Indians own companies. In reality the corporate beneficiaries are not even one percent of the population.

But then, perhaps it does not matter.

Related Post: An Alternative to Globalization

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P. Sainath on India’s Winter of Discontent

P. Sainath writes on how post- reform poverty differs from that of pre- reform era. Poverty is, after all, as much a relative phenomenon as an absolute one.

The average monthly per capita expenditure (MPCE) of the Indian farm household is a long way from Rs.15 lakh. And further from $115,000. It is, in fact, Rs.503. Not far above the rural poverty line. And that’s a national average, mixing both giant landlords and tiny landholders. It also includes States like Kerala where the average is nearly twice the national one. Remove Kerala and Punjab and the figure gets still more dismal. Of course, inequality is rife in urban India too. And growing. But the contrasts get more glaring when you look at rural India.

About 60 per cent of that Rs.503 is spent on food. Another 18 per cent on fuel, clothing, and footwear. Of the pathetic sum left over, the household spends on health twice what it does on education. That is Rs.34 and Rs.17. It seems unlikely that buying unique cellphone numbers is set to emerge a major hobby amongst rural Indians. There are countless households for whom that figure is not Rs.503, but Rs.225. There are whole States whose average falls below the poverty line. As for the landless, their hardships are appalling.

It is not that inequality is new or unknown to us. What makes the last 15 years different is the ruthlessness with which it has been engineered. The cynicism with which it has been constructed. And the scale on which it now exists. And that’s at all levels, even at the top. As Abhijit Banerjee and Thomas Piketty put it in a paper on “Top Indian Incomes 1956-2000,” “The rich (the top 1 per cent) substantially increased their share of total income [in the reform years]. However,
while in the 1980s the gains were shared by everyone in the top percentile, in the 1990s it was only those in the top 0.1 per cent who made big gains.”

“The average top 0.01 per cent income was about 150-200 times larger than the average income of the entire population during the 1950s. This went down to less than 50 times as large by the early 1980s. But went back to being 150-200 times larger during the late 1990s.” All the evidence suggests it has gotten worse since then.

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Palagummi Sainath: Reporting the Rural Poor

Madhukar Shukla has a collection of quotes from the writings of Palagummi Sainath, who last week won the Ramon Magsasay award for developmental journalism.

P. Sainath started his career with the tabloid Blitz and was groomed by the late Khwaja Ahmad Abbas, who willed that after his death, Sainath would continue to write his column. He left the Blitz in 1993 when its proprietor BK Karanjia changed his political colours. Sainath’s book Everyone Loves a Good Drought published a decade back is a chilling indictment of the elite in India.

Excerpts from my own review of the book:

Sainath’s main findings can be summarized in one word- apathy.

Apathy towards the victims of rural poverty in the country. Around this core, he weaves the stories about real people who generally lie hidden in the great piles of statistical data. In a way, he has given names to poverty. His stories are provocative, jarring and shocking to the point of being macabre.

The selection of the districts which the author chose to study were the 2 poorest districts each in the 5 poorest states of the country- Orissa, Bihar, Madhya Pradesh, Uttar Pradesh and Tamil Nadu. According to the author, there was near unanimity among the experts regarding their dubious status. Seeing the problem of poverty as a process rather than an event (in the form of outbreaks of epidemics or the infamous ‘sale’ of children in Orissa in the mid- eighties), formed the bigger challenge. The process, it turns out is a ruthless, rinding one and one that is full of amazing contradictions.

Sainath discovers that while there are schools without buildings and teachers, there are schools with buildings and teachers too. Except that while the ‘buildings’ are used for storing fodder and tendu leaves and the teachers teach non- existent students. There is a teacher who has not visited the school where he is ‘teaching’ for years, while drawing his salary all the time.

The book brings out the actual state of affairs in which the poorest in India survive. These are tales of poignant misery, and at the same time of admirable courage. At another level, it is about the needs and aspirations of the “insulted and the humiliated”, to borrow a phase from Dostoyevsky. It is about policies, schemes and programs launched with great fanfare and soon left to take their own wayward course, making a mockery of the intended aims.

