The Reasons for the Changes in the Telecom Policies in India

Policy is for serving the interests of the ruling classes

Policy of any Government has to serve the overall interests of the ruling classes whom that government represents. The Government of India is the representative of the Indian ruling classes-the capitalists and landlords lead by the big capitalists. The fact that the Government is elected by the people in the parliamentary democracy does not change this reality.  This is because the parties elected to rule the country are the parties of the capitalists and land lords in their essential nature. Whether  it is the Congress or BJP or some other regional parties who are the partners of the coalition in power at the centre like RJD, TMC, SP, Akali Dal, National Conference, DMK, ADMK, TDP, JD, BJD etc, all of them are the representatives of the capitalist and landlord classes. Only the Left Parties are not the representatives of the capitalist and land lord classes. But they are not in power on their own at the centre.  

Therefore to understand why the policies are changing in the telecom sector which is a part of the industrial sector,   we have to understand the changes in the industrial policies as a whole, which are brought to serve the changed requirements of the ruling classes. Prior to independence the ruling class was British imperialists. Nobody has any doubt about the fact that in the colonial period the British imperialists who ruled our country framed the policies to serve their purpose. Let us see how the industrial policy has been changed in the course of time after independence to suit the requirements of the ruling classes of independent India, the capitalists and landlords lead by the big capitalists.

The Bombay Plan(1944)

The top capitalists in India at that time, J.R.D.Tata, G.D.Birla, Dalal, Shroff, Sri Ram and others met in Bombay, prepared a plan and published it in 1944. It was the plan meant for the development of Indian economy after attaining independence. This plan was called as Bombay Plan. The main principles in this plan were:

(a)    The Government should protect the domestic industry from foreign competition and intervene and regulate the development of the industries.

(b)   The Government should resort to deficit financing (by printing notes if necessary to meet the gap between the expenditure and the income of the government) and with the money collected from the people by taxes and with the notes printed to meet the deficit, should build the industries in the strategic sectors and help in strengthening the capitalists and their allies the landlords.

Thus the dominant classes in the Indian society at that time who were leading the struggle for independence through their political party the Congress, have decided that after independence, the Government should,  (a) establish and run industries in strategic sectors and develop the infrastructure even by resorting to deficit financing, and   (b)   intervene to see that the imports from foreign countries were not encouraged and therefore should be taxed heavily, so that the domestic industry would survive.

 This was their requirement at that time, since they were not strong enough   to compete with the developed foreign capitalist countries like America; England etc. and they were not having enough capital with them to invest in heavy industries and infra structure development. Hence they wanted the government to develop the heavy industry and infrastructure with the money collected from the people and with deficit financing. With the capital at their disposal at that time, they wanted to invest mainly in the consumer goods manufacturing industries which would give them immediate returns.

The Industrial Policy Resolution 1948 and related development in telecom sector

Immediately after independence, the Government announced the Industrial Policy Resolution in 1948. This resolution was almost according to the plan given by the Tatas and Birlas etc. It decided that the manufacturing of arms and ammunition, atomic energy, railways, coal, iron, steel, ship building, aircraft manufacturing, telephone and telegraph and wireless, minerals and ores will be operated by government and the private companies in these sectors will be taken over by the Government.

Accordingly the telecom services were under the Government and part of the P&T Department at that time. The private telecom companies were abolished and the services brought under the purview of P&T department. In line with this policy, ITI (Indian Telephone Industries) was established in 1948 to manufacture telecom equipment. It was the first PSU in India.

The Industrial Policy Resolution 1956 and the related developments in the telecom sector

In continuation of the 1948 policy, the government’s role in the economy was further increased. It widened the scope of the public sector, and included chemicals, fertilisers, heavy machinery, drugs, transport etc under the purview of the public sector. Therefore  the manufacture of telecom equipment and the installation and operation of telecom services both continued under the Government department.

The Industrial Policy Statement 1973 and the related developments in telecom sector

By utilising the public sector for their benefit, the Indian capitalists increased their capital to a considerable extent. They decided that they could invest in some strategic industries. Therefore the Industrial Policy Statement 1973 identified some high priority industries where investment from large industrial houses and foreign companies would be permitted. These industries were of the sectors not reserved for public sector. Since the telecom sector was reserved for public sector, no private investment was allowed in it.

