A former student of mine from RV (class of 1990) Arun Veerappan, now a fund manager, responded to my recent post on the P A R Ts of Democracy. I publish his e-mail here, followed by my response.
I thought that you would be interested in Bill Gross' (PIMCO's CIO) perspective on the impact of globalization on the democracies and free markets of today as it (somewhat) ties in to what you are trying to say about today's democracies from a financial point of view at least, in your latest post. Gross says that globalization and free markets have resulted in "the ascendance and dominance of capital vs. labor. Add a billion or so potential workers to the global labor force... combine these with deregulation, lower taxes, and free trade, and you have a recipe for accelerating returns to capital and diminishing returns to labor". Put simply, the past 10+ years have resulted in a market where the rich have been getting richer and this market has been legitimized and 'voted into office' in the US twice over, at a minimum. However, in India, this market was clearly 'voted down' in the last federal election by the people and the past few state elections have also produced similar results. Despite this, the balance of power continues to shift towards capital and away from labor in India as well. The key will be to ensure that free markets, within reason, are able to bring about a rising tide that can lift all boats as they have done in the past in the US, for instance. I think that this would be possible if we have a participatory democracy, as you say. However, to ensure that everybody is able to participate and make informed choices, I believe that it is important that state resources be used to provide a good primary education for ALL children. This will clearly require subsidies from rich tax payers and corporations. The question is this: do our policy markers and our tax payers have the will to get this done?
It’s always amusing to find investors and CEO’s affirming insights familiar to the left, and in left-ish language too. What Gross is talking about is straightforward class warfare. Nandigram and Singur, and the SEZ’s, and the expropriation of the landless, dalits and tribals going on all over the country in the name of “development” are just the latest phases in this war. My brother (my enormous respect for him notwithstanding) just happens to be a bit player in a side plot of this much bigger drama.
Irrespective of whether we have the BJP or the Congress at the centre, capital will for now continue to trump labour. Right now, even the left has no alternative to capitalist globalization, beyond acting as a gentle brake on the unstoppable march of capital. That doesn’t mean there is no alternative, only the left is too intellectually bankrupt and too invested in the system to think of one (with some exceptions, like the economist Amit Bhaduri). That’s why you get Manmohan making a speech that appeals to the conscience of the CII (if there is any such thing), or Manishankar Iyer lectures them on how he became a Marxist. Utterly ineffectual, even though the warnings are well worth heeding. [See below.]
Perhaps the only realistic short term alternative is a gentler, more conscionable social democratic capitalism, with well funded social provisions such as compulsory primary education and maternal and child health care, teacher training, school improvement and generally taking care of the next generation, funded through taxes and tax-free donations to charitable foundations. But this is not really going to change the basic inequalities of power and the structures that keep it going.
In the long run, capital can only win so much against labour and the environment before the pendulum starts swinging the other way. The inexorable march of capital is eventually going to erode the natural resource and human resource base of its progress. It’s already happening, if you look beyond the minority that is comfortable.
The fact is that industry as an engine of wealth creation must eventually learn to become much less destructive of nature and human beings if it is not to destroy society itself. Right now, it enjoys political power. But already India is at risk of losing its advantages in the knowledge production economy. This may be because the layer of educated people who can contribute to it is not thick enough, or because the quality of our primary and secondary education does not promote the higher order thinking and metacognitive skills that are essential for generating new knowledge, or because the majority of our children are simply too neurologically stunted because of inadequate nutrition. With no more resources to plunder and when people are tired of being exploited, even the CII will eventually have to wake up out of its triumphalist wet dream.
In this context, despite the fact that the business press and industry types have reacted predictably to Manmohan's speech as if the end of capitalism is nigh, it would be dangerously short-sighted to ignore his plea for a kinder, gentler capitalism. But more importantly, unless capitalism shows some of its much-vaunted inherent dynamism and capacity for change (creative destruction and all that), and unless it promotes fairer and more equitable innovations of business and social processes rather than just creation of wealth for the investor class, it is doomed to pull society down into a self-destructive spiral.
I’m looking forward to a time when the balance sheets of companies will show how much they have contributed to human well being and social capital, rather than just shareholder value. My question is: will our societies survive that long?