The Faltering Miracle Story of India

Anjan Chakrabarti

Last time Indian economy ran into a major systemic crisis was in the late 1980s; it was a result of and also the final nail in the coffin of state sponsored planned economy. Along with the collapse of Soviet style command economies, it signalled the unsustainability of economic system built on absolute or near total control of state over the economy. That crisis helped spread the philosophy of neoliberalism in India which led to this lesson from the experience of centralized planning: for the goals of rapid economic growth and poverty reduction, state control over the market economy does not work and hence should be abandoned. Since then, structural adjustment program evolved in a gradual process of two decades, giving rise to a competitive market economy that is integrated into the global economy; as against the privileged position of planners, this new paradigm also protracted the supremacy of the mass of homoeconomicus (optimizing economic man, whether as consumers or producers) whose decision making transpiring in and through this global competitive market regime are supposed to generate the economy wide outcomes that are efficient. A connection between macroeconomics and microeconomics is thus made whereby the macroeconomic outcomes were seen as result of microeconomic behaviour in a competitive market economy1; it was believed that such a connection will produce high growth rate regime, stable and reasonable inflation and rapid employment in the industrialized sector (inclusive of manufacturing and services). Among the microeconomic decision makers were, of course, the global capitalist enterprises which, like the homoeconomicus as consumers, were taken as privileged for they were seen as essential instruments of generating high value and hence growth. Evidently, this competitive market economy helped create and facilitate global capitalism in the Indian economy. It is to this structural change that we move next.

Problem over Sharing the Indian Growth Miracle

As it has evolved gradually through an assortment of reforms, this paradigm shift produced a structural remapping of Indian economy taking the shape of circuits-camp of global capital qua global capitalism and its outside world of the third2. This changing map of Indian economy was driven by, among other things, the primacy accorded to global capitalist performance, appropriation and distribution of surplus which, via high growth rate, resulted in the expansion of the circuits-camp of global capitalism; this expansion, not surprisingly, meant a war on, or primitive accumulation of, world of the third3. In other words, process of primitive accumulation ensured that growth has been exclusionary (that is, devoid of trickle down effects), where the exclusion has taken two forms: one, by excluding a vast section of the population from the benefits of rising income growth, a phenomenon symbolized by worsening Gini coefficient, and two, further exacerbating existing social inequities (based on caste, ethnicity, gender, etc.). In fact, the dual phenomena of income equality and social inequity compensated, complemented and reinforced one another to exclude a large section of Indian population (residing in the margins of the circuits-camp of global capital and world of the third) from the benefits of economic growth; while due to measurement problems there is some controversy over the exact trend of income poverty, there is a strong indication that non-income factors of poverty (captured by the statistics of malnutrition, health, education, etc.) may have stagnated or worsened. The overall picture is that of a country of increased prosperity (concentrated in the hub of the circuits-camp of global capital) but growing divide as well.

The event of exclusionary growth was acknowledged and internalized by the policy circle and many economists after the disaster of ‘Shining India’ in the 2004 elections; it was agreed that exclusionary growth must be tempered by an attempt to include the left out population through redistribution of benefits of economic growth; inclusive development aspires to become the new national trope supposedly uniting Indians, notwithstanding their other differences, into a single national project of development in which all are participants and beneficiaries4. Rather than being in conflict, this imagery sees growth and redistribution as complementarity; high growth (that is, a bigger pie) sustains greater redistribution and greater redistribution in the form of more productive investment among the poor is supposed to secure and propel further growth. Global capitalism (circuits-camp of global capital), working via the competitive market economy, is thus not only good in itself because it rapidly expands growth. It also has instrumental value by delivering direct benefits of growth (the trickle-down effect) and indirect benefit of growth (through redistribution) to reduce poverty; the former will function through market (which, in Indian case, even the policy makers agree is weak) and latter through the intervention of the state. At another level we can interpret this imagery and its underlying policy paradigm as trying to combine the capitalist performance, appropriation, distribution and surplus in a global setting that is fundamentally private-centric and the domain of redistribution which is fundamentally state-centric. Thus, Indian state now encapsulates two rationales, one liberal (minimal interference in the competitive market economy, that is, in the circuits-camp of global capital) and the other dirigiste (directly intervening and controlling the redistribution process to world of the third); it combines these to secure the modernization process via the expansion of global capitalism (or, circuits-camp of global capital). This is projected as a truly win-win situation which is a result of the gift of globalization and the benefits derived from it in the form of enhanced wealth creation that the integration of Indian economy into a globalized world has enabled. Not only has the Indian growth miracle permanently arrived, but inclusive development enables the entire country – all population – to share and be a partner in this miracle. It is of course another matter that rulers at different times spare no effort in producing and disseminating pictures (in which nothing can seemingly go wrong) that in the end turn out to be delusional; previously, the picture of ‘Garibi Hatao’ and ‘Shining India’ were two such pictures. As in all case of delusional pictures that promise everything to everybody, this imagery is now in a state of crisis in more than one ways. We discuss one axis of that crisis here.

Microfoundation of Macroeconomics: A recipe to end depression or to begin one

Critical to this imagery is the assumption of high growth; an assumption bolstered no doubt by the actual realization of high growth rate regime which in turn is traced to the creation of a competitive market economy. This in turn has led to a sacrosanct belief and robust defence of the competitive market economy as against state intervention/control, and global capitalism as against national capitalism. However, since 2007, that growth story is in serious danger which in turn forces our attention to areas taken thus far as immune from discussion. In fact, Indian economy’s trouble expands well beyond the faltering growth story. In the last five years, Indian economy has slowly moved into a terrain of a deep crisis, perhaps in the same scale as the earlier one; in the sense that it is threatening to take the semblance of a systemic crisis. This time though, with a drastically truncated role of state vis a vis market and weak trade union opposition, the blame for this crisis can only fall on the combined effects of neoliberal globalization and global capitalism or the mechanism of global capitalist centred production, distribution and consumption of goods and services functioning through the conduit of competitive market economy. Is it then the case that the source of the systemic crisis resides in the illness of competitive market economy? This though is not the accepted position; nor is it yet the point of debate in India.

The Prime Minister Manmohan Singh insists that Indian economy’s fundamentals are robust, and hence its growth story, while faltering in the short run, is protected in the long run. If we accept Keynes’ dictum that ‘in the long run we are all dead’ (by the way, five years is not a very short period either) which in no small part is substantiated by the overdetermined and contradictory processes pulling and pushing the Indian economy into who knows where, then a question crops up. What is meant by saying that the fundamentals of the economy are strong?

Now, surely the Prime Minister is not referring to the macroeconomic fundamentals. A cursory glance at the basic indicators tells a sorry story in that front: growth rate is falling, inflation rate is resiliently high (transpiring, says RBI, mostly from supply side factors which keeps accumulating the problem), falling private saving and investment, growing current account deficit driven mainly by worsening trade deficit, pressure on capital account, declining rupee value and at times volatile exchange rate movement, and increasing fiscal deficit. This is indeed a case of fundamentals gone haywire and, as we are witness to, seem to be resiliently invariant to policy changes (pertaining to fiscal, monetary and exchange rate regimes), that are transpiring rapidly, being fired from all possible directions; this trouble is in fact finding further fodder through the global inter-linkages that is exporting the global problems into India in plentiful forms (the deleterious effects from Europe being the latest addition) thereby aggravating an already difficult situation. The trouble is not merely that the economy is faltering, but that the process is transpiring in a dynamic environment that is private (competitive market economy) and global, in which many processes/variables are not under the control of the policy makers if they are at all known to them in the first place. So much has been talked about the benefits India has garnered from its integration into the global economy; our mainstream friends would like us to be held captive by that picture. Yet, the last five years have shown that there is a cost of this integration too which now can hardly be left unquestioned. A lesson: there is no win-win harvesting from globalization. Like all other entities, the process of globalization is beset with overdetermination and contradiction, throwing up unpredictable outcomes and harbouring unknown possibilities, and for a competitive market economy integrated into a globalized world thus suggests the existence and the need to not only accept the possibility of business cycles, but also of breakdowns.5

If not macroeconomics, it then appeals to reason that the Prime Minister must be referring to the strong fundamentals pertaining to microeconomic environment; this can only mean the competitive market economy materializing from the liberalization policies of the last two decades. The suggestion here is that creating such an economy has succeeded in producing a level effect meaning that the minimum bar on the growth rate has been permanently raised as compared to that of the planning era. As a justification of this position, the high growth rate in the previous decade is presented as a proof. If this is accepted then it follows that the neoliberal policies by creating this competitive market economy have done a service to India. Because of the level of high growth rate, India stands a better chance not only to become richer but also reduce its poverty sharply.6 But then, if we are to accept this, how do we reconcile a sound microeconomic environment with a disturbing macroeconomic picture? How could the two set of fundamentals be moving in opposite directions? Can they in the first place do so? This leads to a deeper issue as the following argues. Let us begin by positing the position of neoliberal economics.

That sound microeconomic picture can co-exist with a systemic failure at the macro level is contrary to the neoliberal dictum which theorizes a picture of macro economy emanating from microeconomics; this is now the consensus of mainstream neo-classical economics. In addition to this frame as being methodologically robust in the sense of capturing the concrete reality, it is further held that a competitive market economy functioning with a supporting but non-intervening state7 will produce better macroeconomic outcomes than otherwise. And, to cap it all, such an economic system rules out systemic failures such as depression; any state interference here will produce an inferior outcome or worse; the role of state is only to ensure that competitive market economy is created, facilitated and secured from outside interference (such as anti-competitive practices, trade union activities, expropriation, etc.) and its own discretionary behaviour (following rules is better than discretionary policies). The confidence entrusted in this new paradigm can be gauged from the following quote in a Nobel Prize acceptable speech by Robert Lucas.

Macroeconomics was born as a distinct field in the 1940’s, as part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades. There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and save, not from better fine-tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from between long-run, supply-side policies exceeds by far the potential from further improvements in short-run demand management. (Robert E. Lucas, JR. 2003)

Coming from arguably the chief architect of modern macroeconomics and the economist principally responsible for demolishing Keynesian macroeconomics, the claim that depression – the term mainstream economics uses to signify economic breakdown as opposed to business cycle or fluctuations around trend which is regular – is over was a colossal claim8; colossal but also one which fell flat with the appearance of the global economic crisis. It showed that macroeconomics has still not solved its self-proclaimed central problem of depression and by corollary that what some such as Paul Krugman calls the ‘voodoo’ economics of supply-side is, to put it mildly, deeply problematical. Paraphrasing Lucas from our vantage point it appears that Marx’s observation of capitalist economic system containing the seeds of its breakdown was true in 1940s as it is now. The trouble is that the ‘voodoo’ economics continue to be the dominant economics, whereby its influence is deeply rooted in the currently policy making circles; even as depression can no longer be denied, the theoretical consensus that had resulted from the anti-Keynesian revolution enacted by supply side macroeconomics continue to hold considerable sway. And this theoretical consensus presents a deeper trouble. It lies in the inherent claim that a global capitalist regime under the conditions of free agents functioning in a competitive market economy with minimal state interference will lead to the disappearance of systemic failure such as that epitomized by depression.

