The Telegraph
Friday , September 10 , 2010
Since 1st March, 1999
CIMA Gallary
Email This Page
- The capitalist system in the US is facing a strange dilemma

Nothing reveals more explicitly the American middle-class mind than the comic strips, otherwise known as ‘funnies’, carried every day in the newspapers. A recent piece of the popular Wizard of Id strip has the King of Id enquiring of his minister on measures being taken to discourage the entry of undesirable immigrants. The minister’s response is suave: the problem has been taken care of; two billboards have been planted at the frontier; the first one carries the greeting, “Welcome to Id: 40 per cent unemployment”; the second is even closer to the flesh, “Don’t bother, all jobs have been shipped to India.”

Middle America is seething with resentment. The economic meltdown which started in 2008 persists. While gross domestic product growth has wormed its way back to an annual rate of 2 per cent or thereabouts, it is clearly not enough, for the unemployment rate stays stubbornly at 9.5 per cent, the highest since the horrendous depression days of the 1930s. Nearly 130,000 jobs, another estimate suggests, are shrinking every month in the US labour market.

Whispers and innuendos keep spreading the story: jobs for American boys and girls are disappearing both because of outsourcing to low-wage countries in Asia, particularly India, and because, in the so-called ‘high tech’ industries, foreigners — again mostly Indians — are crowding out US citizens. While the problem is severest in the information technology sector, banks and insurance companies are not lagging far behind. Employment opportunities, which in the normal course would have cushioned the crisis for young aspiring Americans, are allegedly vanishing overnight on account of outsourcing to Indian companies located in Bangalore or Hyderabad, which agree to do the entire package of work involved at a sum barely 5 or 10 per cent of what the wage bill would have amounted to in case American boys and girls were engaged to do the assignment. Add to that the influx of the ‘software’ army from India who, the complaint is posted, agree to work at ‘sweat wages’ high-tech jobs, thereby again dimming the prospects for US citizens. Such grumblings may in fact mirror only a quarter of the truth. What, however, matters is whether Middle America accepts these as the real state of affairs, and the US administration has to sit up and take note of opinions such as these.

Many will find the proposition difficult to swallow, but does not the situation the US is currently facing bear out the prediction that the old fox, Karl Marx, made almost a century and a half ago — an intense crisis is bound to overtake a mature capitalist economy caused by a falling tendency in the rate of profit? The US is quintessential advanced capitalist system, the world’s richest country and the most industrialized. All these achievements are the outcome of steady capital accumulation. Accumulated capital has been continuously invested to further the advancement of technology, technological progress in turn has enabled both reduction of unit cost of production in different spheres and opening up of new fields of activity. The phenomenon helps entrepreneurs to economize on the use of labour in the production process, even as new job opportunities are created with the economy both growing and diversifying. Since population expands at barely one per cent per annum or even less, the supply of labour at some point actually fails to keep pace with the pace of growth of output, leading to scarcity in the labour market and an increase in the wage rate. Rising wages imply a shrinkage in entrepreneurial profit across the board, for a competitive market does not permit increase in product price to compensate for the higher wage bill.

As entrepreneurs feel the pinch, they are driven to invest in superior technology; which economizes on labour use. That apart, technological progress has a law of its own; improved technology propels the growth of still more improved technology. Induced as well as autonomous factors are therefore furiously at work within the corpus of the capitalist system. The consequence is what has come to be known as the crisis of under-consumption: induction of superior technology cuts down progressively the deployment of labour, as a result, growth of the aggregate wage packet fails to keep pace with the rate of growth of output, affecting the overall demand for goods and services; such circumstances cast a shadow on the rate of profit.

This, in reality, is the dilemma the capitalist system is facing in the US. As aggregate consumption tends to reach a plateau, entrepreneurs, to avert a fall in the rate of profit, have recourse to labour-saving technology which pares down wage cost. This increases the capital intensity of the production process, the rough equivalent of the “organic composition of capital” in Marx’s terminology. But the outcome is precisely the reverse of the desired objective; the attempt to economize on the use of labour shrinks the total wage bill and therefore the aggregate demand for goods and services, thereby threatening to lower the rate of profit.

Confronted by the dilemma, industrial firms in the US have, over the past few decades, tried what they thought was an alternative approach. Instead of increasing capital intensity to reduce wage cost, the total wage bill has been sought to be curtailed by both enlarging the scale of employment of foreign, including Indian, technologists willing to accept wages lower than what American citizens demand for comparable jobs as well as by getting part of the basic work done in low-wage countries such as India. But this stratagem, too, is proving to be an illusory escape route. Whether it is exporting jobs to poorer countries or hiring foreigners who remit home most of their earnings, the result is another round of contraction in effective demand at home; the spin-off is the kind of public outcry depicted in that Wizard of Id comic strip.

There is no way of ignoring the political dimension of the problem. One of the major support bases of the Democratic Party in the US is organized labour; the party, for dear life, has to, remain sensitive to its predilections and prejudices. In contrast, the predominant majority of the country’s industrial tycoons gravitate towards the Republican Party which necessarily has to pay heed to the interests and susceptibilities of, for instance, the military-industrial complex. George W. Bush, the true blue Republican, formulated his India strategy on solid domestic considerations. India offers a tantalizingly huge market — amounting to 1,500 billion dollars — for nuclear-related American industries. It made sense to Bush to hustle through the nuclear energy agreement and help lift the post-Pokhran embargo on the supply of fissionable material to India. It was also during his tenure that outsourcing of ‘software’ assignments to India came to prosper, which, along with economic liberalization, paved the way for the emergence of a new generation of free enterprise-friendly Indian middle class.

Barack Obama’s is a different constituency. Organized labour is restless, Middle America is deeply disturbed by continuing joblessness. The nuclear deal with India, Obama and Middle America will go along with; it will boost employment in the defence industries. They will have few problems with the nuclear liability legislation as well; the maximum financial liability fixed by the Indian Parliament is peanuts, only 0.2 per cent of the total size of the nuclear export bonanza. Outsourcing and engaging foreign employees in American firms, however, involve an altogether different genre of issues. The mid-term polls are barely a few weeks away, President Obama has to make at least a gesture to assure Middle America that its worry is his worry too. To prove his credentials, he has promptly endorsed the border security bill sponsored by two Democratic Senators which ordains a hefty increase in the fees for H1-B and L visas payable by American firms wishing to engage foreigners, including Indians. Gossip is also afloat hinting at the intent of the US administration to increase the tax burden of firms which outsource job-sensitive assignments.

India has thus become sort of an adjunct of the classical capitalist crisis unfolding in the US. The ruling regime in New Delhi, representing the aspirations of India’s upper classes, is all the way with the American capitalist class. Outsourcing serves the interests of capitalists over there as well as here. The masses in both countries may hold a different point of view.

Email This Page