Crisis of Market Raj

S. Udayan explains the roots of the current global financial crisis and exposes what market economists fail to bring out, that the business of the government is to ensure the super profits of big business and bail them out when in trouble. He contrasts it with the Indian conception of Raj Dharma as that of providing sukh and suraksha to the praja.

S. Udayan explains the roots of the current global financial crisis and exposes what market economists fail to bring out, that the business of the government is to ensure the super profits of big business and bail them out when in trouble. He contrasts it with the Indian conception of Raj Dharma as that of providing sukh and suraksha to the praja.

The fashion of the past three decades has been the motto that Market is King. It has been declared, as if it is a self-evident truth, that any civilised society must be based on a market oriented economy. The State must not intervene in economic matters, except to set the rules of the game and set what are called “macro-economic parameters”. Any nation or people who think otherwise are considered suspect, or a potential threat to civilized humanity.

This goes completely against the grain of Indian experience and Indian thought on raj dharma. For several millennia, our civilisation developed on the basis of the principle that the State is duty bound to look after the needs of the people. In the rock caves in Udayagiri near Bhubaneswar, more than 2000 years old, one can see the level of attention that was paid by the then rulers to special needs of specific sections of society. Not only were caves created to shelter wandering monks in the rainy season, but the stone floors in these caves were sculpted in such a way as to create a natural pillow for the monks to rest their heads.

We have been told that this is an old fashioned idea: people must not depend on the State to look after them; they must fend for themselves. The motto is to leave everything to the free play of individuals and firms, where each is out to maximize one’s own private interests. Have faith, we are told, that the pursuit of private interests would result. The global financial meltdown of 2008, and the massive bail-outs of big time gamblers in the US, Europe and elsewhere, has exploded several myths about a market oriented economy being the best possible system.

Explosion of Myths
One myth that has been exploded is that everyone has equal rights in this so-called free market. No, some players are more equal than others. They have the “right to be bailed out” when they fail to rake in super-profits. The privately owned financial institutions which are being bailed out, like Lehman brothers, AIG, Bear Stearns, Goldman Sachs, Freddie Mac and Fannie Mae, made more than $37 billion in profits in 2006. Today, more than a trillion dollars (Rupees 50 lakh crore) of public money is being handed out to the biggest banks and insurance companies – those that have massively robbed and deceived the public!

Data show that the median income in the US has consistently declined for the past four years. This means that more than half of all families have become absolutely poorer than before, year after year in this period. The State did not intervene to protect the standard of living of the majority of the population.

Bail-outs of giant corporations, using public funds, have aroused the anger and indignation of people in the United States. When the vast majority of citizens are told to fend for themselves, why should the government come to the rescue of the super-rich, who gambled with other peoples’ money and created the crisis in the first place? One of the placards carried by the street demonstrators in New York said, “Let Wall Street fail! No bail, send them to jail!”

The mantra that “it is not the business of government to be in business” has also been exposed by these developments. Governments are intervening, not in a small way but in massive proportions. Not just in the United States and Europe, but in all market oriented economies, including in China and India. They are intervening to protect corporate profits.

The principle underlying the free market ideology stands exposed. The State has no responsibility to protect anybody except the biggest capitalist corporations. This is the real meaning of what the economists of the World Bank and IMF preach, namely: the State must intervene in the economy only when there is market failure. This means that when big business fails to rake in maximum profits, the State must intervene to help them do so. And that is the only reason for the State to intervene in economic affairs, according to these pundits.

Metamorphosis of Markets
Markets operate differently today than when they did in the early phase of capitalism. The fallacy underlying the ideology of “free market reform” is that it presents features that belonged to an early stage of capitalism as something possible to achieve in the 21st century, when capitalism has reached a highly monopolistic and parasitic stage.

Markets played a limited role at different stages of society, until commodity production expanded to reach international proportions, which in turn was spurred by the capitalist system of production.

There was a stage of society when merchants ruled the roost, such as during the heyday of the British East India Company, until manufacturing capital emerged as the prime mover of society following the industrial revolution in Europe. Competition among capitalists in each industry spurred technological progress in the period when modern industry arose and spread – spanning the 18th and 19th centuries.

In the age of the rise of industrial capital, the market for a commodity typically had numerous sellers competing to sell to numerous buyers. There was no individual or firm big enough to dominate and dictate the prices (except in the colonies where monopoly and domination prevailed). In such conditions, capitalist competition compelled every producer to adopt superior methods and techniques of production so as to outsell the others.

The world has changed considerably in the 20th century and we have now entered the 21st. Capitalist competition has led to capitalist monopoly – or oligopoly, to be precise. When a handful of players control over half the total market for a good or service, the smaller players have to struggle for survival. In the end they have to either become ancillaries to the big guns or sell out and get out of the market.

The supremacy of industrial capital has been replaced with the domination and hegemony of finance capital. This is the other big difference between now and a century ago. Speculators and parasites rule the earth today. Those in the van of society are not captains of industry but barons of finance. The big banks, insurance giants, pension funds, mutual funds, hedge funds, equity funds and others forms of financial institutions and agencies, control the lion’s share of investable capital in the world. They decide where and when investments are made – how much of it in the productive forces and how much in speculation. Moreover, we have reached a stage of state monopoly capitalism where essentially the financial oligarchy uses the state to directly enrich itself besides protecting its profits. The bail-outs are a glaring example of this.

In India, financial institutions control large shares of the companies run by Tatas, Reliance and other capitalist giants, who in turn have their men in the board rooms of the financial institutions – be it in the public or private sector. With the push of a button, the global financial barons shift enormous amounts of money from one form to another, from one market to another, from one part of the world to another. Everywhere they enter and exit, they create booms and busts, leaving devastation in their wake. In the last ten years alone, they made money from IT stocks, then they made money from real estate and housing finance, and then from futures trading in commodities, sending oil and food prices shooting to the skies. This is how markets operate in this current age of finance capital.

