Published in The Express Tribune, September 21st, 2015.DDCarpets

With the fall of Russia, it became clear to all that the communist paradigm for development has failed. All over the globe, nations leaped on board the only alternative — the capitalist, free market paradigm. The Washington Consensus was a collection of standardised strategies and recipes for development, which became widely adopted. After a decade of experience, several evaluations by different sources came to the same conclusion: it failed miserably. Even John Williamson, who invented the term, acknowledged that the results of implementing the Washington Consensus had been “disappointing”. The central message of the World Bank report entitled ‘Economic Growth in the 1990s: Learning from a Decade of Reform’, “is that there is no unique universal set of rules … We need to get away from formulae and the search for elusive ‘best practices’.” Nobel Laureate Joseph Stiglitz ridiculed the Washington Consensus, stating that “one size fits all policies are doomed to failure. Policies that work in one country may not work in others.” He contrasted the success of the East Asian economies — which did not follow the Washington Consensus — with the failure of those that did.

Unfortunately, it remains true “that men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach”. Planners all over the world ignore the experience of the 1990s and persist in following policies which are proven failures. Going one stage further, Stiglitz cautions that even the proven success of the policies which led to the East Asian miracle may not be transferable to other times and places. The spectacular success of East Asian economies has been attributed to export-led growth. Detailed examination shows that export promotion was only one ingredient of a complex constellation of coordinated and well-sequenced policies. It happened to suit the time, catching the tide of accelerated growth of global trade for the three decades up until the global financial crisis. Following the crisis in 2008, there was a sharp dip in the volume of global trade. Even though there has been a recovery, global trade figures remain stagnant, so that an attempt to increase exports now would require swimming against the tide.

While most planners stubbornly persist in pursuing the mirage of export-led growth, Chinese planners have shown far more wisdom. Chinese economists like Wang Mengkui have explicitly focused on expanding domestic demand as a driver of future growth. They have recognised that the vagaries of the global market mean that an export-dependent strategy would lead to a highly erratic economic performance. Furthermore, China has a huge captive domestic market and does not need to rely on exports for expansion.

There are many reasons why current circumstances in Pakistan call for a shift in focus towards a domestic demand-driven strategy, which is radically different from export promotion. Increasing exports requires producing goods of world-class quality in a market with cut-throat competition. We have neither the skilled labour force, nor the technology or industry to do that effectively. Even if we succeed in creating a specialised enclave which boosts exports, this would be a tiny sector, incapable of providing the large-scale employment essential for our future. On the other hand, goods attractive to our rural population would be cheap and crude, and easy to manufacture. There would be no danger of competition. Mass manufacture of products that are lower on the technology chain can provide employment to large numbers of low-skilled workers, and also generate the income required to boost domestic demand. It is the potential volume which makes the strategy attractive. Foreign mobile companies sell cheap SMS message packages by the millions to our low-income population. There are many more types of low-cost goods of low quality, which would be popular with the masses. While dreaming of unrealistic strategies to compete with high-tech industries, we show disdain towards the low-tech route, which was adopted by Japan and China on their way to their current achievements. Older readers would remember cheap Japanese goods of low quality, produced in initial phases of industrialisation. For almost a decade, Nadeemul Haq has been a voice in the wilderness, trying to attract our attention to the low hanging fruit of domestic commerce, ripe for picking. Let us pay attention, before it rots on the branches.

Published in The Express Tribuneplutonomy, September 14th, 2015.

Reviewers have called it a 700-page punch in the plutocracy’s gut. The title of Thomas Piketty’s magnum opus suggests that he is updating Das Kapital, to bring Marx into the 21st century. Piketty documents a sharp increase in income inequalities over the last 25 years, not only in the US, but also in Canada, Britain, Australia, New Zealand, China, India, Indonesia and South Africa, with people with the highest incomes far outstripping the rest of society. However, he goes far beyond the compilation of statistics and provides a grand unified theory about the deep forces which have shaped human history over centuries. His analysis points out a fundamental conflict between free markets and democracy, directly contrary to widely accepted conventional wisdom that the two go together.

As one illustrative statistic, the bottom 80 per cent of the US population has only five per cent of the wealth, while the top five per cent has 72 per cent. This level of inequality matches the inequality levels seen around the Great Depression. Why is there so much inequality, and why does it continue to rise? Piketty’s answer is brilliantly simple: r > g. The ‘r’ is the rate of return to wealth. This is the profit that the wealthy can make when they invest. The ‘g’ is the growth rate of the economy, currently around 3.3 per cent, globally. There are two types of people in the economy. The wealthy earn money by investing their wealth, while rest must work for a living. If return to wealth is larger than the growth rate, the wealthy grow richer faster than the growth of the economy, while the earnings of the salaried classes grow at a slower rate. As a natural consequence, the rich get richer, while the bottom 99 per cent gets squeezed.