The Industrial Policy Statement of 1980 and the related developments in telecom sector

The big capitalists in India developed further, amassed huge wealth and wanted to enter in more and more sectors and also wanted to take the help of foreign capitalists and foreign technology. They wanted to export their products to other countries and for this, the quality and the efficiency of the industrial production had to be increased. Hence the Industrial Policy Statement of 1980 focussed attention on the need for promoting competition in the domestic market, technological up gradation and modernisation. It laid the foundation for the increasingly competitive export base and encouraging foreign investment in high technology areas.

Due to this change in the policy, for the first time, private manufacture of customer premises equipment was allowed in telecom sector in 1984. The P&T Department was bifurcated in 1985 and telecom services were brought under the Department of Telecommunications. In 1986 MTNL was formed by bringing the telephone services in Delhi and Mumbai under its purview. The international telephony was brought under the purview of another PSU, VSNL. In 1989, the Telecom Commission was formed. All these developments indicated the increasing importance given to the telecommunications by the capitalist class in India.

The Industrial Policy Statement 1991 and the related developments in the telecom sector

The Indian ruling classes started to move towards integration with world economy for their further development, since 1980s and this lead to a big increase in the import bill and foreign exchange crisis. In 1991, it compelled the P.V.Narasimha Rao Government to take loan from IMF and to accept its conditions for opening up the economy. It was not only due to the pressure from IMF. The Indian big capitalists themselves have been increasing the integration of their business with the foreign monopolies. Hence they had the requirement to enter in several sectors reserved for the public sector, in collaboration with the foreign capitalists. They also decided to go for joint ventures with the foreign corporates   to do business in other countries. All these requirements of the big capitalists coupled with the foreign exchange crisis and the consequent IMF loan with conditionality resulted in the announcement of the New Economic Policy of 1991, which was the starting point of the liberalisation, privatisation and globalisation policies in a big way in India.

The Industrial Policy Statement of 1991 was a part of this New Economic Policy. Entry of private sector in areas reserved so far for public sector, opening of all manufacturing activity to competition, dismantling the regulatory system, development of stock market, allowing foreign investment, import of  foreign technology etc  were announced in this policy.

This New Economic Policy resulted in drastic changes in the telecom policy. In 1991, the telecom equipment manufacture was de-licensed. In July 1992 the value added services like cellular mobile services, electronic mail etc were opened to private sector and in 1992 the bids were invited for licenses for cellular services. In metro cities the cellular service were started by private operators. These private companies were nothing but the combination of Indian and foreign big capitalists. In 1994, the National Telecom Policy was announced allowing private sector participation in landline services also. In 1995 tenders were invited for cellular operations in all circles, besides the 4 metros. In 1999, the New Telecom Policy was announced to give more concessions to the private operators and to announce the corporatisation of the telecom services under DoT. On 1-10-2000, BSNL was formed in view of this policy decision. The subsequent developments resulted in the gradual downfall of BSNL’s financial condition resulting in losses during the last 2 years and still big loss in 2011-12 also. Now, in this year 2012, the Government is going to announce National Telecom Policy 2011 (2012, since yet to be announced) and naturally as evident from the above history, this new policy also is meant for the further benefits to the private operators and for the demolition of the PSUs BSNL, MTNL, ITI etc. This development on the basis of globalisation policies lead to the demolition of self reliance in telecom sector and almost 90% of the amount spent for procuring the equipment utilised for expanding the telecom services was to paid the foreign equipment manufacturing companies and the net works of the private telecom operators are now installed, maintained and operated by the foreign telecom companies.

Therefore unless we understand and oppose these policies and propose alternative policy in their place, and compel the government to agree for such alternative policies, it will not be possible to save BSNL and telecom sector. Since these telecom policies are part of the overall economic policies of the ruling classes, unless the overall economic policies are changed, the telecom policies alone cannot be changed, though we may get some concessions with the struggle in our sector. Therefore the struggle for changing the economic policies of the Government has to be strengthened to save BSNL and telecom sector.

----P.Asokababu

    

63rd Republic Day

 “On the 26th of January 1950, we are going to enter into a life of contradictions. In politics we will have equality and in social and economic life we will have inequality. In politics, we will be recognising the principle of one man-one vote and one vote-one value. In our social and economic life, we shall by reason of our social and economic structure, continue to deny the principle of one man-one value.”