If evidence is any proof (and economists revel in it), then we can conclude that there must be something fundamentally wrong with the axiom of Cartesian methodological individualism in a competitive market economy producing a depression free system. This hypothesis evidently rules out any autonomy to the economic structure which is specified in neoclassical economics as general equilibrium economy. If autonomy of structure is granted then that could carry the possibility of effects and outcomes irreducible exclusively to the optimizing behaviour of the agents interacting through market.9 However, unless we agree that this autonomy exists, it becomes difficult to locate and explain the appearance of the current economic crisis that is now global. That being the case, one of the central hypotheses of neoliberal economics – if individuals are free decision-makers, markets are self-regulating and hence sufficient for the system – becomes moot. Markets do have unique features and effects, but to enable a depression free economy is certainly not its forte. In short, the framework of neo-liberalism or its economic discipline of neoclassical economics cannot explain systemic collapse. In contrast, Keynes and Marx, in their own different ways, insisted on the relative autonomy of the structure, a relative autonomy that can be traced to the structure and, at times, the non-optimizing behaviour of the agents. It has also been suggested by others that parts do not add up to the whole; that the whole also needs to be specified and analysed in terms of its unique features and effects.10 This is not to say that individual decisions and market do not influence the structure (we believe that they certain do), but that structure cannot be seen as mere sum total of individual decisions.

If, in contrast, we accept that indeed microeconomic foundations produce macro economy or even go with our milder proposition that microeconomics do partially, but not totally, influence macroeconomics, then one must confer some quarter of blame (and if we are to follow the framework of neoclassical economics) to the kind of basic economy that constitutes microeconomics. Merely blaming the Indian economic crisis on the global economic crisis (a common refrain among Indian policy makers now) sidesteps the issue we are raising here.11 Since the 1980s, the neo-liberalization of global economy has produced a transformation towards a competitive market economy, a move that was propelled by developed countries (Harvey 2007). But it is precisely in the latter that the globalness of the current crisis originated and spread.12 If indeed we accept that macroeconomic outcomes are a result of agents’ decision-action in a competitive market economy, then surely it is that economy which must be held accountable for the outcome. In other words, instead of the fundamentals of microeconomics being good, they must be seen as deeply problematical and could be held as containing seeds of instability and destruction at a broader level.

The above underscores that microeconomic environment constituted by the competitive market economy populated by free agents can and does produce economic and social disasters, as it has; far from being self-regulating, markets may produce, as it has, self-annihilation leaving people, regions and even nations struggling to survive. Therefore, not only do we get the insufficiency of the neoliberal qua neoclassical framework in locating and explaining depression (as we argued earlier), but we additionally also find its chief logical conduit of explaining the functioning of economic system faltering. Surely, there is something wrong with this microeconomic environment which in turn calls for a rethinking of the basic economic system itself, the way production, distribution and consumption of goods and services materialize under capitalist form. One the other hand, if one still maintains that microeconomic fundamentals are sound, then one will have to concede that there is a dissonance between micro and macro, that macro economy has relative autonomy including possibilities of structural failure. This realization entails the role of state including active policy ones pertaining to control of the economy, if prevention of economic crisis or disaster (or, what Lucas called depression) is considered as desirable objective. Perhaps, the current economic crisis in India shows that both the aspects are true: there is a problem with the basic economic system produced by global capitalism functioning through a competitive market economy and that a role of the state as an active and intervening player in the economy is necessitated. The importance of the first was argued for by Marx whereby he related the macroeconomic crisis (the crisis of capitalism as such) to the contradiction, convulsion and failure of the competitive market economy functioning through capitalist organization of surplus and suggested the abortion of capitalism as a recipe for resolving the macro crisis. He thus favoured a systemic transformation. The second issue was taken up by Keynes when he suggested the role of the state in overcoming recession and ensuring smoothening of business cycles by actively intervening in and influencing the market economic outcomes, a point we saw was fiercely opposed by Lucas and his acolytes. This also shows that while both Marx and Keynes appreciated the relation between macro and micro (albeit in very different ways), Marx argued that systemic instability and disaster cannot be averted except by replacing capitalism as a system and Keynes suggested that the same can be averted, that is, capitalism saved with the active role of state preventing business cycles from turning into possible depression. Not surprising, neoliberalism as an economic-politico philosophy is not just hostile to Marxism, but also to Keynesianism (even as Keynes’ objective was to save capitalism).  Leaving aside their differences, it is perhaps more pertinent to realize that the current economic crisis has demonstrated that the suggestions of both Marx and Keynes, in tandem, need to be taken seriously. Notwithstanding the Prime Minister’s allusion to strong microeconomic fundamentals which is tantamount to taking the competitive market economy as sacrosanct that in turn demands a thin role of state, it is perhaps time to seriously question this conjecture and begin a debate on both the nature of economic system and state; to debate them not distinctly, but in tandem as in overdetermination. It is my position that in the current climate of India, this is not happening, either from the Right or Left.


Policy paralysis appears in a different way here. The policy paralysis is a paralysis of thinking that shuts out any solution other than what is the ‘consensus.’ Competitive market economy with capitalist appropriation and distribution of surplus in a global setting is the consensus in this historical episode that, however, also continues to burden us with a growing set of changes or ‘reforms’ that deepen the very processes and system which are responsible for this crisis. How and in what manner these so-called ‘reforms’ are going to put the Indian economy back on track are issues not touched upon? How they are going to put some sanity into our present unstable and volatile systemic regime is left untouched? Indeed, in a scenario where the malaise is systemic encompassing both the micro and macro, it is hardly surprisingly that the policies are not working. The debate from the radical side is disturbing too, being stuck on the need for the enhanced role of state which is, at times, combined with the nationalist trope of self-reliance. There is hardly any questioning of, and debate on, the issue of systemic transformation and the politics of producing it. Well, we have moved from a state sponsored development paradigm to a private market economy driven paradigm, and found both to be wanting. Changing the role of state (say moving towards a strong state) without challenging the economic system is unsustainable as history has shown us; in fact, both must be addressed together. To put it somewhat differently, both the micro and macro, in tandem, must be made the object of questioning and transformation.

Anjan Chakrabarti is Professor of Economics, Calcutta University. He can be reached at



Chakrabarti, A and Dhar, A. 2009. Dislocation and Resettlement in Development: From Third World to World of the Third. Routledge: London.

Chakrabarti, A and A.K. Dhar. 2012. “Gravel in the Shoe: Nationalism and World of the Third,” Rethinking Marxism, 24 (1).

Chakrabarti A, A.K. Dhar and Cullenberg, S. 2012. Global Capitalism and World of the Third. World View Press: New Delhi.

Harvey, D. 2007. A Brief History of Neoliberalism. Oxford University Press, USA

Lucas, Robert, JR. 1976. “Econometric policy evaluation: A critique”. Carnegie-Rochester Conference Series on Public Policy 1 (1): 19-46.

Lucas, Robert, JR. 2003. “Macroeconomics Priorities”, American Economic Review, Vol. 93, No.1.

Resnick, S. and R, Wolff. 2010. “The Economic Crisis: A Marxian Interpretation”, Rethinking Marxism, 22(2).



[1] Under mainstream economics, Microeconomics is the study of choices of individual decision-makers (not matter how large) to fulfil their wants (satisfaction or profit) in the face of scarcity of resources, while Macroeconomics is the study of economic aggregates intending to capture the overall health and behaviour of entire economy (no matter how small). In the former, the emphasis moves to resource allocation and income distribution which in case of the latter is on economic growth, inflation and unemployment.

[2] Our usage of the terms such as circuits or camp of global capital and world of the third follows the theoretical insights of Chakrabarti, Dhar and Cullenberg (2012) and Chakrabarti and Dhar (2009, 2012) who produce a unique frame to analyse the historical phenomenon of modernization in the Southern setting. In the context of our current issue, these terms can be roughly put in the following way. Following liberalization policies in India, spurred by its wide industrial base (paradoxically, a gift of its previous import substitution policy) and fairly advanced higher education system (also paradoxically courtesy of its erstwhile planning system), Indian industries, particularly the big business houses, gradually adjusted to the rules and demands of global competition and, along with new enterprises, mutated into global capitalist enterprises. Through outsourcing and sub-contracting, they forged relation with local enterprises procreating and circumscribed within a nation’s border (the local market) and with enterprises outside the nation’s border (the global market); it is the symbiotic relation through local-global market that allowed the formation of circuits. Specifically, via the local-global market, global capital was linked to the ancillary local enterprises (big and small scale, local capitalist and non-capitalist) and other institutions (banking enterprise, trading enterprise, transport enterprise, etc.) and together they formed the circuits of global capital. Rapid growth of Indian economy propelled by the expansion of the circuits of global capital (inclusive of manufacturing and services) is feeding an explosive process of urbanization, and producing along the way a culture of individualization and consumerism. It is being complemented by new-fangled notions of success, entrepreneurship and consumerism, of ways of judging performance and conduct, of changing gender and caste relations, customs and mores, etc. Resultantly, what appears is a social cluster of practices, activities and relationships capturing literally the production of an encampment: we name it as the camp of global capital. This camp, especially its hub, is becoming the nursery ground of a new nationalist culture bent on dismantling extant meanings of good life in India and replacing it with the tooth and claw model that emphasizes competition, possession and accumulation. We refer to circuits-camp of global capital as global capitalism. Evidently, in the formation, global capital is taken as the privileged centre.

World of the third, on the other hand, is conceptualized as an overdetermined space of capitalist and non-capitalist class processes that procreate outside the circuits of global capital. A large number of these ‘non-capitalist’ class processes are independent, feudal, communitic, slave and communist as also capitalist class enterprises of simple reproduction type. World of the third is thus a space that is conceptually never part of global negotiations; it is outside, if we may borrow a term from Gayatri Spivak Chakravarty, the Empire-Nation exchange, which refers to exchanges within the local-global market connected to the circuits of global capital. In short, world of the third embrace an overdetermined cluster of class and non-class processes procreating outside the circuits of global capital and are knotted to markets as well as to non-market exchanges. Social cluster of practices, activities and relationships connected to the language-experience-logic-ethos of this space constitutes the camp of world of the third. It may be recalled that what for us is world of the third is for modernist discourses (like colonialism, development, and so on) third world: this is the Orientalist moment through which the modern emerges as the privileged centre. Third world supposedly contains inefficient practices and activities; as nurturing excess labour, labour that is presumed to be unproductive and hence a burden on society; as harbouring a large reserve army of the unemployed/underemployed. In short, it is re-presented as a figure of lack. The foregrounding of category of third world then provides an angularity to world of the third thereby foreclosing its language-experience-ethos-logic and discursively producing a deformation of its practices, activities and relationships. One does not get to appreciate the possibility of an outside to the circuits of global capital; one thus loses sight of the world of the third. Instead, what awaits us is a devalued space, a lacking underside – third world – that needs to be transgressed–transformed–mutilated-included. Thus, world of the third is brought into the discursive register and worked upon, but without taking cognizance of its language-logic-experience-ethos. Critically, this foreclosure of world of the third through the foregrounding of third world (or, by substitute signifiers such as social capital, community, etc.) helps secure and facilitate the hegemony of (global) capital and modernity over world of the third. Taken together, a knowledge formation emerges in which global capital and modern emerges as the privileged centres. Chakrabarti et al unravels and critiques this knowledge formation and through the return of the foreclosed world of the third lays down the contour of a contesting way to theorize the Southern context.     

