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CP of India (Marxist), On the Current Global Capitalist Crisis
Communist Party of India (Marxist), Monday, November 10, 2008
Soldinet:
YECHURY'S SPEECH IN RAJYA SABHA
'Strengthen Our Real Economy By Increasing Public Investment'
We are carrying below considerably edited extracts from Sitaram Yechury’s intervention in the Rajya Sabha on October 22, regarding the current global capitalist crisis. Yechury was speaking on the Appropriation Bill moved by the finance minister to authorise payment and appropriation of certain further sums from and out of the Consolidated Fund of India for the services of the financial year 2008-09. The government has sought an extra amount of Rs 2,37,285.84 crore to meet its committed expenditures of the budget.
While this is a routine exercise for every government to fine tune its budgetary calculations to correspond to the changed circumstances, Yechury demanded that the approval of this Bill must be conditional upon two measures that the government must take in the interests of the common people. The first was to reduce the hikes in the prices of petroleum products as the international oil prices have fallen even below the government’s benchmark of $67 per barrel. A month ago, the international prices were ranging around $140. The second was to reduce the issue price of foodgrains released for the Public Distribution System as the international food prices have also considerably fallen.
In the course of the debate, Yechury raised the apprehension that these additional sums should not be diverted towards `bail out’ packages in the light of the global crisis. A discussion on the global crisis followed. These edited extracts were made in this context.
THE leader of the most unashamed votary of capitalism, The Economist, says "defending capitalism today paradoxically means State intervention." And then it goes on to say: "This week, Britain, the birth-place of modern privatisation, nationalised much of its banking industry. Meanwhile, amid talk of the end of Thatcher-Reagan era, the American government has promised to put in 2.5 trillion dollars into its banks. France's Nicolas Sarkozy says, 'Laissez faire is finished'." And, today's newspapers report: "Even the venerable Pope has ordered for Karl Marx's 'Capital' to read. And, he has said, "There is a penetrative analysis." The board of directors of the Deutsche Bank is today pouring over Karl Marx's 'Das Kapital'. This morning, the leader of the opposition was asking the finance minister, the government as well as the economists, including the former governors of Reserve Bank sitting here, as to what happened to the regulatory mechanisms, and how all these things failed. But that would be missing the wood for the trees.
It is not as though this crisis has happened because of some greedy persons who violated some illusory ethical norms that exist under capitalism. It is not as though the credit rating agencies failed. It is not as though the regulatory mechanisms did not fulfil their jobs. It is not individual weaknesses. There is a systemic weakness in the system of capitalism that needs to be understood. Marx noted, "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, not a risk that it will run, even to the chance of its owner being hanged". This is the nature and character of capital.
The kind of trillions of dollars of nationalisations that are taking place everywhere would put poor erstwhile Soviet Union to shame, literally, in comparison. The Economist is arguing that the only way to defend capitalism is through State intervention. And, therefore, Francis Fukuyama is confused now. When the Soviet Union had collapsed, he had written a great thesis that was celebrated all over the world saying 'End of History', 'End of Ideology'. Now he has written a piece saying 'Is this the end of capitalism'. Poor man! He wants the end of everything that is going on. Anyway, that apart, "The new regime of capitalism that comes, must be..." so and so, they state all that.
Impact On India
We have our understanding of global capitalism. Capitalism is a system that can never remain without exploitation and that can never remain without crisis. Now, whether we, communists and Marxists, are in a position to utilise the crisis for a social change, is a different matter. But the fact is that that system is ridden with both these things. Now, if that is happening globally, how should we in India react to that. The first reaction that had come out from the finance minister, was this. But before I come to his reaction, let me say that we are all living with a sense of complacency to think that we have insulated ourselves from this world crisis. Let me here quote the Washington Post editorial (dated October 20, 2008) titled, 'Is Capitalism Dead?' What does it convey?
As for impact on India, I quote from the Nauriel Roubini's weekly updates in RGE Monitor dated October 17.
