Tuesday, August 23, 2011

Capitalism at its Brink


The Capitalist World is at its brink!

America is facing its worst crisis today.  The AAA credit rating of America is on the verge of collapse.  The growth rate in the biggest economy of the world is today only 0.4%.  There was an attempt to show that it was higher but the hard fact could not hide the sad situation at the growth front.  US debt is around $14.3 trillion and it owes to chine the most.  The dollar is slipping down; the markets are down.  The unemployment if as high as 9.2% as recorded and it may be even more.  The political experts are also claiming that US is also suffering from the “dis-functioning politics”.  After the 2008 crisis the recovery during 2009 was painfully slow but it has not held out long enough and now the chances of America soon slipping into recession is very high.  Hilary Clinton in her recent visit to the South and East Asian countries declared that the future is in the Asian economies.
 “The second half of 2010 is really characterized by a sudden worsening of the crisis marked by the end of the illusion of recovery maintained by Western leaders and the thousands of billions swallowed up by the banks and the economic « stimulation » plans of no lasting effect. The coming months will reveal a simple, yet especially painful reality: the Western economy, and in particular that of the United States, never really came out of recession. The startling statistics recorded since summer 2009 have only been the short-lived consequences of a massive injection of liquidity into a system which had essentially become insolvent just like the US consumer. At the heart of the global systemic crisis since its inception, the United States is, in the coming months, going to demonstrate that it is, once again, in the process of leading the economy and global finances into the « heart of darkness » because it can’t get out of this « Very Great US Depression». Thus, coming out of the political upheavals of the US elections next November, with growth once again negative, the world will have to face the « Very Serious Breakdown » of the global economic and financial system founded over 60 years ago on the absolute necessity of the US economy never being in a lasting recession. Now the first half of 2011 will dictate that the US economy take an unprecedented dose of austerity plunging the planet into new financial, monetary, economic and social chaos.” 
- Public announcement GEAB N°47 (September 16, 2010) -

Why is US economy not able to really come out of the crisis? 
The answer is not very complex.  It is just that Capitalism as economic system has reached at its brink.  I will enumerate some of the issues in point form and then elaborate each of these points.

·       CAPITALISM BASICALLY MOVES FROM CRISIS TO CRISIS:

If we look at the history of capitalist development we will understand that it has gone through several ups and down.  Some of these downs have been so down that it has resulted in the World War II.  What we saw in 2007 - 2008 was another such deep crisis.  Though it did not result in any war or revolution against capitalism this crisis has been dragging on and it will continue to drag on and what will be the outcome of this long drawn crisis will be unfolded in the future.  As far as war is concerned these are being carried out in instalments and we have deep social crisis of world scale terrorism.

In 1929 the capitalist world witnessed its deepest crisis.  This crisis led to the World War II.  Soon after the war during the years 1945 till 1975 the Capitalism was at the upswing.  It is called the golden years of Capitalism.  It is paradoxical to learn that the Wold War II had destroyed all gains of the civilization and developments that this setting suited for the capitalism to take a leap forward.

 After the World War II Keynesian measures helped the world to come out of the crisis.  Keynes believed that if the economy had to come out of the depression then the state should have a big role in the economy.  The state should have a strong control on the market even to the extend of regulating the market.  Secondly the state should have an aggressive monitory and fiscal policy.  Such policy should aim at minimizing inflation and stagnation of economy.  State should generate employment through state investments to ensure that the wages would remain high so that the average high wages could create demand and urge economic growth. 
At the international level Keynes proposed formation of institutions that would bring the world economic order on a strong foundation.  He proposed:
·         International clearing union, a central bank (International Monitory Fund) with its own currency to help ease balance of payment difficulties of the member countries; there was a proposal to penalize countries holding trade surplus with global tax of 1% per month.  This is because they would be keeping the world’s effective demand low by their under purchase of goods produced by other countries.
·     
           Fund for the economic Reconstruction: There was a need to undertake reconstruction work in the Europeans countries ravaged by war.  He suggested institution of International Bank for Reconstruction based on a Plan for Relief and Reconstruction.
·      
I    International Trade Organization: To promote international trade and to facilitate growth instituting an International Trade Organization was proposed which will hold and operate a Commodity Buffer Stock of primary goods, in order to stabilise the prices.  The ITO would purchase goods when prices are low and sell when prices are high.
These noble plans were not followed whole heartedly.  The powerful nations like The United States of America has better of it.
  • No common world currency was floated by IMF.
  • In contrast to the recommendation the deficit countries were penalized as if they alone were responsible for their trade deficits.
  • European reconstruction was carried out by the US sponsored Marshall Plan with a huge budget of $ 13 billion.  The major benefits of the reconstruction went to the United States of America.
  • The development of the least developed countries (LDCs) was not on the agenda of the Bank of Reconstruction as suggested by Keynes
  • ITO was never born thanks to US opposition, though its charter was drawn up and other formalities were completed.

Inspite of the half heartedness these measures worked for a period of time.  The Europeans and American economies advanced tremendously.  There was a tremendous work of reconstruction went on in the European countries, particularly in Germany and in Japan.  This work gave employment to people and it created tremendous demand and the industrial production went to the peak.  The rapid industrial growth happened not only in America, Europe and Japan but it extended to South Korea, Taiwan and Brazil.  There was a rise in the productive capacity of the society.  Specifically the productivity of labour also increased tremendously.  There was a tremendous advance in science and technology.  New industries with far more advanced technology emerged. 

International Trade also increased.  There was competition at the global level which gave further boost to improving technology and increased productivity of labour

We used to get reports from the elders in Europe who had lived through the great depression.  They had faced the brunt of the war.  The after math of the war brought untold suffering to the people.  These people also saw the recovery and the luxury of life after that.  The elders would say that the younger generation born after 1942 had not experienced the hardship they had.