“How long shall we continue to live this life of contradictions? How long shall we continue to deny equality in our social and economic life?”—Dr. B.R.Ambedkar, the architect of the Constitution of India

Today is the 63^rd Republic Day. Our Republic was formed on 26^th January 1950. Just before that, Dr. B.R.Ambedkar stated about the contradiction that the Republic has to face. As per the constitution, every person has one vote with one value. The value of the vote of a billionaire and the vote of a below poverty line person is the same. Hence it is one man-one vote-one value. But the social and economic value of one person and another person is not the same. It is due to the economic inequalities. The liberalisation-privatisation-globalisation policies have increased these inequalities further.

As per the study of ASSOCHAM (Associated Chambers of Commerce and Industry of India), the association of the capitalists, this increase in the inequalities is confirmed.

During the period 2004-05 to 2009-10, the average per capita consumption expenditure remained unchanged for the poorest 20 percent of the people, whereas the average household income of the richest 20 percent increased by 7.7 percent. On an average a rural house hold in the richest 20 percent category spent more than 258 percent of what a household of similar size falling in the poorest 20 percent category spent in 2004-05. This difference further increased to 286 percent in 2009-10.

The resultant market size of the richer MPCR (Marginal Per Capita Consumption Expenditure) class too increased at a relatively faster pace. While the size of the consumer markets expanded at a healthy rate of 7.9 percent, economic inequalities further widened over the five years. Thus the rich are getting richer and the poor are getting poorer.The prime minister is compelled to issue the statement on 10-1-2012 that it is a national shame that that it is a national shame that 42% of the children aged below 5 years are underweight due to lack of nutritious food. He stated that it is an unacceptably high occurrence.

Reducing the economic inequalities is the goal mentioned in the directive principles of the constitution. The constitution declares India to be a sovereign, socialist, secular, democratic republic, assuring its citizens of justice, equality, and liberty to all the citizens.

Why the inequalities are growing even after 63 years of our Republic? Why 42% of children are suffereing due to malnutrition and underweight even after the economic progress achieved during these 63 years? The reason is the inequal property relations where in a vast section of the people have no worthwhile property. Unless this is changed and the principle of socialism mentioned in the constitution is truly achieved, the problem of poverty, iequality, malnutrition of children, unemployment and other evils cannot be removed.

Instead of trying to reduce the inequalities the ruling class parties Congress or BJP or other parties of the capitalists and landlords who ever are in power are trying to impose the liberalisation policies on the economy and thus increasing the inequalities further. The big capitalists of India are increasingly collaborating with the big capitalists of advanced capitalist countries to loot our economy. The Governments at the centre, whether NDA earlier or UPA now are acting as the facilitators of this looting.

 They (the Indian big capitalists and their foreign collaborators) are now finding that the parliamentary democracy, the federal structure, and the left democratic and trade union movement are acting as the road blocks to this looting.In parliamentary democracy the people elect M.Ps and they elect the cabinet. The cabinet is the chief executive. The president is the honourable head of the country, but not having the powers to decide the policies. In the present system of parliamentary democracy the single party rule may or may not be possible and since a long time in India there is no single party rule at the centre. Added to this, the coalition in power is bent on implementing the reforms and liberalisation to facilitate this looting by the Indian and foreign big capitalists. But the opposition parties, even though most of them except the left, represent the same capitalist- land lord classes, make the noise in the parliament and outside atleast occasionally against these reforms, keeping an eye on the votes in the elections. Similarly even if the centre wants to implement the reforms, some of the states for their own reasons are not implementing such reforms and due to the Feederal structure of the constitution, the centre is unable to impose some such policies on the states. Added to this, the left parties and the trade unions are always fighting against the liberalisation policies.

The recent example illustrating how the parliamentary democracy, federalism and left and trade unions worked as the road block to reforms is the issue of allowing FDI in retail trade. Keeping in view of the votes of the traders which constitute a substantial section of its votes, the BJP opposed it in the parliament although its previous stand was to allow FDI in retail trade. Mamata Banerjee the chief minister of west Bengal and the leader of the TMC which is a constituent of thee ruling coalition at the centre opposed it since in West Bengal the left front which is its opponent is opposing the FDI and not to fall behind the left front, she has to oppose the FDI. Similarly some other states also opposed due to local politics related to election arithmetic. The left democratic and trade union movement naturally and true to the principle, opposed the FDI. Finally the Government was compelled to withhold the proposal. This does not mean that the liberalisation policies are always stopped. It only means that the parliamentary democracy, federalism and the left parties and trade union movement are acting as road blocks and hence the reforms are not going as fast as desired by the Indian and foreign big capitalists.

