The Accumulation Process in the Period of Globalisation

PERSPECTIVE current orthodox economics refers to a The Accumulation Process state of affairs where all prices, including money wages, are rising pari passu, so in the Period of Globalisation that there is no worsening of the condition of the working masses per se and the only sufferers are those with cash balances, Prabhat Patnaik most of whom are likely to be rich. But inflation as we know it in real life, The inflation in food prices of the n preparing this lecture, which is part especially in a country like ours, where early 1970s that arose out of excess of a series being organised in memory the bulk of the workers do not have wages demand for cereals disappeared Iof D D Kosambi in his centenary year, I indexed to prices, is one that hurts the have been tempted strongly to choose a working masses. Keynes (1930) had called in later years not because of any topic that would have been of interest to this latter kind of inflation “profit infla- significant supply augmentation, him. Accordingly I shall devote this lecture tion”, and had recognised it as a phenom- but because it was substituted by to what everyone is concerned about these enon of great importance under capital- 1 an income deflation on the days, namely, the world food crisis. ism. In situations where supply could not be rapidly augmented, it overcame excess working people, including the 1 demand by raising prices relative to peasantry, over large tracts of the Paul Krugman of the Massachusetts Insti- money wages, and thereby bringing world. This income deflation, tute of Technology, whose column appears about a shift of income distribution from brought about by the imposition in several Indian newspapers, had wages to profits (whence the term “profit compared, in his column in The Hindu of inflation”), which, because the capitalists of neoliberal policies, compressed April 22, the present worldwide excess tended to save more out of income demand and kept food and other demand for a number of primary commod- than workers, had the effect of lowering commodity prices in check. But ities, which inter alia underlies the current overall demand. over the longer term, income inflation, with a similar state of excess Now, this demand compressing effect of demand for commodities that had arisen a profit inflation can also be achieved deflation has undermined the in the early 1970s. He argued that while through an income deflation imposed on very viability of peasant the earlier state of excess demand was the working masses. Starting let us say agriculture, adversely affecting overcome through supply adjustment, from a situation where the money wage supply. All this is part of the such as new oil strikes in the North Sea rate is 100 and the price is 100, a reduction and the Gulf of Mexico, and the entry of in the wage rate to 50 with price remain- process of “accumulation through new land into cultivation, the same might ing the same has exactly the same effect of encroachment” which had been a not happen this time around, because the lowering workers’ demand as a rise in central feature of colonialism and scope for supply adjustment was now price to 200 with the money wage rate has re-emerged with a vengeance much more restricted. remaining at the original level. Krugman however is not correct. The What is more, even though income in the era of globalisation. resource crisis of 1972-75 was not univer- deflation and profit inflation have exactly sally overcome through supply adjust- identical effects by way of compressing ment. In the case of the most vital primary the demand of the working masses, commodity, namely, foodgrains, it was finance capital prefers the former to the overcome, not through any appreciable latter since profit inflation entails a decline stepping up of supplies, but through a in the real value (vis-a-vis the world of This is a slightly revised version of the text of severe compression of demand, and the commodities) of financial assets, and may the D D Kosambi Memorial Lecture delivered latter happened through an income in extreme situations make wealth-holders in Pune on May 8, 2008. I wish to thank Govind deflation imposed over much of the turn to holding commodities in lieu of and Kalindi Deshpande, P Venkatramaiah, Akeel Bilgrami, Joseph Stiglitz, world. The regime of “globalisation” financial assets altogether. Income defla- C P Chandrasekhar, Jayati Ghosh, Javeed inter alia was a means of enforcing such tion therefore, even while keeping excess Alam and Utsa Patnaik, for their comments on an income deflation. demand in check, and yet increasing the an earlier draft. It is often not recognised that income share of profits earned in the organised Prabhat Patnaik ([email protected]) deflation plays a role exactly equivalent to sector of the world economy, exactly as a is with the Centre for Economic