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Problems of Market Economy

Anup Kumar Sinha ( has taught at Presidency College and Indian Institute of Management Calcutta, Kolkata.

Economic Challenges for the Contemporary World: Essays in Honour of Prabhat Patnaik edited by Mausumi Das, Sabyasachi Kar and Nandan Nawn, New Delhi: Sage, 2016; pp 324+xvii,₹1,195.

Prabhat Patnaik is one of the most well-known names in the Indian economics profession. He is internationally renowned as a Marxist scholar who has created an extensive body of research critiquing the workings of a capitalist economy. He has, during his long stint at the Centre for Economic Studies and Planning at Jawaharlal Nehru University, also mentored and nurtured a large number of students who have now in their own right become well-known academics. Patnaik has been known for championing a left-wing alternative to mainstream economics. He has contributed in numerous newspapers and editorial columns too. He always took a stand on contentious issues keeping alive a strong heterodox tradition in the profession. Three of his students have edited this Festschrift in his honour.

The purpose here, of course, is not to talk about Patnaik and his work (which incidentally is well covered by the editors in a lengthy introduction to the book), but rather about the book itself. I found the book difficult to review because it contains 19 essays by different scholars covering a wide range of topics and using quite different analytical methods. Putting them together must have been a challenging task for the editors. However, it is in a way a tribute to Patnaik. It reflects the wide range of interests that he had and allowed his students to pursue—from macroeconomics to dynamic optimisation, to simulation techniques, to monetary economics, and Marxism. If only one thing could bind all the essays together then that would be the fact that each contributor addresses a problem of the market economy, and tries to probe it to seek implications for long-term development of society.

Growth and Globalisation

The book is divided into five sections. The first section is about sustaining the growth process. Several questions are addressed by the three contributors, C P Chandrasekhar, Pranab Mukhopadhyay and Nandan Nawn, in this section. What kind of stimuli does a market economy require to keep growing? Can financial deepening provide one such stimulus? Is it necessary that the global economy is tied together in a particular asymmetric way? Finally, how can the constraints of the agricultural sector, so well discussed in the decade of the 1970s and 1980s, be reformulated in terms of the environment and energy consumption, especially since the last two issues are global problems of the capitalist order?

The second section of the book deals with globalisation, trade, capital, and technology. There are four papers in this section. Shouvik Chakraborty revisits the old Prebisch–Singer hypothesis to suggest that between 1974 and 2005, for the Group of 7 (G7) economies, the relative price of primary goods vis-à-vis manufactured goods has declined. This, as is well known, works against the long-term development prospects of primary goods exporting countries. Sabyasachi Kar looks at the possibility of trade partnerships between the United States (US), Europe, and Asia to bring about macroeconomic balance in current accounts. In the absence of such cooperation, US would continue to get away with an almost unlimited rise in its external liabilities.

The third paper in this section by Surajit Das is interesting. With very volatile global financial capital movements, Das posits that financial capital seeks capital gains rather than the benefits of interest rate differentials. It is the prospect of capital gains that determines short-term flows. Hence, he looks at an alternative to the familiar Mundell–Fleming model. An expected result follows: without restrictions on financial capital flows, fiscal policy is likely to be impotent in affecting aggregate output and employment.

Biswajit Dhar and Reji Joseph examine technology transfer mechanisms through foreign direct investments and intellectual property rights. Direct investments are not aimed at technology transfers but rather at costs and profits. If spillover of the positive externalities of technology has to take place, the research and development infrastructure of the host economy has to be strong and receptive.

Mitigating Immiserisation

The third section of the book deals with poverty, inequality and joblessness. Maushumi Das examines aspirations in poor households. The aspiration effect is usually taken to be a positive force where planned and targeted saving allows for household wealth accumulation and ultimately rise in consumption standards. Das explores the opposite possibility. If aspirations are basically coupled with a strong rate of time preference, then ambitions will trigger myopic increases in current consumption that can raise debt and actually lower saving. This can contribute to perpetuating inequalities and hamper growth. Inequality has recently received a lot of attention, particularly after the publication of Thomas Piketty’s book.