Along with this recovery and progress we also saw the end of colonial rule in the Asian, African and Latin American countries.  There was a big contradiction between the prosperity of the advanced capitalist countries and the poverty, deprivation in the third world countries.  These colonised countries, though freed, were exploited through the new imperialism of the west.  The Breton Wood institutions like World Bank and IMF did not work in favour of the third world countries.  These institutions were used to subjugate and exploit the third world and the benefits would go to the first world.   By 1971 the Bretton Woods system collapsed.  The USA ended the convertibility of dollars to gold, ushering in a new era of free-floating currencies and international capital flows (Hutton 1995).

The tremendous productive capacity of the western advanced capitalist countries needed greater international market.  The market within these advanced countries was not adequate.  And within these advance countries too there were inequalities which restricted the market within.  The poverty of the third world countries could not absorb the goods produced in the western capitalist countries.  The failure to institute International Trade Organization that would hold buffer stock of essential commodities initially worked to enhance the profits of the advanced countries.  But in the long run demand went down internationally.

This led to another phase of crisis in the Western and American capitalism, - ‘structural crisis’ of the falling rate of profit, that is, the declining return on capital invested in machines and technology. There was combined crisis of inflation and stagnation, stagflation crisis, when both unemployment and inflation rose dramatically.  While there was high productive capacity and vast store of commodities there was no matching purchasing power with the people within the advanced capitalist countries and in the international market which comprised primarily the third world countries.    The situation of over production on the one hand and under consumption on the other hand came into existence.  There were attempts to build a purchasing power among the poor nations by offering development projects through bilateral government to government aid and aids through private aid agencies. 
There were attempts to muzzle the political powers in Latin American countries, in the Middle East, African and Asian countries.  We had the examples of Chile, Iran and Philippines where the America imposed rulers friendly to their imperialist interests.
These efforts did not give much result in expanding market for the industrialists of the advance countries.
To give a massive blow to the declining economy of the advanced capitalist countries there was a massive rise in the oil prices in the seventies.  The spurt in the oil prices literally led the common people in American and Europe to a miserable life.

Introduction of Neo Liberal Economic policies:

In 80is there arrived two major personalities, Ronald Reagan and Margaret Thatcher who tried to introduce changes in the course of the economic policies to overcome the crisis that the world was confronted with.  This marked the rise of Neo Liberalism.

The two main foundational tenets of neoliberalism were, first, in the view of Ludwig von Mises, “egoism is the basic law of society”; and, second, in Friedrich von Hayek's view that “free markets lead to ‘spontaneous order’ that solves the problem of economic calculation”. These two individuals - Ludwig von Mises (1881-1973) and Friedrich von Hayek (1899--1992) - represent the founding fathers of neoliberalism, providing the theoretical backbone for the political and ideological claims made by others. In this sense, neoliberalism was very much an ideological project, one that attempted to counter what neoliberal thinkers saw as the inherent totalitarianism of collectivist and state planning of the economy by drawing on economic theories which, in turn, posited the impossibility of economic planning in the first place.

The Neo Liberalism came as an attack on Keynesianism. It was the only way to increase profit by controlling labour costs.  Neoliberalism can be seen as a political project intent on restoring class power (Harvey 2005). The new economic project was founded on neoliberal assumptions about economic efficiency, reduced state intervention and free markets.

This economic project found its advocates in a number of new right-wing politicians around the world exemplified by Margaret Thatcher (1979-90) in the UK and Ronald Reagan (1981-9) in the USA, whose policies became known respectively as Thatcherism and Reaganomics. Other countries have followed suit by implementing neoliberal policies, whilst some started even earlier than the UK and USA. For example, the ‘Chicago boys’ - Chilean economists trained at the University of Chicago where Milton Friedman worked - helped the dictator Augusto Pinochet to privatize and deregulate the economy after the coup that ended Salvador Allende's socialist government and his life in September 1973 (Harvey 2005).
“The neo liberalism is characterized by five core principles (Hall 2003; Hay 2004; Mudge 2008): privatization of state run assets (firms, council housing et cetera); Liberalization of trade in goods and capital investment; monetarist focus on inflation control and supply-side dynamics; deregulation of labour and product markets to reduce `impediments' to business; and, the marketization of society through public-private partnerships and other forms of commodification. These principles are all meant to enable individual freedom through recourse to a ‘free’ market that is efficient in allocating resources across society and the world because only the market can coordinate all the information signals from numerous agents (such as sellers and buyers).”(Kean Birch and Vlad Mykhnenko, A World Turned Right Way Up.
Neoliberalism shifts state intervention to new forms of governance underpinned by a ‘logic of competitiveness’, including: ‘active’ and flexible labour policies; new commodification regimes such as intellectual property rights and carbon trading; fiscal austerity; and public spending on supply-side inputs (e.g. education, infrastructure, et cetera). Thatcherism and Reaganomics represented a ‘rolling-back’ of regulation, state ownership and welfare services during the 1980s, driven, in large part, by a monetarist preoccupation with inflation that encouraged different forms of privatization (Prasad 2006).

Washington Consensus:

In 1989, John Williamson proposed ten policy reforms included an imposition of a tight fiscal discipline (with virtually no public budget deficit allowed); an end to subsidies and re-direction of public expenditure on basic health, education and infrastructure; tax cuts; financial liberalization; free-floating exchange rates; trade liberalization with a unified low tariff; openness to foreign direct investment (FDI); privatization; deregulation; and secure private property rights. Williamson dubbed his list of reforms a Washington Consensus because ‘both the political Washington of Congress and senior members of the administration and the technocratic Washington of the international financial institutions, the economic agencies of the US government, the Federal Reserve Board, and the think tanks' had reached by then an explicit agreement that ‘prudent macroeconomic policies, outward orientation, and free-market capitalism’ had to be urged on the rest of the world (Williamson 1990, 1993).

