Tuesday, December 1, 2015

India and Capitalism

In this book review I am going to take a look at a very important book written by French sociologist Professor Jean Baechler, The Origins of Capitalism. What differentiates the Western civilization from the rest of the world is its capitalist spirit, which, sadly, started waning in the last part of the twentieth century. What makes the Western world materially richer and better than other parts of the world in the past two and a half centuries is its economic system of Capitalism. Jean Baechler discusses important questions like what is Capitalism? Where did it come from and when? What are its distinguishing features? Why was it essentially a western phenomenon and now a Western export?

This book and its teachings are important for a country like India, which is still reeling in poverty in this twenty first century. If India, or any other country, wants to make economic progress then its people will have to take these teachings to their heart,  understand the forces that are responsible for material riches and try to realize these forces. Understanding why the Western world thrived and the rest of the world was left behind is the real beginning of making India rich again.

Baechler's book is divided into three parts.
  1.  In the first part Baechler begins his analysis by critically examining Marx's theory (or non-theory!) of how Capitalism came into existence. He does this to use Marx's analysis as a spring board and a point of diversion for his own analysis in later sections. I won't spend time discussing this part here.
  2. Part two is where Baechler begins his own analysis of the origins of Capitalism. This part is titled, What is Capitalism? As the title suggests, Baechler begins his analysis by clearly defining the concept of Capitalism. As he makes it clear, the systematic study of the origins of any phenomenon requires that one defines it clearly because the whole analysis follows from this definition. If one defines the phenomenon under study wrongly then he is bound the draw wrong conclusions about it. Baechler distinguishes Capitalism from all other economic systems by its incessant search for economic efficiency: By nature therefore, every economic act is rational, and aims at maximum efficiency. Economic efficiency, however, is limited (with a good deal of variation) by the interference of other values - religious, magic,ethical political and soon. Now, the most original feature of Western Capitalism, which distinguishes it radically from all other economic systems, is its real efficiency. It is the first system that may be characterized by a massive and, up to now limitless increase in production, circulation, and consumption.
  3. After clearly defining and distinguishing the Capitalist system, he goes on to discuss its essential features in the next section. 
  4. The last part of the book contains a detailed discussion of the origins of Capitalism, which contains a systematic discussion of "the Genesis of Bourgeois", "the Genesis of the Market", "the Genesis of the Entrepreneur and the Technologist", and "Genesis of the Laborer and the Consumer". 
Instead of going into the detailed discussion of the whole process of how Capitalism came into existence, I want to focus on the major results of Baechler's study of origins of Capitalism. As I said above, the teachings of this book is important for India and all other countries who are aspiring to grow rapidly i.e., raise the material standard of living of their populace.

Factors Responsible for the Rise of Capitalism
Baechler's search for the origins of Capitalism takes him in the realm of politics. He discovers that the origins of Capitalism lie in the realm of politics. The way in which the political scenario emerged in the European Middle Ages (beginning from the 11th Century onward), it gave rise to the system of Capitalism. Here is Baechler,
I consider that the key to the problem of the origins of Capitalism is found on the side of the political system. (p. 40)

These brief remarks bring me to a decisive conclusion: The degree of capitalist activity achieved in any given society is defined by the intersection of two curves. The one is determined by the area governed by the society, by the number of people in the society, and by the amount of wealth created by a given state of technology. The other is determined by the degree of autonomy the state grants to trading activities. The more that the State undertakes to arrogate the surplus to itself and to redistribute it as well, the less will any capitalist activity be able to take place. In the extreme it will disappear altogether (p. 41)
The expansion of capitalism owes its origins and raison d'etre to political anarchy. (p. 77)
The implication of this finding is clear for India. As long as the behemoth State of India (i.e., the Indian government) is meddling with the economy, which it is doing since 1947 in the post-independence era, this country is never going to see any significant capitalist activity. Economic efficiency of the economy will remain low resulting into problem of low standard of living of its mass people. The high level of meddling of the Indian government in the economy and the resulting low capitalist activity is also responsible for the problems of poverty, unemployment, inequality etc., etc. 

