Sanjay Kumar

All self-regulating complex systems fall back to protect their core parts and essential functions when threatened by outside forces. Something similar happened with human society under threat from corona virus. As state authorities and economic elites reoriented their activities to face the challenge, the core character of state and class power under current capitalism became visible like day light. The blue pill lost its potency.

In 1999 movie Matrix, the main character Neo is offered a choice between a red pill and a blue pill by the rebel leader Morpheus. The red pill will take him to the real world of domination of humans by machines, which have also created a virtual world in which humans remain unaware of their actual bondage. The blue pill will keep him within this virtual world of blissful ignorance. All societies based upon exploitation and oppression create an ideological world of belief systems, ideas, cultural practices, notions of possibilities and normalcy, within which human subjectivity is created and expressed, and which cover up the crass brutality of exploitation and oppression. For most humans, most of the time, it seems the blue pill of social ideology is the only way through which life appears worthwhile and meaningful. However, certain events and experiences, even without humans making an explicit choice, do break the spell. The novel corona virus pandemic is one such event.

The year 2020 has proven to be one of the most turbulent in recent history. The novel corona virus, a result of biological evolution, disrupted regular functioning of human society in unpredictable ways. All self-regulating complex systems fall back to protect their core parts and essential functions when threatened by outside forces. Something similar happened with human society under threat from corona virus. As state authorities and economic elites reoriented their activities to face the challenge, the core character of state and class power under current capitalism became visible like day light. The blue pill lost its potency.

Place of the Poor in New India

Perhaps the most lasting image of this pandemic in India will be the reverse migration of upto 30 million migrant workers from cities to villages. The lockdown was announced by country’s PM on 24th March with a four-hour notice. To enforce it police was called on, and public transport including buses and trains were banned. Country’s highways however were not free of people, as hungry and exhausted workers and their families walked back home, often hiding from police attacks. They were not leaving to escape the disease. They were running away from the threat of starvation in cities; cities, which produce seventy percent of country’s wealth. Why did county’s urban society, which uses these workers in factories and construction sites, as security guards at malls, offices and rich neighbourhoods, as hawkers and rickshaw pullers on streets, and as housemaids within the intimacy of better-off households, could not provide a modicum of safety from hunger and homelessness to them for a few days?

The poor of India have figured prominently in its national imagination. Even before the publication of Dadabhai Naoroji’s ‘Poverty and Un-British Rule in India’ in 1902, Indian nationalists had emphasized the role of colonial rule in draining country’s wealth and its consequent poverty. However, after independence, the three measures which would have greatly empowered Indian poor, namely land reforms giving land titles to rural poor, the right to minimum wage guaranteeing decent living to urban poor, and universalization of primary education giving the poor educational means to challenge ruling ideas, were not implemented. Poor got the right to vote, but economically and socially they remained disempowered. Administrative tools like the ‘below poverty line’ identity made them targets of state largesse, as and when the state authority pleased. Nevertheless, despite practical indifference, the dominant ideology of the Indian nation did register their presence, even if only at election time. The new ‘aspirational’ India represented by Mr Modi and his ilk has done away with the mask. The sight of poor is more of an irritation to this new India. That is why Mr Modi could announce a lockdown with four-hour notice, without a thought about how working poor without savings and earnings will survive without jobs; and administration had no hesitation in using police force against workers walking back to their villages.

 Attitudes apart, the fact is that Indian urban society grants only the relationship of wage labour to migrant workers. When thrown out of this relationship, they can live only as beggars on streets. The urban institutional structure of the so called largest democracy of the world does not grant them right to habitation, to food, to education for their children, or to healthcare when sick. In villages at least they have a right to vote, and some connection with institutions of local governance. In cities they have nothing. Migrant workers of course know it. They cannot afford any illusion on this account. It is high time the rest of those who call themselves Indians register this indifference of the Indian system of governance towards the most vulnerable. The pandemic disrupted only the everyday normality of the system.

