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Imperialism–A View from the South

Prabhat Patnaik is a Marxist economist and political commentator. He was a professor at the Centre for Economic Studies and Planning in the School of Social Sciences at Jawaharlal Nehru University in New Delhi. Among his most influential publications is The Value of Money (Columbia University Press, 2009).

Prabhat Patnaik

A view has gained currency of late that “imperialism” is no longer a useful category in the era of globalization. The notion of imperialism, it is argued, necessarily has a “spatial” dimension; but now, with “economic superpowers” emerging from within the ranks of the Third World, that spatial dichotomy has ceased to be relevant. The tendency is towards a homogenization of the two segments of the globe, the advanced and the “backward” countries, which undermines the meaningfulness of the concept of imperialism.

The present essay seeks to critique this view: arguing that capitalism simply cannot exist as an isolated self-contained system; it can exist only within a pre-capitalist setting, by exercising domination over its pre-capitalist surroundings (which no longer therefore retain their original pristine form). This domination necessarily has a “spatial” dimension, in the sense that whether or not capitalism in the metropolis also dominates its own internal pre-capitalist or small producers, it cannot do without dominating such producers located in a particular geographical region of the globe. One may conclude therefore that no difference is made to this phenomenon of domination, and hence to the phenomenon of imperialism, by the fact that capitalism and capitalists emerge powerfully within these regions too.

I

Modern industrial capitalism in Western Europe was associated from the very beginning with the processing of raw materials which were not produced, and indeed were not producible, in Western Europe itself. Cotton, whose processing into cloth pioneered the Industrial Revolution, was not producible in Britain: it had to be imported from the tropical and subtropical colonies. Likewise a variety of consumer goods, from fresh fruits to tea and coffee, which entered into the daily budgets of the bulk of the population in the capitalist metropolis, were simply not producible in the metropolis itself. Such goods had to be imported from distant tropical and subtropical lands, where again, their cultivation had to be either introduced or augmented, in order to meet metropolitan needs. This dependence of metropolitan capitalism, upon the pre-capitalist producers of the tropical and subtropical lands for a range of raw materials and consumer goods, has not changed to this day. Indeed, this dependence cannot change since these goods are simply not producible in the temperate regions where metropolitan capitalism is predominantly located.

This fact is obscured by the extreme smallness of the weight of such primary commodities in the total gross value of output of the advanced capitalist countries. But this smallness is a result of the specific valuation process, which itself expresses a relationship of domination. It expresses the very fact of domination characterizing the relationship between the metropolis and the pre-capitalist and small producers in the “outlying regions” which, ironically, is sought to be denied on the basis of this valuation itself (the social basis of this valuation process is emphasized in Patnaik 1997).

To borrow Harry Magdoff’s argument (2000), one cannot make steel without using iron ore, no matter how much is paid for the latter. If iron ore is obtained gratis from regions where it was earlier used, and hence has zero weight in the gross value of steel produced, then this fact, far from expressing the absence of domination, expresses rather the extreme severity of it.

As accumulation occurs, the need for such products increases. Metropolitan capitalism must not only have these goods supplied from the “outlying regions,” but supplied at prices that do not increase at a rate that could threaten the value of money in metropolitan capitalism. In other words, it is not enough that the “outlying regions” should be opened up for trade and forced to supply these goods to the metropolis, which per se is only a once-and-for-all process, but it has to be continuously ensured that the supply price does not rise to threaten the value of money, since any such threat could have a seriously destabilizing effect upon capitalism. (The threat to the value of money in the metropolis posed by increasing the supply price of primary commodities arises not so much from the cost-push (wages) side, but from money being supplanted by commodities as the form in which wealth is held.)

The fear of an increase in the supply price of primary commodities (and hence in their terms of trade vis-à-vis manufactured goods) had haunted David Ricardo, who had seen the accumulation process under capitalism as grinding to a halt because of it. However, what Ricardo had failed to appreciate is that long before this happened, money, as a form of wealth would have been subverted by the rising supply price of primary commodities, disrupting the functioning of the capitalist system.

The danger of such disruption was recognized by John Maynard Keynes. In The Economic Consequences of the Peace, Keynes wrote: “Lenin is said to have declared that the surest way of destroying the Capitalist System is to debauch the currency […] Lenin was certainly right” (1919, p. 235).