"India is taking a severe hit from global financial crisis with the stock market down over 50 per cent year to date. FII outflows are crossing 10 billion dollars and the currency plunging over 20 per cent year to date. While the central bank is injecting liquidity, easing bank credit and capital inflows, cutting policy rate to contain risks to the financial sector and downtrend in asset markets, correction in the near terms seems inevitable. Double-digit inflation, high interest rates and global liquidity crunch will significantly impact domestic demand and industrial activity in 2008-09, pulling down the recent boom. Moreover, twin deficits both approaching 10 per cent of GDP pose a challenge as forex reserves decline."
Left Opposition Saved the Day
This is an important international assessment that has been made. We may agree, disagree, but I think we should rid ourselves of any complacency that this crisis is not affecting us. This is affecting us, and in that context, I would only want the finance minister to actually let us know if he still adheres to what he had said as his first response after the collapse of the Lehman Brothers and the takeover of the Merrill Lynch and, of course, the bailout of the AIG. This is what the finance minister had said, “There is no cause for alarm as Indian banks are not exposed or vulnerable like a couple of banks in the United States”. Fine. Further, he said the government would pursue reforms "having regard to context, having regard to international situation, and having regard to our ability to keep regulations one step ahead of innovation". This is in conjunction with what was said at the end of 2007 referring to the delays in increasing the FDI limit in insurance sector to 49 per cent, giving statutory powers to the interim pension regulator and more voting rights to the foreign banks, etc., all the Bills that the Left had prevented. The finance minister had said, "The UPA government is keen to push ahead with the financial sector reforms as it has only 15 months left in power". This was on December 29, 2007. Now, what I would really want to know is, after this crisis, are we really going in that direction? If we are going in that direction, I think, there is going to be a very serious crisis that will come before us, which we are cautioning and warning against. We want this government to take measures to prevent that from happening. In this context, I would like to quote what the prime minister had said on September 30, 2008. "The foremost challenge is to insulate India from the ill-effects of the international financial crisis". It was the same prime minister, on March 18, 2006, when he told a global audience in Mumbai that the Reserve Bank of India would prepare a roadmap on full capital account convertibility to fully integrate the Indian financial system with the global financial system. Now, it is the same prime minister who had said that then, is saying this now.
Very good, if the government has learnt the lesson from this thing in the past. But, if they have learnt, then, at least, during the four years, give the devil its due, 'if you call us the devil'. Give the devil its due that we stopped you from going into this mad rush of financial liberalisation; the pension privatisation was stopped, the insurance limit to be extended was stopped, your foreign banks taking over 74 per cent interests in Indian banks was stopped, and all these financial reforms that were going on, if you would have had that, today, if your pension funds were privatised, crores of our employees would also have been ruined along with this crisis. Today, if you had allowed the Indian banks to have foreign banks with 74 per cent of equity share, these banks would have also collapsed along with those foreign banks.
Rapacious Finance Capital
And, the bailout package which we would have to offer, we would not have been able to afford to do it. This bailout is also a very peculiar thing. Why do these crises actually happen? It is an ingenious way in which capitalism operates in order to make quick profits. What is the normal economic logic? The normal economic logic is, if the profits which the capitalism makes is re-employed into production, then that production will generate further employment, that employment will generate further demand, and that demand will generate further industrialisation and, therefore, the growth. What is the shortcut that this finance capital employs? The finance capital is too eager, too impatient for very high and quick profits. What do they do? Instead of creating productive capacities and jobs, they tell people to take loans at rates lower than the prime interest rates. The term 'sub-prime' means interest rates lower than the prime interest rates. (This is so in this specific case of the recent housing loan mortgage crisis in the US. Sub-prime could also mean loans given to borrowers whose credit-worthiness is suspect) When people take loans and spend, capitalists make their profits because goods are being bought. But, when the time to make repayment comes, there is default. The person who took the loan is ruined. He is gone. The profit-maker has made his profits. But the system collapses because the money is not being returned. Then the bailout comes! In whose name? The bailout comes in the name of protecting the common man. He is already ruined. The bailout comes in the name of protecting the common man and you have trillions of dollars being infused! What a diabolic perfidy! The person whom you want to protect through the bailout has already been ruined. What you are doing in the name of bailing out is actually protecting financial institutions and creating newer avenues of profits for them in future and that is how this whole system here works.
