The latest protagonist of critique of capitalism, Thomas Piketty, has highlighted the growth of inequality, which is a speaking point today in all the seminars with the acceptance that capitalism has ended up being self-serving (as would be applauded positively by Adam Smith, who believed in self-interest).
It is not surprising that the 200th anniversary of Karl Marx, May 5, has gone past without much ado. Marxism, per se, is almost an anachronism today, with the ideology withering gradually away ever since the fall of the Berlin Wall and the breakup of the erstwhile USSR (Union of Soviet Socialist Republics). Even the electorates of some of the die-hard communist-led states in the country are having second thoughts. The millennial generation would probably not be too aware of a dogma which dominated the mind space for a long time until the 1990s. The last vestiges of communism are now in countries that are run by dictators or are super-capitalist, like China. Is Marxism really relevant considering that even at the political level the communist parties are losing their charm in various states in India?
Marxism, in its simplest terms, argued that production relations determine the ‘infrastructure’ of the nation, which was typified by the proletariat and the capitalist, where the relation was antagonistic with a tendency for labour to be exploited. The ‘superstructure’ was created to maintain these relations and this was the political system and institutions that allowed it to thrive. As capitalists extracted more value from the workers (proletariat), it would reach a point of no return, when there would be a revolt and the former would be overthrown. There would be the dictatorship of the proletariat, whereby people would rule. However, as happens normally in such systems, new elites were created and worked towards self-fulfilment, and the economic systems that sprung up were inefficient in terms of allocation of resources. Compared with the capitalist system, socialism or communism offered suboptimal solutions, which were discarded by the people over a period of time. India, too, rejected the mixed economy set up gradually, from 1991-92 onwards, with the government having less of a role to play in economic activity. This is liberalisation. But, interestingly, the founding principles of Marxism are still relevant.
Production relations, even today, are defined by links between owners or capitalists and workers. Capitalists as defined by family-run or dominated businesses having their role entrenched in the economy which has become hereditary. The modern corporate has the concept of ‘limited liability’ and hence ‘limited responsibility,’ where managements are the rulers and are overseen by boards, which represent the shareholders. Here, there is always some modicum of conflict between the two classes, with the remuneration being at great variance in a legitimate manner. Conflict, however, is avoided because of the creation of what would have been called the ‘bourgeoisie class’ or ‘middle class,’ which acts as an effective buffer. Hence, while the top management gets several multiples the wage of the median—as reflected in annual reports—the fact that there are several layers in between, which give hope to others to rise, ensures that harmony is maintained.
However, the constant argument for labour reforms is a manifestation of the Marxist conflict, where the capitalist wants to ease labour but governments hold back such drastic reforms. Economic cycles always make a case for downsizing, though the capitalist never takes a cut in pay and often is rewarded with stock options. But while corporates can downsize easily when it is in the middle cadre, the same is difficult when it comes to the factory sector. Therefore, status quo in the ‘infrastructure’ remains even today. How about the superstructure? This is interesting because institutions are laws created to preserve the ruling order.
Let us see how this works. First, governments are committed to capitalism and never really come in the way of free enterprise even while they blow hot and cold over privatisation. Second, the organisations and associations which profess ‘advocacy’ ensure that policies are geared towards making it easy for private enterprises, which cannot be questioned as it leads to growth. This is often supplemented with political donations to serve the interest of the capitalist. Third, the media is always pro-market and against intervention, and with a plethora of experts always badgering the public sector, helps the cause of the capitalist. Fourth, regulators are often influenced by the spokespersons of capitalists such as market experts, economists, academics, etc, to get the derived results. Fifth, the fact that policy-makers often have worked in global institutions ensure that the capitalist ethic remains firm in practice. Hence, the influence of capitalists on institutions is well-defined.
Marxism also spoke of the extreme stage of capitalism being colonialism, wherein countries colonised to spread their markets—also called imperialism. Today, the same happens under the façade of globalisation, where institutions like the World Trade Organisation or the International Monetary Fund or the World Bank profess the capitalist ethic. Earlier, loans were tied to ensure that the Washington Consensus was followed. Today, investors decide what should be the policies and countries bend backwards to get in the dollars. Various rankings given by these organisations on doing business, being competitive, etc, ensure that countries veer towards markets.
Therefore, Marx was actually right in terms of understanding how systems worked with the production relations being defined. However, the eruption of a revolution was not how these games resulted, as there are safely buffers built through the middle class as well as the strong superstructure which is reinforced all the time. Further, as long as the public sector exists, which is strong even in western developed countries, the illusion that we are not being driven by capitalists is created. Governments, too, tend to offer the occasional freebies to the poorer sections to remain popular, which are criticised vociferously by the capitalist elites. Hence, while Marx is relevant in understanding how capitalism works, Adam Smith will have the last word.
The latest protagonist of critique of capitalism, Thomas Piketty, has highlighted the growth of inequality, which is a speaking point today in all the seminars with the acceptance that capitalism has ended up being self-serving (as would be applauded positively by Adam Smith, who believed in self-interest). The defenders of the faith will argue that the fact that even the poor have a mobile phone is a vindication that capitalism has delivered, while the vast populace of unemployed in emerging markets tells a different story.
Hence, while markets have led to higher growth, which could be skewed in terms of distribution, the revolution that was prophesized will probably never happen as long as there is an illusion of upward movement, which the mobile phone represents today. Therefore, Marx was right to a large extent, which has been buffered well by the superstructure to ensure that contradictions are either hidden or addressed in a minimalistic manner to create the illusion that ‘all is well.’
Chief Economist, CARE Ratings. Views are personal