People's Democracy

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


No. 10

March 11, 2007

The Shadow Of Mercantilism


Prabhat Patnaik


THERE was a pervasive view until recently that a high growth rate brings down poverty. Perceptions have changed a little of late and the dominant official view now is that a high growth rate, though it does not per se bring down poverty, is necessary for bringing down poverty, that it creates the enabling environment where poverty can be brought down. This is presumably what finance minister Chidambaram meant when he quoted Nobel Laureate Muhammad Yunus to the effect that “faster growth rate is essential for faster reduction in poverty”. And the Approach Paper to the Eleventh Five Year plan, while conceding that a high growth rate was not a sufficient condition for poverty reduction, claimed that it was a necessary condition.


The historical falsity of this proposition is obvious. Indeed, high growth is neither necessary nor sufficient for poverty reduction. Its not being sufficient, as already seen, is conceded now even by the Planning Commission. And one does not have to go far for evidence on it: the Indian case itself demonstrates the point. Poverty in India is defined by a nutritional norm, of 2400 calories per person per day in rural areas and 2100 in urban areas. Notwithstanding the high growth rate of the nineties, in 1999-2000, 75 per cent of the rural population did not access 2400 calories, a percentage no less than in 1973-74. These are undeniable facts, and no amount of subterfuge can negate the view that high growth is not a sufficient condition for poverty reduction. Likewise the fact that pre-Deng China had largely eliminated poverty despite having growth rates far lower than what China or India experience today is undeniable; and the same is true of contemporary Cuba. Even under capitalism, war-time Britain with its incredible shortages still fed its population better than in any preceding period, thanks to the system of universal rationing. Poverty defined by a nutritional norm in other words was lower in war-time Britain, which was obviously not an example of high growth.


More importantly, the formal distinction between necessary and sufficient conditions is an undialectical one. To say that high growth is necessary for poverty reduction is to postulate implicitly some agency that can convert this high growth into poverty reduction, even if such reduction does not happen spontaneously (for if it did, then high growth would be a sufficient condition). This agency can only be the State (which is what both Chidambaram and the Planning Commission implicitly believe). But whether the State uses high growth to bring down poverty depends upon the specific correlation of class forces upon which it rests. Since the correlation of class forces underlying high growth may not permit State intervention, in the wake of this high growth, to bring about a reduction in poverty, any talk of high growth being a necessary condition is meaningless and undialectical.




A dialectical view in other words must look at the relational aspect. Poverty is an expression of social relations. Growth measures the magnitude of increase in the quantity of things. To talk of any direct link between growth and poverty therefore is a confusion of categories. Such confusion is typical of vulgar economy. Karl Marx did not talk in terms of growth rates. The term he used instead, namely the “rate of accumulation”, had a relational dimension. And the General Law of Capitalist Accumulation he formulated, went as follows: “Accumulation of wealth at one pole is, therefore, at the same time the accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e. on the side of the class that produces its own product in the form of capital.”


This was no hyperbole; it was a scientific statement based on the fact that the reserve army of labour, without which a capitalist economy could not survive, was not only itself a repository of misery, but was actually a mechanism for keeping down the wage rate of the active army of labour close to a (historically determined) subsistence level, and its conditions of work in an abysmal state, even as increases in labour productivity kept raising the rate of surplus value, and with it the mass of commodities in the hands of the capitalists (and their hangers on). Thus the growth of misery and degradation at one pole, afflicting the reserve army and the active army tied to a subsistence level, was accompanied by the growth of wealth at another, as the capitalists (and their hangers on) garnered for themselves the enormous increases in the mass of products that growing labour productivity bestowed upon the economy.


True, even within the General Law of Capitalist Accumulation, there may be variations, phases when the working population sees some improvement in the material conditions of its life. But whether such improvement happens or not depends inter alia upon what happens to the size of the reserve army of labour relative to the active army; and the magnitude of the growth rate as such has no bearing upon it. One can even argue that since any tendency towards the exhaustion of the reserve army in the growth process would react back upon it by restricting the growth rate, an observed high-growth phase must ipso facto be one where the reserve army does not get exhausted, and hence misery and degradation increases.




But if the growth rate itself has so little bearing on the conditions of life of the mass of working population, then why, it may be asked, is there so much hullabaloo about it? True, the capitalists whose rate of surplus value may increase rapidly in periods of high growth for reasons just discussed, will be interested in pretending that everyone is better off than before. We have seen such pretense in India with claims of “ the effects of high growth trickling down”, of “poverty getting eliminated”, and of “India shining”. But there is a deeper reason for the hullabaloo, going beyond mere class propaganda and this relates to the fact that within the weltanschauung of capitalism a high growth rate confers on the nation the status of a great power. This is essentially a legacy of mercantilism which bourgeois economics never overcame, and this shadow of mercantilism persists to this day. In short there is a mercantilist perception underlying the hullabaloo over high growth rates.


The mercantilists, it may be recalled, took the nation as the reference point and concerned themselves about how to make the nation wealthy. Their notion of wealth was confined to precious metals. Hence they concluded that a nation became wealthy by amassing precious metals. Since precious metals could be obtained only through trade with other countries, the wealth of a nation according to them could grow only if it pursued appropriate trade policy directed against other countries. (It should come as no surprise that among the mercantilist writers were some of the leading figures of the East India Company). Adam Smith, the leading figure of “English” Classical Political Economy, attacked this position of the mercantilists. He argued instead that the wealth of a nation consisted of its productive capacity, which in turn could be augmented through capital accumulation, and not through expropriating other countries. (He located, as Marx was to argue later, the origin of surplus value in the sphere of production rather than in the sphere of exchange). While this was a revolutionary theoretical development, Smith’s focus of attention nevertheless was the wealth of nations, and not the well-being of the people of a nation. In other words, while breaking with the mercantilists, Smith continued to remain trapped in their problem. He broke with them by giving a different answer to their problem. True, Smith had the idea that wages were higher in a society experiencing capital accumulation than in one which was not; but the focus of his attention, it is only fair to say, was not on this question. And Smith’s successors did not even subscribe to this proposition. In short, while Smith’s theoretical breakthrough substituted the goal of capital accumulation for the amassing of gold and silver through trade, the rationale of capital accumulation continued nonetheless to be provided by the mercantilist notion of national wealth, leading to national power.


This is still the case today. The clearest expression of it in our country comes from the BJP’s celebration of “India shining”, where the large foreign exchange reserves were prominently included among the luminous items, exactly as the mercantilists had celebrated the hoard of precious metals built up on the basis of inflows from other countries. The UPA expresses very similar sentiments. And in general one cannot miss the sense of big power chauvinism when any bourgeois commentator takes pride in India’s high growth rate.


By the same token however it is not for the progressive forces to celebrate such high growth, for whatever it is worth, when the accumulation process in the country that underlies such high growth is increasing daily the misery and degradation of millions of workers and peasants. There is of course the point that the phenomenon of high growth is reflective of the development of productive forces which creates the condition for the improvement of the living condition of the working masses, when the present system is transcended and socialism is being ushered in. But if the virtue of a phenomenon becomes real precisely when the conditions that give rise to it are negated, then a celebration of it is certainly counter-productive.


The Chinese Premier, at the on-going NPC meet, has talked of avoiding the blind pursuit of growth, of boosting domestic consumption to reduce China’s enormous trade surplus, and of increasing grain production as well as improving education and health services in the countryside, all of which amount to a removal of the shadow of mercantilism. It is time that this shadow is banished from all progressive discourses.