Seven Steps to Protect Ourselves
What is it that we have to learn from here, if we have to? Learn something for our benefit and for our advantage. We have to ensure that the integration of the Indian financial system and the Indian economy into global financial system does not proceed in the same manner in which it was envisaged and continues to be envisaged by this government.
Therefore, what we would suggest and recommend are seven steps to protect ourselves from the global crisis. And these seven steps are: (1) stop relaxing measures for capital inflows, (2) tighten capital control and financial regulations, (3) stop efforts to deregulate and opening up of banking and insurance sector to sovereign capital, (4) scrap the new pension scheme and withdraw the PFRDA Bill, (5) provide uninterrupted credit to small and medium enterprises, (6) ensure bank credit to farmers and weaker sections, and (7) stabilise the Indian rupee.
This is the manner in which we can, to some extent, cope with this crisis rather than become partners or party to the effect of this debilitating crisis for our country. But, instead, what is happening? You suddenly find today that the limit of FII that flows into the country has been increased. You find today that the Participatory Notes are being re-permitted, we do not know where this money is coming from, how it is being routed, apart from the security point of view, even from the speculative economic point of view, this is dangerous. Instead of actually curbing or curtailing this, so that we are not drawn into the vortex of international financial capital speculation, you are today opening yourself up. In the name of what? In the name of increasing the liquidity in our economy, because that liquidity is important; according to them, that liquidity is important, otherwise our own financial system will come under shock because of crunch in liquidity and, therefore, the whole system may collapse! Why is that liquidity required? Because if that liquidity comes in, if loans are cheaper, there will be greater investment, and because of greater investment, there will be greater employment, because of the greater employment, greater demand, and, therefore, industrialisation and the whole cycle will go on. But, this money that is coming in is not going to provide you liquidity for productive investment. This money is coming in to make speculative profits because they are in great losses there; they want to come here to greener pastures to make profits in order to cut their losses!
Concentrate On Real Economy
Instead if the government with its resources increases its public investment in the country thereby generating direct productive capacities in the country which will in turn generate employment, which in turn will generate further demand, which in turn will generate further industrialisation, that is the way in which the real economy can be developed and can be sustained. This speculative economy of international finance capital has today got little to do with the economy in the positive sense of encouraging real economy, but it has lot to do in the negative sense of destroying real economy and that is exactly what is happening. We have seen in the past, people, I mean, scavengers picking up the bones of what were once considered tigers in the South Asian countries, so called Asian tigers, and you have seen now the devastation that has occurred in large parts of the Western capitalist countries. Therefore, our urge is that you must today, apart from taking the seven measures, apart from reducing the prices of petroleum products and issue price of foodgrains, direct your major attention towards the real economy and increasing the productive capacities of our economy by increasing your public investments. The only way to protect ourselves from this international financial speculation is by strengthening our real economy through increases in public investment and that is what this government must be doing. I will again urge upon the government to reconsider very seriously all the new measures that they have taken in allowing Participatory Notes, increasing FII, etc., etc., and to change course and to come back to this course of increasing public investment for the sake of real economy.
The Balloon Bursts!
Sitaram Yechury
The super profits being reaped by international finance capital was often portrayed as a balloon that could inflate to infinity. The periodic crises like the collapse of the South Asian “Tigers” in the 1990s or the collapse of Long Term Capitals Management a decade ago and the insolvencies of major financial giants in these years of the 21st century were all treated as minor ruptures that could be repaired like punctures in a tyre. Given the unsustainable character of globalization, the balloon had to burst and that it did.
Lehman Brothers Holdings Inc., the fourth largest US investment bank, with $ 613 billion of debt, has filed its bankruptcy. The 158 year-old firm had the reputation of surviving the rail road bankruptcies in the second half of the 19th century and the great depression of the 1930s. The fact that it has collapsed now is leading many to conclude that the current crisis of international finance capital is deeper than the great depression.
