The Meaning of Contemporary Globalization, Part 2

[continued from The Meaning of Globalization]


Let us now consider the impact of globalisation upon the different classes within a third world society. Deflation reduces the employment opportunities in such an economy, especially within the rural sector, a phenomenon that has occurred in India in the period of neo-liberal reforms, notwithstanding the claims about high growth. Between 1993-04 and 1999-00, the two years of large sample surveys by the NSS, rural employment increased by a mere 0.58 percent per annum, which was far below the growth of rural population. There was a drop in the work participation rate observed over this period; but this is likely to have been the outcome of the 'discouraged worker effect' of higher unemployment, rather than a reflection of any genuine withdrawal of potential workers for purposes such as education. Numerous micro studies also point to a sharp increase in rural unemployment, as does, to a limited extent, the current-daily-status unemployment rate.

Associated with rising unemployment is a restriction on the purchasing power in the hands of the rural population. Ironically, despite a reduction in per capita output of foodgrains in the period since 1990-91, per capita absorption has dropped even more precipitously, so that an average Indian absorbs about the same amount of foodgrains today as he or she did on the eve of the second world war (U.Patnaik 2004). If the difference between output and absorption even shows itself at the level of the all-India data, then one can legitimately conclude that for rural India it must have been even sharper. The other side of this difference between output and absorption has been a massive increase in foodgrain stocks (nearly 65 million tonnes prior to the recent drought), which inter alia have been dumped on the world market at throwaway prices. This paradox of a country with a huge starving population undertaking massive exports at throwaway prices is a singular contribution of the deflation associated with the neo-liberal policies.

Between 1990-91 and 2003-04 (BE), the ratio of central government expenditure (including transfers and loans) to GDP at factor cost went down sharply, from 20.54 percent to 17.41 percent. This has been a consequence largely of the decline in central government tax revenue to GDP and also, to a certain extent, of the decline of the ratio of the fiscal deficit to GDP. And one of the sharpest cuts has been in rural development expenditure, which, from being 14 percent of the GDP on average during the eighth plan period, has come down to less than 6 percent of late.

An argument is often advanced of the following kind since much of the rural development expenditure, even when intended for the benefit of the rural poor, really gets into the hands of the rural rich, a reduction in it is of little consequence as far as the poor are concerned. This argument is erroneous: it does not take into account the multiplier effects of the government’s rural development expenditure. Even when such expenditure is cornered by the rural rich, its multiplier effects generate some employment for the rural poor, and hence are of some indirect benefit to them. To be sure, if the expenditure was not cornered by the rural rich but actually came into the hands of the rural poor, that would be most desirable. But even when this does not happen, expenditure undertaken is still far better than expenditure not undertaken.

Cuts in government expenditure also affect the level of demand for the industrial sector. Together with import liberalisation which in practice has a demand-constricting effect (once the pent-up demand for a variety of hitherto not-available luxury goods is catered to through the setting up of domestic productive capacity with the help of liberalised imports), such cuts precipitate industrial stagnation and recession, affecting especially the small-scale sector. Industrial employment is affected adversely at the same time that the 'social wage' is cut, catching the industrial workers in a pincer move. The virtual disappearance of the cotton textile industry in its old centres like Bombay and Ahmedabad, and the absolute impoverishment of lakhs of workers who are thrown out of employment as a consequence, is only one striking illustration of a pervasive phenomenon.

But it is not just the traditional petty bourgeoisie, the small capitalists, and the workers both urban and rural, who become victims of neo-liberal economic policies. The peasantry too, not excluding even the rich peasantry, is pushed into great adversity, which is now getting reflected in a spate of suicides by peasants allover the country. Secular stagnation in the world economy, on account of the pervasively deflationary policies being followed, results in a secular fall in the terms of trade for primary commodities vis a vis manufacturing. While the terms of trade fluctuate a great deal from year to year, the trend through these fluctuations is a downward one for primary commodities, especially agricultural products. A second factor, of more recent origin, also contributes to such a decline. And this has to do with the secular depreciation in their real exchange rates which third world countries experience when they enter into the process of financial liberalisation. Let us consider this closely.

Wealth-holders, whether in the first or in the third world, do not generally consider third world currencies as safe mediums for holding wealth, a judgement that does not get altered no matter how much deflation is undertaken in the third world economy to make its currency more attractive. As a result, opening up the economy to free capital flows usually leads to a secular decline in the value of the third world currency as capital slowly drains out of the country; and this decline itself fuels the belief that the currency is not a safe medium for wealth-holding. There are to be sure fluctuations in the real exchange rate with occasional bursts of speculative capital inflow pushing up the currency value, but through these fluctuations the secular trend is downwards. This entails a reduction in the relative values of commodities, typically primary commodities, which these economies export, since the money wages are fixed in terms of the local currencies, providing an additional cause for the adverse movement in their terms of trade.