Many authors have searched for an explanation for rising inequality and slow growth since the mid-1970s. Piketty reverses the problem: what needs explanation is the rapid growth and increasing equality of the mid-20th century. His detailed historical evidence shows that slow growth and rising inequality is a centuries-old pattern for capitalism. It is only the 30 post-war years from 1945 to 1975, which form a rare exception to the historical trend. The prosperity that we have all come to associate with capitalism is an illusion based on an exceptional historical experience. The two world wars destroyed entrenched capital, re-arranged the global balance of power, and created rapid technological progress. A complex combination of other unusual factors led to a shift in the balance of power away from the non-productive wealthy, and towards the productive workers. This led to a short-lived period of rapid growth and prosperity for all, memories of which have shaped our understanding of capitalism.

Looking beyond the immediate past, we find that Europe up until the First World War is a picture of ‘patrimonial capitalism’: a few wealthy families dominate society. The British and European aristocracy considered the commoners to be an inferior race and had contempt for those who had to work for a living. Similarly, capitalism did not get started in the US until the 1870s. Characteristically, it soon ushered in the Gilded Age — where massive displays of luxury by newly minted fortunes of the super-rich were combined with misery for the masses.

As exceptional conditions created by the world wars faded into the background, the underlying structural dynamics of capitalism (r>g) came back into prominence in the 1970s. With growing financial liberalisation, the rates of return to wealth overtook the rates of return to all types of work. Investors and financiers now make much larger returns than the innovators and the entrepreneurs. Global economic growth is slowing down while wealth inequality is accelerating. Not only that, but the more wealth a person or institution owns, the faster that wealth grows. For instance, from 1987 to 2013, the global rate of return on the wealth owned by the average adult was 2.1 per cent. During that same period, the rate of return on wealth owned by the average billionaire was more than 6.5 per cent. Exactly in accordance with meticulously documented centuries-old patterns of capitalist development, wealth started to accumulate in the hands of the rich, and economic growth declined as the returns from productive work declined.

Piketty argues that the internal dynamics of capitalism ensure that wealth will concentrate, leading to a concentration of power in the hands of a small number of families. This incompatibility between democracy and capitalism is in stark conflict with the ideas of Milton Friedman. Historical evidence gathered by Naomi Klein in The Shock Doctrine: The Rise of Disaster Capitalism, shows that brutal effects of free market capitalism are resisted by the masses and require enforcement by force. Thus, 20th century history strongly supports Piketty over Friedman.

Today, state capture by the wealthy in advanced capitalist economies is easily documented in terms of numerous policies against the public interest which serve the interests of the elite. Ever since the French Revolution, the wealthy have learnt of the necessity to manage discontent by giving in sufficient amounts to prevent an uprising. Piketty argues that the ‘social state’, with relentless growth in the proportion of national income consumed by the state, spent on universal services, pensions and benefits, is an irreversible feature of modern capitalism. Capitalists enjoy a high degree of legitimacy today because they have found ways of co-opting thought leaders and the managerial class, as well as ways of keeping the labour class weak and divided. Nonetheless, impetus for change may be created by repeated financial crises which result from widening disparities in income and wealth. Like Marx, Piketty argues that these crises are a built-in feature of the system.

Marx’s vision in Das Kapital of a classless society which provided for the needs of all members shaped the 20th century, inspiring two major revolutions and the great battle between communism and capitalism. Only time will tell whether Das Kapital of the 21st century can fill the shoes of its predecessor.

Published in The Express Tribune, September 7th,  2015.

Ever since its origins in industrialising England, the capitalist economic system has always been subject to crises. There are countless theories as to the causes, consequences, and possible remedies for these. Karl Marx was among the earliest and most famous critics of capitalism. He argued that the source of the wealth produced by capitalism was the labour of the workers. The capitalists use their power to make profits by exploiting workers, depriving them of their due shares of profits. Capitalismrequires growth to prosper, and this could only come by increasing exploitation. Crises would marxoccur when workers would be oppressed beyond their limits. Eventually, these crises would destroy capitalism as the workers revolted against this unfair system.