The matter, however, does not end here. Merrill Lynch had to enter into a distress sale with the Bank of America for $ 50 billion. The insurance titan, American International Group (AIG) Inc., has turned to the US Federal Reserve and the state of New York for assistance. Clearly, this slide to disaster is not going to stop here. The crisis is bound to intensify affecting us, in India, very severely as well.
The Lehman bankruptcy has reportedly wiped off more than Rs. 2,000 crore from the market valuation of Indian companies in which the US financial giant made equity investments. Merrill Lynch, which had global assets of around $ 2.5 trillion, had Rs. 3,47,095 crores in India as its assets at the end of March 2007. It has been present in India since 1984 and has six major offices employing over 600 people. Its future is now under a big question mark.
Both Lehman and Merrill Lynch succumbed to the sub-prime mortgage crisis that they helped create in the first place. This crisis is an inevitable consequence of the path of globalization that is unfolding in recent decades.
Two important features of globalization require attention. First, this process has been accompanied by growing economic inequalities both within countries between the rich and poor and between the rich and the poor countries. The Human Development Report, 2007-2008 confirms this with undisputable statistics. 40 per cent of world’s population living on less than $ 2 a day accounts for 5 per cent of global income while the richest 20 per cent accounts for three quarters of world income. More than 80 per cent of the world’s population lives in countries where income differentials are widening.
Secondly, globalization has given rise to the phenomenon of `jobless growth’. The growth of employment has always been lower than the GDP growth rate globally. Both these features put together mean that the purchasing power of the vast majority of the world’s population has been declining. Now, capitalism inevitably plunges into a crisis when what is produced is not sold. Under these circumstances, the only way that capitalism can sustain its levels of profits is by encouraging people to procure loans whose spending will maintain the levels of economic activity. However, when the time comes to repay these loans, there is the inevitable default.
This is precisely what happened in the USA in the current sub-prime (loans given at interest rates lower than the prime rates) crisis leading to a sharp fall in housing prices with large defaults on home loans. This adversely affected financial firms that held derivatives on home loans. Some of these have already gone bankrupt and many others are facing such an immanency. The size of losses on sub-prime home loans is estimated at $ 400 billion. What goes unreported, however, is that those who do not repay loans are ruined.
This should not really come as a big surprise. The Wall Street Journal, reported on October 12, 2007 that the wealthiest one per cent of Americans reportedly earned 21.2 per cent of all income in 2005. This increased from 19 per cent in 2004 and exceeded the previous high of 2.8 per cent in 2000. In contrast, the bottom 50 per cent earned 12.8 per cent of all income which was less than 13.4 per cent in 2004 and 13 per cent in 2000. The consequence of such growing inequalities would lead, according to Merrill Lynch, to a fall of $360 billion in consumer spending during 2008-09. This only means that the crisis will intensify. Obviously, Merrill Lynch did not take its own assessment seriously.
While the rich have been earning their super profits by urging the poor to take loans, the resultant crisis from the fall has inevitably hurt those very sections of the poor further.
The burden on the global poor has been compounded by a massive rise in the prices of foodgrains and petroleum products. This can mainly be explained by speculation in the foodgrains commodity exchanges. This is directly related to and triggered by the sub-prime home loan crisis that has led many a global financial giant to bankruptcy. In order to cut their losses, global speculators have chosen to shift their operations of `derivative’ trading to the commodity exchanges.
Derivatives are shadow financial instruments that include futures, options, forwards trading. If one buys or sells a share in the stock market, then it is actual trade. However, if one buys or sells the option to buy or not to buy a share, then it is derivative trade. The seller of the option, believe it or not, need not own that share. Likewise, the buyer need not pay the full money for the share. Such speculation in the global commodity exchange markets is playing havoc with food and oil prices.
According to the Bank of International Settlements, as of December 2007, the total value of derivative trade stood at a staggering $ 516 trillions. This has grown from $ 100 trillion in 2002. Thus, this shadow economy is 10 times larger than global GDP ($ 50 trillion) and more than five times larger than the actual trading in shares in the world’s stock exchanges ($ 100 trillions).
