Decrypting Development A perspective via Economic History For Sambhaavnaa, 2016 Prepared by Praveen Singh [email protected] What is an Economy? An economy is how a society organises itself to cater to the needs and betterment of its members. In other words, the economy is how any society implements its notion of human well-being, or a better life for all, i.e. Development It is more a set of relationships between people than a relationship between people and things as we often tend to assume
A framework for looking at an Economy Six questions, a principle and a report card ! Who owns what? Who does what? Who gets what? What is produced? What drives technological evolution, and how does it impact different groups in society? How is Nature seen and treated? and Can we discern some organising principle or the core motivation/purpose driving economic decisions?
And finally What is the outcome in terms of human well being? Structure of the presentation 1. 2. 3. 4. 5. 6. 7. Rudimentary Economy Village Economy Exchange, as an economic activity Capitalist Economy Socialist Experiments From Capitalism to Development Imagining a Post Capitalist Economy 1. Rudimentary Economy
Rudimentary Economy Definition: A community that has access to some resources and deploys the labour available within it to procure goods for its sustenance the economic decisions are solely based on internal factors and considerations Rudimentary Economy
Gatherers, and not really producers Workers less than total population Activity and goods sharing economy Beginning of division of labour Economy deeply embedded in or a derivative of, a sense of community 1. Who owns what? No other No need to own because its mostly gathering rather than production Hence, issue of ownership does not really arise 2. Who does what?
Most able bodied work There could be presence of a privileged subset of members Beginnings of division of labour Male v/s Female tasks Not completely devoid of issues of less dignified v/s more dignified work 3. Who gets what? Decided by Custom
A subset of people become the custodians of custom Rudimentary economies need not be paradises of sharing and caring: The worldview of the group impacts these decisions However, generally found to be very egalitarian societies Not much reason to maintain elaborate distinctions / hierarchies? 4. What is produced?
Food/Clothing/Shelter : basic necessities Generation of use value Gathering / assembling of natural produce for use Q: How is it decided as to how much to produce? Put another way, Is this a scarcity economy or an abundance economy? Demand drives production Cultural norms drive demand 5. How does production technology evolve? Very slow / gradual Need based. Serendipity. Cumulative knowledge
growth. No us v/s them, not much hierarchy and distinctions in society, no ownership hence impact of technological change unlikely to benefit some at the cost of others 6. How is Nature treated? Sacred / Revered / Feared Living very close to nature hence limits of nature understood, and respected Low level of technological knowledge hence ability to damage nature also very low Norms evolved and generally adhered to Small groups easy to monitor / check / punish Faith based societies more adherence?
7. The Organizing / Driving Principle Production for use Production largely based on capability, distribution largely based on need ! 8. The Report Card / Wellbeing Status (speculative) Standard of Living Equity, Justice, Solidarity Safety-Security (from fellow humans) Health Education (Inter-generational transfer of Wisdom, Skills) Sense of Community, Meaningful Participation Harmony/Balance with Nature Participatory Governance Time Availability / Time Use Psychological Wellbeing
Rudimentary Economy Points to Ponder Material abundance v/s Wellbeing (stability, safety, community, leisure, health)? Smaller scale, face to face interactions: so were they More in harmony with nature? More just / fair societies? What about relations with other tribes? Can we do economics without getting into human nature/ human needs?
2. Village Economy Village economy Settled stage of existence: a food-producing economy Ownership, especially of land emerges as a key feature Ownership => Settlement of Claims becomes a key issue
Use of tools, specialized professions: increases productivity and production: surplus Ownership and specialization leads to exchange as an important economic activity Emergence of state, urban centers Village economy Why does ownership evolve? Control over resources required to engage in production Time lag between deployment of labour and harvest: Control over resources enables claims
on produce The owner though is not always the producer Scarcity of valuable resource? Sense of social power/esteem? Point to ponder: Is ownership always an effect of scarcity, or can it also become a cause of scarcity? 1. Who owns what? Control over land is the central factor in a village economy Generally found to be unequally owned An important consequence therefore:
Need for a third party guarantee to settle claims - birth of the State 2. Who does what? Owners and non-owners: Two (or more) classes emerge And controllers of resources, and those engaged in production, are often different groups Defined duties and obligations to ensure fulfillment of different tasks deemed required by that society: reciprocity of unequal obligations
An economic hierarchy arises in society for the first time which mostly coincides with the social hierarchy 3. Who gets what? Who gets what is decided by who owns what rather than by who does what! To each according to his status, as ordained by custom A rentier class emerges: however, the appropriation of surplus by some classes is open and evident State extracted wealth from rural areas as most production still based in villages
4. What is produced? Primarily basic necessities - food / clothing / shelter : Generation of use value But specialization, and use of technology enables increase and variety in production: production of surplus Production of some non-essentials, durables also 5. How does Technology evolve?
Serendipity, human ingenuity, need/circumstance Adoption of new technology and its impacts likely to be determined by prevailing power and hierarchical relationships, norms Customs regulated production, distribution, consumption norms; Low interaction with, and limited trade possibilities with far away societies Thus drivers for innovation in the modern sense absent 6. How is Nature treated? Feared - Revered A good understanding of natural cycles, natural limits and the criticality of natural resources for human survival
Production techniques incorporate and evolve around the above understanding Customs, rituals etc to conserve nature; faith, command based societies therefore fair adherence to such norms State of technology such that large scale exploitation (destruction) not even possible Key transformation from a Rudimentary to a Village economy Private property unequal ownership of
natural resources Classes Surplus production Exchange of goods Surplus appropriation via exchange, custom Emergence of a Rentier class, i.e. people who live on unearned incomes New developments: 1. Rise of the state, intra-unit domination Emergence of urban settlements (possibly as seats of the state) mostly parasitic on the villages Intra-unit domination
Domination now not only within the village, but also between village and an outside entity Transfer of wealth within village regulated by custom, but State could extract arbitrarily New developments: 2. Exchange & Trade become important activities Within the village unit, two kinds of exchange C-C: exchange of goods often between two owners over time, some norms of exchange get set L-C: Labour in exchange for goods: not always
between equal parties; a source of appropriating surplus Across village units, beginning of trade Initially, only between far away locations Trade largely in non-essentials, luxury and precious items Village Economy: Roundup Economy more distinct compared to a rudimentary economy, though still circumscribed in an overall societal / customs framework Element of domination/subordination becomes more pronounced: Classes Reciprocity of unequal obligations Rise of state: intra unit domination
Village Economy: Issues to ponder Claim to produce based on ownership rather than work Ownership of natural endowments ? Classes emerge, especially rentier class : Cumulative impact on differential resource ownership, roles in society on trajectories of different classes over generations Emergence of the State - an outside and remote higher authority
Genesis of corruption? Scope for excessive exploitation? Decision making distanced from impact of decisions? Village Economy: Issues to ponder Stayed at low production and productivity for ages: Why? Role of tradition / command? No driver for innovation / productivity increase Non availability of concentrated energy sources like fossil fuels hence bound by natures cycles, human/
animal labour potential? Is this low productivity really a problem, or it is a projection by us super-consumers of the 20th/21st century? Extremely critical question, especially for people working in the domain of social change Why has settled society always had classes? Small communities: and yet not equal / just?? Is it because of unequal ownership? Is it the impact of higher authority under which they existed?