[3] Chakrabarti and Dhar (2009).

[4] Chakrabarti and Dhar (2012).

[5] On being quizzed as to whether India’s integration into global economy has made it more prone to shocks and instabilities, a friend of mine holding a senior position in a financial institution suggested a few years back that one reason why competitive market economy is good is because it enhances the ability of the economic system to absorb and internalize shocks; this is by no means a very uncommon refrain, at least till a few years ago. In short, breakdowns can never happen. I wonder what he has to say now.

[6] Of course, as we have seen, the question of ‘who is exactly becoming richer or becoming richer much faster than others’ has raised a few hackles and is on its own a question of some importance.

[7] Unlike a robust state (of command economies or welfare capitalism) which believes in ‘more governance is good governance’, neoliberalism believes in, at the level of political philosophy at least, ‘less governance is good governance.’ Of course, given the astonishing quantum of plunder, violence and destruction produced in the name of ‘freedom’ that is neoliberal in nature, one must take this refrain with a grain of salt. But then we are discussing its logical conduit here.

[8] It is notable that macroeconomics not only originated in the West, but its central problem is fundamentally that of the modern market economy as well. USA and Europe have been the theatre of macroeconomics and developments there influenced the macroeconomics discipline and the policy paradigm of state not only in Europe but all over the world. In this sense, macroeconomics has been imperial in nature or should we say it is an indispensable component of any imperialist policies bent on modernization. Interestingly, three episodes of systemic breakdown or depression produced three turns in macroeconomics in the West that in turn enforced a switch in macroeconomic understanding and management across the world. The first was the depression of the 1930s that saw the collapse of the classical paradigm (emphasizing the dichotomy between nominal variables such as money and real variables such as output) which disparaged state intervention; this collapse saw the concurrent rise of Keynesianism (emphasizing that the classical dichotomy is wrong, at least in the short run) which maintained that state intervention and active stabilization policy is necessary to prevent depression and this could be done since there is a tradeoff between inflation rate and unemployment and between unemployment and output. The second episode of depression was marked by stagflation in USA (high inflation and stagnating output) in the late 1960s which even in the face of active stabilization policy to exploit the mentioned trade off failed to get the economy out of depression; this failure of stabilization policies saw the collapse of Keynesian economics and the rise of supply side or new classical economics that once again reiterated the classical dichotomy and the inherent inability of the state to improve welfare in the face of active and enterprising individuals. It was shown that not only did the state led stabilization policy fail to improve the welfare, but also that such interventions created inefficiencies of all kinds. Important in this attack was the paper of Lucas (1976) that showed that there is something methodologically wrong in the way Keynesianism poses its own macroeconomic structure; it does so, he claims, by treating the individuals as docile, passive who would not react to changes in the stabilization policies, precisely what the liberals have condemned as contravening the principle of freedom. Arguing that it is fundamentally wrong to treat the individuals as bereft of agency, he showed that with the introduction of stabilization policies, rather than being passive to the changes brought about by the state, the agents will internalize that information and change their behaviour which in totally will produce an outcome very different from (and inferior to) the case in which it is presumed (as under Keynesianism) that individuals behaviour will remain invariant to change in policies. The Keynesians, contrary to what the liberals would emphasize, took the structure as primary and tried to fit in the individual to this structure (the attempt of what came to known as Keynesian-neoclassical synthesis) when the liberal economists such as Lucas and Edward Prescott were emphasizing the method to be the other way round: individual was to be the primary unit from which the structure is to be derived; not surprisingly then, for the neoliberal economists (the new classical/real business cycle school) the neoclassical micro structure became that fundamental ground and (macro)economy was the derived general equilibrium structure over which macroeconomic analysis and policies are to be examined. The invariance principle and inability to posit the microfoundation of macroeconomics constituted the basis on which Keynesian macroeconomics was attacked and the stabilization role of state found wanting; the macroeconomics that developed through this attack and reconstruction via microfoundation become the missile head of neoliberalism in the field of economics and policy making. The third episode of systemic crisis or depression is the global economic crash since 2007 which has turned the table on neoliberal macroeconomics which has claimed that it has solved the problem of depression by legitimizing the creation of a competitive market economy made of private players and in which stabilization policy of state is not encouraged; a systemic crisis that rose not because of state or any third party intervention (since, in the last three decades they were heavily discouraged) but through the very mechanics of the private competitive market economy certainly did not do the reputation of neoliberal macroeconomics any good. What will come out of this crisis in the field of macroeconomics is yet to be seen though no doubt it has exploded the myth of the fundamental proposition of neo-liberal macroeconomics. As it stands now, macroeconomics lie in tatters.

[9] In modern macroeconomics, general equilibrium is after all the point of reference and departure (even in case of New Keynesian economics where markets are shown to be failing to clear as a result of the behaviour of agents in a free market environment).

[10] Micro and Macro divisions are typical of mainstream economics and not of Marx or Marxism. Accepting the importance of not reading or writing on Marx by reducing him to this structure, in this presentation at least, we invoke Marx with reference to this division of micro and macro for the sake of organization that includes an encounter with neoclassical economics. Rather than reducing Marx to neoclassical economics, it is to highlight the uniqueness of Marx’s contribution.

[11] This comes on top of the fact that this blaming is hardly stopping the policy makers from taking ‘reform’ policies that deepen India’s integration into the global economy and hence, by their own confession, must be taken as increasing the possibilities of transporting global crisis into Indian economy. In other words, the ammunition that they are supplying with the intent to overcome the crisis may end up deepening it. At least, the policy makers need to spell out clearly as to why this would not happen.

[12] For a superb analysis of US economic crisis, see Resnick and Wolff (2010).

Is ‘It’ Over? A Look at the Current Economic Crisis


Hyman Minsky, an American Economist, had written a book titled ‘Can It Happen Again’ with ‘it’ standing for the Great Depression of the 1930s, the biggest and the longest economic crisis in the history of capitalism. The answer to this question today seems to be in the affirmative if one takes a deeper look at the events that have unfolded in the financial markets in the United States and the other advanced countries over more than two years. The extent of this crisis, in particular in the US, has led the economic pundits to describe the present financial crisis as something similar to what happened during the 1930s. Despite all the signs of recovery, we believe it is too early and erroneous to assume that the crisis is over and that the government should withdraw the stimulus package.

Theoretical Overview

To place the issues in perspective, it is important to reflect upon the economic ideas that developed regarding growth and crisis under capitalism since the 1930s. In the aftermath of the Great Depression, John Maynard Keynes, a British economist and Michal Kalecki, a Polish economist, had written extensively on its causes as well as its remedies. Though their political orientation was very different (Kalecki was a Marxist while Keynes was not), both argued that it was the absence of direct intervention of the government in the working of the economy and financial markets that led to the Great Depression. The remedy that Keynes suggested was a categorical rebuttal of the principles of Laissez faire since he asked not only for a regulation of the financial markets but for a direct government intervention to boost the demand in the economy through positive fiscal stimulus. The fiscal management (1) on the lines of the Keynes-Kalecki produced the Golden Age of capitalism in the 1950s and the 1960s in the advanced capitalist countries which saw the longest period of booms in these countries and distribution of income moving partially in favour of the working class.

In the early 1970s, this model broke down and there was a resurrection of the old ideology of free market and finance. It is interesting to note the complete reversal in economic ideas as well as policies despite having learnt the lesson the hard way in the 1930s. It seems almost as if the Keynes-Kalecki were erased from history. But the real answer to this reversal comes out quite clearly in Kalecki’s writings. Kalecki, unlike Keynes, looked at capitalism as fundamentally an antagonistic system. Kalecki (1943) argued that even though it is theoreticallypossible to attain high levels of employment and growth through government spending, it cannot go on in the long run. He argued that a prolonged period of low unemployment increases the bargaining power of the workers due to the declining reserve army of labour. Why this would lead to problems in maintaining such a growth process is for the following reason,

“[T]o maintain the high level of employment. . . in the subsequent boom, a strong opposition of ‘business leaders’ is likely to be encountered. . . lasting full employment is not at all to their liking. The workers would ‘get out of hand’ and the ‘captains of industry’ would be anxious ‘to teach them a lesson’.

[U]nder a regime of permanent full employment, ‘the sack’ would cease to play its role as a disciplinary measure. The social position of the boss would be undermined and the self assurance and class consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. . . ‘discipline in the factories’ and ‘political stability’ are more appreciated by business leaders than profits. Their class interest tells them that lasting full employment is unsound from their point of view and that unemployment is an integral part of the normal capitalist system.”

So, the reserve army of labour is a necessity under capitalism to maintain the correlation of class forces in favour of the capitalists and rentiers. Accordingly, one could argue that the so-called golden age of capitalism was more of an aberration than a rule under capitalism. Seen in light of this argument, the present crisis, its severity notwithstanding, is actually not an exception but a rule under capitalism. We would like to argue, therefore, that this crisis should not be seen only in the light of the failure of the financial system for it could actually be just a signal of deeper malaise in the real economy. This distinction between real and financial crisis is very important because a sizeable majority in the academia and policy circles are arguing that if only the financial markets could be controlled, such crises would not take place. In other words, capitalism otherwise is a stable system provided the financial markets are regulated. Our argument is that crises of this nature can and do take place under capitalism independent of whether the latter were regulated or not. Unregulated financial markets add to the severity of the crisis.

Let us concentrate on the sources of malaise in the real economy. Unfettered development of capitalism leads to greater monopolisation by big business. Greater monopolisation of the market ensures a downward rigidity in prices and, therefore, a guaranteed profit margin. On the other hand, there are continuous efforts to improve labour productivity so as to keep the wage costs low. Downward rigidity in prices and continuous increase in labour productivity results in a tendency towards increasing profit share in the total output. While this strategy sounds good for an individual capitalist, it has seeds of its own destruction inbuilt into it.

A higher profit share for the economy as a whole leads to a decline in the domestic market. This is so because workers consume a higher proportion of their income than the capitalists and any shift of total income away from workers would ipso facto lead to a decline in overall consumption demand in the economy (2). Since private investment is the main source of growth under capitalism, such a signal of declining consumption in the market exerts a downward pressure on the rate of growth. This is the typical realisation crisis in Marxian terminology. This is an imminent tendency under capitalism because there is no spontaneous mechanism of coordination of investment decisions of the capitalists to avert such a crisis. The reasons for why the system is not underperpetual crisis but faces it only intermittently have to be found elsewhere but this tendency exists all the time. The factors which counter this tendency could be state intervention, export-led growth, capitalists’ consumption led growth. Each of these factors has different consequences on the trajectory of the growth process, some of which we would focus on later in this article.

Just as the pre-Golden Age, the current period is also not fundamentally different. Inequalities in income and wealth have been rising dramatically since the late 1970s across the world, except for the possible exception of France and Japan, creating conditions for realisation crisis. The genesis of the present crisis lies precisely in the factors which had kept the growth going even when such a tendency existed. Therefore, to understand the present crisis, we need to analyse the economic booms that the US has witnessed in the present decade and the previous one.