Of course, these ideas are anathema to capitalists. During my own studies of economics in universities, a shallow caricature of Marxist economics was presented, only to be ridiculed and dismissed. Much later, I learned to my great surprise, that Marxist ideas are strongly supported by empirical evidence as well as standard capitalist economic theories. Capitalist theory argues that in free markets with perfect competition, both capital and labour earn according to their productivity, so that there is no exploitation. Textbooks pass silently over the fact that huge and increasing concentration of capital in a small number of hands makes free markets and perfect competition impossible. Textbooks also close their eyes to the reality of unemployment rates (currently at an amazingly high 23 per cent in the USA, if we include discouraged workers). Instead, neoclassical theories tell us that all workers will automatically find work in a dynamic free market economy, and blame unemployment on clumsy government interventions.

The Great Depression of 1929 was amazingly close to a vindication of Marxist theory. Historians date the start of capitalism in the USA to the end of the Civil War in the 1860s, which eliminated slavery and the semi-feudal agricultural economy of the South. This created an economic expansion led by the industrialised states of the North. The first crisis in this nascent capitalist economy was caused by wealthy European investors who invested heavily in railroads in the USA, leading to rapid growth. The huge potential of the American economy led to a mania, with rapidly increasing investment and stock prices, followed by a panic, leading to a financial crash in 1873. Repeated crises and recessions in 1893, 1900, 1902, 1907 and 1911 led to the creation of the Federal Reserve in 1914; the hope was that a central bank would be able to prevent banking crises in the future. In fact, provision of this safety valve for capitalist investors led to such massive over-investment, that the subsequent crash of 1929 created the greatest depression ever seen globally.

The stock market crash of 1929 set off a worldwide chain of bankruptcies and defaults. Factories and businesses closed, workers plunged into poverty in millions, houses and farms were repossessed, and crops which could not be sold were dumped into the sea. By late 1932, 11,000 of the United States’ 25,000 banks had collapsed, manufacturing output had fallen to half of its 1929 level, and some 30 per cent of workers searched in vain throughout the country for jobs to support their families. Farmers unable to sell their produce, unable to repay their bank loans were evicted and with their families joined the human flood of misery. John Steinbeck’s moving novel, The Grapes of Wrath, provides a vivid depiction of the era.

The global crisis of capitalism led to a surge in the popularity of communist ideas throughout the globe, especially among the working classes. Hardcore capitalists like Friedrich Hayek continued to insist that government interference with markets would only make things worse. However, communist revolutions in Europe and the USA were narrowly averted because politicians ignored free market economists, and provided the relief necessary to make life bearable for the workers.

Repeated cycles of expansions followed by crises is among the central insights of Marxist economics. Current neoclassical economists hold that stable equilibrium is rapidly achieved by free market economies and provide no explanation for the observed boom-bust cycles. The power of capitalist ideology is such that neoclassical theories easily proven false continue to be taught in universities, while serious theories, which provide much more accurate explanations of contemporary economic realities, continue to be ignored.

Over the last decades, downsizing strategies turned out to be part of the changes in corporate governance that happened in the context of trade and financial liberalization. Within this historical setting, the corporations’ strategies  focused on downsizing, short-term profits and the distribution of dividends to shareholders. In other words, the business model of the large enterprise has aimed increasing short-term profits by means of downsizing practices or rationalization policies. As a result, managers have stimulated cost-reduction, the re-composition of tasks, labor turnover, the dismissal of workers, in addition to outsourcing agreements.

Actually,  downsizing practices have also favoured mergers and acquisitions. Analyzing the general transformations in the global capital accumulation process, the well-known sociologist Zigmun Bauman states that “downsizing practices are an undetachable complement of the merger mania, since merger and downsizing condition each other, support and reinforce. It is the blend of merger and downsizing strategies that offers capital and financial power the space to move and move quickly”.

As a result, livelihoods turn out to be overwhelmed by uncertainly because of the flexibility required by downsizing strategies and mergers. In his analysis,  Bauman shows how takeovers have usually required flexibility and growing cost reductions with deep effects on labor relations, employment trends and social rights and benefits.

Indeed, as Bauman warns, “flexibility when applied to the labor market announces the advent of work on short-term contracts, rolling contracts or no contracts at all”. In practice, downsizing and flexibility have meant plants displacement and closures, changing employment and labor conditions, outsourcing jobs, besides the pressure on supply chain producers in the global markets. In reality, the changing working conditions result from a continuous restructuring in order to generate cash outflows and profits in the context of the “liquid” modernity.

Bauman, Zygmunt. Liquid Modernity. USA: Polity Press, 2000.

