Learning to plan: Revisiting the Soviet experiment

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C.P. Chandrasekhar

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When in 2017 the world marked the centenary of the Bolshevik seizure of power on 7 November 1917, many were unwilling to celebrate the economic achievements of the system that the revolution put in place. Soviet socialism was a failed system, they argued—one that did not work, leading finally to its collapse. Moreover, although the collapse of the Soviet Union occurred in the 1990s, the beginnings of failure are sought in developments since the collectivization of the late 1920s, which are seen as marked by much sacrifice by the ordinary citizen with little long term benefit in terms of growth.

The differentiating features

Many of these critical analyses ignore or dispute three key elements of the Soviet experience, the implications of which go beyond the Soviet experiment. The first is the fact that the Soviet Union, despite having to muddle through in the face of extraneous constraints, did manage to replace the market mechanism with the ‘planning principle’. The advocates of the planning principle saw in it the means to (i) overcome the anarchy associated with the atomistic decision making characteristic of systems based on private property and the market mechanism; and (ii) ensure the execution of socially beneficial projects, that are unlikely to attract investments in a system where investment decisions are driven by profit. A typical example of the latter are crucial infrastructural projects.

In market-driven and profit-oriented systems, the level and allocation of investment gets determined by the “guesses or expectations of a large number of independent decision-takers (entrepreneurs), in the long run ‘revised’ by ex post movements of market prices” (Dobb, 1960). Since the investment in fixed capital that results is by definition irreversible, decision errors are costly in individual and social terms. And such errors are bound to occur, since private investment decisions must be based on estimates of prices that would prevail over the lifetime of the project. The only basis for these estimates are ‘historical prices’. But it is the independent and subjective decisions of capitalists based on historically given prices that create the capacities and generate the pattern of demand that actually determine future prices. Expectations of future costs and prices based on historical prices are bound to be wrong. So the sum total of individual investment decisions result in shortages in some sectors, and over-investment, unutilized capacity and closure, in others. Moreover, the system would be incapable of ensuring full employment. Hence a system that seeks to supersede the anarchy of capitalism must coordinate investment and arrive at “prior” decisions on the total volume of investment, its allocation to different sectors and particular projects and the technical forms in which the investment would be embodied, to maximise growth and ensure full employment. That was the essence of the planning principle.

The second element of the Soviet ‘model’ that advocates of the superiority of the market mechanism want to underplay or rubbish, is its unusual choice between emphasising capital and consumer goods production, which amounted to privileging investment over consumption in a poor country with low per capita consumption and high unemployment. The Soviet development strategy (formalised in the Fel’dman model) managed to demonstrate in large measure the ability of a state representing workers and peasants to make the “social decision” to rein in consumption growth in the short run, in order to divert investment to the production of the machines that can more productively employ workers and accelerate the growth of income and consumption at a later date. This choice was essential not just to realise ambitious developmental goals, but was the principal factor explaining the consolidation of Socialism in One Country subject to capitalist encirclement and plagued by war. Soviet success was crucially dependent on the successful implementation of that strategy.

Finally, the third aspect of the Soviet model that disturbs those who want to undermine its achievements is that despite the emphasis on heavy industry and machine production that was so crucial to its success, the Soviet Union ensured rather early in its development path that the unemployed and underemployed in its largely rural labour force were absorbed into a more productive non-agricultural sector, with improved living standards involving increased consumption levels and access to basic services such as housing, education and health. According to one careful estimate of consumption trends during the years when the post-revolution economy was stabilised and before the Second World War, total consumption in the Soviet Union increased by 42 per cent between 1928 and 1937 and per capita consumption by 37 per cent (Allen 2003).

The record

Critics of the Soviet Union not only choose to ignore these essential elements of the Soviet path but also the fact that it is one among the few (actually four) examples in the 20th century of countries that made the transition from being an underdeveloped backward country to being an advanced nation (the other three being Japan, South Korea and Taiwan, since Hong Kong and Singapore were entrepot city-states and not really comparable). At the time of the October Revolution, while Russia had seen substantial development of the railways (though not as much as the rest of Europe relative to area and population) and was home to pockets of advanced industrial development, it was predominantly a backward and largely an agrarian economy. Only a tenth of the population was employed in industry and around 15 per cent lived in towns. Given the limits to productivity advance in agriculture defined by geography and climate, accelerating growth required faster and more diversified industrialisation. And given the constraints on obtaining technology and capital equipment from abroad, investment in machine and intermediate production to raise productivity and production in the consumption goods sector was crucial.

