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By Aseem Shrivastava Six Ps are key to the understanding of capitalism: power, property, production, prices, profits and progress. Let's take each of them in turn. Every economic system known to humanity has its foundations in political power. By power one means command of men and materials (natural resources, physical and financial capital and humanity's labour-power), not merely the holding of public offices and the legitimacy that they confer on certain institutions and forms of economic activity. A corporate boss needs to have managerial authority over his/her employees and is normally only accountable upwards to his/her boss, who is a more senior manager or even the CEO of the corporation. There is a system of 'managerial hierarchies' by which corporate establishments are run. In addition to the control of people's labour, a corporation has to have control over technology, natural resources and inputs required for production processes. An aluminium plant needs to have access to bauxite mines, and so on. All this presumes power. Capitalism is also premised on exclusive private property in the means of production. Private property is very different from personal property. If I buy a car and use it for my own ends, it is my personal property. If I hire a driver to run the vehicle as a taxi, the same object becomes my private property. Why? Because I now use it to command the labour of another individual and make a profit from the enterprise. Why should he work for me? Because he does not have property of his own! This is crucial to the workings of capitalism: there must be people without property whose labour can be counted upon. How has this been ensured in the past? Usually by force, even conquest. If I want your land for purposes of profit-making production, if I want you to work for me, and to buy the products that my company produces and sells, all I need to do is make sure that you are dispossessed of any resources - especially land - which can allow you to subsist on your own. Reality is of course more complex but this, in a nutshell, has been the history of the origins of capitalism in Western Europe. The Enclosure movement in Britain in the 16th and 17th centuries dispossessed peasants of their direct access to land and resources by force. It was denounced by the Church. Laws were passed to resist it. But ultimately the power of rising capitalist elites prevailed. 
Similar processes of land and resource acquisition can be observed in the histories of the colonies: Asia (not least India), Africa, Latin America, Australia, North America were all brought into the sphere of European capitalist control between the 15th and 19th centuries. Though there is some debate on the matter, most economic historians are of the view that colonialism played the pivotal role in the economic growth and prosperity of the Western world. The colonies supplied cheap (often slave) labour, land, natural resources and ultimately markets for the sale of European products. There was no free trade! They also became in various degrees outlets for investment by European capitalists. All this was made possible by successful military campaigns and colonial wars over a period of centuries. Almost all the major European powers - Spain, Portugal, Netherlands, Britain, France, Italy, Germany, Belgium and Denmark -- established trading empires overseas. All the discussion about globalisation, 'free trade' and suchlike that we hear nowadays presumes all of the above. Only then can we begin to speak about production, prices, profits and progress. So the equations of power and private property that come to prevail after dispossession, conquest and colonisation, are settled before the debates of modern economics - about how much play must be given to the market and where the government must intervene - begin. Economists, it has been noted by many an observer, only deal with solved political problems. In contemporary language, we often hear policymakers and advisors - in India right now, for instance - speaking of 'the climate for investment': favourable political stability is essential for capitalist growth. It is crucial to understand this because the institutionalised injustices of such a system are the root cause both of the dynamism of capitalist economies and of the inequalities and poverty they routinely generate. Rudely unequal, even perverse, outcomes are built into the very warp and weft of the economic system as it is set up. The real competition in the world is over power, to which - unlike to material human needs - there is virtually no limit. Such has been the intensity of the competition for power in the past that virtually every major war of the 20th century in which the West has been engaged - beginning with the First World War - can be ultimately traced to European/American inter-capitalist rivalry in the quest for territory, resources, human labour and markets. Accumulated capital itself - money in everyday language - is the lubricant that runs the whole system: whoever has more of it has more power. Markets run on the established political plinth outlined above. Normally, as can be imagined from the facts recounted above, there is never a 'level playing field'. The economic world is not flat: it is tilted and uneven at its very foundations. Little wonder that we see around us the inequalities we do. If property is so unevenly distributed to start with - so much so that most have none of it - how can socio-economic inequalities not come about? Adam Smith was the first to recognise that in order to make money you already have to have some. We notice this Catch-22 in so many situations around us. To take out a loan for anything, you need to offer some collateral: one among many reasons why the poor stay poor. The argument is often heard nowadays - in relation to exploitative and cruel labour practices in poor parts of the world - that