Prabhat Patnaik on The Logic of Neo-Liberal Capitalism


By Prabhat Patnaik,

CAPITALISM is a “spontaneous” system in the sense that its dynamic is characterised by the unfolding of certain immanent tendencies, such as the commoditisation of every object, the destruction of pre-capitalist production, and the process of centralisation of capital. The question arises: what is the role of the State in this spontaneous dynamic of capitalism? In general the State in a capitalist society aids this dynamic, removing hurdles to, and accelerating the operation of, its immanent tendencies. There may be certain historical conjunctures however when the correlation of class forces is such that the State may have to act to restrain the spontaneity of capitalism.

The post-war conjuncture was one such, when the enormous growth of the socialist camp, the upsurge in working class assertiveness in the metropolis, and the rise of anti-colonial liberation struggles in the third world, combined to pose a serious threat to the very existence of the system. Decolonisation, and the institution of State intervention in “demand management” to ensure high levels of employment in the metropolis (which even took the form of Welfare State measures in Europe where the socialist threat was most serious), were ways in which the system coped with this existential crisis, with the capitalist State acting to an extent to restrain the spontaneity of the system, though by no means eliminating it (for that is impossible as long as the system exists). Likewise in the decolonised economies, the States that came into being outside of the socialist countries, though bourgeois in character in the sense of promoting capitalist development, also acted, because of the legacy of the anti-colonial struggle, to restrain the spontaneity of the system.

But centralisation of capital occurring during this period itself created massive accumulations of finance whose drive to sweep aside national boundaries that restricted its free movement ushered in the current regime of globalisation that is characterised by the globalisation of capital, and above all of finance. The nation-State under this regime loses its autonomy in the face of the globalisation of finance, since any move on its part to act in a manner opposed to the demands of finance causes a flight of finance and hence a domestic crisis. In effect therefore the nation-States once more promote, instead of restraining, the immanent tendencies of capital. The policies through which they do so are what we call the neo-liberal policies. Neo-liberalism in short restores the “spontaneity” of capitalism. To view the neo-liberal State as “withdrawing” in favour of the “market” is misleading; the State acts in accordance with the demands of international finance capital and the domestic corporate-financial oligarchy integrated with it and thereby aids the “spontaneity” of the system.



Since a major immanent tendency is the destruction of pre-capitalist petty production, this re-assertion of “spontaneity” of the capitalist system shows itself inter alia as an assault on petty production, including peasant agriculture, everywhere. The agrarian crisis and the peasant suicides we see in India in the neo-liberal era are simply the expression of this assault. They occur not because agriculture is “neglected” under the neo-liberal dispensation, as is commonly thought, but because of this very dispensation itself.

The mechanisms through which this assault on petty production occurs together constitute what Marx had called the process of “primitive accumulation of capital”. While primitive accumulation is logically distinct from, and occurs historically prior to, what one may call the “normal” accumulation of capital studied in detail in Capital, it is not confined only to the period before capitalism gets to its feet. On the contrary it occurs throughout the history of capitalism, using colonialism as its chief weapon, as Marx had noted in his writings on India. The colonial State had effected this primitive accumulation at the expense of the petty producers through the twin processes of “drain of surplus” and “deindustrialisation”, while the neo-liberal State uses other instruments (as we see below), but its manifestation in the form of a crisis of petty production remains the same. In short, the current agrarian crisis is a re-emergence, though under changed circumstances, of the prolonged agrarian crisis of the colonial era which had been interrupted for a while during the dirigiste era.

Not that the dirigiste era did not see primitive accumulation of capital: the eviction of tenants that marked the transition towards capitalist agriculture of the junker variety during this period was an obvious instance of it. But this was primitive accumulation occurring within the agrarian economy, not inflicted by big capital from outside; now such primitive accumulation inflicted from outside by big capital and the neo-liberal State (which instead of apparently standing above classes and looking after the interests of “all” becomes pre-occupied above all with promoting the interests of the corporate-financial oligarchy) occurs in addition. It may be thought that there is no need to distinguish between the dirigiste and the neo-liberal eras in this respect since primitive accumulation occurs under both. The point however is that primitive accumulation of the sort that occurs during the later period gets superimposed on the primitive accumulation of the sort that occurred during the earlier period, which also continues in the later period. It is this which explains the virulence of the agrarian crisis today.