Long term, comparative GDP estimates from Angus Maddison establish that over the period 1928 to 1970 the Soviet Union was the second fastest growing economy in the world, after Japan. And when compared with Southeast Asia, West Asia (Mideast), China, British India and Africa, its performance was remarkable, resulting in the closing of the developmental gap between the backward Soviet Union and the advanced countries. Excluding the war decade of the 1940s, GDP growth stood at between 5 and 6 per cent a year over 1928-70. Deceleration began only after that, falling to 3.7 per cent per annum during 1970-75, 2.6 per cent during 1975-80 and 2.0 per cent over 1980-85.

The period of comparison starts in 1928 because the immediate post-revolution decade included the years of turmoil or War Communism (1918-20) when the battle of the Red Army forces with the counter-revolutionary White army was waged and won, and of the New Economic Policy (1921-28) when damage caused by War Communism was repaired and normalcy restored. In the course of the former, between 1917 and 1920, the industrial economy was devastated, with output of cotton yarn, for example, falling by 93 per cent and that of pig iron by 96 per cent. Besides having to overcome such damage, two decades later, the Soviet Union played a decisive role in defeating Fascism, suffering further damage, amounting to a near catastrophe. The Second World War not only forcibly diverted resources away from development but took a huge toll in terms of the loss of human lives and capital and material resources. Yet, development proceeded at a rapid pace to reduce the income gap between the Soviet Union and the advanced nations. Seen in that light, the relative performance of the Soviet Union over 1928-70 was remarkable, to say the least.

This ability to “catch-up” in GDP terms is also noteworthy because the Soviet Union’s situation was unlike that of South Korea and Taiwan, which by virtue of being ‘frontline states’ in the Cold War had the benefit of access to developed country (especially US) markets and capital. The Soviet Union was shut off from access to capital from abroad to finance imports of productivity-enhancing equipment and had limited access to markets abroad. Also, the facts that for long there was Socialism only in one country, and that country was encircled, meant that resources had to be diverted to defence expenditures, to deter enemies within, during the civil war, and without, subsequently. In addition, the Soviet Union’s achievements in the realms of ensuring full employment, universalising education and provision of health services are without comparison.

The remarkable record of the Soviet Union is often veiled by resorting to two devices. The first is to compare Soviet achievements with targets set by the Soviet leaders and planners themselves, which in some periods remained unrealised. The second is to compare Soviet performance with that of other countries over the longer period 1928 to 1989, which includes the two decades after 1970, that were characterised by a slowdown of growth, because of the failure of the reforms that began to be instituted in the 1960s and after, in the run up to the disastrous transition that Perestroika involved. When examined over this extended period stretching to 1989, the increase in per capita GDP in the USSR was less than that in South Korea, Japan, Taiwan, Portugal, Finland, Singapore, Italy, Norway, and Thailand. If the end-date is shifted to 1991, Spain, Jamaica, and Singapore also perform better than the Soviet Union. This, however, calls for an explanation of why the performance of the period 1928-70 could not be sustained, rather than for a dismissal of the whole experiment as an economic failure.

The ‘physical’ constraints on development

The Soviet developmental achievement, as noted, was based on a significant increase in investment, and therefore a rise in the share of annual output diverted to investment. This required in the first instance the postponement of consumption increases in order to release resources for investment. But what became clear was that this investible surplus had to take specific material forms. Agricultural surpluses were needed to feed the labour force employed in the non-agricultural sector, provide industry with needed agricultural inputs, and undertake exports that earned foreign exchange needed to import some of the essential capital goods needed for industry. A part of the surplus had to be in the form of capital goods (equipment and machinery) needed to employ workers in the non-agricultural sector as well as rapidly raise their productivity. This investment goods surplus had to be substantial domestically produced since the agricultural surpluses that could be transformed through trade into machines was limited, as were the opportunities for trade. Finally, some of the surplus had to be in the form of intermediate goods to service the requirements of agriculture and industry.

Thus, there were two kinds of imperatives that faced the post-revolutionary government. First it had to make the institutional changes needed to enhance the area of control of the state, allowing it to subordinate the market mechanism to the ‘planning principle’ so as to subsequently neutralise the former. The market mechanism was not benign and would favour the better off leading to increasing equality and the restoration of capitalism. And, as noted, the market was ‘anarchic’ with competing capitalists acting on their own and no possibility of coordinating investment to reduce social waste and allocate investment in ways that maximise growth. Second, it needed to delineate and implement a strategy that would maximise growth while overcoming the structural constraints set by the country’s backwardness and its internal and external conditions.

