The euphoria following the Berlin Wall’s collapse has been surpassed exponentially by despair at the collapse of capitalism’s ‘impregnable’ Wall Street. The unabashed votary of capitalism, The Economist describes the present crisis as “Capitalism at bay”. The spate of bailout packages points towards (though The Economist “hopes profoundly that this will not happen”) “a larger role for the State and a smaller and more constrained private sector”.
Britain, which heralded modern privatisation, nationalised most of its banking sector. The US is pumping in $2.5 trillion of taxpayers’ money. France’s Nicolas Sarkozy, says, “Laissez-faire is finished.” (Indeed, shaming the former USSR!) There is a profound paradox here. Defending capitalism means greater State intervention. This may be a paradox for capitalism’s ideologues, but the fact remains that the State of the ruling classes has always defended and enlarged the avenues for super private profits. All this is done behind the illusory mask of ‘States’ neutrality’. These bailouts, as the future will testify, are designed precisely to first save and then to create new avenues for profit generation.
This column had anticipated the potential havoc that the hugely-inflated balloon of finance capital can wreak with its speculation (April 23, 2008). The total value of the derivatives trade shadow economy then was $516 trillion, ten times larger than the global GDP and five times larger than the actual trading in stock markets. Despite the eruption of crises and the impending avalanche, this was allowed to grow to over $600 trillion by September 2008 (Bank of International Settlements). It is this speculative financial bubble pumped to inflate to infinity that had to burst, and, it did.
Reams of analyses seek a fault line (obfuscating the systemically inherent dynamics of the capitalist system), in the greed of a few, a violation of some ethical norms, or, the lack of transparency and the weakness of regulatory mechanisms and credit rating agencies. Karl Marx’s penetrating analysis of capitalism is reportedly being sold much more in Western capitals today than at any time in recent memory (profits are to be made here too!). In Das Kapital, Marx notes: “With adequate profit, capital is very bold. A certain 10 per cent will ensure its employment anywhere; 20 per cent will produce eagerness; 50 per cent, positive audacity; 100 per cent will make it ready to trample on all human laws; 300 per cent and there is not a crime at which it will scruple, nor a risk it will run, even to the chance of its owner being hanged.” Under globalisation, by arm-twisting all independent countries to embrace financial liberalisation, the avenues for super profits were enlarged through hitherto unknown levels of speculation. Post-crisis, this pressure intensifies, seeking greener pastures in the Third World. Thus, this process of globalisation is simply unsustainable.
If profits were re-employed into enlarging productive capacities, then through the consequent employment generation, the purchasing power of the people will grow, leading to larger aggregate demand, which, in turn, would give a further impetus to industrialisation and growth of the real economy.
Under globalisation, with a sharp decline in the purchasing power in the hands of the majority of the world’s population (like the growing hiatus between ‘shining’ and ‘suffering’ India), finance capital, in its eagerness for quick profits, chooses the speculative route of artificially enlarging purchasing power by advancing cheap (subprime) loans. Profits are made while these loans are spent but when repayment is due comes default, ruining the loan-taker, also crippling the system. To put it simply, this is precisely what happened on a gigantic scale. Capitalism’s supreme diabolic irony lies in the fact that in the name of protecting those who have already been ruined, banks and financial institutions are bailed out using taxpayers’ resources. Indeed, privatisation of profits and the nationalisation of losses.
Marx summarises the inherent dynamics of capitalism and its historical direction: “The monopoly of capital becomes a fetter upon the mode of production, which has sprung up and flourished along with, and under it. Centralisation of the means of production and socialisation of labour at last reach a point where they become incompatible with their capitalist integument. This integument is burst asunder. The knell of capitalist private property sounds. The expropriators are expropriated.” In the absence of a powerful socialist political alternative, however, capitalism re-emerges from every crisis, through new expropriators, by destroying a part of the productive forces, to keep intact, or, create new profit avenues rather than using these resources for the people’s welfare. Re-emergence, however, at what cost? Remember, the Great Depression of 1929 laid the foundations for the rise of fascism.
In the meanwhile, independent sovereign countries like India can protect themselves only by staying insulated from such speculation. To a large extent, if India has been spared a full-throttle devastation, it is because the Left parties prevented the current UPA government from embracing greater financial liberalisation. (Even the ‘devil’ must be given its due.)
It would, indeed, be suicidal if the government embarks, as it appears to do, on a path of relaxing the regulation on the flow of international finance capital in the name of injecting greater liquidity into our economy. This is expected to generate greater expenditures and, hence, boost aggregate demand, thus, fuelling growth. This process cannot be done through importing speculative capital. This needs to be done through greater public investments generating employment and, thus, feeding the cycle of demand-led growth. The Indian economy and the UPA ostensibly seeking ‘inclusive growth’ can ignore this caution only at its peril.
Sitaram Yechury is CPI(M) Politburo member and MP.