Caught in a trap

Issue: 106

John Game

A review of Vivek Chibber, Locked in Place: State-Building and Late Industrialisation in India (Princeton University Press, 2003), £26.95

Indian nationalists argued as early as the 1880s that British rule had transformed a pre-capitalist economy based on the export of luxury goods and the import of bullion into an economy based on the export of raw materials and the import of manufactured goods. The first result, they argued, was the deindustrialisation of the country and the throwing of millions into underemployment and poverty in a rural economy characterised by land shortages and recurring bouts of famine. Second, the export of economic surplus out of the country combined with competition from British manufactured goods to deprive Indian capitalists of the ability to develop modern industry, seen as the solution to the first set of problems.

Indian economic nationalists, like economists in Germany and the US, developed a critique of the empire of free trade as representing the interests of the British state and British capitalists rather creating the natural harmony envisaged by Adam Smith in his Wealth of Nations.

But Indian nationalists did not have a state of their own to carry out their programme. Instead they had a colonial state run by the British in the interests not of Indian but of British capitalism. By the first decade of the 20th century there was growing impatience with endlessly petitioning the colonial authorities to adopt policies which would lead to industrialisation rather then the further impoverishment of a predominantly rural economy. The widely held view was that behind the colonial state stood the capitalists of Manchester and Lancashire, with no interest in creating modern industrial capitalism in India and only concerned to increase the volume of trade. This, empirically detailed in pamphlets, petitions and speeches and argued repeatedly, was hardly the same as industrialisation. All that it led to was a healthy balance of payments for the British economy—with Britain having the balance and India making the payments, according to what became known as the ‘drain theory’ of colonial exploitation.

The development of Indian nationalism as a mass movement therefore crystallised around an ideologically-charged argument about Indian poverty, its nature, causes and solutions. This made more or less radical programmes for economic transformation logical to the burgeoning movement against British rule around which competing social forces organised themselves politically. By the 1930s nobody believed that independence would not inevitably bring with it radical changes in social and economic arrangements, even if the exact shape of these changes was unclear. This generated revolutionary hopes and panicked manoeuvring in equal measure. Even the grisly denouement of partition at independence, with its terrible communal mass slaughter, has to be understood as part of the vast social churning unleashed by the hopes and fears generated by the prospect of a transformation of the grotesque parody of capitalist property relations instituted by colonialism.

These competing radical programmes of social transformation did not simply reflect meaningless noises of narrowly self- interested sections of unrepresentative elites, as the British argued. Nor were they the uncritical acceptance of alien and inappropriate ideological transplants from Fabians in the London School of Economics or Marxists in the Soviet Union, as contemporary liberals argued. Sympathy for these ideas was motivated by already existing programmes of social transformation with real historical depth in a society where distorted economic relations, continuously analysed and lobbied against in the 50 years before independence, had produced the actually existing form of retarded colonial capitalism. Economic nationalism was not an unfortunate lapse of judgement. It constituted the ideological core around which nationalism had developed during the protracted night of colonial rule.

Vivek Chibber’s important new book notes the historical depth behind the kind of policies adopted by Nehru, the leader of the Indian National Congress (which came to power in India after the British were finally driven out in 1947), and that this was reflected by support for economic planning within important sections of the capitalist class. The main representatives of Indian capital had come together by the 1940s and, in collaboration with Congress, generated a set of proposals about the future development of the Indian economy which came to be known as the Bombay Plan.

This was on the face of it not really very surprising. A programme of state aid to promote industrialisation might be expected to benefit industrial capitalists as well as transform the lives of the majority of the population. From this was born what Chibber refers to as the ‘myth of the developmental bourgeoisie’. Its character was to be hotly debated by Marxists over the ensuing decades. There were at least three splits in the Indian Communist movement as the ability of what came to be called ‘Nehruvian socialism’ to reverse the economic legacy of colonialism came increasingly into question, creating political crisis and tumult that eventually issued in the suspension of democracy and the declaration of a state of emergency by Indira Gandhi in 1975.

This myth was also to inform analyses of this failure by the liberal economists who increasingly gained influence inside the state as the economic project of the developmental state put in place by Nehru began to unravel. After all, the new state had the support and goodwill of the vast bulk of the population, the services of perhaps the most sophisticated generation of economic planners seen in the post-war world, and the co-operation of a farsighted capitalist class which identified with its goals of conducting planned capitalist development on a democratic basis. Instead of producing rapid industrialisation the result was a rate of growth too slow to change the conditions of the bulk of the population. There was corruption and inefficiency at all levels, economic plans which seemed to bear no relationship to reality, and above all continuing and crushing poverty for the majority of people, who remained dependent on employment in the rural sector. The liberal reformers were in the ascendant by the late 1980s, arguing that Indian capitalism had to be set free from a planning regime which had in any case fallen to pieces.