Therrefore there is a thinking among the ruling classes and the leaders (atleast some) of the political parties representing the ruling classes. The thinking is to demolish parliamentary democracy, the federal structure and the left and trade union movement. That is why now and then some proposals are coming that we should have only a two parties democracy as in America where the ruling and opposition parties both are the representatives of the ruling classes and will carryout the policies in their favour. They also demand for a presidential type democracy as in America so that the president becomes powerful and will help in implementing reforms and the present difficulties with the coalition politics will not be there. The proposals for dividing the country in to several smaller states is to weaken the states so that they cannot have sufficient strength to resist the policies of the centre. The other demand of the ruling classes is to weaken the left and trade union movement.

Therrefore on this Republic Day we should pledge to protect the Constitution, the parliamentary democracy, the Federal Structure, the secularism and to strengthen the left democratic and trade union movement so that the forces fighting for achieving the goals enshrined inour constitution—removal of inequality and achievement of justice for all, are strengthened.

An Introduction to Marx’s Capital—Part-13

(This is based on “Marx’s Capital” written by Ben Fine and Alfredo Saad-Filho, translated and published in Telugu by Prajasakti Book House and also based on the book “The People’s Marx” which is an abridged popular edition of the 3 volumes of Marx’s Capital, edited by Julian Borchardt and published by Prajasakti Book House and other references)

                            (For Part-12, please see the blog entry dated 24-1-2012)

Surplus Value and Exploitation

The truth of the theory that it is only the labour power which creates its value and surplus value(profit) and the insufficiency of other theories to explain the origin of profit

1.      Earlier, we observed that the labour power of the worker is the only input in the production which contributes more value to the product than its own value. This value contributed by the labour power to the product, in excess to its own value, is the surplus value.Thus in the production; the labour power (worker) not only contributes its own value, but also contributes surplus value to the product.

2.      The truth of this theory that the labour power is the only input in production that contributes its own value and also surplus value to the product can be verified by verifying the other theories that try to explain about the generation of profit (surplus value).

3.      The ususal explanations  for the origin of profit are,  (a) that it is the result of abstinence or sacrifice (abstaining from the present consumption of goods to accumulate capital),  (b) waiting (waiting patiently for the return, after investment)  or (c) risk (risk taken by the capitalist in production and sales) etc.

4.      But the sacrifice, waiting, risk etc are only the conditions of profit, not the cause of profit. The poor are making sacrifices, but not getting profit. Every body waits for some thing without necessarily getting any profit. Waiting is there in earlier societies also where there is nothing like profit. Even animals wait. Risk is taken by so many people in so many ways without getting any profit. Therefore all these are not the source of profit.

5.      There is another theory of factor returns. It treats men and materials equally, as things or factors. It says the factors in production like land, building, machinery, raw materials owned by the capitalist give him his profit and the other input worker’s labour, is rewarded with wage.  It is, as if the machene generates profit, and as if the money is grown on the tree!

6.       But what is to be noted is that the inputs or the factors of production existed in all societies whereas profits, wages, rents or even prices are comparatively new in the history (For example in a simple commodity producing society with barter system, the land, tools, raw materials and labour are there without capital, wage labour, proft, rent, interest, or price.). Hence these factors themselves cannot be the source of profit, since in earlier societies they have not given profit.

7.      These theories fail to recognize the fact that it is not things (material or immaterial) that create the economic categories like capital, wage labour, profit, rent, price etc. It is the existence of definite social relations between people that gives rise to these categories. The mainstream economic theory fails to recognize the social relations between people as the source of the economic categories and hence it is inadequate.

Past labour and direct living labour

8.      The fact is that all value is created by labour, and the surplus value is brought about by direct exploitation of living labour. The land that is made ready for agriculture or construction, the machene, the raw materials etc which are the means of production are nothing but nature modified by labour. They are the result of past labour. Therefore the value of the means of production is the past labour (labour time) in them.

9.      The worker with his labour power works on these means of production. Hence the worker is contributing direct, living labour in the production.

10.  In the process of production, the value of the means of production is transferred in part (in the case of building or machene etc) or in full (raw materials converted as the product). This value was created by the past labour. But the direct, living labour of the worker who works on the raw materials and machene contributes its own value and surplus value to the product.

If labour power does not create value and surplus value, the capitalist will not advance his money for production

11.  Suppose the land, machene, raw materials, electricity and such means of production transferred   value x to the product, all put together. This is nothing but a transfer of the existing value.  Suppose the labour power (worker) also contributed its own value, say y to the product and nothing more. Then the value of the product will be x+y, which is equal to the value advanced by the capitalist for purchasing means of production and labour power.In such case, if he begins and ends with the same value, why he should take the trouble of advancing his money for the production? In such case he will not advance his money for the production.