The assault on peasant agriculture takes two forms. One, constituting primitive accumulation in “flow” terms, entails a squeeze on agricultural incomes and hence profitability (such as what the taxation system had effected in the colonial period); the other, constituting primitive accumulation in “stock” terms, entails a transfer of assets from the peasants at “throwaway” prices, often without their consent, to corporates and real estate developers for “infrastructure” or “industrial” projects (in addition to the transfers occurring within the agrarian economy to landlords). Even when consent is obtained, it is not from all the producers dependent on the particular piece of land; compensation likewise is not paid to all the producers. Those excluded clearly lose their rights on land for nothing (including customary rights) and are the obvious victims of primitive accumulation in “stock” terms.

The latter issue has been much discussed; let us concentrate therefore upon the former. A number of measures taken by the dirigiste regime to improve the resilience and profitability of agriculture have been undone under the neo-liberal regime, squeezing the peasantry to the point where even simple reproduction becomes impossible for large numbers of them, resulting in peasant suicides (more than 2 lakhs in the last decade and a half). Among these are: removing the insulation of peasant agriculture from the vicissitudes of world market price fluctuations which tariffs and quantitative restrictions had provided under dirigisme; doing away with the market intervention function of Commodity Boards which had provided assured prices for several crops; putting peasants in direct contact with agri-business MNCs and domestic corporates without the protective buffer of the State; jacking up input prices through the withdrawal of State subsidies, necessitated by the fact that budgetary resources flow increasingly towards big corporates;  scaling down of agricultural research and development in public institutions; winding up of public extension services; severe cuts in public investment in agriculture; a progressive withdrawal of institutional credit to the sector so that peasants have to borrow at exorbitant rates from a class of new moneylenders; and privatisation of essential services like education and health which makes them inaccessible or exorbitant for the rural working people. One can list similar measures affecting other segments of petty producers: fishermen, craftsmen, spinners and weavers.

Primitive accumulation of capital which destroys petty production and releases workers for employment under capitalism would not have caused the distress it has, if those released by its destruction had been  significantly absorbed into the “active army of labour”. They have not been, and the reason for that lies in the removal of another restraint upon “spontaneity” that dirigisme had imposed, namely upon the pace of technological-cum-structural change. As a result the rate of growth of labour productivity has been so high that notwithstanding apparently high rates of GDP growth, the rate of growth of employment has been too minuscule to absorb even the natural growth of the work-force, let alone the displaced petty producers looking for jobs. To be sure, the growing relative unemployment caused by this has not manifested itself as such: it has taken the form of a proliferation of casual employment, part-time employment, intermittent employment and disguised unemployment (often camouflaged as “petty entrepreneurship”). Employment rationing has thus obliterated to a great extent the very distinction between active and reserve armies of labour as separate entities. This has resulted on the one hand in a burgeoning lumpen proletariat, and on the other in a stagnation or even a decline in the real wages of organised workers.

Even if we take the period 2004-05 to 2009-10 which is supposed to have witnessed rapid GDP growth and confine our attention to what the NSS calls “usual status” employment as a rough proxy for proper employment, we find that the rate of growth of such employment was a mere 0.8 percent per annum, well below the rate of growth of population itself (and hence, approximately, of the natural work-force) even if we ignore the job-seeking displaced petty producers. It follows therefore that for the working people as a whole, comprising agricultural labourers, peasants and petty producers, and non-white-collar workers, there has been an absolute deterioration in real living conditions under neo-liberalism. This is because the essential feature of a neo-liberal regime is the inflicting of a virulent process of primitive accumulation of capital in a situation of minuscule employment generation, which was also exactly the case under the colonial regime.