Growing Inequality

There has been a dramatic increase in inequality in the US since the early 1980s. What the US is witnessing today in terms of inequality has only one parallel in its history i.e., the period during the Great Depression (see fig 1). The inequality is such that the top 10 % of the population earns close to 40% of the total income. The inequality has increased in the US since the early 1980s primarily because of two reasons. On the one hand, the income of the poor has got squeezed due to a decline in the legal minimum wages, unionisation rates and increased globalisation, all of which have decreased their bargaining strength. On the other hand, the payrolls of the top executives, especially CEOs, has increased manifold in the absence of either the wage controls of the World War II or the social norms of the Golden Age period which restricted the growth of high-end wages.

Figure 1

The increase in equality is not restricted to income alone but there is a growth in wealth inequality too as shown in Table 1. While the top 1% of the population owned 33.8% of the total wealth of the economy, the bottom 40% of the population owned less than 1% of the total wealth in 1983. The wealth inequality increased by 1995 to such an extent that the top 1% owned close to 40% of the wealth while the bottom 40% owned a mere 0.2%.


A major part of the increase in the wealth of the rich during this period has been through the increase in the stock market prices of the financial assets that they own. Since the ownership of stock market assets itself is extremely skewed in favour of the rich, an increase in the prices of the shares has an asymmetric effect in favour of the wealth of the rich.

 The Boom of the 1990s  

From the point of view of classical political economy, such a growth in inequality should have led to stagnation in the economy instead of a boom as witnessed both in the late 90s and the present decade (prior to the current crisis). If that is the case, then why did the growth of inequality lead to an increase in the growth rate in the US in the late 90s and 2000s?

As mentioned above, at least theoretically, there could be three ways which can help avert this tendency towards stagnation into becoming a reality. First, the government could prop up the domestic demand through fiscal management. But this route was practically unavailable given the right-wing dominance in the policy circles which wanted to restrict the role of the government in the real economy (3).

Second, the stress of growth could divert in favour of export-oriented strategy. Again to do that, one needs to be internationally competitive both in terms of technology as well as wage costs, neither of which was in favour of the US. The US had been left far behind in terms of technology by its European counterparts, especially Germany and Japan in Asia.

Third, consumption of the rich could more than compensate for the declining share of workers’ consumption through injection of consumption demand independent of the current stream of income, say through the wealth effect coming from the asset price markets. Furthermore, new methods of enticing even the workers to consume through credit financing could also act as a counter to this tendency. It is the third route which the US has adopted in the last two booms which we focus upon in the rest of the paper.

The way this third route worked is the following. Stock or housing market booms led to a growth in the ‘notional’ wealth of the rich which had a positive effect on the consumption of the rich, a phenomenon called the ‘wealth effect’. Increase in consumption due to wealth effect was an external injection of demand into the economy independent of the redistribution of income between the rich and the poor. Though the exact effect of an increase in wealth on consumption in the US has been estimated to be not more than 3 cents per dollar, i.e., out of every dollar increase in wealth only 3 cents are spent on consumption, the sheer magnitude of the wealth increase due to the stock market boom of the late 1990s was such that it had a huge impact on the overall consumption. The argument can be better understood if we look at the exact increase in the wealth of households which increased by 50 percent within a span of five years between 1995 and 2000. The increase in consumption as a proportion of GDP was close to 1.5 percent during these years. Therefore, this increase in wealth alone explains the increase in consumption of the household during this period.

A more interesting question, however, is not why the consumption increased but how was this consumptionfinanced? To understand that, we need to explain how the increase in the wealth was ‘notional’? It was purely ‘notional’ to the extent that its value had increased due to higher valuation in the stock market so that the increased wealth could not be realised from the stock market by all the stock holders at the same time. Any attempt to ‘realise’ the increased value of the wealth in the stock market by selling the stocks at their higher prices by all the investors at the same time would have meant a collapse in the stock market itself. Thus, the increase in wealth was merely notional. That being the case, any increase in expenditure on consumption based on this increase in wealth had to be financed by taking more debt based on the increased collateral in the form of enhanced value of wealth. It is here that the debt spiral began in the US. Therefore, the debt spiral became a necessity for the economy to compensate for the imbalances in the real economy.

During the 1990s, the household debt stood at 95.6 percent of the total disposable income of that sector (see table 2). In other words, the household debt was almost equivalent to the total income of the sector as a whole in the 1990s. Such high levels of debt-income ratio were ominous signs for the US but the Federal Reserve did not pay heed to the dangerous growth in the debt-income ratios, instead they were busy propagating the argument that the US economy had entered a new phase of ‘new economy’ where business cycles were a thing of past.


Such sleight of hand by the mainstream economics, however, had to face the reality when the economy witnessed the Dotcom bubble go burst in 2001. The business cycle was back as indeed it is a part of the working of any normal capitalist economy, contrary to the claims of the new economy enthusiasts. A decline in the stock market meant a decline in the wealth of the households too and the increased wealth effect was bound to reverse but the debt taken against the increased wealth earlier remained nonetheless.

 The Mortgage Boom of the 2000s and the seeds of destruction

In the event of the stock market meltdown in 2000, the financial speculators moved away from the stock market to some other avenues where they could make a quick buck and the best opportunity they found was in the housing market. Such a huge diversion of funds from the Dotcom bubble to the housing market had a positive effect on the housing prices just as it had on the stock prices of the IT sector during the late 90s.

An increase in the housing prices made housing into a profitable venture for the household sector because in common perception it was thought to be a safer asset that the stocks, little was it known that it was merely a shifting of one bubble to another. As happens in the stock market, the increase in buyers of houses led to a further increase in prices of housing much beyond its cost of manufacture.

The policy of the government in the post-2001 phase was multi–pronged to provide a boost to the household demand (either in consumer durables or expenditure on housing) which had been responsible for the growth in the 1990s. First, there was a major tax cut by George W. Bush announced on June 7, 2001. Bush, in his remarks in Tax Cut Bill Signing Ceremony, argued that the magnitude of the tax cut that his administration was announcing can only be comparable to the Reagan Tax cut of the 80s or the Kennedy Tax cut of the 60s. This tax cut had a definite impact on increasing the consumption of the rich because they were the biggest beneficiary of the Bush Tax Cut. That is why despite the meltdown in the stock market which had driven the consumption during the 90s, consumption of the household did not decline as would be expected based on the wealth effect (after increasing for over two decades, the consumption share after 2001 remained stagnant instead of declining despite the meltdown in the stock market). The declining wealth effect was compensated to an extent by the easing tax effect during this period.

Second, after the stock market crash of 2000, which had its repercussions well into 2002, the Fed was looking for other ways of stimulating consumption demand because that had been the bedrock of growth in the late 90s. In the absence of another equity price bubble, the housing market provided an opportunity of such an alternative. The prices in the real estate market had been increasing since the mid–90s but it was still a sideshow to the stock market boom of the 90s. It was only in the early years of the present decade that they started picking up. The reason for this housing market run was quite obvious. The stock market crash led the investors to look for alternative measures of keeping their money and real estate seemed a good opportunity because its demand was going high so there was always a potential of making capital gains (p.92, Pollin (2005)). A Special Report (2005) of The Economist had the following to say about the magnitude of the housing market boom in the US or perhaps the entire developed world,

“[T]he total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries’ combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America’s stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.” [Emphasis added]

The extent of speculation in the housing market can be measured by the ratio of the housing prices to the rental applicable to the houses. This is similar to the Price-equity (P/E) ratio of stocks because the income that can be imputed from owning a house comes from the rental that it would fetch in future. Let us see what happened to this ratio. Weller (2006) presents the data comparing the Housing Price Index to Rental and the CPI (see fig. 2).


While the ratio of HPI to rentals remained stable for more than two decades since 1975 (as shown by the dashed line in fig. 2), there was a sharp increase in it since 2000. This is further corroborated by the fact that in 2004, 23 percent of the homes bought were purely for investment purposes while 13 percent were bought as second homes. ‘Investors [were] prepared to buy houses they [would] rent out at a loss, just because they [thought] prices will keep rising–the very definition of a financial bubble.’ (Report (2005)). In Miami, nearly half of the original buyers resold their apartments in an attempt to make capital gains.

In such a situation of high speculation, the Fed pushed aggressively for an easy monetary policy which meant a drastic decline in the federal funds rate (short term interest rate set by the Fed) even below the rate of inflation resulting in negative real funds rate. The real federal funds rate remained negative from the mid-2002 to early 2006 which meant a real heavy dose of easy money for more than three years. This kind of monetary policy has not been seen in the recent past in the US. The household sector responded very positively to this easy credit policy because the mortgage rates also declined. They increased their expenditure on housing which further increased its prices and the spiral started building up. This was the other bubble building up as Pollin (2005) writes (p.92),

“As the upward price momentum continued through the middle of 2002, the Wall Street Journal, among other observers, began warning of the dangers of a housing “market bubble” in which “stretched buyers push mortgages to the limit.”

The “limits” to which the buyers were “pushed” can be estimated by the growth in the Financial Obligation Ratio (FOR) and the Debt Service Ratio (DSR) of the household sector during this period.  Debt Service Ratio (DSR) is the ratio of debt payments on outstanding mortgages and consumer debt to the disposable income of the household sector. We also present data of a more inclusive concept of the debt obligation that the household sector holds. This measure is called the Financial Obligation Ratio (FOR) which, apart from the repayment of interest charges on outstanding mortgage and consumer debt, includes the automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance, and property tax payments.


Some important conclusions can be drawn about the financial condition of the household sector based on these two ratios. In panel (a) of fig. 3, it clearly shows that both DSR and FOR have been rising since the early to mid–1990s. If we differentiate between the debt payments on account of home mortgages and consumer durables, we get panel (b), which tells us another interesting story behind this debt growth. As expected, for the 1990s, which is characterized by stock market boom, it is the consumer durables debt payments that play a central role in driving the FOR up whereas the home mortgage debt payments were declining for that decade. After 2000, however, when the real estate boom replaced the stock market boom, it is the home mortgage payments which determine the FOR for the households.

The Federal Reserve during this period had its priorities chalked out pretty well which was to give a boost to the housing prices, just as in the 90s, it was most interested in maintaining the stock market boom. This can be seen from the minutes of the Federal Open market Committee (FOMC) meeting of this period. Minutes of the FOMC (2004) meeting held in June say,

“The members continued to report a high level of housing demand in numerous parts of the country, with housing construction described as a notably robust sector in many regional economies. The strong performance of the housing industry continued to be attributed in large measure to the lowest mortgage interest rates in several decades.” [Emphasis added]

Third, given that the growth of the economy now was driven by the growth in residential investment financed primarily by debt, there was an increasing tendency by the lenders to indulge in predatory lending practices. The norms of lending were broken at will to keep the real estate boom alive and the Fed, despite being aware of the precariousness of the situation, allowed it to happen under its nose just as it did not intervene during the speculative run in the stock market boom of the 90s.

Lending norms were twisted in myriad ways, especially in the Sub-prime mortgage market (4). First, the norm of mortgage was changed for rich borrowers who could use up to 50 percent of their income for their mortgage payment whereas earlier the norm was only 28–32 percent (p.92, Pollin (2005)). Second, new forms of loans were introduced which had no requirement for down payments. As high as 42 percent of the first time borrowers and 25 percent of all borrowers were exempted from making any down payment (Report (2005)). Third, a new form of financing was introduced which was the Adjustable Rate of Mortgage (ARMs), according to which the overall interest payment could be spread over years so that the initial interest payments might seem very low but the debt burden would increase as you go further into future. This was used to sell loans with ‘hidden costs’. Fourth, the borrowers could get up to 105 percent of the buying cost as loan and no documentation of borrower’s income or employment was required (Report (2005)). Fifth, the borrowers were allowed to pay only a part of the interest amount due while their unpaid interest amount and the principal get added as debt, a form of loan which has been termed as ‘negative amortization loans’. One third of the total loans in the US in 2002 were either interest–only loans or negative amortization loans (Report (2005)).