How the labour power creates value and surplus value

12.  Therefore the labour power is the commodity which contributes value and surplus value. But how?

13.  To understand this, it should be noted that the valuation of labour power and the utilisation of that labour power in the labour process are two different things.

14.  The purchaser of any commodity has the right on its use value. For example, if a person purchases a shirt, he has the right on the use value of the shirt, that is, he can use it until it is worn or torn.

15.  Similarly the purchaser of the labour power, the capitalist, has the right on its use value.It belongs to him, and not to the worker who sold it to him.

16.  The capitalist has paid the daily value of the labour power and therefore its use for the entire day belongs to him.

17.  Let us suppose that the daily value of the labour power (the socially necessary labour time required to produce the value of the wage of the worker) is 5 hours labour time. Therefore by working for 5 hours, the worker has contributed the value equal to his wage. But as said above, since the capitalist paid the daily value of the labour power, he has the right to utilise that labour power for 10 hours or more. Suppose the capitalist ordered the worker to work for 10 hours. In such case he got double the value of the wage paid by him, since in the first 5 hours he will get the value of the wage given by him and in the next 5 hours he will get the value free of cost.

18.  The value contributed by the worker in the first 5 hours is the value equal to his wage and the surplus value contributed in the next 5 hours is the surplus value or the profit of the capitalist. Thus the labour power of the worker is exploited by the capitalist to create surplus value for him.

Necessary labour time and surplus labour time

19.  The labour time of 5 hours in which the value of the wage is contributed, is the necessary labour time. The labour time of 5 hours in which surplus value is contributed is the surplus labour time. The capitalist pays to the worker for the necessary labour time of 5 hours during which the value of the wage is contributed. But the surplus value contributed by the worker during the surplus labour time of 5 hours is appropriated (taken away) by the capitalist. It is therefore clear that the worker creates value during the necessary labour time and surplus value during the surplus labour time in a working day and the surplus value is taken away by the capitalist without any remuneration to the worker.

Exploitation and rate of exploitation

20.  The surplus value thus created by the worker during the surplus labour time of the working day is taken away by the capitalist without paying any thing to the worker. This is called the exploitation of labour.

21.  In a working day the labour power of the worker performs the work (labour) and contributes value and surplus value to the product. Hence one day’s labour of the worker is the total of value and surplus value. If we denote one day’s labour as l , value as v,  and surplus value as s, then l=v+s.

22.  The rate of exploitation is the ratio between the surplus labour time and the necessary labour time or between the surplus value and value.  In this case it is 5 hours÷5 hours=100 per cent. This can be stated as, the rate of exploitation (e) =Surplus value(s)÷value (v) or e=s/v.

The composition of the capital

23.  Now let us analyse the capital advanced by the capitalist. The capital he advanced for land, machene, and raw materials (for means of production) is a constant capital. It is because these inputs only transfer their value to the product and not any additional value.

24.   But the capital advanced by the capitalist for purchasing labour power is dfferent. It is because the labour power purchased with this capital not only transfers its own value to the product, but adds more value to the product. Therefore it (the capital advanced for wage) is called the variable capital.

25.   The constant capital (land, building, machene, raw materials, electricity etc) is denoted by c and the variable capital by v. (It can be seen that the variable capital which is the value of labour power (wage) is part of the total labour of the working day in the formula l=v+s in the para 21 above.)

26.  Both the c and v detailed in the above para are capital since it is the value in money advanced by the capitalist to make profit.

27.  The value of any commodity includes constant capital, variable capital and surplus value. This is because the value of any commodity is made up of the following components: (a) the value contributed  from means of production (land, building, machinery and raw material) which is called constant capital, c; (b) the value of the labour power, which is called as variable capital, v; and (c) the surplus value generated by the labour power, s.

Cost of the commodity and profit

28.  In para 27 above, we observed that the value of a commodity is made up of three components-the value contributed by constant capital c, the value of the labour power called as  variable capital v,  and the surplus value s generated by labour power. If we denote the value of the commodity as V, then V=c+v+s. In this, c+v is the cost of the commodity and s is the surplus value which will form the profit in the money form.

Marx revealed the secret of the source of profit

29.  It is to be noted that the mainstream economics explain the price as the cost plus profit. It is not really telling where from this profit is coming. Marx proved that the profit is the money form of the surplus value created by the labour power(worker) over and above its value(wage) and it is appropriated by the capitalist without any remuneration to the worker. Thus the secret of the exploitation behind the concealing theory of price as the cost plus profit is revealed by Marx.

