Capital and Imperialism: Theory, History, and the Present

by Utsa Patnaik

  The state’s withdrawal from land augmentation because of this perverse reading of signals implies that the rate of growth of food grain production under neoliberalism scarcely exceeds the rate of population growth, even as the level of per capita food grain consumption is lower than in the original situation (when the average income in the petty production economy was x). In addition agricultural exports increase under this regime, either food grain exports or exports of non-food grains toward which land has to be diverted from food grains, so that a neoliberal regime is invariably associated with a decline, compared to the original situation, in per capita availability of food grains (defined as net production minus net exports plus net decumulation of stocks) and a rate of growth of per capita availability that is zero or less. Because of this, the displaced petty producers, upon whom a process of primitive accumulation of capital is inflicted, can never get absorbed into the active army of labor. What is more, let alone getting absorbed at the income level z, their average per capita income remains even lower than x. This is because of the fall in per capita food grain availability, compared to the original situation.8

  As x itself represents an increase over y, to which the average per capita real income had shrunk as a result of primitive accumulation, an increase back to x itself would cause an excess demand for food grains because of the reduced per capita food grains availability, and hence inflationary pressures. Such pressures, if they arise, would necessitate contractionary policies because of which an increase in the average per capita income to x becomes impossible in the petty production sector. Thus the decline in per capita food grains availability implies that the per capita real incomes can neither increase from y to z nor even recover from y to x.

  It follows, therefore, that under the neoliberal regime, there is a decline in the average material living condition of the working people taken as a whole, compared to the original pre-neoliberal level, no matter how high the GDP growth rate happens to be. All this has an implication for poverty.

  The Question of Poverty

  When petty producers remain in their traditional occupations accepting lower incomes, the worsening of their living standards is obvious. But even when they migrate to cities in search of jobs, the non-availability of jobs implies a worsening of their living standards, since they never get on average the income x they were getting earlier. Not only do they experience a reduction in real incomes compared to the original situation, but this has the effect of pulling down the real wages of even the organized full-time workers, since an increase in the relative size of labor reserves always has this effect.

  As a result, a congruence develops under neoliberal capitalism between the interests of the workers and those of the peasants and petty producers. The process of primitive accumulation directed against the latter, which worsens their condition, also worsens the condition of the workers in general, including even the organized, unionized workers, whose bargaining strength drops as a consequence. This phenomenon, of displacement of traditional petty producers who migrate to cities but are not absorbed into the active army of labor, or do not migrate but linger on at lower living standards in their traditional habitat, results in an increase in the relative size of absolute poverty.

  This, indeed, is what has been happening, even in economies experiencing rapid GDP growth. It is significant that the per capita cereal output for the world as a whole for triennium 2015–17 (average annual output divided by 2016 population) was 344.9 kilograms, distinctly lower than the 355 kg. for 1979–81 (calculated similarly by dividing the triennium average by the mid-triennium population). Even in India, which has been one of the high-growth economies, the percentage of rural population that does not have access to 2,200 calories per person per day (the official norm for defining poverty) has increased from 58 percent in 1993–94, shortly after neoliberal policies were introduced in 1991, to 68 percent in 2011–12. For urban India, where the calorie norm is 2,100 per person per day, the corresponding figures are 57 percent and 65 percent, respectively.

  Since a growth in absolute poverty is assiduously denied by the defenders of neoliberalism, it is important to clarify exactly what we are arguing. There is no doubt that there has been a great improvement in the lives of the people of the third world after decolonization: better infrastructure; modern medicine, greater awareness of hygiene, and other developments have increased human longevity and reduced infant and maternal mortality rates. In other words, to talk of an increase in the magnitude of poverty must not be taken to mean that people today are worse off compared to, say, half a century ago. What it means is something specific, namely that per capita command over a particular basket of essential goods, including above all food grains, has become less than it was prior to the introduction of the neoliberal regime.9

  The association of neoliberal capitalism with an increase in poverty arises not out of any conspiracy or diabolical intent; it is simply a part of its modus operandi, whereby a process of primitive accumulation of capital is unleashed while there is a dogged effort to restrain inflation. This is achieved without interfering too much with the functioning of the market by curtailing government spending, including on land augmentation.10 This provides the setting for income deflation. If the rate of growth of labor demand (that is, g – gp), is spontaneously low, then there is spontaneous income deflation anyway; otherwise, anti-inflationary measures ensure such income deflation.

  The decline in per capita world cereal output in the aftermath of the inflation of the 1970s and in per capita world cereal absorption is merely a reflection of the modus operandi of neoliberalism, which is missed by Krugman and others who do not see its role in imposing income deflation.

