 Hello and welcome. I'm Lynne Freese, producer of Global Political Economy, or DPE Newsdocs. This is part two of a conversation with Prabhat Patnek. He's talking about his read on the history of capitalism that he breaks up into five periods from colonialism into the present, and how imperialism, which existed in the colonial era, persists to this day and the system cannot do without it. Topic source from a new book, Capital and Imperialism, Theory, History, and the Present, authored by Prabhat Patnek and Uzza Patnek. A world-renowned economist, Prabhat Patnek is Professor Emeritus at the Center for Economic Studies and Planning at Jawaharlal Nehru University in New Delhi. Some of his earlier books include Accumulation and Stability under Capitalism, the Value of Money, and Re-envisioning Socialism. Welcome, Prabhat, thank you for joining us. Thank you. Thank you very much. Prabhat, in part one, you commented on colonialism before the First World War as the first of five periods in your analysis of the history of capitalism. Let's pick it up where we left off with the exhaustion and collapse of the colonial arrangement. And from there, the second period in your history of capitalism, the interwar years. So first, comment on the collapse of the colonial relationship. Well, this relationship can no longer be sustained because the market role of the colonies really cannot be sustained. In other words, the de-industrialization reaches a limit. When craft production has been virtually eliminated, local craft production has been virtually eliminated in the colonies, then you cannot really expand any further sales to these colonies because their incomes were not growing because the surpluses that they generated were not being domestically invested, were not being invested for instance by the peasants because the peasants were paying these heavy taxes, these surpluses were partly of course being locally consumed by the Zamindas and the landlords and the local rich, but partly also being taken out by the colonial power and then used for the diffusion of capitalism elsewhere. The diffusion of capitalism into the temperate regions was actually sustained and nourished by the drain of the surplus, draining away of the surplus from the colonies. Now that draining away of the surplus from the colonies is the role that continues through the interwar period, but on the other hand, the market role is something that really ceases to be important anymore. And what is more, Japan emerges as the big competitor of Britain and therefore makes encroachments into Britain's Asian colonies by selling goods at the expense of Britain in these colonial markets and therefore you find that Britain can no longer sustain its position within the gold standard, it cannot sustain the gold standard itself and therefore you have the uncertainties of the interwar period and you have the great depression, the great depression takes place because there is a shortage of markets for the goods that are produced in the metropolis is an overproduction crisis and that overproduction crisis will rise to mass unemployment in the capitalist countries. Give us some idea of how this read on the great depression in the interwar years differs from the mainstream view. If you look at the writing of the best known economic historian who has written on the Great Depression, that is Charles Kindleberger, Charles Kindleberger's explanation of the depression is that Britain could not sustain its leadership role. I mean, he argues that capitalism as an international system requires a leader that Britain could not sustain its role as a leader while the United States was not yet in a position unwilling to assume the role of that leader. But why couldn't Britain sustain its role as a leader? Britain's role as the leader of the national system characterised above all by the gold standard was because of the colonial arrangement. When you go into why Britain could not sustain its role as a leader, the answer lies in the collapse of the colonial arrangement, impossibility of the colonial arrangement to play the role it was doing before for reasons that I mentioned. You can no longer play that kind of role. So while Kindleberger looks at phenomena correctly, but he doesn't go into an explanation of this phenomena, which are rooted in the relationship between metropolis and the colonies. You define imperialism as this relationship between capitalism and its setting. So in the case of this period, that relationship is the regime imposed under colonialism. So after the exhaustion of the colonial arrangement and then the interwar years as the second period, you see the post- Second World War years, the so-called golden age of capitalism as demarcating a third period in your read of the history of capitalism. And so a new regime in capitalism's relationship with its setting. So tell us about that. Well, in the interwar years itself, Keynes had come up with the idea that the state could play the role which earlier, and Keynes didn't say colonialism, but Keynes started with the state could play the role of providing a market. You see, colonialism, according to the British economic history and space all is something which provided a market on tap. Like you can open and close the tap, you could actually open and close the amount you could sell to the colonies. That actually the state could provide such a market. You know, Kuleski defined sales to the state as an export surplus from the capitalist sector to the state. When the state actually uses a