Friday 2 June 2017

Crony Capitalism and the Psuedo-Left Supporters of Free Competition and Bourgeois Reforms

-Jhansi Vasi Reddy/ 3.6.2017

At the onset of the century, US was rocked with scandals like Enron, WorldCom that involved real financial disasters like insider trading. Accounting fraud, backdating options were common place. A whole series of corporate and Wall Street scandals broke out and became cause of concern for the capitalists.

To seal off the spread of the virulent scams to the peripheral world, the soft arms of world capitalism-the World Bank, the Ford foundation, the Heritage foundation etc., commanded the developing countries to take up reforms that would curb both corporate and government corruption, in one world- crony capitalism.


The top notch capitalist organizations were concerned about corporate fraud because while on one hand the corporate corruption shook down the public faith in the existing system, it badly affected the trust among different corporate players themselves, the real stakeholders in capitalism. For example, many CEOs had backdated their stock options and earned huge compensations in return, far more than what they were mandated to receive. (Ref: Option Backdating and its Implications, Jesse M. Fried. Harvard Law). This undermined the faith between the CEOs and the stakeholders whose wealth the CEO was expected to protect and grow as an agent. Rampant practices like insider trading eroded the trust between various players such as financial firms, Wall-Street, CEOs, large share holders, corporate boards. The high priests of capitalism would like various players in the capitalist system to act in a saintly fashion and share the booty of loot in an orderly manner. Essentially trust should exist between the gang of thieves else the gang cannot function.

These institutions are not bothered much when corporate greed exploits the workers to the core, devastates the environment, erodes the culture, but are concerned when corporate greed endangers profits and capitalism itself. From time, several new Wall Street regulations were brought in order to curb the excesses of capitalism.

The regulators of world capitalism, the World Bank, etc., suggested that corruption among government officials is the chief factor that impedes the growth, particularly in developing countries. Corruption, even on petty scales but among large number of government officials perpetuates the uncertainty in business. Particularly it can affect businesses like that of large-scale retail, which involve huge logistical operations on daily basis. If a retail giant like WalMart wants to set up large scale operations in India then it needs to deal with scores of agricultural officers, transportation officials and many others on a regular basis. If one does not know when a road gets completed, or if goods are held up by corrupt officials etc., then the business would face huge uncertainty in its operations.

Fighting against corruption and crony capitalism has been one of the main points of AAP agenda. In fact the reforms desired by AAP were inspired by a set of reforms being followed in the developed western countries to save capitalism from its own excesses and ills.

While corruption has affected many aspects of common people's lives in a worse manner, laws and regulations cannot purge it from the society as it is integral to capitalism.

From the standpoint of workers and toilers, corruption is nothing but the residue litter, tug in the nails of the capitalist beast. It would be ridiculous if left should play an active role in combating corporate corruption. It should bring those corruption scandals to the notice of public only to educate the masses that the problem is not with this or that aspect of capitalism, but with the entire system of capitalism itself, that must be overthrown sooner than later.

The program of pseudo-left, however, seems to restrict itself to pursuit of a reformist agenda, devoid of any perspective for revolution.

When AAP started its tirade against crony capitalism, the corruption among government officials, current left parties joined the chorus with the corporate world to cheer for it. Left parties made them completely ridiculous in echoing Raghuram Rajan for his opposition to crony capitalism that only meant an endeavor to save capitalism. They have supported earlier the regime of reforms- right to work, right to education, and food security etc. during UPA regime.

Marxists don’t oppose the reforms that improve the living conditions of working class but mere support to reforms and the welfare measures of bourgeois regime, binds the proletariat to the establishment of capitalism. Lenin warned that one must not restrict the working class into merely achieving the reforms.

The program of the Stalinist left parties does not transcend the limits of petty reforms and resultantly turns its back upon the goals of socialism. What is needed is the fight for a program for revolution to establish a state led by the dictatorship of proletariat.