Development planning- C.P Chandrasekhar

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Webinar 1: Why Revisit National Planning

C.P. Chandrasekhar Download Full Paper at IDEAs Website

The term “development planning” gained ascendancy in the period immediately after the Second World War, when decolonisation led to the emergence of a number of newly independent underdeveloped countries. War fatigue and the conflict between competing systems resulted in considerable concern with addressing the sharp differentials in levels of development and standards of living between these economies and the developed countries so as to ensure a durable peace. That paved the way for an interest in strategies that could accelerate development in the former.

Accelerating growth required diverting a part of the meagre national income away from consumption to investment in order to raise the rate of growth. While for a time this squeeze on consumption can be moderated by relying on foreign savings (to the extent available), in the final analysis domestic savings and investment needed to be raised. Not surprisingly, the principal developmental task as formulated by Arthur Lewis and his fellow experts in a 1951 UN report (United Nations 1951) was to raise the rate of investment or the ratio of investment to national income, so as to raise the rate of growth achievable at any given level of capital-output ratio.

Raising investment in itself was not enough. It needed to be allocated across sectors in ways that prevent other potential bottlenecks from subverting the process of development. The allocations chosen would depend on what are considered the binding constraints on development in individual countries. If, for example, the principal constraint to investment is seen as the absence or inadequate development of a capital-goods sector and there was inadequate foreign exchange to import capital goods, then the attempt at raising investment to accelerate growth would run up against a capital-goods constraint. This was the problem the Mahalanobis (1955) model applied to India sought to resolve by emphasising the need to allocate a higher share of investment to the investment-goods sector in the early stages of development, even if that meant stretching the period over which aggregate and per-capita consumption are raised to address their inadequacy.

In most developing-country contexts, a more serious constraint on growth was the shortfall in the availability of food, which constitutes an overwhelmingly large part of the goods that make up the wage basket. Increases in output and employment result in increases in wage-goods demand that far exceed domestic supply. This necessitates imports and could again lead to balance-of-payments problems or, if imports are not resorted to, triggers food-price inflation that in multiple ways constrains growth.

It has been argued (Kalecki 1970) that the principal factors constraining agricultural growth are institutional, such as semi-feudal relations, making institutional change central to relaxing the wage-goods constraint. While this cannot be denied, it is also true that within any institutional frame, achieving the maximum possible rate of growth would require a certain level of investment (in irrigation, drainage and flood control, for example). The existence of a slack, for lack of investment to exploit the available potential, could make it possible to raise the supply of necessities and at least partially resolve the wage-goods constraint by directing investment to the agricultural sector. Beyond a point this would have to be combined with the required institutional change. Thus, for any given level of the investment-to-income ratio and the associated rate of growth, there would be an appropriate allocation of investments (given initial conditions) that ensures sectoral balance and renders the growth path sustainable.

Finally, the issue is not merely one of investment allocation but one of technologies in which investment in different sectors would be embodied. On the one hand, accelerating employment (and therefore consumption) growth in the immediate future requires investing in labour-intensive technologies. On the other hand, restraining consumption and raising the share of surplus available for investment may require opting for capital-intensive technologies, given the possible rate of technological change. This may provide a case for raising the average capital intensity of technology even in a country with substantial volumes of surplus labour (Dobb 1960, Sen 1962). It would also call for matching the inevitably capital-intensive technologies adopted in some sectors (such as heavy engineering) with a choice of more labour-intensive technologies in the consumption-goods sector, for example.

Whatever the decisions taken, given initial conditions, political feasibility and technological imperatives, the essential point that emerges is that once governments choose to influence the pace of development, as they did in the immediate post-war years, they need to find ways to intervene in order to push the rate of investment, the allocation of that investment and the technologies in which the investment is embodied in directions that correspond to some ideal appropriate for the targeted rate of growth.

Area of control

Development planning in this form obviously presumes some degree of coordinated investment decision-making. The expected benefits from such coordination are two-fold. First, by overcoming the “secondary uncertainty” inherent in a regime where investment decisions are atomistic and based on guesstimates of the decisions that other decision-makers would arrive at, it reduces the waste and unemployment characteristic of capitalism (Dobb 1960). Second, by ensuring the incorporation of appropriate inter-temporal judgements in the choice of the investment ratio, the allocation of investment and the technical forms in which it was embodied, it permits a process of maximising growth subject to the consumption requirements set by social and political conditions.