The housing market boom had a logic of its own which was in some ways similar to a stock market boom. Since the housing prices were increasing, it provided a good opportunity to make money at the margin by buying low and selling high, just as in the case of equities. Moreover, increasing prices of houses also increase the net worth of the owners of the houses which further increases their capacity to borrow and hence to speculate even more, which was reflected in people buying more than one house. But since all the buy is financed through debt, it puts the household sector on a knife–edge position. On the one hand, if the prices of the houses declined then the value of their collateral declines and further borrowing becomes less likely. In the worst situation, if the prices fell drastically, even the possibility of repaying the debt by selling the house might itself disappear leading to foreclosures. On the other hand, if the interest rates increase eventually, they would increase the debt burden in future, especially if the loans have been taken under the ARM scheme. In effect, it is the real mortgage rate that matters which is the difference between the nominal mortgage rate and the capital gain through a housing price rise (Weller (2006)).

Even though it was obvious that the housing prices were primarily speculative in nature, Alan Greenspan, the then Chairman of the Federal Reserve, while addressing the Joint Economic Committee on June 9, 2005, had rubbished all claims about the housing boom being a speculative bubble by arguing that,

“[T]here can be little doubt that exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding and home turnover, and especially in the steep climb in home prices. Although a “bubble” in home prices for the nation as a whole doesnot appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels…

Transactions in second homes … suggest that speculative activity may have had a greater role in generating the recent price increases than it has customarily had in the past.

The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increases in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.

The U.S. economy has weathered such episodes before without experiencing significant declines in the national average level of home prices. In part, this is explained by an underlying uptrend in home prices…

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.” [Emphasis added]

It would be really surprising to note that the same Greenspan had an altogether different take on the Depression of the 1930s. Greenspan (1966) wrote,

“When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage… The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed.” [Emphasis added]

If we say that ‘the excess credit which the Fed pumped into the economy spilled over into the housing market–triggering a fantastic speculative boom’, then how different would that be from what his argument is? If not, then it sounds puzzling as to why he did not apply his own argument about the Great Depression to the policy of the Fed under his chairmanship. Whitney (2005) writes the following about the policy of the Fed and its former chairman,

“Greenspan knows all about “irrational exuberance”; he’s its primary champion. The Fed seduces the public with cheap money, so that credit spending increases and, then, “presto”, millions of Americans slip inexorably into indentured servitude.”

Given the delicate balance that the household sector was maintaining vis-à-vis the housing market, it was obvious that any meltdown in these markets would be disastrous not only for the US economy but for the world economy as well. This possibility was further precipitated by the fact that dual pressure fell on the borrowers. On the one hand, the Fed decided to increase the federal fund rate, which increased the interest burdens especially for consumers who had opted for ARMs or negatively amortized loans. On the other hand, decline in housing prices decreased the value of their collateral and thus increased the possibility of bankruptcy which indeed were quite high in this period. This would especially have serious consequences for the US economy, as can be seen today, because 90 percent of the growth witnessed during 2001-05 was due to increased consumption and residential investment of the households.

Till now we have presented a macroeconomic picture of the housing market but it is obvious that such a market has the potential of having an asymmetric effect on households depending on their income category. For the poorer households, the effect of an increase in the real mortgage rate would be more severe than a richer household.

Some broad pattern can be drawn about the different categories of households (see table 3). First, the bottom quintile was not a part of the recent run in the housing market since 2001. The value of home as a proportion of income increases the most for the middle quintile. Second, contrary to the general perception, the main customers of ARMs appear to be the richest households and not the poorer ones. This could be because of the fact that the rich were buying the house only for the purposes of selling it later and were financing it through ARMs. A housing market meltdown would, thus, have an asymmetric effect on these categories depending on their relative exposure to the credit market.


The fact that the growth process in the last two decades was dependent on asset price markets can be substantiated if we plot the movements in economic activity with respect to these markets. We attempt to plot the business cycle of the 1990s and 2000s against the cycle in the stock market and the housing marker respectively in figure 4.


It can be seen that in both the cycles the movement of GDP is closely linked to the movement in these markets. In fact, the GDP cycle follows the asset price cycles. This gives us some empirical evidence on the theoretical proposition made above. In Keynes’ words, the growth processes had become ‘bubble in the whirlpool of speculation’.

 Is ‘it’ over?

A lot is being written about the end of the crisis or at least ‘the worst is over’. But we believe, given the magnitude of the crisis, it is premature to think so. When we say the crisis, we do not mean the subprime crisisper se. By end of the crisis, we mean the delinking of the growth process’ dependence on the speculative booms in the asset price markets. It is very possible that in the short term we have another asset price bubble which will provide some respite to the economy but only to aggravate the systemic problem in the long run.

Let us first examine the economic variables which can tell us about the present recovery process. To examine the extent of recovery, we have to first examine the components of the recovery. Since the US economy is facing a crisis of inadequate aggregate demand in the economy, the path of recovery has to somehow solve this problem. Its failure to do so would not only prolong the crisis but any premature withdrawal of the government stimulus would further aggravate the very problem it is seeking to address. Aggregate demand in any economy comprises of the consumption of the household sector, investment made by the household sector (residential investment), investment made by the corporations (non-residential investment), government expenditure and net exports (trade surplus).

Not only has the residential market plummeted seriously, there has been a decline in the share of consumption too in the present crisis for reasons well known. Together they form a deadly combination of declining investment and the income multiplier. Therefore, the path to recovery has to be dependent on the last three components of aggregate demand, i.e., non-residential investment, government expenditure and trade surplus. Let us look at what is happening to these three factors at present (see figure 5).


Non-residential investment or the corporate investment in ‘real’ capital continues to decline as a proportion of GDP, which itself is serious because it means a lower rate of growth in investment than the GDP. But this is a general trend during the periods of crisis. In any crisis, the first factor that is affected is the corporate investment precisely because of the crisis of confidence of the capitalists. So, this by itself is not novel to this crisis, especially if we see it in the light of the magnitude of the present crisis.

The stimulus package that Obama administration has injected into the economy has led to increase in the second factor mentioned above, i.e., government expenditure. This automatically has the effect of propping up demand and thus, the GDP. But its magnitude is crucial, especially in crises like these. First, it has to compensate for the decline both in residential and non-residential investment. Second, even if that is taken care of, the net effect of that increase would be dampened if the income multiplier is decreasing as a result of declining share of consumption (as explained above). Therefore, the increase in government expenditure has to take care of both these factors which demands far more than what President Obama has announced so far.

Finally, the third factor, i.e., the trade balance, can also play a role in the recovery. In fact, as we will see below, the most crucial factor contributing to whatever little recovery that the US is witnessing today is directly linked to what is happening in their current account. Though it might seem contrary to common perception that current account balance in the US, which has been running record deficits for the last two decades, could actually be a catalyst to recovery. But if one looks carefully, if the rate of increase of trade deficit is low compared to the rate of decline in growth of GDP, it could actually play a positive role in recovery. In other words, if the ‘leakage’ of income from the economy in the form of net imports declines during the crisis, it will put less downward pressure on the rate of growth. This is what seems to be happening in the US. The share of trade deficit in the GDP has declined during the period of the crisis giving a positive impetus to an otherwise declining rate of growth.

A decline in the trade deficits could happen if there is an increase in the share of exports in the GDP or a decline in the share of imports or both. Or, at least the decrease in the share of exports in the GDP is lower than that of imports if both are decreasing. Declining trade deficit has taken place during this period in the US due to a sharper rate of decline in imports than exports. Further categorization of imports reveals that two factors, namely, industrial supplies and materials (except petroleum and products) and automotive vehicles, engines, and parts together have accounted for more than half the decline in imports in these quarters. This nature of decline in the share of imports in the GDP seems more to be of a short term character than a policy response by the US to increasing trade deficits, which makes this component of recovery even for a medium term suspect.

After analysing various components of demand and their behaviour during the ‘recovery period’, we can say that the increased government expenditure in the US through the fiscal package has still not been able to stimulate the economy to the extent of alleviating the problem at hand. On the one hand, consumption has stagnated, thereby, terminating the route to recovery through an increase in the multiplier. On the other hand, neither the residential investment nor the non-residential investment is showing any sign of recovery, especially, since the level of confidence of the corporations to invest is still quite bleak. Therefore, to withdraw the stimulus package now would be far from prudent. The lessons of the Great Depression remind us that the decision to withdraw the stimulus, on the basis of initial signs of recovery, ended up prolonging the crisis to almost a decade.


We have argued in this paper that growth in the US economy in the recent past has entirely been driven by either consumption spending or residential investment. Both of these were driven by asset price inflation of one kind or the other. While consumption was driven by the stock market boom of the 90s, residential investment was driven by the housing price boom. Such a growth path, however, has serious problems as already being witnessed in the US. First, it would require asset price inflation of one or the other kind to sustain the wealth driven growth. Second, it would be a highly volatile growth path because it would be dependent on the vagaries of these asset price markets. Third, it would invariably force the government to act in the interests of the finance capital because they hold the key to growth in the economy as happened in the bailout package endorsed by the US Congress earlier. The monetary as well as fiscal policy would have to be tethered to the developments in the asset price markets.

The current economic crisis that capitalism is faced with is of far greater magnitude than was envisaged even a few months back precisely because of the extent to which the machinations of the globalized finance capital has spread across the world. This is the time to categorically reject ‘there is no alternative’ (TINA) paradigm of the neo-liberalism and reassert alternative policy prescriptions which would be beneficial to common people.


(1) It is another matter that the nature of state intervention was militarist in nature. Therefore, it would be simplistic to argue that the state intervention was primarily pro-people. In fact, the initial reversal in the economic activity after the prolonged period of Great Depression came after the World War II started. This led to increased fiscal expenditure on part of the government, which pushed the growth up. It is important to note that this growth was purely militaristic in nature. But post-1950s, there was an attempt to pop up the growth and employment by what was later came to be known as ‘welfare capitalism’. It is of course a contentious issue as to how much of the growth even in this period was welfare oriented.

(2) The argument underlying the negative linkage between growth and inequality can be found even in Marx when he talks about the underconsumption crisis. Josef Steindl, Baran and Sweezy and Kalecki revived this view in the field of Economics.

(3)This policy response was best exemplified by Ronald Reagan in the US and Margaret Thatcher in the UK where they proposed small governments to allow free markets to functions uninhibitedly. It should be kept in mind, however, that despite the opposition to government intervention in social sectors, they did not have any problems with burgeoning military expenditure. So, the argument effectively was to keep the ‘unnecessary’ government expenditure under check.

(4) With every passing day results of the investigations into the financial sector are getting murkier. A recent example of this is the recent case against the Golman Sachs (NY Times Editorial, 17 April 2010). Goldman Sachs Group Inc has been charged with fraud by the U.S. Securities and Exchange Commission over its marketing of a subprime mortgage product. It argued that Goldman Sachs was involved in malicious practice of creating and selling mortgage-backed investments and then placing financial bets that those investments would fail.


