People's Democracy

The Bizarre World of Bourgeois Economics

Kartik Rai

BOURGEOIS economics assumes that all resources (or "factors of production," as it calls them) always get fully employed in a capitalist economy spontaneously, through changes in their relative prices, which means that in equilibrium there is an absence not only of any reserve army of labour but also of any deficiency of aggregate demand. This assumption of course is absurd, and once this assumption of full employment is abandoned, the entire construct of bourgeois economics, and all propositions derived from it about the so-called "benefits of free trade," collapse like a pack of cards.

Let us, however, ignore for a moment this particular absurdity of bourgeois economics. Let us deliberately assume that there actually is full employment in the economy in every period of time, which is ensured through the flexibility of "factor prices" exactly in the way that bourgeois economics postulates (i e unemployed "factors" take reduced earnings in order to boost their demand, and that demand does get boosted in this manner until full employment is achieved). Even so, there is yet another absurdity of bourgeois economics which is less commonly recognised. The purpose behind our ignoring the first absurdity (and going along with the assumption of full employment) is precisely to highlight this second absurdity. And this consists in the assumption that all "factors" (including in particular labour) are fully mobile.

There are at least three different aspects of this assumption about mobility. It entails first of all that labour of any particular category, e g unskilled labour, is fully mobile across the different spheres of production (so that there is a tendency for the wage rate and conditions of work to get equalised across these spheres). It entails, secondly, that labour of any category is fully mobile across space, i e from one place to another, so that the wage rate tends to get equalised across space (if we ignore considerations arising from transport costs). It entails, thirdly, that labour is mobile from one category to another, e g from the unskilled to the skilled category, provided the wage differences between these categories exceed the costs of training (or acquiring the skills).

These at first sight would appear to be reasonable assumptions which reflect the functioning of the capitalist system. After all, even Marx had made similar assumptions. But what Marx had taken to be a tendency (which might not get realised owing to a host of concrete conditions) is assumed by bourgeois economics to be an actual fact; and herein lies its absurdity. Just as from the indubitable tendency of capital to move in search of higher profits, it would be absurd to conclude that freedom of capital movement would result in a wholesale transfer of factories from the advanced to the backward countries where the wage rates are lower (and hence profit rates higher if the same production methods are employed), likewise from the tendency of labour to move in search of better conditions of work we cannot conclude that wages actually get equalised (subject only to qualifications arising from transport costs, costs of training, etc). But this is exactly what bourgeois economics assumes. Let us now turn to the implications of this assumption.

Much is written these days about the prospects of the IT sector in India, about the substantial increases in foreign exchange earnings and in employment that this sector promises. And since these benefits are supposed to accrue owing to India's participation in the global business, they are said to constitute a positive fall-out of the "globalisation" of the Indian economy. Let us suppose, for argument's sake, that the IT sector does achieve significant gains from the process of "globalisation." At the same time, however, the fact of a substantial drop in the incomes of the traditional agricultural sector, and of such sectors as textiles on account of the same process of "globalisation" can scarcely be denied. Thus "globalisation," even assuming for argument's sake that it brings larger demand for some sectors, would certainly lead to contracting demand in others.

Now, bourgeois economics would see no cause for disquiet in this fact. On the contrary, it would argue that this is a necessary feature of "globalisation" which is actually beneficial for the economy. It enables the economy to drop sectors where it is less "efficient" and to concentrate on those sectors where it is more "efficient." In other words, free trade, which the process of "globalisation" ushers in, is a means of "restructuring" the economy whereby its resources are concentrated in sectors where it has an international "comparative advantage."

This euphoric prospect held out by bourgeois economics, however, is based on the presumption of "factor mobility." To be sure, no serious bourgeois economist can possibly claim that agricultural labourers or handloom and powerloom weavers, who would be witnessing a worsening in their plight on account of "free trade," would get absorbed in the IT and such other supposedly expanding sectors. But if one were to construct the bourgeois argument (the state of bourgeois economics in our country is too abysmal for its adherents to construct even their own argument in a coherent fashion), it would proceed somewhat as follows.

