Revolution in South Asia

An Internationalist Info Project

Indian Maoists: Impact of Global Economic Crisis

Posted by Sole on January 19, 2009

india_crisisThis article appeared in People’s Truth Bulletin No. 4. It was originally titled “Present Financial Crisis & the Impending Great Depression”.

Present Financial Crisis & the Impending Great Depression

by Arvind

India is one of the four exemplary emerging markets that were cited by neo-liberal imperialism as proof that global capitalism was the road to eventual prosperity. The reality is that India is one of the major centers for ‘out-sourced’ and ‘off shore’ super-exploitation, and hardly immune from the dysfunction of the big imperial centers. Last week, for example, came the revelation that one of the largest IT outsourcing firms, Satyam, had been methodically over-stating its annual profits (just like so many big US firms), leaving investors holding worthless stock shares and the company chairman under arrest for fraud.

Meanwhile, for the vast majority of the 1.1 billion people in India, life is characterized by brutal poverty. As one recent Reuters news item admitted “for all of India’s optimism, it was a reminder that the country of sprouting shopping malls still must deal with the more than two-thirds of Indians who live on less than a dollar a day.

Impact on India

Take India (for more details see the following article), for all the exaggerated claims of the PM and FM the economy is already badly hit. Till end October the BSE share index has fallen 60% since its all time high of 21,207 in Jan 2008 as the FIIs have pulled out a massive $ 12 billion. On November 21st it reached a 38-month low of 8,451. Real estate stocks have dropped by 90% and Mutual Funds (where much of middle-class savings are put) by 80%. Today, of the 2,699 quoted companies half are below the book value. Due to the big pull out of foreign funds not only has the stock market crashed the rupee declined by as much as 15% in the few weeks ending October 2008 to fall below the 50 mark.

Exports have already been badly hit given that foreign trade and service comprises 40% of our GDP. So, for example, there has been a 50% drop in iron ore exports since August leading to a pile up of 4 million tones at the ports. Prices have crashed from $ 140 a tone three months back to $ 85 per tone. Tata Steel has been regularly closing its plant in Tatanagar since the last two months. Drop in cement orders has led to ACC laying off 25% of it staff. Small textile firms are collapsing and over 4 lakh garment workers are likely to be thrown out in the next few months due to cancellation of export orders. It has already suffered losses of Rs.400 crores since January due to a massive hike in prices of cotton yarn and other inputs. The Tirupur textile hub alone will loose 50,000 jobs in the next six months as 25% of its units will shut down. Ludhiana’s hosiery manufacturers and exporters have already lost 30% of their business due to the meltdown seriously affecting the 35 lakh workers (15 lakh migrant) involved in the industry. In Meerut over 20% of the 30,000 gold artisans (mostly Bengalis) have gone home. In Surat 20% of the diamond units have closed down and those that remain have less work. They have been affected by the drop in exports and rise in costs of rough diamonds with the rupee falling against the dollar. In Mumbai’s sprawling slum, Dharavi, export of leather belts have dropped from 70,000 per month to 3,000 per month.

Besides this, badly hit will be all the BPOs(1), IT enabled services and those dependent on foreign orders for their survival. Already many are facing closure and those that survive are cutting jobs, salaries and perks at a fast rate. Indian airlines industry like Jet Airways first retrenched on a big scale and later took back the staff with salaries cut to a faction of what they earlier got. ASSOCHAM, a top association of the business houses, has said in a report dated Oct.31 08 that Indian companies will slash 25% of its workforce “to sustain operations”. It said that layoffs, to begin with, will be in the seven key industrial segments — steel, cement, IT-enabled services/BPOs, financial & brokerage services, construction, real estate and aviation.

And this is just the beginning. So far savings have not been hit particularly except in Mutual Funds as nationalized banks have not had significant exposure abroad. But ICICI Bank has been badly hit and there is strong possibility of bank and insurance failures, particularly in the private sector with those tied up with TNCs.. The ravages of the worldwide depression will hit countries like India badly as the imperialists will seek to push the burden of that crisis on the backward countries. Already the dalal Finance Minister has announced a slew of measures that increases enormously the concessions given to foreign capital. As we go to the press he announces that drastic changes are to be made in this sphere. This will only aggravate the situation further, though it may help the big industrialists and financiers — both Indian and foreign.