FOMC (2004): “Meeting of the Federal Open Market Committee,” Discussion paper, Board of the Governors of the Federal Reserve System.

Greenspan, A. (1966): “Gold and Economic Freedom,” The Objectivist.

Kalecki, M. (1943): “Political Aspects of Full Employment” in Selected Essays on the Dynamics of The Capitalist Economy, Cambridge University Press, 1971

New York Times Editorial: “Watch This Case”, April 16, 2010 available at, accessed on April 17, 2010

Piketty, T., and E. Saez (2003): “Income Inequality in the United States, 1913-1998,” Quarterly Journal of Economics, 118, 1–39.

Pollin, Robert (2005): Contours of Descent: US Economic Fractures and the Landscape of Global Austerity. Verso.

Report (2005): “In Come the Waves: The Global Housing Boom,” The Economist.

Weller, C. E. (2006): “The End of the Great American Housing Boom: What it Means for You, Me and the U.S. Economy,” Discussion paper, Center for American Progress.

Whitney, M. (2005): “Pop Goes the Weasel: Greenspan and the Housing Bubble,” Monthly Review.

Through and Beyond: Identities and Class Struggle

Paresh Chandra

The New and the Primitive: the New is the Primitive


In India, the effectuation of the New Economic Policy in 1991 is seen as a move forward, a move out of the “mires” of public sector enterprise, a “mandate” for privatization and against public and state ownership of industries. It is a short-sightedness characteristic of our times, our inability, Fredric Jameson would say, to historicize, which speaks when we make such utterances. Unable to look beyond the immediate we are unable also to make logical generalizations and connections that are needed to contextualize what occurs. Before putting forth my arguments I feel the need to make two assertions: (a) The NEP was not adopted because ‘Plan 1, public sector,’ failed and (b) state ownership does not mean public ownership, hence the seeming failure of public sector enterprises is by no means evidential of the problems of truly collective ownership of means of production.

Historians have noted that ‘at the eve of Independence’ the Indian bourgeois class was much more developed than that of most third world nations. Post 1910 the British government had begun to include the interests of this class in its policies, partly because of its own compulsions (the British needed the support of the Indian bourgeoisie in World War I) and partly because of strength of this class (Mukherjee, 2002). Subsequently, the plan of development that was charted out centrally after Independence had to accommodate the said interests as well. In 1944-45 when prominent capitalists sat down to ponder the possibilities facing an Independent India, and divined the Bombay Plan, they knew that they were going to have a very big say in the path the country takes. As a result of underdeveloped infrastructure, it seemed convenient to Tata, Birla and Co. to lay out an arrangement which required the state to make all necessary large investments, before they take over. To overstate for rhetorical effect, the next thirty years fulfilled the wishes of the Indian capitalist class. Of course, the Bombay Plan was never actually followed, but the ‘development’ that ensued in these years was more or less in concert with it. In the 80s, even as the judiciary’s earlier attempts to strengthen labour laws and expand the purview of Constitutional provisions like the “Right to Life” took a down turn, the state continued with this construction of infrastructure, at the same time beginning to prepare for the change of hands that was finalized in 1991. From state capitalism to privatization in the age of neoliberalism – this has been the movement of the Indian socio-economic formation. So, we might as well stop arguing about this “development paradigm”, for its “theoretical underpinnings” and its genealogy are clear enough: contesting this development is without a doubt, contesting capitalism.

Neoliberalism, the stage of finance capitalism, even as it (as will be discussed later) uses direct dispossession to accumulate capital, is also the most decentralized and dispersed form of capitalism. As Jameson observes in his essay “The Cultural Logic of Late Capitalism” the magnitude of this system and the manner in which it operates is such that one cannot find a centre to it, and it becomes impossible to locate a dominant form to understand or attack. It is capable of assimilating and preserving local forms and identities, which it brings together in relationships or ‘networks’ of competition.  Due to the absence of a dominant form of hegemony, of a monolithic state, it becomes impossible to think of a universally valid form for struggle. The problem of “identities” the way it exists in the current conjuncture, where many of them coexist, all equally subordinated to the rule of capital, and without palpable partiality on part of the state, is one that is borne off this situation. Identities are forced to compete in the networks created by the generalization of capital that has brought neoliberalism. In this situation it is hard to believe in grand-narratives; since identities coexist, interests appear relative, none seems to have a greater claim to authenticity than any other – the schizophrenia of the postmodern subject is what we get. The internationalism of neoliberalism, together with its ability to preserve and force identities into competitive relations, makes it hard to conceive of a transcendental politics; and the harder it is, the greater the need to envision it. Jameson (1991, p. 49) says:

“…the as yet untheorized original space of some new “world system” of multinational or late capitalism, a space whose negative or baleful aspects are only too obvious – the dialectic requires us to hold equally to a positive or “progressive” evaluation of its emergence, as Marx did for the world market as the horizon of national economies, or as Lenin did for the older imperialist global network. For neither Marx nor Lenin was socialism a matter of returning to smaller (and thereby less repressive and comprehensive) systems of social organization; rather, the dimensions attained by capital in their own times were grasped as the promise, the framework, and the precondition for the achievement of some new and more comprehensive socialism. Is this not the case with the yet more global and totalizing space of the new world system, which demands the intervention and elaboration of an internationalism of a radically new type?”


Terms like “development”, “displacement”, “identity” and “violence”, come together most visibly in the context of the rush for resources that are buried in parts of India inhabited predominantly by “tribals” and the attempt of the state to dispossess by force the tribal population of its lands (which it is doing under the garb of waging war on the “Maoists”). The people living on this land depend upon it for their existence, often completely, sometimes partially. Capitalism and capitalist development, not just in India, but world wide needs these resources to feed the “economy of wants” and so the land has to be taken away. Recently we went to Orissa and spoke to many activists who have been working in areas where dispossession and displacement is being challenged by the local people. In these conversations we found, what we find only too often – the state, using the cover of bringing “development”, builds highways to the most underdeveloped parts of the state, which are also the most mineral rich. Mining companies follow, mine for resources, in the process acquiring local land by hook or by crook, and taking from the people the power to reproduce their labor power. This has happened before, in India and in other countries – the “enclosure movement” in 18th century England was the most famous/notorious example of this. Marx had called this process of accumulation of capital through direct dispossession primitive accumulation. This method of accumulation, one must keep in mind, is primitive only when seen in a logical register and historically, as we witness, it can be used by capitalism at any and all points. Michael Perelman writes:

“While primitive accumulation was a necessary step in the initial creation of capitalism, it actually continues to this day. For example, at the time of this writing [Perelman’s essay], petroleum and mining companies are displacing indigenous people in Asia, Africa, Latin America and even in the United States.” (Saad-Filho, 2003, p. 125)

Pratyush Chandra and Deepankar Basu (2007) in an essay titled “Neoliberalism and Primitive Accumulation in India” argue that primitive accumulation is not simply the originary moment of capitalism but is also constitutive of it. Starting with the premise that the very existence of capitalism is predicated upon its expansion and the continuous separation of laborers from the means of production they argue that while in a perfectly functional capitalist setup the market takes care of this recurrent enactment of the capital-relation, “at the boundaries (both internal and external), where capitalism encounters other modes of production, property and social relations attuned to those modes and also to the earlier stages of capitalism, other ways of subsistence, primitive accumulation comes into play. More often than not, direct use of force is necessary to effect the separation at the boundaries” (Chandra and Basu, 2007).

Neoliberalism is a response to the crisis of the Keynesian welfare state, through a reassertion of the absoluteness of the power of the ruling class and a restructuring of the state as regulator of circulation into a more partisan mould. The state even in its welfarist avatar was an organ of the ruling class, but now it becomes more blatantly than ever a tool in its hands. “Despite the talk of separating the political from the economic, which is a staple rhetoric of the current phase, it is the state as the instrument of politico-legal repression that facilitates neoliberal expansion. Firstly, the state intervenes with all its might to secure control over resources – both natural and human (“new enclosures”) – and secondly, to ensure the non-transgression of the political into the economic, which essentially signifies discounting the politics of labor and the dispossessed from affecting the political economy” (Chandra and Basu, 2007). An interesting account of this process is offered in “Aspects of India’s Economy,” No. 44-46. The relationship between the model of development that the Indian state (now) espouses and impoverishment of the people is explored in great detail, and how development itself becomes exclusion is established.(1)

Of Identities and Co-option


Marxian attempts to understand Indian reality, with their “fixation” with ‘class’ and ‘mode of production’ have not found sympathy in Indian sociology. These analyses do not hold, it is argued, because caste is the dominant feature of ‘social stratification’ in India. This objection is predicated upon the understanding that class, in being an import, even if it has managed to ground itself in India, is only an addition to forms of stratification; caste has its own grounds and class its own. ‘Overlaps’ are acknowledged, but in the same breath comes the warning that class remains a relatively less affective part of this reality; capitalism/class/class-struggle together are said to form one aspect of Indian reality (owing, some many scholars might suggest, to the experience of colonialism), while caste, patriarchy, religion with their own respective baggage form other aspects.

There are two arguments to be made to combat these objections, the first takes issue with their epistemological foundations, and the second with their ahistoricity. Firstly then; the reduction of notions like capitalism and class to ontological fixities (admittedly, something which Marxist scholars have also been guilty of) implicit in these objections does not recognize that it is the logic of capitalist production which is re-enacted in each reality, not its form. India can be capitalist, and just that, even if the Indian reality has a bazillion other features which Europe never had to contend with. Of course, formally speaking, it is a different capitalism. Secondly: Even as the process started by the ‘colonial encounter’ unfolded, the seeds of capitalism were already coming to fruition in the decaying structures of the Mughal feudal order. Indian reality, of which the caste system and the experience of colonization both were parts, was giving birth to Indian capitalism. Capitalism, as a possibility, was not superimposed upon, or imported into the Indian landscape, but was borne by its own facticity.  In an essay entitled, ‘Potentialities of Capitalistic Development in the Economy of Mughal India,’ in addition to establishing that the Mughal economy was highly monetized and dominated by domestic industry, Irfan Habib (1995) also shows that contrary to usually held opinion, caste did not obstruct the emergence of capitalism in India.

“It has been held, and the opinion has been powerfully reinforced by Weber, that the caste system put a brake on economic development, through separating education from craft, segregating skills, preventing intercraft mobility, and killing or restricting individual ambition in the artisan…Three or four points ought to be borne in mind. First, the mass of ordinary or unskilled people formed a reserve, from which new classes of skilled professions could be created when the need arose…Secondly, in any region there was often more than one caste following the same profession, so that where the demand for products of a craft expanded, new caste artisans could normally be drawn to that place. More important still, castes were not eternally fixed in their attachment to single professions or skills. Over a long period, economic compulsions could bring about a radical transformation in the occupational basis of caste.” (Habib, 1995, pp. 216-217)

Caste was present at, and constitutive of, the foundational moment of Indian capitalism, and is, hence, also a functional characteristic of its being – the last few decades show how Indian capitalism first contained discontent, by limiting its expression to caste-assertions, and then sublimated it through elite formation. It used caste-division to not only resolve contradictions that its inherently self-contradictory nature threw, but also to perpetuate itself.