The difficulty is that unlike in some hypothetical (though not necessarily actual) economy with a substantial degree of state ownership of productive assets, in which surpluses largely accrue to agencies of the state and in which the volume of such surpluses can be determined by a combination of turnover taxes and an appropriate prices and incomes policy, the state in a mixed economy is not in control of consumption and investment decisions. In the latter case, the level and allocation of investment gets determined by the “guesses or expectations of a large number of independent decision-takers (entrepreneurs), in the long run ‘revised’ by ex post movements of market prices” (Dobb 1960). Since the resulting investment in fixed capital is not by definition reversible, decision errors are costly in individual and social terms. And such errors are bound to occur since private investment decisions must be based on estimates of prices that would prevail over the lifetime of the project.

One consequence of these circumstances is that existing prices cannot be a guide to future prices, as the atomistic, individual investment decisions made on the basis of the prevailing prices together influence future demands and supplies and subsequent movements in prices. Without an anchor, there is no reason to surmise that expectations would actually be realised, leading to unutilised capacity, closure and unemployment. Moreover, the allocation of investment may not be in keeping with that required to ensure the pattern of production needed to raise the rate of saving and investment and to maximise the rate of growth. An obvious way in which this happens is through inadequate investments in the infrastructural sector characterised most often by lumpy investments, long gestation lags, higher risk and lower profit. Given the “economy-wide externalities” associated with such industries, inadequate investments in infrastructure would obviously constrain the rate of growth.

Structural change

This, however, misses out on one fact. The thrust of development planning, and therefore the choice of regime, was also influenced by the initial conditions that prevailed in underdeveloped economies, which were all predominantly agrarian and home to substantial volumes of unemployed and underemployed surplus labour. The vision underlying development planning had two strands to it, with different degrees of emphasis on each in different versions of it. The first was to introduce the institutional changes, undertake the investments, and ensure the availability of a surplus of wage goods, so as to mobilise the surplus labour and put it to work on projects that created productivity enhancing capital assets. To the extent that capital formation was possible with “bare hands,” the resources required were the consumption goods needed to feed and clothe the labour force engaged in “capital goods production”.

The second aspect of the vision was to ensure the diversification of economic activity away from agriculture to producing manufactured goods, especially machine tools. Besides the apparent universality of this trajectory across countries, a range of arguments provided a case for such diversification: First, the conclusion derived from trends in consumption styles across the globe and embodied in rudimentary form in Engels’ Law that the demand for non-food commodities in general and manufactures in particular grows and diversifies as incomes increase. Growth must therefore be accompanied by a process of diversification of economic activity in favour of manufactures; second, the belief that, given the barriers to productivity increase characteristic of predominantly agrarian economies, the diversification in favour of industrial production is an inevitable prerequisite for a rapid increase in per capita incomes; third, the view that beyond a point even agricultural growth is dependent on manufactured inputs. And, finally, the truism that dependence on primary production places a nation at the losing end of the shifting terms of exchange in international trade, necessitating industrialisation as a device aimed at garnering additional benefits from trade and overcoming external vulnerability.

Diversifying in favour of manufacturing, especially based on demands generated in the domestic market, was of course not necessarily easy for many mixed economies. Small landlocked or island economies cannot sustain much of an industrial sector based on the domestic market and can emerge as successful manufacturing exporters only in exceptional circumstances. Hence a strategy focusing on ensuring a significant degree of diversification in favour of manufacturing may be misplaced in their case. So would attempts to apply elaborate models defining trajectories that can be pursued to achieve manufacturing-country status. As Arthur Lewis noted: “Whether the economy responds mainly to export demands, or grows mainly in response to home demand, is also important” (1966, 21). In the latter, a combination of assessments of export prospects and policies aimed at regulating imports and promoting exports to grow on the basis of an export stimulus may be important. Here, a degree of independence for private decision-making is inevitable. But what is appropriate for countries with special needs or special constraints cannot form the basis of defining what development planning is.

In any case “models’ are not the prerogatives of the so-called authoritarian planners. Often elaborate models are used to justify submitting not just private but even public decisions to purely market signals. The idea of using “border” prices and price relatives as the basis for assessing the relative costs and benefits of proposed public projects, to determine which among them should be chosen is a case in point. The claim that adopting this “rule of thumb” would be a way of approximating outcomes that would fall out of an optimisation exercise, besides resting on completely untenable assumptions about markets and price determination, obfuscates completely what the social welfare function being maximised is and what the real constraints are.

References

  • Lewis, W. Arthur. 1966. Development Planning. London: Routledge.
  • Mahalanobis, P.C. 1955. “The Approach of Operational Research to Planning in India.” Sankhya 16(1/2), 3-130.
  • Sen, Amrtya K. 1962. Choice of Techniques: An Aspect of the Theory of Planned Economic Development. Oxford: Blackwell.
  • Kalecki, Michal. 1970. “Problems of Financing Economic Development in a Mixed Economy.” In Eltis et al. (eds). Induction, Growth and Trade: Essays in Honour of Sir Roy Harrod. Oxford: Oxford University Press, 91-104. Reprinted in Kalecki 1976, 98-115. United Nations. 1951. Measures for the Economic Development of Underdeveloped Countries: Report by a Group of Experts Appointed by the Secretary-General of the United Nations. New York: United Nations.