Crisis of Neo-liberalism; Keynesianism no Answer

The Great Depression of the 1930s was finally pulled out of its crisis after World War II through Keynesian formulas of state intervention (nationalization) and the welfare state. In those days it also had to contend with a powerful socialist camp. But with the temporary collapse of socialism worldwide and the retreat of national liberation movements and a persisting economic crisis since the mid-1970s, the neo-liberal formulas were pushed to the fore. Reaganism, Thatcherism, et al became the fashion and Keynesianism, nationalization were much ridiculed, not to mention the socialist alternative. The 1990s saw neo-liberal economic polices peak where the market was the new god that determines everything. Fortunes were made on a scale never seen in the history of capitalism; of course, in the wake of immense impoverisation, with the rich-poor gap also becoming the widest ever. It was even portrayed as “the end of history”, as though the ‘golden’ capitalist era is here for ever and socialism relegated only to history text books. Even welfare was now privatized with a massive mushrooming of NGOs funded by the moneybags and the state.

Growth rates grew compared to the era of the 1970s and that became the irreversible alibi for the neo-liberal theoreticians. And with it was accompanied the gigantic leaps in communication technology in the form of the computer, internet, cell phone, TV, etc that gave it the glamour of a scientific inevitability. The high profile media portrayed none of the misery below the surface and only promoted the world of wealth and glamour. The middle class was brainwashed with this continuous bombardment, and a section even got an opportunity to eat off some crumbs from the imperialist/comprador table. The smallest dissidence was labeled ‘terrorist’ and callously dispensed with. Once so branded, one ceased to be human, it was as though a dangerous insect had been crushed. The poverty stricken masses too were a non-entity in this make-believe world.

But now the fantasy world of the neo-liberal bubble has burst; and burst in a way that it is unlikely to re-gain for long. Meanwhile it will pull down with it millions more into the mire and suck away lives in lakhs. With one financial bubble after the other bursting the theoreticians of neo-liberalism have no answers and seem totally helpless in the face of the continuing collapse of pillar after pillar of the financial establishment. The gods of power and wealth are tumbling down.

They have just their standard fiscal answers — reduction of interest rates is their main tool: to increase liquidity (i.e. money for capitalists) and make available easy credit for the masses to spend and revive the slumping market. But it is not working. On Oct 9th, for the first time ever several Central Banks acted in concert to stem the market panic. The US Fed cut interest rates by 50 basic points to 1.5%; while the European Central Bank cut interest rates from 4.25% to 3.75%. The Bank of England and the Central banks of Canada, Sweden, Switzerland and China also cut interest rates within seconds of each other.

But this was not able to stem the rot. The collapse of the banks, financial institutions and now even the industrial giants continue. Interest rates were reduced further and now in the US the rate stands at 1% and in Japan at 0.2%. On Nov 6th England once again slashed interest rates, this time by as much as 1.5% to bring it to 3% — a 53-year low.

In desperation they have thrown all their neo-liberal theories to the winds and governments have intervened with gigantic bail-our packages to rescue the banks, investment institutions and even companies. This is defacto resorting to the much abused ‘nationalization’. As long as they were making huge profits, privatization was the mantra; now when they are making losses and are in fact collapsing it is back to nationalization. But this Keynesian alternative is no real solution; it is a mere palliative to give immediate relief. The social democrats and the CPI/CPM type socialists may harp on these alternatives but they will have to explain the earlier failures of the Keynesian model of the 1960s resulting in the crisis which began in the 1970s, and still continues. Also they will have to explain the collapse of the Soviet Union (after capitalist restoration) and those of the then East European countries — all of which were built on a powerful state sector.

The present crisis which is reminiscent of the Great depression is a systemic problem of the capitalist mode of production itself. The roots of the crisis lie in the capitalist system itself for which there is no solution within it. The only real solution to revive the economy is through the very overthrow of the system and its replacement with the socialist alternative

Why? To answer this let us go into the history and dynamics of the present crisis and see if there is any answer within the system.