Are the above effects, and not causes? Is it about human needs: Greed? Power ? Status/ Recognition/Esteem? Can economics be studied independent of an understanding of human nature, our psychological needs? Village Economy The Report Card / Wellbeing Status (speculative) Standard of Living ? Equity, Justice, Solidarity Safety-Security (from fellow humans) Health Education (Inter-generational transfer of Wisdom, Skills) Sense of Community, Meaningful Participation Harmony/Balance with Nature
Participatory Governance ? Time Availability / Time Use Psychological Wellbeing GOOD MIXED POOR One of the key drivers of change from village economies to market/capitalist economies was the increase in Trade Since Trade involves Exchange, It is imporant for us to understand exchange Exchange: the beginnings
Begins as Barter C-C: quest for use value Between two owners both buyer as well as seller Theory might say they are entering into the exchange willingly hence cannot engage unless benefiting from the transaction: reality, however, can be different The owners need not have the same bargaining power / be equals Limitation: double coincidence of needs, terms of exchange : thus need for a medium of exchange arises
Exchange, mediated through money C-C to C-M-C: from an exchange between two users to buyers and sellers C-M-C changes to M-C-M : Facilitators of Exchange i.e. Traders emerge as a new group in society Exchange activity bursts: more goods, and more people get drawn into it: Commoditization
Quest for exchange value, as opposed to a quest for use value this happens because money is also a store of value Can M-C-M thus ever be gain-loss free? Information asymmetry starts playing a key role: trader has high incentive to maintain that Transition from Money as a facilitator of exchange to Money to make more money (Today we have moved to M-M: Financial Capitalism) Exchange, mediated through money All forms of exchange may co-exist at any point in an economy however, the difference in the motivation of the trader to engage in M-C-M transactions significantly alters the dynamics of the economy Wealth prior to emergence of money was in the form of physical categories now money
becomes a store of wealth: potentially limitless From quest of a different use value to a quest of accumulating exchange value : the organising principle of the economy begins to change Exchange: Impact on the Economy, Society Increase in production Increased specialization of producers
Possibility of accumulation leads to utilization of slack to cater to demand in neighboring economies Thus increase in productivity, and consequently in production: however, this also pulls everyone into the Market Economy Availability of goods via the market frees people from customary roles and obligations Enterprising people could make a fortune, success freed from societal bonds, accident of birth Increase in consumption: quantity and variety Newer, larger variety of Goods Produce to sell: ground for innovation, experimentation Exchange, due to above reasons, has also been seen as facilitating liberation Exchange: Impact on the Economy, Society
Makes the production process Exchange Value conscious What to produce earlier governed by nature and custom now increasingly responsive to calculus of costs and prices New range of choices and, compulsions open up for everyone Not everyone gains or can adjust easily Production becomes an activity that requires risk taking: not everyone might be equipped to deal with that
Add slide of Adam Smiths conception of gentle commerce and reality Exchange: Impact on settlement of claims Earlier societies: social / ethical considerations played an important role in determining settlement of claims In the regime of prices, everything including labor power gets commodified, and all claims increasingly get determined through the voluntary and free exchange process From a purely logical perspective, this appears far less arbitrary compared to previous methods: however, in reality the prices of various commodities are influenced by the prevailing distribution of ownership of resources
The doctrine of individual responsibility /equal opportunity takes birth Customs are replaced with contracts We move from a world of philosophical/ethical debates on critical economic matters to a world of logic and numbers As they say, we now know the price of everything but the value of nothing Impacts of Exchange: Emergence of the nation state Concept of ownership becomes sharper: strengthens
individualizing tendencies and breaks down community ownerships / relationships While communities and families beak down, ownership requires a guaranteeing social authority of a higher nature the State for instance, instead of the tribe or village this authority also required for ensuring contracts are carried out need for credible money, and other institutions also builds the ground for a more centralised, and often more distant and higher power Impacts of Exchange: Concentration of Economic Power, and its nexus with political power Traders of two kinds emerge
Those who engage in trade to make a living they provide a service of use value and are paid for that Those who engage in this activity to increase their surplus wealth The latter is the first category of people who specialize in accumulation of exchange value (money) Trade becomes the first legitimate source of money accumulation in history The merchants and rulers develop an alliance:
The rulers are always in need of money, and the traders are the ones who have plenty at their disposal These traders ask for favours in return, to enable their businesses to flourish With increasing trade, and merchants-money-markets assuming a more significant role in day to day life, there is a shift from traditional / command economies to market / capitalist economy Reasons Trade led to accumulation of money in a few hands These traders used this money to buy up means of production
Technological developments in production and transportation, fossil fuel discoveries led to new techniques of production and ability to reach far away lands Market for domestic goods abroad led to changes in organization of production (enclosure movements): consequently, the rise of the free laborer The free worker, who is no mans property, is also no mans obligation Rise of the Cash economy Market of Land, Labor, Capital developed The Age of Reason and correspondingly the acceptance of change as the normal thing in society? The Protestant Ethic ?
VERY IMPORTANT: Capitalism was not some natural progression as many histories claim The change to a market economy did not happen without extinction of customary rights, large scale dispossession, intense exploitation, the imposition of market imperatives and environmental destruction These processes extended their reach from the relations between exploited and exploiting classes to the relations between imperialist and subordinate countries These processes are repeating themselves even today wherever capitalism is making its inroads (e.g. Chattisgarh, Orissa or most of the rural hinterland in India)
Put a slide of examples first concrete to abstract (enclosure mvmt, early british factories, india, colonialism, etc) Capitalist production: How it works Capitalist starts with a fixed amount of money capital (M1) Buys machinery, raw material, and labour Uses a certain technology and organisational form to make production activity happen New commodity is produced; The Capitalist has the ownership of the produce because of having owned the means of production. The commodity produced needs to be sold in the market at a price M2 such that, M2 > M1. The process has yielded a profit of M2-M1 to the capitalist. This was the sole reason for his endeavour. Surplus value has automatically accrued to the capitalist. No need for coercive or overt means of appropriation! Start again at step with money capital M1 where M1 > M1; The augmented capital comes from the profit made in step 6.
1. 2. 3. 4. 5. 6. 7. 8. This augmentation of capital is not a matter of choice or individual greed of the capitalist: It is a survival compulsion in a system based on competition Depiction of a Capitalist Economy in mainstream economics theory: As a harmonious system of voluntary exchange between free individuals
Society comprises Resource Holders, Producers, Consumers Consumers express their preferences for the goods they desire; this translates to demand and corresponding price signals for these preferred objects Producers decide on this basis as to what is to be produced; but it is important to see that producers do this for their own self interest This decision signals to resource holders where they should be deploying their resources for highest returns again this segment also does it for its own self interest Thus, not only does a market economy treat the consumer as king, but it also ensures best outcomes for all players, and optimal allocation of all resources! Prices: A rational and objective guiding principle as opposed to the arbitrary or subjective guiding principles of past systems This is Adam Smiths invisible hand: that individuals acting in their self-interest also end up producing socially optimal
outcomes What is wrong/missing in this depiction? Production for all consumers, or production only for those with purchasing power? What underlying factors and historical circumstances drive the determination of prices? How come the ownership of produce automatically rests with the capitalist ? Thus this depiction mutes the question of ownership and control of resources in the economy which is the most important issue in any economy It also mutes the historical nature of circumstance What is wrong/missing in this depiction?
Producers respond not to consumers needs, but to purchasers needs and desires i.e. only to those with purchasing power Is trying to capture the purchasing power of the consumer and responding to their needs the same thing? Purchasing power depends on the how resources are owned and controlled in the system: the depiction is silent on this aspect All societies started their transition to capitalism with a highly iniquitous distribution of resources It is an economy of owners: only those who possess some resource are included
Prices that get established reflect the initial endowment of resources; and the optimal configuration that results is strongly dependent on this initial endowment of resources Devastating ramifications in the Indian context where large masses have nothing but unskilled labour as their only resource Special ownership right of the capitalist over the produce by virtue of ownership of means of production hidden in this depiction The market is thus not a neutral institution: it is a close ally of those with resource power Alternative Depiction of a Capitalist Economy: Is it more a system based on different kinds of ownership?
Traders accumulate money, and in their desire to further accumulate money, buy up resources deemed valuable in production (lands, tools etc) In the process, customary rights of many groups of people who worked the land denied; they are left with nothing but their labour power to sell The rise of the free worker: society had no claims on him, neither does it have any obligations towards him Thus a capitalist society comprises capitalists and workers who seem to have a reciprocal, but very unequal, need for each other Is it a harmonious system as depicted in the exchange depiction or is there an inherent conflict of interest, imbalance of power in the system?
Capitalist Economy: Key Features (or fault lines?) 1. Production is for profit, and not for use All production decisions governed by quest for profit The multi-dimensional nature of human needs/wellbeing goes for a toss Economic system decouples from real social needs What to produce, how much to produce, how to produce, where to produce: all decisions respond
solely to the metric of profit All capitalists essentially compete for the limited buying power pool in the population Production (GDP) was in itself an incomplete measure of wellbeing; now it has several sub-fractures 1. Capitalism and profit (contd.) Surplus accumulation has always existed in society. However, earlier the utilisation of the surplus was elsewhere In a Capitalist economy: Accumulation is the sole purpose of the system - and the utilization of the surplus is only to further more accumulation! Limitless potential to accumulate wealth as money as opposed to physical limits earlier when wealth
accumulated as physical wealth 2. Competition: an inherent and inescapable compulsion in the system No assurance of sale, thus all producers compete for survival Most innovation is to ensure ones survival rather than a response to actual customer needs Everyone (not just the capitalists) is directly or indirectly, subject to the demands of competition thereby pushed to increase productivity, accumulate, and exploit labor
However, this is projected as a virtue of the system For a certain class, it does end up being beneficial as new products and conveniences enter their lives everyday Pushes people into becoming the selfish, utility maximising individuals the theory conceptualises human as! The uncertainty brings in insecurity and instability Builds in speculation opportunities 2. Competition (contd.) Competition is said to be always good for the consumer
Is that really so, or does it lead to concentration and centralization of capital (ownership) Do the resulting monopolies or oligopolies always work for the consumers good? More importantly, are we just consumers or also employees, parents, people? Scale is one way to ensure survival and this leads to related issues of urbanisation, distance between producer and consumer, town-country divide, ecological impact 3. A Capitalist Economy needs to perpetually change Pressure of competition manifests as need to perpetually change
This constant change too is projected as a virtue : Dynamism / Creative Destruction Products Methods of production / locations of production Forced redundancy of capital equipment, producers, and workers, regions (cities-states), resources, and often leaves regions ecologically devastated Is it dynamic or unstable with built in insecurity? Planned, perceived obsolescence becomes an imperative
Efficient or abetting waste, irrational? 4. A Capitalist Economy needs to perpetually grow Deploy part of profit to retain profitability of previously deployed capital Forays into pre-capitalist economies for raw materials, markets Conquest, slave trade, Imperialism, War, Neo-colonialism, internal colonisation, using fronts like the white mans burden and now Remove Poverty via Development!