Macro-economic policy and planning economic transformation- Prabhat Patnaik

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Webinar 1: Why Revisit National Planning

Prabhat Patnaik. Download full Paper at IDEAs Website

The case for ‘planning’, in the sense of a co-ordinated set of policies to realise, at least in some key sectors, certain magnitudes of investment and output-growth, remains as strong today for developing countries wishing to achieve economic and social transformation, as it ever was. There are at least three reasons for this. First, the pace of investment in a spontaneously-operating capitalist economy depends upon the so-called ‘state of business confidence’. The state of business confidence may be such that it leaves the economy demand-constrained for long-stretches of time; what is more, even when the macroeconomy is not demand-constrained, the mix between consumption and investment in aggregate demand may be too much in favour of consumption relative to social requirements. Deliberate intervention by the State is needed not only to overcome demand-constraints, as the Keynesians argue, but, more importantly, to alter the composition of aggregate demand, and to do so in a manner which is socially equitable. The second reason relates to the need for sectoral balance. While the previous argument remains valid even in a one-good world, an additional problem arises the moment we recognise the real life multiplicity of commodities. For a spontaneously-operating capitalist economy, the pattern of supplies adjusts to the pattern of demand through episodes of profit-inflation located in particular sectors. These provide the signals for supply-adjustments to occur over a period of time. In short, the episodes of sectoral profit-inflation are more or less protracted, less protracted, depending upon the speed of adjustment of supplies. But such episodes of profit inflation, if they are severe, protracted and relate to certain essential sectors, are capable of causing extreme social hardships and devastation. The most notable case here relates of course to the supply of wage-goods. A sharp profit inflation in the wage-goods sector can cause, and is known to have caused, severe famines. Deliberate State investment is needed to eliminate supply- adjustment lags in wage-goods and in other key sectors. In sectors like agriculture, it is essential in any case to activate private investment, i.e. for the process of supply adjustment itself. In addition, by anticipating profit inflation and activating supplies before the event, it can in fact eliminate the very need for profit-inflation, and hence the attendant economic hardships. The third reason tums on the distinction between spontaneous and non-spontaneous structural change. Even if a system is not demand- constrained, and even if sectoral imbalances are instantaneously eliminated through the perfect shiftability of capital from one sector to another, the accumulation process is accompanied by a process of spontaneous structural change. The introduction of new processes and products which are perceived to be marketable gives rise to spontaneous structural change. The market in other words responds not only to visible signals, but also to a certain range of invisible signals. What it does not respond to is a range of other kinds of invisible signals, e.g. the social discontent inherent in a situation of unemployment, poverty and sub-human existence. The latter require the deliberate introduction of non-spontaneous structural changes, and this can only be done through deliberate State intervention.

It may be thought that the elimination of poverty is a matter merely of raising the rate of accumulation further, leaving the market to decide where this accumulation goes, so that this case is merely a part of our first reason. This however is not necessarily correct. Raising the rate of accumulation, if it simply accelerates spontaneous structural change and thereby raises the rate of growth of labour-productivity, may have a negligible additional impact by way of absorbing the poor and the dispossessed into higher-paid wage-employment. And if the population is expanding rapidly, then this absorption may require rates of accumulation which are impracticably high if a reasonably meaningful time-horizon is chose. The need arises therefore for introducing non-spontaneous structural change, and curbing to an extent spontaneous structural change. Both this introduction as well as this curbing require State intervention

Taken together, these three reasons for State intervention constitute an argument for more than mere fiscal interventionism, for more than mere public investment policy. They amount to a case for the state shaping broadly the trajectory of growth itself. While this is what I mean by planning it is obviously not synonymous with central planning, with detailed output targets, that was current in the Soviet Union earlier. There would be a range of public investment targets that the State would try to meet. It would seek to realise complementary private investment targets, and hence certain minimal levels of output growth-targets in some key sectors. These would determine the overall trajectory of development, within which there would be sufficient room for the operation of the free market, with the State imaginatively improvising responses to the strains that would inevitably arise from time to time owing to the operation of such a mix between the plan and the market. As is obvious from the above, the operation of such a system is not only not predicated upon universal public or collective ownership of the means of production, but is even compatible with private capitalist (not to mention petty) ownership in several spheres, provided of course the capitalists are responsive to the social need underlying the trajectory of development articulated by the state.