Any government of the day is duty bound take measures to try and insulate ourselves on such global speculation and protect the livelihood of our people. After all, if inflation is a global phenomenon, so is bird flu. Do we not take measures to protect ourselves from the spread of this disease? Likewise, it is incumbent upon the UPA government to shield ourselves from such massive global speculations.
At least now, the UPA government must realize that without the banning of speculative forward/futures trading in essential commodities, the run away price rise cannot be contained. Likewise, it should immediately abandon all policy measures seeking to further liberalise India’s financial sector in the name of `reforms’. Thus, the moves to increase the volumes of foreign finance capital in our insurance sector, permitting foreign banks to acquire Indian private banks etc will only create avenues to bail out the international finance capital and crisis by offering new avenues for investments and profit making. This, however, would put at risk the life-long savings of a large number of Indians which are currently lodged with the Indian Financial Institutions. Remember that the bulk of the assets of insurance giants like AIG Inc. are the pension funds of workers and employees. The bankruptcy of the firm means the ruination of the lives of millions of employees and workers. The UPA government must immediately abandon its proposed legislation to privatize pension funds.
The Indian economy and the people must be protected from this crisis. Three of the Wall Street’s five big independent investment banks have disappeared in less than six months. What India needs is not more of financial liberalization, but less of it. The UPA government would do well to continue to accept Left’s objections to these `reforms’ in the interests of the Indian economy and the livelihood of our people.
91st Anniversary of the October Revolution
Current Global Capitalist Crisis
Sitaram Yechury
The 91st anniversary of the Great October Socialist Revolution comes in the wake of the deepest crisis of world capitalism since the great depression of 1929. The current crisis of international financial capital that spearheaded imperialist globalisation in the last two decades is, by many estimations, far graver than any other crisis in the history of capitalism. The crisis is still unfolding and its full ramifications will be realized only much later.
Many feel that we, as Marxists, must feel resoundingly vindicated that Karl Marx’s penetrative analysis of capitalism has, once again, proven itself to be true. Marxists do not derive satisfaction for the vindication of their world view and revolutionary analysis at the expense of the ruin and misery of millions of victims of this capitalist crisis. As Marx himself once said, “nothing human is alien to me”. Marxists work to ensure that the common working people are not subjected to such inhuman trepidations being at the mercy of the rule of Capital. This shall happen only when we “change the world”, not remaining satisfied with the correctness of our “interpretation of the world”.
Capitalism, as Marx has shown, is a system that is based on the exploitation of man by man and nation by nation. It can never be a crisis-free system. Hence, the true emancipation of humanity from such miseries is possible only through a liberation from the capitalist system. We shall return to this aspect later.
Two decades ago, the capitalist world was in a state of delirious euphoria in the build up to tearing down the Berlin Wall. This was accompanied by vituperative ideological offensive : End of History, End of Ideology etc. There was great delight at the collapse of this wall that symbolized, in many ways, the Cold War and world socialism’s power to confront imperialism in all respects. The collapse of the Berlin Wall has been eclipsed by the virtual deletion of capitalism’s so far considered impregnable wall – the Wall Street. The `big five’ global investment banks – Bear Sterns , Lehman Brothers, Merrill Lynch, Morgan Stanley and Goldman Sachs – that led and lorded over the world of imperialist globalisation have either been liquidated or severely emasculated.
Such has been the gravity of the crisis that the most unabashed votary of capitalism, The Economist describes it as “capitalism at bay”. Referring to the spate of bailout packages advanced in various western capitals, it says that the future points towards “a larger role for the State and a smaller and more constrained private sector” and hoping “profoundly that this will not happen”.
World capitalism has embarked on a spate of nationalizations that would have surprised the former socialist USSR. When the time to defend capitalism from such a crisis comes, all ideological attacks against State or public property and nationalization with the accompanied extolling of the virtues of private capital and their laser beamed God - market – appear to be mercilessly abandoned.