The "uncompetitive" nature of much of our traditional agriculture and textiles, and the "competitive" nature of IT and other such sectors, would, after trade has been "liberalised," result in two phenomena: a shift of capital from the former to the latter, and hence a widening of the wage/salary disparities between the workers employed in the two spheres. This widening would push disparities above the costs of training and acquisition of skills, because of which more and more workers belonging to the "uncompetitive" sectors would acquire skills and migrate to the "competitive" sectors. Of course, these workers on their own may not be able to afford the cost of acquiring skills, but if the disparities exceed the cost of skill acquisition then profit-maximising capitalists in the "competitive" sectors would themselves find it worthwhile to undertake training programmes for the workers in "uncompetitive" sectors. (Even other capitalists having nothing to do with either sector may undertake such training for profit by charging an appropriate price for it.) Since, by assumption, full employment of all workers is maintained at all times (the declining sectors resorting to wage-cuts rather than employment-cuts), when wage-disparities have finally come down, through such labour migration, to equal only the cost of training and no more or no less, society would have the same disparities as before but would have shifted a part of its work-force from the declining to the expanding sectors, through whose exports it would be able to get more of the declining sector's products (if it so chose) than what the level of domestic production of the latter would have been if the work-force had not shifted.

Even in this pristine world of bourgeois economics, however, there are two very obvious problems with this idyllic picture. First, even assuming that eventually workers in the declining sectors are re-trained suitably, the process would obviously take time; since there is nothing to ensure that the wages of workers in the declining sectors meanwhile do not fall below some minimum subsistence level, by the time this whole process can work itself out large numbers of the workers would have died (or would have been pushed to suicide as is happening with the weavers in Andhra Pradesh).

Secondly, since real world capitalists have only limited time-horizons, the idea of their spontaneously providing retraining programmes out of pure profit considerations to workers in the declining sectors is utterly unrealistic, in which case the basic labour mobility assumption itself breaks down, and the workers in the declining secors are doomed to perennial immiserisation on account of free trade.

The more sensible bourgeois economists, and many adherents of social democracy, accordingly temper their concurrence with free trade with demands that the State should, first, provide relief to workers in the declining sectors to keep them afloat, and secondly, undertake the costs of retraining which the market is notoriously incapable of doing. These, however, remain mere pious wishes. Since trade "liberalisation" is invariably accompanied by "liberalisation" of capital flows, i e "financial liberalisation" which has the effect of accentuating the fiscal crisis of the state, and "rolling back" the state from all productive activity or relief activity in support of the workers, the state is never in a position to undertake any such "corrective" measures. It follows that the inculcation of a "liberal regime," even if we start from the tenets of bourgeois economics itself, necessarily leads to an immiserisation of vast numbers of workers.

We have so far gone along with the assumption of full employment upon which bourgeois economics is founded. Once this is removed, and it is recognised that trade liberalisation can give rise to a contraction of domestic production in every sphere, rather than a contraction in some spheres being necessarily accompanied by an expansion in others, the theoretcal inadequacy of the panacea of retraining (and temporary relief) suggested by social democratic and well-meaning bourgeois economists becomes even more pronounced. Retraining presumes the possibility of absorption elsewhere, but if an economy is saddled with (or soon acquires) unemployment in every skill-category of labour, which typically is the case, then retraining, even if it could be undertaken, would scarcely prevent the immiserisation of substantial numbers of workers.

But even within the tenets of bourgeois economics, i e even assuming full employment, large-scale immiserisation as a fall-out of free trade is unavoidable since the basic assumption of labour mobility is not fulfilled. The crude official in Andhra Pradesh who asked: "why don't the Sircilla weavers move out of there instead of committing suicide?" was actually articulating a proposition of bourgeois economics. But this proposition is absurd because, outside the bizarre world of bourgeois economics, when weavers get squeezed by trade liberalisation they have no better place to go to.

This enforced labour immobility which is a characteristic of economic life (quite apart from unemployment which makes things even worse) has far-reaching implications: it destroys all arguments about the "benefits of free trade;" it constitutes an additional reason why a "liberal regime" aggravates inequalities; and it provides a powerful case for restricting trade on the grounds of protecting the livelihoods of millions of working people. To say this does not of course mean that these workers should be left at their low levels of productivity for ever, but what is necessary is a planned improvement in their condition and not the destructive assault of free trade.