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Updated: March 3, 2014 23:05 IST

Reading the political economy in context

Narendar Pani
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With the process of liberalisation across the world having gone through its share of peaks and troughs, the earlier knee-jerk reactions of it being either a panacea or an unmitigated disaster are giving way to a more detailed and nuanced analysis of the entire process. At one extreme, those who were enamoured of the market have begun to show signs of scepticism. At the other end, the traditional critics of liberalisation are also recognising that the process requires a more sophisticated response than merely dismissing it as being ‘neo-liberal’. This volume of essays by major Left wing thinkers on economic issues, edited by Sunanda Sen and Anjan Chakrabarti, reflects the latter perspective.

On the face of it, the major difficulty in developing a meaningful perspective lies in the entire process throwing up unexpected developments. Elements that have long been treated as being peripheral to our understanding of the real economy have grabbed centre-stage and are showing no signs of leaving. High on this list is the role of speculative flows that seem unrelated to the signals sent out by rest of the economy. Prabhat Patnaik outlines the adverse consequences of globalised speculative financial flows, which “necessarily has an adverse effect on the level of activity, which in turn by damaging the inducement to invest, unleashes or accentuates the tendency towards stagnation”. But he admits that “Economic theory has not yet come to terms with the macroeconomic implications of autonomous global financial flows”.

In the absence of a clear understanding of these flows it is tempting to believe their autonomy is exaggerated. Pierre Salamma for instance argues that “the autonomy of the financial markets is in fact only superficial”. But the reasons he believes financial markets are less autonomous have more to do with the preference of investors for these markets over, say, the manufacturing sector. For instance, “High interest rates deter firms from resorting to the banking system for financing their investments, and motivate them to purchase government treasury bonds”. The real challenge is to theoretically predict the decision-making within the financial markets and trace that impact on rest of the economy.

The task of analysing the behaviour and consequences of autonomous financial flows is further complicated for the authors of this book by the fact that the course of the ‘neo-liberal’ paradigm has not flowed along lines expected by Left wing critics. This is arguably most evident in the dynamics of the banking system across the world. This is indeed a major concern of Gary Dymski’s theoretically rigorous contribution to the volume. He notes in conclusion that “Financial exclusion emerged as a major concern of those concerned with inequality, even while banks globally turned in the direction of new customers and new markets, many of which include large numbers of those financially excluded”.

This is not to suggest that all the evidence that is emerging from across the world is necessarily inconsistent or unpredictable. Jayati Ghosh and CP Chandrashekhar do build a convincing empirical case for scepticism over export-led strategies for developing economies in Asia. Their empirical analysis leads them to the view that “while policies of financial liberalisation had a major explanatory role for the [East Asian] crisis, the countries that had pursued more outward-oriented and export-dependent growth strategies had developed characteristics that made them prone to such crisis”.

The challenge, then, is to come up with a theoretical perspective that finds place for the insights gained from empirical analysis even as it makes the outcomes of the process of globalisation and liberalisation more predictable. The book does have several attempts in this direction.

In keeping with the ideological concerns of the contributors to this volume, it is perhaps not entirely unexpected that a prominent place has been found by one of the authors for the ‘Polanyi problem’. Ronaldo Munck treats this problem as one of “how the current tendency towards the creation of a global free market economy can be reconciled with a degree of stability and cohesion in society”. Interestingly this takes the author to the fringes of the ideological concerns that mark most of the other papers in this volume. Rather than merely critiquing the market, he makes a case for trade unions to transcend narrow special interest politics and focus on regulating or controlling the free market.

This willingness to break out of the narrow confines of the state versus market debate does suggest hope for a perspective that allows for a concern for the poor to deal effectively with changes that may be outside the control of policy makers. The process of globalization is not only about governments allowing or disallowing global capital flows. It is also about technology that has enabled these and other global interconnections. These networks extend all the way to Left wing protest movements, like those opposing the WTO.

A perspective that takes a more realistic view of what is under the policy makers’ control would recognise that there is little to be gained by merely accepting or rejecting the new role of the market. There is much more to be gained by understanding its processes and intervening in them in a way that transforms their impact on the poor. Such an approach would also recognise that the working of these processes could change over both time and place. There are the occasional references in the book that suggest that such a context-specific approach may be considered viable. Indeed, in the opening essay Amiya Bagchi calls for a ‘contextual political economy’. But he stops well short of addressing the issues of method that such a political economy demands.

Development on Trial - Shrinking Space for the Periphery: Edited by Sunanda Sen, Anjan Chakrabarti; Orient Blackswan Pvt. Ltd., 1/24, Asaf Ali Road, New Delhi-110002. Rs. 925.

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