Vivek Chibber’s attack on the ‘myth of the developmental bourgeoisie’ seeks to shift discussion away from questions related to the inadequate performance of the developmental state towards discussion of the failure of their installation. Crucial to this shift is Chibber’s insight that the capacity to subsidise industry was not enough for the strategy of ‘late, late developers’. This had to be combined with the ability to discipline capital. In return for subsidies capitalists had to relinquish control over what had hitherto been their sacred prerogative: investment decisions. This was necessary to overcome co-ordination problems which exist universally under capitalism but which underdeveloped capitalisms of this kind were peculiarly vulnerable to. Chibber presents persuasive evidence that there never emerged in India such a state, capable not only of providing subsidies for industry, but also of disciplining capital.

Chibber argues that the key to achieving such capacities revolves around questions of class power and not, as he puts it, hundreds of clerks obediently shuffling bits of paper from department to department in line with regulations. It is here that he parts company not simply with neo-liberal orthodoxy but many of those he designates as ‘statists’. They argued against neo-liberals that the only successes in the developing world were states like South Korea, and they focused exclusively on policies pursued within the state at the expense of the relationship between state and capital. The question of how the state managed to subordinate the interests of capital to the developmental agenda did not seem particularly problematic to such theorists. They assumed that the weakness of indigenous capital in developing countries gave the state the ability to discipline capital if it only developed appropriate repressive mechanisms and strategies. Will and determination here stood in for any structural account of how such a state actually came to successfully impose its policies.

This, according to Chibber, fails to explain why the construction of a developmental state was so unusual. It assumes either stupidity on the part of planners or some natural proclivity to corruption for which the only solution could be liberalisation, given that most attempts to construct a developmental state ended in failure. In order to explain these failures, Chibber engages in a species of historical revisionism in the case of South Korea.

He argues that the key to South Korea’s success was not the emergence of a developmental state but an alliance between South Korean and Japanese capital to set up joint enterprises in Korea, with the Japanese prepared to play a subordinate role in order to escape US tariffs. What Chibber, following neoclassical models, refers to as the incentive structure of export promotion (as opposed to import substitution) could only be put in place because Korean capital was prepared to take risks to follow through opportunities created by the alliance with Japanese capital. This opened up the historically unprecedented prospect of a ‘late, late developer’ gaining access to the US domestic market. There is little evidence prior to this, Chibber implies, that the Korean dictator of the 1960s, Park, had the capacity to discipline capital, however muscular his regime was. Its famous arrests of top businessmen, ‘the illicit accumulators’, simply provoked a recession. Nor is there evidence that a shift from import-substituting industrialisation to export-led industrialisation would have stood the faintest chance of success against what would have been determined resistance from the capitalist class as a whole, if an alliance with Japanese capital had not been present.

The analytical tools Chibber develops in his revisionist account of the South Korean state enable him to cast new light on the apparently paradoxical behaviour of the Indian capitalist class which has generated so much historical controversy and political confusion.

Utilising previously unexamined archive material, he demonstrates that while important sections of the capitalist class had drawn up proposals for planning when the social turmoil associated with the struggle against the British was at its height, attempts by the new Congress regime to actually implement them met with fierce and determined resistance. There were investment strikes and appeals to British investors to join in and teach the new state a lesson. The demobilisation and incorporation of labour, as well as peasant struggles for land reform by a Congress increasingly dominated by landlords (given insufficient weight in my view in Chibber’s account), took away the threat to capitalist property relations which had previously made the more intelligent sections of the capitalist class cautious in their opposition.

This argument is not perhaps entirely novel (at least amongst Indian Marxists). What is novel, as well as being potentially politically illuminating, is the distinction Chibber draws between the measures necessary to accrue revenue to subsidise industry and the measures necessary to discipline investment decisions to ensure that this revenue leads to capitalist development of the country as a whole, rather than simply the development of fortunes of particular capitalists. They turn out on Chibber’s account to be more interested in their profits than in the historical responsibilities imputed to them by some Marxists and most nationalists.

This allows him to open up questions about the trajectory of the post-colonial state and explain why the failure to impose the disciplinary component of a developmental strategy led even those previously committed to a planning regime to see liberalisation as the only way out, something which was evident as early as the mid-1960s. Caught between the reality that liberalisation would not lead to economic transformation of the country, but with no means of controlling investment decisions of capitalists, the state was locked into a trap which eventually exploded in the 1970s.

The ideology of the developmental state was dead, and by the late 1990s an Indian finance minister could make an inaugural speech praising the legacy of the British East India Company and asking for hundreds of more East India Companies to come to India to repeat the happy experience of the 19th century in an era of globalisation.

The fate of the Indian developmental state is important for socialists as it parallels the failure and crisis of most existing states in the world, producing similar patterns of ideological crisis on the left almost everywhere outside of the handful of developed capitalisms in the imperialist core. It is vital that socialists develop some kind of theoretical explanation of the current impasse, as the old reformist ideologies of development disintegrate, leading to protests on the one hand (‘The East India Company is back: except this time it’s the Americans,’ chanted workers striking against liberalisation) and the growth of communal and ethnic nationalisms on the other. Vivek Chibber’s book is an important, and in the academic market, unusual, attempt to do so and deserves to be read and widely.