And yet, the prices of primary commodities produced in tropical and subtropical regions have not risen to “debauch” the currencies of metropolitan capitalist countries. Even the terms of trade between manufacturing and primary commodities has not moved secularly in favor of the latter, as visualized by Ricardo; on the contrary, barring the war years, the secular movement of the terms of trade between primary commodities and manufacturing, has been against the former.

This adverse movement is not due to Ricardo’s prognostication, of a limited land mass constraining the output increase of agricultural products, having been proved wrong. On the contrary, not only has the tropical land mass that can sustain such production remained fixed in size, but land-augmenting technological progress, and land-augmenting investment, such as irrigation (making multiple crops possible), has been quite conspicuous by its absence under the regime of metropolitan capitalism’s domination. In the British Empire for instance there was hardly any significant investment in irrigation, other than in the Canal Colonies of the Punjab (Bagchi 1982).

This is hardly surprising. Land-augmenting investment and technological progress requires a substantial spending effort by the State; but, prior to the Keynesian revolution in economics, the very idea of the State moving away from the tenets of “sound finance” (i.e. of balancing the budget), let alone playing a proactive role in undertaking investment, was considered anathema. Even after Keynes had advanced the argument in the midst of the Great Depression, that government expenditure financed by borrowing was not to be shunned, it took several years, indeed until after World War II, before significant public investment became acceptable as practical policy in the metropolis itself; in the colonies such acceptability had to await decolonization.

A question therefore arises: since the size of the tropical land mass, where a number of the commodities required by metropolitan capitalism are produced, is a given, and since land-augmenting investment and technological progress in the tropics did not occur during the entire period before decolonization, how was metropolitan capitalism’s growing requirement for such commodities met, even as the terms of trade moved adversely for them?

The simple answer is that even though the output of tropical primary commodities as a whole did not increase, there was a compression of their use within the regions where they are produced, to make more of them available to the metropolis (Utsa Patnaik 1999). Income compression imposed on these “outlying regions” made available to the metropolis the commodities that it needed, by squeezing their local absorption. It did so either directly, by merely shifting such commodities from local absorption to meeting the needs of the metropolis, or indirectly, by shifting land-use from crops whose absorption declined because of income compression to those needed by the metropolis.

What is true of commodities produced on the tropical land mass of a more or less fixed size is also true more generally for exhaustible resources. They, too, generally will be subject to increasing supply prices (at given money wages). This poses a threat to the value of money in the metropolis, because accumulation increases the demand for such commodities. One way of warding off this threat is to impose income compression on the “outlying regions,” so that more such commodities become available for metropolitan needs by squeezing their absorption outside the metropolis. Income compression imposed on the “outlying regions,” in short, is one means of ensuring that the value of money remains intact in the face of capital accumulation. The imposition of such income compression is a major characteristic of imperialism.

The two chief means through which income compression was imposed in the colonial period were: the system of colonial taxation that led to a “drain of surplus” from the colony to the metropolis; and the displacement of local crafts through competition from metropolitan capitalist products—called “de-industrialization” in Indian nationalist writings. How these two mechanisms worked can be clarified through an example. Consider a pre-capitalist economy, where 100 peasants produce 200 units of food. Of this, the producers consume 100 units, and then give the rest to the overlord as revenue. The overlord in turn supplies this to 100 artisans who give in exchange 100 units of artisan products. The overlord, we assume for simplicity, consumes no food and the peasants and artisans consume only food. Now, suppose the capitalist sector encroaches upon this economy, removes the overlord, imposes taxes worth 100 units upon the peasants, and takes the proceeds for its own use.

For accounting purposes, the capitalist sector can show its imports of 100 balanced by an export of “administrative services” to the pre-capitalist sector, i.e., as payment for “administering” the latter; and this would also figure as an expenditure item in the government budget of the pre-capitalist economy. Both the government budget and the trade account will then actually appear to be balanced, while in fact the capitalist sector is appropriating the surplus from the pre-capitalist sector. The consequence would be the displacement of the artisans, who now are unemployed, and the use of the 100 previously consumed by them now used by the capitalist sector. The latter in this way has got its requirement of food (or other raw materials, produced on land formerly devoted to the production of food), without there being any additional output in the pre-capitalist sector, and hence any scope for the phenomenon of “increasing supply price” to manifest itself and threaten the role of money.