Pandemic as an Opportunity: Shifting Balance of Class Forces

Economic activity in the country during the first quarter of the financial year (April-June 2020) was 24% less than the previous year. This drop had a predictable effect on employment. According to the Center for Monitoring of Indian Economy data, the unemployment was 23.8% during the last week of March, which was the first week of lockdown, and 23.4% during the first week of April. It remained above 20% till the end of the lockdown in May. The unemployment rate in February before the lockdown was 7.8%. Given that roughly 43 crore Indians were part of country’s labor force, i.e. they were engaged in some form of commercially remunerative work either at wage/salary, or were self-employed, the nearly fifteen percent increase in unemployment rate means that more than 6 crore Indians were thrown out of work.

During the year of the pandemic, the labour participation rate, which gives the percentage of able bodied persons of the working age either engaged in remunerative work, or looking for employment, dropped two percentage points from 42.6% to 40.6%. Given that roughly two thirds of Indians are of working age, this means that roughly two crore Indians who would have been working, are not working. The unemployment rate showed a net increase of more than one percent, from 7.76% to 9.06%. The number of Indians actively looking for work but not finding any increased by about 50 lakhs. Both of these data indicate increasing economic distress of working Indians.


(Data Source: CMIE)   

Half of working Indians work in agriculture. Nearly 10% work in the formal sector. Employment in agriculture and formal sector was not seriously affected. Like after demonetization, the disruption in employment has been most violently felt by lower income groups working in non-agricultural informal sector. How should this second shock within four years be seen; as an event after which the economic system is settling down to its previous state, or as a stage in an ongoing process of change? While the pandemic is an external shock, the privileged and the powerful have not only come out better than others, they have actively used the opportunity to strengthen their position. The time of pandemic is also turning out to be a moment of secular shift in the balance of class forces.

Two set of facts support this conclusion. The second quarter (July-Sept) data released by the RBI in November 2020 showed that while the economy shrank by 7% compared to the same period last year, profits of listed corporate sector increased by a whopping 35%. During the first six months of the pandemic profits of the corporate sector had increased by 24%. There was inequality within capitalist enterprises. The profit of large listed companies increased by 50%, and of small listed ones by 7%. These came in the context of decreasing sales. Wages in the corporate sector in the second quarter increased by 3.4%, but this was mainly due to increase in banking and IT. Most other sectors including manufacturing, and other services saw a decline in wages. Wages are stagnating and declining in the context of declining employment. As CMIE director M Vyas notes, the wage cuts and job losses in the corporate sector are structural, they are unlikely to come back. 

While the government gave no wage support to workers who lost jobs due to lockdown, it has bent over backwards to give financial largesse to capital.  After the dismal failure of ‘Make in India’ scheme, the new mask is the ‘Atmanirbhar Bharat’. The latter includes Rs 1.46 lakh crore for the Productivity Linked Incentive schemes for ten manufacturing sectors, which are in addition to the already existing PLI schemes of Rs 51 thousand crores for three sectors. 

Whereas working people are suffering wage and employment squeeze, the wealthier sections of society are already enjoying better days. Share market, which is a dynamic reflection of richest Indians’ current and near future wealth, is in full bloom. In January 2020, before the pandemic, the Bombay Stock Exchange Sensex (BSE) based upon the share prices of largest Indian corporates was at its highest ever value. At nearly 41,000, it was 14% higher than its value one year ago, even though the economy had increased by only 4-5%. It dropped by 37% in the last week of March 2020, as the lockdown began and economic uncertainty loomed large. But since then it has been gaining strength robustly. It regained its previous highest value in mid-November. By the last week of December 2020 it was at nearly 16% higher than its value in the beginning of the year; this is the largest year-wise rise in three past years.