fiscal deficit to buy these goods, it is as if the capitalist sector is making an export surplus. Even when the state doesn't use a fiscal deficit, the state taxes, nonetheless there is even at a balanced budget, there is a certain amount of sales that can be made to the state. And therefore, Keynes had already suggested that the state could provide a market so that capitalism doesn't have to be afflicted with mass unemployment. When Keynes made this suggestion, nobody took this very seriously. I mean, you know, everybody said, yes, he's a very well known economist and all that, but his ideas certainly in Britain were not taken very seriously at that time. In the post-Second World War period, capitalism moves to Keynesian what is called demand management, namely that the state comes in in a very big way, both in the United States and in Europe as a market for capitalist state expenditure increases the proportion of GDP, and therefore the state provides a substantial market, and therefore the overproduction crisis is overcome. And when it is overcome, capitalism experiences very low levels of unemployment, high levels of aggregate demand because of which there is high levels of accumulation, investment growth, and because there is high level of growth, there's also high level of labor productivity. What is more, some of the labor productivity increasing innovations which were not introduced during the depression period of the interwar years are now introduced because there is a movement, and because of that there is a substantial increase in labor productivity, and because unemployment is low, workers bargaining strength is high, trade unions are strong, they bid away substantially the increase in labor productivity in the form of higher wages. So the workers' standard of living increases. And in Europe, the government expenditure additionally takes the form of social welfare expenditures, which again also benefits the workers. So the workers generally are benefited by this boom, which is why it's sometimes referred to as the Golden Age of Education. No unemployment, high rates of increase in real wages, and welfare payments of various kinds. So this is the Golden Age of Education. This Golden Age is made possible through state intervention in the past. But in this third phase, while the state provides the market, the other aspect of colonialism, which was the metropolis could obtain at non-increasing prices, a whole variety of raw materials as it expanded its output and so on, that role does not get fulfilled during this. So there is no way of acquiring raw materials at will from the market because of the fact that these colonies have now become politically independent. They can no longer be taxed like in the old days by the colonial state. And therefore, there is no mechanism for actually extracting these resources from them. So the Golden Age period fulfills one role of colonialism, but not the other role. That other role not being fulfilled does not immediately create a problem for capitalism. We explain why, but it does ultimately create a problem, which is what brings the Golden Age to an end. It creates a problem of inflation. By the end of the 1960s and the beginning of the 1970s, there is a massive inflation that actually capitalist countries suffer, all the advanced capitalist countries suffer. And that is what makes the Golden Age unsustainable. And there is now a tendency who, particularly during this period when finance has grown, there is a tendency to bring the Golden Age to an end. There's pressure to have a new regime, which is the new liberal regime. Capitalism then needed a new relationship with its setting as one of two basic needs was not being met. As the regime in the Golden Age had no mechanism to ensure, as you say, that the metropolis, the capitalist core, could get at non-increasing price as a whole variety of raw materials as the capitalist system expanded output. Explain more about why inflation didn't become a problem sooner. If you require raw materials of various kinds of nutrients from the tropical regions, there are two ways you can get it. One is that the production in these regions increases and you take away the additional product or you buy the additional product. The other is when there is no increase in production, but you simply get your requirements by squeezing the local people's adoption. This is what colonialism did. Colonialism did not give rise to an increase in the production of tropical agriculture, of the tropical primary commodities. What colonialism did was to actually squeeze local consumption in order to take away the goods that it required. This is something which was made possible because you have political control over the colonies. What happens during the Golden Age period is that many of these countries have also become independent. Almost all of them over a period of time became independent. When they become independent, you have new governments there and these governments in turn actually started encouraging peasant agriculture in very many ways because they were committed to doing that as a part of their anti-colonial struggle. Therefore, even though of course the richer sections of the peasantry benefited from these government measures and so on, there was an increase in agricultural production, the like of which had not been seen for 1500 years before. You had an increase in production. Therefore, the inflationary pressures were kept in check and what is more, we argue there, the different third world countries