At another level, these are stories about the idiocy of what has been termed as development. There are dams that have displaced people who will never benefits from the dams anyway. There are dams that are under perpetual construction, with the contractors assured of a perpetual source of income. There are missile ranges which displace village after village like Chikpaar, with the villagers and adivasis losing not only their land but also the very world they belong to. They form the multitudes migrating to big cities, ending up as virtual slaves of contractors in an alien world.

Finally the book is a scathing indictment of the elite in this country. What Dr. K.N. Raj termed as the “two Indias” pithily and epigrammatically comes out in the present work. No debates on the pros and cons of liberalization or Nehruism can substitute for the reasons for such grueling poverty. If the tales in the book sound other- worldly or chillingly macabre, it is because the Indian elite, specially the middle class, which has been reared on this very ‘development’, or in other words on the heads and shoulders of the poor in India, has come a long way from the victims of this ‘development’.

Sainath has given words to the adivasi in Govind Nihalani’s film Aakrosh (the role was played by Om Puri), whose tongue has been cut off and despite being the victim, is actually hauled up in jail.

Palagummi Sainath has reasons to be bitter.

The complete review of the book Everyone Loves a Good Drought
Alexander Cockburn’s profile of Sainath at Counterpunch.

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How the way to the Baba Log Economy was Paved

A Vaidyanathan, in a review of collection of KN Raj’s writings quotes a prophetic insight by the ‘pitamah’ of Indian economists on how state/bureaucratic capitalism can pave the way for private capitalism. This is all the more remarkable since the writings in the book are mainly prior to the 1990s, when finally the dream economy of Rajiv Gandhi’s ‘baba log’ arrived.
Raj was of the view that despite their various internal contradictions, intermediate regimes ‘keep going as a political reality” in several countries. This, according to him, is because the upper middle class and the capitalists are not strong enough to take over and even the radical parties prefer to serve limited sectarian objectives than work for genuine broad- based transformation of society. That this has proved true so far is a reflection of the resilience of the political class and their capacity to manage contradictions. But he did rightly apprehend that “failure to generate surpluses can blunt the growth of state capitalism but also help promote the development of private capitalism.” (emphasis by the blogger)

The name of the book reviewed is Inclusive Growth: KN Raj on Economic Development” edited by Ashoka Mody. Certainly a book I look forward to read.

Link

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Is it Trickling?

After Mani Shankar Aiyar, it is the turn of Jagmohan to question the wisdom and direction of “reforms” and the trickle down effect- after 16 years, even he cannot find the trickle down effect promised by the Manhoman- Chidambram- Montek economics.

The disparities of income are mounting. While one third of our rural population lives only on Rs 12 a day, a fresh graduate from a Management Institute can get an annual salary of Rs one crore, that is, about Rs 25,000 a day. A recent World Bank report titled Global Economic Prospect (2007) – Managing the Next Wave of Globalisation, has observed: “India, a country with low initial inequality, is headed for one of the fast increase in income inequality anywhere”. In a country where millions remain hungry and diseased, the combined wealth of 36 richest Indians had touched dollar 191 billion in the year 2006”.

In the matter of poverty reduction, too, the performance of the Indian economy has been dismal. In absolute numbers. About 300 million Indians were below the poverty line in 04-05.

There is another method of measuring poverty – percentage of low-weight babies to the total number of babies born in a country. This percentage reflects more accurately the state of malnutrition; that is, the state of poverty. In India, the current percentage of low-weight babies to the total number of babies born is as high as 48. On this reckoning, the percentages of the Indians living in poverty should be taken as 48….

Ironically, the economic ‘reforms’ of 1991 are resulting in a swelling of the ranks of unemployed and under-employed persons. The Economic Survey (2006-07) has observed: “Employment growth in the organised sector, both public and private, declined during the 1990s. The annual employment growth in establishments covered by the employment-market and market information system of the labour ministry, decelerated from 1.20 per cent during 1993-94 to 0.38 per cent per annum during 1994-2004.”

The Planning Commission’s Approach Paper to the 11th Five Year Plan (2007-2012), too, has expressed particular concern over “the sharp increase in unemployment (from 9.5 per cent to in 1993-94 to 15.3 per cent in 2004-05) among agricultural labour households which represent the poorest groups”.(read on)

On a related note, Madhukar has a post on Manmohan Singh’s point on the salaries of corporate CEOs.