In India the peasantry had been insulated against a decline in its terms of trade, arising from factors such as those mentioned above, because of the system of public procurement and distribution that had been in place for quite some time. But with liberalisation this system became substantively inoperative. Moreover since there were only a few crops which were covered under this system, the changes in cropping pattern that occurred, as agri-exports gathered momentum under liberalisation, took the peasantry out of the ambit of this system even as world prices were crashing. At the same time, the prices of inputs such as electricity and fertilizers increased as subsidies were sought to be cut in the new deflationary environment; and the entitlement to credit from institutional sources which agriculture enjoyed in the dirigiste period disappeared as foreign banks (which were averse to lending to the peasantry) were allowed to operate, and even the domestic nationalised banks were asked to keep an eye on their profits rather than get carried away with 'social responsibility'. Caught in the grip of these factors, and having to confront, for the first time, multinational seed companies, with their vast monopoly powers buttressed by intellectual property rights enshrined under the WTO, the peasantry experienced an unprecedented squeeze, which necessarily had an impact on other rural classes as well, especially the labourers.

While a vast segment of the population was thus adversely affected by neo-liberal policies, a certain section, consisting of the domestic rentier class, professionals engaged in the burgeoning service sector, a section of the capitalist class that could grab public assets, large capitalists who benefited from the decline of the small producers, the local agents and employees of foreign companies, governments, aid agencies, NGOs, and Bretton Woods institutions, and a whole range of fly-by-night operators, speculators and middlemen mediating the newly oRened up and rapidly expanding 'foreign connection', gained from the phenomenon of globalisation.

This essential divergence between the fortunes of the many and the fortunes of the few gets camouflaged by two widely-held erroneous perceptions. The first asserts that poverty in the Indian economy has been declining. This is sought to be established by referring to the consumer expenditure figures thrown up by the NSS 55th round. While it is admitted by everybody that the data thrown up by this round are 'contaminated', the argument put forward by several economists (with the blessings of the World Bank) states that after proper adjustments are made, a decline in poverty is still quite indubitable. This has been challenged by independent scholars (Sen 2004) who, after careful scrutiny of the data, have concluded that no conclusions can be reached one way or the other on the poverty question with the existing data. A more potent line of attack questions the very methodology of existing poverty estimates. Since the 'poverty line' criterion was meant only as a surrogate for a calorie norm (in terms of which basically poverty is defined in India), and since calorie absorption data are directly available, there is no reason to go through the rigmarole of updating the poverty line and using the NSS expenditure data to estimate the poverty ratio. It would be far better to go to the point directly and see from calorie absorption data what the percentage population below the calorie norm for poverty would be. On doing this exercise it turns out that this latter percentage exceeds that calculated on the basis of the 'poverty line' approach by a huge margin in recent years, which suggests that any poverty calculation on the basis of consumption expenditures is fundamentally flawed and that poverty as originally defined has, far from coming down, actually increased in the post-liberalisation period.

The second erroneous perception relates to food absorption. It is argued that the reason for the large accumulation of foodstocks lies in a change in consumption habits of the people entailing a diversification away from foorgrains. It would follow from this that far from being indicative of a decline in living conditions of the mass of the people, the accumulation of foodstocks actually indicates the contrary, namely some improvement in their living standards where they can even afford to enjoy more diversified consumption. The idea that with an improvement in per capita incomes, societies consume less of foodgrains per capita, is utterly wrong. True, they may consume less foodgrains directly, but their indirect consumption of foodgrains (in processed forms and as inputs for the animal products that are consumed) goes up. Taking direct and indirect consumption together, per capita foodgrain consumption increases with per capita incomes, and is associated with an improvement in the peoples’ living standards. Thus the per capita foodgrain consumption, taking both direct and indirect consumption together, was nearly a tonne per year in the former Soviet Union. It is close to that figure in the US, and only slightly less in the other advanced capitalist countries. So, when in India we find a decline in per capita total absorption of foodgrains, and that too accompanied by a decline in daily calorie intake, the conclusion is inescapable that there is a squeeze on the population, especially the rural population. The question then arises: how can such a squeeze be sustained, especially in a society characterized by robust electoral politics?


There are at least three safety-mechanisms which international finance capital acquires for itself to ward off any threats to its global dominance. The first has already been mentioned above, namely a division between the workers in the North and those in the South, which ensures not only that there is no global unity among workers against globalised capital, but also that any potential challenge to the hegemony of finance capital within the North, itself is warded off by placing the blame for the economic ills upon a distant group of hapless workers.