competing against one another to push out more and more exports of primary commodities so that they can actually obtain foreign exchange to buy their requirements of industrial capital goods and so on which they can industrialize their economies. That played a role in keeping commodity prices low. As a matter of fact, you found that the terms of trade between manufacturing and primary commodities moved against the latter for a very long period in the post-second world war years. Robert, comment more broadly on stability in the value of money in capitalism, more specifically on what disrupts that stability and what mechanisms capitalism has to protect the value of money. Now, the stability in the value of money is something which actually gets disrupted from very many different sources. One very obvious source from which it gets disrupted is of course, if you have workers bargaining strength, being so powerful that they demand higher money wages, therefore, they demand a higher share of output when the capitalists are willing to give that share of output. The other is if there's a rise in raw material prices and the rise in raw material prices then implies that costs go up and if the final goods prices remain unchanged, then the share of profits must go down. If the capitalists are willing, that is different, but they would not be willing. Therefore, the value of money can get disrupted in these very many different ways. The mechanism that capitalism has for preventing the value of money getting disrupted because of bargaining strength of the workers, because workers demand higher money wages which then give rise to inflation is by having a reserve army of labor so that their bargaining strength is nullified. The other in which capitalist countries try to prevent a disruption in the value of money is by ensuring, as I said, that the raw material produces whenever there is any tendency for raw material prices to rise, there is an income deflation that can be imposed upon them. In the old days, it was imposed through the colonial finance mechanism. Nowadays, through the globalization of finance and austerity policies and so on. So capitalism operates in these very many different ways to ensure that the value of money does not get disrupted. In earlier comments about the late 60s, early 70s, as a period when all the advanced capitalist countries suffered inflation, you said pressure built to get onto a new regime, especially as that was a period when finance had grown. So bring that into the mix. Talk now about the growth of finance in that period. The whole growth of finance requires the absence of inflation. This inflation occurring in the late 60s and early 70s is something which came against the interests of the growth of finance that had occurred because finance requires price stability. Now, the growth of finance that occurred is partly, of course, a certain natural process. There is a certain automatic growth of finance that takes place in any process of growth of any economy. But additionally, there were two factors which are very important. One factor is the continuous outpouring of dollars from the United States because the United States, which had assumed the leadership role of the capitalist world, runs a persistent current account deficit. Why does it do so? Because above all, I mean, it has actually built up a number of military bases all over the world and it has to undertake expenditures in maintaining those military bases, which are all meant to encircle the socialist country which was supposed to contain the threat of socialism from engulfing the capitalist countries and therefore the US as the leader of the capitalist world runs a current account deficit. Now, when it runs a current account deficit, it pays under the Bretton Wood system for this current account deficit by printing dollars. You see, Britain as a leader of the capitalist world for the first world war also ran a deficit vis-à-vis all the advanced capitalist countries, but Britain did not settle that deficit by printing pound sterling. It settled that deficit by the colonial drain that it had got because of which it got hold of colonial goods and sold it to them and it got this colonial goods gratis. Therefore, in some sense, the growth of finance which arises because this is the outpouring of dollars that entered into the various European banks, American banks also and as deposits and therefore there's a massive build up of finance. The massive build up of finance is also a reflection of the end of the colonial relationship in one sense, namely that the leading capitalist countries no longer able to settle its deficit by taking surplus of the colonies but has to print IOU, print dollars. So the US gets indebted by every time the US prints a dollar, somebody holds a dollar, it's an IOU of the US, therefore the US gets indebted. This indebtedness didn't arise with Britain. On the contrary, Britain was the biggest capital exporter because it had access to the colonial resources. It took away colonial resources through the so-called losses of the drain. Now, that is the second source of the enormous increase in finance and the third source as we mentioned is that you have a rise in oil prices and because of that suddenly money shifts, resources shift from the pockets of large numbers of oil consumers to the pockets of oil shakes and of course they put it into the American banks. So there was a huge concentration of resources in the hands of these banks. So for all these reasons, there's a massive