The poverty of liberal discourse is no way more appalling than in its uncritical acceptance of neoliberal capitalism as the sole paradigm for delivering economic growth. This paradigm is primarily characterised by a complete subjugation to global finance capital. The trajectory of ‘growth’ under these conditions will, thus, be decided not on the basis of the needs of the supposed beneficiaries, but by what is acceptable to finance capital and furthers its interests. The liberal fantasy consists of thinking that the two are complementary, while in reality, they are anything but.

The recipe of development that this world view prescribes is the following: the majority of Indians, currently engaged in low-productivity agrarian activities in rural areas, need to be incorporated into high-productivity industry concentrated in urban centres. To achieve this, one must lure finance capital required for industrialisation by acceding to its demands, of which tax incentives and preferential treatment are only incidental. The major, structural measures to appease finance capital, broadly speaking, include the breaking down of barriers to trade and unrestricted flow of capital into the country, along with the imposition of fiscal discipline (restricting government spending on social sectors) and a strict anti-inflationary monetary policy (to protect the value of investments, not for any populist reason). These are accompanied by a retreat of the State from its productive roles, with an enlarged focus on privatisation and the near-mythic capabilities of market forces. This is not to suggest that all these are enforced uniformly to the utmost satisfaction of finance capital (especially when popular forces stand in the way), but the trend among decision-making sectors of society is towards their adoption.

The proponents, while asserting the universal applicability of these measures, couple it with a dose of historical inevitability, reflective perhaps of how self-evidently true they themselves believe it to be that not only is this the only way to develop a semi-industrial country like India, but that India must follow this path, just like the industrialised countries did, to become more like them.

The flaw with this outlook is that it is simply untrue; first world countries did not follow the neoliberal doctrine to industrialise, and furthermore, the most essential ingredients that actually spurred industrialisation — imperialism and colonialism — are unavailable to third-world nations like India, today.

Drain and de-industrialisation

The economist Utsa Patnaik, delivering the TG Narayanan Memorial Lecture in 2012, termed the neoliberal strategy “entirely fallacious,” as it “conflate[d] the past trajectories of capitalist transition in Europe with present developments in poorer countries.” “Because,” she continues, “these past trajectories are inconceivable without the aggressive external expansion today’s advanced countries followed, which permitted them to externalize the inner contradictions of their own societies to a substantial extent and to pass the costs of industrial development on to other peoples.” “Successful industrialization [of advanced countries] was an outcome of colonialism and imperialism in ways which cannot be replicated today by developing countries even should they wish to do so, nor does there exist any modern substitute avenue for externalizing the contradictions of capitalist trajectory,” Patnaik posits.

As a former colony of Britain, the world’s leading capitalist power of the time, India was at the receiving end of the effects of the ‘externalised contradictions of capitalist trajectory,’ in numerous ways. In order to generate demand for British industrial goods, which was necessary to absorb a part of the peasantry dislocated by land enclosures, India was flooded with cheap British imports. The result was two-fold: British industry secured a captive market which gave them preferential treatment (not entirely an outcome of market forces, but also of direct political control), and further, decimated Indian manufacturers. The former contributed to Britain’s industrialisation, while the latter led to rapid de-industrialisation in India. As Patnaik notes, “Unemployment was also exported by industrializing countries through the [sic] flooding the subjugated already populous tropical colonies with cotton textiles and other manufactured goods under discriminating commercial policy which kept these markets compulsorily completely open to imports, while the home country was protected from their [colonies’] handicraft manufactures for nearly 150 years.”

De-industrialisation, thus, created a vast army of desperate, unemployed persons reliant on the land for sustenance, since foreign investment was not directed towards building industry in the colonies, but largely towards the extraction of natural resources (mines, plantations etc). This development set the stage for the uncompensated drain of the produce of the land, providing an important source of capital for the industrialisation of the advanced countries. In their book A Theory of Imperialism, Utsa and Prabhat Patnaik go into the details of how this appropriation functioned (page 120). To put it briefly, the producers of agricultural products were remunerated from the colonial administration’s budgetary revenues, which comprised of the taxes they themselves had paid to the government; thus, in effect, they were not paid at all. Moreover, the money earned from the export of India’s products to other countries was, through imaginative book-keeping, wholly appropriated by the British.