at least such people, whether they are in India, China or Indonesia, have jobs. The alternative - starvation - is much worse. Well, for this to have become the alternative, a prior process of dispossession has usually occurred: remembered by history, forgotten conveniently by today's policymakers and the media. Why must people have to choose between two evils? What forces have structured the economic system in such a way? What positive alternatives might there be? Such questions are rarely asked, let alone answered. Let us now move to the other Ps of capitalist societies: production, prices, profits and progress. It will remain important to keep firmly at the back of our minds the competition for power in the world. (We will see how it explains in the end why no absolute amount of money satisfies so many people nowadays.) The dreams of capitalists find their inspiration there. The more production the better, though not in any simple way. Sometimes, for instance, monopolists restrict output deliberately in order to keep prices and profits high. In a competitive market the goal is to increase sales and market share. Monopoly power would be ideal, though in a world with several competent competitors, oligopolistic power is the realisable, though naturally shifting, goal. The further goal is, of course, profits. This is important if one is to understand the scale of corporate priorities. Corporations do not primarily exist to employ labour. If labour is profitable to employ, it will be hired. If not, it will be fired or neglected. As a matter of fact, modern corporations do not like to have a stable workforce, preferring to sub-contract or outsource as and when necessary. As many as 3 million jobs were lost in the US during the first two years of the Bush Presidency. A leading corporate intellectual Gurcharan Das recently quoted Nobel laureate Milton Friedman with some admiration: "The social responsibility of business is to make a profit." (The Times of India, December 16, 2006) However, profits are wanted not merely to enrich oneself and live well. The smart capitalist managers are the ones who save and invest the profits rather than distributing them as dividends to shareholders every time there is a windfall gain. Saved profits are re-invested in order to expand the business. Investment is key to growth. And growth is desired for the reasons of economic expansion and power outlined above. But that's not the only reason. Even a good-natured capitalist, not particularly greedy for wealth and power, is compelled to invest in a capitalist world. He usually has no option in a dynamic economy. Why? Because growth is a survival imperative in a competitive world. The company will lose market share in an expanding market unless it invests and grows. Hence the constant push to create and exploit opportunities. There is no standstill possible when there is a relentless 24/7 race for dominance in the field of power. And in the end, power in a capitalist society is not achievable without growing wealth. This is one of the explanations for failed and risky ventures: energetic capitalists are always on the lookout for pre-emptive, competitive investments. Mistakes and miscalculations are inevitable at times. When many such failures converge in time, booms turn into busts. It may be noted here in passing that - short of deliberate distributional interventions by the state through such means as direct taxation of the rich - all the promises of the trickle-down benefits of economic growth rest on its capacity to generate employment. However, the recent experience with automation and jobless growth suggests that output and growth can be raised nowadays without creating too many new opportunities for labour. A labour-rich country like India is caught in the paradox of modern economic growth which generates wealth without creating much employment. In one extreme example in Maharashtra, one worker was observed to be in charge of 27 machines! If corporations are allowed the freedom to grow unimpeded, we are given to believe, they will in the long run create opportunities and employment which will drive down poverty. But life is a series of short runs and, as the great economist Keynes once observed, "in the long run we are all dead". In the short run technological improvements under capitalism inevitably cut jobs, as do 'corporate restructuring' to create more 'lean and mean' outfits. Moreover, corporate priorities are actually remarkably different from those of a nation. In a globalised world, they are interested in maximising their sales, profits and growth globally, not nationally. Even if this has a positive effect on the country's GNP (assuming that Indian passport-holders, and not merely people of Indian origin, gain from the economic success) it leaves the GDP (of much greater significance to the residents of the country) quite unaffected What does 'going global' mean to an Indian company? It's far easier to be a global player today than to be a patriotic one. It is one thing for some Indian companies and big businesses to be successful global players. Another thing for the Indian economy to benefit from that. The name of Lakshmi Mittal tops the list of Indian billionaires, quoted widely. He is the owner of the largest steel-making company in the world. But despite being of Indian origin, his contribution to the Indian economy is negligible, since most of his operations are in other countries, like Kazakhstan or the EU. "What a difference a year makes," says an article in The Economist Global Agenda titled 'A Growing Indian Empire', October 20, 2006. "In 2005 Tata Steel, India's largest private-sector steelmaker, was an industry minnow ranked as only the 56th largest steelmaker in the world, by production. It was a likely meal for bigger fish to swallow. Now, after striking an $8 billion agreement to take over Corus, a much larger Anglo-Dutch rival, it is poised to become the sixth