II

I should like to distinguish this vision, which I think has relevance for a democratic South African economy in the current conjuncture, from two other possible visions. The first of these believes in a ‘minimalist’ State. While the need for State intervention for undertaking certain infrastructural investments which the capitalists may be unwilling to do, for providing certain social services, and for weaving a ‘safely-net’ for the poor and the unemployed (the need for which is often seen to be only transitional), is recognised, the basic solution to social and economic problems is seen to lie in rapid economic growth, and the chief means of growth are seen to lie in the provision of freedom of operation to capital, both domestic as well as multinational, in the domestic economy. Allowing markets to function without interference, removing domestic controls of various kinds, and liberalising trade, are visualised as ushering in an internationally competitive, efficient economy which would exhibit rapid and sustained growth. While a certain amount of taxation by the state is accepted as being necessary for meeting its spending obligations, such taxation, it is suggested, should neither result in domestic price-distortions nor destroy capitalists’ incentives by being excessively high (at any rate by international standards).

A variant of this argument in the South African context would state that since tax-rates here are already very high by international standards, the State should meet its expenditure obligations, especially for the uplift of the oppressed in a democratic South Africa, by privatising State owned assets. This particular argument is palpably wrong. In a supply-constrained system, an increase in State expenditure on the upliftment of the blacks would not cause any additional macro-imbalances only if there is a simultaneous reduction in aggregate demand elsewhere i.e. in other avenues of public expenditure or in private consumption or investment (apart from foreign capital inflow). Now, unless the sale of State-owned assets to the private sector results in a reduction of private consumption or investment in order to finance their purchase, privatisation financed State expenditure would cause serious macro-imbalances by generating excess aggregate demand. Putting it differently, if private purchases of State-owned assets are financed by credit-creation, then using the proceeds from privatisation to expand State expenditure is no different in its macro-impact from a straight-forward credit-financed expansion of State expenditure; while causing exactly the same macro-imbalance as the latter, it amounts to a gratuitous transfer of State-owned assets to private hands. The fallacy of this argument incidentally is a replication of a fallacy which one finds in IMF-stabilisation policy packages. For stabilisation, the Fund argues, fiscal deficits should be cut; suggesting targets for fiscal deficits is a part of the Fund’s usual ‘conditionalities’. But in calculating the fiscal deficit, the Fund takes the proceeds from the sale of State-owned assets as an item of receipt, which in general is analytically illegitimate. The Fund may have ideological reasons for treating the sale proceeds of State-owned assets as if they constituted flow-receipts, but to accept this argument amounts to subscribing to a fallacy.

Let us however get back to the vision of a ‘minimalist State’. In a ‘liberal trade’ regime, assuming a given exchange rate, assuming a given import propensity, assuming that there is no deficiency of aggregate demand arising on the domestic side, i.e. that the State and the private sector taken together spend what they get, and ignoring all capital flows and debt-servicing, the rate of growth of output would be tethered to the rate of growth of exports. Those who argue for a ‘minimalist State’, therefore, pin their hopes for rapid growth on the ability of a ‘liberal’ regime, because of its acquired international competitiveness, to achieve high export growth-rates as well as a progressive lowering of the import propensity. The argument in other words is that such an economy would hold on to, or even improve upon, its share of the world market in a period when this market itself is believed, on the whole, to be a rapidly expanding one, and to witness no further increases in restrictive trade practices.

Even if we concede for a moment the last two beliefs, the argument is an invalid one for the following reasons. First of all a ‘liberal trade’ regime is a weapon that cuts both ways. While it is a truism that, if the world market is expanding rapidly, a country that retains or improves its share of it would witness rapid growth, a ‘liberal trade’ regime is as likely to allow others to encroach upon the country’s own home market as it is to allow the country to encroach upon the markets of others. In a typical third world context in fact, it is the encroachment by others upon the country’s own home market which is the fall-out of ‘trade liberalisation’. What is more, whatever prospects might have existed for the country’s eventually encroaching upon others’ markets get sabotaged in the very process of transition to a ‘liberal’ regime; in other words, the very nature of the traverse from a dirigiste to a ‘liberal’ regime determines the eventual position the country finds itself in, no matter what potential a ‘liberal’ regime held for it in the abstract.