increase in finance capital and this finance capital is sought to be invested everywhere. They don't want to just hold it as money, as cash, as deposits. They would like to invest it all over the world. The Bretton Wood system had capital controls, so they get rid of the Bretton Wood system. Capital controls go. Now there's a globalization of finance and that globalization of finance also implicitly serves to reduce the inflationary pressures by imposing income deflation, by imposing a squeeze of the purchasing power of the third world countries, but this time not through taxes, not through the colonial arrangement, but because of the fact that now government expenditures have to be cut, austerity has to be there, has to be imposed on these countries and so on because of which again they have a squeeze of their purchasing power because of which the raw material prices which had increased come down and when they come down that settles the inflationary phenomenon in the advanced capitalist countries. This brings us to the fourth period in your read of the history of capitalism, that we'll be taking up next. Just to quickly sum up so far, the first period, the colonial regime, you argue, is the only period in the history of capitalism that actually fulfilled both of two basic needs of capitalism and the exhaustion and collapse of which marks what you see as the second period of capitalism, the interwar years and the Great Depression. The regime that followed in the third period in the post-second world war years, you argue, fulfilled only one of capitalism's two basic needs, that being it played the role of providing a market on tap, but had no mechanism to impose income deflation on the third world. Explain more about this change from the regime in the period of the post-World War II years to that of the era of globalization. You see, the years of globalization are the opposite. They actually have the means of imposing income deflation. Suppose there is inflation anywhere, I mean, suppose there's inflation in the metropolis, one way of controlling that inflation is by bringing down raw material prices and how do you bring down raw material prices by reducing the local absorption of these raw materials or by reducing the cost of production of these raw materials. One way you can do it is by imposing austerity on these economies that produce raw materials so that their money wages are kept down, their local absorption is kept down and so on. And this is exactly what globalization does. Globalization, above all, is something which ensures that whenever there is any inflationary pressures, the government immediately takes measures of austerity. The interest rates are increased because of which, you know, you have a reduction in demand and so on. So the globalized regime has means of imposing income deflation on the tropical third world countries. But it has no means for state expenditure to provide the market. State expenditure can increase the level of demand only if either it is financed by taxing the capitalist or it is financed by fiscal deficit. If the state taxes workers and spends, the workers would have spent that money anyway, so there's no net increase in demand. I mean, if the state takes away $100 from a worker, the worker would have spent the $100, therefore the state taking away the $100 implies a reduction in the workers' demand by $100, so if the state spends the $100, there's no net increase in demand. Net increase in demand arises only if the state takes away resources and the capitalist, not the workers, or if it just doesn't take away any resources and just has a fiscal deficit. Now a fiscal deficit and taxing capitalist is something which is anathema as far as globalized finance capital is concerned. Obviously, it would not like a tax on capitalists because after all, any such tax is something which would also affect its own interests and it also would not like a fiscal deficit. Now that's quite interesting why it does not like a fiscal deficit. Incidentally, all European countries have this limit of fiscal deficit of 3% of the GDP. Other than the United States, virtually every capitalist country in the world actually has a limit on the amount of fiscal deficit as a proportion of GDP. The EU has that limit. Every other country has that limit. You ask yourself, why does it have a limit? We don't have a limit on the minimum amount of health expenditure the government can undertake. We don't have a limit on the minimum amount of education expenditure the government can undertake as a percentage of GDP. We don't have a limit on the minimum amount of tax revenue that the government can generate as a percentage of GDP. But we have this one thing. This one thing is a limit on the magnitude of the fiscal deficit as a percentage of GDP. And that implies that the fiscal deficit cannot be expanded. Therefore, there is no means of expanding demand through state intervention, which is what Keynes had wanted. This basically makes the regime of globalization that now you can impose income deflation, you can keep down inflation. But on the other hand, what you cannot do is to get an increase in the size of the market for metropolitan capitalism products. Now again, this regime had a certain life because even though you did not have state playing that role, there were periodic bubbles in the United States. One was the dot com bubble before the 90s. And when that collapsed, then you had the housing bubble earlier part of the century because of which these bubbles temporarily give