largest such firm on the planet, with a likely annual output (judging by last year's performances) of some 22.6m tonnes. "...Mittal Steel (a Europe-based firm run by an Indian tycoon, Lakshmi Mittal) has devoured Arcelor, a Luxembourg-based steelmaker, for $32.2 billion, and is easily the world's biggest steelmaker. Consolidation in the steel industry seems to be the result of firms seeking more leverage over the few global suppliers of the raw materials (iron ore and coking coal) for making the metal. "The expansion of Tata is also a reflection of a rapid growth in confidence among Indian firms. This deal is by far the largest foreign purchase ever made by an Indian company. Corporate India has matured dramatically since 1991, when reforms cut away bureaucratic controls and encouraged the creation of a more competitive marketplace... "Indian companies are in an expansive, acquisitive mood. So far this year Indian firms have announced 131 foreign acquisitions, with a total value of $18.7 billion, a huge increase on previous years, and much more than foreign firms have invested in Indian purchases. "The shopping spree spans industries from information technology (IT) and outsourcing to liquor. Wipro, for example, one of the country's big three IT firms, has this year acquired technology companies in Portugal, Finland and California. In pharmaceuticals Ranbaxy, an Indian maker of generic drugs, bought Ethimed of Belgium and Mundogen, the Spanish generics arm of GlaxoSmithKline. "Bharat Forge, the world's second-biggest maker of forgings for engine and chassis components, based in the Indian city of Pune, has since 2004 bought six companies in four countries-Britain, Germany, Sweden and China... "Behind this push overseas lies a combination of forces: a domestic boom; the availability of credit; a rush to achieve global scale; and a new self-confidence about Indian business's ability to add managerial value. India's economy is in its fourth successive year of growth at around 8%. In the first two quarters of this year GDP grew at rates of 9.3% and 8.9% respectively over the same periods in 2005. "Research into 127 Indian companies by Motilal Oswal, a firm of stockbrokers, forecasts that their sales will have increased by 27% in the third quarter, compared with the same period a year earlier. Profit margins are widening: net profits are predicted to have grown by 39% .... "What is noteworthy about many of the firms is that the root of their success is not India's obvious competitive advantage: its vast, low-cost labour force. In the IT and outsourcing industries, lower salaries for college graduates are an important reason behind Indian firms' rapid growth. But in manufacturing the stars tend to be experts in automated, capital-intensive production. Bosses who have flourished in such businesses in India, with its poor infrastructure and still-daunting regulatory environment, understandably feel confident that they have lessons to teach their new purchases in other countries." So Indian big business is creating jobs in Britain and the US, even in China. This, however, does not mean that they are creating jobs and wealth in India for ordinary Indians. In a high-tech globalised world economy, capital seeks out skilled labour, cheap resources, appropriate market conditions, infrastructure and suitable government policy incentives wherever they are to be found. Thus Indian companies have been locating everywhere from China to Eastern Europe to Britain and the US, sometimes even carrying plenty of capital from India with them (though plenty of money is being raised abroad). Indian business can acquire copper mines in Zambia and Australia. They can buy oilfields in Equatorial Guinea and set up software production units in Eastern Europe close to markets in the EU. They can create R&D establishments in Britain, inviting British scientists to work for them. But does any of this help to create opportunities and employment for Indians back home? Not unless the profits are remitted and invested at home. Of this there is little guarantee, especially if the conditions which led the companies to do business abroad continue to prevail. |
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Capitalist societies inevitably associate progress with technological improvement since its consequences for greater efficiency (more 'lean and mean' companies), cutting costs, winning over the competition and expanding profits and growth are quite dramatic. Companies invest heavily in research and development for this reason. And if they can 'sponge off' state expenditures on R&D, as has happened in so many cases, especially in the US, all the better from the point of view of costs and reduction of risk. Anything that stands in the way of profits, investment and growth - the rights and wages of labour, environmental standards, taxes, human rights of communities whose survival resources are often appropriated - is thus naturally seen as an obstacle to progress. Any serious conception of substantive democracy (for instance one that involves worker participation in decision-making within the company, or the entitlement of affected communities to defend their right to livelihood and way of life) thus naturally stands in the way of capitalist progress. Where do prices come in? We notice them everywhere there are markets, as the most obvious phenomenon of economic life. They determine the relative value of things in terms of money. How are the values determined? This is where economists of different political persuasions have violent disagreements. According to mainstream economists, they are determined by 'the invisible hand' of competitive market forces. The assumption is that there are far too many producers in most markets for any single producer to make any difference to prices. The phenomenon can best be observed at a smoothly functioning stock market, or even at a weekend farmers' market. If anyone sells