9/21/2019 Demonetisation: Maturing Capitalism?

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Demonetisation: Maturing Capitalism?

December 27, 2016 by Radical Notes Leave a Comment

Pratyush Chandra

“…it is not a question of the higher or lower degree of development of the social antagonisms that result from the natural laws of capitalist production. It is
a question of these laws themselves, of these tendencies working with iron necessity towards inevitable results. The country that is more developed
industrially only shows, to the less developed, the image of its own future.” – Karl Marx (1)

“We do not think or plan in piecemeal, but in full-scale design. It is just that we are revealing our cards gradually…” – Narendra Modi (2)

The left-liberal intelligentsia in India is clearly in a quite precarious state, if it finds ex-Prime Minister Manmohan Singh’s criticism of demonetisation as the
most competent response to the Modi Government’s move. The daily peddling by left social media activists of the criticisms that mainstream economists
are making of demonetisation is a symptom of the Indian left’s lost confidence (if it ever had any). Even those who have come up with more erudite
responses are lost in the grammar of the move — its immediate performance and effects — and have concluded that demonetisation is poor, bad and
ignorant economics. Coming from a chaiwala, what else can it be!!!

In our view, Modinomics is a legitimate successor to Manmohanomics — it is a continuity entrenched in the dynamic needs of capitalist accumulation. Post
1990, India has seen governments of all colours, but the coherence of the Indian state has rarely faltered on the economic front. The rulers with all their
electoral compulsions have succeeded in maintaining, if not accelerating, the neoliberal regime. However, this does not mean the political shade is merely
external and cosmetic — politics in an electoral democracy is all about reshuffling social anxieties and interests in a manner that allows the state system to
self-reproduce.(3)

Financial Expropriation and the Emergence of a Debtfare State

Demonetisation is a misnomer. It is not an attack on money by demonetising economies. Rather, it is a spectacular yet momentary unravelling and
strengthening of the adamantine chain around so-called economic independence and growth in capitalism. In fact, it is a heightened expansion of money
as financial and political-economic control. It is an effort to assess and consolidate the expanse of economic activities and transactions and thwart any
possibility of parallel economic regimes. Delegitimising particular denominations of currency becomes a means to reclaim those activities, and reassert
money as a universal measure of value, not as a means to autonomise particular levels of economy, by treating it as a mere facilitator of exchange or a
means of hoarding. Money creates boundaries only to expand and cross them. Money measures the immeasurable, it equalises the most unequal. It
institutes hidden connections between phenomena quite remote from one another — the vertical control however is revealed only at particular junctures
of economic development through the action of state. In our opinion, demonetisation is an assertion of the universality of “universal equivalence”, i.e.,
money. This means consolidation of the linkages between layers of social relationships in the economy — strengthening of the neoliberal concentration
and centralisation of capital.

There are two chief processes that define the neoliberal regime of capitalist accumulation, and demonetisation is remarkably connected with both of them.
These processes are financialisation and informalisation, which in the present heat of the demonetisation debate, have been popularly dubbed as
cashlessness and black/parallel economy respectively.

Financialisation has three main features. First, non-financial corporations increasingly financialise themselves, relying on retained profits and open financial
markets for investments, rather than on banks. Even their wage bill “is frequently financed through the issuing of commercial paper in open markets.”
Second, there is a restructuring of the banking operations by re-orienting them towards mediating “in open markets to earn fees, commissions and profits
from trading”, on the one hand, and towards individuals/households “to obtain profits from lending but also from handling savings and financial assets”, on
the other. With the active help of state through legislative measures and encouragement, the banks mobilise personal savings for peddling in stock markets.
(4)

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Lastly, and most importantly, in recent years “the personal revenue of workers and households across social classes” has been increasingly financialised.
On the one hand, this specifically signifies that there has been a substantial increase in personal and household debts for various life needs – consumption,
housing, health, education, etc. On the other hand, it shows there has been an expansion in the range of financial asset holdings — for medical and life
insurance, pension and old-age benefits, various short- and long-term money market investments, etc. This relates obviously to a withdrawal of state-
supported public provisions in the form of subsidies and direct benefits, and hence their privatisation. So, we find a tremendous increase in the
involvement of banking and other financial institutions in mediating household consumption, while they have obtained a full freedom to channel
“household savings to financial markets, thus extracting financial profits”.

Profiteering through financial transactions between banks and households has a predatory character. Profit here is not raised in the sphere of production,
but through “the systematic extraction of financial profits out of the revenue of workers and other social layers”. This is what has been termed as “financial
expropriation”. (5)

The current demonetisation move is nothing less than a full-scale financial expropriation in operation. The move has in one go forced small and big cash
hoarders run to line up in the queue to reveal and officialise their savings. The government is not allowing these savers to exchange and repossess the
whole amount of their savings in cash. This is not simply due to any unpreparedness or erratic behaviour on the part of the Indian state and Reserve Bank
of India, as many have alleged. In fact, it is a remarkable move to institutionalise a financialised relationship between the banks and households. Of course,
it is too early to judge if demonetisation has really succeeded in altering “nation’s conduct”. But its motive is pretty clear, as finance minister Arun Jaitley has
time and again pronounced: “This one decision that has ensured that a lot of money has come into the banking system, a lot of informal savings have
become formal now, and therefore, the tendency to invest these more formal savings in instruments that you keep an eye on is also increasing.”
Demonetisation is a kind of encouragement to “ordinary citizens to channelise their savings into the market which indirectly would then contribute to the
process of national development rather than be blocked only in dead assets”.(6)

Demonetisation is clearing the ground for a systematisation of “cannibalistic capitalism” in India by proliferating secondary forms of exploitation which are
not directly linked to production but are financial mechanisms to expropriate. The Indian economy is massively based upon underemployed and under-
waged surplus population that constitute the unorganised and informal labour relations. This makes it a very fertile ground for cannibalism that marked the
US economy, which was based on the proliferation of various financial mechanisms of expropriation — nay, a financial inclusion of the hitherto excluded.
In fact, we see in this move of demonetising specific denominations of the currency an emergence of the debtfare state.

