Motivation
How do we characterise the class composition of capitalism in India on August 15, 2023? Alongside the classical antimony underlying the dynamics of capital and labour, petty commodity production (and trade and services) (PCP) as well merchant (MC) or commercial capital (CC) endure (Harris-White, 2023). PCP embraces ‘peasants’, ‘simple commodity producers’, and the ‘self-employed’. The durability of this class is the outcome of a primitive accumulation of capital that is unable to absorb this free labour into the capitalist dynamic. It is the reserve army of labour in its existence outside the industrial circuit. MC or CC is the class presiding over the circulation process, no less central to capitalism than the manufacturing process. PCP does not accumulate but reproduces itself simply, its internal contradiction including the employment of rented capital and labour as well as family labour. In like manner, while CC concerns buying and selling capital, it also entails production. Furthermore, CC comprises of large and oligopolistic firms and the attendant concentration and centralisation of capital. The accumulation of capital here does not, however, crowd out the ‘competitive fringe’ of petit firms that expand through multiplication into a variety of small-scale enterprises.
PCP is engaged with production and circulation in agriculture, industry, trade, finance and services, in productive activity, in unproductive activity. Rural productive activity is directed at subsistence cultivation of crops and raising of animals with occasional surpluses sold on markets. In India, according to the 2013-2014 Census, 71.7% of firms were own-account enterprises. PCP remains the bulwark of the agrarian, manufacturing, service, and commercial sectors although, due to the meagre purchasing power associated with it, it cannot propel the development of the national market. Informalisation and casualisation of the labour force is unabated. The number of own-account firms doubled between 1990 and 2011. At the same time, the average wage labour force per firm fell from three to two, and 95% of firms employ fewer than five people.
The persistence of independent production is the ownership and/or control of means of production on which the value of work-time measured in terms of the product can be less than the wage rate. This ability to self-exploit (unpaid family labour) not only undercuts capitalist production and labour-displacing technical change but is also a mechanism of transferring value from PCP to consumers of the product. PCP depends on market exchange for subsistence, food and non-food. Non-market forms of exchange like cooperation and sharing are not uncommon.
We flesh out MC and CC in the next section. For the purpose, we take recourse to Capital, Volume III, for the “movements of capital as a whole … for which the form of capital in the immediate process of production, just as in its form in the process of circulation, appear only as special instances” (Marx, Vol III, p 19, italics in the original). We attempt to unify the connection in finance capital. The third section applies theory to finance in India. The conclusion is a programme of action.
“Commercial Capital” and “Money-Capital”
“Commercial Capital” and “Money-Capital” are defining points in the circuit of the surplus. “The outcome of production by Industrial Capital is output, C. The transformation of commodities into money, M, in the market by buying and selling is effected by another class of capitalists, merchants … The circuit is M-C-M. M includes wages of labour in the merchant’s business along with the capital costs of warehouses and transport. “Merchant’s, or trading capital” breaks up into two parts, commercial capital and money-capital. The total capital of a society consists of two components, commodities on the market to be converted into money and money on the market to be converted into commodities.” (Marx, Vol III, pp 187-191).
“But no value is produced in the process of circulation and, therefore, no surplus value.” At the same time, “In so far as it contributes to shortening the time of circulation …. In so far at it helps to expand the market and effects the division of labour between capitals … In so far as it shortens circulation time, it raises the ratio of surplus-value to advanced capital, hence the rate of profit.” (Marx, Vol III, p 194).
Thus, constant and variable capital is employed in commerce, and PCP can expand and reproduce. At the same time, the genesis of merchant’s capital in “pre-capitalist” modes of production, and in the absence of fertile ground for the grafting of capitalist relations of production in a country, merchant’s capital can choke the green shoots of the capitalist mode of production.
“On the contrary, wherever merchant’s capital still predominates we find backward conditions. This is true even within one and the same country … .The independent and predominant development of capital as merchant’s capital is tantamount to the non-subjection of production to capital, and hence to capital developing on the basis of an alien social mode of production which is also independent of it.” (Marx, Vol III, p 223).