The Great 2007-2009 crisis has restated the menace of deep depressions among the current challenges while the livelihoods turned out to be subordinated to the bailout of the domestic financial systems. Looking back, in the context of the 1930 Great Depression, John Maynard Keynes pointed out that the evolution of financial markets increases the risk of speculation and instability since these markets are mostly based upon conventions whose precariousness affects the decision of entrepreneurs. Indeed, Keynes called attention to the fact that the capitalist system has endogenous mechanisms capable of destabilizing the levels of spending, income and employment. Thus, his approach enhanced a more fruitful apprehension of the real-world where the outcomes of the entrepreneurs’ decisions are not submitted to stochastic behaviour, that is to say, they are not predictable.

The Keynesian approach focuses on private expectations associated with investment decisions in a business environment where uncertainty about the future pervades the decision-making process. While the very nature of wealth management under uncertainty in a monetary economy is the cause of business instability, entrepreneurs could postpone spending decisions and search for alternatives of wealth management. As opposed to the classical economists that were defenders of laissez faire capitalism, Keynes believed that government policies and actions could play a fundamental role in shaping a business environment that could reduce uncertainty and favour investment decisions.

As a matter of fact, the capitalist process of business decision making is based on conventions. As uncertainty is inherent in all entrepreneurs’ decisions, the Keynesian approach relies on the concepts of credibility and degree of confidence on a conventional judgment that is historically built within the markets. In any specific historical scenario, the average opinion of entrepreneurs on future scenarios shapes a convention that is based on a precarious set of expectations about the behaviour of aggregate demand – consumption, investment and exports, for example. The degree of confidence on this convention could affect the expected return on investment- the so called marginal efficiency of capital, as Keynes warned.

Business conventions are influenced by a set of cultural, institutional, political and economic factors. In the attempt to re-shape the world order in the 1940s, Keynes pointed out the need of a “wide measure of agreement”, that is to say, the need to create new conventions based on trust. In his view, trust has a historical and social nature and impacts entrepreneurial development. Therefore, trust is considered a conventional concept related to the degree of confidence in the future business environment, that is to say, in the economic and political setting that turn out to shape the evolution of the markets.

Considering this background, two relevant questions arise: Which is the room for manoeuvre of nation-states to shape the markets towards sustainable economic and social growth in the context of globalization? Could domestic market regulation induce changes on  business practices  to promote job creation? How can the gap between public policies and the shaping of sustainable markets be bridged?

plutocracyPublished in The Express Tribune, August 31st,  2015.

The capitalist mode of production represents a radical break from traditional methods of organising economic activity. Because it has taken extremely diverse forms and evolved in complex ways over time, it is not easy to define precisely. Many authors have seen through this complexity of forms to the simplicity of the spirit. Max Weber writes about capitalism that “man is dominated by the making of money, by acquisition as the ultimate purpose of his life. Economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs.” It is natural for men to want wealth so that they can fulfill their needs, acquire luxuries, status, travel, or do anything that they desire. However, it is not natural to hoard wealth and revel in its possession. Ancient philosophers from Aristotle to Lao Tzu are united in their assessment that while money can be very useful, love of money is extremely harmful. Modern thinkers like John Maynard Keynes agreed that the pursuit of wealth is a “disgusting morbidity” and a “mental disease”. Nonetheless, they launched a daring experiment to harness the powerful force of greed for the accumulation of wealth and elimination of want.

This, then, is the fundamental contradiction at the heart of capitalism. The pursuit of wealth, universally condemned by traditional societies, is adopted as the central principle for the organisation of economic affairs. There is no doubt that legitimising the pursuit of wealth has led to an unprecedented accumulation of it, far beyond the dreams of traditional societies. However, economists like Joseph Stiglitz, Thomas Piketty, and others have shown that the increasing wealth has concentrated in the hands of a very tiny proportion of people. It has not ‘trickled down’. In retrospect, the reason is obvious. Traditional values of cooperation and generosity lead to sharing of wealth and general prosperity. When the modern value that ‘greed is good’ is promoted, those who accumulate wealth use it to acquire more wealth and power, rather than sharing it with the needy.

Understanding the vagaries and fluctuations of the economies of today is beyond the reach of conventional economic theory being taught in universities. This is because the economy has become sharply segregated into the haves and the have-nots, also called the one per cent and the 99 per cent. In confidential reports circulated in 2005 to their wealthy investors, Citicorp coined the term “Plutonomy” to describe this situation. This word combines Plutocracy — the rule of the rich — with economy and can be defined as follows: Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.