The injustice of this arrangement should not distract us from understanding the centrality of appropriating the produce of the colonies’ to the development of capitalism, not just in Britain, but in Western Europe and North America. For not only was Britain exporting capital to these emerging economies at the time (facilitating industrialisation), it also had to keep its own markets open to their products so as to “accommodate the ambitions of the newly industrializing countries of the time,” which was crucial to ensure the stability of the global order and Britain’s leadership of the same, according to the Patnaiks (page 124). Appropriating the earnings of the colonies’ was the key to sustain the entire system.

Britain was exporting capital to the very countries with which it had current account deficits, thus running up very large balance of payments deficits with them. By 1913 its combined balance of payments deficit with the European continent and the United States reached £145 million— quite an unsustainable sum if it had to be financed by normal means. Britain could incur such large capital exports and resulting balance of payments deficits with impunity because it could appropriate at will the enormous gold and foreign exchange earnings from the global export surplus of its colonies, while “paying” the colonised producers of the export surplus in local currency out of the taxes raised from these very same producers. A Theory of Imperialism, page 125-26

The safety valve

However, despite all these favourable conditions engendered by violence towards and immiseration of colonised peoples, the process of industrialisation in the developed countries was extremely turbulent, for various reasons. The problem that is of interest to us is the fact that the peasants dispossessed by land enclosures and artisan manufacturers dislocated by large-scale mass-production, were not all absorbed in the emerging industrial economy. “Even though the early machines two centuries ago were very simple,” Patnaik says, “they displaced labour on a massive scale — a single spinning ‘jenny’ had 80 spindles, needed only one worker and threw 79 traditional spinners in Europe out of work (‘jennies’ with up to 800 spindles each were known to be used before being replaced by mule spindles).” The adoption of newer and newer technology to squeeze the maximum labour out of the minimum number of labourers has always been at the heart of capitalism, and in 19th century Britain such “labour-displacing’ technology” created mass social unrest manifested in the growing trade union and Chartist movement.

The situation, though, could have been even more dire, had it not been for what Patnaik in her lecture refers to as the “safety valve of emigration”. Large scale migration of people from Western Europe to new areas of settlement — the United States, Canada, Australia, New Zealand, South Africa etc — where the indigenous population was being driven from their lands, provided an opportunity to those thrown out of work due to industrialisation to become landowners in the New World. According to Patnaik, “On average, half of the entire annual increment to its population left Britain every year for a century.” If the same process was replicated in India, at the same rate as Britain’s, some 450 million people should have emigrated since Independence, Patnaik adds.

Emigration not merely helped calm the insurrectionary flames in the industrialising countries, it also led to a squeeze on the labour supply, thus putting bargaining power in the hands of the organised labour force. This was crucial in allowing them to win concessions from their employers and improve their standard of living (the drain from the colonies’ also certainly helped). But Patnaik urges us not to ignore the other side of the coin; the rights won by the working class in the then-industrialising nations through hard-fought struggles was “conditional on the un-freedom of non-European peoples”. The latter include not just the agriculturists in India or the Native American population in North America, but also slaves working the plantations in the Caribbean and the American South.

Gatekeepers of industrialisation

Needless to say, the actual policies followed by the advanced countries to industrialise have very little to do with ‘sound finance’, ‘trade liberalisation’ or other neoliberal policy prescriptions. Moreover, third world countries today cannot (and should not) ‘externalise the contradictions’ that accompany industrialisation through the route of imperialism and colonialism. It appears that the advanced countries, as far as industrialisation is concerned, have essentially shut the door behind them.

Or have they? So far, we have learnt that the developed countries relied on imperialism to go through the transition from a feudal to an industrial economy. But that does not necessarily mean it is the only way to industrialise. Can an alternative strategy, namely neoliberal policies, actually lead to successful industrialisation? We will attempt to address that question in a subsequent piece.