Rising Sensex in the year of the pandemic

The contrasting experiences of the richer classes and working people during and after corona pandemic reflect the economic logic of capitalism. Capital is not only a claim on social wealth, it is also economic power. If there are ten workers clamouring for a single job, and working class organisations are weak, capital will squeeze workers. The second fact indicating class attack by the rich is Modi government's policies during pandemic. It has used disruption due to pandemic as an opportunity to whittle away existing legal protections to workers in the orgnised sector. Many state governments suspended labour laws during the initial phase of the pandemic and declared that working day can be extended to 12 hours. The new labour codes passed by the parliament have taken away the security of employment conditions and wages, made union organizing and legal strikes difficult and illegal strikes an offence. Intention is clear. Do not provide any legal protection to workers, and let the capital-wage relation remain a purely market transaction where fat capitalists have a clear edge over starving workers. The same logic of giving free rein to the economic power of large capital is the driving force behind the three agrarian laws passed in September. While the government gave no wage support to workers who lost jobs due to lockdown, it has bent over backwards to give financial largesse to capital.  After the dismal of failure of ‘Make in India’ scheme, the new mask is the ‘Atmanirbhar Bharat’. The latter includes Rs 1.46 lakh crore for the Productivity Linked Incentive schemes for ten manufacturing sectors, which are in addition to the already existing PLI schemes of Rs 51 thousand crores for three sectors.  

The Imperialist Context of Economic Response to Pandemic

The above chart from ILO shows Modi government’s response to Covid in a comparative context. India has one of the largest proportion of employed in the informal sector, which provides little income security against any economic shock. Yet in comparison to many other countries with similar level of economic development, the Modi government imposed the most stringent lockdown in March-April 2020 in the world. On the other hand, the Indian government has also been more tight fisted than most other governments in providing income support to the working people. Even pro-capital media, and rating agencies have noted failure of government in generating enough demand. Direct government spending on corona related fiscal support is 1.2% of the GDP, while other countries with similar ratings by international agencies have spent 2.5%. On the other hand, the Reserve Bank of India has bought foreign assets worth $70 billion since April 2020, which is roughly 3% of the GDP. These assets are mainly in the form of US treasury bonds. Massive savings in the country by the propertied sections are not being used to increase demand in the country, but financing deficit of other countries. What is going on?

The answer lies with the third and fourth parts of the current reality made visible by the pandemic, which are related to the imperialistic structure of the global economic order, and its relationship with the finance capital.  According to IMF data, governments world over had spent 12% of the world GDP on Covid related fiscal measures by September 2020. Nearly half of this was actual spending and forgone revenue, in the form of cash support to workers and businesses and reduction and removal of taxes. The other half was liquidity support in the form of loans, loan guarantees, and direct infusion of equity. The ratio of this fiscal support to the GDP varies considerably across countries. However, there are also systematic differences which depend upon the level of economic development. Fiscal measures in advanced economies amounted to approximately 20% of their GDP.  Governments of middle income and emerging economies spent about 12% on these measures, while those of low income developing economies spent less than two percent. It is expected that richer countries will spend more in absolute terms on measures to combat effects of the pandemic. But that should not affect the ratio of these measures to the GDP, because their GDP is also higher. Higher values for these ratios indicate that it is not only a question of quantity, but qualitatively different factors are at play.

Globalisation has not altered the imperialist architecture of the world economy, it has altered the means of imperial authority.

 


(Source:  Fiscal Policies Database (imf.org) )

These factors also show up in fiscal deficits of these three group of countries. The fiscal deficit of advanced economies was 3.3 percent of their GDP in 2019. In 2020 it is expected to be 14.4%, due mainly to pandemic related extra fiscal measures. In the case of middle income and emerging economies these number are 4.9% and 10.7%. In the case of low income developing countries these are 4% and 6.2%. The percentage increase for advanced economies at 11% is nearly double that of middle income countries, and four times those of low income countries. Even in the face of severe economic and health crises caused by the pandemic, governments of low and middle income countries enjoy absolutely less fiscal freedom than governments of richer countries. What is the reason for this difference?