The second mechanism, “de-industrialization,” operates as follows. In the above example, even if there are no taxes—i.e., even if the overlords are not replaced and continue to obtain the same income as they did before, but are induced to consume imported goods from the capitalist sector in lieu of domestic artisan products—even then, while trade will actually be balanced, with 100 units of food being exported against 100 units of imported manufactured goods from the capitalist sector, domestic employment (of artisans) would have fallen by 100 units, and so would domestic (artisan) output, by the same amount. In other words, even with balanced trade (i.e., no appropriation of surplus by the capitalist sector from the pre-capitalist sector), the pre-capitalist sector’s industrial output would have shrunk by 100 units (whence the term “de-industrialization”). This will have entailed an income compression on the pre-capitalist sector, and the export of primary commodities to the capitalist sector (in this example, food, but in actual fact all sorts of products which the tropical land mass, devoted to food production, can otherwise produce). The two forms of income compression we have discussed so far are additive in their effects.

II

A hallmark of income compression is that even as it restricts demand in the “outlying regions” for the commodities produced there, ipso facto it also restricts their production; not only of the commodities it does not require (in the above example, artisan products) but even of those it takes away (in the above example, food). Land-augmenting investment and technological progress, the scope for which is limited in any case in the regime of “sound finance,” can become unnecessary even, as the capitalist metropolis can meet its requirements of such commodities through income compression. And since such income compression squeezes both peasants and artisans in the Third World (the squeeze on artisans in turn increases the demand for land to lease, hence the magnitude of land rents, to the detriment of the peasants), whatever incentive there may have been for such producers to raise output is snuffed out. The result is the absolute impoverishment of the Third-World population, uneven development between the two segments of the world economy, and stagnation or even decline of output in the Third World, all of which were visible during the colonial period.

The Third World States that came up post-decolonization not only broke with this pattern of income compression, but even undertook land-augmenting investment and technological progress, and a number of measures supporting the peasants and petty producers, in their respective economies, all of which broke with the stagnation in their traditional sectors. While this meant that the requirements of metropolitan capitalism could be met through a rise in the output of these commodities, which did not even necessarily entail increasing supply price (at given money wages) because of the land-augmenting investment and technological progress being undertaken by the post-colonial Third World States, the absence of income compression left open the scope for a rise in commodity prices and hence an undermining of the value of money in the metropolis. This is exactly what happened at the beginning of the 1970s when world commodity prices rose sharply.

The increase is often interpreted, incorrectly, as follows: the persistent United States current account deficit on account inter alia of its maintaining a string of military bases all around the globe, meant—under the Bretton Woods system where the US dollar was ordained to be “as good as gold”—that other countries were forced to hold on to the dollars that were pouring out of the United States. This outpouring became a torrent during the Vietnam War, when France, under President De Gaulle, became unwilling to hold on to dollars anymore. France demanded gold instead, which forced the suspension of the dollar–gold link and the subsequent collapse of the Bretton Woods system. This collapse created panic among speculators, who, suddenly denied a secure monetary form of holding wealth, moved to commodities. This caused the worldwide commodity price explosion. This interpretation, in short, sees the price explosion only as a temporary panic reaction.

A more plausible explanation, however, is as follows. In the context of the generally high levels of aggregate demand maintained through State intervention in metropolitan capitalist economies, including above all through high US military spending, escalating expenditure on the Vietnam War gave rise to a state of excess demand, especially for primary commodities; since the scope for imposing income compression on the “outlying regions” did not exist as in colonial times, this pushed up their prices, which the speculative factors underscored by the first interpretation further aggravated. The commodity-price explosion in short was the inevitable denouement that capitalism, enfeebled by decolonization which robbed it of its traditional weapon of income compression against Third World producers, faced in the post-war period. Post-war capitalism, therefore, although it kept up its level of aggregate demand through Keynesian demand management, did not have any means of keeping down the prices of raw materials in the face of capital accumulation in the metropolis, and hence of warding off threats to the value of money. This fact was exposed in the early 1970s.

France’s moving to gold instead of the US dollar was not an act of intransigence on the part of President De Gaulle, but was caused simply by the “debauching of the currency” that Keynes had talked about. The weakness of the Bretton Woods system, in comparison with the Gold Standard, thus arose from the fact that the latter was based on a colonial system that allowed income compression in the “outlying regions,” while the former was crippled by decolonization, and a loosening of the bonds of imperialism.

The experience of the early 1970s clarifies an important point. Strictly speaking, wealth-holders would shift from holding money to holding commodities as a wealth-form, only when the expected price appreciation of commodities exceeded the sum of the “carrying costs” and the risk-premium on commodities. (The risk arises because nobody can be certain about the degree of price appreciation, and because commodities are illiquid compared to money.) However, if inflation persists then the risks of holding commodities begin to dwindle in the eyes of wealth-holders. If this is the case—if some people are cavalier about risk-taking or expect high price appreciation—they will trigger an inflation whose very persistence will make others join in the act of holding commodities in preference to money. Since such people generally do exist, one could say that the conditions under which the value of currency is undermined is simply that there will be some people who trigger a move from money to commodities.