Britain, that heralded modern privatization, nationalized, today, most of its banking sector. (Recollect that Margaret Thatcher once said, “It is not the business of the government to be in business”.) USA is pumping in $ 2.5 trillion of tax payers money to shore up its financial system. France’s Nicholas Sarkozy, says, “Laissez-faire is finished”. There is a profound paradox here. Defending capitalism, in this present crisis, 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. We, in India, have our own experience of the State establishing the public sector to promote private capitalism. At a later stage, with this objective largely achieved, the State embarks on large-scale privatisation, again to benefit private capital. 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.
Current Crisis: Marxist Understanding
This crisis is an inevitable consequence of the path of globalization that was unfolding in recent decades. In order to understand this, it is necessary, in the light of our assessment and experience of the socialist USSR to briefly recapitulate the CPI(M)’s understanding of the science of Marxism-Leninism and its relevance in analyzing contemporary developments. This essence is contained in the CPI(M)’s 14th Congress resolution, `On Certain Ideological Issues’ adopted following the collapse of the USSR in January 1992.
The CPI(M) firmly believes that Marxism-Leninism is inherently materialistic, creative and intrinsically dialectical. It is hence supremely anti-dogmatic. It is a world-view that embraces the vision of liberation and expresses emancipatory ideals. It is a tool for understanding and analysing the multitude of phenomena that constitute changing historical situations. It is a guide to action that defines programmatic objectives for the people's struggle against all forms of exploitation, subject to the necessary adaptations as required by changing historical situations.
As a creative science, Marxism-Leninism identifies the tendencies and directions of development. In doing so it provides the possibilities for popular mass intervention in these developments in the pursuit of establishing an exploitation-free society.
It is, hence, incumbent upon all Marxist-Leninists to make a concrete analysis of the concrete conditions, both internationally and domestically, in each country and on that basis to chart out the course of human liberation.
Following this, in 1993, the CPI(M) had organised an international conference at Calcutta with the participation of 25 Communist and Workers Parties from all over the world to underline the continued relevance of Marxism in understanding contemporary world realities. In 1998, at the initiative of the Communist Party of Greece, regular annual meetings of similar nature began leading to the regrouping of the Communist forces in the world. This has now become a regular annual feature with this year’s meeting being held in Brazil this month end. At the 1998 meeting discussing the role of the Communist Parties in the current conditions, the CPI(M) presented the following:
“The main new element in the present phase of capitalist development is the emergence of globalisation of finance capital. It has specific features, in our opinion, which distinguish it from the period when Lenin analysed imperialism. The present process is not a nation-state based finance capital engaged in struggle with rival imperialist nation-states. In a sense, it has transcended the nation-state. This, however, is not to suggest that the relevance of the nation-state and its sovereignty has ceased, as some seek to argue.
“It is, however, important to note that the present day finance capital is highly globally mobile sucking in finance capital from individual countries dominated by finance capital originating from the advanced countries. Further, this finance capital is more pre-occupied in its search for quick speculative gains rather than its amalgamation with industrial capital leading to economic development. It, therefore, truly represents the parasite that thrives at the expense of real economic growth.
“The emergence of this finance capital is an important factor that explains the relatively low growth rates accompanied by high unemployment rates in the advanced countries. This happens because in order to appease international speculators, there is a competitive reduction in tax rates and restrictions on the size of the fiscal deficit. In other words, governments are forced to cut back expenditures and thereby deflate both employment and domestic demand leading to lower rates of growth.
“This, in turn, leads to a situation where the advanced countries turn to the third world economies and intensify exploitation. The imposition of neo-liberal policies serves this purpose of removing obstacles to the free operation of internationally mobile finance capital. In addition, it seeks to impose a new form of international division of labour, this time not through direct colonial occupation but through coercing third world economies to dovetail to imperialist interests.” It is the consolidation of this process over the last decade that laid the basis for the current crisis.
Marx’s analysis of capitalism tells us that as capitalism develops, there is the tendency for concentration and centralization of capital. As he said, over a period of time, there will be “fewer and fewer but larger and larger capitalists”. Accumulation under capitalism is, thus, a coercive process. So is the process of technological innovations. Without either of these, the capitalists cannot survive the rat race where the `big fish consumes the small fish’. It is this processes that has led to the internationalization of finance capital to gigantic levels, hitherto unknown in capitalism’s history. It is this process of globalisation that imperialism utilizes to seek its political objective of economically recolonising the developing countries.
