People's Democracy
(Weekly Organ of the Communist Party of India
(Marxist)
|
Vol. XXXV
No.
27
July
03,
2011
|
THE MYTHS OF
CAPITALISM
Prabhat
Patnaik
THERE
is a pervasive view that growth under capitalism, though it may worsen poverty, even absolute poverty, to start
with, eventually leads to a lowering of poverty. The experience of the
English
Industrial Revolution is invoked in this context. There has been a huge
debate
among economic historians about the impact of the Industrial Revolution
on
absolute poverty in England,
with Eric Hobsbawm, the renowned Marxist historian, arguing that
absolute
poverty actually increased in the immediate aftermath of the Industrial
Revolution, and others like Max Hartwell contesting this view. The
precise
outcome of this debate, which hinges upon the exact price deflator we
use for
converting nominal incomes into real terms, need not detain us here.
But the
fact itself that there has been this debate, no matter what its nuanced
conclusion may be, is suggestive that the Industrial Revolution was
accompanied
at the very least by the persistence of acute poverty, that while the
growth
rate of the English economy was going up, vast masses of its labouring
population continued to remain steeped in abysmal misery. The novels of
Charles
Dickens are a testimony to this as is Frederich Engels’ classic study The Condition of the Working Class in England
in 1844.
Clearly
however this situation did not persist, and later on there was a
significant
improvement in the condition of the English working class, whence the
conclusion is drawn that any initial worsening or non-improvement in
the living
condition of the people that accompanies the growth process under
capitalism,
subsequently reverses itself, that capitalist growth, even though it
may be
initially harsh, is not intrinsically non-humane.
This
conclusion is also theoretically supported along the following lines.
In the
initial stages of capitalist growth there is a dispossession of
pre-capitalist
producers who swell what Marx had called the “reserve army of labour”.
The
English Industrial Revolution for instance had dispossessed
pre-capitalist
textile producers by out-competing them through its cheaper
machine-made
products and they had no choice except to seek employment in capitalist
factories as wage labourers. By its very nature however the amount of
employment that could be offered was less than those dispossessed
(because the
whole point of capitalist production was to reduce labour requirements
and
hence labour costs). The result was a swelling of the reserve army, and
hence
an increase in destitution and absolute poverty.
But
over time as accumulation proceeds, and the capitalist sector grows
increasingly on its own steam, on the basis of demand generated within
itself
and not through the sheer displacement of pre-capitalist producers,
more and
more of the reserve army gets absorbed into the capitalist sector (as
long as
the population growth is not too rapid). And as the magnitude of the
reserve
army falls relative to the active army of labour, the magnitude of
absolute
poverty also declines, even if the real
wage rate of the active army of workers continues to remain at some
historically determined subsistence level. Once the magnitude of
the
reserve army relative to the active army has declined to a sufficiently
low
level, workers can organise themselves into trade unions and even raise
the
real wage rate above this historical subsistence level, which further
curtails
absolute poverty. Capitalist growth thus spontaneously reduces whatever
initial
increase in absolute poverty it may have generated, and goes on to
reduce the
absolute level of poverty.
TWO
CRUCIAL
FACTORS
This
entire view however is a myth.
No doubt in the case of England and other European economies poverty
eventually
declined as growth continued to take place,
but this was not as a consequence of the growth itself. There were
two
crucial factors in England
which contributed to reducing the relative size of the reserve army of
labour,
or for keeping it low. And this is true of other European economies as
well.
The first was migration. There was massive migration from Europe to the
temperate regions of white settlement, such as the United States, Canada,
Australia, and New Zealand
throughout the nineteenth century. The migrants to these regions drove
away the
local inhabitants, eg, the Amerindians, from their land and used it for
their
own cultivation. In the process not only was the relative size of the
reserve
army within the European economies reduced, but the “reservation wage”,
ie, the
minimum acceptable wage to the workers, was pushed up, because the
workers had
the option of migrating to the “new world” if the wage rate at home was
too low
relative to what they could earn as farmers abroad.
The
scale of outmigration was simply enormous. In 1820 there were 12
million
persons in Britain.
But between 1820 and 1915 as many as 16 million migrated out of Britain,
ie,
more than the entire population in the base year. Looking at it
differently,
every year between 1820 and 1915, more than half the increase in
British
population simply migrated out of Britain. The total
migration from Europe as a whole to
the “new world” over roughly the
same period amounted to a staggering 50 million persons. Compared to
this
torrent, the initial displacement caused by capitalist production to
the
domestic pre-capitalist producers was quite minuscule; it is not
surprising
therefore that the initial increase in poverty as a consequence of the
Industrial Revolution was reversed fairly soon, or the initially
existent acute
poverty could get alleviated rapidly enough.