Also due to insatiable need for money/power, shareholder pressure, systemic insecurity etc. Capitalism can sell everything; but it cant sell less Obliterates possibility of socialism in one country Propels Consumerism: More and more goods; More new goods 5. Need to perpetually grow leads to rampage of Nature Nature reduced to an object of utility for mankind
None of the predecessor economies had this feature It is a systemic feature: not solvable by individuals becoming green In the short run, this catastrophe is also milked by the system: leading to more types of needs and products to be produced - Techno optimism, and Green Solutions! Demand-Supply based price regime very poor at signaling problems that have deferred, distant impacts Leads to Externalization of Costs Long production chains benefit and costs to different, distant parties Collusion with governments to get favourable regulation Polities compete to get investment: Race to the bottom 6. Need to perpetually grow deploys
advertising and debt as the chief tools! Advertising starts affecting every aspect of our life Buy now, pay later Creation of a cultured being who needs more things Self image driven by the products we use No one ever has enough An indebted society Alienation of the individual, because no communal purpose to life, production etc man reduced to a being who should
fend for ones bodily needs Our worldview, our values have been held to ransom by the internal laws of an economic system!!! Is the economy a means to our ends, or are we existing for the economy? 7. Hailed as efficient, but the system is a far from it in many ways Production is based on expectations, in an environment of competition for survival Quest for a limited buying power pool by all capitalists
Immense scope for mismatch between production and demand Periodic crisis: booms and busts Speculation opportunities which too are touted as opportunities that enhance efficiency/stability Possibility of potential loss factored into prices Capitalists often destroy produce to maintain profitable prices in markets These aspects sometimes combine with monetary and financial aspects to magnify crisis Capitalists v/s Wage Labour: conflicting system or a harmonious system Reciprocal, but unequal relationship between the two Technological Innovations and the quest for profit in capitalism work towards making labour redundant: for those who own only labour power, this is a fatal consequence
8. Money, Credit, and intermediaries like Banks become essential Credit is essential for capitalism to flourish Lending to ensure buying Individuals over time give way to institutions like banks Money, and money substitutes come about which become a means for unearned/extractive incomes for bankers (credit creators) Financial Innovations to stabilise the uncertainties in reality end up making the system even more complex and unstable
Money creation and maintaining its integrity becomes a key requirement All this leads up to Financial Capitalism Capitalism in its most extractive and unstable form! 9. Capitalism talks of laissez faire, but couldnt survive a day without State support Property rights need to backed by state often by force and other extreme measures Legislative measures to define and defend contracts; Judicial interventions Money creation, maintaining integrity of money Some public goods would always need to be provided by state Regulating externalities, actions that have future
consequences The freedom and choices of the market do not come for free (all costs social, ecological, resource etc are paid by someone) thus a society that is conscious of its priorities would do well to regulate the scope of markets in order to ensure its priorities being met 9. Capitalism and the State (contd.) It is because the State has an essential and crucial role in a capitalist economy that there is an attempt by corporations to capture state power A market economy (unlike the pre-market economies) has two distinct loci of authority: the economy and the state
In pre-market economies, the political authority dominated / controlled / superseded the economic realm In a capitalist economy, the economic authority tries to become the sole authority by a capture of the state! State in a capitalist economy has lost direct access to the surplus Can capitalism be anything but crony? becomes an important question to ask 10. Do all factors get rewarded appropriately for their contribution in capitalism, or or does the process of accumulation of surplus become covert, and get legitimised?
Capitalist appears to be a partner in production Transfer of value in value form as opposed to physical form Ownership of produce automatically goes to owner of means of production; thus the surplus that got generated appropriated by the capitalist in a very smooth, unnoticed manner: no need for coercive methods of the pre-capitalist economies Some other points worth pondering
There is a belief that Capitalists those who have worked hard in the past and saved money : how true is this? Why do we have such high military expenditure in the world? The slogan of individual freedom: is it a necessary propaganda of the capitalist economy or does this slogan have any real content / basis? Democracy misused via Capitalism? One man one vote mutated to one dollar one vote? Accumulation by dispossession, internal colonies Is self interest really transmuting into social good? Or do we need a visible hand ? Capitalist Economy The reader can try and answer these questions now
Who owns what? Who does what? What is produced? (Why?) Who gets what? What determines the choice of technology in production processes? How is Nature viewed/treated? What is the organising principle governing a capitalist economy? What is a Capitalist Economy? Most countries of the world today have systems that are essentially capitalist economies India too has a predominantly capitalistic economy
Private ownership of means of production: private property rights protected by the state Markets and the prices determined in markets are the mechanism for economic transactions/decision making All production is for profit Most workers are wage/salary labourers [ i.e. in order to gain access to means of production - without which no one can work they have to contact with owners of means of production] It is imperative for any socio-political activist to understand capitalism, esp. in its current global form Q1: Who owns what?
Wealth ownership in a society is a good proxy for the ownership of means of production Top decile owns nearly 3/4th of all wealth This concentration only increases with time in any capitalist economy Implication: Ownership over means of livelihood is the foundational source of power and inequality in society Q2: Who does what? It depends on factors of production (land, capital, labour)
you bring to the market Once there is an extremely skewed ownership of the means of production (i.e., land and capital), most others have nothing but their labor (often unskilled) to offer in the market No wonder in India, we have 92% jobs in the unorganised sector! 1%, 7%, 93%: Owners, Organised, Unorganised As we saw earlier, unorganised sector job are mostly Very low paying Often seasonal and non-permanent With minimal facilities / benefits Tough jobs, and with no dignity either! Q3: Who gets what? India: 93% jobs in the unorganized sector low paying and normally manually strenuous India: income distribution corroborates the inequality
80% of Indian households (avg size 5-6) live on less than Rs 12500 per month The NCEUS report in 2007 said that 77% Indians live on less than Rs 20 per day (2004-05 data) When means of production are owned by a few, there is a huge workforce with very little bargaining power, and nothing but its labour to sell The power equation is clear: the outcomes foregone Further, the dynamics of a capitalist system are such that over time, the rich get richer, and the poor poorer So this exploitation and rising inequality has an intergenerational persistence as opposed to the ideology of
equal opportunities and self made men Q3: Who gets what: fault lines The market claims to reward each factor of production, i.e., land, labour, capital according to its contribution Once capital is accumulated, it yields perpetuities: labour however has to work every time Big difference in desperation of labour v/s that of machinery owner to get into a contact hence huge difference in bargaining power Also, element of relative numbers of the two parties Question of where did the additional value in the finished product greater than the value of the inputs come from, and how should it be distributed Possibilities for Undeserved Income
Uncertainty in system leads to opportunities for speculation, and income via those: how deserved are those incomes and does this activity necessarily have a positive social contribution Ownership of common heritage like natural resources by a few Information asymmetries exploited by intermediaries Q4: What is produced? In a capitalist system, what is produced depends on what will get sold Or in other words, production is governed not by the needs of the citizens but by the desires of those citizens who have purchasing power Yes, the market confers freedom of choice but only to a
chosen few This is evident if one looks at ads today In a country that lacks toilets in nearly half its households, we are selling 2.5 lakh cars a month Most of our big cities have about 50% people living in slum-like housing and we only have high end housing being constructed and sold Q5: How is Nature treated? Land degraded, Water tables receding water crisis and disputes across cities, states, people, Air: amongst the most polluted in the world
New and incurable diseases from fevers to cancer Capitalism needs to expand for survival; it needs cheaper raw material, new markets, cheaper manpower: all this is cannibalistic on humans as well as nature It is also predatory on other kinds of economies: colonialism and internal colonies Prices are a very poor signaling mechanism for anything whose consequences are far away into the future or geographically far Q6: What drives all economic decisions: human well-being or profit?
In a capitalistic system, each producer is competing with all others to sell his/her goods While this competition is touted to be good for the consumer, it builds an inherent uncertainty, insecurity and instability in the system This uncertainty/insecurity compels all participants to look out for their interests only Selfish and unethical behavior becomes a necessity, thus ubiquitous Growth is a survival compulsion of the system which leads to search for cheaper raw materials and labour, new markets Conquest, colonialism, imperialism Rampage of Nature It builds in opportunities for speculation
Q6: What drives all economic decisions: human well-being or profit? Cost cutting, seeking better bargains is another compulsion to survive, This leads to Exploitation of labour, redundancy of labour Alienating and monotonous work Advertising and debt to sell products Government and policy capture by corporates to
ensure profitability/survival, at the cost of peoples well-being All this is further compounded in a global capitalist system The system, on the whole, brings out the worst in human nature Question that naturally ought to be asked: Can Capitalism and human well-being co-exist? Can production be governed solely by profit Competition more ills than good
Touted to be good for consumer : but consumer is also a citizen, a family member, needs a job, fresh air and water, equality, justice, dignity, self-fulfillment Forced Innovation: Planned Obsolescence and Perceived obsolescence, and many such irrationalities Is infinite growth possible on a finite planet? Can we put a price to everything? Can natural resources be unequally privately owned? Exploitation of labour, redundancy of labour Can it avoid having alienating and monotonous work Driving humaneness out of humans? Pre-market v/s Capitalist Economies Pre-Market Economies
Stability of organisational pattern Stability of Performance Fairly steady production of a few standard goods Production processes remain invariant for long periods of time Thrust is on production for use Customs and other extraeconomic considerations govern functioning: depicted by opponents as subjective and arbitrary Low to no environmental damage
Inequality and injustice Capitalist Economy Very dynamic Prone to instability, crisis, uncertainty Increase in quantity and variety of goods produced Production processes change frequently Production for sale/profit
Exchange, Markets and Prices have a key role to play in its functioning: depicted by proponents as rational and objective Severe environmental damage Inequality and injustice Capitalism: An assessment POSITIVES More production Variety of products Increase in physical capital Increasing technological innovation, increasing productivity Promise of enlarging its circle of beneficiaries Promise of individual
can shape his/her destiny NEGATIVES Works only for a few Over time, increasing inequality: Crime, War Ecological Catastrophe: externalises costs Unstable, adds to insecurity in various ways Meaningless and alienating work The end of Community Manufactures consent, opinions, and worldviews that are life-degrading Why is the market ideology so prevalent?
