OVER the past four years we have gone into many specifics of the New Economic Policies (NEP) in our party literature and we have no intention of repeating a detailed review here. Rather we would focus more on the interface between the NEP and the so-called New World Order as well as on a few theoretical issues thrown up by these new changes. First, let us take a look at certain key features of the imperialist world economy which partly explain the compulsions behind NEP and its specific character.


Recent Trends in World Economy

The Financial Bubble

The liquidity bubble building up over the world economy is of monstrous proportions. The capital flows in the world financial markets are of the order of US $7 trillion a day. This is equivalent to some 28 times of our GDP, crisscrossing the globe on a single day. Right at this moment when we are talking some US $1200 million would have been transacted. This capital knows no national frontiers; and it is subject to little national control. It has become truely global, going places and changing into currencies guided solely by the prospects of higher returns.

Only less than 25% of the world capital flows today are accounted for by the trade flows. All the rest is mercurial liquid capital not finding many avenues in the present-day world for valorisation. The full implications of this volatile finance capital of mindboggling size is difficult to fathom. It can wreck havoc with the national economies, inflate them at will or trigger off massive capital flight; it can bring the stock markets crashing down or cause enormous fluctuations in exchange rates through sheer speculation, as witnessed in the collapse of ERM mechanism. The national governments have virtually no control over capital flows of such magnitude and will be hapless spectators. After the ‘Black-Monday’ and the Tokyo stock exchange crash, the financiers are a bit weary of going into the stock markets and in the present recessionary conditions with their low average returns, stock markets in the developed world are not adequate enough outlets for this gargantuan-sized capital. Hence it seeks greener pastures. This capital is knocking at the doors of the economies of the so-called growth regions, especially in the Asia-Pacific region, and is trying to gate-crash into the ten 'Big Emerging Markets’ including India. No wonder then that the Euro-issues and bonds floated abroad by the Indian companies are oversubscribed many times.

Longer Recessions and Shorter Recoveries

The post-War long wave of boom seems to have come to an end for good. The consumer boom too seems to have flattened out. After all, computers today cannot sustain such a high growth that automobiles and other consumer durables did in the earlier decades. The ‘Age of Prosperity’ is already a distant dream in the West. The average annual percentage change in the GDP per capita of the industrialised nations between the years 1950 to 1973 was 3.6%: The same tumbled down to 2% between 1973 to 1989.

Hamstrung Governments and Hapless Central Banks

The most notable feature of the present crisis seems to be the utter inability of the governments to intervene to regulate or stimulate the economy. Long before Keynes’ prophetic forecast about capitalism could come true, Keynesianism itself is long dead. Except perhaps Japan, all other governments in the West are saddled with huge deficits and heavy borrowings and their ability to stimulate growth through higher public spending is nil. Monetarism too has reached its physical limits. Despite lowest ever interest rates in some countries, investments are not picking up. Since the private banks have colossal funds the inability of the central banks to effectively intervene in the volatile financial markets to keep the exchange rates stable is becoming too glaring. The most ironical part of the story, as expressed by an official of the US administration, is that if the Government resorts to some Keynesian measures to increase public spending to stimulate growth, the consumers spend their excess income on buying cheaper goods from China or South Korea, and if the central bank lowers the interest rates to stimulate investment, the investors borrow the money and invest it in China or Thailand where the returns are higher! When the industrial boom in the West comes to an end a boom in overseas investments is only natural.

Structural Unemployment

“If you are going to lose your job you won’t get it back” — this is the popular refrain everywhere in the West. This means that even if the immediate crisis of overproduction is overcome and if there is a cyclical upturn, the employment scenario is not going to drastically improve. The unemployment is structural and hence more permanent. In Europe alone, the number of unemployed will be more than 40 million in a few years. In a country like Spain, 50% of the working population is unemployed.

Large-scale introduction of automation and micro-electronics during '70s and '80s is the direct cause for this. For the first time in the history of capitalism a new technology destroys more jobs than it creates. In order to arrest the declining profits the bourgeoisie in these countries resorted to these so-called labour-saving devices and it has boomeranged. With so many people thrown out of employment their purchasing power declined, the aggregate market shrunk, and the capital is now facing an explosive crisis of realisation. Hence the tendency of the capital to move out to new areas.

The gravity of the crisis is such that it is impossible to overcome this within the framework of these individual countries or even collectively within the framework of QECD. And hence begins a forceful outward thrust of capital as well as a qualitatively new phase of neocolonialism.

Reversal of Fortunes

In many areas of the international trade, the comparative advantages are shifting decisively in favour of some Third World countries, especially the semi-industrialised ones. According to one study by Vijay Kelkar, for a whole range of industrial products barring high-tech ones, the unit cost of production is lower in India than in the West. According to Marx’s labour theory of value the movement of relative prices is bound to assert on an international scale too and this is precisely what is happening. The main factor here is wage differences. The average wage per hour in engineering industry in Germany is US $22. Here in India it will be less than one dollar.

One response to this was the growing protectionism. Apart from tariff barriers, the non-tariff barriers have become the main instruments of protectionism. According to the 1988 annual report of the Bank for International Settlements more than 50% of the world merchandise trade was ‘managed’ trade, that is, subjected to extra-GATT, non-tariff measures like voluntary export restraints and market-sharing arrangements etc. The growing inter-imperialist contradictions, especially the trade rivalry, is also aggravating the overall crisis of imperialism.