a boost to the capitalist system. Because with the bubbles, people believe that their wealth has increased. And with that, they also buy more goods and so on. There is a certain wealth effect on consumption that arises because of the bubbles. There's a wealth effect on investment that arises if the bubble is one that actually occurs in the financial sector and reduces the cost of borrowing. So you have the bubble stimulating the US economy and the US being the biggest economy, the world economy in various ways. And that keeps the globalized regime going. But when the bubbles come to an end, for instance, after the collapse of the housing bubble, you can't generate a bubble to your liking as you desire. And that's why capitalism has been stuck more or less in a protracted crisis after the collapse of housing. This period of protracted crisis marks the fifth and current period in your read of the history of capitalism. For more background on all of this, comment on changes in the nature of this state that were ushered in during the regime of neoliberal globalization. Now we have globalized finance. And with globalized finance and the nation state, the nation state willy nilly has to listen to the whims of globalized finance. Otherwise, finance would leave your country. So the very act of globalization of finance and a country's economy being exposed to the globalization of finance undermines the autonomy of its state. The state cannot do what it likes. And what is more, you have different political formations not able to provide alternatives before the people, because all of them more or less as long as they are caught in this web of globalized finance have to pursue the same policies, which are the policies that globalized finance likes. Now what are these policies? One I have already mentioned that you have an imposition of a limit on the magnitude of the fiscal deficit of the percentage of GDP. That you know, I mean, why are all countries suddenly having this fiscal deficit limit? That's because finance demands it, because finance does not like fiscal deficits. The second is that the state did a lot of things for peasants agriculture. The state purchased peasants a product at assured remunerative prices. The state subsidized inputs. The state subsidized credit for peasants agriculture. The state itself undertook substantial investment in irrigation, substantial investments in research and development for promoting innovations into peasant agriculture. The state at the same time had an enormous extension service through which these innovations or these processes, new methods were disseminated among millions of peasants. So the state had done many things to support the petty production sector and peasant agriculture. Now one of the things that globalization of finance and the fact that the nation state cannot take policies of its liking, one of the ways that manifests itself is of course that now the state has to withdraw support from the petty production sector and concentrate support only for the financial sector to ensure that it remains credit worthy to ensure that it is not downgraded by the credit rating agencies to ensure that public sector is privatized to ensure that education and health care which are critical services provided by the state in that earlier period is something which is privatized and therefore made more expensive. So in very many different ways now the state has to pursue policies to the liking of finance and unlike the policies it was pursuing earlier. Talk more about this major change in the state as it applies to the post-colonial countries of the global south. Right, even though the country has been decolonized, the post-colonial government has to more or less pursue policies which are to the liking of metropolitan capital, which are to the liking of globalized finance capital with which the domestic big monopolies are also integrated. They are part of this globalized finance capital that moves around the world. Even though you have an independent government, the independent government cannot pursue policies which are in the interest of the people inside the country but they must pursue policies which are in the interest of metropolitan capital, globalized finance and domestic big monopolies, all of whom are in fact more or less interrelated. But the kind of policies that it pursued earlier, which entailed some degree of protection for workers for instance, which entailed some degree of support for peasant agriculture, which entailed some degree of support for petty production in these countries by which I mean handicraft production and so on. All of those policies are withdrawn. So earlier, that means even after decolonization, the state appeared to be placed above the classes as a neutral entity even though it may be a state defending capitalist property. But it was something that appeared to be placed above classes which were looking after the interests of the various classes in varying degrees. Now what happens is that the state no longer has that kind of a neutral look but the state is explicitly, explicitly embroiled with big capital, domestic and foreign and explicitly doing things which go against the interests of the workers and the peasants and the producers, fishermen, craftsmen and so on. We're going to break and be back with the third and concluding segment of this conversation with Prabha Patnik. Prabha Patnik, thank you. Thank you very much. And from Geneva, Switzerland, thank you for joining us in this segment of GP News Docs.