The abject surrender: the recolonization of the Indian economy
The post-war political decolonization in the Third World is followed by a struggle for economic decolonization which is no less intense. Many countries which were not formally colonies (therefore did not experience political decolonization) but which were dominated by metropolitan capital also joined the struggle for economic decolonization. As there were few industries in the Third World at the time, the crux of this struggle was to regain control of their natural resources and sectors, such as finance and the infrastructure that were used to extract these. resources, from foreign capital.
Metropolitan countries fiercely rejected such attempts at economic decolonization: Mohammad Mosaddegh in Iran was deposed for nationalizing the oil industry of the Anglo-Persian Oil Company; Jacobo Arbenz in Guatemala was overthrown for repossessing land from the United Fruit Company of the United States of America; Gamal Abdel Nasser in Egypt was invaded by a joint Anglo-French force to nationalize the Suez Canal; Salvador Allende in Chile was overthrown for nationalizing copper and so on.
In all these cases, the instrument for exercising national control over the resource concerned was the public sector. The public sector was the bulwark against metropolitan capital, the only possible means available to a third world country for economic decolonization.
India was not exempt from the depredations of metropolitan capital. The global oil industry in the 1950s was dominated by seven companies, and India’s oil needs were met through local refining of imported Gulf crude. Since the same companies mined the crude and refined it here, they charged “transfer pricing”, which would have cost India around 10% of its total annual export earnings at the time. When India asked these companies to refine the much cheaper crude offered by the Soviet Union, they flatly refused, prompting then-petroleum minister KD Malaviya to develop refining capacity. in the public sector, which was later extended to the exploration and extraction of domestic crude.
The pitfalls of getting metropolitan capital to develop an exhaustible resource are illustrated by the case of Myanmar, which, among other resources, also had oil. Oil extraction has produced a brief boom in this country, although much of the revenue has been pocketed by the oil majors. When the resource ran out, they left Myanmar, which had come back to square one, minus its oil reserves; today it is one of the “least developed countries” in the world. To avoid this danger, Rafael Correa’s government in Ecuador used the threat of providing monopoly rights to the country’s public sector to shift the relative shares of oil revenues from 89:11 between foreign companies and the government to 11:89. . Correa, as you might expect, did not last long, but his threat was temporarily successful because of the public sector.
Joan Robinson, the famous Cambridge economist, distinguishes between foreign capital in manufacturing and foreign capital in natural resources. In the first, there is at least one production facility that remains even when foreign capital leaves; in the latter, there is nothing left when the foreign capital leaves, having sucked the resources of the country. The simple moral of the story is that under no circumstances should a country allow foreign capital to come near its exhaustible natural resources; and it can only achieve this with the strength of a public sector.
The case of a public sector is much broader, involving, for example, the technological autonomy which is so essential to prevent embezzlement by metropolitan capital; but this is indisputable in the case of natural resources, where the optimal rate of extraction is as important as retaining resource revenues from government so that the economy diversifies sufficiently before the resource runs out.
This is why the Narendra Modi government’s plan to privatize the public sector, with the exception of some sixty units belonging to specific zones, and even among these to “monetize” the assets as far as possible. , that is to say to cede them to private companies in emphyteusis, amounts to handing over the “dominant peaks” of the economy to the metropolitan capital. The units to be privatized include two public sector banks, Life Insurance Corporation, Bharat Petroleum, Shipping Corporation of India and a host of other companies; in addition, the Oil and Natural Gas Corporation will sell 60 percent of its stake in the Mumbai High and Bassein fields to international players. Mineral resource extraction, which ceased to be a public sector monopoly some time ago, will now also be open to foreign capital.
Thus, the economic decolonization that metropolitan countries had struggled to reverse is voluntarily reversed in India by a government not imposed by these countries but elected in the country. The cardinal principle of not allowing foreign capital any control over our mineral resources which had been so central to our struggle for freedom is being abandoned, and for a reason patently invalid.
The privatization of public assets is supposed to recover resources that the government can spend. But unless the purchase of public assets reduces the flow spending of private buyers, which it has no reason to do, privatization is exactly analogous to a government deficit in its macroeconomic consequences. With a budget deficit, the government, say, borrows Rs 100 from the banks to spend; with privatization, a private buyer borrows Rs 100 from banks to buy public assets and remits the amount to the government to spend; there is no difference in the macroeconomic consequences of the two. Claiming a false difference, however, the government abandons the Indian economy to recolonization.
Prabhat Patnaik is Professor Emeritus, Center for Economic Studies, Jawaharlal Nehru University, New Delhi