Crisis of Over-production Endemic to Capitalism/Imperialism

The Great depression of the 1930s was followed by the world war. The post-war years saw a relative boom in the worldwide economy with the US at the centre. But in the 1970s the world economy once again slipped into crisis, marked by the oil shock, removal of the gold standard (against the dollar), perennially slow (or even negative) growth rates, etc.

This crisis that began in the 1970s has continued with intermittent brief recoveries, right up to today. The crisis of over-production which is endemic to the capitalist system results from the intrinsic contradiction of the capitalist seeking to maximize profits (and capital accumulation) through depressing wages to the maximum possible. Continuous capital accumulation demands continuous growth of the market as the capital has to be invested somewhere (otherwise it is not capital, but mere money); but markets are always restricted due to the depression of the wages and low purchasing power of the masses. It is this contradiction that leads to regular cries of over-production. The capitalists can only operate within this limited framework, but are unable to resolve this contradiction. This results in regular crises and in the era of imperialism the Great Depressions.

So with the crisis setting in the 1970s there was a drop in the purchasing power of the people as all crises are accompanied by rising unemployment, wage freeze, etc. So the capital being accumulated has no outlet in the manufacturing sector for re-investment. So it sought other paths in the sphere of pure finance. In the 1980s the high levels of capital accumulation, specifically thrown up by the petrodollars, found a new outlet in lending to the third world. Through the 1980s this went on, on a huge scale helped along by the IMF and World Bank, giving gigantic returns to the investors and pushing these countries into deeper and deeper debt. Enormous profits were not only made through charging interest, but devaluation of the currencies and making the loans conditional to extract maximum tribute from the prey. Within a decade the loot was so acute that most of these countries were pushed to bankruptcy and, in fact, many of the loans had to be rescheduled. This period, though it had minor recoveries, witnessed regular economic crises as in 1973, 1979, 1985, 1987, and 1992. It also witnessed the bubble like growth of the Japanese economy (which briefly began to be a challenge to the US), and then its bust in 1989, from which it is yet to recover.

The 1990s and the present centaury witnessed what came to be called globalization as the solution for their endemic crisis since the 1970s. Now the surplus generated through capital accumulation, unable to find a growing market (except for the opening up of China) resorted to two means: massive Mergers & Acquisitions, on a scale never seen before creating giant conglomerates; second, resorting to high levels of speculation and finacialisation of the surplus being generated through the real economy. This was facilitated by the technology boom in computers, internet, etc.

As Raymond Lotta said in an article on the net: When we speak of capitalist accumulation, we are referring to the competitive production of surplus value (the source of profit) based on the exploitation of wage labor; and the investment and reinvestment of profit on an expanding, cost-cheapening, and technologically more productive basis.

When we speak of “financialization,” we are referring to three particular features of the larger structure of capitalist accumulation in this period of imperialist globalization: a) the growing political and economic power of the financial layers of the capitalist class; b) the vast expansion of financial activities and of financial services, like organizing and financing corporate takeovers, insuring investments against risk, creating new financial instruments, etc.—activities in which profit-making involves the siphoning, centralization, and reinvestment of surplus value through financial channels; and c) the increasing separation of finance from production.

This process of financialization has gone the furthest in the United States, and it is a major factor in U.S. imperialism’s ability to preserve and extend its dominance in international financial markets.

Financialization is also a means through which wealth, and effective control over productive forces is centralized by the imperialist countries—even as production has grown more geographically dispersed and increasingly carried out within sub contractual networks in the Third World.

Financialization involves efforts to squeeze out more “value” from already created value. One measure of this is that in 2006, the daily volume of trading in foreign exchange markets and in derivatives (financial instruments) added up to $11.4 trillion—which almost equals the annual value of global merchandise exports that year. In terms of the shifts in the structure of the U.S. economy, the financial sector’s share of total corporate profits has risen from 8 percent in 1950 to 31 percent last year.

