March 16, 2014

Capitalism And World Poverty

Prabhat Patnaik

BETWEEN 1980-85 and 2005-10, per capita foodgrain production in the world as a whole declined. Since by the latter date a significant proportion of the world foodgrain output was being diverted for the production of biofuels, and since the addition to world foodgrain stocks in the latter quinquennium was no less than in the former, it follows that the per capita foodgrain absorption between these two dates must have declined even more rapidly. DECLINE OVER TWO DECADES: EXTREMELY SIGNIFICANT This conclusion refers to total absorption, i.e. it covers both direct and indirect foodgrain absorption, the latter inclusive of what is absorbed as processed food and also as feedgrains going into the animal products consumed. Now, per capita total foodgrain absorption rises with per capita real income, defined as the command over a basket of goods that includes foodgrains as well, at least until a fairly high level of per capita real income, after which it tends to flatten out. The fact that it declined over this period of two decades therefore is extremely significant. Since, taking the world economy as a whole, per capita real income certainly increased over this period, and since it is reasonable to presume that the well-to-do got the amount of food they wanted, it follows that per capita real income must have declined for a segment of the world’s population which was reflected in its lower per capita total absorption of foodgrains. It follows, in other words, that world income inequalities increased over this period. This conclusion itself is quite well-known, but it is also confirmed by the foodgrain absorption scenario. It is logically possible that when there is a decline in per capita foodgrain absorption, only a small segment of the population experiences a huge decline while others either do not experience any decline, or even experience a rise. In other words, an overall decline in per capita foodgrain absorption is compatible with a multitude of patterns of distribution of this decline. But while this is logically possible, such overall declines, when not caused by some specific local factors in some particular part of the world (which is not the case in the present context), typically tend to be spread across a large segment of the population. From this we can conclude that the magnitude of world poverty, defined as the proportion of the world’s population that does not have access to a certain minimum calorie norm, must have increase This conclusion is at sharp variance with what the World Bank and other such organisations claim, namely that there has been a decline in world poverty, at least prior to the recent crisis. But this divergence is because the World Bank’s poverty estimate is based on poverty line (1.25 dollars per day) which is basically derived as some sort of an average of the official poverty lines of several individual countries. And we know from the Indian case how absurd these official poverty lines are. ABSURDITY OF POVERTY LINE ESTIMATES The absurdity of the Indian poverty line (and the same is true of other countries as well) arises, inter alia, from the fact that the rise in the cost of living which is caused by the wholesale privatisation of a range of essential services, including healthcare, is simply not taken into account. Because of this, the actual rise in the cost of living is underestimated; and this makes the poverty line in any year (which is arrived at by raising some base year poverty line in tandem with the rise in the cost of living index) lower than it should have been. This procedure therefore underestimates poverty, and does so increasingly as time passes. Hence the World Bank’s and other international organisations’ claim that world poverty had been declining before the onset of the world economic crisis, does not stand scrutiny. World poverty, defined, as it usually is, in terms of access to food, has, on the contrary, been increasing. What this means should be clearly understood. It does not mean that an average person in the world is necessarily worse off today than twenty years ago. The advance in medical knowledge, the availability of new drugs, better awareness of health needs --- all these inter alia contribute to reductions in infant and maternal mortality rates, raise life expectancy, and improve the quality of life. But poverty in the sense of access to food can increase, even while these positive developments occur for mankind. And the increase in poverty in the sense of access to food is not to be ignored because of these positive developments; on the contrary it constitutes a damning indictment of the extant social order. The political economy underlying the increase in world inequality and poverty can be understood as follows. An immanent tendency under capitalism is the expropriation of petty producers. They are drawn into a relationship with the capitalist sector; their incomes are progressively compressed until they cannot even carry on with simple reproduction; they are compelled therefore to part with their means of production and join the ranks of the workers seeking employment in the capitalist sector. This phenomenon which had characterised the period of colonialism, had been partially kept in abeyance during the dirigiste period following decolonisation. The post-colonial state, in partial fulfilment of the promises of the anti-colonial struggle, had provided a degree of protection to the peasantry against encroachment by the existing capitalist sector (though it encouraged the