This difference is created by the global flows of finance capital, which distinguish between a core in advanced economies, and semi-peripheral and peripheral economies around this core.  Core countries are the ‘home’ of global finance, from where it flows out to semi-periphery and periphery to earn profit, and returns back. Higher fiscal deficits of a government of middle income, or less developed country are taken as an indicator of potential instability. Hence, if fiscal deficit of a country is seen rising, global finance moves out of it, which creates problems for country’s foreign trade and may lead it into debt trap and currency collapse. This is the punishing rod of global finance, which it uses to discipline governments of semi-periphery and periphery. However, even an 18 percent fiscal deficit of the US government is not a problem. Actually it is the authority of the US government, and the ability of the Federal Reserve (the central of bank of the US) to create additional debt, and so, to be the lender of the last resort, which underpins the global financial system. In a perceptive article economist Rama Vasudevan has noted how despite a bungling response to pandemic at home, the US administration took prompt steps to flood the global finance with easy liquidity in dollars. It coordinated with central banks of core countries in Europe and Japan, and extended unlimited ‘swap lines’ for free interbank exchange of dollars, and opened ‘repo lines’ with peripheral countries to maintain dollar hegemony. Poorer countries with debt were left to the mercy of private global finance. In fact the US vetoed IMF decision for opening up SDR, which would have helped these countries (interestingly, India, wishing to be the new kid in the imperial block, supported American veto).  

Globalisation has not altered the imperialist architecture of the world economy, it has altered the means of imperial authority. During normal times the Federal Reserve of the US has limited swap lines with central banks of England, Europe, Japan, Canada, and Switzerland. These were made unlimited after COVID to control the meltdown in world financial markets. Limited swap lines were also extended to Australia, Sweden, Denmark, Norway, New Zealand, Singapore, South Korea, Brazil and Mexico. The discriminatory character of swap lines is well known. India has been trying access to such swap lines for some time, but has not been successful.  In a 2017 speech the then RBI governor Mr Urjit Patel had “draw(n) .. attention to the stark asymmetry prevailing in the provision of swap lines by systemic central banks.” He described these as “a virtual “apartheid” by which systemic central banks protect themselves and their self-interest. Meanwhile, EMEs that are at the receiving end of global financial turbulence are systematically denied access.” (emphasis in the original). Mr Patel correctly identifies an aspect of imperial order, but misses the point. Precisely because swap lines create an apartheid like regime of differentiation, they are an effective tool of imperial authority.

 Though based upon national differences, imperialism is a class project of capital. Richer classes of all countries are together in it. Foreigners pumped in Rs 2.2 lakh crore in Indian equities during the calendar year 2020, which is significantly responsible for the highest levels reached in the share market capital of Indians. Indian corporates had raised $31 billion by way of equity infusion from markets till September during the year. More than one third, $10.3 billion was by foreigners. Facebook’s $5.7 billion investment in Reliance Jio was among the largest cross-border investment of the year. On the reverse side Indian corporates had invested $5.72 billion in the first four months of financial year 2020-21 only.  In the year 2019-20 Indian corporates were reported to be the second largest investors in Britain, supposedly generating 5000 jobs there. Indian propertied classes are least bothered if Modi government does not give any wage protection to Indian workers made unemployed during the lockdown, as was done by governments of most of the core countries of the global imperial order, and which would have increased domestic demand and Indian capitalists’ profits within the country. For them a stable relationship with the imperial order is of utmost importance. On the other hand, the financialisation of the economy engendered by the same imperial order is disempowering working people of the core countries.  Wages have stagnated, or falling. Employment security is going up in smoke, and publicly available essential services like education and health are being cut under the generaslised policy of ‘austerity’.

Faced by the external threat of pandemic, the capitalist class everywhere has shown its hand. The point is what would the working people do? Would they continue with the current game whose rules are already predetermined by the capitalist class? Or, would they force another game with a different set of rules? 

 The fourth feature of the current social reality made singularly visible is the fatal bloom of finance capital, while the rest of the economy withers away. It is like an overgrowth which is eating its own base from where it draws its sustenance. Finance is the part of capital which has liberated itself from the space and time bound associations with any specific material commodity. Hence, it is the most abstract, homogenous, and universal part of capital. It represents the collective interests of property owning capitalist class over the rest of society. Capital is value in motion, which has the peculiar property of spawning its own increase as it moves through the economy. Every capitalist starts with money M, and at the end of one cycle needs to end with greater amount M’. Finance is the essential grease for this cycle. It provides insurance against possible risks. It frees capital during gaps between buying, manufacturing and selling. Due to its homogenous and universal character it performs the essential task of moving capital to the most profitable sectors and regions for the capitalist economy as a whole. This also means it is also essential for maintaining internal competition. Given its form, and the fact that it itself is a profit seeking capital, finance is also the most mobile, volatile and crisis ridden part of capital. The great crash of global economy in 2008 was a finance led crash which started in the housing loan markets of the US, the most financialised country of the world