Cross posted at How the Other Half Lives

An Alternative to Globalisation

Economist Amit Bhaduri has an insightful article in EPW (pdf), where he argues for an alternative development model bypassing the corporate- led globalization. It is only the resistance of people at the ground level that seems to be working to thwart the current economic orthodoxy- that too, only when this resistance results in deaths as in Nandigram. If economics is nothing but concentrated politics, there is little to differentiate between the Hindutva BJP and the secular Left, to say nothing about the Congress party.

He contends that while there are time bound programs to follow the neo- liberal, IMF imposed strictures; there are vague promises and presumptions about the miraculous trickle down effect that is supposed to uplift the masses. The Fiscal Responsibility and Budget Management Act of 2003 is a case in point. Siba Shankar Mohanty, in this article written in 2004 provides a criticism of the Act.

The government, in no way, can actually reduce this expenditure till 2008 except deferring a part of it, which will further aggravate the fiscal situation. The government of the day will never compromise with defence expenditure particularly in a situation where the people in the government visualise threats to national security from all possible corners of the world. So if the government of the day tries to reduce expenditure it may do so in crucial sectors like social services and some of the economic services only. This will affect the all-round development of the country and further aggravate the fiscal situation. (link)

Indeed, a comparison between the fiscal deficit in 2003 and 2007 reveals that the deficit has come down from 5.7% of GDP to 3.3% in 2007.

At the same time, the spend in the social sector declined between 2001-2002 and 2004-2005, picking up slightly in 2005-2006 and 2006–2007 (Table 10.3 in the section on Social Sector in the Budget for 2007-08), though only projections are available for these last two years.

 

  2001-02 2002-03 2003-04 2004-05 2005-06 (RE) 2006-07 (RE)
Spend on Social Sector (% of GDP) 6.04 5.93 5.68 5.66 6.23 6.04

(A related analysis on the social sector spend here.)

Presuming himself on the fact that a deficit is in a demand constrained economy is not necessarily a bad thing (as long as it is a social investment), Bhaduri calls for a scrapping of this act which serves the purpose of further reducing funds for social investment. Surojit Das, incidentally has an article in the same issue of EPW where he dwells on this theme.

Bhaduri also looks away from the centralized, bureaucratic model of socialist orthodoxy to suggest that funds for employment generation need to be pushed to rural India where 70% of the population still lives instead of relying on a an urban centric model of industrialization that relies on the demands generated by extremely rich urban social classes resulting in a misleading perception of growth.

India’s recent high growth accompanying the process of industrialisation answers unambiguously the question as to who is in charge of this process. It is led by corporations,which are mostly private. The role that the governments have assigned to themselves both at the central and at the state level is that of a promoter, an agent of private corporations, not one of a regulator between big business and poor people. In this context we are repeatedly reminded that industrialisation has its costs, but it is conveniently left unsaid that the cost must be borne by those who are least capable of bearing it, the poor and the most marginalised sections of the population. The rich corporations on the other hand are subsidised handsomely by the governments in various ways, e g, in CPM-ruled West Bengal, for the Singur car project, the estimated subsidy to the Tatas is over Rs 850 crore for an investment of Rs 1,000 crore.

Although land is the most visible symbol of transfer of resources to the corporations, the transfer mechanism is more pervasive, working systematically against the poor both directly and indirectly. For instance, the direct bias is seen in plan allocation. Despite over 60 per cent of our working population living in agriculture, recent five year plans under different governments could allocate less than 5 per cent of planned investment to agriculture. The indirect bias operates pervasively through the pattern of consumption and production promoted consciously by the state….