Market ideology: the view that an economy in which decisions made on basis of signals provided by unhindered functioning of markets is the most superior form of economic organization Roots in the rise of merchant class in Europe - nouveau riche trying to get social prestige: sought legitimacy via a doctrine of trade being good for making a nation wealthy (the mercantilist view) Adam Smith pointed the fallacies in this view but legitimized exchange, markets and self-interest as being powerful motors for human good by establishing that production and productivity would grow if markets were permitted a full play. This was later strengthened by rational / mathematical models in economics in the late 19th century, and further in mid-20th century [Leon Walras, Arrow and Debreau) Most economists today accept the conclusions based on the chain of reasoning in the above treatments without examining the basic premises
Capitalism is seen as equivalent of a market economy, hence virtues of market are transplanted on capitalism It is not being said that exchange, money, markets do not have their positives : they certainly do But these positives manifest only if all of the above are regulated and subordinated to larger societal values and goals and those instruments/institutions be designed to keep their potential maleffects in check The other important point is that assumptions of mainstream theory do not take into account many factors, thereby not bringing out the real causes of the problems today The lacuna is that the models that show their efficacy in mainstream economics today have builtin assumptions that do not match reality; and most proponents of these models are consciously or unconsciously overlooking this catastrophic error
Some insightful excerpts about Capitalism Market Society and the Profit Motive 1. Did the market society invent the profit motive? 2. Did it intensity it? 3. Certainly not. Maybe. Maybe not. What did it do then?
It made a certain form of behaviour necessary and ubiquitous throughout society the drive to maximize income, to maximize profit Capitalism and Greed Although men may have felt acquisitive during the middle ages and antiquity, they did not enter into market transactions for the basic economic activities of their livelihoods. When for instance a peasant sold a few eggs at the town market, rarely was the transaction a matter of overriding importance for his continuing existence. Market Transactions in a fundamentally non-market society were a subsidiary activity, a means of supplementing a livelihood that, however sparse, was largely independent of buying and selling. With the monetisation of land, labour, and capital, however, transactions became universal and critical activities. Now everything was for sale, and transactions were anything but subsidiary to existence itself. To a man that sold his labor on a market, in a society that assumed no responsibility for his upkeep, the price at which he concluded the bargain was all important. So it was for the landlord and the budding capitalist. For each of these, a good bargain could spell riches, and a bad one, ruin. The pattern of economic maximization was generalized throughout society and given
an inherent urgency that made it a powerful force shaping human behaviour. The drive to maximise income became a new mode of social coordination and control. As part of this process of change, we find the emergence of the profit motive at all levels of society, not as an acquisitive drive (which may have existed for centuries), but as the pervasive necessity for all people in a monetized society to strive for higher incomes for economic survival. Quoted from Robert Heilbroner, The Making of Economic Society On Capitalism It is important to realise that a capitalism is not a natural and inevitable consequence of human nature. It is a recent and localised product of very specific historical circumstances. (England 14th 17th century) Its universal presence today is also not due to some conformity to human nature but due to its specific internal
laws of motion. The change to a market economy did not happen without large scale dispossession, extinction of customary rights, intense exploitation, the imposition of market imperatives and environmental destruction. These processes extended their reach from the relations between exploited and exploiting classes to the relations between imperialist and subordinate countries. The Origin of Capitalism, Ellen Meiksins Wood On Capitalism Once market imperatives set the terms for social reproduction, all economic actors both appropriators and producers, even if they remain in outright ownership of means of production are subject to the demands of competition, increasing productivity, capital accumulation, and the intense exploitation of labor.
There is, in general, great disparity between the productive capacities of capitalism, and the quality of life it delivers. The Origin of Capitalism, Ellen Meiksins Wood, 5. Socialist Economy Socialism emerged due to the barbaric impacts of Capitalism Capitalist Economy offered large increases in production and productivity, but worked primarily for those who own the non-human resources of production Systemic tendency to exploit labour, make labour redundant Socialist experiments sought to inherit the high productivity of industrial means, but also sought to bring
it under social control, so as to provide for all Starting from the Russian revolution in 1917, by the late 70s, almost 1/3rd of humanity was under socialist regimes of different kinds USSR, Eastern Europe, China, N Korea, Vietnam, Cuba etc And by end of 1980s almost all of them collapsed/changed course significantly! Socialism Pre-dates Marx, but most actual experiments inspired by works of Marx However, in most places it was established in absence of the pre-requisites stated by Marx
Developed Capitalist Economy i.e. fully realized production potential Socialization opportunities to workers thru working in large factories Spread of democratic spirit, participatory structures in society Key features of the socialist experiments Inclusive: took responsibility for the material provisioning for ALL Social control of means of production (abolition of private ownership) in different formulations Production and distribution under social direction: What to produce question answered differently from the metric of
profit Capitalism in theory would say: whatever the consumer desires but we know what all is hidden in that answer Production genuinely responded to social needs the proof of this was most of the socialist countries delivered very well on education, health, housing etc. Not just social control of non-human resources but also tremendous mobilisation of human potential including women Key features of the socialist experiments (contd.)
Substantial increase in production and productive capacities in almost all socialist countries in initial years disproving capitalist hypothesis of poor economies cannot step up production Interpretation of basic needs not just as food, clothing, shelter but also education and health: with high achievement on all these counts Good record on Capital augmentation as well Reduced inequalities by eliminating property incomes and established greater sense of equality amongst its members Encountered problems in operationalising the above too many of which were not easy to overcome Key features of the socialist experiments (contd.) Nature of consumption
Absence of variety and abundance of consumer goods as seen in capitalist economies Denying abundance-variety to free resources to provide for more important social needs of all Also because Socialist experiments were tried in countries at early stages of capitalism, need to balance consumption and capital development until production constraints overcome Not a military barrack kind of existence: consumer goods commoditized and purchased through incomes earned by work
Earning on basis of work, but provisions by state for those who cant work old, infirm, children Egalitarian not in the sense of equal distribution of income as much as equal opportunity for all Queues were a phenomena: but no queues in capitalist economies more because of lack of buying power The Socialist Paradigm Initially: From each according to his capacity, to each according to his work Finally: From each according to his capacity, to each according to his needs Socialist Economy: Very significant role of Planning
Its orchestration is thus a very difficult and complex task What and how much to produce Involves political, technological, geographical, social and economic considerations Distribution needs to be inclusive, and yet fairness and incentives have to be present High degree of coordination required between various administrative levels and production units as market clearing is based more on quantity adjustment rather than price adjustment (as in a capitalist economy) Need to constantly evaluate and sometimes evolve new
ways/institutions A comparison In a capitalist economy, its the price signals in the market (and the related profit calculus) that offer a single deciding principle There is no such single compass in a socialist economy nor would searching for it be the best way of understanding a socialist economy The Socialist Experiments: A few examples Each experiment was different, responding
to its own circumstances and times, and changing its procedures and processes over time USSR The first experiment born during the WWI in a largely agrarian, autocratic country Circumstance of civil war came alongside Very early phase 1918-1921 State used compulsory procurement esp of food-grains to feed cities, army, govt employees NEP 1921-28: restored market relationship between agriculture and