Baechler, after defining Capitalism as Capitalism is the state the economy must attain when nothing arises to hinder its law, the law of efficiency, goes on to chalk out his model of a Capitalist society. Here are the essential parts of the Capitalist society. 
  1. The producers have as their sole objective the search for maximum profits, not at all in order to enjoy the goods of this world, but simply for profit itself.
  2. The intellectual activity of the society be entirely devoted to the creation of scientific and technical procedures that permit the lowering of costs. 
  3. The laborers reduce their leisure and rest time to the minimum compatible with survival; their adaptation to variations in the economic apparatus is to be perfect and immediate (which means a perfect aptitude for changing their residence, employment, and qualifications); and 
  4. The absorption of production by the social organism suffers no impediments. 
Now these conditions are hard to realize 100% in reality. Why? because every society up to now has raised some or the other kinds of obstacles which have hindered the essential processes of a capitalist system outlined above. Here is Baechler again:
up to now, every society has placed obstacles in the way of the pursuit of economic efficiency. This has been done either in a general fashion, by retarding economic activity as much as possible, or only by repressing such and such aspect of the model (the entrepreneur, technology, labor, inelascity of demand, limitation of the market etc.). However, all societies have not established the same obstacles, which gives a precise scale for classifying societies in terms of their economic activities. One society has gone the greatest way in getting rid of all obstacles, western society. (p. 59) (emphasize mine).
The Indian society hardly meets these conditions in the modern time, especially after the so-called independence in 1947. The powerful Indian state, being run from Delhi by politicians and bureaucrat, has never allowed the producers to follow their profit motive by making their industries more efficient. In fact, the producers were not allowed to function at all during the central planning era when the public sector got the "commanding heights" i.e., the state itself was trying to run the economy. When it failed in doing so, it, instead of dismantling all regulations and controls, it only slightly loosened its grip on the economy while continued to regulate and micromanage the economy to this date. The Indian producers, instead of following their profit motive in the market by serving their consumers in the best possible way, are busy buying out political support for their businesses to remove their competition! They are spending all their energies in political maneuverings instead of serving their consumers in an honest way. They are compelled to do so by the state management of the economy.

The intellectual activity is also stifled in this country since ages. The public schooling system has created unemployed armies of graduates who are good for doing nothing. Public schooling, instead of changing the social, political, and economic order, is only reimposing the same social, political and economic order on the next generation. The state is meddling has created so many impediments for the intellectuals in this country that most intellectuals leave this country the moment they get the chance to do so. The phenomenon of brain-drain (sic) is a clear example of this issue. The political, social and cultural environment of this country is a big hindrance for the talented people, and this is the reason why they are not in a position to divert their activities in entrepreneurial and technological activities.  

And the laborers of this country also hardly meet the conditions of a capitalist system outlined above. The labor market of this country is extremely rigid because of various state controls and regulations.

The internal market is also highly restricted because of myriad of state controls and regulations.

No wonder Capitalism never emerged in the Indian subcontinent! And as long as the Indian state is meddling in all aspects of the Indian economy and society, it won't ever emerge in future also.

Baechler, in the end, sums up his thesis:
  1. The specific feature that belongs only to the capitalist system is the privileged position accorded to search for economic efficiency.
  2. The first condition for the maximization of economic efficiency is the liberation of civil society with respect to the state.
  3. This condition is fulfilled when a single cultural area is divided in several sovereign political units.
  4. So that all these potential factors lead to all their consequences, it is also necessary that the value-systems be modified to the detriment of religious, military and political values, and that demand be liberated. 
  5. Only the West has experienced an evolution where all these conditions were met.
As I already mentioned above, these conditions are not at all met in the post-independence India. The civil society is still in the firm grip of the state control. The value system is also heavily against capitalist mentality. Religion is still the driving force of the majority of the society. Young people, instead of becoming entrepreneurs, still dream of a government job and joining the political system. Politicians, and not entrepreneurs, are still hold the high status symbol. Military people are seen as heroes, and not the entrepreneurs. And, the Indian subcontinent is not divided into small sovereign political units, like it use to be in antiquity. Diverse population is forcefully merged into a one big Indian state after the independence by some politicians. As long as this behemoth state is alive, situation for the commoners will never improve.

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