Trade liberalisation brings immediately in its train a process of domestic de-industrialisation (together often with a lowering of the domestic savings-ratio), which is financed by borrowings from the Fund, the Bank, and, through their courtesy, from multinational banks. The beneficial effects which are supposed to accrue to the export profile from trade liberalisation, can after all manifest themselves, if at all, only after a considerable length of time. Meanwhile, the debt incurred at the initial stage of the traverse has to be serviced, and for this a further deflation of the economy is undertaken. The unemployment initially engendered by de- industrialisation is added to by the subsequent deflation. The running down of infrastructure because of the deflation subverts to an extent the prospects of export growth. And even if perchance exports do eventually pick up, the additional exchange earnings go largely into debt-service payments, somewhat easing perhaps the magnitude of domestic deflation, but by no means lifting the economy to the promised higher growth-profile. This picture of the traverse is made only grimmer to the extent that the exchange rate is depreciated as an accompaniment to the deflationary policy. This accentuates inflation, lowers the real wages especially of the unorganised workers and gives rise to speculative capital flight. In other words, the deflation-cum- devaluation package succeeds in ensuring that the burden of domestic adjustment during the traverse falls precisely on those sections of the population which are least able to bear it.

But this is not all. The argument for a ‘liberal’ economic regime is flawed for a second, even more important, reason. If it entails freedom for capital flows, then it makes the growth-process of the domestic economy dependent entirely upon the caprices of domestic and international investors. In any case, a theoretical flaw in any conception of a free global economy, where each country accepts the world prices of commodities and adjusts its production structure to these prices, lies in the fact that, even assuming that there are no problems of global aggregate demand, the locations where capital accumulates remain indeterminate; the fact that underdeveloped countries have lower wages does not by any means ensure that capital would flow towards them, rather than away from them as has historically happened. But when we superimpose freedom of capital flows upon a situation of traverse as discussed above, the problem becomes acute. Domestic deflation, growing unemployment, accelerating inflation accompanied by repeated depreciations of the exchange rate, declining real wages of unorganised workers, and the growing discontent that all this gives rise to, together with the increasing criminalisation of the society, provide the setting for capital flight; and this only exacerbates the problem ensuring that the promised turnaround in the economy is postponed still further.

Envisioning Labour-led urban development: A collective reflection

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By Debolina Majumder and Michaela Collord

Across the Global South, cities, and city-regions are growing fast, drawing attention to questions of urban development and its place in contemporary processes of capitalist development. But development for whom? By whom? These are pressing questions amidst growing (urban) inequalities. They are all the more preoccupying given widespread assumptions that urban labouring classes remain weak and, in many instances, ‘surplus’ to the needs of capital. Pushing back against these assumptions, researchers and organisers gathered recently to ask, what would urban development look like if it started with workers? What would it mean to envisionlabour-led urban development (LLUD) —rather than capital- or state-centred development? Their collective reflections follow, as does an invitation: join their conversation via a new listserv.

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Dead souls in the sugarlands: Counterinsurgency and the moral life of solidarity in Negros

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In Nikolai Gogol’s Dead Souls, the peasant appears twice dead. First in life, as property; then in death, as inventory lingering in the bureaucratic ledgers of the empire. Pavel Chichikov, Gogol’s wandering con man, traverses provincial Russia purchasing the names of deceased serfs still counted in the census so he can accumulate fictive wealth from human absence. The grotesque brilliance of the novel lies not merely in the absurdity of the scheme, but in Gogol’s revelation that serfdom corrupts everyone. The peasant suffers most brutally, but landlords, bureaucrats, merchants, and respectable society itself become spiritually deformed by a social order that converts human beings into abstraction. Gogol was not a revolutionary prophet. Yet history would eventually sweep away the old landed order through the Russian Revolution of 1917, as if the moral rot he diagnosed had become historically unbearable.

I carried Gogol with me to Negros.

Not literally, of course. One does not bring Russian novels to fact-finding missions in a countryside thick with military checkpoints, grief, and the scorching heat that clings to the sugar fields. But Dead Souls returned to me in Toboso as we listened to the initial accounts surrounding the massacre of the Negros 19. Their names had already begun entering the cold grammar of state security discourse even before families could fully mourn them. “Encounter.” “Armed rebels.” “Recovered firearms.” The dead transformed almost instantly into administrative objects, into a narrative assembled in advance by counterinsurgency.

But the farmers and residents knew the dead otherwise. They knew who laughed most easily, who planted monggo beans, who worried over school expenses, who hummed songs while walking, who sang softly while planting, who fetched water before dawn. They remembered those whom the fact-finding mission confirmed as civilians—Alyssa Alano, Errol Wendel, Maureen Santuyo, RJ Ledesma, Kai Sorem, and Lyle Prijoles—not as names suspended in the cold grammar of casualty reports, but as lives once woven into the ordinary intimacies of community, into fields, unfinished conversations, and futures interrupted. While the state speaks in categories, the masses remember persons.