industry; only a portion of surplus was taken as levy from farmers, incentivizing them to produce more; denationalization of small industrial enterprises (except fuel and metals) into autonomous cooperatives and encouraged to operate along commercial lines; banks revived; private trade too was permitted and picked up rapidly Agricultural production did well, industry did not It was deemed that rapid growth of industry is critical for a socialist economy USSR 1928 onwards Five Year Plans and all agri land taken over
and by state and organised as large cooperatives much force and coercion used causing significant human suffering and loss of lives Giant mechanised grain factories replaced wiped out centuries old social structure of independent peasants in the rural areas Industry also grew rapidly, esp heavy industry The whole economy became one giant factory completely under the control of the State to be managed under one unified plan Drawing up such a plan is in the realm of the possible but coordinating and managing the implementation became difficult and complex The reconciliation of centralized planning and decentralized implementation became the key vexing that was never fully resolved this is not to say there were no answers at all Yugoslavia
Social ownership does not necessarily mean state ownership: as that becomes state exploitation instead of private exploitation hence broke from the USSR model in early 50s Encouraged worker owned enterprises cooperatives which would take al decisions of investment, production, distribution De-collectivised farms and encouraged independent peasant farming Thus a far more decentralised model that used the market and price formation in markets as the mode also called market socialism However, the challenge was how to coordinate the multiple independent decisions towards a social plan for the economy as a whole: State intervened via directives and guidance, and decisions were not solely in response to market signals Yugoslavia
However, market socialism had its own problems Agriculture did not do well, and large amount of rural labour migrated to cities creating its concomitant problems Unlike other socialist countries, Yugoslavia did not offer assured employment to all - Unemployment became one of the big worries favourable migration possibilities to other parts of Europe helped prevent an explosive situation Price fluctuations, inflation were common, affecting those with low earnings and trade with other countries (BoP crisis) Larger labour associations initiated to solve some issues but inter-enterprise solidarity was difficult to build
However, Yugoslavia did not resort to a centralised model/state capitalism; tried various measures with some successes and some failures Its contribution has been to provide an experiment of workers participative economy which had significant achievements in terms of material provisioning for its people China 1st non-European country to adopt socialism in 49 Unlike Lenin (who came to power somewhat unexpectedly), Mao came to power after a protracted civil war, and hence had much more popular support than Lenin
the first to try it mainly with the support of the peasantry in one of the poorest countries in the world at that time The civil war drove out many landlords and industrial capitalists to Taiwan and HongKong Before the war, the Chinese had well developed commerce and a sophisticated monetary system They also had a relatively high degree of literacy and considerable experience of complex social organisation However, some disadvantages too World war and civil war had led to severe strains on economy Cold War was on internationally US was out to curb communism
Thus initially China struck to the USSR and its model China However, Mao soon realised that the capital intensive models of USSR, and bureaucratic procedures would not work for China whose central problem was utilisation of labour New strategy in 1956 (The Great Leap) Avoid centralisation and harsh bureaucracy
Use the Market principle Aim at local self-sufficiency Peasants organised as cooperatives. A collective of 200 odd households comprised brigades of about 20-30 households each. These brigades were the decisions making units on production, and distribution based on work points. The collective had the rihg to redistribute some shares to less productive brigades By 1957, some 76,000 collectives. These were re-grouped into 26,000 peoples communes which assumed administrative responsibilities also (and included townships) Commune had small scale industry, education, health under its domain. The Commune thus became the basic unit of decentralized administration and self sufficiency although not all communes achieved it China
Communes were successful in mobilising immense labour power and also built up a lot of capital esp in rural areas like irrigation projects etc. Communes brought together agriculture-industryeducation-commerce to eliminate distinction between manual and mental labour, town and country to be the tool of Chinas great socialist transformation The expectation was that social mobilisation along with the correct ideological values would ensure desirable production, effective incentives, appropriate distribution, the right use of local resources and powers, and adequate overall control: this was to be Chinas decentralised and democratic socialist setup! Model carried at times to extremes backyard iron and steel manufacturing complete disregard of technical considerations!! But largely only small and traditional industries were localised China
The Commune system threw up its problems too: Work point principle worked well with agriculture, but not easy to work with industry, admin, capital works Free provisions to members who could not fend for themselves along with team work created problems of free-riding; linking work to remuneration and incentives became a vexing issue Inter-commune disparities due to geo-physical differences also became a critical issue esp in the agri famine of 1959-61, this issue hit in cruelly as in absence of proper arrangements for transferring surplus, almost 15mn lives were lost! Thus rethinking on all this intiated in the early 60s communes were asked to focus only on agri; households were returned their small private plots to produce something for themselves But major changes only came after Maos death in 1976 China (Reforms after Mao Zedong)
Deng felt that the major task before the Chinese economy was to increase productivity all round and modernise the economy While having an overall socialist orientation material incentives to be substantially encouraged market relationships to be re-established Inequalities in income to be tolerated Chinese economy to be opened up to international influence and interaction To become rich is great was the new slogan China (Reforms after Mao Zedong)
Agri encouraged to diversify into piggery-poultry etc.; households permitted to buy own machinery all this led to enormous increase and diversification in rural output Small industries located in rural areas with huge encouragement to employ rural women Foreign investment encouraged; so was tourism and hospitality Consequently, the Chinese economy truly boomed by the mid 80s, not to mention its constant move ahead over the next two decades! But new problems emerged too: inflation, and instability of prices; inequality increased; unemployment, corruption and social unrest; environmental havoc and health deterioration However, problem always crop up in socialist economies. Chinas record in delivering the five guarantees of food, clothing, fuel, education, health care to over a billion people has been creditable
The Socialist Experiments Challenges / Shortcomings / Lessons Centralisation: Often required due to circumstance of birth but proves fatal in the long run Opposition from within, and threat from foreign regimes Need to achive quick economic results, esp in precapitalist kind of conditions so a centralised command structure very effective in beginning To link different regions of such economies Theoretical understanding (biases?) of socialist thinking: anti market, anti exchange?
One giant economic factory with top down line of control Economic centralisation leads to a corresponding view of polity too: one centralised communist party controls everything Party comes with a mission it starts getting interpreted as a right to rule Difficult to differentiate between economy and polity Nationalisation of enterprises matched with bureaucratic administration
Such a structure has a tendency to perpetuate and intensify itself Rule based system: once rules codified, they are difficult to delete; only get added to System become rigid over time; and further, secrecy gets added to inflexiblity In a centralised system, planning at top, which is implemented by those at the bottom A sense of us v/s them emerges with time: state exploitation? Attempt to mitigate via material incentives and
differential payments: but no matching consumer goods to be bought with higher wages; and comparisons with neighbouring capialist economies of the west begins in people It precludes any participatory form of economy, polity While Socialist economies allowed significant worker participation on the work-floor, they were also told that socialism is not just an economic program but an attempt to reconstruct society as a whole
However, there were no effective channels for such a participation In fact, the institutions actively hindered participation: Party secrecy centralisation All dissent seen as opposition and systematically suppressed All organisations outside political realm also kept under close surveillance Environmental hostilities (cold war) as much as internal failings contributed to this Organised uprising were a common feature of the regimes Many inhabitants had the view that socialism stands before us not as a free community, but as a totalitarian state Abolition of private means of production regime: but how is this to be done?