Direct estimates indicate that labour productivity in manufacturing nearly doubled since 1991, and in services it increased even more while in agriculture it increased not even by 10 per cent. This is the result of two sets of factors. On the one hand, selected non-agricultural products consumed typically by the rich command a higher and higher price (think of real estates, fancy apartments, cars, restaurants, etc), as the rich become richer with even more purchasing power to buy these goods. This is a vicious circle of cumulative causation, of mutually reinforcing positive feedbacks created by economic liberalisation with little concern for the poor. Higher growth is then achieved by transferring more and more resources to the so-called high productivity sector producing for the rich in the name of comparative sectoral advantage, while the higher demand from the rich keeps the apparent sectoral productivity and corporate profits high. It benefits enormously large corporations which organise this pattern of production for profit, and the privileged sections in India rejoice at the economic progress the country is making. The other side of the same process is to deny resources to the poor in the rural economy because they have no purchasing power. So money is not found for basic health or education, for local investment to create employment by the panchayats or for two square meals for children. The annual tax concessions to big business envisaged originally in the SEZ proposals is estimated to have been about five times the annual national rural employment guarantee budget; alternatively it could feed some 55 million people a year! (link) (emphasis added)

He suggests that demand needs to be stimulated in the rural economy. Though he does not mention it, this is something that was achieved in China after Mao’s break from the Soviet Union and its model of centralized planning. Chun Lin has argued in his recent work ‘The Transformation of Chinese Socialism’ (2006) how rapid industrialization in the 1980s needs to be seen in the context of the decentralized approach that Mao Tse Tung had initiated.

To stimulate internal demand, he advocates stronger measures to generate employment in the villages via a novel scheme using the nationalized banks to disseminate funds to the village Panchayats, thus reducing bureaucratic structures.

Of course, this is a far cry from the current policies of the government, whose own Minister for Rural Development has remarked few days back:

There is nobody so marginal in a government as the minister of Panchayati Raj. I count for nothing. Nothing! (link)

Bhaduri suggests that banks should be used to push social funds to the Panchayat level, and also monitor the projects. In fact, one aspect that he has not indicated, but can be useful in this scenario is to leverage information technology to gather data and monitor progress of the plans.

First, we must learn to rely far more on the internal rather than the external market. The biggest driving force of the internal market is the purchasing power of the ordinary people derived from employment growth. Growth of the internal market through rapid employment growth, requiring a far more selective approach to globalisation, is essential rather than repeating the mantra that there is no alternative to this corporate-led globalisation. Second, economic growth must be the outcome of employment growth. Our benchmark should be a time bound programme for full employment. How much the growth in employment would contribute to growth in output depends on how productively labour can be employed. …

A start can be made here and now by extending the present national employment guarantee scheme to an ambitious time bound full employment programme, and delegating much of the decision-making power to the maximum to the panchayats and local bodies. They must have maximum freedom and responsibility to identify, formulate and execute local employment generating productive projects. A precondition for this is fiscal autonomy for the panchayats. No government, central or state, is willing to do this yet although the provision was made in 1993 for a finance commission to make panchayats financially self sufficient. The record of Kerala has been the best while that of West Bengal has been among the worst…

(After generating funds from deficit planning) the money for employment generation can be kept in a separate account in nationalised banks with credit line extended to panchayats. This would avoid duplication of institutions, while a system of mutual checks and balances between the panchayats and the local branch of nationalised banks can be devised based on their performance as borrowers and lenders. Banks would lend the next round only if the previous project succeeds, and panchayats can borrow the next round only if the money is well spent. It might turn out to be a situation akin to “repeated games” in which both sides gradually learn to recognise the mutuality of their interests, paving the way for genuine cooperation over time. It is this mutuality of interest which has to be strengthened over time in creating new institutional forms of sustained decentralised financing for development. A programme of decentralised, employment-intensive, rural industrialisation through participatory democracy at the local level is no utopia. It is the compulsion of our time.

Admittedly, Bhaduri’s take is that of an economist, not that from a political economy perspective and needs to be worked out in detail, but it provides a very good start for a practical alternative model for development.

Not that this will be without its problems, ultimately the social composition and the balance of class forces at every level will determine the full realization of such a scheme, but then at least this can be measured in more tangible terms than the promised light at the end of the currently seemingly unending tunnel.