Two important features of globalization, however, require attention to understand the present crisis. First, this process has been accompanied by growing economic inequalities both within countries between the rich and poor and between the rich and the poor countries. Secondly, globalization has given rise to the phenomenon of `jobless growth’. This is so because the trajectory of profit-maximisation invariably replaces human labour by investing more in developing technology rather than developing human resource capacities. The growth of employment, during this period, has always been lower than the GDP growth rate globally.
Both these features put together mean that the purchasing power of the vast majority of the world’s population has been declining. Now, capitalism inevitably plunges into a crisis when what is produced is not sold. Under these circumstances, the only way that capitalism can sustain its levels of profits is by encouraging people to procure loans whose spending will maintain the levels of economic activity. However, when the time comes to repay these loans, there is the inevitable default.
This is precisely what happened in the USA in the current sub-prime (loans given at interest rates lower than the prime rates initially to lure borrowers, only to be re-set higher later or loans given to borrowers whose credit worthiness is suspect.) crisis leading to large scale defaults.
Defaults should not have really come as a big surprise. The Wall Street Journal, reported on October 12, 2007 that the wealthiest one per cent of Americans reportedly earned 21.2 per cent of all income in 2005. This increased from 19 per cent in 2004 and exceeded the previous high of 20.8 per cent in 2000. In contrast, the bottom 50 per cent earned 12.8 per cent of all income which was less than 13.4 per cent in 2004 and 13 per cent in 2000. The consequence of such growing inequalities would lead, according to Merrill Lynch, to a fall of $360 billion in consumer spending during 2008-09. Obviously, Merrill Lynch, now emasculated, did not take its own assessment seriously.
Capital, in search of higher profits, continuously creates new commodities through which it expands its market operations. As Marx had said, `production not only creates objects for the subjects, but also creates subjects for the objects’. The present day advertising industry is testimony of this. Under the rule of international finance capital, capitalism creates new financial commodities. One of these that has played havoc and generated the current crisis is known as the `derivatives’.
Derivatives are shadow financial instruments that include futures, options, forwards trading etc. If one buys or sells a share in the stock market, then it is actual trade. However, if one buys or sells the option to buy or not to buy a share, then it is derivative trade. The seller of the option, believe it or not, need not own that share. Likewise, the buyer need not pay the full money for the share.
According to the Bank of International Settlements, as of September 2008, the total value of derivative trade stood at a staggering $ 600 plus trillions. This has grown from $ 100 trillion in 2002. Thus, this shadow economy is 12 times larger than global GDP ($ 50 trillion) and more than six times larger than the actual trading in shares in the world’s stock exchanges ($ 100 trillions). While these are the figures from the official commodity exchanges, it is variously estimated that the total value of financial exchanges including in derivatives, whose trade takes place even outside of the commodity exchanges, was a staggering 40 times the total global GDP. It is this speculative financial bubble, pumped to inflate to infinity, that had to burst, and, it did.
Indian Response
In the meanwhile, independent sovereign countries like India can protect only by insulating ourselves from such massive 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, during the last four years, from embracing greater financial liberalization. Even our worst detractors are forced to admit this, though most reluctantly!
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.
Systemic Crisis
Reams of analysis seek an explanation for this crisis (obfuscating the systemically inherent dynamics of the capitalist system), in the greed of a few, a violation of some ethical norms, a la Nobel laureate Paul Krugman’s “moral hazard” 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 the western capitals today than any time in recent memory (profits are to be made through these sales too!). Marx shows that despite appearances of decisions and choices being taken or made by `free’ individuals, capitalism functions on the basis of laws that operate independently of the will or desire of individual capitalists. Take the issue of exploitation under capitalism. Exploitation does not take place under capitalism because the dishonest capitalist cheats the worker in the market place by giving lower wages. Even if the capitalist is supremely honest (rarest of the rare possibilities though) exploitation, nevertheless, takes place. This is so because in the capitalist production process, the value of the product produced by labour is always greater than the value this labour power (measured as wages) commands in the market. This surplus value generated by the labour process under capitalist production is the source of profit whose maximization is the raison d’etre of capitalism.