The Washington Consensus promised that the combination of stabilization, liberalization and privatization and globalization would integrate semi capitalists, non capitalist and pre-capitalist economies into global market economy to shore up profits in advance countries.
    1. Gaining new market (though limited)
    2. Gaining access to cheap labour
    3. Gaining access to.
    4. Gaining new areas of investment in infrastructure.
To achieve this integration use:
a.        Trade liberalization.
b.      Remove barriers to the mobility of global capital.
c.       Abolishing barriers to foreign investments.

The Washington Consensus promised that the combination of stabilization, liberalization and privatization would bring `renewed growth', and along with it prosperity, to the most remote corners of the globe by `the unleashing of markets - the basic enabling reform from which all the potential benefits of transition [to free-market capitalism] follow' (World Bank 1996: 7).

It was expected that Neo liberalism and Washington consensus had effectively transformed the major economies of the third world countries in to countries where there would least intervention by the state in the market forces, where most of the state run enterprises are disinvested and the free flow of foreign direct investment come easy along with the reform in the labour laws that would suite the interests of the foreign investments. It was expected the advanced capitalist countries would reach out to the remotest part of the poor nation to exploit cheap labour and the rich reserve of natural resources (cheap agricultural and raw material products). 

The success of Neo liberalism gave rise to contradictory results.  The multinational corporations and transnational corporations enjoyed maximum freedom to shift their capital to which ever country that gave maximum profits.  In the last 25 years China was integrated into the global capitalist economy to counter declining profits. There was rapid industrialization of China. In the last 25 years tremendous amount of manufacturing capacity was added to China.  China became the fastest growing economy with an unbeatable growth of 13%.  Fortune 500 corporations moved their significant part of their operations to China to take advantage of China price and inexhaustible cheap labour.  By 2005 roughly 40% to 50 % of the profits of US corporations were derived from their operations and sales abroad, prominently in China.  Similarly India and many east Asian countries experienced rapid economic growth.

The outcome of the Neo Liberalism did not augur well for the advanced capitalist countries.
1.       These countries suffered de-industrialization.  These countries would have got rid of polluting industries but along with it these lost the capacity for manufacturing good for their needs.  They came to depend heavily on import of goods from China and the Asian countries.  The markets in the west and US are flooded with the goods manufactured in China, India, South Korea, Vietnam and others.  Loss of industries and manufacturing capacity resulted in the growing unemployment in the advanced capitalist countries.

2.       The United States of America now is able to export only arms and fighter planes.  America’s involvement in Afghanistan, Iraq and their war against terrorism, which paradoxically nurtured by US has brought the economy to grinding halt.

3.        Capitalism has come to the stage where it is not able to develop the productive forces any further and has lost its potential of bringing any further profits to the capital.  The driving force of profit as we know is through reduction of labour by advancement of technology.  Essentially the production of commodities for mass consumption has lost its ability to revolutionize productive force any further. 

4.       Capital employed in manufacturing goods is not able to generate more profit for the capitalists. 
5.       The maximum growth in the production has been in the area of consumer durable and automobiles.  Consumer durables do not find market in the great mass of people.  It is only the top 20% of population consume the consumer durables and since these commodities are durable their market gets exhausted rapidly. The automobile production too had limited scope of market.  Yet the contradiction in the automobile industries is the earth as a whole and the cities where automobiles operate has exhausted its carrying capacity.  The cities are overcrowded with cars, paradoxically in the countries which at present have the largest market for cars.  Consumption of fossil fuel is ever on the rise.  Now a days there is more production of cars driven on diesel than on petrol.  The cities over crowded by car people have to drive on the road bumper to bumper which contradicts the very purpose of having a car as this has turned the cars into inefficient mode of conveyance.  The big cities all over have become the most polluted.  Carbon emitted through automobiles contributes the most to climate change and global warming. The idea of producing green fuel is a misnomer.  The agriculture would shift from food grain production to production of bio fuel and would result in food crisis.  The world already has face food crisis number of time.

6.       There is a real energy crisis in the world.  One level of crisis is inequitable consumption of energy.  The advance capitalist consume far too high per capita energy compared to the developing countries.  Their consumption of energy and production of green house gases contributes about 80% to the global warming.  The people in the advanced capitalist countries are not willing to change their way of living.  Per capita consumption of energy in the developing countries is very low in proportion.  The countries like China, India, South Korea which have recorded high growth rate are in need of greater energy.  There increase in the production of power through carbon base technology.  China has recorded very high emition of carbon through their power generation units.

7.       In the guise of production of clean energy many countries have resorted to nuclear energy.  China, the world’s fastest growing economy will be also a leading country to have maximum nuclear energy plants.  India wants to build the world’s largest nuclear plant at Jaidapur.  Chernobyl nuclear disaster not enough we had three such nuclear disasters in Fukkoshima through a massive earth quake and tsunami in Japan in March 2011.  There will always be a great challenge to dispose the nuclear waste, which eventually leads us to having to live with greater hazardous nuclear waste than having energy.

8.       The growth and technological advance has become unsustainable.   One cannot escape from the cost of environment degradation.  If we take the price of environment degradation one does not get any further with growth and technological progress.  The ever growing environmental degradation has brought the planet earth in crisis.  If the global economic crisis on 2008 with the ever enduring recession does not indicate the limits of capitalism the climate change and global warming does pose the greatest challenge before the world.  Every attempt at progress under the neo liberal ideology is eating up into the planet earth making the very survival of humanity very critical. 
Neo liberal restructuring had poor record in growth:
In 1980s -------- 1.4% growth.
                                    In  1990s ------- 1.1% growth
           The growth in the 60s and seventies was better.
                                   In 1960s ------- 3.5% growth
                                   In 1970s ------- 2.4% growth
           According to one index the profit of Fortune 500 went from:
                             7.15% in 1960 - 1969 to
5.30% in 1980 – 1990 to
2.29% in 1990 – 1999 and to
1.32% in 200 – 2002.

