November 26, 2005

HOW far our economic managers are convinced that our country can develop industrially only by becoming a hunting ground for global capital is difficult to say. But they certainly exhibit a rare zeal for unbridled capitalism which probably even the officials of the IMF-World Bank-WTO trio themselves do not feel about it.

Prime Minister Shaukat Aziz speaking at the recent World Islamic Economic Forum meeting in Kuala Lumpur called for “implementation of reforms to restructure our economies through de-regulation, liberalization and privatisation to leverage the full potential of productive capacities of Muslim states which would ensure a sustained high growth trajectory to raise living standards of their peoples.” But he did not tell us which of today’s developed countries had taken this route to become prosperous.

We have simply accepted liberalization of our economy, privatization of state-owned enterprises and capital-led globalization as an article of faith, without being even slightly sceptic about their efficacy. As far as liberalisation is concerned, the fact is that trade provides for exchange of surpluses; it does not organize production. Therefore, free trade preserves the existing international division of labour, with manufacturing being a prerogative of the centre and primary production a function of the periphery.

This division was not always there. It was created by violent methods in the 16th century and onward. As a result, India, which was a highly industrialized country in the 18th century, turned into a mere exporter of raw cotton.

Battles of Plassey and Buxar were fought not to capture India’s internal markets, as is often asserted. That access the British already had. They were fought so that the British could themselves determine the terms on which they would buy Indian goods. The purpose was to devalue the Indian labour so as to make unequal exchange the normal mode of exchange.

Manufacturing always grows faster than the output in agriculture. Moreover, by the time a backward country is able to take to manufacturing, the industrialized countries have already move ahead to higher levels of technology. It is this gap which perpetuates the unequal exchange, since high-skill labour is rated more productive than simple labour. Today we feel content with having specialized in textiles. But specialization, apart from being a natural monopoly, makes sense only when the pace of technology is fast as is the case with electronics. The main thing is to move up the ladder of technology. Which means we should now manufacture textile machinery, machine tools, etc.

Any endeavour to move up the ladder of technology, to narrow the economic gap between the backward and the advanced countries, cannot be successful in a relationship of free trade. The state has to play a central role in this exercise. It has not only to provide customs protection to new industries, to mobilize financial resources, to set up state-owned industries in new areas where the private capital may not be coming forth. It has to provide direction for the national development, to determine the route the economy should take. This is so because an economy left to itself only reproduces its backwardness. The developed countries were able to make progress behind high tariff walls but would preach free trade to the developing countries only to protect their gains.

Globalization is about freedom of capital to reproduce itself in the widest possible economic space. The force which drives it is the tendency of the rate of profit to fall in the capitalist centre. This results from the effort to raise productivity in order to face competition. As productivity rises, the mass of constant capital rises disproportionately, while the labour force to drive that mass decreases relatively.

As a result, the surplus, while increasing absolutely, falls in proportion to the increased mass of constant capital. Hence, a fall in the rate of profit. As Marx put it: “Thus, the same development of the social productiveness of labour expresses itself with the progress of capitalist production on the one hand in a tendency of the rate of profit to fall progressively and, on the other, in a progressive growth of the absolute mass of the appropriated mass of the surplus value or profit.” (Capital, Vol. III, p 223).

The surplus being relatively low, the big corporations or the monopolies are able to absorb some of the surplus produced in the non-monopolistic sectors which has a higher proportion of labour component. But this process is easier in the backward countries where wages are lower. Hence, the tendency of capital to flow to such countries. However, it does not bring much benefit to the backward recipient countries. They usually receive only the wages from such “off-shore” production. The examples of Mexico and Indonesia are before us. All their efforts have not enabled them to narrow the gap between themselves and the advanced countries.

Secondly, with the development of the means of communication, the “surplus” capital becomes what Keynes has termed “rentier capital”. It engages itself in speculative activity instead of production, thus turning itself into a disruptive element.

Privatization is the third “adjustment” demanded by the IMF-World Bank duo when helping a Third World country in difficulty. This demand points to an important aspect of the contradiction between the globalized capital and the Third World state. Privatization is one of the means of resolving this contradiction in favour of the globalized capital.

However, we are going into privatization driven by an ideological zeal and in an imperious contempt of the ground reality the country faces. The PTCL, a strategic enterprise by any standard, was handed over to an Arab group, which is now hesitating to implement the agreement signed by it. As a result we are making post-signature concessions in an effort to persuade it to graciously take over one of our strategic, profit-making national assets.

The KESC is being given to a Saudi company registered in Cayman Islands which means it will not be subject to any internationally accepted legal check. Its Pakistani partner tells us that since Pakistan has good relations with Saudi Arabia, Saudi capital (and capitalists) cannot be treated as foreign.

Majority shares and managerial control in another strategic enterprise, Pakistan State Oil, are on offer “in order to raise much needed funds.” Above all, the Pakistan Steel, the indispensable basis of our industrialization, is inviting “expression of interest” from potential buyers. Those who would not and could not set up such a plant in the country are to tear it apart limb by limb so as to retain profit-making parts and sell the rest as scrap.

