In my student days, in the wake of the Keynesian revolution in economic theory and of ‘decolonization’ in the realm of world politics, there was general agreement that capitalism could not provide the framework in the third world for overcoming ‘underdevelopment’. Not just communists and socialists but even progressive liberals saw the institutions of classical capitalism as being incapable of generating sufficient employment to absorb the labour reserves inherited from colonial times with which poverty was associated. At the very least, a strong public sector, land reforms, and controls over capital flows were considered necessary for achieving meaningful, poverty-alleviating development.
The growth experience of South Korea, Hong Kong, Taiwan and Singapore appeared to provide an initial counter-example to this general belief; and this counter-example was underscored by an influential Organisation for Economic Co-operation and Development study in the late Sixties that emphasized the benefits of what the World Bank calls “outward-oriented” development strategy which was taken as complementary to unbridled capitalism. This East Asian strategy, later sought to be copied by other countries in the region, relied heavily on State intervention but the OECD studies did not recognize this; East Asia was held up as a model of what capitalism could achieve if allowed free play.
The flaw in the OECD-World Bank argument, apart from not recognizing the State’s role in East Asian development, was the assertion that East Asia’s experience could be generalized to all countries if only they followed the same strategy of (supposedly) unbridled free-market capitalism with export orientation. The fact that the rate of growth of the world market was limited over any period, which means that the rate of growth of demand for exports of all countries taken together was limited, so that if some countries were successful in exporting at a greater rate, then that could only be at the expense of some other countries, was completely missed. In fact, the demand constraint in capitalism, emphasized by J.M. Keynes, was totally ignored. The impression was successfully created that unshackling capitalism was the panacea for development, which made neoliberal capitalism intellectually acceptable.
My concern here, however, is not with these general arguments. But, clearly, neoliberal capitalism, because of the massive inequality it generates, has slowed down. Rising inequality slows down consumption demand owing to the greater propensity to consume of the poor compared to the rich, pushing the world economy into stagnation and higher unemployment; and State expenditure to boost the growth rate, which Keynes would have advocated, is not workable either, since taxes on the rich and larger fiscal deficits, the only two ways of financing State expenditure that can boost demand, are both ruled out owing to the objections of globally-mobile finance capital. Ignoring such objections would lead to a financial outflow that would precipitate a crisis in the defiant economy. In this context, let us see whether with the growth rates that the world economy is now experiencing under neoliberal capitalism, rates that are likely to persist, the pursuit of an outward-oriented strategy with unshackled capitalism can usher in poverty-reducing development in a third world country.
Even before the pandemic that brought down growth rates greatly, the annual growth rate of the gross domestic product of the world economy over the decade 2010-20 was just 2.6%, the lowest for any decade since the Second World War. World labour productivity grew at 1.8% for the first half of the decade but slowed to 1.4% later; taking the average for the decade to be about 1.6%, we get an annual rate of growth of world employment, which is the difference between these two figures, of 1% for the decade. The annual rate of growth of the world workforce, however, was 1.2%, which was marginally higher than the rate of growth of employment. At this employment growth rate therefore, the massive labour reserves of the world economy, let alone getting absorbed, would increase relative to the world workforce.
There is little prospect of any increase in the world employment growth rate. Some argue that investment in Artificial Intelligence would boost world GDP growth. But even if we accept this for a moment, it would lower rather than increase employment growth. And within the world GDP growth rate that we currently have, the effort of Donald Trump to raise the growth rate of the United States of America at the expense of other countries, especially of the Global South, by adopting ‘beggar-thy-neighbour’ policies, of which his tariff aggression and his imposition of unequal treaties like the Indo-US trade agreement on other countries, are expressions, would push the latter’s employment growth rate even further down.
Hence, even without entering into any theoretical niceties about the implications of an ‘outward-looking’, unshackled capitalist development strategy, we can state that the overcoming of underdevelopment and poverty, to which the absorption of labour reserves holds the key, is impossible within neoliberal capitalism. A delinking from neoliberal capitalism that involves the imposition of controls over cross-border capital flows, restrictions on the pace of technological change, emphasis on the home market and hence on accelerating the rate of agricultural growth, and the institution of a rights-based welfare State financed through a combination of wealth and inheritance taxation, appears to be the only option for countries like India if they are to have meaningful development.
Such a new course to be sure would not be easy to adopt because of the opposition of domestic monopoly capital and of metropolitan imperialism. But unless this opposition is overcome, we can wait ad infinitum for poverty-reducing development; like Samuel Beckett’s Godot, it would never come, and we would continue getting fobbed off with false claims on poverty removal.
Prabhat Patnaik is Professor Emeritus, Centre for Economic Studies, Jawaharlal Nehru University, New Delhi