The common folks and the left wing oppose it as they view crony capitalism as transferring public wealth to private individuals.

The main thrust against crony capitalism is that it does not provide a level playing field for capitalists. Some capitalists derive better advantage by corrupting government officials and influencing politicians. For example, seasoned local capitalists can better corrupt the government officials and politicians compared to the new entrants including the foreign based MNCs. Hence the organizations such as World Bank cite crony capitalism as a factor that discourages MNCs from entering underdeveloped countries. On the other hand, local small and medium businesses also oppose crony capitalism because they do not have the necessary funds to hire lobbyists and PR firms to influence the officials and politicians. Also they lack necessary funds to donate to political parties. The parties such as Libertarian party of USA or AAP in India that represent the interests of small and medium businesses, advocate a government that does not interfere in the affairs of business.

The opponents of crony capitalism say that it runs against the free market principles of capitalism. The supporters of free market capitalism oppose all forms of economic and production activity undertaken by government. They oppose monopolies, lobbying, corrupt government officials and politicians. In India, currently we are witness to a ripened form of crony capitalism. The prime minister is going to great lengths to support his favored capitalists that include among others the infamous Adani group of Industries at the top. The proponents of free market capitalism say that competition among firms leads to best production techniques and best technological innovations. The invisible hand of free markets leads to the most efficient allocation of resources.

Even before becoming history in itself, the free market capitalism rarely existed in history. Only initially in the west, at the dawn of capitalism, when most firms were only small scale units, and they were engaged in collective resistance to feudal lords, they competed with each other, which could more or less be termed as fair. The falling rate of profit forced the firms to undercut their production costs and innovate their production technology in which few emerged victors by driving others out. The victors created patents, formed lobbyist groups, influenced politicians to ward off the new entrants. Eventually monopolies emerged to make the competition and free market a thing of the past.

Now these large corporations with huge resources at their disposal possess immense production capabilities. They can harness not only the huge economies of scale, economies of scope and can bring the production costs to a bare minimum but the whole national governments also to their profit agenda. During economic downturns we thus get to witness huge government support to capitalists, like the corporations in US have been given hundreds of billions of dollars during the economic crisis of 2008.

In underdeveloped countries the large amount of infrastructure can possibly be created either by government owned corporations or by private corporations supported by the governments.

Dhirubhai Ambani who indulged in unbridled corruption during his times, when questioned, insolently replied that he created the most wealth and have created lakhs of upper-middle class who earned money through his shares. Many admire him for teaching India to think big. It would be not very palatable to think that in the current business environment the digitization of India can be best possibly done by Mukesh Ambani. He commands vast amounts of resources, and has an extremely favorable central government, and can cajole, arm-twist the state governments into providing him the necessary infrastructure. He can harness huge economies of scale, economies of scope, distribute risks.

This of course should in no way be understood as support for crony capitalism. The take away for genuine Marxists should be that if all the means of production are brought under the control of proletarian state, the biggest possible corporation, then the resources can be put to their best use. The state could take far more advantages than merely economies of scale, economies of scope. Various production callings can cooperate to a much greater extent to get best productivity returns with least human costs and within no time transform an underdeveloped country into an industrialized one. Also the state can decide the priorities properly in planned manner ending the chaos and anarchy of fragmented capitalism. Monopolies have dragged the society close to socialism.

Today many deride that when the basic facilities like education, health care, drinking water and many more are not available to masses then what is the rush towards adopting technology and digitization. The priorities can be properly decided only in a socialist state run by the dictatorship of proletariat. Only a socialist state can decide the priorities properly. It can utilize the best fruits of the past for people’s welfare and raise the living standards tremendously.