 Financialization:

  1. All efforts towards over coming dwindling profits did not yield much result. In the countries of late capitalism investment in industry and agriculture were yielding low profits.  Financialization, namely using finance as capital without converting into means of production, was one attempt made by the neo liberals to gain profit.   The large amount of funds were circulating and being invested and reinvested in the financial sector.  In India the corporate involved in manufacturing also resorted to finance to make profit.  Tata Empire started ‘Tata Finace’ and ‘Tata-Aig insurance’.  There are hosts of industrial corporate like Reliance, Mahendra, Bajaj got into using finance to earn more profit to make up for the dwindling profits in the manufacturing units.

“Securitization was the key vehicle for the explosive expansion of the financial sector.  It is described as the process of turning non-marketable, non-tradable financial assets into tradable securities: for instance, claims on debt (such as government bonds), claims on ownership (such as ordinary shares), or ‘derivatives’ - a wide range of financial products whose value is derived from the actual or expected price of some underlying asset, which may be a commodity, a security, a currency, or indeed any economic variable. Used as a hedge to reduce risk or for speculation, derivatives can be exchange-traded as well as ‘over-the-counter’ (OTC) instruments, including futures contracts, forwards, options and swaps. Whilst the main market-traded derivatives are futures options, the OTC trades are off-balance-sheet, specific and customer-tailored instruments (such as asset-backed securities, collateralized debt obligations or credit default swaps), involving seemingly esoteric practices such as the pooling of assets, the trenching of liabilities and the creation of ‘special purpose vehicles' ostensibly to reduce risk. (Moles and Terry 1997).” (Kean Birch and Vlad Mykhnenko, A World Turned Right Way Up.

  1. The financial sector was not relating to the creation real wealth but was revolving within financial sector.  Financial sector should reflect or mirror the real wealth of the society, namely, goods and services.  Finance is embodiment of the value of goods and services and outside this finance makes no sense.

  1. Financialization (trying to generate profit out of finance alone) brought about bifurcation between the financial sector and the real economy comprised of goods and services. Financial sector was not any more representation of the real economy.

  1. Financial economy grew in a fantastic manner far beyond whatever growth achieved in the real economy.  Entry of foreign funds seeking quick and high returns went to real estate and the stock market.

  1. Financial sector became unsustainable.  It was disconnected from the real economy and had gone at tangent away and above the real economy.  Financial growth became empty of real value. 

  1. Investing in financial sector operation amounts to squeezing money out of money. Investing financial sector may create profit, but it does not create new wealth and therefore new value. Only in production – agriculture, industry and service sector – where labour is involved value is created.  Profit is not based on value that is created.  Profit is creation of new value, new value called surplus value.  Profit or surplus value created has objective existence in the society in commodities. If one tries to make profit through usury investments then these become very insecure and prices of stocks, bonds, and other forms of investment can depart very radically from their real value.

“With the financial sector placed firmly at the heart of global financial capitalism, Western governments have been quick to abandon all the tenets of free and self-regulating markets, rushing to commit themselves to full financial support of financial institutions, opening the era of massive bail-outs and stimulus packages. By mid2009, the US government had committed $8.5 trillion to support its battered financial system, with $5.8 trillion earmarked for Federal Reserve lending, credit guarantees and asset purchase schemes; $2 trillion in other schemes; and $700 billion in the Troubled Asset Relief Programme, a new ‘public private partnership’ aimed at buying ‘toxic’ assets from banks. It is worth noting that the US government’s commitment to the financial sector amounted to two-thirds of its GDP. The size of the UK rescue package for banks was $2.12 (£1.22) trillion, or 87 per cent of the country’s GDP, with £585 billion allocated to asset protection; £300 billion to bank credit guarantees; £185 billion to central bank loans; £94 billion to bailing out five banking institutions (RBS-Royal Bank of Scotland, Lloyds TSB, HBOS-Halifax Bank of Scotland, Northern Rock and Bradford & Bingley); £50 billion to the Bank of England corporate debt scheme; and £10 billion to a working capital fund for small businesses.” (Kean Birch and Vlad Mykhnenko, A World Turned Right Way Up.

“The 2007-9 financial turmoil appears to be rather unique in at least three ways. First, geographically, it has broadened to include households, corporations and the banking sectors in both advanced and emerging capitalist countries. Second, this has been the largest crisis in terms of capital loss. According to a recent estimate by the IMF, subject to a number of assumptions, the write-downs on US originated assets to be endured by all holders since the outbreak of the crisis until 2010 could reach a total of around $4 trillion, two thirds of which would be incurred by banks (IMF 2009: xi). Third, the sub-prime credit crunch has led to the demise or restructuring of several giants of the corporate world, including Lehman Brothers, Bear Stearns, Royal Bank of Scotland, Lloyds TSB, Citigroup, AIG, Fannie Mae, Freddie Mac, Bank of America, Northern Rock, Bradford & Bingley, Halifax-Bank of Scotland, Merrill Lynch, and Alliance & Leicester.  As a consequence, the current financial crisis has highlighted a dramatic shift in baking’s centre of gravity, with potentially dramatic geopolitical repercussions.” (Kean Birch and Vlad Mykhnenko, A World Turned Right Way Up.


Whatever measures the US state, the European Union or the G7 or G20 took up did not work.  These measures at best have postponed the crisis and are preparing ground for greater crisis.  To give an example, to overcome lack of profitability and increase demand in the market the governments introduced stimulus packages, giving liberal financial advances to the people, by reducing the interest rates further, in other words making money cheap.  Money had already become sterile and formed itself into a bubble.  When money is made further cheaper it will further aggravate the crisis.  This is exactly what has happened today in 2011. 
 There is need to reflect on the following points:

a.       We need to reject once for all the view of Ludwig von Mises, “egoism is the basic law of society”; and, of Friedrich von Hayek that “free markets lead to ‘spontaneous order’ that solves the problem of economic calculation”.  These great personalities and their views that guided the Neo liberal policies are so fraud.  There is no scientific basis for holding such theories.  These theories have led the capitalist world economy to the brink of collapse.  
b.      That there should be no role for the government in the market and there should be no regulation of economy by the state is another myth that has been exploded.  Where ever there were some regulations by the governments there we find some level of insulation of their economy from the global melt down.
c.       All collectivization and socialization is bad and smell of evil empire. But the so called evil empire did not experience the crisis of the great depression of 1929 and even the great Wall Street melt down of 2008.
d.      Social and economic inequality itself will be a driving force against the all the efforts to avoid or overcome global crisis.  The lack of equity in energy consumption will go a long way in bringing about the collapse of the world order with ever greater speed.  Expropriation of profit and the wealth of the world by a few have brought our civilization to this precarious stage.