(Cross posted at How The Other Half Lives)

Indian Vendors of the American Dream

Girish Mishra questions the basis of the American Dream being transplanted by its Indian vendors:
Ever since the beginning of the economic reforms mandated by the Washington Consensus, the gap between the rich and the poor has rapidly increased. Similarly, regional economic disparities are largest since Independence. The new jobs that have been generated require the skills that cannot be acquired by the poor, especially from the rural areas. Most educational institutions in rural areas do not have furniture, proper buildings, teachers, blackboards and electricity. They cannot afford computers even in their dreams. In this situation, the American Dream has no relevance for them. Maybe it can inspire the young people in higher income groups who can think of emulating their counterparts in the USA.

On a personal note, I am very happy to have discovered Girish Mishra’s site, having been an avid reader of his column in New Wave that used to be published from New Delhi many years back. Along with Girish Mathur’s articles, it used to be something to look forward to.

Girish Mishra has taught Economics at Kirori Mal College in Delhi and has been a voice of wisdom from the Left for a long time. It gives me a sense of deja vu to find his articles available on the internet.

I would urge you to bookmark his site and read the online articles at his site as well as the Znet site.

"Torturing People so Prices can be Free"- Milton Friedman RIP

La Revue Gauche has a fine collation of links to a number of “tributes” to Milton Friedman from the Left, most bring out his role in applying his neo- liberal principle in Chile in tandem with General Pinochet, the man responsible for the overthrow of the socialist hero Salvador Allende.

Surprisingly the man who “hated the government” had found favor from one of the most brutal governments in the second half of the 20th century.
But if Pinochet’s revolution was to spread throughout Latin America and elsewhere, it first had to take hold in the United States. And even as the dictator was “torturing people so prices could be free,” as Uruguayan writer Eduardo Galeano once mordantly observed, the insurgency that would come to unite behind Ronald Reagan was gathering steam.

Today, Pinochet is under house arrest for his brand of “shock therapy,” and Friedman is dead. But the world they helped usher in survives, in increasingly grotesque form. What was considered extreme in Chile in 1975 has now become the norm in the US today: a society where the market defines the totality of human fulfillment, and a government that tortures in the name of freedom.

- an excerpt from Greg Grandin’s book on Latin America.

More on what Friedman called the “Miracle of Chile” and helped to create:

So what was the record for the entire Pinochet regime? Between 1972 and 1987, the GNP per capita fell 6.4 percent. (13) In constant 1993 dollars, Chile’s per capita GDP was over $3,600 in 1973. Even as late as 1993, however, this had recovered to only $3,170. (14) Only five Latin American countries did worse in per capita GDP during the Pinochet era (1974-1989). (15) And defenders of the Chicago plan call this an “economic miracle.”

And from Leftwrites:

A post on the Marxism List reports:

Heard in the newsroom today, when the story broke just before 1:00 PM:

“¿Quién se habría imaginado que ese hombre tenía corazón?” (Who could have suspected that man had a heart?)

A more sympathetic assesment by Brad De Long:

Friedman’s thought is, I believe, best seen as the fusion of two strong and very American currents: libertarianism and pragmatism. Friedman was a pragmatic libertarian. He believed that — as an empirical matter — giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results. It was not that he thought this was a natural law. He didn’t believe that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets failed there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; and that the market system would create new opportunities for trade that would route around market failures. Most important, his distrust of government told him that government failure was pervasive, and that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.

Another “left handed tribute” by Richard Adams: (link via Abi)

The great irony for Friedman’s fans is that the one piece of public policy he was responsible for that was widely and internationally adopted was one that greatly increased the ability of central governments to collect taxes – a policy he later repudiated in disgust.

Update 1: Michael Kinsley writes on the “Not so free Market” in The Guardian (via The Hindu)

Friedman was wrong and the other famous economist who died this year, John Kenneth Galbraith, was right: the free market in corporate shares doesn’t produce well-run companies.

Update 2 : William Greider writes on Friedman’s Cruel Legacy in The Nation (link via Abi)

People everywhere now understand what Friedman’s kind of “freedom” means. America has been brutally coarsened by his success at popularizing this dictum–millions of innocents injured, mutual trust gravely weakened, society demoralized by the hardening terms of life. Most people know in their gut this is wrong but see no easy way to resist it. Friedman’s utopia is also drenched in personal corruption. The proliferating scandals in business, finance and government flow directly from his teaching people to go for it and disregard moral qualms. When you tell people in power that their highest purpose in life is to maximize their own returns, there is no limit to how much “good” they will do for the rest of us.

