People's Democracy

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


No. 8

March 01, 2009



Reject Neoliberalism To Fight Recession

Rahul Sinha

A platform of twenty two mass organisations of the state organised a seminar on February 18, 2009 in Agartala on the recent global economic crisis and the ways to combat it. Professor Prabhat Patnaik was the main speaker of the seminar. He said that a complete rejection of the neo liberal dispensation is the only way to combat the recent economic crisis.

Professor Patnaik while detailing on the nature of the crisis, said, many economists including Professor Joseph Stiglitz, feel this is an aberration, a system failure or a fallout of some policy mistake. But he said this view is incorrect. Its no aberration or failure of system but it is the system itself. This crisis is a part of the modern capitalist system and its modus operandi. Even John Keynes, the most eminent economist of the 1930s, who was a staunch supporter of capitalism, also held this view. Patnaik said whenever in a society, free market comes into existence, a large number of buyers and sellers also crowd that market. These people buy assets not for the rest of their life but to sell it off a day, a week or a month later, for high profit. Keynes identified these people as speculators. In any asset market they are the majority and they dominate the market. Its even more true in case of financial assets since these assets can be bought or sold just by clicking the mouse of a computer and unlike physical assets no carrying cost is involved in case of financial assets. Patnaik said, just a few months ago there was a huge boom in our share market and the index rose to a high of 21000, but now its declining and has dropped to 9000. In the advanced capitalist countries, this speculation also effects the growth of real economy. For instance, if the prices of the shares rise then the speculators are excited and they start buying more and more shares. At their instance more and more people start buying because they feel their wealth will increase. So they start buying more cars, houses, ornaments. As a result demand increases in the real economy. Investment, production and employment also grows. Thus, economy experiences a boom. Likwewise when the prices of shares donít increase, the speculators are panicked. They feel the prices are going to fall. So they and at their instance, lots of people start selling shares and index falls. People feel they donít have money to buy commodities, so demand falls and the economy falls into a recession. He said in such a situation, credits also dry up because the banks donít give credit, people also lose confidence in banks and they prefer to keep money in cash or invest only in government securities. He said the irony with capitalism is that they always want a minimalist role for the government but whenever a crisis is there, they all lookup to the government.


So these bubbles of speculation are part of the capitalist economy and are no exception. Patnaik said, Keynes himself was an antisocialist, he wanted capitalism to exist. But at the same time he realised that capitalism has to be reformed, lest socialism overpowers it. In the period of great depression, he suggested that as part of this reform, speculation has to be done away with and secondly he suggested for socialisation of investment where the government shall create demand so that full employment is guaranteed. But Keynesí proposals were opposed by the financial interest groups who never want the state to be proactive. They want the state to protect their interests only. So, in spite of his best intentions to save capitalism, Keynes could not implement it in England. Finally the capitalist economy could come out of the depression only through heavy militarisation during the Second World War. So, it is the financial interest which creates the crisis and prevents the state from being proactive. In the post world war scenario, the theory of Keynes became much more acceptable because of the change in the equilibrium of the class forces. This period witnessed a spread of the socialist camp in different parts of the world; the finance capital was too tired because of the bloody war; in different countries like France and Italy, the communist parties became the biggest force. So governments took the initiative to provide full or almost full employment. All these happened because the working class forced them to do so. Unemployment came down to as low as 2 to 4 per cent. So, this period from 1950 to 1973 is referred to as the golden age of capitalism. In this period, because of state intervention, demand increased. Production, employment, strength and bargaining capacity of the trade unions also increased. The real take home wages of the workers and their standard of living increased and there was no major economic crisis during this period.


Professor Patnaik said during this very period, the centralisation of finance capital also gained momentum. It became so huge that it now wanted to spread allover the world. It now wanted a globalised financial system ,a free movement of capital. Now, the nation states were an obstruction to this free movement of capital. In the 1960s these hurdles were removed in Europe, in Africa and Latin America by 1970s the doors were opened and in 1990s it started in India. So, there was a return of the speculation, the bubbles and simultaneously of the crisis. So the neoliberal economy is characterised by the dominance of the finance capital. The finance capital has become international, but the nation states in opposition to it, are still single entities. So it cant resist the pressure of finance capital, which now calls the shot, even in deciding who will be the finance minister or prime minister of a country. Professor Patnaik said, if we are to combat this crisis then the state has to take a proactive role so that employment opportunities increase and at the same time all the capitalist countries shall have to increase public spending simultaneously. These demands have to be immediately raised by all the progressive forces. Because finance capital wants this crisis to linger till another bubble inflates. They want the states to bail them out from this crisis, provided their ownership and dominance remain intact. But our demand should be no bailout but nationalisation. All the financial institutions must be immediately nationalised. At the same time government spendings must be enhanced to increase demand. He said, ďoften I am asked if socialism is not the answer? Yes socialism is the answer, but for that we shall have to present before people concrete way outs from this crisis so that people themselves can understand the necessity of socialism.Ē Russian revolution was not accomplished on the slogans of socialism but on the slogans of land, bread and peace. So our current demand should be nationalisation and increase in public expenditure. These demands will not be fulfilled by the capitalist system. But by waging struggles on these demands we will be able to rally people against the hegemony of finance capital. But if we wait for another bubble to occur then this crisis will be even more dangerous. Unemployment will increase and this can again provide a fertile ground for fascism. Already in Britain its signs are evident. So we shall have to fight for not letting this crisis to linger.

Coming to the Indian context, Professor Patnaik said, because of the opposition of the Left parties, the process of the financial liberalisation could not be completed. The exposure of our banking sector to the outside world is minimum. For that reason, we have not been hit very hard by the financial crisis. But the preachers of neo liberalism who used to curse us for preventing them from opening up the financial sector are now telling from the rooftop that India was not hit hard by the crisis because they had performed a calibrated liberalisation. He warned that the economic crisis will also affect India. If the export sector faces a slump, unemployment will increase. That will decrease the demand in domestic economy and the crisis will deepen. The only way out is to enhance state expenditure so that demand increases in the domestic economy. But that will amount to opposing the dictates of finance capital, a complete rejection of the neoliberal dispensation.

Professor Patnaik said because of the crisis, the prices of many agricultural products are on the decline. If the situation worsens, many farmers will be in distress. To save them, the state shall have to ensure them assured remunerative price. To buy these products, it shall have to revitalise the institutions like coir board, coffee board, rubber board and at the same time it shall have to impose restrictions so that agri products at a cheap rate from other countries are prohibited from entering the Indian market. But all this will be a complete rejection of neoliberalism. He said the packages announced by the government are not sufficient; they do not speak a word about the plight of our peasantry. The interim budget too is silent in this regard. They donít have the courage to take these steps agonising the international finance capital. They were even opposed to NREGA. Now they are telling NREGA will save the people. But NREGA will not provide employment in the urban areas, neither can it do anything substantial for the people who have enough working days but donít have a living wage. So, we shall have to wage struggle for such a package which will reduce unemployment and tackle the recession. That will require increasing allocations in education, health, agriculture and rural infrastructure. We shall have to fight for a complete rejection of the neoliberal economy. Professor Patnaik said, this crisis can lead to a revival of fascism but at the same time, the progressive forces also can avail this opportunity to give their movement a new direction and strengthen the struggle for alternative policies. We all shall have to strive to that end, he maintained.