Role of State is extremely critical and important but how much, what institutions etc. Simple state ownership is not the answer Its not the legal ownership that matters as much as the entire organisation of work, distribution, participation etc How to prevent it from being opressive, dictatorial and suppresive of all dissent? International Conditions and their impact Procurement and allocation of goods led to economic activities coming largely under an
administrative bureaucracy This was more a result of historical circumstance rather than a canonical feature However, the inability to replace these over time led to large, inflexible and often corrupt bureaucracies which were one of the key reasons for the downfall of these regimes The Socialist Experiments Key Takeaway The significance of the socialist experiments is not that they have displaced capitalism, but the fact that they demonstrated the possibility of a postcapitalist economic reality
From Capitalism to Development The term itself: development This term development, and the new formulation, arose after World War II, but the essential idea was older Roots in European enlightenments ideas of progress, of evolution of societies, of industrial modernity being the state for all nations to attain In action via Colonialism, white mans burden
This was also the time when colonization was coming to an end across the world The term is traced to Point 4 of US President Trumans inaugural address in 1949 The term itself: development The term gives an impression of something very natural, very desirable, positive, and consequently very difficult to speak against a biological metaphor which implies
there are well accepted laws according to which all societies would and should transform what is true for one society must necessarily be true of another it naturalises history depicts development a positive, necessary and inevitable phenomenon each future stage is a better stage than the previous; there is one final stage towards which all must aim/proceed The term itself: development The term also embodies sufficient ambiguity such that a wide range of activities can be undertaken in its name E.g., it can be used to defend free trade or a selfreliance strategy; loans and aid, and also investment for profit; It can be used to build a dam, or call it antipeople; can be used to defend public provision of education and health, or private provisioning of the
same! Ruse to continue/ legitimise empire as colonialism collapsed in the 1930s-40s? The manifest reality Development, as it has manifested over the last 60 years is not a neutral or natural process, not a universal path to progress. It is a specific and highly unequal relationship between countries, based on the power of certain countries to define problems and articulate solutions It has yielded a highly technocratic approach adopted by the World Bank-IMF, US/Developed nations post the 2ndWW
It has taken a very ahistorical view of the causes of development and underdevelopment (i.e. as if the underdeveloped nations are so because of some inadequacy/lag of their own making) and the ecological fallacy that all nations can live and consume like the developed nations and in that sense is also Economic growth is seen as key to development The nation-state is assumed to be the unit of policy-making and of observable outcome Rests on a linear progressivist view of social change: all societies will become like the advanced capitalist countries. Why formulation in President Trumans Point 4 was crucial? The term underdeveloped was used almost for the first time in an important address/document. It implied
Idea of change in the direction of a final state The possibility of bringing about such change It took a transitive meaning, i.e., an action performed by one agent upon another, which affected the other, and this also implied a principle of social organisation, Underdevelopment became a naturally occurring, i.e., seemingly causeless state of things Why formulation in President Trumans Point 4 was crucial? (contd.) It was not just an insignificant terminological change a whole new meaning and context was implied
Earlier coloniser and colonised were in a relation of opposition, in a relation of power and hierarchy Now every state was equal (de jure if not de facto) Underdeveloped and Developed were members of one family - and differed only relatively: they were not opposites It was only a matter of time, and the gap could be bridged - as long as the underdeveloped country played the same game Why formulation in President Trumans Point 4 was crucial? (contd.) In this comparison, each nation was considered for itself: its development was very largely an internal, selfgenerated, self dynamising phenomenon, even if it could be assisted from outside The historical conditions that would explain the lead of
some countries over others could not enter into the argument, since laws of development are the same for all, and win over with iron necessity Whatever happened in Europe in the 18th, 19th century must therefore be reproduced elsewhere, and everywhere In one shot, it swept away the effects of conquest, colonisation, slave trade, de-industrialisation of crafts (esp in India), the breaking of social structures, and so on Why formulation in President Trumans Point 4 was crucial? (contd.) It also presents things as if the presence of already developed countries and their associated context and
moves do not pose any problems for the developing countries to operate And most importantly, the world was not conceived as a structure in which each element depends upon the others, but as a collection of formally independent nations Notice here the ideology of equal opportunities, and the self made man. Through hard work and perseverance, a worker can become the boss, the lift boy the director, and the movie actor the head of state! The beginnings of US hegemony USA emerged from the war a much more powerful country
Its GDP doubled between 1941-45; real wages rose; There was a cornucopia of consumer goods Nearly 50% of the worlds production capacity in 1945 This new way of dividing the world was remarkably attuned to USAs interests The whole of mankind was now included in the development paradigm, its legitimacy was naturalised, and thus made much less open the question of political intrigues of some countries/international organizations A new model of non-colonial imperialism could now be deployed The beginnings of US hegemony
Countries now split as developed and underdeveloped This justified the possibility, rather, necessity of, interventions on grounds that one cannot remain passive when one is confronted with extreme hunger, despair, and disease Underdevelopment existed without a cause, and all one needed to do for development was to mobilize resources: And not as in colonialism by oppressive means, but by an international collective effort And in this making available of resources as an added bonus, almost everyone emerged richer and more prosperous! Enter GDP: An uncontestable marker! The US proposal also claimed to be beyond the ideologies of capitalism and communism. The key to prosperity was increased production not endless debates about the organisation of society, ownership of
the means of production, role of state etc. Values of democracy were touted which sounded good to newly independent nations And it imposed a new objective standard (by which the US stood at the top) that of GDP Notions of civilisations being higher or lower were contentious, and placed West in confrontation with others Objective national statistics was the perfect remedy The proposed solution was truly hegemonic because it appeared to be not only the best, but the only possible one! The power of discourse Power does not necessarily involve changing reality (that anyway happens only slowly) but inserting it into a different problematic, proposing a new interpretation to kindle the illusion of change
Power always belongs to the one who can make himself the master of words Although it primarily served the interests of the worlds most powerful nations, it made out that it had only the common good at heart, and presented development as a set of technical measures outside the realm of political debate Utilisation of scientific knowledge, growth of productivity, expansion of international trade: what is there to question in all this! What followed therefore By defining underdevelopment as a lack, rather than the result of historical circumstances, and by treating the underdeveloped simply as poor, without seeking the reasons for their destitution, developmental policy made growth and aid (conceived in technological, quantitative terms)
as the only possible answer What followed therefore From 1949 onwards, 2 bn inhabitants - of a total of 2.5 bn on the planet - found themselves changing their name, being officially regarded as they appeared in the eyes of some others, and were called upon to deepen their Westernisation by repudiating their own values No longer African, Asian, Latin American (let alone Mongol, Mexican, Indian or Bambara, Tamilian, Berber) they were simply called underdeveloped This new definition was accepted by those who headed these newly independent states!
What followed therefore Thus apart from the interests of the rich countries, this juncture of history was also marked by a failure of imagination on part of the newly independent countries. Sadly, this failure of imagination continues till date. What followed therefore In getting political independence, these 2bn people across over a hundred nations, forfeited their identity and their economic autonomy, and were now pushed to travel a developmental path mapped out for them by others. Raising GDP became the number one imperative! The Journey of Development over the last 70 odd years
(1945 2015) The journey of Development To address critiques and dissent, To continue to uphold the front of common good, To adapt to changing economic circumstances and needs of the industrialized nations, Development has had to continuously alter its key formulations, ingredients and methods One way to look at its 70 year history (1945-2015) is to classify it across three eras (classification by Karen Coelho) 1. Orthodox era (1940s, 50s) 2. 3.
Heterodox era (1950s 70s) Neoliberal Era (1980 onwards) The Orthodox era (1940s, 50s) Named so because countries (esp. the Latin American countries) followed the prescribed approach to developing i.e. trying to integrate themselves with the world system by exporting primary products, importing industrial products, accepting aid and expertise etc Key theoretical underpinning of this era was the Modernization theory (i.e. economic growth leads to social progress and structural change in society, economy) Emphasized international trade based on comparative advantage, aid and technical
assistance Policy climate: Central role of the nation-state in development planning Dominated by USA, Bretton Woods institutions The shift from Orthodox to Heterodox era In practice, poverty persisted, and newer problems arose for the developing countries Practitioners realized that economic growth does not automatically lead to social change or social welfare, and thus could not be the only target It became evident that a nation-state could not be seen in isolation but exists within a global context of evolving capitalism
Realised that the conditions under which the developed countries developed do not exist anymore for the developing countries Saw that within a country, different social groups have different and conflicting interests Exposed mainstream development economics, for being individual-oriented, reductionist, ahistorical, and static The shift from Orthodox to Heterodox era The Dependency and World-System critiques Unmasking of the idea that North-South interaction was naturally beneficial or that development was an act of generosity of the rich towards poor
Latin American structuralist critique of Ricardian trade theory: outlined the notion of a world capitalist system World is structured as a center and a periphery, and trade relations systematically disadvantage the latter over time The center produced manufactured goods and the periphery primary goods: over time, the terms of trade, i.e. relative prices decline for primary goods Thus this system essentially transfers value from the underdeveloped to the developed it cannot be seen as just a capitalist mode of production in independent nations Inability of the periphery to develop a capital goods sector Mooted conception of Import Substituting Industrialisation (ISI) The shift from Orthodox to Heterodox era The Dependency and World-System critiques In a similar vein, the neo-Marxist Dependency school critique showed that
Dependency (definition, Theotonio Dos Santos, "The Structure of Dependence," ) a historical condition which shapes a certain structure of the world economy such that it favors some countries to the detriment of others and limits the development possibilities of the subordinate economies a situation in which the economy of a certain group of countries is conditioned by the development and expansion of another economy, to which their own is subjected. Underdevelopment cannot be explained by stage theory, ie. underdeveloped countries are not like developed countries at an earlier stage, and will not simply catch up with advanced capitalist countries through following their example or through big push measures.
Underdevelopment is an integral part of the operation of the world system, and is the result of historical processes of integration of colonized economies into the world capitalist system on unequal The shift from Orthodox to Heterodox era The Dependency and World-System critiques Dependency school critique contd. Problems of internal social structure seen as responsible for problems of underdevelopment. Unequal land distribution, lack of credit for peasants, and poor health care services limited possibilities for improvement of productivity. Imperialism had a vested interest in keeping large sectors of the population marginalized, to create a reserve army of the unemployed" in the periphery, which guaranteed super-profits. Interests of upper classes of developing countries also aligned with interests of
developed countries Solutions to underdevelopment had to be political rather than simply economic, technological or behavioral. The distribution of power and resources had to be changed The shift from Orthodox to Heterodox era The Dependency and World-System critiques Dependency school critique contd. Dependency theorists believed a clear "national" economic interest should be articulated for each country. This national interest can only be satisfied by addressing the needs of the poor within a society, rather than through the satisfaction of corporate or governmental needs.
