People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)

Vol. XXX

No. 52

December 24, 2006

An Aspect Of Neo-Liberalism


Prabhat Patnaik


THE standard argument for the proposition that a capitalist class is at all socially necessary is that this class undertakes productive investment: it thereby causes the development of the productive forces, which is a condition for social progress. The social legitimacy of capitalism thus lies in the fact that capitalists undertake investment. The view that capitalists may operate enterprises better, even if this were true, will not in itself justify their social existence, if the surplus value produced under such better operation was fully or largely consumed. Their running enterprises better will then have relevance only for their own private consumption, but none for society as a whole. It is the fact that they invest the bulk of the surplus value produced under their supervision which provides the basis for claiming that they have social relevance, that they play a role in social advance. True, as Marx had shown, this investment on their part is not a matter of volition. It is imposed on them by the impersonal and coercive logic of capitalism. Nonetheless it is what underlies the socially positive role claimed for them. In short, when capitalists are undertaking investment, they are simply doing what they are supposed to do, what they claim is their basic raison d’etre; if they did not do so, they would cease to have any social legitimacy.




In the era of neo-liberalism however we witness a strange spectacle: capitalists demand a social bribe even for undertaking investment. Governments have to offer them inducements in order to elicit investment from them, in the form of guaranteed rates of return, “viability gap financing” (which refers to the amount of grant made available to them by the government under the “public-private partnership”), tax exemptions, free land for their investment projects, opportunities for making capital gains through land speculation in the Special Economic Zones, and immunity from labour laws in such zones. Demands have been made that there should be zero taxation in such zones, and now there are even demands that manufacturing as a whole should be exempted from paying any corporate income tax. This is over and above the abolition of the long-term capital gains tax which exempts capitalists from parting with even an iota of their gains from stock-market speculations, and whose proclaimed objective is to keep the boom going, ostensibly to stimulate investment.


How is it that the capitalists now feel emboldened to demand a social bribe, and an increasing one at that, even to carry out the basic task which they have always claimed is their essential social role? Two factors have contributed to this change, both characteristic of the neo-liberal era. The first is the systematic, deliberate, and entirely unjustified vilification of the public sector, which was seen earlier as providing an alternative agency to the capitalists. Imperialist agencies had always indulged in such vilification from the very beginning of the era of de-colonisation when a host of newly-liberated third world countries, inspired by the socialist example, had sought to build up the public sector as a bulwark against metropolitan capital; the domestic monopolists have joined this process more recently. And the entire media controlled by both, imperialism and the domestic monopolists, have gone hammer and tongs attacking the public sector, until the very term has come to be perceived as a dirty word. With the public sector discredited, there appears no alternative to the capitalists, and the pound of flesh they demand can be easily passed off as being socially necessary. The second factor is the institutionalisation of a free-for-all, where state governments vie with one another for attracting private investment, and the capitalists, both domestic and foreign, are the beneficiaries of this competitive struggle among them, with each state government outdoing the others in offering better terms. 




Let us consider each of these factors. There can be scarcely any doubt that the public sector played a key role in India not only in building the productive base of the economy, but also in the achievement of whatever technological self-reliance we have. Even in the matter of efficiency of functioning, once we define the term efficiency carefully and refrain from the absurdity of treating it as being synonymous with profitability (which depends on a host of factors like pricing policy and product-mix, with regard to which the public enterprises have had to act under constraints owing to their social obligations), the public sector comes off at least as well as the private sector. Moreover, even in spheres where it has functioned comparatively poorly, the reason has often had to do with the deliberate neglect, and even subversion, by a government bent upon pursuing neo-liberal policies than with any intrinsic limitations of the public sector. And yet there has been a veritable campaign against this sector, largely based on intellectual sleights-of-hand and untruths. An example of the kind of intellectual sleight-of-hand that passes for argument in this realm can be given from the supposedly intellectually “respectable” Approach Paper of the Planning Commission for the Eleventh Plan.