On some policy issues in Indian Tlecom Sector

The heads of the private telecom services companies Sunil Mittal (Airtel), Anil Ambani(Reliance), Marten Pieters(Vodafone), and Himanshu Kapania(Idea) met Communications Minister Kapil Sibal on 24-1-2012 to discuss their concerns with him. On the same day they also met the TRAI Chairman.

 (They earlier met the Communications Minister and the Prime Minister on 30-11-2011).

They told the Minister that the proposed changes in the telecom policy would impact them adversely and hence the Minister should intervene to make the policy more favourable to them. What are the issues on which the private telecom operators want to be favoured?

a)      They are having 2G spectrum with them beyond 6.2 MHz. The TRAI recommended that for the spectrum held by them over and above this 6.2 MHz, they should pay the fee to the Government. It is estimated that the amount they have to pay thus would be Rs 17000 crores. They want that this payment should not be there.

b)      Similarly, the new entries in GSM services among the old operators like Tata are demanding that the new entrants should not be asked to pay for the spectrum held by them upto 6.2 MHz since the old entrants were not asked to pay upto 6.2 MHz(The Telecom Commission recently approved the proposal that the old operators  of GSM services  have to pay for the spectrum beyond 6.2 MHz and the new entrants in GSM services have to pay for the spectrum beyond 4.4 MHz held by them)

c)      There are 14 telecom operators at present. Some of them do not have sustainable business and want to exit. Some of them want to merge.  Some of them want to acquire the companies that want to exit. Thus they want merger, acquisition and exit policy. They want that the policy for mergers, acquisitions and exits should made favourable for them. It appears that the Goveernment is in their favour in this regard. The Telecom Commission already approved the proposal as per which the merged entity can ahve a market share upto 35% without the recommendation of TRAI and upto 60% with the recommendation of TRAI. If a company is allowed to have the market share of 35%, it will lead to monopoly resulting in higher tariffs and poor service to the customer. If it is upto 60%, the troubles to customers will increase further.

d)      At present the telecom operators are paying 6%, 8% and 10% of their revenue to the Government as licence fee. The TRAI recommended for a uniform licence fee of 8% on revenue and it was approved by the Telecom Commission. The private telecom operators are demanding for reducing this uniform licence fee to 6%.

e)      At present the banks are not giving loans to the telecom operators in view of the uncertainities arisen due to the 2G spectrum scam. The private operators are demanding the Governmnet to issue a directive to the banks to give loans to them.

f)       They demand that the spectrum purchased by them from the Government in the auction should be allowed to be shared with other operators who are having shortage of spectrum and also they be allowed to trade with the spectrum purchased by them. The draft telecom policy, which is to be finalised, is in favour of this demand.

It is to be noted that the Telecom Commission’s decisions have to be approved by the Minister and then by the Cabinet and hence the private telecom operators have started again to pressurize the Government to bring the policy changes completely in their favour, although the Government also is inclined in their favour.

Thus the private operators demand that all their wrong doings in the past be condoned and the Government should help them to have profitable business in telecom services, without any fulfilling of social responsibility and obligation.

Manmohan Singh Govt: Heed At least This Warning

LITERALLY throwing cold water over the optimism being generated by the prime minister and the pundits of neo-liberalism that the Indian economy after an year of sluggish growth is now destined to bounce back, the World Bank has issued an ominous warning that the developing countries, India in particular, should be prepared for a crisis that will be on par or worse than the 2008-09 global economic meltdown. 

Speaking in the early hours of Wednesday, January 18, the Head of the Macro Economics of the World Bank said: “The motor of the global economy – developing countries – is slower at the same time as the world’s largest economic area – the EU – is in recession and these could feed each other”, reports the Financial Times, London.  The World Bank’s economic forecasts are significantly lower than those in June 2011.  The fears articulated in 2011 seem to have already materialised.  The global economy is likely to grow by 2.5 per cent in 2012 and 3.1 per cent in 2013 compared with the forecasts of 3.6 per cent for both years.  The Euro zone economy is expected to contract no longer in individual countries but as a whole, i.e., decline in real terms in 2012.  The other advanced countries can at best register a 2.1 per cent growth rate. 