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The current Western Angst and a case for Development Studies 2.0   

Caroline CornierLeave a comment


In September 2025, Adam Tooze sent a shock wave through Development studies circles (in the West) with an essay entitled “The End of Development”. He declared the evident truth that “the West’s aid model was always a mirage” and that “the UN Sustainable Development Goals now look less like a new dawn than the final gasp of a unipolar, end-of-history fantasy”. Yet, so-called ‘development’ speaks to more than aid and Western dominance. This blog post argues that what might be the end of aid could be the beginning of understanding and studying development as an endogenous process within international constraints and opportunities. For this to happen, we, as development scholars, need to resist falling back into narrow conceptions of ‘Development’ as either aid-based or big power rivalry and overcome anxious paralysis and self-pity over the end of uncontested US hegemony. Instead, we need to use the current moment as an opportunity to rethink and finally effectively conceptualise how national politics and global economic structures condition each other.

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Industrial Policy between Rentierisation and Retaliation

Shiran IllanperumaLeave a comment

Industrial policy, once a taboo in mainstream economics, is being mainstreamed by the very institutions that spent four decades stigmatising it. In March 2026, the World Bank published Industrial Policy for Development: Approaches in the 21st Century, co-authored by Ana Margarida Fernandes and Tristan Reed. The IMF, has done a similar volte face, first in its 2019 working paper ‘The Return of the Policy That Shall Not Be Named’ and again in the October 2025 World Economic Outlook, which has a chapter titled ‘Industrial Policy: Managing Trade-Offs to Promote Growth and Resilience’. That the IMF and World Bank have now openly readmitted industrial policy into their vocabulary is no small thing. Does it mean the tide has turned on austerity and market fundamentalism?

The argument of this article is that this rhetorical turn arrives bound by two structural constraints that the new Bretton Woods literature largely refuses to confront: the ongoing rentierisation of Global South economies through IMF-World Bank conditionality, and the imperial retaliation that meets serious attempts at sovereign industrialisation. Industrial policy on the terms set by Washington and Wall Street will not free up the policy space the Global South needs; it risks becoming another financial product or technocratic buzzword layered onto an already extractive architecture.

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Stabilising wages, fragmenting workers: what comes after Indonesia’s wage ruling?

anindyadessi2 Comments

What actually constitutes the key agenda for workers in Indonesia beyond celebrating May Day as a symbol of struggle? Wages in Indonesia are never truly “negotiated”; they are determined, stabilized, and at the same time separated from the political power that should be able to challenge them. Since the authoritarian New Order regime, the state has built a corporatist framework that not only suppresses independent worker organizations but also fragments the possibility of forming an effective collective force. Reformasi did open space for freedom of association, yet instead of producing consolidation, what emerged was fragmentation—many unions, but weak and divided. Thus, when integrated into global value chains, this configuration finds its function: the state no longer needs to repress workers overtly; it suffices to stabilize wages through mechanisms that appear technocratic, while allowing fragmentation to persist. In this way, low wages in Indonesia are not a failure, but rather the result of a strategy historically shaped and continuously reproduced—a form of partial class accommodation, uneven, and spatially conditioned.

Control over workers today no longer operates primarily through open repression, but through the way wages are calculated and normalized as a technical matter. Wage-setting formulas that link minimum wage increases to inflation and economic growth are presented as rational policies to maintain balance between worker and business. Yet this is precisely where the politics operates: wage conflict is removed from the arena of collective bargaining and locked into calculations that from the outset limit bargaining space. This shift becomes clear when compared to the mechanism based on Decent Living Needs (KHL), which—although not entirely free from depoliticization—still opened space for surveys and the articulation of demands, particularly in industrial areas with high concentrations of workers. Because it was seen as disrupting worker cost stabilization, this space was later closed through formulas that standardize increases while simultaneously dampening conflict. Concessions to workers are not entirely eliminated, but emerge as the result of struggles that under certain conditions succeed in forcing the state and capital to grant space, as in the case of THR and the expansion of social security through BPJS. However, these achievements do not alter the fundamental structure of wages, which remains low and fragmented; rather, they appear as limited and segmented compromises. Thus, what is produced is not merely wage stabilization, but also the management of workers’ power itself: on the one hand, there are forms of protection that are concentrated and appear progressive, while on the other, the underlying structure continues to maintain spatial differentiation and the collective weakness of worker. In this condition, class compromise does not occur comprehensively, but is produced partially, unevenly, and remains locked within a low-wage regime.

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