  An important corollary follows from the above, where we talked about exports to the metropolis as a constant element in the background. The same phenomenon, however, can arise because of sales for the consumption of the bourgeoisie and the middle class domestically, consumption that is both direct and indirect (through processed foods and feed grains for animal products). Any acceleration in the growth of the non-agricultural sector is likely to increase this “export demand” as well. Since this would lead to a reduction in the per capita absorption of food grains by the rest of society, that is, by the non-bourgeois and non-middle-class sections, and hence to an increase in absolute poverty, the following necessarily holds: An acceleration in the growth rate of an economy located on the tropical landmass, unless it is accompanied by appropriate measures of land augmentation, which under neoliberal conditions it scarcely is, will cause greater absolute poverty in the same economy.

  This is because the demand on the landmass, either for itself (for building golf courses, luxury villas, and the like) or its products, will increase with the rise in GDP, which under neoliberalism would be met through imposing even harsher income deflation on the working people and hence engendering greater poverty. It is not only the demand of the metropolis that underlies the growth in poverty in the third world country, but its own growth (since it is unaccompanied by land augmentation). The higher this growth, the greater is the magnitude of absolute poverty.

  The fact that the logic of capitalism produces wealth at one pole and poverty at another has been underscored by Marx. He was referring primarily to the growth of the reserve army of labor and his proposition is of a general character. It can be given precision if we take into account the income deflation that becomes necessary under capitalism if inflation arising from increasing supply price for products grown on the fixed tropical landmass is to be avoided, which it must be for preserving the value of money.

  While much has been written on the growth-enhancing effects in the third world of globalization, which leads to an outsourcing of activities from the North to the South, the other aspect of globalization, of exercising income deflation and growing absolute poverty, has scarcely received notice. We return to this theme in the next chapter.

  CHAPTER 18

  Inequality and Ex Ante Overproduction


  What is striking about the current globalization is that for the first time in the history of capitalism there has been a de-segmentation of the world economy. Throughout the history of capitalism till now, labor from the South had been barred from migrating freely to the North. It still is. There were, as Arthur Lewis has argued, two great streams of migration in the long nineteenth century, stretching up to the First World War, after the forced migration of the slave trade had come to an end, transporting about twenty million persons from Africa to the Americas.1

  One stream of migration was from some tropical and semi-tropical regions of the world to other tropical and semi-tropical regions, which took low-wage coolie or indentured labor to work on mines, plantations, or other sites in destinations like the West Indies, Fiji, East Africa, and the Western Pacific from countries like China and India where deindustrialization under the colonial or semi-colonial regimes had created massive labor reserves. The other was a high-wage migration from temperate regions to other temperate regions, essentially from Europe to Canada, the United States, Australia, New Zealand, and South Africa where it was possible for the migrants to set themselves up as farmers by snatching land away from the local inhabitants. The high-wage nature of this migration was not because an “Agricultural Revolution” had happened in Europe, but because of this ability to snatch land away from the local inhabitants. Note that these two streams were kept strictly separate, so that low-wage labor from the tropics could not compete with the high-wage labor of the temperate regions to bid down the latter’s wage.

  This separation, exercised through coercion, was complemented by another separation. Capital from the North did not move freely to the South, even though it was juridically free to do so. Much of it went initially from Britain to Europe and subsequently from Britain and Europe to the temperate regions of European settlement, nourished substantially by the drain from the tropical and semi-tropical colonies. The capital that did come from the North to the South went into sectors like mines and plantations, essentially to buttress the colonial pattern of international division of labor, but not to break this pattern by shifting the location of manufacturing industries from high-wage to low-wage lands.

  Since labor from the South could not move freely to the North, and since capital from the North did not move to the South except to specific pockets of activity that colonialism promoted, the world economy became in effect a segmented one. Capital generated from within the South itself was small and could not get going because it faced barriers imposed by “free trade” and “laissez-faire” within its own country, and protectionism over much of the metropolis, not to mention other invisible barriers such as racial discrimination.2

  Within this segmented world, real wages in the North could increase through workers’ struggles along with labor productivity, not necessarily in tandem, as the latter increased because of economic growth accompanied by technological progress while real wages in the South, where the massive labor reserves of the world created by colonial drain and deindustrialization continued to be concentrated, notwithstanding the emigration just discussed, remained more or less tied to a subsistence level.3 The genesis of the division between the advanced and the underdeveloped countries lay in this segmentation of the world economy. Why capital from the North did not move to the South to take advantage of its low wages for producing the same goods with the same technology as used in the North remains, as we have seen, a moot question. But the fact remains that it did not; and that is why the world got divided into two segments.

  This geographical segmentation appears to have ended with the current globalization. Even though labor mobility from the tropical and semi-tropical regions of the world to the temperate regions is still restricted, and attempts to flout such restrictions are countered these days in extremely inhumane ways, as the fate of the refugees from the South in both Europe and the United States shows, capital is now more willing to locate plants in the South to take advantage of its lower wages. To be sure, not all southern countries have been recipients of capital relocation from the North, but many have been, and even this fact has important implications. The de-segmentation in other words arises because of capital’s greater willingness to locate activities in the South, to take advantage of its lower wages, for meeting the global market.