It is when they do move away from money, and others subsequently follow them, that the move to commodities begins to be supplanted by a move to gold because of a general belief among wealth-holders that gold prices will never fall permanently, compared to commodity prices, while currencies can be permanently devalued in terms of commodities. And since the carrying cost of gold is relatively small compared to that of commodities, any triggering of inflation can quickly cause a “debauchment of the currency.”

The undermining of the value of money, which begins with a shift from money to commodities, quickly gets converted to a shift from currency to gold. The fact that historically there have been very few episodes of currencies becoming destabilized, because people actually hold vast amounts of commodities, is therefore not surprising: first, any shift to commodities is countered by appropriate income compression so that inflation and the associated shift to commodities is not actually allowed to persist; second, the shift to commodities is soon replaced by a shift to gold. Episodes of shift from currencies to gold are plentiful, of which the early 1970s provides one example, and a good deal of Marx’s writing on money is in fact concerned with such shifts.

The “debauchment” of the US dollar in the early 1970s gave rise to a drive to re-establish an international regime, akin to that which prevailed in colonial times, which would re-open the scope for income compression. This is what engendered the current regime of globalization. Globalization represents a rolling back of the post-colonial situation where the peasants and petty producers of the “outlying regions” had obtained some reprieve from income compression.

I am not suggesting some sort of a “conspiracy theory.” Capitalism being a “spontaneous” system, the ushering-in of globalization, and with it, of an income-compressing regime, arose through how the system itself functions: the early-1970s inflationary episode gave rise to a recession during which commodity prices, other than oil (which increased because of OPEC), came down. But the recession contributed to the process of the globalization of finance (and the coming into being of what has been called “international finance capital”), which was occurring anyway even earlier under Keynesian demand management. International finance capital is the key entity behind the contemporary phenomenon of globalization (Patnaik 2010).

Hence the view that imperialism persisted only before globalization, and has lost relevance under globalization, is the very opposite of the truth. In fact post-war decolonization had meant some loosening of imperialism, and contemporary globalization has actually strengthened its hold.

III

There are at least three processes through which income compression occurs over much of the Third World in the era of globalization (Patnaik 2008). The first is the relative reduction in the scale of government expenditure. Because economies caught in the vortex of globalized finance can easily be destabilized through sudden flights of finance capital; retaining the “confidence of the investors” becomes a matter of paramount importance for every economy, for which their respective States have to show absolute respect for the caprices of globalized finance.

Finance capital in all its incarnations has always been opposed to an interventionist State (except when the interventionism is exclusively in its own favor). An essential element of this opposition has been its preference for “sound finance” (i.e., States always balancing their budgets or, at the most, having a small pre-specified fiscal deficit relative to national income). The argument advanced in favor of this preference has always been vacuous, and was pilloried by Professor Joan Robinson of Cambridge University as the “humbug of finance” (Robinson 1962). The preference nonetheless has always been there, and has become binding in the era of globalized finance, when States are forced willy-nilly to enact “fiscal responsibility” legislation, which limits the size of the fiscal deficit relative to national income. At the same time, this move toward “sound finance” is accompanied by a reduction in the national tax–income ratio, owing to tariff reduction, and to concessions granted by States, who are competing against one another, to entice multinational capital to set up production plants in their respective countries.

The net result of both of these measures is a restriction in the size of government expenditure: especially on welfare, transfer payments to the poor, public investment, and development in rural areas. Since these items of expenditure put purchasing power in the hands of the people, especially in rural areas, the impact of their curtailment—exaggerated by the multiplier effects which also to a significant extent are felt in the local (rural) economy—is to curtail employment and impose an income compression on the rural working population.

The second process is the destruction of domestic productive activities under the impact of global competition. These cannot be protected, as they used to be in the dirigiste period, because of trade liberalization which is an essential component of the neo-liberal policies accompanying globalization. The extent of such destruction is then magnified to the extent that the country becomes a favorite destination for finance, and the inflow of speculative capital pushes up its exchange rate.