“(Commerce) will subordinate production more and more to exchange-value by making luxuries and subsistence more dependent on sale than on the immediate use of the products … It multiplies no longer merely the surplus of production, but bites deeper and deeper into the latter, and makes entire branches of industry dependent upon it. Nevertheless this disintegrating effect depends very much on the nature of the producing community.” (Marx, Vol III, pp 224-225).
All propositions that apply to commercial capital, hold true, pari passu, for money-capital.
“A definite part of the total capital disassociates itself from the rest and stands apart in the form of money-capital, whose capitalist function consists exclusively in performing these operations for the entire class of industrial and commercial capitalists”. (Marx, Vol III, p 216).
“Money – here taken as the independent expression of a certain amount of value existing either actually as money or as commodities – may be converted into capital on the basis of capitalist production, and may therefore be transformed from a given value to a self-expanding, or increasing, value. It produces profit … In this capacity of potential capital, as a means of producing profit, it becomes a commodity but a commodity sui generis.” (Marx, Vol III, p 230).
In short, the path to 2024 and beyond bifurcates. We use the term finance capital to club commercial capital and money-capital. On the one hand, via banks and the central bank of the country, finance capital can intervene to increase output and employment in the production of commodities. On the other, when finance capital emerges from the genesis of the surplus but does not submerge into the commodity circuit and remains in a state of suspended animation, seeking outlets in financial instruments, capitalism is stunted. We recall the summary for India from the previous section. It is possible that the total capital controlled by family firms in India exceeds that of corporate capital. Commodity trade is a medley of wholesale, retail, processing, transport, and storage activity. Commercial portfolios are constructed from rent, interest, profit from self-exploitation, along with the surplus extracted from impermanent labour. The returns are greater than those earned in production. Mechanisms of autonomy from domination and dependence on big capital include rollover of credit at low or negligible interest rates, remote or mobile sites of operation, use of cheap technology.
In what follows, we develop the idea that non-antagonistic contradictions between classes can be regarded as a coordination problem. The outcome is one of two possibilities, a bad equilibrium and a good equilibrium. We claim that India is trapped in a bad equilibrium commonly called financialisation. We illustrate the thesis in the next section. The good equilibrium is elaborated in the final section.
Financialisation in India
Can a situation in which financial circulation dominates commodity production be sustained? JG Palma (2023) applies Ricardo’s thesis of the passage to the “stationary state” driven by the parasitism of rentiers on capitalists. The case carries forward with financiers substituting for rentiers. The costs of acquiring and exchanging rights over ‘non-produced’ and financial assets get smaller relative to the supernormal profits to be earned from them. The capitalist class is sapped of technological vitality. The rentiers feed on a stagnant or shrinking pie. By maximising its share of the surplus, the rentiers undercut surplus value in capitalist production.
According to the Regulation School, the saturation of avenues of productive accumulation in the so-called core countries pushed the search for accumulation and fresh investment opportunities in so-called periphery countries (Lapavitsas & Soydan, 2023). The corollary is no transfer of technology or industrial capacity. If anything, the acquisition of productive assets by multinational corporations has meant a transfer of the shareholder and equity financing model to the periphery.
We share entries in our diary on the daily round of financialisation of the Indian system. Consider two illustrations. “Adani Enterprises, the flagship company of the Adani group, Tuesday, said it has raised Rs 1,250 crore through a private placement of non-convertible debentures (NCD). The company did not state the purpose of raising the funds in its stock exchange filing late last evening.” (The Economic Times, 2023A, p 4, our italics). BlackRock, the world’s largest asset manager will enter into a 50:50 joint venture with Reliance Industries Limited. “BlackRock’s digital platform Aladdin – the Asset, Liability, and Debt and Derivative Investment Network – fits into Ambani’s plan of using data and technology to disrupt the Indian financial markets,” “Last October, Reliance said its consumer and merchant lending business will be based on proprietary data analytics – mined from its nearly 1 billion telecom, smart phones and retail consumers … (The Economic Times, 2023B, pp 1&6).