The second, briefly mentioned earlier, consists in the fact that any stepping out of a neo- liberal regime entails costs of transition which are so large that most political formations within any country do not have the strength to undertake it. Even the prospects of a political formation with an alternative agenda coming to power triggers off capital flight, an exchange rate depreciation resulting in inflation (to the detriment of the very masses in whose interests the alternative agenda was conceived to start with), and a threat of bankruptcylo. All this is quite enough to unnerve the political formation that had dared to espouse an alternative agenda; it usually falls in line by declaring that it too is 'pro-reform', that it too is full of the best possible intentions towards 'foreign investors'.

Sometimes however a political formation with an alternative agenda may come to power unexpectedly. In such a case, even if it is intrepid enough to put in place immediate capital controls to ward off capital flight, it would still have to deal with the issue of inherited foreign debt which has to be rolled over; and such rolling over becomes impossible without the 'co-operation' of international finance capital, the Bretton Woods institutions and the States of the advanced capitalist countries, especially the 'super-imperialist' US Statell. But even if the new domestic government carries its intrepidity several steps further by announcing a unilateral debt moratorium, or even if the debt overhang is not significant enough to cause much worry for the new government, nonetheless any departure from the neo-liberal agenda brings retaliation from the entities just mentioned. Together with this comes a clamour of criticism, from those with vested interests in neo-liberalism, from 'intellectuals' serving these interests, and from the media both domestic and foreign (which in any case have come very close to finance capital in the current epoch), about declining living standards of the people (which, even if true, is caused by imperialist retaliation itself), about the unwisdom of the 'doctrinaire' economic policies being pursued by the government, about 'violation of human rights', and about alleged tales of 'nepotism' and 'corruption'. These are sometimes made into excuses for imposing sanctions (pushed through a pliant Security Council) and, in the last analysis, for armed intervention, by proxy or even directly.

The third mechanism springs from the divisions among the people of a third world country that the pursuit of a neo-liberal trajectory of development inevitably generates. The impoverishment of the people creates conditions where different sections among them often struggle against one another even more fiercely, as has been happening in many parts of Africa, of which Sudan is the latest example. The tragedy of this fierce struggle for dwindling means of livelihood, is portrayed by the so-called 'liberal' opinion (especially when the regime concerned is not a client of imperialism), only as an instance of 'bloody-mindedness' leading to 'genocide' which it is the 'White Man’s Burden' to put an end to. Likewise, situations of unemployment, as is well-known, are conducive anyway for the exacerbation of communal, ethnic, religious and racist divisions among the people. Reliance upon the inflow of direct foreign investment for growth also produces secessionist tendencies, and in the process breeds much bitterness among the people, because of the belief that being on its own would enable a region to draw more foreign funds. In short, the epoch of globalisation also generates very strong tendencies towards a fragmentation within the ranks of the deprived, which naturally helps international finance capital consolidate its hegemony.

There is however a further implication of these divisions, namely they are capable of being used by fascist forces to counter the prospects of the coming together of the people against imperialism. Third world societies, especially in the epoch of liberalisation, become sites for a struggle between secular, democratic and egalitarian tendencies on the one hand and fascist tendencies (allied to imperialism) on the other. This may sound strange at first sight, since most fundamentalist outfits, especially in the Arab world, are today giving anti-imperialist slogans. But fascism must not be confused with fundamentalism the former is characterised above all by proximity to finance capital and is concerned with making the poor acquiesce in their exclusion rather than rise against the system for overcoming their exclusion, which, by contrast, certain types of fundamentalism advocate, though no doubt in a most inchoate fashion.

We have seen that neo-liberalism works to ensure that those who want a change of trajectory are enfeebled by considerations of the costs of transition. Even when the people vote for a change therefore they continue to remain trapped within the same trajectory. At the most a few verbal concessions are thrown towards them, such as 'liberalisation with a human face' but these lead to no substantive changes. But additionally even if perchance a democratic government takes charge which has sufficient courage to embark on a new trajectory, then the fascist elements can always be unleashed upon such a government.

In short, there is a fundamental contradiction between the adoption of neo-liberal policies and the preservation of democratic institutions. We in India are currently witnessing before our very eyes a situation where the democratic compulsion of providing some relief to the poor clashes with the commitment of the new government to the agenda of globalisation. And if this clash leads to a denial of relief then the disillusionment among the people may well work to the benefit of the fascist forces. Fighting domestic fascism and fighting imperialism in other words are part of the same project. And this fight can be carried forward only by uniting the people on a broad front, preparing them for the costs of transition, and working to put in place in all earnestness an alternative development trajectory.

New Age is a publication of the Communist Party of India.

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