The diversion of resources over time is maintained not only by the power of dominant states, but also through the power of elites in the dependent states, whose private interests coincided with the interests of the dominant states. These elites are typically trained in the dominant states and share similar values and culture with the elites in dominant states. Relations between dominant and dependent states are dynamic, wherein unequal patterns were only intensified over time. Dependency is an ongoing process. The Heterodox era (1950s 70s) A modified approach to development centering around
Import based substitution to industrial imports (ISI) - involves focus on internal markets, protection for domestic industries, especially for infant industries, and restrictions on imports Efforts towards greater self reliance, IIIrd world solidarity Stronger economic planning, and social spending by the state to direct the development process African leaders, entering somewhat later on the scene, pushed distinct views of economic development, oriented more toward the communitarian roots of African economies Tanzanias Ujaamaa experiment Did not, however, pay much attention to poverty or distribution within countries, assuming that these issues would be addressed automatically in the new framework Also, ISI implemented in an unbalanced way - this led to an exaggerated export pessimism and thus complete neglect of the primary export sector Jason Hickel (Professor, LSE) on The root of inequality and the shift from heterodox to neoliberal Western intervention is at the root of inequality: There was a brief
period after the end of colonialism when countries in the global south used trade tariffs, subsidies, import substitution, and social spending to build their economies and reduce poverty with remarkable success. But in many cases these programmes were actively dismantled by western intervention, often with coups that deposed democratically elected leaders to install dictators friendlier to foreign corporations. And then, beginning in the 1980s, the IMF and World Bank leveraged their power as global creditors to require poor countries to adopt crushing structural adjustment programmes that privatised public assets, cut social spending, and pried markets open to foreign companies. They promised that these reforms would improve development outcomes, but instead they turned out to be the greatest single cause of poverty in the 20th century. Per-capita income growth in developing countries plunged to half its previous levels, and in subSaharan Africa the GNP of the average country shrank by around 10% during the 1980s and 1990s. All told, developing countries lost roughly $480 billion per year in potential GDP during the period of structural adjustment. The Neoliberal Era (1980s Present) Backdrop of the 70s
Stagflation in the key western economies esp, US, UK: capital looking for new avenues Oil Price Hikes in 71, 73 led to huge deposits of Petro dollars in US Banks by OPEC nations: Recycled as loans to developing countries Loans offered, taken and spent without due diligence led to debt crisis and foreign exchange crises in Latin America, and state economic mismanagement in Africa by the 80s Alongside, the ISI model proved unable to sustain economic growth in the face of forex and macroeconomic constraints This was contrasted against the success of the East Asian Tigers - Taiwan, South Korea, HongKong, Singapore, which were said to be instances of a liberal, laissez-faire model. Alongside,
New political regimes in US and UK. Thatcherism, Reaganism 1989 - Fall of the Soviet Union The Neoliberal Era (1980s Present) Inauguration of a new regime Known variously as Neo-liberal revolution, Globalisation, Reform regime, SAP, opening up, the core principles of this new liberal development policy are: A rejection of state intervention and planning Minimization of states role in the economy A call to free markets remove policy distortions and get prices right
Open up to international trade: promote exports, lift barriers on imports Revaluing of currency and balanced state budgets Open up to global financial capital, esp. via MNCs Privatization of state-owned enterprises corporatization and commercialization of all state operations Elimination of all non-commercial considerations; focus on revenue generation Increased influence of IMF-WB-WTO and G7 governments in domestic policy, even though official aid has declined over the last 2 decades This new regime linked the first, second and third worlds with a in a new conception of universal economics The Neoliberal Era (1980s Present) This new regime led to Growth and expansion of MNCs and TNCs
Emphasis on balanced budgets: not just reduced fiscal deficits, but also fiscal austerity Internationalization of production: global assembly lines Reduced government spending on various social services such as health and education Retreat from transfer-based and relief-oriented welfarism, cuts in subsidies, imposition of user-fees, emphasis on revenue-collection Formation of regional free trade zones and common markets such AFTA, NAFTA, etc.; Formation of transnational entities such as EU, ASEAN, Mercosur, etc The Bank moved from project lending to structural
adjustment loans, following IMF approval and its stabilization program The Neoliberal Era (1980s Present) This new regime led to Increased influence of IMF-WB-WTO in developing countries These institutions have a remarkably unrepresentative structure all their lending is to developing countries, and all decision makers from industrialized nations This shift has not been fully forced: the western model of consumer economy has been willingly adopted by many governments and populations The Neoliberal Era (1980s Present)
This new regime led to The western model of development always had its takers in the developing countries In the new regime, there has been a growth of a global middle class which is across nations which compares itself to its peers in other nations and aspires for equality Thus the neo-liberal shift has not been fully by force : the western model of consumer economy has been willingly adopted by (this middle class) many (this middle class) populations and governments This desire for equality rests on Development as Growth This equality often comes at the cost of justice (basic
human rights of the most poor and powerless because it seeks out the land, living spaces and cultural traditions of the rural and indigenous people The Neoliberal Era (1980s Present) This new regime led to The shiny side of development is thus often accompanied by a dark side of displacement and dispossession But more importantly, this model of western consumer economy threatens the entire planet with an already underway ecocide The Neoliberal Era (1980s Present) This new regime led to Development now results in the formation of a global
middle class alongside the transnational economic complex, rather than a national middle class alongside an integrated national economy Thus the age of globalisation has resulted in a transnational class of winners. Though in different densities, they are to be found in every country. Roughly speaking, half of the transnational consuming class resides in the South, and half in the North They shop in similar malls, buy the same hi-tech equipment, see the same films and TV series, and roam the globe as tourists They are part of a transnational economic complex which is now developing its markets on a global scale
The Neoliberal Era (1980s Present) This new regime led to Earlier, development thinking was about nation states transition from agrarian to industrial societies; state was the main actor and the national society the main target This thinking was engulfed by the times Both the actor, and the target withered away under the impact of transnational corporations The old development concept looks out of place in this era of globalization: we now have development without nation states and national populations! Globalization has now superseded nation states
Nation states cannot contain economic or cultural forces anymore Goods, money, information, images and people flow freely across the globe as if national spaces do not exist The Neoliberal Era (1980s Present) This new regime led to What might have once been an imposition has more often than not turned into a basis of identity The right to cultural self-identity has been compromised by accepting the development world-view Despite decolonization in the political sense which has
led to independent states, and decolonization in the economic sense which has made some countries into economic powers a decolonization of the imagination has not occurred Quite the reverse: across the world, hopes for the future are fixed on the rich mans pattern of production and consumption The Neoliberal Era (1980s Present) This new regime led to The longing for equality on part of the South is one reason for the persistence of the development creed even if, in this century, neither the people, nor the planet can afford its predominance! Economic growth is thus cannibalistic of both
people and nature!! And shifts unpaid costs onto them as well. The Neoliberal Era (1980s Present) This new regime led to At the core of this cover up is the semantic confusion brought about by the concept of development After all development can mean just about everything , from putting up skyscrapers to putting in latrines, from drilling for oil to drilling for water, from setting up software industries to setting up tree nurseries, from farmers cooperatives to mega-malls It is a concept of monumental emptiness, carrying a vaguely positive connotation! For this reason it can be easily filled with conflicting perspectives
The Neoliberal Era (1980s Present) This new regime led to On the one hand are those who implicitly identify development with economic growth, calling for more relative equity in GDP. Their use of the word development reinforces the hegemony of the economic worldview On the other hand are those who identify development with more rights and resources for the poor and powerless. Their use of the word calls for de-emphasising growth in favor of greater autonomy of communities Putting both recipes in one conceptual shell is a sure recipe for confusion, if not a political cover-up
The Neoliberal Era (1980s Present) Summing-up An interlude in world history It is a legacy of the 20th century that the desires of nations for a better tomorrow are predominantly directed towards development-as-growth An idea of social evolution where all people on the globe would move along a single road, with the developed countries at the forefront has taken hold and the confusing diversity of nations across the globe has been turned into a clear ranking order with the GDP rich countries at the top of the pack This way of constructing a world order has not only revealed itself to be obsolete, but also mortally dangerous Assigning the Euro-Atlantic model as the vanguard either along
the course of history, or across the social ranking order has by now lost all legitimacy: it has proven to be incompatible with the planet The Neoliberal Era (1980s Present) Summing-up It has been shown that Europe was able to leap ahead of the rest of the world in the 19 th century by tapping into two new resources: massive import of agricultural goods from the colonies, and coal for its industrial processes. Thus there would have been no industrial revolution without resources from both the expanse of geographical space and the depths of geological time. The Neoliberal Era (1980s Present) Summing-up
As fossil fuels dwindle, plant bio-diversity disappears, and colonies no longer feasible, it becomes evident that the conditions required for the Euro-Atlantic model cannot be generalized for the world at large In other words, this model requires social exclusion by its very structure; it is unfit to underpin equity on a world scale Thus development as growth cannot continue to be a guiding concept of politics and economics unless we take global apartheid for granted The Neoliberal Era (1980s Present) Summing-up
If we aspire for some kind of prosperity for all of the worlds citizens, this euro-atlantic model would need to be superseded with modes of wellbeing that leave only a light footprint on the earth Production and consumption pattern will not be fit for justice, unless they are resource light and compatible with ecosystems For that reason, there will be no equity without ecology in the 21st century Yes, the planet got destroyed. But for a beautiful moment in time, we created a lot of value for shareholders. Imagining alternate futures so where do we go from here Recap: key fault lines of existing system A very materialistic notion of wellbeing, increasingly held by everyone