“Country feeds town,” has gone from being a catch phrase for “backward-looking” reformers to become a sort of theoretical cliché. In the current Indian conjuncture, however, as a few say often, the cliché has come back to life. That tribes of Chhattisgarh, Jharkhand, Orissa etc. are sitting on mineral resources which are needed for the country’s “development” is again a discursive commonplace these days. Many opposed to development at such costs say: “it’s their land, their resources; they should be allowed to decide what is to be done with it.” The tribal/non-tribal identitarian binary being posed by many anti-displacement assertions is implicit in the first statement concerning country and town. It seems as if it is impossible to talk without creating “identities.’

Each utterance, right from the moment of its enunciation contradicts some other – the bad universality of abstract labor does not demolish the particularity of concrete forms of labor, but robs them of their respective singularities. No statement can in its singularity be a universal and coexist with other interests; and the only relation between diverse forms is one of competition. The “I” always defines itself as different from and in opposition to an “other”.  In this case, ostensibly, the competition is of two, tribal India and non-tribal India. This seems to imply that there are only two groups of interests in India, at least as far as this debate is concerned. As if the people yoked together by these absurd over-generalizations are similar, as if the “tribal community” is completely homogenous, as if the non-tribal community is completely homogenous. The tribal populace wants its lands, the non-tribal wants minerals. We know that calling somebody a non-tribal is hardly calling her/him anything at all; the term is too inclusive to be of use. We also know that there are too many differences of interests as far as the non-tribal population is concerned. In the case of “tribals” this is not so obvious. What is being referred to here is not that there are many different tribes, but that even within each tribe homogeneity is absent; hierarchies and conflicts of interest exist. If in anti-displacement discourses it is held that the tribal people should have the right to decide what happens to their land and resources, one is impelled to ask: if this is allowed, does it guarantee that the resources will be distributed equally? Will those who have never had land, or access to other resources get their share? That this will not happen is easy to see even now. Whenever the question of returning acquired land arises the seemingly homogenous tribal society breaks. Only some owned land earlier. Should the returned land be redistributed? Or should it be returned to those who had owned it earlier? On this question the conflict between the few who owned or own means of production and those who did not/do not becomes clear – what can be called class-conflict becomes apparent.

However, should the struggle of the tribal people for their land be condemned because it does not seem to challenge other forms of exclusion within? Is class somehow a more significant identity than that of being a tribal fighting against dispossession? Many left groups and intellectuals affirm this contention, and draw back from such struggles – “we don’t do tribal politics, we do class politics,” they say. It is here that we falter in our analysis of politics, and it is in this that the reification of identity is seen. In saying that they do not do “tribal politics”, such groups think that they stay safe of the pitfalls of identitarianizm, only to create another reified identity – class.


“Caste is not merely a division of labor; it is also a division of laborers.” (B. R. Ambedkar)

“The organization of the proletarians into a class, and consequently into a political party, is continually being upset again by the competition between workers themselves.” (Marx and Engels, 1999, p.98)

The Chashi Mulya Adivasi Sangha was made in the Narayanpatna-Bandhugaon region of the Koraput district of Orissa, by the Adivasis, initially to stop liquor production and the problems caused by its consumption but which eventually led the struggle to get rid of “lemon grass” cultivators. This region is a scheduled tribal area, and as per the Constitution no non-tribal can procure land here. Yet 85% of the land was owned by non-tribals, who in this instance were Dalit. Huge chunks of land were owned by Dalit landowners, who employed both tribal and non-tribal/Dalit workers to cultivate lemon grass. The Chashi Mulya Adivasi Sangha’s struggle against liquor production, partly due to the inertia of its own success and partly because it was a pressing need of the community, had to extend to and change into a struggle against these Dalit landowners. Most Adivasis living in this area are very poor, and migrate to other parts of Orissa for seasonal work. Even those who have some land are only able to reproduce their labor power on what they get from it. The Sangha’s struggle transformed into a struggle for land, a struggle which as many point out was completely within the purview of law and the Indian Constitution. This struggle was not driven by an Adivasi ‘land-hunger.’ It was simply the struggle to procure the minimum means necessary to reproduce themselves (2), much like the struggle for minimum wages elsewhere.

On this occasion Adivasis, by and large, constituted the exploited and some Dalits owned the means of production. However, there were also a large number of Dalits employed by these landowners. In this struggle against the landowners these Dalits were essentially, as dictated by their location, on the same side as the struggling Adivasis. But they chose to overlook this logical unity of all exploited, to side with the exploiters, deeming their “Dalit” identity more significant. Standing by the Dalit exploiter they stand against their fellow workers. What seems to be a Dalit versus Adivasi struggle is then actually a struggle between two groups of workers, between two segments of the working class.

The first shock: Dalit landowners! This proves that the congealed identity of being a Dalit, of having suffered a “historical wrong” does not make one immune to taking up the role of exploiter. In addition one sees that even among the Dalits there are exploiters and exploited. The Dalit landowner/exploiter in a situation like this cannot be let off because of his Dalit identity. The tribal worker perhaps finds it easy to understand the conflict between her/him and the Dalit- landowner, because of the latter’s out-group status. Even though the Dalit-exploiter and the Dalit-worker are not exactly friends, the Dalit-worker continues to side with the Dalit-exploiter. There is more than one reason for this. The first is the exploiter’s in-group status. The second, and the most important of all, is the tribal-worker’s out-group status, which implies that the tribal-worker is perceived only as a competitor in the labor market. The third is the perception of the tribal-worker, that the Dalit-worker is an outsider.

An attempt to resolve this contradiction on a local level has led to the breaking of the Sangha. The Bandhugaon faction has decided to compromise; they will not take land of all Dalits, because they say some of them are “poor”.(3) Furthermore they have decided not to put an immediate end to all lemon grass cultivation since it is a source of employment. The Narayanpatna faction tried to take over all the land, end lemon grass cultivation and the ownership of landlords altogether. The thesis and antithesis of a genuine contradiction have been broken apart and the movement has spiraled downwards (4). The unity needed between the Dalit-worker and the tribal-worker cannot be created here; this conflict cannot be resolved on this level. For these segments of the working class to come together they need to transcend (not forget) their identities and allow themselves to be assimilated in the larger struggle against capitalism.

In this localized struggle, a resolution is impossible because local issues are inextricably intertwined with locally defined identities. Only when the immanent logic of transformative politics is generalized, the logic escapes the hold of the local form that pulls it down. In the context of what is happening in Orissa, such a generalization would require this movement to interact with other movements in the state, which are predominantly anti-displacement. Admittedly, unlike the Naryanpatna movement, the moments of enunciation of the other struggles have been defensive, but convergence is necessary and desirable insofar as this union can also benefit these defensive identities, by shifting the grounds on which the battle is being pitched by them, making co-option harder. A programmatic understanding of the situation, evolved gradually through such a dialogic interaction would give the Narayanpatna movement a direction that can be used as a referent to decide upon questions that cannot be answered locally.


The Marxian notion of class is part of a particular act of abstraction performed to understand society and to perceive possibilities of its transformation. Capitalism is understood as a system in which the primary conflict of labor and capital is the dominant determinant of social being. In their analysis of capitalism Marx and Engels came to the conclusion that only those who labor, i.e. workers, have the potential of being agents of radical transformation.

“All previous historical movements were movements of minorities, or in the interest of minorities. The proletarian movement is the self-conscious, independent movement of the immense majority, in the interest of the immense majority. The proletariat, the lowest stratum of our present society, cannot stir, cannot raise itself up, without the whole superincumbent strata of official society being sprung into the air.” (Marx and Engels, 1999, p. 100)

“Class struggle” is, in this way, a process of transforming society, and “class” is envisaged not as an identity, like caste or gender or that of being a tribal, but as a process of continuous becoming (conscious) – the working class-in-itself becoming the working class-for-itself.

Where does one find class? It is a problem faced very often by literature students – for instance if one does an analysis of Balzac’s Pere Goriot keeping in mind the “class angle”, how does one go about it. Often critics end up identifying classes with particular characters, and reduce class struggle to an interpersonal battle. The way out of this mess is to study contexts, situations and relationships. One character through the length of a novel does not remain a “member of the working class”, although he might well be a factory worker throughout. In life too one finds a factory worker, but not the “working class”, and being a factory worker, or just a worker is also an identity. Much like representation in art, representation and self-representation in life needs identities. If one does not identify a worker, one cannot even begin to understand the working class, but to say that being identified as a worker makes a person of the revolutionary class is problematic. A fixed form of the working class to be identified at all times and in all locations does not exist. These indurated forms are identities, which at their moment of articulation express the inherent revolutionary logic of the working class, but are not themselves the complete working class.

The relationship between identities and the process called class is akin to that between particulars and the universal immanent in them, and constructed through continuous abstraction from them; the relationship is dialectical. An identity is valid at a particular spatio-temporal location, and rooted within it is the logic of truly transformative politics. But so long as an identity does not destroy itself, it continuously gets co-opted within the competitive system of capitalism. After a point an identity needs to transcend itself and move towards assimilation into the multitude of struggling identities. At the same time if one does not recognize the struggles of identities, one recognizes nothing, since struggle is necessarily posed in terms of identities. The class-for-itself is always in the process of being constructed, but is never out their, present a priori, to be recognized as somehow different from and superior to the multitude of identities.

In the Communist Manifesto Marx and Engels repeatedly asserted the significance of the union of many smaller groups of workers waging their local struggles. The struggle for transformation of society is to a large extent the struggle against the divisions within the working class, for it is understood that a united working-class-for-itself would necessarily transform society – in fact society is being transformed in fighting off segmentation within the working class. Marx and Engels wrote:

“Now and then the workers are victorious, but only for a time. The real fruit of their battles lies, not in the immediate result, but in the ever-expanding union of workers.” (Marx and Engels, 1999, p.98)

Only the path that goes through and beyond the thesis and antithesis of identities to a transcendental synthesis can transform the base. It is through identities that articulation and struggle take place, but the struggle of a localized identity is not enough, and is always exposed as superstructural, seen to reinforce the hegemonic structure. Identities are inevitable, and a necessity, but identitarianism divides and restrains the revolutionary multitude. Even in charting out the role of Communists, Marx and Engels had in mind the weeding out of segmentation and sectarianism within the working class, and the creation of a union.

“The Communists are distinguished from the other working-class parties by this only: 1. In the national struggles of the proletarians of the different countries, they point out and bring to the front the common interests of the entire proletariat, independently of all nationality…” ( Marx and Engels, 1999, p. 102) (5)

Marx and Engels here speak of national struggles, but the essence of what they say deals with insurgent identities in general. A localized identity can only fight for immediate results, after which the struggle and its result is subsumed in the hegemonic system. An identity ‘voices’ demands, which the system is asked to fulfill. In this two-step act of asking, and being given, the basis of hegemony goes unquestioned; the status of the giver as a giver and his capacity to give goes unchallenged. To put it in other terms (since the state is not itself ‘superior’ but works on behalf of those who are superior), the state, which in being a state, is a symptom of class power is not questioned. Its role as adjudicator of social relations and as the regulator of value distribution is predicated upon the fact that value is apportioned differentially; at the same time it is its task to maintain and defend the differential apportionment of value. In the act of placing a demand, an identity asks the state for a share of the value being distributed, a share which, presumably, was being denied to it. Once the state allots the identity its share the struggle subsides. This is what one means, when one says that an identity (earlier insurgent) is co-opted into the system.