a product above its free market price, s/he will lose customers. This view is disputed by other economists, who argue that the real world of industry is more oligopolistic (a few sellers, and often only a monopolist) than the models of economists assume. Instead of competitive prices - assuming normal profits - many corporations do 'mark-up pricing' and continue to make supernormal profits which do not get competed away even over the long run. Additionally, as firms grow large, they are better able to exploit the advantages of large-scale production and purchase of inputs. In other words, we see one of the forms in which market failure happens: the exercise of market power. A good example is Microsoft: it has been the market leader in computer software almost since its inception. Thanks to its initial technological advantages and early gains, it has often been able to buy out potential competitors before they could become a serious threat to its market position. Some are even of the view that technologically superior products - such as operating systems created by Apple Computers - have not seen the light of day as a result. It is easy to miss all this if one just takes a 'what meets the eye' view of the marketplace. The truth is that in the sort of world we have come to live in, it is actually 'the invisible hand' of corporations (many of whom are larger in economic terms than entire countries in the rich world!) which sets prices and makes the movements behind what are called 'free' markets. In most key areas of production, a handful of corporations control the global market. And when mergers and acquisitions happen, market power is further concentrated. According to an AP report, acquisitions made worldwide set a new record of almost $3.5 trillion in 2006. 2006 has seen eight of the 10 biggest company mergers in history
( http://www.ibtimes.com/articles/20061122/acquisitions.htm) Market power "We are the flour in your bread, the wheat in your noodles, the salt on your fries. We are the corn in your tortillas, the chocolate in your dessert, the sweetener in your soft drink. We are the oil in your salad dressing and the beef, pork or chicken you eat for dinner. We are the cotton in your clothing, the backing on your carpet and the fertiliser in your field" (Cargill corporate brochure, 2001). 
"What a difference a year makes," says an article in The Economist Global Agenda titled 'A Growing Indian Empire', October 20, 2006. "In 2005 Tata Steel, India's largest private-sector steelmaker, was an industry minnow ranked as only the 56th largest steelmaker in the world, by production. It was a likely meal for bigger fish to swallow. Now, after striking an $8 billion agreement to take over Corus, a much larger Anglo-Dutch rival, it is poised to become the sixth largest such firm on the planet, with a likely annual output (judging by last year's performances) of some 22.6m tonnes. "For us, purity is critical and freshness is a commitment. Our ambition is driven by Cargill Corporation's vision of being the global leader in nourishment." (SOURCE: Hindu Businessline, July 25, 2002) |
How is it then that we hear so much about competition lowering prices for consumers? The answer is that there is competition. But it is very far from perfect, unlike what the models of mainstream economists assume. It is oligopolistic in various degrees. Oligopolies often collude with each other, quietly or otherwise, to control prices. There is what is called 'anti-trust' legislation to prevent and control it in rich countries. (It doesn't always work.) But there is no anti-trust legislation (similar to the WTO for instance) operating at the international level. According to Action Aid, six multinational corporations (MNCs) - Archer Daniel Midlands, Conagra, Monsanto, Cargill, Nestle and Atria (formerly Philip Morris) - control 90% of the world grain trade.
(http://www.globalpolicy.org/socecon/tncs/2005/01powerhungry.pdf) Almost all economists agree that market power is a serious case of market failure. Yet, most mainstream economists blithely advocate free trade and the lifting of public controls, knowing well in advance that the playing-field is utterly uneven and will necessarily generate huge inequalities. Perhaps a quotation from Adam Smith, the great-grandfather of economics, will clarify the dangers of an oligopolised global marketplace. In 1776, he wrote in The Wealth of Nations: "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings by any law which either could be executed, or would be consistent with liberty and justice." Market power in retailing: Who benefits, who loses from the arrival of supermarkets? Recently, Reliance announced plans for a huge launch of 'large format' retail marketing in India, involving "seamlessly smooth supply chains" from the farmer's field to the urban supermarket. Supermarkets are expected to open in 784 Indian cities during the next five years, selling everything from toothpaste to tomatoes. Companies rely on taking control of their markets both through horizontal integration (mergers with acquisition of competitors' companies) and through vertical integration (taking possession of their suppliers' production lines). Even if it has some short-run benefits for small farmers, who do not have to pay middlemen exorbitant shares of sales revenue, the long-run advantages for the expanding corporations are of such a scale that no short-run benefits for anyone connected to the business are safe. Besides, already complaints are being heard from small urban shopkeepers whose businesses are seriously threatened. There are as many as 12 million small retailers in India, employing millions of people.
(http://www.iht.com/articles/2006/11/05/bloomberg/sxreliance.php ) 
"Meanwhile, Bharti Enterprises is tying up with Walmart to open hundreds of retail stores in India" ;
http://www.iht.com/articles/2006/11/27/business/store.php |
InfoChange News & Features, January 2007 |