The Paper talks about the massive investment requirements for infrastructure needed in the Plan and then points out that resources on this scale cannot obviously be generated within the public sector. Hence the private sector must do the bulk of such investment, for which it must be enticed in various ways through social “bribes”. This argument appears so reasonable, and indeed so obvious, that it may pass unnoticed. But a careful look will show that when the Paper talks about the inability of the public sector to finance such investments, it is referring to budgetary and other internal resources. But the private firms that are required to do the job instead are not supposed to be using their internal resources for it; they would be mobilising finance from various sources. Why cannot the public sector do the same? The Approach Paper in other words uses the term “resources” to mean “savings” in the case of the public sector, and to mean “finance” in the case of the private sector, with a view to undermining the role of the public sector!




If the undermining of the public sector has given capitalists the upper hand, the whittling down of the bargaining strength of the State has only reinforced this process. Since capital has acquired global mobility, a nation State interested in having some investment within its shores has to compete with other nation States for attracting capital. Thus, if Indonesia, or Pakistan, or Poland, offers better terms to capital, then India willy-nilly has to follow suit. Even more pertinently, within India itself the same story gets repeated across the various state governments. The Volkswagen Company for instance was simultaneously negotiating terms with the Tamilnadu, Andhra Pradesh and Maharashtra governments for setting up an automobile plant. It finally went where it got the best terms. And this is what all the capitalists are doing.


One obvious implication of this is for state finances. If tax concessions are offered then the state government’s revenue suffers. If land purchased from peasants has to be offered free to the capitalists then the state is burdened with additional expenditure. The same happens if a whole range of complementary facilities have to be made available for the project from public funds. What all this means is that the amount of funds available with state governments for expenditure on public health, public education, sanitation, and rural infrastructure dwindles. Consequently, either these sectors are neglected and the potential users, including especially the poor, are driven to make use of private facilities in health, education etc., and to pay through their noses for doing so; or the state governments perforce turn to imperialist agencies like the DFID, ADB, JBIC, and the World Bank, who come with “aid-packages” for these sectors. In the latter case however there are invariably “conditionalities”, like “user charges” and the removal of all existing legislation that defends the interests of the weaker sections, which also hurt the poor. (These explicit, visible “conditionalities” are in addition to the implicit, invisible and potentially even more dangerous process of imperialist penetration into the bureaucracy and state administration that is facilitated through the acceptance of such “aid packages”). The social “bribe” demanded and extracted by the capitalists therefore invariably impinges on the poor and the working masses.




There is something bizarre about this phenomenon. Historically, booms under capitalism have been associated with greater, and not lesser, expenditure by the State in other directions. That is because the State shares in the boom, and its revenues and expenditures increase as a consequence. But we are having a boom at the moment which is associated with a reduced capacity of the State to spend in other directions. Since the boom itself reduces the share of the workers in output, does not give rise to larger employment, and is associated with a crisis of petty production, the fact of its also reducing the capacity of the State to spend in other directions, and hence constricting the availability of public education and health etc., has enormous significance. But this is what booms in the era of globalised finance look like.


The process of capitalists extracting social “bribes” moreover has no limits. Since the competitive struggle among state governments progressively worsens their fiscal situation, making it progressively more difficult for them to use public investment as a counterweight to the capitalists, the magnitude of social “bribes” demanded and actually extracted by the capitalists will only increase over time. 


A pointer towards this tendency is the demand made in certain circles that local self-governing institutions should also be given the autonomy to borrow and to negotiate investment projects with capitalists, including multinational banks and corporations. This will further increase the mismatch in bargaining strength between the capitalists and the state organ engaged in negotiating with them, and will further intensify the competitive struggle among the aspirants for investment, namely the tinier, more fragmented and more numerous local self-governing institutions. This can have only one possible result which is to raise the scale of social “bribes” for capitalists’ investment. This increase in the scale of social “bribes” is an important feature of neo-liberalism.