Subrata Guha shows that the Ramsey–Cass–Koopmans result of dynastic households with private property and bequests does not always lead to perpetuation of inequalities of wealth. If preferences are such that there can be a bliss point or satiation at a finite rate of consumption, there can be a convergence of wealth per effective unit of labour. Another paper by Sudhanshu Bhushan looks at the effect of education and distributive justice. More expenditure by the government does not necessarily lead to lower consumption inequality across households.

The paper on jobless growth by Shuji Uchikawa is interesting in its results. The popular perception of jobless growth associated with globalisation is questioned with reference to employment in four large organised industries in India, namely, textiles, basic metals, automobiles, and clothing. The paper finds that the jobless trend has been reversed since 2000. Indeed there is labour shortage in some key sectors, despite the large-scale informalisation of the Indian labour force. This trend, of course, could be well consistent with an overall rise in unemployment. There are obvious implications that follow for manpower planning in India.

Institutions and Hegemony

The fourth section in this book addresses institutional changes. A rather technically complex paper by Jyotirmoy Bhattacharya formulates an extension of Grandmont’s concept of equilibrium in a simple model of monetary exchange. Another paper by Vineet Kohli contests the hypothesis that strong stock markets and liberal policies governing financial flows have played a positive role in the historic development of the mature market economies. Kohli finds the opposite to be true. Government policies in Europe and US have been interventionist and have directly facilitated the access to finance for the financially excluded sections of the population. The third paper in this section by Pradip Kumar Biswas discusses the problems of large-scale retailing by the corporate sector and how these firms have the power to influence public policy.

The final section in the book deals with political hegemony and its re-imagination. This section is more about political economy and some of the papers deal with theoretical issues of Marxism. Prasenjit Bose talks about the difference between the Marxist category of imperialism and the idea of empire as a new phase of imperialism where finance capital is universally united. Global finance appropriates the primitive accumulation in the peripheral countries resulting in concentrated power structures of finance and the rise of a financial oligarchy.

The second paper by Rohit argues that the presence of a periphery where production can be shifted is good enough for capital to keep labour under control. However, output stability becomes a problem in the advanced economies. This, the author claims, has led to a new kind of political instability where new types of conflict might see alternative political institutions emerge. Debarshi Das in his paper argues that in terms of the old mode of production debate in Indian agriculture, capital accumulation in this sector has slowed down largely due to contradictory macroeconomic policies rather than the social structure of Indian agriculture. Hence, it is argued that opposing corporate influence in agriculture is more important politically, than demanding land redistribution. The final paper by Praveen Jha argues along similar lines that government policies have perpetuated the agrarian crisis by aligning the interests of the rural rich with those of the urban elites. The poor peasantry remain trapped in poverty stricken agriculture, constraining possibilities of escape and enrichment.

Questions to Ponder

I had stated at the onset that this volume is difficult to review because of the sheer diversity of the papers contained in it. However, a few impressions come to mind which I will share. The first one is that a number of papers examine the validity of the idea that capitalism can be managed in the short-run through interventionist policies or stimuli. However, would that lead to an outcome where the economy exhibits the absence of poverty, stable full employment, and possibly environmental sustainability?

The second impression that lingers is the fact that capitalism draws its life blood from the unequal structure of the global economy and is fundamentally bound for survival on the economies in the periphery. In that case the search for policies to make the peripheral economies develop on the image of the developed economies becomes impossible, without radical transformation.

The final impression that was left in my mind was that global power structures are changing in the age of the hegemony of global finance capital. On the one hand, the powers are being consolidated to such an extent that the foundations of the nation state are being challenged. On the other hand, substantial disruptions and economic crises are revealing the vulnerability of the system. Where this tension would lead to is not clear. The rise of extreme right-wing politics is an ominous possibility that the world is witnessing. Is it the only possibility?


Updated On : 21st Sep, 2017


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