An illustration of the popular US share buyback strategy for no other purpose that propping up the stock market price of a company is the latest demonstration by Larsen & Toubro (L&T) (The Mint, 2023, p 1). L&T will buy back shares worth Rs 10,000 crores. The aim is to “incentivise its shareholders”. Sellers might wish to hold on to the stock, though, as the company’s debt-to-asset ratio is an impressive 0.11. Furthermore, the company is sitting on a fat engineering and construction and order book which promises smart returns in a few years. Finally, in the quarter ending June 2023, company profits increased by 43%, beating all expectations. These are the facts that should incentivise. However, over the past few years, the company has been pruning various branches of its enterprises to reduce its debt. On June 8, 2023, it raised R 3,550 crores through non-convertible debentures. Around 80% of the amount was scheduled for repayment, prepayment, or refinance of the existing level of debt. The distinction between the accumulation of capital and the accumulation of wealth has been made by The Chief Finance Officer, L&T. “Around 10-15 years ago, the company believed in creating value to shareholders by investing in hard assets. Now through economic cycles, we have come to the conclusion that we should be capital light and return accretive.” (The Economic Times, 2023C, p 4).
Coordinated Socialism
PCP entails ownership of capital and, consequently, is embraced in farmers’ movements and business associations. On the other side, labour politics is designed to resist the exploitation of labour. The definition of exploitation for PCP would need to be extended to rental markets in land and capital, money markets, the supply of raw materials and finished goods.
Many hold that the classic (Engels-Kautsky-Lenin) position on the role of the peasantry is no longer tenable (Shattuck et al, 2023). In response to the crisis in social reproduction, there is “semi-proletarianisation” leading to “repeasantisation” and back again. “… the fundamental puzzle of how peasants become revolutionary … and necessarily, its flipside: how do peasants become, or remain, reactionary?” (Borras, 2023, p 452).
Let us set context. Private sector new manufacturing investment recorded a “sharp decline” in Q1 of 2023-24, falling 17.5% year-on-year and overall project outlays rising just 4.7%. Planned outlays by the Centre and the States “did the heavy lifting” (The Hindu, 2023, p 1& 10). The contrast in the project implementation ratio, the translation of plans to invest to actual investment, between the private sector and the public sector was unfavourable to the former. The ratio for private projects was around 30.9% while that of the public sector was around 36.55%.
If “classes-for-themselves” are hard to grasp, can “class-for-itself-action” be any less elusive? Not so if the good social equilibrium is one in which the capitalist class and the working class coordinate on specified strategies and actions under the aegis of the state. The source of innovation lies in the join. Since innovation has a rate as well as a direction, the public sector in private-public partnerships must create public value by defining public purpose (Mazzucato, 2022; Mazzucato & Ryan-Collins, 2022). The public sector employee must grapple with the entire value chain, starting with intermediate goods and labour, moving to production processes transforming inputs into outputs, concluding with the final outcome in the purchase of the good or service by a consumer.
The ambition is a redefinition of value, no less, in the amalgam of workers, capitalists, organs of the state, and civil society.
The state as market shaper would be at the heart of value creation and innovation. It is untrue that only private firms possess dynamic capabilities. A “leading-and-learning” public firm would not outsource the delivery of core services. An “entrepreneurial state” must act like a venture capitalist diversifying its portfolio across companies or technologies, foregoing participation in future success. Losses are cross-subsidised with gains and surpluses reinvested in innovation tournaments. With great risks and great prospects, the landings will not be soft. Failure is par for the course. The task is to pick oneself up, dust oneself off, and surge forward in a different direction.
Historically, governments have provided so-called patient, long-term capital as “investors of first resort” in situations of incalculable risks. The benefiting sectors have been IT, biotechnology, nanotechnology, and renewable energy. The evidence in the US is that after seed money and nursing by public schemes like the SBIR (Small Innovation Business Research) program was provided, Venture Capital entered midway. Publicly-funded basic research was provided with a clear mandate, as in the case of life sciences, to draw new vistas rather than fix failures in existing models or derisk private leaders.
