The crisis of neo-liberal capitalism

Abstract

Neo-liberal capitalism brings about a de-segmentation of the world economy whereby wages in the “north” remain subdued by being linked to the massive labor reserves of the “south”, even while these reserves themselves swell despite relocation of activities from the “north” to the “south”. At the same time labor productivity rises everywhere; the net result is a rise in the share of surplus in total output in the world as a whole, which creates an ex ante tendency towards over-production. This tendency, kept in check for a while by asset-price bubbles in the U.S., has now manifested itself in the form of a secular stagnation of the world economy which cannot be overcome within the neo-liberal regime itself and which is now producing a world-wide tendency towards fascism.

Keywords:

• Neo-liberalism
• de-segmentation
• over-production
• crisis
• fascism

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 The terms “global north” and “global south” are used throughout this paper not in the strict geographical sense, but, following UNCTAD practice, as being synonymous with today’s developed and less developed countries respectively, or what used to be called the “first world” and the “third world” some years ago.

2 While Baran (1957) had emphasized climatic conditions as being decisive in the determination of investment flows, Bagchi (1986) emphasizes the racial factor.

3 According to the KLEMS data-base of the Reserve Bank of India, the overall growth rate of employment was 2.02 percent per annum between 1980–81 and 1990–91; between 1991–92 and 2017–18 it fell to 1.04 percent. Matters have become worse of late, after the onset of the current world recession following the upsurge of inflation during the recovery from the pandemic.

4 In India this has happened with respect to cash crops, but not yet with respect to foodgrains. The Modi government tried to withdraw price-support to agriculture by passing three farm laws, but a year-long peasant agitation forced it to withdraw these fam laws.

5 In India between 1991 when neo-liberalism was adopted and 2011, the latest decennial census that has been carried out, the number of “cultivators” (a census concept) declined by 15 million. Some may have become “labourers” within agriculture; but others must have migrated to cities. In the period since 1991 over 300,000 peasants have reportedly committed suicide because of growing distress.

6 The reason for this is the fact that such cost-of-living indices are usually Laspeyre’s price-indices that simply aggregate price increase for a set of goods that were available in the base year, and hence do not reckon with the progressive substitution of new goods (private services) for the old (government-provided services) that occurs in the interim.

7 The basic distinction being drawn here is between the “working people” and those who live off the surplus. Some workers, such as those engaged in the circulation of commodities or in the sales effort, despite being workers, are generally taken to be dependent upon the surplus. But where exactly we categorize them makes little difference to the argument of this paper, as long as we remain consistent in our classification, since this argument is concerned with changes in the share of the surplus. Accordingly, I include all workers among the “working people”. For a definition of the concept of surplus and a clarification of some of these issues, see Baran and Sweezy (1966) and U. Patnaik and P. Patnaik (2021).

8 It may be thought that the migration of peasants to cities mentioned above may alter the relative sizes of the self-employed and non-self-employed categories and hence affect this conclusion. But the “discouraged worker effect” of the growing relative size of the labour reserves also keeps this migration in check.

9 This conclusion follows from two simple premises: first, that the per capita real incomes of those engaged in agriculture and petty production declines because of the withdrawal of state support; second, a rise in the relative size of the labour reserves entails that the absolute real wage rate of no sub-group of workers can rise, which means, given the rise in the relative size of the labour reserves, a decline in per capita real income. For the argument of this paper however a decline in real per capita income is not necessary; even a constancy in it is sufficient for the conclusions of this paper. A decline however explains the growing ratio of the absolutely poor in total population (Patnaik 2019).

10 We are assuming here that the share of the surplus-dependent population in the total population does not increase over time, which is a reasonable assumption.

11 Piketty’s own explanation uses Solow’s model of growth which assumes Say’s Law, an aggregate production function, factor substitution, income distribution between factors of production in accordance with full employment marginal productivity, and several other unreal assumptions. For a critique of Piketty’s own theoretical explanation, see Patnaik (2014).

12 The short-lived Lizz Truss government in the U.K. tried precisely to do this, viz. increase transfers to the capitalists by incurring a larger fiscal deficit, but was forced to quit office because of the opposition of finance to this move.

13 The decadal growth-rate of the world economy for the decade preceding the pandemic was the lowest among all the decades since the second world war.

14 According to the National Sample Survey, the “usual status” unemployment rate that had hovered around 2–2.5 percent earlier, suddenly increased to around 6 percent in 2019–20.

15 So close was the association of fascism in the 1930s with a stimulation of the economy that Kalecki ([1943]1971, 141) had even remarked: “One of the important functions of fascism, as typified by the nazi system, was to remove the capitalist objections to full employment.”

16 Oxfam has found for instance that in most loan renegotiation agreements drawn up recently, the IMF has insisted on fiscal “austerity” which will only perpetuate the crisis