  The first implication of this willingness to relocate activities from the North to the South is the linking of the wages prevailing in the two segments. They do not get equalized because of the mobility of capital, in the manner depicted in economics textbooks. But clearly the difference between wages cannot keep growing as it had done historically, for any difference above a certain threshold would certainly entail greater movement of capital from the North to the South.

  While northern wages, therefore, can no longer move too far out of line with southern wages, the latter scarcely manage to rise above the subsistence level (not a biological but a historical one) to which they have been tied for long. This is because despite the relocation of activities from the North to take advantage of the South’s low wages, the relative size of the labor reserves in the South scarcely diminishes. As discussed in the last chapter, the process of primitive accumulation of capital that the neoliberal policies under globalization unleash, together with the natural rate of population growth, and hence workforce growth, ensure that labor supplies grow at a rate that is even higher than the growth of labor demand, even in countries that emerge as the favored destinations for northern capital. Matters are of course worse for the other countries. In the event of wages rising in the South, income deflationary policies that cause contraction in employment are unleashed in the name of fighting inflation; these ensure that wages in the South do not increase, so that the demand for goods produced under increasing supply price remains restricted, without posing any threat to the value of money anywhere in the system.

  These two processes, namely, the linking of northern wages to those in the South, and the continued tying of southern wages to a barely increasing subsistence level, imply that the vector of real wages across the world remains more or less constant.4 But since the vector of labor productivities keeps increasing, the proportion of surplus in output within each country keeps increasing, which is the fundamental reason for the rise in income inequality that has been observed during the period of globalization.

  The Rise in Income Inequality

  Let us look more closely at this question of income inequality. The above argument would explain why within each country there is an increase in the share of surplus in output. But then it may be asked, how do we link a rise in the share of surplus, which is a macro phenomenon, with an increase in income inequality? Before answering this question, however, we should clarify one particular point.

  The proposition about a rise in the share of the surplus refers to ex ante surplus, that is, that with any given output there is a rise in labor productivity for given wages, so that if that output continued to be produced it would yield a higher surplus. Yet that output may not continue to be produced, and the surplus that would have been generated had that output been produced may not actually be generated. For that amount of surplus to be produced, an amount of expenditure (at base prices) exactly equal to it has to be undertaken; if it is, then that surplus gets realized.

  A simple way in which this realization can occur is if the larger expenditure corresponding to the larger surplus from a given output is incurred on this output itself; then the output remains unchanged and simply more of it is taken by the surplus earners while less is left for the wage earners. But if this larger expenditure is incurred on goods other than the bundle in terms of which, as it were, the ex ante additional surplus accrues, then there will be more complex patterns of adjustment, which we need not enter here. But it must always be the case that after all adjustments have been made, assuming all wages of “productive workers” are consumed, the ex post or “realized” surplus must equal the sum of investment, net exports, government consumption, capi
talists’ consumption, and the consumption of the “unproductive workers.”

  If investment plus capitalists’ consumption plus consumption by unproductive workers plus net exports and government consumption remains unchanged despite the increase in the share of surplus, then the amount of ex post surplus will remain the same as before, but the rise in the share of the surplus in output will manifest itself in terms of a reduction in output compared to the initial situation. This is when an overproduction crisis arises because of a rise in the share of surplus, a matter we discuss in the next section.

  What is striking is this: no matter what adjustment takes place, a rise in the ex ante share of the surplus manifests itself as a rise in the ex post share of the surplus. Let us illustrate this point by taking two examples, one where there is no change in the absolute amount of ex post surplus, and one in which there is.

  Let us for convenience assume that all surplus takes the form of profits, that is, we ignore the existence of “unproductive workers,” of taxation and government expenditure, and of foreign trade. Suppose in the initial situation 100 units of wage goods were being produced of which 50 was the wage-bill and 50 profits, and the latter in turn was spent, directly or indirectly, on investment goods (we assume zero capitalists’ consumption). In the investment goods sector, the wage bill was 50 and profits 50 (these profits are also obviously spent, directly or indirectly, on investment goods). The total surplus was thus 100. Now, suppose because of an increase in labor productivity in the wage goods sector with given real wages, the ex ante surplus of the sector rises to 60, but total investment remains unchanged. If investment remains unchanged, then the realized surplus remains unchanged. All that happens is that the output of the wage goods sector falls by one-sixth, from 100 to 83.33, so that 50 surplus, as before, is generated out of this smaller output. But in this case, total surplus would be 100, as before, out of an output of 183.33 (instead of the 200 earlier), so that the share of surplus in total output would have risen.