Studies and that of inflation in compressing demand. profit inflation would have done, has the Planning, School of Social Sciences, Of course, the term “inflation” itself is an added “advantage” of keeping finance Jawaharlal Nehru University, New Delhi. ambiguous one. The notion of inflation in capital happy. Income deflation for the 108 june 28, 2008 EPW Economic & Political Weekly PERSPECTIVE working population of the world, which that the decline in per capita cereal output, interventionist state (except when the includes, apart from the proletariat proper, in a situation of rising world per capita interventionism is exclusively in its own the peasantry, the petty producers, the income, did not generate any specific favour). An essential element of this agricultural workers, and other unorgan- inflationary pressures on cereal prices. opposition has been its preference for ised sector workers, becomes a pervasive The reason it did not is the income defla- “sound finance” (i e, for states always phenomenon in the era of globalisation, tion imposed over much of the world. It is balancing their budgets, or at the most characterised as it is by the rise to this, rather than any supply increase as having a small pre-specified fiscal deficit hege mony of a new kind of international Krugman suggests, that explains the as a proportion of the GDP). The argument finance capital based on a process of absence of any specific trend inflationary advanced in favour of this preference has globalisation of finance.2 pressures in cereal prices (i e, ignoring always been vacuous, and was pilloried by The fact that the inflation of the early fluctuations) until recently. And this Joan Robinson as the “humbug of finance” 1970s arising out of excess demand for income deflation was imposed over [Robinson 1962]. The preference nonethe- primary commodities disappeared in later much of the world via the phenomenon less has always been there, and has years was because it was substituted by an of globalisation. become binding in the era of globalised income deflation on the working people finance, when states willy-nilly are forced over large tracts of the world, and not 2 to enact “fiscal responsibility” legislation because of any significant supply augmen- Income deflation is not a single process that limits the size of the fiscal deficit tation of non-oil primary commodities, as but the outcome of a number of different relative to GDP. At the same time, this Krugman believes. processes, which deflate not just the move towards “sound finance” is accom- According to the Food and Agriculture money wage rate as in the earlier numeri- panied by a reduction in the tax-GDP ratio, Organisation (FAO), the total world cereal cal example, but more importantly the owing to tariff reduction and to steps output in the triennium 1979-81 was level of employment and income, espe- taken by states competing against one around 1,573 million tonnes for a cially in the non-capitalist, petty produc- another to entice multinational capital population (for the mid-year of the trien- tion sectors. It is income deflation in this to set up production plants in their respec- nium, 1980) of 4,435 million. For the trien- comprehensive sense that eliminates the tive countries. nium, 1999-2001 the cereal output had excess demand that would have arisen in The net result of both these measures is increased to around 2,084 million tonnes its absence, given the fact of sluggish a restriction on the size of government for a population (for the mid-year of the increases in supplies. expenditure, especially welfare expendi- triennium, 2000) of 6,071 million. This ture, transfer payments to the poor, public represents a decline in world per capita Three Processes investment expenditure, and development cereal output from 355 kilogrammes in There are at least three processes contrib- expenditure in rural areas. Since these 1980 to 343 kilogrammes in 2000. Given uting to the phenomenon of income defla- items of expenditure put purchasing the fact that during this period per capita tion, in this comprehensive sense, over power in the hands of the people, income in the world has increased signifi- much of the world in the era of globalisa- especially in rural areas, the impact of cantly, and given the fact that the income tion. The first is the relative reduction their curtailment, exaggerated by the e la st ic it y of de m a nd for ce r ea l s (c o n s u m e d in the scale of government expenditure. multiplier effects which are also to a b ot h d i rec t ly a nd i nd i rec t ly v ia pro ce s sed Globalisation, as mentioned earlier, significant extent felt in the local (rural) food and animal feed) is markedly consists above all in the globalisation of economy, is to curtail employment and posit ive (even i f less t ha n one), a st ag na nt finance.

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