Even when there is no upward movement of the exchange rate and not even any destruction of domestic activity through the inflow of imports, the desire on the part of the get-rich-quick elite for metropolitan goods and lifestyles, which necessarily are less employment-intensive than locally available traditional goods catering to traditional lifestyles, results in the domestic production of the former at the expense of the latter. Hence this leads to a process of internal “de-industrialization,” entailing a net unemployment-engendering structural change that further acts as a measure of income compression.

The third process through which income compression is effected is one of a secular shift in income distribution against the producers of primary commodities, brought about by the increasing hold of a few giant corporations in the marketing of those commodities. This compresses local incomes directly and indirectly (via compressing the demand for local goods of these lower-rung petty producers, from whom income redistribution towards the higher-rung marketing multinationals occurs). Thus globalization unleashes income compression, which in turn curbs the pressure of excess demand, keeps commodity prices in check, and hence the value of money intact, exactly as in the colonial period.

IV

However, the preservation of the value of money in the metropolis requires, in addition to income compression in the “outlying regions,” that wages themselves should not go up in the “outlying regions.” In other words, apart from reduced absorption of commodities in the “outlying regions,” it also requires that the wage-unit of the latter should remain stable. This is ensured by the existence of substantial labor reserves in the Third World. Marx had emphasized that capitalism required a reserve army of labor: in order to restrict the level of real wages for any given level of labor productivity, so that the rate of surplus value always remained positive; and also to instill discipline among the workforce by threatening them with the “sack.” The role that custom backed by force had played under feudalism in enforcing work-discipline was played under capitalism by the threat of dismissal and hence unemployment. This threat remains real only because unemployment remains a real phenomenon.

In addition to the reasons mentioned by Marx, there is a further need for labor reserves. This arises from the system’s need to have a group of “price-takers”; those who supply the metropolis with essential inputs but cannot enforce wage claims (or income claims) even to maintain their ex-ante income share. There is in other words the need for labor reserves in order to maintain the value of money itself. These reserves of labor have to be quite substantial; so substantial in fact that the workers located in their midst cannot even maintain their real wages in the face of a rise in prices, let alone push for an autonomous wage rise (this argument is discussed at greater length in Patnaik 1997). Such labor reserves are typically maintained in the “outlying regions” where they surround petty producers producing for the metropolis (who therefore are forced to act as “price-takers”). These reserves are created and preserved by metropolitan capital.

Metropolitan capital’s domination of its surroundings—where small producers are drawn into producing for the capitalist metropolis, a substantial reserve army of labor is maintained, and income compression is effected in order to preserve the value of money, and the entire edifice of finance erected upon it—is thus essential for its very existence. To what extent this domination, which is the essence of imperialism, is adequate to serve its requirements in the present era is a separate problem. Indeed, it is possible to argue with Rosa Luxemburg (though for reasons different to those she cited) that with the development of capitalism it becomes increasingly difficult for such domination to act successfully as a stabilizing factor for the system (Luxemburg 1963), but that is not the same as saying that the system ceases to have any need for such domination. Imperialism is as necessary today as it ever was. Indeed, if anything, it is even more necessary today than ever before, because the edifice of finance that capitalism has today is far larger than anything it has ever had before.

References

Books and articles

Bagchi, A. K. (1982) The Political Economy of Underdevelopment. Cambridge: Cambridge University Press.

Keynes, J. M. (1919) The Economic Consequences of the Peace. London: Macmillan.

Lenin, V. I. (1977) Imperialism, the Highest Stage of Capitalism. In: Selected Works (3 vols.), vol. 1. Moscow: Progress Publishers.

Luxemburg, R. (1963) The Accumulation of Capital. London: Routledge.

Magdoff, H. (2000) The Age of Imperialism. New York: Monthly Review Press.

Marx, K. (1968) Theories of Surplus Value, Part II. Moscow: Progress Publishers.

Patnaik, P. (1997) Accumulation and Stability Under Capitalism. Oxford: Clarendon Press.

Patnaik, P. (2008) The Accumulation Process in the Period of Globalization. Economic and Political Weekly, Mumbai, June 28, 108–13.

Patnaik, P. (2009) The Value of Money. New York: Columbia University Press.

Patnaik, P. (2010) Notes on Contemporary Imperialism. MRZine December 20. [Online]. Available from: <http://mrzine.monthlyreview.org/2010/patnaik201210.html> [Accessed January 27, 2014].

Patnaik, U. (1999) The Long Transition: Essays on Political Economy. Delhi: Tulika Books.

Robinson, J. (1962) Economic Philosophy. London: C. A. Watts.