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LATEST NEWS UPDATES | The plunder economy by Ashok Mitra

The plunder economy by Ashok Mitra

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published Published on Jul 14, 2011   modified Modified on Jul 14, 2011

One lives to learn — or unlearn. The working head of what passes for this country’s Planning Commission is unambiguous about it. One important measure to fight inflation, he believes, is to raise prices. That is to say, to stop prices from rising, you must first raise prices. The gentleman has heartily endorsed the recent serial increases in the prices of petroleum products since such increases will, in his view, succeed in bringing down prices.

Does not this assertion bring back to mind the startling pronouncement, some 50 years ago, by the five-star army general of the United States of America: to save Vietnam, it was, in the first instance, imperatively necessary to destroy that country? The American general did not have the benefit of an Ivy League education and fell back on crude McCarthyism when queried on the rationale of what he had said. The working head of India’s Planning Commission, on the other hand, has a background of both Oxbridge sophistry and World Bank hauteur. He is also a fanatic believer in the archaic Quantity Theory of Money in the manner of the great neo-liberal guru, Milton Friedman. The suspect assumptions underlying that theory do not detain him. Any increase in price, he is cocksure, lowers the overall demand for goods in the market, since buyers have to spend more on the commodity of which the price has been raised and now have less resources at their disposal to spend on other things, the demand for these things will shrink. In a free market, this will have a dampening effect on the prices of these goods: inflation will thereby abate. To make even more explicit what the Yojana Bhavan eminence implies: if, say, the price of kerosene is hiked, the petty clerk or the poor rickshaw puller will have to make a larger outlay for obtaining kerosene, and will hence have less money to buy not just the foodstuff he wants to cook on the kerosene stove, but other essential goods too. As a sequel, the demand for foodgrains as well as all those other commodities will decline, in the process pulling down the general price level.

There should in any case be no lingering doubt regarding the meaning of meaning. The government, which includes the Planning Commission, is most anxious to reduce the number of the poverty-stricken in the country. The subconscious is at work: if some of the wretched poor have less money to buy food, they will starve and, hopefully, die without a murmur. That will result in a decline in the percentage of population below the so-called poverty level. In terms of the Yojana Bhavan boss’s implicit logic, to raise prices is a holy act which kills two birds with one stone: it disciplines inflation and at the same time reduces the number of the infernal poor who are a bit of a nuisance to Resurgent India.

Spiralling prices, of course, hurt the poor most. In case the phenomenon persists, the huge multitude below the poverty level, denied food security, are bound to starve and face extinction. Why beat around the bush, those currently guiding this nation’s destiny want to get the poor out of their hair. Inflation is a handy instrument to fulfil this objective. The deputy god of the Planning Commission has, however, made a tactical error; he should not have gone overboard and claimed that a price rise helps to suck money out of the system and, in consequence, the rate of inflation falls. He has actually indulged in an inexactitude. When the petty clerk or the humble rickshaw puller pays the extra money for kerosene — and which amount he is, therefore, unable to spend on food and other necessities — that money does not go out of the system, it swells the pocket of the trader and the coffers of the oil company which processes the kerosene. It stays in the market and helps the trader to withhold stocks. Or the extra profit it creates for the oil company exerts pressure on the market, if not in the food sector, maybe in the luxury goods sector or the machinery and equipment producing sector. That apart, the market is hardly free. Even if the poor are compelled to buy less food, grain prices need not fall, traders and hoarders have enough clout, enabling them to wangle easy bank credit, which makes it possible to hold back stocks and avert any drop in grain prices. The rich peasants and the trading community can also pull the necessary strings to ensure larger purchases of foodgrains by State agencies and stem a fall in market prices. India, who does not know, is an enchanting country where, at one end, people die of hunger and, at the other end, surplus stocks of foodgrains rot in government warehouses with the authorities most adamant about not releasing even a minuscule fraction of the stock for the starving people. To do so, the admonition rings out, will have an adverse impact on the ‘incentive’ of traders and surplus-raising farmers.

If in a nitpicking mood, one could have also mentioned that the Yojana Bhavan savant totally ignores the cascading effect of a rise in food and fuel prices on the structure of costs across the entire system; inflationary forces, instead of being checked, will rage like wild forest fire unless controlled by stern regulatory measures. But all that is beside the point. What is at issue is the class question. Rising food and fuel prices, if allowed free rein, will in due course decimate the poor and the lower middle class. Rest assured, prices nonetheless will continue to soar as per the wishes of quarters that matter. Fudged economic reasoning is mainly for the consumption of the gullible. Inflation is a class instrument, it transfers resources from the poor and the weak to the rich and the strong. This is the ruling idea at this moment in this country: plunder the poor to augment the wealth of the rich.

True, the Indian case is not sui generis. It is the same story wherever neo-liberal imperialism has extended its reach. Greece, a poor relation occupying a puny corner of the European Union, was inveigled into giving up its own currency, the drachma, and cross over to the euro. Its government and central bank thereby lost all control over monetary policy which became the domain of the European Union and the European Central Bank. A bunch of tycoons, in cahoots with fly-by-night investors, had launched a number of industrial and commercial projects which received the backing of unscrupulous speculators and supercilious credit agencies. The relevant stocks were made to zoom. What goes up often comes down. The bubble burst, share prices of the newly floated ventures plunged, quite a number of corporate entities went bankrupt, including some which had Greek government collateral. In the ensuing panic, there was a run against State securities, the exchequer was rapidly drained, the country landed in a grim financial crisis. The authorities could only watch helplessly; they had no control over either interest rates, or capital movements. The EU, meaning its principals, France and Germany, advanced a conditional loan which soon got exhausted. They have now agreed to lend another installment of roughly 40 billion dollars so that the Greek government can emerge out of the crisis, but the conditions this time are far severer. These include a steep increase in taxes heavily loaded against the poor and middle classes, across-the-board cuts in public expenditure targeting social security provisions such as old age pension, unemployment allowance and subsidized education, apart from major slashes in salaries and wages in all sectors. The working and middle classes will have to go through acutely rough days, none knows for how long. Such is the writ of the neo-liberal imperium: the poor have to pay for the sins of the indolent rich whose pastime is to play with stocks and bonds.

It is class war. The times, the rich have judged, are propitious for finishing off the filthy poor, no question of showing any mercy. Even the cruellest of the cruel, though, ought to have at least a minimum sense of decency. By all means plan the liquidation of the poor by raising, with extraordinary frequency, prices of foodstuff and fuel, but, please, do not insult their intelligence, do not pretend that, by raising prices, you are in fact smothering inflation and thus ameliorating the lot of the poor.

The Telegraph, 15 July, 2011, http://www.telegraphindia.com/1110715/jsp/opinion/story_14221652.jsp

Tagged with: Inflation



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