The hopes in India that further financial liberalisation will  attract an inflow of foreign funds providing an impetus for our growth also appear remote with the World Bank warning that the rich countries had little monetary or fiscal ammunition available to stem any vicious circle of continuing recession. 

Despite this, the UPA-II government appears all set to bring in crucial financial reform legislations in the budget session of the parliament, legislations that the Left parties had prevented from being made into law for the last seven years.  Refusing to learn from our own experience that the prevention of such opening up of our financial sector is what helped India in resisting the devastating impact of the global meltdown, in the first place, this government appears to blind itself to this latest warning by the World Bank also. 

Apart from the legislation to increase the ceiling of financial flows into our insurance sector, banking reforms that will permit foreign banks to acquire private Indian banks and the privatisation of the pension funds, the government appears all set to open up the retail trade sector to the FDI soon after this round of state elections.  So far the government has not been able to answer  with any degree of  conviction, the arguments detailed in these columns on the negative impact this would have for our economy by generating huge job losses and further attacking the livelihood status of the vast majority of our people. 

The main reason to open up the retail trade sector to FDI appears to be to attract foreign capital to come and make superprofits from India. This inflow of capital, they hope, will generate confidence in the economy bolstering the `feel good factor’, allowing the sensex to rise and, thus, make India more shining for the very few.  The thrust is not on the impact this will have on retail trade or Indian people.  The thrust is on attracting foreign capital, which according to the World Bank forecasts, is least likely to happen, surely, to the levels that the Manmohan Singh government expects. This is similar to the arguments that were advanced justifying  the massive concessions given to Enron in the name of creating energy security for India.  What happened to Enron is now well known. Enron’s investments in India were supposed to provide  the similar `feel good factor’. The net result has been a disaster.  Likewise, the concern for the farmers and consumers in relation to allowing FDI in retail trade is a mere eyewash. 

The World Bank says that amongst the developing countries, it is only China that has the capacity and will to implement policies to counter this new imminent global economic downturn.  But even China’s capacity to do so is today much weaker than in 2008, the World Bank warns. 

Clearly, India cannot  ward off the impact of the global economic recession by furthering the neo-liberal agenda.  This will only worsen the crisis in our country.  Repeatedly through these columns, we had been suggesting that instead of giving staggering amounts of tax concessions to the rich, these amounts should be collected and used for  public investments to build our much needed social and economic infrastructure while generating large-scale employment.  The consequent growth of domestic demand in India is what that can sustain a healthy economic growth rate. 

Mahathir Mohamod, prime minister of Malaysia for 22 long years from 1981 – years of reform in South Asia – invokes a Malaysian saying (similar wisdom can be found in almost all civilizations) which means that when you lose your way, go back to the beginning and start again. Global capitalism is, however, obdurate in not learning from such wisdom. Instead, the neo-liberal prescriptions advocate the imposition of austerity. This, as we have seen in these columns in the past, will only aggravate the situation and further accentuate the crisis. 

The latest New York Review of  Books says: “How could we have so misread history and treat with contempt the teachings of John Maynard Keynes?” Recollect that, post-1930’s Great Depression, Keynes had advocated active State intervention as the only manner in which capitalism could achieve full employment through public investments. This, according to him, was the only way to save capitalism and, thus, protect it from the imminent takeover of socialism. 

The Manmohan Singh government, instead of accepting our suggestions stated above, continues to pursue vigorously the neo-liberal agenda.  This can only be disastrous for our economy and the vast majority of our people. Capitalism has a tendency to even ignore the boldest of writings on the wall.  Marx had once said that capitalism “has conjured up such gigantic means of production and of exchange, it is like the sorcerer who is no longer able to control the powers of the nether world whom he has called up by his spells.”  The crisis is systemic.  It is not because of the greed or avarice of individuals.  The only true liberation for humanity can come with the overthrow of this system. 

In the meanwhile, in India, it is necessary to mount further pressures on the UPA government to change its neo-liberal policy direction and heavily invest in public spending  for building our much needed infrastructure and generating large-scale employment.  This is the only way in which the livelihood status of the people can be improved. 

 (Editorial in "People's Democracy", Issue dated 22-1-2012)

An Introduction to Marx’s Capital—Part-12

(This is based on “Marx’s Capital” written by Ben Fine and Alfredo Saad-Filho)

                            (For Part-11, please see the blog entry dated 23-1-2012)

Surplus Value and Exploitation

1. In the previous study, we concluded that in the circulation, i.e., in the exchange of commodities, there is no generation of surplus value and only the equal values are exchanged (See the para 5 of the blog entry dated 23-1-2012).  
2. We represented this circulation of commodities by the formula C—M—C (Commodity was sold for money and that money was used for purchasing another commodity). The commodity sold and the commodity purchased was of different kinds, but of the same value.  Since these two commodities were of the same value, both were shown as C.