Money must not lie idle or earn anything less than maximum profit for even a second – this is the principle on which finance capital operates. If the conditions are such that productive activity does not offer maximum returns, then shift all available capital to speculate in commodity futures! This is the call of the gambler kings.

Entering into a futures contract cannot be considered productive activity by any stretch of imagination. It does not create any additional value for society. It adds to the pocket book of some financial barons, by robbing from others value that has already been produced. Should parasites be allowed to set the agenda for society? Is this really the best possible model of society for the 21st century? People are not willing to accept this any longer.

Establishment Reaction
When any system faces a crisis, the establishment reacts to douse the fire, to deflect the people’s anger, and to shift the blame. There are various false notions being spread today, which together define the reaction of the establishment to the current crisis.

One false notion is that the problem is beyond human control, which is the key message conveyed by calling it a financial tsunami. Another form of deception is the notion that it’s not really the system but only some bad individuals or bad policy to blame. In the words of an economist, “With energy, it’s the speculators. With housing, its predatory lenders or crummy credit rating agencies or stupid banks. We’re not ready to throw out markets altogether, but we want government to do something about the excesses.”

Speaking at the G-20 meet on 15th November, Prime Minister Manmohan Singh quoted John Maynard Keynes, an economist of the 1930s, to say that speculators are harmless “as bubbles on a steady stream of enterprise”. He claimed that it becomes a problem only when “enterprise becomes a bubble on the whirlpool of speculation” and the development of a country becomes “the by-product of the activities of a casino”.

What Manmohan Singh and others who swear by the free market ideology hide is that it is precisely the process of capitalist competition in a global market that has led to the present situation, where casino players dominate and determine the fate of the global economy. Hiding this reality, they push the idea that the problem is not the system itself but a particular government policy, and particular culprits, that have led to excessive speculation. What is excessive speculation and profiteering? Identifying what is excessive requires setting a limit to “reasonable profiteering”. Who is to decide what is reasonable profiteering?

The CEOs of the giant financial institutions, who hid the reality as long as they could, and took home hundreds of millions of dollars in bonuses? The auditing firms that helped them hide the mess? Or the politicians who are funded by the giant financial corporations? If capitalism could restrict and regulate itself to be reasonable in its degree of exploitation and plunder for private profit, then it would not be capitalism. That is the catch.

In this context, it is interesting to note that the ancient Indian treatise called Arthashastra stipulated that no more than one-sixth of the produce of a village should be taken out as revenue by the State. This suggests that in the system that prevailed in our country for several centuries before the colonial conquest, what is taken out of the productive forces was actually restricted and regulated.

If we go on pumping more water out of the ground than is being put into the ground every year, the groundwater table will go down and down. There will be a stage when this cannot go on any longer. Similarly, if more is taken out of the productive forces of society than is put back into them, continuously and at a rapid electronic speed, a time will come when this cannot be carried on any longer. That time has come.

Towards a Superior Order
We can no longer live with this mantra that there is no alternative to a market oriented economy. Market Raj must necessarily give way to a superior order. We Indians must draw upon our own ancient wisdom as well as the wisdom of other peoples and worldwide experience – to draw the roadmap for attaining this superior order of society.

Given that human beings are born to society and have to make their living within the prevailing system of society, it is absurd to suggest that each person can fend for oneself. Society has an obligation. So does the State, as the supreme authority in a society. This finds clear recognition in Indian statecraft, which has always considered it the duty of the Raja to look after the Praja, and the right of the Praja to get rid of a Raja who refuses to perform this duty.

Rights have always been conceived inseparably from duties in the Indian tradition. We cannot have individuals who accept no duty to society claiming their ‘right’ to pocket maximum profits. Today we are witnessing the spectacle of speculators who have actually harmed society demanding the ‘right’ to be bailed out by the State.

Human labour is the activity of human beings to make nature yield what society needs. Human labour has the capacity to produce more than what is required to reproduce human society and nature, at a given level. If the social surplus produced by human labour is ploughed back into the productive forces, both human and material, then it is possible to imagine social progress raising living standards on a continuous basis, without crises, without booms and busts.

The problem is created by forces that want to take out more than what they put in; and to maximize the rate of taking out. Such individuals were considered to be the enemies of social wellbeing in pre-colonial India, deserving of the harshest punishment

Today, people are finding that they are unable to fulfil their consumption needs; they are unable to even maintain last year’s standard of living, not to speak of any increase. At the other pole, the barons of finance capital and big monopoly corporations and cartels are pocketing super profits of unprecedented magnitude. The two poles are interconnected. One is the cause of the other.

Even in slave societies of the past, the masters knew better than to let their slaves starve and perish. They made sure that a basic minimum level of human needs was satisfied. Modern day market oriented society, dominated by parasitic finance capital, is unable to even ensure this basic minimum. Wellbeing for the working people cannot be secured without preventing parasites from sucking our blood. It is necessary to have working people organised and in command of managing productive enterprises, in such a way as to ensure that the surplus is ploughed back to raise living standards and invest in our future.

This is not the same as the so-called socialistic pattern of society that we experienced under Nehru in the early years of independent India. We have to ensure that the public sector is actually run in public interests – and not by career bureaucrats in the interests of the wealthiest business families. This requires that the people at large have to be in charge of the social surplus and how it is deployed.

In other words, turning the economy right side up also requires turning the polity right side up.

S. Udayan is an economist who writes on questions of political economy in a language that ordinary people can understand

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