Amidst
the political chaos created by a Prime Minister bent
on pushing through his one-point agenda of clinching
a nuclear deal with the US, few have stressed the fact
that this serves one other role besides “honouring”
the PM’s commitment to President George Bush. It helps
divert attention from the damage wrought by neoliberal
economic policies, reflected in a crisis in agriculture,
a high rate of inflation, a volatile exchange rate,
increasingly fragile financial markets, and the likely
return to much slower growth. Rather than debate these
issues in the run up to the election in a country whose
strength lies in its vibrant democracy, the two main
political formations are battling to make either the
nuclear deal or communal polarization the clinching
issue in the elections. They are unlikely to succeed
in that. But what they may achieve is to distort the
results of a much needed second referendum on the kind
of economic policies that the previous NDA and the current
UPA governments have followed.
This deficit in India’s political democracy is the outcome
of a larger effort of the elite in capitalist democracies
across the world to keep the inequalising and destabilizing
effects of the new capitalism dominated by finance under
a shroud. Contemporary capitalism is in a perennial
state of denial. Increasing inequalities associated
with higher growth are attributed to institutional changes
that are reincentivising production. Persisting poverty
is dismissed as being a statistical quirk rather than
a reality. And speculative stock or real estate market
bubbles are justified by reference to strong fundamentals.
On the other hand, any downturn in growth or the markets
is characterized as a correction. Buoyant indices or
markets are always a sign of strength. Depressed markets
or stock market downturns are presented either as necessary
but minor corrections or as problems governments must
resolve without hurting private incentive.
This blinded vision partly results from the need to
legitimize a system that weighs in heavily on the side
of capital and profit, at the expense of workers, petty
producers and the self-employed. It also signifies the
ideology that dominates the new “ownership” economy
in which it is not what you earn but what you own that
defines your economic status and sense of well-being.
If the speculative route to expanding ownership is closed,
then the legitimacy of such a system would be under
challenge. Public policy aimed at regulating financial
and real estate markets that constitute the fulcrum
of the ownership economy must be delegitimised, so that
these markets themselves are legitimised.
Even if taken for granted by many today, the notion
of the ownership economy is relatively new. Its coming
can be dated to the rise of finance and the simultaneous
boom in real estate markets. This raised the possibility
that even those with relatively small savings, who could
not make lumpy investments in acquiring capital assets,
could through the mediation of stock and real estate
markets make acquisitions that grow rapidly in size
because of high rates of appreciation in value.
But if this route to wealth is to be popular enough
to make financial and real estate markets the symbols
of the new capitalism, it must not be seen as endangered
by “collateral damage” like rising inequality or persisting
or worsening poverty that threatens to destabilize the
trajectory. What is more, active stock and real estate
markets require that there must be enough people who
are convinced that high rates of appreciation are not
just based on speculation that would soon be reversed,
but on fundamentals that would prevail over any corrections
that may result in downturns. The perennial state of
denial referred to above is therefore the ideology that
sustains and legitimizes neoliberal growth strategies
dominated by the requirements of finance capital. Until
of course a crisis forces a partial or complete course
correction.
Consider for example India’s stock markets whose performance
was being unambiguously celebrated when it was experiencing
a boom. The Sensex which closed at just above 10,000
on 21 June 2006 rose rapidly thereafter, and despite
fluctuations, closed at above 20,000 on 11 December
2007. This doubling of the index over a period of less
than 18 months was obviously symptomatic of a surge
in speculation, driven in part by FII inflows consisting
largely of capital from entities like hedge funds exploiting
the participatory notes route to speculate in the Indian
market. However, the flavor of the reporting at that
time was to claim that the stock market was riding on
strong fundamentals, ostensibly reflected in the close
to 9 per cent growth the economy had been registering
over a four-year period.
Moreover, wealth as measured by market values or market
capitalization was not seen as just that much paper
money, but as an indicator of true economic strength.
The newspapers were filled with stories of the rise
to maturity of the Indian stock market as reflected
in figures on aggregate market capitalisation, of the
billionaires that India was adding to various league
tables of the global rich and of the rapidly increasing
“size” of leading Indian firms that were now borrowing
money abroad to finance new acquisitions. India’s arrival
was not heralded so much by the presence of Indian goods
in world markets, but by the participation of Indians
in the global ownership economy and by the sharp increase
in the paper wealth being accumulated by individuals
and firms from India.