There
was a second factor at work as well, and this consisted in the fact
that the bulk of the displacement of
pre-capitalist producers owing to competition from capitalist products
as a
consequence of the Industrial Revolution occurred in the colonies.
And
these displaced producers in countries like India,
whom nationalist historians
have called the victims of “deindustrialisation”, continued to remain
as a vast
pauperised mass without getting absorbed into the working class under
capitalism. Economic historians like Tapan Raychaudhury have argued
that the
roots of mass poverty in India
for instance lay in this colonial incursion that decimated the
production
structure which had existed earlier without creating any avenues for
absorbing
the displaced producers. The consequence of such deindustrialisation
for the
British economy however was that the magnitude of displacement within that economy was correspondingly
kept low. The magnitude of increase in poverty that would
have occurred in the absence of the colonies would have
been far greater than the actual increase that occurred.
The
question may arise: even if we can explain England’s
turnaround with regard to
poverty in this manner, what about the other capitalist countries? For Europe we have seen that migration played a
crucial role.
In addition, Europe also had access
to
colonial markets, not just directly, but also indirectly,
ie, it had access
to British colonial markets. This is because Britain
absorbed a lot of European goods, but this caused no additional
unemployment in
Britain
since its own goods could be exported at will to colonial markets at
the
expense of local producers in such markets. It was as if Europe
was exporting indirectly to British colonial markets, causing
deindustrialisation
there while increasing domestic employment through such exports.
DISHONEST
CLAIM
In
the “new world” itself of course there were hardly any pre-capitalist
producers
to be displaced through competition from capitalist products. The
persons who
were displaced were the traditional inhabitants, like the Amerindians,
who had occupied
the land earlier. And they were kept in “reservations” where many of
them still
live, a dejected, isolated and dispirited people. In the case of Japan,
the only
Asian country that has successfully made the transition to the status
of a
developed capitalist economy, it not only had escaped the fate of being
a
colony, but had acquired its own colonies which it exploited. Besides,
it had
access to the American market and rode “piggy-back” on American growth,
just as
the European countries had ridden “piggy-back” on Britain
in the matter of accessing
colonial markets.
If
we examine the matter in terms of the theoretical argument advanced
above, it
looks as follows. The capacity of the capitalist growth process to make
a dent
on the relative magnitude of the reserve army depends upon three
factors: the
overall growth rate (taking the capitalist and pre-capitalist sectors
together),
the growth rate of labour productivity (again taking the two sectors
together),
and the rate of work-force growth (taking into account migration as
well). The
excess of the overall growth rate over the growth rate of labour
productivity
is the rate of growth of labour demand in the two sectors taken
together; if
this happens to be less than the rate of growth of the work-force, then the relative size of the reserve army
of labour, and with it the extent of absolute of poverty, will keep
increasing.
There is nothing in the operation of the capitalist economy that can
spontaneously prevent this. Hence the entire claim that capitalist
growth must
eventually reduce absolute poverty is completely baseless. It is a myth
spread
by capitalism. A phenomenon that arose historically through a process
of
pauperisation of traditional inhabitants in the “new world” and of
pre-capitalist producers in colonies (namely, the reduction in the
magnitude of
domestic poverty) is passed off as an intrinsic property of capitalism,
as
something it achieves spontaneously through its own inner operation
even when it
operates in complete isolation (ie without colonies). This is a
dishonest
claim, and unfortunately the entire discipline of economics is
harnessed to
serve the interests of capital by supporting this claim.
The
foregoing has extremely important implications for third world
countries like India. They are the repositories of vast labour
reserves created in the past through the process of deindustrialisation
of the
colonial period, ie, they already inherit immense mass poverty. And
even if
they experience high rates of growth under the capitalist dispensation
(taking
both capitalist and pre-capitalist sectors together), the rates of
growth of labour
productivity (again taking the two sectors together) are so high, both
because
of new goods displacing traditional goods owing to changing life-styles
of the
rich and also because of the eviction of peasants from land because of
real
estate development projects etc, that the relative size of the reserve
army of
labour does not diminish at all; on the contrary it keeps rising. This
both
keeps the wage rate low, and also increases the magnitude of absolute
poverty.
The fact that accompanying India’s high growth rate there has been a
reduction
in food intake for the bulk of the population which is the surest sign
of absolute
impoverishment, is therefore not an accidental phenomenon but intrinsic
to the
nature of capitalist development in such countries.