Profits, thus, can be generated only through exploitation. The overthrow of capitalism is, therefore, not only a moral question, it is a scientific necessity if exploitation of man by man must end, if human emancipation has to be achieved.
In Das Kapital, Marx concluding his chapter on the genesis of the industrial capitalist states: “Capital comes dripping from head to foot, from every pore, with blood and dirt”. He buttresses this with a quote, in a footnote, from a worker and trade union leader (Marx consciously drew on the writings and experience of workers to validate his analysis) T. J. Dunning : “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.” It is this pathological drive to maximize profits at any cost, the inherent character of the capitalist system and not the individual greed of some or weakness of regulatory mechanisms that is the root cause for the present crisis.
Neo-Liberalism’s Bankruptcy
Under globalization, by arm twisting all independent countries to embrace financial liberalization, the avenues for super profits were enlarged through hitherto unknown levels of speculation. Post crisis, this pressure is bound to intensify seeking greener pastures in the third world. Thus, this process of globalization has, once again, shown itself to be simply unsustainable. Consequently, globalisation’s ideological mask – neo-liberalism – has shown its thorough bankruptcy.
If profits were reemployed 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 industrialization and growth of the real economy. The gigantic accumulation of international finance capital, however, given the inherent laws of capitalism, supercedes this process, seeking predatory profits through speculation. It, in fact, decimates this process by enveloping it under the speculative financial bubble. This is similar to when monopoly capital emerging from free competition, decimates the latter completely.
To summarise: under globalization, with 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, as seen above, 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, the banks and financial institutions are bailed out using tax payer’s resources! Indeed, privatization of profits and the nationalization of losses! In the process, intensifying exploitation further.
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 socialization 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 reemerges 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 people’s welfare. The true inhuman character of capitalism.
Capitalism’s Collapse, Inevitable, Not Automatic
CPI(M)’s 14th Congress resolution notes: “The inevitability of capitalism's collapse is not an automatic process. Capitalism has to be overthrown. An erroneous understanding only blunts the need to constantly sharpen and strengthen the revolutionary ideological struggle of the working class and its decisive intervention under the leadership of a party wedded to Marxism-Leninism -- the subjective factor without which no revolutionary transformation is possible”. In those countries where this process is advancing, like in Latin America, we have already seen the electoral defeats of the neo-liberal forces.
In the absence of the advance of the revolutionary movement, capitalism will remerge, in a different form, to consolidate its predatory search for profits. As Marx and Engels said in the Communist Manifesto: "the bourgeoisie cannot exist without constantly revolutionising the instruments of production and thereby the relations of production and with that the whole relations of society". But such a reemergence of capitalism would be at a tremendous cost. Remember, the great depression of 1929 laid the foundations for the rise of fascism.
Clearly, therefore, the current phase of imperialist globalisation and its ideological construct – neo-liberalism – appears to have run its full course. Whatever be the form and content of its restructuring, capitalism is inherently an exploitative and a crisis-ridden system. This is engendered in its fundamental contradiction between its social nature of production and the individual nature of appropriation. As the CPI(M) updated Programme notes: “Despite the fact that the international correlation of forces favour imperialism at the end of the twentieth century and capitalism continues to develop productive forces with the application of new scientific and technological advances, it remains a crisis-ridden system apart from being a system of oppression, exploitation and injustice. The only system, which is an alternative to capitalism, is socialism.”
On this occasion, on the 91st anniversary of the October Revolution, learning from its experiences and drawing the correct lessons from its disintegration, we have to carry forward the struggle for socialism. This requires, as noted above, the sharpening of class struggles to advance the popular revolutionary movement. The experience of socialism in the 20th century demonstrates that the disintegration of the USSR and former socialist countries in Eastern Europe negates neither the revolutionary science of Marxism-Leninism nor the pursuit of the socialist ideal. The current capitalist crisis, on the other hand, tellingly demonstrates the vacuity of the “eternality” of capitalism. |