The parallel with the agrarian crisis of the colonial period gets underscored if we look at foodgrain output figures. The average annual net per capita foodgrain output for the quinquennium 1897-1902 was 201.1 kilogrammes for “British India”, which had declined to 146.7 for the quinquennium 1939-44 (subsequent figures are affected by partition). This was a massive decline, by more than 25 percent, which shows the severity of the agrarian crisis. This decline was however reversed, and there was an improvement in the post-independence period, until the onset of “liberalisation”: the figure for Indian Union as a whole rose to 178.77 kg for the triennium ending 1991-92. The period of “liberalisation” however has once again seen a decline: the average annual per capita net foodgrain output for the triennium ending 2012-13 (which is a comparable one with the earlier triennium) was 169.52.

Significantly the decline in per capita net availability of foodgrains has also matched this decline in output, which bears out the point made earlier about the deterioration in the living conditions of the working people as a whole. The annual per capita net availability of foodgrains, which is defined as net output less net exports less net additions to stocks (though for practical reasons only government stocks are considered), had risen from 152.72 kg for the quinquennium 1951-55 to 177 kg for the triennium ending 1991-92. For the triennium ending 2012-13, this figure had come down to 172.1 kg.



The decline in food absorption that these figures suggest is also borne out by figures on per capita calorie intake. The percentage of rural population accessing less than 2200 calories per person per day (which is the benchmark for defining rural poverty) increased from 58.5 in 1993-94 (the first NSS survey of the period of “liberalisation”) to 68 in 2011-12. The percentage of urban population accessing less than 2100 calories per person per day (the benchmark for defining urban poverty) increased from 57 in 1993-94 to 65 in 2011-12. In terms of hunger, India  now ranks below sub-Saharan Africa and also what the UN calls “the least developed countries”. This fact of growing hunger contradicts official claims about declining poverty, but this is not surprising since the official claims are based on a spurious method of estimating poverty. This method defines a “poverty line” for the base year as a benchmark level of expenditure (at which the calorie norms are met), and then updates it for later years a by using a consumer price index in order to estimate how many people fall below this line. Such consumer price indices however seriously underestimate the actual price inflation: they do not take into account the increase in the cost of living owing to the privatisation of essential services like education and healthcare.

The rise in per capita GDP in a situation of absolute deterioration in the living conditions of the working people entails a massive increase in the share of surplus in GDP, which explains the extraordinary increase in income and wealth inequalities during the period of liberalisation, as is evident for instance in the rising number of Indian billionaires. It also explains (in a period when the realisation of the rising surplus has not been a problem because of the boom) the visible enrichment of a middle class segment. The income of this segment is either directly derived from this surplus, eg, from its expenditure on conspicuous consumption and from activities  associated with its extraction, or dependent upon its growth (which the realm of finance is). Besides, the shifting of a set of activities such as IT-related services from metropolitan countries to the Indian economy, which is part of a phenomenon of “outsourcing” to the third world from the metropolis that characterises the current era of globalisation, also contributes to its growth. The growth of this middle class segment however is perhaps less in terms of its relative numerical size than in terms of its relative income vis-à-vis the working people.

Booms under neo-liberal capitalism are typically associated with the formation of asset price bubbles. The prolonged world capitalist boom which was sustained first by the “dotcom bubble” and then by the “housing bubble”, and which underlay the liberalisation-period boom in the Indian economy, has come to an end, with no new bubbles in sight in the foreseeable future. The halcyon days of neo-liberalism are over, which therefore brings on to the historical agenda a struggle for its transcendence. This can be a combined struggle, of the working people who have been its victims, and the middle class segments who have till now been its beneficiaries but are currently on the threshold of hard times. But precisely because of this possibility, neo-liberal capitalism will also increasingly promote fascistic and semi-fascistic tendencies in order to divide the people. Countering these tendencies is the way through which the Left and democratic forces can move forward.

originally posted here