The election of Donald J Trump as President of the USA prompted eyeball-popping incredulity across the world, and much soul-searching and ratiocination with the benefit of hindsight. The havoc wreaked by the disappearance of American jobs across wide swathes of the American heartland, the anaemic recovery of the economy from the depression that started in 2008, and identity and racial politics in America, have all been variously cited as some of the important reasons which led to what has widely been predicted to be a catastrophic choice of leader of a country that is often held up as the most successful capitalist state the world has ever seen.
And yet, was the election of Trump – who had with great success projected himself as the Outsider who would “drain the swamp” in Washington – really the bolt from the blue that it is sometimes made out to be? In his book Saving Capitalism, written before the Presidential election, Robert Reich, Secretary of Labour in the Clinton Administration – who has also taught at Harvard, UCLA, Berkeley and Brandeis – does not answer that question. In fact, he does not even raise it – Trump does not find mention anywhere – but he makes some provocative points that may help readers to make up their own minds.
Why is it, Reich asks, that corporations in America have recourse to protection under bankruptcy laws when they cannot pay their creditors, but even broke students must repay every single cent of the loans they take to fund college educations? Many students often do not find employment for reasons which they are not personally responsible for, reasons which are well beyond their control.
Consequently, they cannot repay their education loans, but still do not have those loans forgiven. What does such differential treatment meted out to individuals on the one hand and corporations – which sometimes cynically exploit the protections of bankruptcy as financial advantages to be gained, as Trump repeatedly asserted about his many bankruptcies during the election campaign – on the other, really imply about where the sympathies of the US establishment lie?
Or, consider this question. Why should the very large amount – estimated to be $83 billion in 2013 – that big banks and financial institutions save by offering lower interest rates than small savings and loan associations and banks not be considered government handouts to the already-rich? As is well-known, Citibank, J P Morgan Chase, Goldman Sachs, Citigroup, Wells Fargo, and Bank of America, to name a few, were bailed out by the US Government in the wake of the 2008 recession. But not one small bank or savings and loan association was prevented from going bust.
The logic was that the big banks were considered too big to fail, which of course makes for the risk-perception that deposits with larger banks are safer than with smaller banks, who pay the price by way of higher interest rates. In other words, the question really is: what business does the US Government have to be rewarding large banks at the expense of the smaller ones?
How can the widely-believed notion that Americans earn what they are “worth” even remotely explain the yawning difference in earnings of financial elites like hedge fund managers, investment bankers and Wall Street stockbrokers who drove their clients to financial ruin as recently as 2008, whereas the majority of American workers either experience no growth in wages at all when adjusted for inflation, or very little if they happen to be lucky? It’s true that the productivity of the average American worker has stagnated for a long time now, but how is it that the earnings of many of the rich, who are manifestly unproductive, are vastly higher than of those who increasingly have to work more and more hours to afford the same lifestyle that their parents had (who worked much less)?
Could it not be that the source of the earnings of the super-rich are no longer adequately explained by their “worth” but, instead, in large measure by financial inheritance, the ability to game the system, monopoly power, and suchlike – which are all impediments to the meritocracy than many still believe American society to be?
It’s the inequality, stupid
Reich’s answer to these, and many other, questions – all of which share the commonality of illustrating the glaring and growing inequality in American society? The allocation and utilisation of economic power within the US has become steadily skewed. Consequently, the redistributive powers of the state – taxation and government spending – are now effectively neutralised, and in fact reversed by the extent to which the capitalist state leans on the side of the big/rich/powerful at the cost of the small/poor/powerless.
Tellingly, Reich asserts, it is not only the government that has brought matters to this pass; the entire edifice of the state, including courts and legislative bodies, are complicit.
Reich explains how this state of affairs has come about, but it falls to the economist Paul Krugman to remark that the book is “a very good guide to the state we’re in”. Is it any wonder, then, that a candidate, however much a product of the patrimony of the capitalist state, won on a wave of populist anger against an economic system that has alienated and impoverished large sections of the population?
Reich does offer remedies needed to “save capitalism” – primarily, the restoration of countervailing powers in various forms to set right the dangerous tilt away from many and towards the few. One of the weaknesses of Reich’s argument is that he does not convincingly explain why these might come about, but then the election of the new president might offer that incentive for change – reform or end up with a permanently enervated country well beyond any hope of recovery.
The Indian parallels
Does this prescient analysis hold lessons for the Indian state and the way it has been unravelling in recent years? It would be hard to disregard the similarities and resonances. For hapless American students unable to repay their student loans while “smart” businesses such as Trump’s use bankruptcy as tools of financial re-engineering, substitute the small Indian farmer/worker/professional, who must pay up or face the might of the state, while large industries – who account for 70% of the non-productive assets or bad debt of Indian banks – default on loans so large that they have dragged the entire Indian banking sector down to its knees.
And even among those businesses that have not defaulted, many pay almost zero interest, such as the LN Mittal Group, which got a Rs 1,200 crore loan from the Punjab government at 0.01% per annum interest. Even the Gujarat government lent Rs 558.58 crore for the Tata Nano plant at 0.1% interest rate. In contrast, the very poor pay interest rates as high as 24-36% to micro-finance companies.
For those in middle America who have seen their jobs and incomes evaporate, substitute the adivasis of India, whom the historian Ramchandra Guha has identified as the group that has suffered the most since Independence at the hands of the Indian state. As big industries take over large chunks of land along with the lives and livelihoods of the original inhabitants, why should it be any surprise that militant insurgencies such as Naxal movements occur most often in such areas?
To be sure, the American and Indian economies are not remotely the same, but there is one similarity of overarching importance. India already has the dubious distinction of being the second most unequal country in the world, with the same trend as America’s – with every year that passes, the chasm between the rich and the poor, already abysmal, widens even more, imperiling the state.
An analysis of the Indian economy from this perspective, refreshingly different from the standard ones adopted by social scientists, could be an eye-opener. It could even save us from regressing to the state that America and many Americans find themselves in.