State investment banks can provide the capital to incubate innovation ecosystems, taking a non-controlling equity stake and distributing dividends for public value. Such institutions invest public money and crowd in private investment in spheres like climate change. They take an equity stake or share in future revenues on behalf of workers and citizens. National investment banks are already playing that role in countries today. They can develop alongside public wealth funds to offer public ownership and control of land and enterprises. Public wealth funds can use the revenues of state investment banks to provide a citizen’s dividend and public infrastructure and services. The problem of distribution would be posed ex ante rather than ex post, “capital sharing” rather than “income sharing”.
Does class conflict between capital and labour evaporate? We conclude with the internationalisation of proletarian resistance to India. The Rajasthan Platform Based Gig Workers (Registration and Welfare) Act 2023, passed in the Rajasthan Assembly is epoch-marking in the uniting of the Indian working class in the worldwide struggle of gig workers (Dey & Roy, 2023, p 6). Especially in the US and in the teeth of violent pushback by the world’s largest monopolists, the trade union movement is growing from strength to strength. Gig workers are transient labour, classically exploited with subsistence wages and no rights. They are subject to direction by an app, and in the far flung international reach of Uber and Ola, for example, supernormal profits are pocketed. According to the Act, social security provisions are to be made through a workers’ welfare law. All aggregators must be registered as must be workers. All data will digitalised and accessible. There would be nothing awkward in gig workers of the world uniting.
References
Borras, Saturnino M., 2023, Politically engaged, pluralist and internationalist: critical agrarian studies today, Journal of Peasant Studies, 50, 2, pp 449-489. https://doi.org/10.1080/03066150.2022.2163164
Dey, Nikhil and Aruna Roy, 2023, “Drawn from gig workers’ struggles, hewn in Rajasthan”, The Hindu, June 26, p 6.
The Economic Times, 2023A, Adani Enterprises Raises Rs 1,250 cr Through NCDs, Wednesday, July 12, p 4.
The Economic Times, 2023B, BlackRock to Re-enter India Via JV with Jio Fin, The Economic Times, Thursday, July 27, pp 1&6.
The Economic Times, 2023C, L&T could consider share buyback once again in a few years, The Economic Times, Thursday, July 27, p 4.
Harris-White, Barbara, 2023, Awkward Classes and India’s Rural Development, The Indian Economic Journal, 71, 1, pp 56-67.
The Hindu, 2023, July 14, pp 1 & 10.
Lapavitsas, Costas and Aylin Soydan, 2021, Financialisation in developing countries: approaches, concepts, and metrics, International Review of Applied Economics, 36, 3, pp 424-447.
Marx, Karl, 1894, Capital Volume III, edited by Friedrich Engels.
Mazzucato, Mariana, 2022, Collective value creation: a new approach to stakeholder value, International Review of Applied Economics, https://doi.org/10.1080/02692171.2022.2144149
Mazzucato, Mariana, and Josh Ryan-Collins, 2022, Putting value creation back into “public value”: from market-fixing to market-shaping, Journal of Economic Policy Reform, https://doi.org/10.1080/17487870.2022.2053537
The Mint, 2023, “L&T announces first Rs 10,000 cr buyback”, July 26, p 1.
Palma, José Gabriel, 2023, Ricardo was surely right: the abundance of ‘easy’ rents leads to greedy and lazy elites, Cambridge Working Papers in Economics 2326, Faculty of Economics, University of Cambridge.
Shattuck, Annie, Jacobo Grajales, Ricardo Jacobs, Sergio Sauer, Shaila Seshia Galvin and Ruth Hall, 2023, Life on the land: new lives for agrarian questions, Journal of Peasant Studies, 50, 2, pp 490-518. https://doi.org/10.1080/03066150.2023.2174859
(Romar Correa is an independent researcher in Mumbai.)