Challenging Development, Challenging Neoliberal Capitalism

“In 1970…1 per cent of the population had 18 per cent of the wealth, in 1996 the same 1 per cent owned 40 per cent of wealth. After 50 years of independence 26 per cent of the total population lives below the poverty line and 50.56 per cent are illiterate, if we take official figure into account. Even today due to various reasons, 98 children out of every 1,000 between the ages of 1-5, die. An official report of the government’s mines and mineral department, published in 1996-97, states that India’s natural gas will be consumed within 23 years, crude oil within 15 years, coal within 213 years, copper within 64 years, gold within 47 years, iron ore within 135 years, chromites within 52 years, manganese within 36 years and bauxite within 125 years. All this is taking place in the name of national development.” (Debaranjan Sarangi, ‘Mining “Development” and MNCs’, EPW Commentary, April 24, 2004. Quoted in “Factsheet on Operation Green Hunt” published by the ‘Campaign against War on People.’)

“The notion that growth of manufacturing or services industries is per se desirable is a form of fetishism. We need to ask questions such as “Does it create net employment (i.e., does it create more jobs than it destroys)?”, “Does it meet mass consumption requirements (either directly or by developing the capacity to meet these requirements)?”, “Does it squander the economic surplus on luxuries? Does it divert resources from more pressing priorities?” “Is it environmentally sustainable? Does it exhaust natural resources?”, “Does it uproot people?”, and so on. In fact one can cite several industries which, not as an avoidable by-product of their development, but as an essential part of it, harm the masses of people, and benefit only a small class. True, the so-called ‘value added’ by these industries contributes to the GDP; but this fact merely underlines the irrationality of using GDP as a measure of development.” (Aspects of India’s Economy, No. 44-46, India’s Runaway Growth: Private corporate-led growth and exclusion, p. 9)

It should be clear that changing the manner in which notions like development are envisaged is not an administrative matter. The hegemonic understanding of development is intimately connected to the interests of the hegemonic class, and challenging this development implies challenging hegemony. By extension, to transform the development paradigm would necessarily require the transformation of the power relations structuring a socio-economic formation. Assuming that the need for a unity among those “who have nothing to lose but their chains”, is established in our minds, one could contend that the tribal opposition to the form of development that the Indian state has embarked upon, which has emerged in response to the immediate danger to their lives, would need to consciously recognize the constellational unity it bears with workers’ opposition to hegemony in other locations. In a paragraph that has already been quoted, Perelman goes on to say:

“Emphasizing the social relations of advanced capitalist production to the exclusion of the ongoing process of primitive accumulation obscures the fact that the struggles of the Ogoni people in Nigeria or the Uwa in Columbia are part of the same struggle as that of exploited workers in Detroit and Manchester.” (Saad-Filho, 2003, p. 125)

The same can be said about the “tribals” struggling in Chhattisgarh or Orissa and workers in Gurgaon.(6) As mentioned earlier, displacement and dispossession are forms of primitive accumulation, which is only one form of accumulation of surplus, the other two being relative and absolute surplus value. Capitalist development is about the maximization of the accumulated surplus, and the various forms of accumulation bear an essential unity. If in rural areas we witness this accumulation in the form of direct dispossession, in other locations we see it in the form of increasing alienation of workers from their work, in low wages, increasing work hours, higher and higher degrees of mechanization and lack of job security. If this is the case, then one should also recognize that the challenges being posed to capitalism, at various moments are part of a single struggle to transform society.

Till the conflict between the tribal population and the state continues to be posited in terms of “war”, “village community”, and so on, this unity of logic will not be recognized – binaries like tribal/non-tribal, village/town etc. will blur the lines along which the actual struggle is being waged and (as was explicated earlier) will give the sense of a false unity of interest between exploited and exploiter. In the moment at which land is acquired the ruling class within the tribal population, which holds most of the land fights back together with the landless tribal who too works on this land. However these landowners usually fight either for compensation or for a part of the new stakes and go over to the state soon enough. In the final analysis the interests of the ruling class within the tribal population and those of “external”, more dominant state forms like multinational companies are the same. When the crucial moment of conflict comes this unity between the rulers becomes apparent, the logical unity of parts of the hegemonic structure is clearly reflected in the coordination of forms. To counter this structure, the revolutionary class needs to recognize and consolidate its own multitudinal, insurgent structure. The workers who participated in the huge strikes in the automobile industries in Gurgaon, following the incidents in the Rico factory, are part of the same struggle as the one being waged against dispossession by those tribals who either work on others’ land or possess land enough only to reproduce their labor power. To be able to reconfigure the development paradigm, to move to a form of development that takes into account the interests of the majority, the multitudinal majority needs to consciously create itself through the recognition of its diverse and localized forms.

It would be useful here to hint at the difficulties of such a dialectical theorization of the relationship between forms and logic, identities and class. Indeed we find in the difficulty of such a theorization an allegory of the difficulty of class struggle in its entirety. Formally, there is no difference between this understanding of the struggle of an identity (as a moment of class struggle), and the one which reifies the insurgent identity. But logically, there is a difference. The latter gets co-opted at each moment because it fails to question the foreclosure that creates this exploitative structure, seeking to solve, as Laclau says “a variety of partial problems”, while the former posits the struggle of partial forms as the process of creation of a good universality. Formally, the attempt to de-legitimize the struggles of identities, or to “subsume” them, rendering them somehow less important than the struggle against capital, and the attempt to understand how these struggles are moments in the process of struggling against exploitation at large also appear the same. But logically they are different. While the former reifies a partial form of the struggle, and posits it as superior to another, the latter tries to perceive (and create) a constellational unity between these partial forms. Formally there seems no difference between a call to concede the superiority of one identity, and the one to recognize the constellational unity between identities. But logically there is a difference. Totalitarian is the very fabric of capitalist differentiation – on the surface neoliberalism seems to allow difference, but actually it hollows out the concreteness of diverse forms. The unity that we need to forge to end exploitation will have immanent within it the logic of difference, where the universal is the particular and nothing more.

Winding Up

In the era of “late capitalism”, with the “death” of the high-capitalist adventurer/entrepreneur, modernism, the individual, of meta-narratives like class and nation, difference rules. On the one hand capitalism is extending its domain, making every “outside” it’s part, constantly subsuming the hinterland, repeatedly redefining its own centre, and on the other this is also the era of “identity-assertions”. Many have analyzed these phenomena, but the effort to understand them as facets of a systemic totality have been inadequate. Neoliberalism, with its form of decentralized hegemony is able to make use of difference. As capitalism pushes its boundaries, not just geographically, but also in spheres which have been within its geo-political territory without being constitutive of it, identities are posed. Neoliberalism instead of suppressing these is able to co-opt them – it brings identities into competitive relationships, at the same time allowing each validity on its own turf. This horizontality that neoliberalism is able to maintain creates a relativity in values which seemingly makes classical notions like class-struggle, working class, capitalism, communism, transformation, revolution and so on meaningless. If each identity is able to make its assertion, then why talk of fundamental/radical transformation, and furthermore if there are so many equally valid voices how does one decide what the nature of transformation will be? And yet, when encountered by the realities of neoliberalism, the costs of its form of development, one understands the need for transformation. This is the antinomy of postmodernity – one’s condition is abominable and because it seems impossible to ascertain the nature of the system, transformation seems unattainable.

This paper, seeking to be an intervention in this situation has tried to hypothesize the possibilities of such a political dialogue between local forms and identities, to take into account the postmodern stress on difference and at the same time assert that a system of differences is a system nonetheless. What is the “internationalism of a radically new type” that Jameson speaks of, but an attempt to rethink the working class as the agent of change within the capitalist system, in the era of postmodernism? To rearticulate the relation between diverse identities and the meta-narrative of the “working class” one can make use of the notion of “class composition”, “designed to grasp, without reduction, the divisions and power relationships within and among the diverse populations on which capital seeks to maintain its dominion of work throughout the social factory – understood as including not only the traditional factory but also life outside of it which capital has sought to shape for the reproduction of labour power” (Cleaver, 2003, p. 43). What have been called identities in this paper, can, when speaking of class composition be termed as “sectors of the working class”. These “sectors of the working class, through the circulation of their struggles, “recompose the relations among them to increase their ability to rupture the dialectic of capital and to achieve their own ends” (Cleaver, 2003, p. 43). The sort of dialogue needed for this recomposition would need to take the form of a direct, political confrontation, an engagement that would leave nothing unchanged; one’s identity and the ideology constituted by ones own experience changes in this encounter, even as the other is made to take into account one’s identity. “A double agenda,” as Cleaver (2003, p. 55-56) puts it: “the working out of one’s own analysis and the critical exploration of ‘neighboring’ activities, values and ideas.”

“The particular interests of passion cannot therefore be separated from the realization of the universal; for the universal arises out of the particular and determinate and its negation…Particular interests contend with one another, and some are destroyed in the process. But it is from this very conflict and destruction of particular things that the universal emerges…” (Hegel, 1974, p. 89)


(1) Interestingly the writers try to extract the notion of “primitive accumulation”, in its logical purity and conflate history and logic in a manner rejected in this paper’s deployment of the said notion. They write:

“This giant capture of land and natural resources by the corporate sector is superficially similar to the ‘primitive (or primary) accumulation’ of capital which served as a necessary stage of capitalist development in Europe. It resembles that stage in its brutality and venality. But whereas the capital thus accumulated in the original countries of capitalist development was deployed in manufacturing activity that absorbed the bulk of the dispossessed rural labour force, such absorption is very restricted here.” (Aspects of India’s Economy, No. 44-46, India’s Runaway Growth: Private corporate-led growth and exclusion.)

The difference between the ‘original’ European situation and the current one in India that they point out is certainly present. But the implicit assertion that the “proletarianized” workforce needs to be absorbed in the location where dispossession occurs lacks logic. The dispossessed do become part of what Marx had called the latent reserve army of labour, and this is ‘absorption’ enough.

(2) Pratyush Chandra writes:

“Now, the sense of being dispossessed is rampant among the rural poor, those who are ready to take up arms. Whatever be their identity, they come mostly under the class of allotment-holding workers, a term that Kautsky and Lenin used to characterise the majority of the so-called “peasantry” – land in whose possession is just for reproduction of their own labour-power. Hence, rural struggles today, including against land acquisition and those led by the Maoists, are not merely against threats to their livelihood but to life itself – to the very sphere of their reproduction.” (Chandra, 2009)

(3) In situations like these, using a definition of poverty alien to the context can cause problems. Compared to the urban middle class even the Dalit exploiter is “poor”. But in that particular context, they control the labour processes of many others through their control over the means of production. Saying that they should not be treated as “class enemies” only blunts the thrust of transformative politics, which in that location is that those who work should own the land and that only food crops should be grown.

(4) The other reason for this spiral downwards has been the uncalled for violence that the state has used against the Narayanpatna movement, killing two Adivasis, injuring many other, and forming a violent “shanti sena” to terrorize the people (till the time this paper was written).

(5) To complete the quote: “2. In the various stages of development which the struggle of the working class against the bourgeoisie has to pass through, they always and everywhere represent the interests of the movement as a whole.” (Marx and Engels, 1999, p.102)



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