And that economic growth will help us get there Predominance therefore, of a narrow economistic bias in key concepts of todays worldview Low material consumption = poverty Happiness = standard of living, which can be compared across geographies, cultures Equality = sameness Efficiency = narrow cost/price calculus Recap: key fault lines of existing system
An economics based on flawed assumptions, including free-market based prices as being the best regulator of economic decisions [ADD] A Capitalist economy in which all decisions determined by a the profit calculus [ADD] Ecological constraints overlooked: imagination of unlimited growth on a finite planet Fossil fuel based production: value comes with disvalue Rethinking Development or Contours of a post-capitalist economy
Define human wellbeing more holistically Economy thus to be embedded in these larger goals/objectives of society Economy has to be inclusive, i.e., it has to work for all Environmental limits, and ecological cycles have to be adhered to in all production, consumption, disposal decisions All this implies the need for visible hand in other words, more planning Planning does not mean centralised, bureaucratised state planning only, nor does it imply all means of production owned by the state
Planning means Concrete decisions, to be taken by the community, based on Assessment of resources Assessment of needs, and thus how resources are to be used How much for now, how much for future Increasing production is a good thing: but how much? Eco-limits Settlement of claims: what degree of inequality is permissible Participatory decision making Division of labour desirable as it increases productivity: consequently exchange will exist as an activity, however organising principle would be generation of use values and not profit
In many erstwhile socialist experiments, the mistrust of exchange as an activity led to bureaucratic control structures for coordination, which made both the economy and polity non-participatory Conscious transition strategy In a capitalist economy, all these questions got subordinated to one principle the profit principle None of this is going to be easy, because Despite problems, the dominant conception of development (or human well being) is around increase in material production
Systems are becoming increasingly inter-dependent, enmeshed and difficult to extricate out of, even if some countries think of alternate systems? System benefits elites in exploited regions? Interests, aspirations and worldviews of different groups of people within all countries are also very different: difficult to build consensus on an alternative (if at all one can think of one) International organisations are toothless, captured by elite nations While the interconnectivity in the world makes the power of national governments very limited, and thus the need for
internationally coordinated and enforced action becomes more necessary these forums are inherently limited because we hope to invoke the general interest in a place where everyone is on the lookout for their particular interest! None of this is going to be easy, because (contd.) Even though some persons/people/countries see merits of delinking/autonomous development, it is perhaps not easy given that certain critical resources like fossil fuels are very unevenly distributed across the earth A fossil free economy seems to be an pre-requisite for resolving many of the issues being encountered : no easy options Governance cycle is 4-6 years in most countries; Time period for real reform to show results is at least two to three times that No possibility of any government risking such a move in todays
era of competititve politics Political leadership often captured by some of the worst in society Political domain captured by corporates Move would call for sacrifices, patience and possibly trial-and error kind of movement: with people within a country having different interests/aspirations/worldviews, can such a thing happen without the push of a crisis? The urgent is increasingly overwhelming the important None of this is going to be easy, because (contd.) Individual transformation, or call it a shift in our worldview, is an imperative for this change
i.e., of people having a conception of the good life that does not rely on material abundance This is hardly part of the discourse anywhere; stress continues on reforming external systems to address the issues of today We must bring out that justice towards the fellow human being, harmony with nature are imperative for my own security, fulfillment and sense of meaning Need to re-invoke the psycho-political change of Gandhi, Nyerere, and many such sane thinkers Growth within ecological limits, and no need for endless growth are tenets that have to be internalised in any conception of development Linking the desire for equity to economic growth has been the cornerstone of the development age. Delinking the desire for equity from economic growth and re-linking it to community and culture based notions of well-being will be the cornerstone
of the post development age. In the development age, the rich world was able to sidestep the hard issues of justice because economic growth was supposed to bring greater equality to the world Growth was a substitute for justice as inequality was not deemed a problem as long as the have-nots moved up the ladder For decades, development experts defined equity primarily as a problem of the poor: and highlighted lack of income, lack of technologies, lack of market access for the poor advocating all kinds of remedies for raising their living standard: they worked at raising the floor
With bio-physical limits to growth, we need to change the rich also, and not just the poor; work at lowering the ceiling : Poverty alleviation cannot be separated from wealth alleviation anymore Gandhi could not have been any more prescient, or relevant today God forbid that India should take to industrialisation after the manner of the West. The economic imperialism of a single tiny island kingdom (England) is today keeping the world in chains. If an entire nation of 300 mn took to similar economic exploitation, it would strip the world bare like locusts. The journey of a thousand miles begins with a single step in fact, it has already begun
Across the world now, there is a surge of initiatives that aim to transcend the conventional development idea affirming that resilience, beauty and meaning can be found outside the logic of growth and expansion. What can we as individuals and small groups do for a start? 1. Understand that the roots of our problem are deep and share this understanding so that the focus on symptoms, on pseudo fixes, on false hopes of managerial / techno / market solutions are exposed 2.
Understand and expose the inherent flaws in mainstream economics Introspect, and try to live a less materialistic notion of happiness Introspect, and try to live a life that is just to the fellow human being, and is consonant with natural cycles Both of the above can only be practiced in a very limited way in the warped world we live in but starts are important to help building of a new worldviewand a new economics within that Search, publicise and become part of peoples alternatives to the mainstream however small and partial they might be What can we as individuals and small groups do for a start? (contd.) 3. 4. Conceptualise and fight for measures beyond GDP so that the current paradigm moves towards a more humane path Support or if possible, become part of peoples
movements against disposession, injustice, internal colonisation The transition involves two main themes: One, A shift in our worldview which emphasizes Human well being comprises two kinds of needs: material and psychological and the sources of fulfillment of the psychological needs do not lie in money Justice to the fellow human being and living in harmony with nature are imperatives for my own happiness/self-interest Economic systems cannot be governed by narrow values of
cost based efficiency an economy is a means to human wellbeing and not an end in itself. It must therefore necessarily emphasise equity, justice, true democracy alongside self reliance, fair trade, eco-limits The planet is a very diverse place and thus small, local communities are best equipped to manage their natural resources, govern themselves, and there is significant merit to indigenous ways of knowing and acting The transition involves two main themes: The second being A transition from fossil fuel based resources to local economies based on local resources consequently diverse A recognition of limits, as opposed to ever expanding nature of development, and an attempt to re-embed the economy in the biosphere
Examples abound in agriculture, architecture, energy production, forestry and even industry Deglobalisation & localisation: fit and adaptation with local land, habitat, seasons Decentralisation and diversity Acknowledgements This presentation draws significantly from 1. 3. The Economy An Interpretative Introduction by C.T. Kurien 2. History of Development by Gilbert Rist Development Dictionary foreword by W. Sachs
Backup slides Potential elements of a holistic well-being index) 1 Material Standard of Living (defined more specifically) 2 Equity, Justice, Solidarity 3 Safety-Security (from fellow humans) 4 Health
5 Education (Inter-generational transfer of Wisdom, Skills) 6 Sense of Community, Meaningful Participation 7 Harmony/Balance with Nature 8 Participatory Governance 9 Time Availability / Time Use 10
Psychological Wellbeing Mainstream Economic theorys assumptions about a capitalist economy Human being are rational individuals who pursue the maximization of their self interest (utility / satisfaction) . They have endowments in excess of their needs which they voluntarily seek to exchange in the market, in return for other goods they might not have enough of. Market Prices, based on demand and supply, are the best indicators of the value of any commodity and thus the best signals to shape and direct an economy. Mainstream Economic theorys assumptions about perfect competition
Infinite buyers and sellers: everybody is a price taker Zero entry and exit barriers Perfect factor mobility Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products. Zero transaction costs Profit maximization - Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated. Homogenous products - The qualities and characteristics of a
market good or service do not vary between different suppliers. Non-increasing returns to scale - The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry. Property rights - Well defined property rights determine what may be sold, as well as what rights are conferred on the buyer. Neoliberalism defined A theory of political economic practices which proposes that human wellbeing can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. For e.g., State should guarantee quality and integrity of money Set up military, defence, police and legal structures reqd to secure pvt property rights, and guarantee (by force, if reqd) proper functioning of markets
Set up markets in areas like land, water, education, health, social security, infrastructure, if they do not exist: and once created, the state should keep out of these markets as much as possible for the reason that state can never posses enough information to second guess the signals (prices) determined by the markets, and that vested interests can always capture state power (esp in democracies) in their favour Adapted from A brief History of Neoliberalisation by David Harvey Reform, Washington consensus (potential defns) The notion of reform has now, across the board, come to mean the application of neoliberal principles to any organization, sector, or process. From welfare reform, to macroeconomic reforms, to sectoral reforms, to organizational reforms, the principles are the same: commercialization, attention to
the bottom-line and to revenue-collection, reduction in subsidies, more stringent audit and output-orientation, cuts in staffing and the application of management principles such as performance appraisal and incentives. The Washington Consensus: the shift in thinking of the IMF, World Bank and the US Treasury, toward the free market, from the early Keynesian orientation of the first two. Q: How does one explain the high standard of living in most developed capitalist countries then? Transfer via Taxation Democratic Imperatives and pressure of a competing worldview of communism led to Legislations like
minimum wages Welfare state post the great depression Cold war and the battle of ideas Trade Unions and their struggles could not be fully suppressed in that environment Rising Productivity due to technology: share of labor could be increased without lowering share of capital Exploitation of the colonies, third world The Market Economy: An interesting definition The market system is a complex mode of
organizing society in which order and efficiency spontaneously emerge from a seemingly uncontrolled society. (From The Making of Economic Society, Robert Heilbroner Italics: mine)