(Weekly Organ of the Communist Party of India (Marxist)
November 17, 2013
The War of Words between the
governments, no matter what their differences, generally put
up a common front.
They do not attack one another in public. It was surprising
Suppose there are two countries A and B in the world, each of which has an output of 80; A absorbs 60 out of this 80 domestically and exports 20 to B without (for simplicity) importing anything in return. It therefore has a current account surplus of 20 vis-a-vis B. Correspondingly B has a current account deficit of 20 vis-a-vis A, which means that it absorbs 100 while producing only 80. Now, if A increased its domestic absorption by 20, and if its domestic output could not be increased much (since it was close to full capacity), then it would have to meet the expanded domestic absorption by reducing its exports. In such a case in B, to meet the same level of its domestic absorption as before, 20 more output would have to be produced as a consequence. But as 20 more output was produced in B, this would increase consumption within B further, and hence output and employment still further. The total increase in B’s output therefore would be some multiple, greater than 1, of 20. (In fact, one can be quite precise: if the consumption to income ratio in B is, say, 2/3, then the total increase in output in B because of the reduction in exports from A by 20 would be 60, of which 20 would merely replace previous import and 40 would be additional consumption).
A’s increase in domestic absorption therefore kills three birds with one stone: first, it increases B’s output (and employment) by several times this increase in absorption without reducing A’s own output, which means that it increases world employment and output. Secondly, A’s own population is better off compared to earlier, since A produces the same output as earlier but absorbs more of it, which means that its domestic consumption goes up. Thirdly, by expanding its domestic absorption A’s current account surplus falls to zero as does the current account deficit of B, which means that world imbalances get eliminated.
But if B tried to increase its domestic absorption by 20, then, even though this would bring about under the assumptions of our example, an output increase of 60 as in the previous case, it does nothing to eliminate current imbalances. It always makes sense therefore to have a surplus country (in our example A) undertaking an increase in domestic absorption as a means of eliminating global imbalances. The alternative way of eliminating imbalances is for the deficit country to undertake a contraction, but this increases world unemployment.
is for this reason that
John Maynard Keynes, when he was involved with the setting up
of the Bretton
Woods system after the second world war along with Harry White
of the United
States, had wanted the new system to incorporate some element
of compulsion on
the surplus countries to undertake expansion in domestic
absorption, and not
just on the deficit countries to undertake contraction in
for eliminating global
this was vetoed by the
But, it may be asked, if the surplus country’s undertaking an expansion in domestic absorption brings such palpable benefits to its own population (assuming of course that this expansion takes the form of larger government expenditure financing transfer payments to the people at large), as well as to the rest of the world, then why does it not do so anyway, whether or not there is any compulsion on it for doing so, or whether any such compulsion is written into the international financial arrangements? And this is where we come to the crux of the issue.
A current account surplus means a build-up of claims on the rest of the world; it is an accretion of national power vis-a-vis other countries. On the other hand, an elimination of such a surplus by greater domestic absorption, through greater consumption by the country’s population, while it keeps capitalists’ profits unchanged (since a fiscal deficit of 20 for financing transfer payments to the people merely substitutes a current account surplus of 20), is disliked by them for a different reason, namely that any improvement in the welfare of the people, which includes the workers, increases over time the bargaining strength of the workers. Hence between holding increasing amounts of claims on other nations, and improving the conditions of the domestic working population, capitalists invariably prefer the former. This strategy, as we shall see, can, with justification, be called “neo-mercantilist”; but it is not necessarily expressive of bourgeois “nationalism” in today’s context, as mercantilism was generally considered to be.
writers who had preceded Adam Smith had advocated that a
country should always
try to run export surpluses. Such surpluses, they had argued,
brought gold into
the country, as the means of settlement; a persistent surplus
an accumulation of larger and larger amounts of gold, which
they saw as
constituting the wealth of a nation. The tendency of countries
in recent times
of preferring current account surpluses to an expansion of
via a better living standard for the working population, can
been criticised, not only by the
Thus it may appear that the European supra-nation is sacrificed for the sake of the “German nation”, and that the German people too are sacrificed for the “German nation”. But this is a mistaken impression because the “sacrifice” results not necessarily from any old-fashioned “nationalism” but from the very modus operandi of international finance capital, which everywhere creates divisions between the rich and the poor: between rich Germany and poor Europe, and between the corporate-financial elite in rich Germany and its working people. The fact that these divisions appear to take the hue of “nationalism” must not mislead anyone into ignoring the role of international finance capital in causing them.