The concept of plutonomy allows us to resolve a contradiction presented by economic statistics over the past three decades. The statistics show that life has become more difficult for the vast majority of the population. The real wage has been stagnant or declining over this period. The rate of job creation has been low, and the quality of jobs available has declined. The time spent at work has increased to an enormous extent in the heartland of capitalism, while vacation time is pitifully small. All this time spent on the job takes away from time for family and friends, and loneliness and unhappiness show a strong upward trend. While skilled jobs carry very high wages, acquiring an education has become increasingly costly. The average debt of the graduating class of 2015 is at historically record-high levels. Similarly, homelessness and hunger are also at record levels after the global financial crisis.

Despite these depressing statistics, stock markets have been booming, growth seems to be going at a normal pace, property values have recovered to levels seen before the global financial crisis, corporate profits are increasing and so on. The Citicorp report tells the wealthy investors that they can safely ignore the doom and gloom statistics. These concern only the bottom 99 per cent whereas the economy is driven by the fortunes of the top one per cent. Textbook economic concerns with the “average” consumer are completely irrelevant in a plutonomy. The Citicorp reports classify the US, the UK and Canada as world leaders in plutonomy, with many other rich countries on their way. Nonetheless, some countries like Japan, France, Switzerland and the Netherlands are classified as the “Egalitarian Bunch”. The key difference is that the share of the top one per cent is not strikingly high. The Citicorp reports paint a rosy picture for the top one per cent: “Our own view is that the rich are likely to keep getting richer, and enjoy an even greater share of the wealth pie over the coming years.” They are not daunted by the visible threats: “We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and to challenge forces such as globalisation which creates wealth and profits.”

Whereas the global financial crisis wiped out the lifetime savings of millions, the recent upheavals in the stock markets in China and the US have only affected the fortunes of the top 10 per cent. The bottom 90 per cent has only minor holdings in stocks. Obviously, there was no change in real productive capacities — no floods, earthquakes, wars or other catastrophes. As long as the lives of the workers are not affected, there is no impact on the real sector of the economy. The fortunes of the top one per cent did suffer a temporary setback. In the past, such crises have been successfully exploited by the plutocrats to their advantage, to scare the public into providing a bailout to the rich at the expense of the rest. This is not likely to happen since recent events have created increasing awareness and understanding of these financial games which impoverish the poor. Nonetheless, levels of awareness and cohesion among the bottom 99 per cent appear insufficient to create a threat to the plutonomy, justifying the confidence of the Citicorp report.

The expansion of neoliberalism in the last four decades has increasingly expressed the tensions between the expansion of the market economy and the consolidation of a new way of life. Indeed, the neoliberal way of life can be apprehended if considering Karl Polanyi´s concern about the way in which the economy relates to social organization and culture and the impacts of social and political institutions in relation to human livelihood. In his opinion, since the proper self-regulation of the market entails that nothing must be allowed to inhibit the formation of markets, the institutional patterns and principles of behavior turn out to adjust perfectly.

Taking into account the current effects of the neoliberal modernization process on the way of life, Karl Polanyi´s critique of the liberal myth and of the disruptive forces inherent to the self-regulated markets is inspiring to think about the deep impacts of neoliberal policies and institutions on livelihoods. In accordance to Polanyi, the centrality of the market entails that “Nothing must be allowed to inhibit the formation of markets, nor must incomes be permitted to be formed otherwise than through sales” (Polanyi 1944: 69). In other words, labor, land and money turn out to be seen as commodities and are produced for sale. As the commodity fiction proves to be the vital organizing process, the self-regulated markets demand the institutional separation of society into an economic and a political sphere. In other words, the commodity fiction implies that the market economy demands the institutional separation of society into an economic and political sphere, that is, in the market society the social relations are embedded in the economy rather than the economy embedded in social relations.

As Polanyi warned, the transformation in individual behavior towards the economic motive has disorganized the traditional forms of reciprocity and redistribution. As a result, the way of life has been increasingly subordinated to the commodity fiction.

Consequently, the neoliberal way of life is an important expression of the recent economic and cultural changes because it may possible to enlarge the subordination of sociability conditions to the market economy and the social relations increasingly become an “accessory of the economic system” (Polanyi 1944: 75). The policies adopted and the institutional changes have not only redefined employment and working conditions, but also patterns of behavior and patterns of subjective expectations and preferences that turned out to privilege competition in social dynamics.


Madi, Maria A. C.; Gonçalves, J. R. B., Corporate Social Responsibility and Market Spciety: Credit and Social Exclusion in Contemporary Brazil. In: Bugra, A.; Agartan, K., Reading Karl Polanyi for the Twenty-First Century: Market Economy as a Political Project. Palgrave McMillan, 2007.

Polanyi, Karl.1944. The Great Transformation. Beacon Press: Boston, 1971.


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