So here the surplus value generated from the real economy was circulated again and again around the globe in the sphere of speculation, giving astronomical profits to the owners of the capital. But it was a bubble and had inevitably to burst as it had no solid base to it. Market expansion in the US was sought not by hiking wages but by pushing the entire populace into debt through excessive credit — housing mortgages, credit cards, etc. The US also became the most indebted country (in Oct. 2008 the external debt reached the gigantic figure of $ 10 trillion) with the largest trade deficit. This fragile situation was sustainable as long as the dollar maintained its supremacy resulting in large inflows form other countries (with most govts. holding their reserves in dollars — the largest today is that of China). If the collapse of the US financial institutions is accompanied by the fall of the supremacy of the dollar (which is rivaled by the euro) and shifting of reserves to another country the fragility of the US economy will result in total collapse. But with it, it will pull down other economies of the world, so that is why, as yet, no one wants to disturb the existing equilibrium by transferring their dollar reserves.

The crisis today is so deep that it is being compared to the Great Depression of the 1930s. But even in the boom years of the 1990s there was the crisis of 1997 (S.E. Asia and Russia as centre), the bursting of the internet bubble of 1999, and the recession of 2001. So, since the 1970s the crises continued with brief periods of recovery, in many cases artificially created through fiscal manipulations and creation of bubbles. This has now imploded on their face in a crisis, the magnitude of which is incomparable to the other downturns since the 1970s. It is in essence the crisis of over-production, and all fiscal stimulation is proving ineffective.

There is no solution within the framework, but to survive the impending chaos the imperialists and their agents throughout the world will resort to horrors of unbelievable proportions, including wars, fascist massacres to quell the inevitable revolts, levels of exploitation not recently seen, etc. Such are the dismal days ahead, not to mention the massive distress created through the collapse of people’s savings, earning capacity and purchasing power.

The Only Alternative

There are reports that in Europe Marx’s writings have come onto the best-seller list. Even rulers are referring to Marx to understand the causes for the crisis. This is quite natural as it was only Marx that gave a scientific understanding of the capitalist system, building on the initial understanding put forth by people like Adam Smith and Ricardo. No doubt capitalism has changed its form in this era of imperialism (scientifically explained by Lenin) but the laws of its functioning remain in tact. The understanding of these laws will not only give an understanding to the present crisis (with all its new manifestations of financialisation, etc) but also the limitations to the solution within the existing system.

But Marx not only gave a scientific understanding of capitalism but also put it in historical perspective. Through a scientific understanding of history he traced its evolution from feudalism and its inevitable transition to socialism. Through his understanding of history from earliest times to now he showed that with capitalism it is far from “the end of history” but history will traverse through to finally reach socialism and communism. In addition he showed that history has shown no society transformed from one to the next peacefully, it always came through bloody battles as the rulers of the old do not voluntarily give up their benefits without a bitter struggle. They did not wage world wars for nothing. They resorted even to genocide when their interests were threatened. Numerous examples are there in history and contemporary Iraq is yet another example.

So amidst this chaos sanity and peace can only be brought by overthrowing the existing system and replacing with something that is more humane and rational — socialism. In backward countries like India it will have to pass through two phases but the direction is the same in all countries of the world. Communism has been much vulgarized by the revisionists of the CPI/CPM variety and much reviled due to the reversals of socialist systems the world over. In this 21st century communism must learn from the negative experiences of the past and incorporate all that is positive with a new creativity to catapult society into a real paradise that we all seek. For the present there is utmost necessity to fight the big back the big attacks being launched on the people’s living standards by the capitalists/imperialists worldwide. There is also a dire need to organize powerful communist (Maoist, not revisionist) parties, for it is only they that can withstand the impending fascist attacks and show the light to a beautiful new future. Marxism is once again getting a new life, let us spread its scientific and revolutionary teachings widely so that the masses can get to the truth and understand the ongoing turmoil.


(1) Business process outsourcing (BPO) is a form of outsourcing which contracts ‘back-office’ or other business functions to a third-party service provider.

One Response to “Indian Maoists: Impact of Global Economic Crisis”

  1. Economic crisis effects India too and its increases unemployment and poverty too.You are right India is a major centers for ‘out-sourced’ and ‘off shore’ opportunities. But we cannot take right approach and right decisions in the time of recession & we have not in a stage to take risk a more because it effects our country a lot.Its time of uncertainty stock market, business, and MNC nobody secured .

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