And to whose benefit is this selling spree?

A nationalized mode of production is no socialism; in a capitalist economy it is just state capitalism. However, there is a crucial difference between a state-owned enterprise and a private concern even in a capitalist economy. While the latter is subject to the interest and narrow outlook of the private owner, the former takes the interest of the capitalist class as a whole into account. In a way, it is the material counterpart of the national debt, which is indispensable to the process of capital accumulation.

The state enterprises are created when private capital is shy. But they are at the service of the private capital. For example, no capitalist or combination of capitalists could or would build a steel mill because of the heavy investment and long gestation period involved. So the state undertakes such a venture and builds it, putting it at the service of private industries.

Secondly, private capital, left to itself, cannot decide about the direction that a country’s development should take. It will take the shortest route to maximum profit, which, contrary to what Adam Smith says, is not always to the maximum benefit of all. It is the state which decides, on behalf of the capitalist class as a whole, which industries are to be promoted so that the economy can go systematically from one stage to another.

The state is also in the best position to mobilize the necessary funds, obtain foreign loans and impose austerity for the purpose. Above all, it steps in to set up industries which are necessary but beyond the reach of the private capital. These industries not only lead the private enterprise, they constitute materially the industrial development of the country.

The pressure by the IMF-WB on the Third World states to de-nationalize state enterprises is part of the globalized capital’s persistent efforts to penetrate their economies.

A Third World state has a dual character. On the one hand, it maintains law and order in the territory and defends and promotes the bourgeois mode which enables capital, local and foreign, to reproduce itself. And a very important function that it discharges is to ensure compartmentalization of the work force. Keeping the workers within the national frontiers prevents the equalization of wages globally, which, in turn, permits the globalized capital to escape the falling rate of profit by going from the high-wage to low-wage country.

On the other hand, the state is responsible for the interests of the inhabitants of a particular territory, specially of its ruling class. However, the bourgeoisie, as opposed to the feudal or collectivist-bureaucratic class, does not exercise state power directly. This power is mediated in the case of the bourgeois state by politicians and bureaucrats. This confers a certain autonomy on the state even vis-a-vis the ruling class. It also enables it to look after the collective interests of the various factions of the ruling class, including the national bourgeoisie, except in the states like Congo, which passed directly from a colonial to a neo-colonial stage.

The contradiction of the globalized capital is with the second role of the Third World state — being representative of the national bourgeoisie, the promoter of self-centred national development. The globalized capital wants the national space to be cleared of all hurdles, material and legal, in the way of its operations so that all local resources, human and material, are at the service of its reproduction.

It wants an end to customs barriers and legal protection to the workers and ample freedom of movement to enable it enter and exit, with profit, at will. Above all, the globalized capital wants the Third World state to withdraw completely from the national economic space, confining itself to creating and improving infrastructure and making life comfortable for the capital, specially the MNCs. Denationalization of the state enterprises is a crucial step in this process. It deprives the state of an important instrument to plan and control the economic development of the country, of showing the direction in which the state desires the economy to move. But such a step is a blow to the progress of the national bourgeoisie, as it leaves the national economy at the mercy of the globalized capital. It is also an act of de-accumulation as it turns productive capital into ordinary expense.

The other step, which will, in fact, complete the disengagement of the state from the management of the national economy, is the autonomy of the central bank. That, coupled with the denationalization of the state-owned enterprises, will reduce the Third World state to the role of a “chowkidar” of the globalized capital in the country. In a way, it will signal the return of the conditions that prevailed under the colonial rule. However, since the state would still be formally independent, it would promote a neo-colonial economy.

No advanced country has reached its present stage either under free trade or with the withdrawal of the state from the economic space. England transited from feudal to capitalist economy by controlling many foreign markets. Even so, no man dying in the era of Henry VIII could be buried until it was certified that he was clad in a shirt made of English wool. England’s ports were long closed to Indian-built ocean-going sail ships. The US grew behind high protectionist walls. France was always etatist, while Germany became industrialized under state direction.

The Third World states face a much more difficult task. None of them controls foreign markets. In fact, they are hard put to it to protect their industries and create a path for their independent development. Foreign capital will not perform this job for them. The effort has to be national and not only guided but also led by the state.

Capitalism has never grown independently, whatever the myth. The bourgeois in the Middle Ages were protected by kings. They, in turn, supported the absolutist monarchy, which helped them capture the national market. Imperialism, the next stage of capitalism’s expansion, was obviously a state enterprise.

No Third World country can hope to change its place in the international division of labour without having an interventionist state. The state has played a central role in the growth of all those countries which are now developed, such as Japan, or those which are on their way to becoming developed like China and India. If they had listened to the fairy tales about letting the private enterprise industrialize them entirely on its own or about opening their markets in the early stages to free trade, they too would have been neo-colonies today.

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