Update 3: An analysis of the contradictory claims of Friedman’s theories by Gargi, certainly the best evaluation on the Indian blogsophere.

Errata: I had mixed up Milton Friedman with Thomas Friedman in the title (and in a comment as well). It now stands corrected. Thanks to Kuffir for pointing out.

Update 4: In Defence of Marxism on “Milton Friedman- the economic witch doctor of capitalism

Friedman is thus honoured in the church of capitalism. However, it is no accident that many of his policies have never been adopted nor will they be. The reality is that a completely free market without regulation would lead to anarchy and chaos for the capitalist system.

His emphasis on controlling the money supply has been completely ignored in recent years as finance capital has exploded. Credit has never been more out of control in the capitalist economies of 2006. Also, Friedman’s policies would mean even more inequality of income and wealth than there is already, provoking reaction from working people. All-out Friedmanism would probably have brought capitalism to its knees.

The capitalist apologists and leaders will mourn his passing, but not carry out his policies. The working class will remember the damage he has done to millions of people’s lives.

Image Acknowledgment via Alain Dubois

Growth with Distribution, and the fallacies of neo- Liberalism

A review of Indian economist Amit Bhaduri‘s book Development with dignity: A Case for Full Employment”.

First, India must strive for a developmental process that focuses neither on the growth rate as such, nor on income transfers to the poor as such; growth and distribution have got to be integrated as parts of the same process. This interweaving of growth and distribution cannot be effective, however, unless it confronts simultaneously the structural inequalities of Indian society rooted in caste, gender and religious discrimination.

Another review here.

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Hiding Poverty

One of the “achievements” often touted post- liberalization by any of the ruling parties has been the reduction of poverty levels to a “mere” 26%- Mohan Guruswamy and Ronald Abraham question the fundamentals and conclude that the current definition of poverty line is based on insufficient parameters and should more realistically be termed as starvation line.

In addition to the poverty line, a proper definition of who is poor should also include ‘access parameters’ that measure access to drinking water, shelter etc. To sum of, listed below are basic needs and the percentage of households that do not have access to them:37.7% of Indian households do not have access to a nearby water source
49% do not have a proper shelter
69.5% do not have access to suitable toilets
85.2 of Indian villages do not have a secondary school
43% of Indian villages do not have an all- weather road connecting them

The realistic poverty line that we propose along with these access parameters will provide a more real, more inclusive and more clear picture of poverty in India…. A person is poor in India if he or she has a monthly per capita expenditure lesser than Rs. 840 OR does not have access to either drinking water; proper shelter; sanitation; quality secondary education; or an all – weather road with public transport.

In recent years, one of the stark contrasts that one observes are the impressive, majestic building of multi nationals and Indian companies in the cities and the cracked, yellowed buildings for public good like schools that are almost falling apart- one just has to travel a few kilometers on the outskirts of any city from Gurgaon to Chennai to see that.

To me, the proposed definition of poverty line accounts better for the visible poverty that one sees all around in India- in the decaying filth of the cities and villages.

Link via Dilip De Souza’s article at India Together

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For an Alternative Economics

Ashok Mitra, the acerbic former CPM Finance Minister on alternative economics:

Economics in its early phases, was intended to further the wealth and welfare of people. Classical political economy — as developed by Adam Smith, and then by David Ricardo and, in the final round, by Karl Marx — did not deviate from the objective. Adam Smith directed his ire against those masters who exploited their employees; that is why he favoured free competition which, he hoped, would restrain the monopolists.

Ricardo’s principal campaign was against the landlords whose precepts and policies retarded economic growth and thereby stifled the welfare of citizens at large. Marx, of course, travelled the furthest and strove to prove that whatever production takes place in society is the exclusive contribution of labour, both direct and ‘embodied’ in capital; the fruits of such production should therefore belong in entirety to the working class.

It is time for an alternative economics, an economics which would be much more faithful to its classical roots than what is preached by the vandals at large, blabbering about general equilibrium.

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