e.      “Monetization of carbon emission would solve the problem of environment” is a capitalist myth that shakes their responsibility off from their shoulders and passes it on to those who organize their life in a sustainable manner.
f.        Environment, climate change and global warming are not going to exclude the rich and developed word of its impact.  The developed work will not be able to protect itself from the global disaster with the money they may have amassed.

g.       Finally we should recognise that it is time for the capitalist phase of human history to be superseded by another advance phase that will save the world and more make the history move to a more humane, sustainable civilization.  With this we should also recognise that the economic theories that have been churned up by the capitalist intellectual need to be revised.  The objective situation in which we have found ourselves demands for such revision.

Tuesday, August 16, 2011

Corruption and Capitalism


Corruption, Capitalism and Civil Society:
(DRAFT)
                                                                                                                                                Alex Tuscano
Anna Hazare has made a history.  He will be remembered by many for many years to come for his grand success in his fast against corruption. 

To use his own words he initially thought that he would sit under a moderate pendal (shamiyana) with a few supports sitting with him for the hunger strike.  But against all his expectation there was a huge following across the country in all cities and town.  All young and old joined in his fast and campaign against corruption demanding legislation of jan lokpal. 

Anna had his mind clear on what he wanted.  For over forty years the lokpal bill has been lying in cold storage and governments after government have been shirking the responsibility for passing this law.   What was lying in the archives of pending bills was a watered down version and teethless piece of legislation that had not seen the light of the day.  Anna knew that the politicians and political parties who are guilty of corruption would never pass a law that will mussels them.  He and the top leaders of the movement wanted members of civil society to have say in drafting the bill.  They demanded that there should be 50% persons from the civil society to draft the bill.

The movement was so massive that it not only surprised Anna himself but also the government.  Initially the ruling UPA was trying to scuttle the efforts of the people by hiding behind formalities and constitutional intricacies.

What is significant of the movement launched by Anna Hazare is that it did not involve any of the opportunist politicians.  The opposition parties were not able to take advantage of the movement to get mileage from the movement.  Two politicians, Uma Bharati and one more, were booed out from the gathering.  The opposition could not take advantage of the movement to politicize it and use it against the ruling UPA as they were themselves responsible for not bringing out the law and they too have their share in the corruption scenario.
One important truth comes out of this movement is the role of the civil society in bringing about change in the society.  Gramsci has been advocating the role of civil society in bringing out change in the society.  In Anna Hazare’s movement the people from all ranks had participated and the movement had spread across the country.  The role of the youth and the urban middle class was at the peak.  The rural masses were not involved in the same extent.  But non participation or low level participation of the rural masses does not rob away the importance of the movement.  Jayaprakash Narayan’s movement too was predominantly of the urban middle class.  The farmers, daliths and adivasies were not emphatic by their presence.   The issue of corruption has greater appeal with the urban middle class rather than other section of the people.  Corruption issue does not often affect election trend.  This could be the reason for the absence of the rural masses, adivasies and the daliths from the movement.  But the fact that the civil society arose in this manner totally non violently is a sign of maturity of the civil society and the democracy.

There have been some who have different views of the movement.  They claim that not all who were part of the movement were very clear about the objective of it.  This claim does not discredit the movement.  Maxim Gorky’s mother did not understand fully all the elements of the Russian Revolution as Lenin had understood.  But the mother of Gorkhy understood good enough to accept that the revolution would bring about change that will go a long way in meeting the aspiration of people like her.  Any movement will have a situation where the level of clarity among the participants and members will be uneven depending on the role these different people play in the movement.  If there were different levels of clarity among the participant of Anna Hazare it is not something that will discredit the movement.  It is clear that all who were enthusiastically part of the movement and even those millions who would not come to the streets would not like to tolerate corruption that will adversely affect their lives.

The official position of the government was that Anna Hazare was asking something that was unconstitutional.  It is only the Members of the Parliament and the Parliament which can draft and pass a law.  The political class argued that involving the members of the civil society is not only unconstitutional but it will set a precedent that will erode the power and the sanctity of the Parliament.  There were also another apprehensions expressed.  Some fascist forces from the civil society would emerge and by sheer power of their number would demand something that would harm democracy and the interest of the people.
This is a tricky question.  There are some in the movement who accuse that the Parliamentarians as defacto claiming that the democracy is of the politicians, by the politicians and for the politicians.  Once the parliamentarians have been elected the people have no role in politics and in democracy.  While we uphold the constitution there is something missing in the constitution which needs to be brought in to ensure that in democracy the citizens are supreme.  While it is claimed that the civil society members can become fascist and therefore the Parliament can protect the nation and the democracy form this.  On the other hand it is also possible that the Parliamentarians can become authoritarian and corrupt and they could destroy democracy.  There is a need to arrive at some clarity on the issue of civil society, democracy, Parliament and the Constitution.


The way to end corruption:

There is a serious reservation among many about ending corruption through legislation.   In the year 1975 Jayaprakash Narayan launched a nation wide movement for total revolution to end corruption and authoritarianism.  From his time till today corruption has not gone away. Even if Anna Hazare had expanded the concept of corruption to include election process the notion of corruption expressed in the movement of Anna Hazare is very shallow.  It is understood only in terms of financial irregularities or money misappropriated by the politicians or political class and state bureaucracy directly or indirectly.  There is no analysis of corruption nor is the corruption seen as linked to the overall economic and political system of our society.  Therefore it is easily believed that a piece of legislation can put an end to the corruption.
The western advanced capitalist countries believed and propagated this belief that corruption was characteristic of the non west countries where the states are weak and underdeveloped.  They used this argument to justify the Washington consensus.  But this myth was exploded by 2007-2009 global financial and economic crises.