3.  We also concluded that in Capitalist Exchange, the capitalist invests money (value) M,   to procure means of production (land, machinery, raw materials) and labour power (worker) and organises the production. The labour power works on the means of production and produces the new commodity (output) C, which will be sold so that the capitalist realises its value Mʹ.

4. The Commodity produced (the output) has more value (which is indicated by Mʹ), than the value (money) M invested by the capitalist for the inputs necessary for producing the commodity. This capitalist exchange is represented by the formula M—C--Mʹ. The difference between the money Mʹ got by selling the commodity produced and the money M invested for procuring the inputs ( means of production and labour power), is the surplus value.(Surplus value=Mʹ˗M)

5.  If no surplus value is created in the production process, the capitalist will not take the trouble of organising the production.

6. Therefore there is no doubt that the surplus value is generated in the production. Hence among the commodities purchased by the capitalist as inputs for the production, there must be atleast one commodity which creates more value than its own value (cost).

7. Earlier, we concluded that the value of a commodity is the socially necessary labour time required for producing it. Therefore any commodity that generates surplus value must add more value (more labour time) to the output (produced commodity) than its own value (labour time required for producing it).

8. Whether such a commodity can be any one of the non-labour inputs in the production like building or machene or the raw materials etc? It cannot be, because the machene or the building or the raw material has value which is transferred to the product totally or in part. If the value of the machene is Rs 1,00,000/- and if it works for 10 years, then it will add the value of Rs 10,000/- to the commodities produced in one year. Thus it is not generating additional value, but only transferring the existing value from itself to the commodity produced. But if we say that the machene adds more value than its own value, it will be tantamount to saying that by a magic the machene will grow money! (In the company accounts, the balance sheet mentions this phenomenon of building or machene transferring their value to the produced commodity. It is indicated by showing the depreciation of the machene every year, that is, the value transferred by it to the commodities produced).Therefore it is clear that non-labour inputs cannot add add more than their value to the output. They only transfer their value to the output.

9. Hence we have to conclude that equal exchanges will not create value, and only exchange the existing equal value.Unequal exchanges cannot create surplus value, since it is nothing but deceiving another person to take more value from him in exchange for less value given to him. It is only an unequal exchange of existing values, but not generation of surplus value.
10. Therefore the only input that generates surplus value is the labour power. But how it does this? By contributing more value than its own value, to the output.

11. What is the value of the labour power? It is the cost of the wage obtained by the worker by selling his labour power. How this value (cost) of the labour power is measured? By the labour time socially required to produce the goods/services (wage bundle) purchased by him with his full wage.

12. The value of the work done by the labour power (the time for which the worker exercised his labour power for doing the work, the labour time ) will be more than the value of his wage (the labour time socially required for producing the goods/services by the worker with his full wage).

13. There is no question of the non-labour inputs contributing more than their value in production since they only transfer their value.

14.  But there is no reason why the worker cannot contribute more value to the output than the value of his labour power.

15. If the value of the labour power (wage)  is five hours labour time ( the labour time socially required to produce the wage bundle for the worker), there is no reason why it (the labour power)  cannot be utilised to  work for 10 hours( for contributing the value of 10 hours labour time to the output).

16. Therefore the labour power is the only input in the production process which contributes more value than its own value, to the output.

17. The value created by the labour power in addition to its own value is the surplus value.This surplus value is appropriated (taken possession of) by the capitalist, on the ground that he is the owner of the means of production on which the worker worked. But the means of production are not the creation of the labour power of the capitalist, and hence really not his.Therefore the surplus value is created by the worker by exercising his labour power, but is taken away by the capitalist unduly. This is the exploitation in capitalist system, the exploitation of wage labour by the capital.

18. If the labour power is not creating the surplus value and adding only its own value to the output, like all other non-labour inputs, the capitalist will not hire the worker and he will not resort to production since he will not get surplus value (that is, he will not get  more money than the money invested by him.)

19. Therefore the capital of the capitalist can expand only when the labour power of the worker contributes more value than the value of his wage that is when the surplus value is created by the excess of labour time over the value of the labour power.

20.  Therefore labour power is not creating value alone; when it is exercised as labour, it is creating value (equal to its own value) and surplus value.