development of capitalism within agriculture itself). With neo-liberalism, however, the tendency towards the expropriation of petty producers, including the peasantry, once more acquires prominence. And this gets reflected in two very obvious ways: one, the world-wide decline in per capita foodgrain output mentioned earlier; and two, displaced peasants looking for employment in urban areas. The army of labour, active plus reserve, gets swollen. SHARE OF SURPLUS VALUE IN WORLD OUTPUT There is a second phenomenon to be noted here. In the pre-globalisation era, the world economy was segmented between the “north” and the “south.” While there was mobility of labour within the “south” (e.g. Indian indentured labour going to the West Indies), and within the “north” (e.g. European migration to Canada, Australia and the US), there was very little mobility of labour from the “south” to the “north.” Likewise, there was very little mobility of capital from the “north” to the “south,” other than to plantations, mines and other sectors associated with these. In this segmented world, wages in the “north” could rise with labour productivity, even though there were vast labour reserves in the “south,” created by the “drain” and “deindustrialisation” perpetrated by colonialism. With globalisation, however, even though the mobility of labour from the “south” to the “north” is still restricted, the mobility of capital from the “north” to the “south” has increased, because of which the real wages in the “north” can no longer be independent of those in the “south.” The labour reserves of the “south” in other words now hold down wages both in the “south” and in the “north”. And as labour productivity increases in the world economy, with the vector of real wages remaining unchanged, the share of the surplus value in world output increases. Even assuming that this output is realised, i.e. there is no problem of deficient aggregate demand, the goods on which the surplus is spent are typically less employment-intensive than those on which wages (or working people’s incomes) are spent. This means that the rise in the share of surplus in world output keeps raising labour productivity, and hence keeps restricting the growth of employment to a point where the relative size of the reserve army of labour keeps increasing. And this in turn keeps down the real wages and raises the share of surplus, thus creating a vicious circle of growing poverty (because petty producers are forced to join the ranks of the reserve army) and growing inequality (because the growing ranks of the reserve army restrict wages and cause a rise in the share of surplus in world output, so that the class distribution of output keeps getting skewed). This scenario of growing poverty and inequality, caused by factors we have just discussed, acts implicitly as an automatic compressor of demand for foodgrains, so that notwithstanding the decline in per capita foodgrain output there may be periods when there is stock accumulation and the per capita absorption falls even below what the output permits. This happens also in particular countries. Indeed contemporary India is a classic example of this. Notwithstanding the fact that per capita foodgrain output, even during the recent bumper harvest years since 2011, has not exceeded what was recorded in the period just preceding “liberalisation,” the government currently holds substantial foodgrain stocks which it is desperately trying to export (it held nearly 70 million tonnes at the end of August last year). The compression of purchasing power in the hands of the people, owing to the combination of low wages and limited growth in employment, does not permit them to make adequate purchases of foodgrains at the going APL or free market prices. The government on the other hand is unwilling to distribute foodgrain stocks through the public distribution system at low prices for fear of expanding the fiscal deficit and falling foul of international finance capital. Hence foodgrain exports occur in the midst of massive undernourishment of the domestic population. The fact that purchasing power compression can even produce a situation of excess stock-holding in the midst of a decline in per capita foodgrain output, explains another apparent puzzle in the world economy. With a decline in per capita foodgrain output in a growing world economy, one would normally expect to see excess demand pressures in the foodgrain market, which would raise foodgrain prices relative to the vector of money wages. Since manufactured goods prices are determined through a mark-up over the unit variable cost, they would not increase relative to the rate of money wages. So, the decline in per capita foodgrain output in the world economy should normally cause a shift in the terms of trade between manufactured goods and foodgrains in favour of the latter. But during the period between 1981 and 2001, there was a 45 percent decline in the terms of trade of cereals against manufactured goods (though in this century there has been an increase in foodgrain prices relative to manufactured goods because, inter alia, of the diversion of grains for bio-fuels). The reason for this apparently paradoxical movement in the terms of trade is the purchasing power compression in the hands of the people that was referred to earlier. The political economy of world capitalism, even when it is not afflicted by a crisis of over-production as at present, is such that it produces growing poverty at one pole with growing wealth at the other. The crisis only makes matters even worse.