It has not taken long for all these illusions to be
dashed by the market. Between 8 January and 8 July 2008,
the market fell from a peak of 20873 to 13454 or by
35 per cent. Measured in dollar terms the market capitalization
of Indian stocks is reported to have fallen by 46 per
cent between 1 January and 4 July, 2008, as compared
with 25 per cent in the case of South Korea, 24 per
cent in the case of Hong Kong, 3 per cent in the case
of Brazil and just 0.5 per cent in the case of Mexico
(Business Line, 6 July 2008). Vietnam is the only country
in Asia that fared worse than India, and China followed
close behind India with a 42 per cent decline.
It is important to remember that China, Vietnam and
India are the currently celebrated growth miracles in
Asia, having displaced the East Asian NICs from that
pedestal in the years that followed the 1997 financial
crisis. Financial markets in these new growth miracles
are the ones that have been talked up by international
finance and the international media, leading to an unprecedented
boom, especially in the years since 2003 when there
has been a surge in cross-border capital flows. And
it is the financial markets in these growth miracles
that are now floundering the most, even though real
economic growth in these countries is still better than
elsewhere in the developing world.
The impact of the market’s decline on the personal wealth
of India’s super-rich has been along expected lines.
On January 8, there were reportedly 522 billionaires
in India, many of them among the Forbes’ listing of
the world’s richest. By July 4, the Business Standard
(5 July 2008) reported, that the number had fallen to
421, with 101 erstwhile billionaires having experienced
a 20 to 65 per cent erosion in their net worth that
had reduced them to millionaires. All because of the
35 per cent fall in the Sensex. Those who have been
worst affected (even if not damaged because their real
wealth is large enough) include some of the most celebrated
“new capitalists” of India. Anil Ambani “suffered” a
loss that more than halved his wealth from Rs. 253,567
crore to Rs. 115,878 crore. His estranged brother Mukesh
lost more than 30 per cent. Gautam Adani took a beating
that ripped 58 per cent off the value of his assets.
And G.M. Rao saw as much as 65 per cent of his net worth
vanish into thin air.
For those who celebrated the rapid rise in the Sensex
in the 18 months prior to January 2008, this collapse
of stock prices, market capitalization and paper wealth
must have given cause enough to sit back and take stock.
The decline in all three was not only large but extremely
sharp by historical standards. What should have accompanied
that fall is a sense of disquiet that was as intense
as the euphoria that accompanied the bubble. This would
have forced a reassessment of the so-called boom, a
rethink of the policies that facilitated the speculative
surge which created the bubble, and the adoption of
corrective measures that can prevent similar trends
in future.
But that does not seem to be the outcome. In fact, other
than aggregative assessments of the kind noted above,
there has been little reporting of the losses that have
been incurred in this period when financial markets
have been rendered more complex by liberalisation. An
occasional report of provisions being made by certain
banks to account for exposure to sub-prime losses or
a rare and unclear description of losses made in foreign
exchange hedging by an exporting firm is all we get.
But when the association of chartered accountants demands
more transparent reporting of derivatives exposure to
keep shareholders and accountants informed or when exporters
from Tirupur demand the intervention of the RBI to get
banks to share with them losses from trading in derivatives
that they claim they never understood and whose risks
they were never informed of, it becomes clear that there
is much that is being kept out of the public eye.
This is not because these issues are too complex to
write about or explain. It is because those who can
and should do the explaining are part of the unspoken
consensus to keep these maladies that afflict the ownership
economy dominated by finance away from the public eye.
If they are reported, explained and understood, the
legitimacy of the system would be under challenge. More
importantly, it would force a rethink of the neoliberal
policies that work unceasingly to expand profit while
keeping much of India’s wage, salary and petty income
earners at the same or even lower levels of real income.
But when the crisis turns intense, as it did in many
Latin American countries during the last two decades,
policy reversal is a real possibility. The persisting
evidence of agrarian distress, the more than 11 per
cent rate of inflation, reports of declining profits
and slowing sales, the widening trade and current account
deficits, and the collapse in the markets that symbolise
shining India, suggest that India may be nearing one
such turning point. The elections, therefore, may have
tipped the scales against neoliberalism. The obsession
with the nuclear deal and the revival of communalism
may be efforts by interested forces to divert attention
and prevent that denouement.
|