The other response was to neutralise the comparative advantages of the Third World either by invoking the social clause and raising tariff or through relocation of production and capital export.

The Leap in Capital Exports

The total Foreign Direct Investment(FDI) in the world tripled in the ’8Os. By the end of 1990 the total FD1 all over the world had reached US $7 trillion. Between 1983-89, the FDI registered an increase of 29% per annum whereas the world exports increased only 9% and world GDP even much less. From 1983 to 1990 such investments grew four times faster than world output and three times faster than world trade. During the last three years of the ’80s the FDI, in terms of 1980 dollar rates, was more than US $ 100 billion a year, ten times as much as it had been in the first three years of the 1970s.

Though there was a relative decline in the share of FDI flows to the Third World, in absolute figures it steadily went up. The flow of foreign capital to the Third World increased without interruption till 1982. After the recession of the early '80s, initially there was an upsurge in FDI, but again it slowed down. But from 1986 to 1990, FDI increased annually by an average 25% and in ’90s this trend became more pronounced. It went up to 30% in 1992. The share of USA in total FDI in 1960 was 47% and in 1989 it came down to 28% whereas the combined share of Japan and Germany in 1960 was 1.9% and it went up to 20.6% in 1989.

Yet another feature of the crisis in the developed capitalist economies is the diminishing share of the manufacturing sector in the economy. In USA, for instance, less than 15% of the net growth in capital stock from 1983 to 1988 was accounted for by agriculture, mining, construction, manufacturing, transportation, and public utilities — the industries that have the potential to produce more of what the people need to improve their living conditions. 85% went for the expansion of retail and wholesale trade and for the use of financial, real estate, insurance and business service firms (Monthly Review June 1990 p. 2). This reflected in FDI also. For instance, the share of FDI from USA that went into manufacturing was 40%. in both 1966 and 1990 but the share of wholesale trade, banking, finance and insurance together went up from 16% to 39% between those years. And this explains the growing US pressure over India and other Third World countries to open up their financial sectors to foreign investment and the inclusion of TRIM Sand trade-in-services under GATT. On the other hand, manufacturing production is witnessing increasing relocation to the Third World where the labour is cheap.

Internationalisation of Production

The contradiction between growing inter-nationalisation of production, through MNCs and otherwise, and the still national institutions of capital is one of the important contradictions of capitalism today. The comparatively high wages in the West is the prime reason for this relocation of production. Secondly, in anticipation of possible trade blocs resulting from the escalating trade rivalry, capital is moving out to gain a strategic presence in zones that might possibly constitute the trade blocs centering around USA, Japan and Europe. The monopolies from the developed capitalist countries are forging strategic alliances with companies in the Third World to exploit cheap labour and enhance their competitiveness vis-a-vis each other. The US Trade Department has identified ten ‘big emerging markets’ in which they would like their companies to have a strategic presence.

And then there is the growing phenomenon of multinationals (MNCs). MNCs had global sales of 4.4 trillion dollars in 1990 and the deliveries between their subsidiaries came to some 1.2 trillion dollars. The Economist magazine estimates that the gross stock of fixed private non-residential capital in the world would be around $20 trillion. The top 100 MNCs account for roughly 16% of the world's productive assets and the top 300 for 25% (The Economist March 27,1993). The division of labour between different branches of the MNCs as well as between different MNCs is coming to the fore as the main feature in the new international division of labour.

However, the MNCs do not just hang from the air and remain very much part of different imperialist national frameworks in terms of origin and in this sense they remain very much national. For instance out of some 35000 MNCs that exist at present slightly less than half are from just four countries — America, Japan, Germany and Switzerland. Out of top 50 MNCs throughout the world 25 are from the first three countries.

The Chronic Agricultural Crisis

The agriculture in the entire capitalist world has gone beyond salvage and is being sustained only by massive state subsidies. The aggregate subsidy to agriculture (pre-GATT levels) was 80% in US, 100% in Europe and around 200% in Japan. In certain crop lines it was very high 300% for rice in Japan and 360% for tobacco in US. Despite strong opposition from the protectionist farm lobby the influence of neo-liberals who were arguing for the dismantling of such high subsidy levels and shifting agricultural production to the Third World was growing and following the Cairns Group and GATT agreements large areas of Third World agriculture it on the former remains to be seen.

As history shows export of capital by the imperialists is never an innocent corporate transfer or a mere bank transaction but is always associated with a bloody neo-colonial political, if not military, offensive. The Gulf War, US gerrymandering in GATT, Super 301 and Special 301 trade weapons, the IMF-World Bank conditionalities etc. fall into a pattern seen in this light. The point is to grasp the qualitatively new element in the present neo-colonial offensive. It is not just a routine broadening and deepening of the world market. A single, seamless, integral world market undivided into different national segments is sought to be built up. All national barriers are broken open for the free mobility of capital as well as for trade. The principal ideological offensive of the neo-colonialism in this worldwide drive is the neo-liberalism, based on a selective use of the neo-classical economic theory that calls forgiving full play to the market forces.

This then is the background for the New Economic Policy of the past four years being implemented by the Congress government. It is through this NEP that the Indian ruling classes have tried to adjust themselves to the New World Order. Seen in the light of the above-mentioned trends in the imperialist world, the rationale behind many aspects of this policy becomes clearer. But whatever may be the subjective calculations and ambitions of the ruling classes, where these policies are taking the country? Here we will take stock of the concrete impact of this policy by way of putting forth some propositions without going into the policy measures themselves.