“There is an imaginary world where corruption does not exist, which is nowhere realized in a pure form, and there are ‘real world’ economies where extant corruption is inevitable.  It is the very impossibility of realizing corruption free economy which produces its disciplinary power, for its realization would dissolve traction.”
De Sardan in his article “A Moral Economy of Corruption in Africa” (Journal of Modern African Studies) states “corruption should be understood as a ‘moral economy’ underpinned by value systems and cultural codes”.

In this context I am reminded of the statement the BJP chief, Nithin Gatkari made while defending Yeduarappa’s corruption and nepotism in allotting public land to his son and son in law.  He said Yedurappa is legally right but morally wrong.  By this he adds a dimension to the concept of corruption.  If he is legally wrong then he is corrupt.  If he is morally wrong that does not make him corrupt.  Yedurappa’s action of allotting public land to his son is legally right hence he is not corrupt.  But this action is morally wrong and this does not make him corrupt.  Hence corruption means actions which are legally wrong.  Similarly the  Reddy brothers too are not corrupt because they have licence to exploit the mineral resource than belongs to public; sell it and pocket the money and give fraction of their income as lease money to the government.  Bothe Reddy brothers and Yeduriappa are not corrupt as they are not involved in illegal action.  When we speak about corruption we are speaking about what is legal and what is illegal.  Does corruption stop at this legality of action?  In that case we will have to ask a question, on what does legality rest? 

The land that Yedurappa gave to his son was acquired from the farmers with the money of the tax payers.  The land from which the iron ore is extracted by the Reddi brothers belongs to the people, the common land or forest land.  Just because Yedurappa has a discretionary power or the Reddi brothers pay a puny amount of money as lease amount does not make them the owners of the land or the iron ore.  According to pre reformed India the mineral resource was supposed to be national resource and the revenue from that was supposed to belong to the nation and its people.

When we speak of corruption we do not speak about what is legally right only.  It should also be morally right.  What is morally wrong cannot and should not become legally right.  We need to go one step further and consider that what is legally right should also be socially just.  Justice and equity are high moral values and legal system cannot over rule these values and declare some acts as legally right though socially unjust and morally wrong.

Legal system is creation of human institution to uphold justice, equity and morally in the functioning of the society and governance.   Legal system should converge with social justice and morality.


Corruption inherent to capitalist society:

Corruption is inherent in the capitalist system itself.  This may sound like a moralist view of Capitalism.  Capitalism ought to be analysed scientifically.  But a moralist comment on capitalism nails capitalism.  Even if one analyses capitalism in a scientific manner the inherent immorality of capitalism cannot be hidden.  Karl Marx who is the most irrefutable proponent of scientific analysis of capitalism says apologetically, “To prevent possible misunderstanding, let me say this, I do not by any means depict the capitalists and the land owners in rosy colours.  But individuals are dealt with here only in so far as they are the personifications of economic categories, the bearers [Trager] of particular class relations and interests.  My stand point, from which the development of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creatures he/she remains, socially speaking, however much he/she may subjectively raise himself/herself above them.” 

Capitalism survives by exploiting the toiling masses.  It robs the wealth people create and appropriate for itself. It creates, sustains and lives on inequality in the society.   Julius Nyrere has appropriately narrated that the natural functioning of the capitalist system brings about poverty and inequality.  He says, “when it rains water ultimately flows from the driest region to the lakes and seas where there is already plenty of water, in the same way the wealth from the hands of the poor individuals and poor nations flows in the hands of the rich individuals and rich nation as a natural process of functioning of the economic system.”


Primary Accumulation in the past and today, is the most corrupt and unjust process:

When capitalism emerged as a prominent economic system it had to go through a process of formation of capital.  Since this formation of capital takes place for the first time and out of wealth of pre-capitalist system it is called primary accumulation of Capital.

The process of primary accumulation of capital was the most corrupt and inhuman process.  The events that led to the driving away of the land owners, converting the agricultural land to grazing ground and then expropriating for the construction of industries in England was an act of corruption.
The stoical peace of mind with which the political economist regards the most shameless violation of the ‘sacred rights of property’ and the grossest acts of violence against persons, as soon as they are necessary in order to lay the foundations of the capitalist mode of production, is shown by Sir F. M. Eden, who is, moreover, Tory and ‘philanthropic’ in his political colouring. The whole series of thefts, outrages and popular misery that accompanied the forcible expropriation of the people, from the last third of the fifteenth to the end of the eighteenth century, leads him merely to ... ‘comfortable’ concluding reflection....”


“In the eighteenth century the Gaels were both driven from the land and forbidden to emigrate, with a view to driving them forcibly to Glasgow and other manufacturing towns .  As an example of the method used in the nineteenth century, the ‘clearings’ made by the Duchess of Sutherland will suffice here. This person, who had been well instructed in economics, resolved, when she succeeded to the headship of the clan, to undertake a radical economic cure, and to turn the whole county of Sutherland, the population of which had already been reduced to 15,000 by similar processes, into a sheep-walk. Between 1814 and 1820 these 15,000 inhabitants, about 3,000 families, were systematically hunted and rooted out. All their villages were destroyed and burnt, all their fields turned into pasturage. British soldiers enforced this mass of evictions, and came to blows with the inhabitants. One old woman was burnt to death in the flames of the hut she refused to leave. It was in this manner that this fine lady appropriated 794,000 acres of land which had belonged to the clan from time immemorial.”  Capital ‘So called primitive Accumulation: The Expropriation of the Agricultural Population’

Today’s situation of industrialization of India could be called a process of primary accumulation
In the name of industrialization and progress the government of India has passed a legislation to facilitate creation of Special Economic Zone.  These zones are created to enhance foreign investment and promote export from the country.  The SEZ gives the foreign investors the following incentives and facilities:


§  Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
§  100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
§  Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
§  External Commercial Borrowing by SEZ units up to US $ 12500 billion in a year without any maturity restriction through recognized banking channels.
§  Exemption from Central Sales Tax.
§  Exemption from Service Tax.
§  Single window clearance for Central and State level approvals.
§  Exemption from State sales tax and other levies as extended by the respective State Governments.
The major incentives and facilities available to SEZ developers include:-
§  Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
§  Income Tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act.
§  Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
§  Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
§  Exemption from Central Sales Tax (CST).
§  Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).