As a capitalist economy advances, and networks of production and distribution become more intricate and dense, the importance of finance in the overall working of capitalism increases. Globalisation of capitalism since the 1980s would not have been possible without an increasing role of finance capital world over. The very properties that make finance the core of an advanced economy, also cause its crises. Commodities enter the market when sold after production, and leave it when bought for consumption. This is not the case with financial assets. The relative autonomy of finance capital from the world of production and consumption means that if cheap debt is available, a financial asset can be bought and sold in a potentially infinite spiral. Since profit is booked at every point of exchange, the money price of an asset increases with every cycle of the spiral. To a financial capitalist this spiral appears to be a concrete realization of the core fiction of capitalist ideology that money can breed more money simply through exchange. In reality however, such increases are a speculative bubble.

Since the 2008 crash, finance capital has lived in a bubble. In fact, this aspect of finance capital has become even more pronounced during the year of the pandemic. The total value of share markets world over has increased by 25%, form $80 trillion to $100 trillion during 2020, even while the global production of goods and services has declined by 5%. Capitalist enterprises are producing and selling less, workers have lost jobs, many enterprises have gone bust. Finance capital however is going strong, as if it lives on a separate planet. Why this disjuncture? Part of the reason is that the bigger capital has actually done better at the cost of workers and smaller capital. This is visible in the data for India discussed above, but is also the case with global capitalism. The chief reason is the effort made by central banks of core countries to stem economic decline. These have flooded the world market with easy debt bearing near zero rate of interest, and have gone on a binge buying financial assets. Banks are lending these to big capitalists, who instead of investing in productive enterprises (it makes little sense to invest since demand is already low), are using these to buy recycled financial assets. Data from the recent balance sheets of  Federal Reserve of the US  are indicative of the trend. Before the 2008 crisis in Aug 2008 its assets were around $900 billion. Within four months of the 2008 crisis these had increased two and a half times to $2.1 trillion. Instead of going down after immediate response to the financial crisis, these kept on increasing during the subsequent decade and were at $4.2 trillion in Feb 2020 before the pandemic crisis. In Dec 2020 these were at $7.4 trillion, as an unprecedented amount of paper money was pumped into the market to meet the crisis.

Most of the extra money pumped by central banks of core countries is popping up valuation of financial assets. The aim is to prevent a fall. The fact that a fall has not occurred in the past 12 years despite over-valuation, is taken as the proof of the correctness of this monetary policy.  It would not matter to the rest of the humanity if the fantasy land of finance including central banks were actually living on a different planet. The trouble is that the legitimacy of central banks as lenders of last resort rests on the authority of capitalist states behind them. Always looking at the interests of the capital, these states are passing on the weight of floating finance capital on the working people; via budgetary cuts in social spending, and reducing public employment and wages. Even more fundamentally, the point is this. Unlike increase in the value of fictitious capital shown in account books, any profit really booked by a financial or an industrial capitalist is ultimately a claim on the social wealth produced by working people. Finance has become too important for today’s capitalism to be allowed to fail. However, like Shylock it has to have its pound of flesh. Whose flesh is it devouring now? The policy of increasingly giving more and more resources to finance capital is nothing but a monetarist way to transfer social wealth from working people to capital. Managers of today’s capitalism may think that they have found a permanent solution to ever recurring crises of capitalism by their bold decisions to flood money markets with cheap liquidity after every crisis. However, the class nature of capitalist state power can hardly now be hidden behind any façade of welfare capitalism.  

The world has not changed after the Covid pandemic. But its red pill has unmasked its internal structures of social and economic power and consequent inequalities. Faced by the external threat of pandemic, the capitalist class everywhere has shown its hand. The point is what would the working people do? Would they continue with the current game whose rules are already predetermined by the capitalist class? Or, would they force another game with a different set of rules?  

Sanjay Kumar teaches Physics at St Stephen’s College, Delhi. Author thanks Anuj Goyal for preparing accompanying charts.