The small capitalist players can never bring about the huge industrialization. Large scale and huge support from the government is a prerequisite for any capitalist to take onto the path of industrialisation. But under the rule of capitalists, not only are the steps put in a wrong order and direction but they come at extremely huge human cost. For example the motivation for digitization is not to convert to a cashless economy for people's benefit, but to tame the informal economy. Due to the liberalization of economy in the 1990s certain sectors like IT service exports, mining have stimulated the growth of Indian economy. The informal economy too grew immensely developing further in wild leaps and dynamics of its own to a size equal to total GDP. In order to harness it for the benefit of big capitalist players, it needed to be tamed first. To tame it reasonably accurate statistics and a regulator are the first requirement that demand a plugging of unaccounted transactions. Hence the move towards cashless economy. 


The top capitalists of India are showing enormous interest in digitisation, but they are not sure if it is achievable. Albeit corporates are not at all interested in industrialization of the informal sector. They just want to tame the informal sector, the small scale unit, so that they can harness it and milk it to their advantage. The MNCs too are least inclined in this regard. The 'Make in India' campaign is targeting only small and medium scale labour-intensive industries. The big capitalist players both local and MNCs like WalMart, Reliance etc. are planning to harness this labour-intensive small scale industry.

However, the new venture is restricted by obvious limitations of capitalism. The large players Ambabnis, Tatas, etc., quite conservative in their economic approach, will take to large ventures only when all necessary conditions for profit come to exist for them. They fear the labour strikes and would not mind unleashing fascist forces to put the workers under their control.

A thoroughgoing economic revolution after the establishment of proletarian state would thus be necessary to end the chaos and anarchy created by capitalism and for taking to large scale industrialization.

If large monopolies world-wide generate huge economic activity and can take advantages of economies of scale and economies of scope then why are they being opposed?

Let us now look into their fallacy of the argument of the proponents of ‘free market’. They argue that once a firm becomes huge it becomes complacent and will not adopt new technology.

The principles of free market capitalism were invoked in few cases. For example, the American telecom giant AT&T was fragmented into several regional Baby Bells in 1983. The argument is that this breaking up of the monopoly, paved the way for adoption of ever newer technologies. (What killed Ma Bell?, Melvin D. Barger).

The fallacy is that few years later, we find the Baby bells themselves acquiring other companies. Recently one of the Baby bell, ‘Verizon’ has acquired ‘Yahoo’ to diversify its business. Down the line one can expect Verizon or some other communications behemoth broken by invoking free market principles of capitalism from time to time to save capitalism from itself. Hence are the reforms to save capitalism from its own destructive jaws. From time to time one has new sets of reforms related to corporate governance principles, restructuring CEO compensation, wall street reforms (Ex: Sarbanes-Oxley) etc., invoked to save capitalism of its own excesses.

Big firms are broken down reiterating free market principles only to emerge back merging and acquiring, to take advantage of economies of scale and economies of scope.

While capitalism is bailed out by invoking these leftist sounding reforms, the conditions of common folk continues to face ruin, becoming more and more deplorable. The American worker is devastated, the conditions in India are deteriorating day by day. The situation worldwide is turning disastrous with little hope of way out under capitalism.

Also the argument of free market capitalists that only competition drives technological innovation is false to the core. The fruits of innovations can be delivered to people only under a proletarian state.

The technological innovations have a great potential to reduce the work day. Automation can be deployed widely to reduce the work day providing lots of leisure to people. This, however, cannot happen under the current capitalist setup.

The current technological innovations if deployed properly would ensure provision for all basic needs of human beings at minimum cost. Once the reasonable standards of living have been attained and the society is purged of the evils of medievalism, only then a march to socialism would begin.

True democracy is realizable only under socialism. Only under socialism, people can democratically decide to pursue science and technologies that would further eliminate human labor and arts and humanities to raise the spiritual plank of humanity. Also totally new set of disciplines can emerge. The universe is the limit.

Marxists thus must not support any of these leftist sounding reforms that essentially bail out capitalism. Instead they should focus their efforts in finding a program that must lead to impeccable political struggle for a revolution that transcends capitalism to establish a proletarian state. Under such a state the major means of production will be socialized and put under the command of the state to ensure most rapid industrialization unseen in history till date.

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