To create Special Economic Zones the government has become real estate brokers who take the land of the peasant, daliths and adivasies and put them on the street.  Any resistance from the owners of the land has met with violence from the state.  We have examples of Singur and Nandigram where the police had opened fire on the resisting farmers and killed them.  We see that today in Jaithapur.


 The very act of land acquisition by paying compensation is a corrupt act.  It takes away the land and assets of the peasants and farmers and hand over to the industries in the name of development.  The value fixed for the land acquired is a make belief.  The Karnataka government acquired 5000 acres of land for Bangalore International Airport.  After completing the work it discovered that 400 acres excess land had been acquired.  This land was offered for sale.  When the authorities paid Rs. 500,000/ per acre to the farmers this 400 acres land from where not even a weed had been taken out was offered for a few crores per acre.  The looters did not think of giving that land back to the farmers who were their rightful owners.

“It needs to be noted that transfers of this kind to private capital are not always seen as the result of corrupt practice. There have been many instances where sections of the private sector have made huge gains through means that are "unfair", even if not illegitimate, though they have not been associated with credible allegations of corruption.” C. P. Chandrasekhar, Front Line.

If we read about how in 19th century agricultural land was acquired in a most brutal way for building industries and converting the mass of land owners as dispossessed wage labourers we are not very far from that.  The need of the time is to accumulation at the fastest possible manner to catch up with the rapidly growing economy.  Faster the growth of the economy greater is the corruption in the society.  After the economic reform from the year 1990 India is witnessing massive corruption.  The quantum of black money and money in the Swiss Bank has multiplied manifold.  The amount of black money that is stacked up in Swiss bank from India is the highest among all nations of the world.  The manner in which our economy functions is an evidence of highest form of corruption.  The liberal ideologues clamour for a least role for the state and the government in the market forces.   The government should restrict itself to governance.  But governance means governance only for the capitalist class.  By minimal role for the state and the government they expect that the government aggressively acquire land of the poor and hand over to the rich corporate and international capital and reduce the owners of property to mere wage labourers.  That the government give host of concessions on taxes, build infrastructure for the smooth functioning of the industries and let the rest work under contractors for the industries without any guarantee of permanent employment.


‘Inflation’, a permanent corrupt policy:

Another intervention that the states have been making is following ‘permanent inflation’ as a policy.  The economists tell us something else about inflation and make the state and the capitalist class innocent of this mechanism. 

The total money available in the society should correspond to the value of the total available product in the society.    Money expresses or represents the value of the commodities.  If the total available commodities in the society is ‘X’, the total money available in the society should be ‘X’.  Money that is available in the society (market) is a token money (paper money).  It is note or a declaration by the governor of the Reserve Bank that he promises to give the person holding this note of that much of money.  This token money or printed money can be printed or introduced in the economy (market) by the government.  No private agency or institution can print money.  We are often told that inflation takes place when more money chases after less quantity of commodities.  Which means the quantum of money in the market has increased and gone beyond the quantum of value of the commodities available or produced in the society?  Why does the quantum of money increases, money supply in the market increases?  It increases because the government prints more paper money.  Though the central government alone has an authority to print money it is also subject to the law of the economy.  Government prints money in the situation of deficit financing.  This means government plans to implement several schemes and programmes in a fiscal year.  Government will require money to carry out these schemes and plans. 

Government decides to raise this money required for the schemes and plans by levelling taxes on the people.  The income tax, excise duty, import tax, sales tax, turn over tax etc are the different kinds of tax are levied on the citizens to raise the money.  This will increase the price of the products people buy for their needs.  But this will not result in inflation.  This will result in redistribution of available money and the money used by the government for their planned schemes will return to the market or society in the form of those schemes.  There will be better roads, better transport service, more schools, and health services.  It will also mean buying of more weapons in the name of security and defence.  The price rise of commodities will also accompany availability of more services in the market.

Often it happens that the government revenue raise through taxes falls short of the required money to implement all its projects and schemes.  In such situation the government resorts to printing of more money.  This is called deficit financing.  Fiscal deficit happens most often when the government tries to implement social projects such as employment generation programmes.  To provide employment the government gives the unemployed people work that may not result in direct creation of wealth or commodities.  This will result in more money available with people but the production of more commodities will not take place.  Here we have a situation where money supply increases but the supply of goods and services remain constant.  Here is a situation where more money chasing the same quantity of goods and services (c0mmdities).  Here we encounter decrease in the purchasing power of money.  We often hear expert tell us that the real value of rupee is seventy paise; the value of money has come down and therefore the purchasing power of money has come down.  Hence the real income of the people comes down.

“The Keynesian revolution”, i.e., transforming not only the form but also the content of money creation:  Bank money, or deposits plus over drafts on current account henceforth become the main source of inflation.


Inflation as a permanent policy of the capitalist governments:


“We are impelled by present attitudes and goals to seek to operate the economy at a capacity where, we have seen, inflation must be regarded not as abnormal but as a normal prospect” (Galbraith, “Affluent Society” 1958).

Apart from deficit financing, i.e., the state printing money to finance some projects that do not result in creation of goods and service the state allows for the creation money which is called BANK MONEY.  Bank Money is created by way of over draft on current account issued by banks.  Creation of credit by banks becomes much more emancipated form of actual circulation of commodities. [“Hundi system”, money in anticipation has been an age old practice followed by the banks to allow the capitalist to get the price of their product even before the goods reach the market and even before it reaches the consumer who will pay for it.  The capitalist producer submits documents about the production of goods and draw money from the bank as over draft on the basis of production].  Companies could obtain credit for production by overdraft on their current account.  Hence the volume of money becomes an inverted pyramid - gold at the bottom, paper money at the second broader level and bank money one the top broadest space.

Hence forward the main source of inflation became the expansion of over draft on current accounts granted by banks to the private sector and covered by central banks (Reserve Bank of India) and governments.  In other words production credit to producer capitalists companies and consumer credit to house hold (above all to purchase houses and consumer durable goods).  Thus the permanent today is permanent inflation of credit money, or the forms of money creation appropriate to late capitalism for the long term facilitation of extended production, additional means for realizing surplus value and accumulation.

All these policies are aimed at helping the capitalist class to gain quick return for the investment and facilitate faster accumulation and growth.  Before the commodities could reach the market and land in the hands of the consumers the producers have already got their money to go in for accumulation and further production. Inflation is a deliberate policy followed by the state to help the capitalist class to rapidly realize their investment and profit and promote fastest accumulation of capital.  In the fast growing economy the urgency to fastest accumulation is high and the capitalist class supported by the state go all the way out to maximize their accumulation process.  As a result we have high level of inflation along with high level of growth.


International Trade, based on corruption and injustice:

The international relationship and trade is based on corruption and injustice.   The advanced western capitalist countries resort to unfair trade with the developing and poor countries.  They want to exploit the cheat labour freely available in the poor nations and de-facto refuse free access to the markets for the developing countries. The most developed countries want the poor countries to open their boundaries for foreign goods while they practice protectionism in time of hardship caused by corruption in their own countries. All this is done in the name of ‘free trade’.

“These MDG goals and other plans were set in the WTO conference at Doha, which came to be called the “Development Round”.  These are nothing new or different from the basic human rights – rights of each person on the planet to health, education, shelter and security.  The difference is that the advance industrial countries want to provide the finance for the achieving the goals.

What the advance industrial countries want to do by this is to give doles to the poor and developing countries.  By doing this they want to continue to exploit the developing and poor countries for the profits of the advance industrialized countries.

40 to 50% profits of the US Corporations were derived from the developing and poor countries, especially from China where huge amount of cheap unskilled labour was used.  The poor countries are predominantly used as market for the advanced countries and to derive agricultural and raw material for their industries.”
“The Washington Consensus used to blithely exhort all the developing countries to liberalize their markets rapidly and indiscriminately.

Walden Belo, a progressive economist has pointed out that these policies in fact were not meant for the development of the third world but to solve the economic crisis in the first world.  He points out that the aim of this structural adjustment in the third world was to invigorate capital accumulation by 1. removing state constraints on the growth, use and flow of capital and wealth; and 2. redistribute income from the poor and middle classes to the rich on the theory that the rich would then be motivated to invest and reignite economic growth.”

“The advanced industrial countries committed themselves to helping (provide the finance) for development priorities of poor countries.

Unfortunately, in the years since it was launched, the Doha Round has not delivered on its development mandate in several important respects.  First, there has been little progress on the issues of interest to developing countries.  In particular, developing countries are interested in agreement to reduce tariffs on goods that they can export competitively.  These are mainly labour intensive goods, i.e., goods that are produced cheaply in countries with low wage rates and abundant unskilled labour.
The developed countries gain from liberalizing their own markets, because, they are able to adjust, and the disturbances posed to them by the developing countries are small.

The developing countries are in a far more disadvantageous position – they will need assistance in making the required adjustments, and they should be given a longer time within which to adjust.” (Joseph Stiglitz)
Corruption is inherent to capitalism.  Accumulation and the growth is a function of corruption.
The corruption that Anna Hazare and his movement would like to root out is only a symptomatic corruption.


“In fact, when discussions of corruption occur, the possibility that it serves as a mechanism for private aggrandisement receives little attention. The tenor of the discourse is that the virus of corruption afflicts only government officials and politicians, who control and misuse state power. This may have been a partly reasonable position to take if corruption is merely reflective of the price to be paid to state functionaries for private individuals or entities to realise what would have been legitimately due to them. But increasingly corruption appears to reflect payments made by the private sector to realise illegitimate gains that are not merely violative of fair practices and/or the law but damaging from the development, environmental or fiscal points of view.” (C.P. Chandrasekhar, Front Line, December 17, 2010.)

Let us take 2G spectrum corruption.  It is not corruption where small people were involved.  It is operated by the big business like TATA, Reliance and many other big companies who have looted the money of the common people for their growth. A Raja claimed that under him the telecom has grown in an unprecedented manner.  No doubt it is true and it is the function of corruption that engulfed the 2G spectrum allocation.  There are huge numbers of citizens who have access to telephony facility but they pay for this.  But those who have grown without paying for the spectrum or rather by robbing the common people are the corporate like Tata, Reliance and all spurious companies. 

CWG scam was for the sake of growth of the different companies who have been suppliers of facilities for the CW games.  They were greedy as all capitalists are to make maximum profit out of the business of Common Wealth Games.  Organizing such functions and game, even organizing Wold Cups, if analysed critically, serve the interests of the capital and obviously all these activities are not free from corruption.

I would call this the 21st century primary or primitive accumulation akin to the accumulation of 19th century England quoted above.  The story has to be told about the Common Wealth Games scam.
When the capitalist class is not able to cope up with the growth that is befitting fast growing economy they resort to plunder and robbery.  The absurdity of the capitalist state is that those who fight against corruption through peaceful agitation land up in the same Tihar Jail as those who indulged in corruption. Being absolutely corrupt or fighting vehemently and peacefully against corruption amounts to be the same – criminals in jail in the company of the corrupt.   Anna Hazare will be treated in Tihar Jail in the same way as A. Raja and Suresh Kalmadi are treated.

(16th August 2011)