Susan Soederberg defines a debtfare state as one that “legitimates, normalizes, depoliticizes and mediates the tensions emerging from cannibalistic
capitalism”. It deregulates finance and provides legal machinery to protect and strengthen banks, thus facilitating an intensification and expansion of
“forms of predatory practices.” The debtfare state enhances “the social power of money by legally and morally permitting credit card issuers (banks) to
generate enormous amounts of income from uncapped interest rates and by continually extending plastic money to those who fall within Marx’s category
of the surplus population: the partially employed (underemployed) or wholly unemployed”. The impact on the labour regime is also significant as “surplus
workers” are subjected “to the disciplinary requirements of the market, such as compelling them to find and accept any form of work to continue to be
“trustworthy” creditors”.(7)

Demonetisation in 2016 might mark a drastic emergence of a full-scale debtfare state by financially including the massive community of unbanked
individuals and households through mobile, e-payment and plastic money. However, this has not happened suddenly. The insistence of the subsequent
governments to profile Indian citizens through a unique identification system called AADHAAR and linking it with their everyday economic activities, despite
the Indian judiciary pronouncing such moves illegitimate, was already an indication towards building a panopticon, which will make everybody useful and
watched under the system. The banking and tax institutions had already started utilising this data. With demonetisation, now that the banks have acquired
a full command over the finance of Indian households, a grand system of financial discipline and punishment can be effectively generated. With the
proliferation of plastic and mobile/e-connections, our consumption and activities will be regulated, and we will pay for our own regulation.

This connects to the second aspect of neoliberalism, i.e. the process of informalisation, or the generalisation of informality destroying its sectoral and
transitional character.

Informalisation and Consolidation

“With the junking of the old high-value currency, the parallel economy has become part of the formal system” – Arun Jaitley (8)

Everybody is talking about the impact of demonetisation on the informal sector, which is heavily dependent on cash transactions. But there is scarcely any
analysis that shows how it is shaping the location of informality in the whole economy. Is it an end of informality — of the exploitation of cheap labour?
Certainly not. It is an increase in the real subsumption of informality — it is a revelation that sectoral dualism sustained through segmented economies, if
not fully illusory, is merely at the levels of appearance and form. The indirect exploitation of surplus population as cheap labour by capitalist firms by
accepting the relative autonomy or sectoralisation of informality perhaps needs regimentation today to further expand capital accumulation. Through the
so-called demonetization move, capital is arguably seeking to consolidate itself by vertically integrating the horizontalised relationship between formal and

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informal. It exposes the vulnerabilities of particular capitals seeking to hide their localised parallel levels accounted for in the official bookkeeping only as
leakages in the system.

Managing money circulation is about networking and facilitating economic activities and transactions — production and circulation. The left-liberal
intelligentsia, including many “Marxists”, are only talking about the impact of demonetisation as immediately experienced. At best, they are prognosticating
a dampening of activities and demands, which will have adverse effects on growth. They are only remotely touching on the policy’s essential connection
with the changing contours of the regime of accumulation. Leftists are right in noting the impact of demonetisation on the informal sector, but they have
been unable to account for how it is shaping the regime in which informalisation is central.

It has been frequently noted, and quite rightly, that under neoliberalism the economy moves towards informalisation. The formal sector and employment
are not growing, while informality is increasingly being embedded in the supply chains of the economy. That is why the informalisation of work processes is
considered among the chief characteristics of the neoliberal economy.

As the informal sector has always thrived on surplus population exploited as cheap labour, “hiring-and-firing” is the norm there. What the pre-neoliberal
phase had done was to secure an organised labour force that through its demand stability could sustain the domestic market. In many regions, however, a
vast rural and urban informal sector was allowed to develop to reproduce surplus population. But the economic planning was avowedly geared towards
formalisation. This vast surplus of labour and an increase in the organic composition of capital led to a crisis of the prolonged interregnum of planned
capitalism, and a decline in the profitability rate. Technological transformations found the stable workforce in the so-called formal sector over-skilled and a
hindrance to further accumulation. The formal sector was increasingly considered to be exclusionary unable to accommodate the growing surplus
population allowing over-exploitative hidden economies to flourish. This led to an ascendancy of neoliberal market fundamentalism, which essentially
attacked the formal-informal duality by legitimising informality. The aim was to take advantage of overpopulated living labour and utilise technological
innovations that made skills redundant and required equi-skilled cogs in the wheel. Through initial structural adjustment programmes these surplus
population-based informal sectors were linked with the formal corporate structures in the supply chain. In this scenario, instruments like the time-tested
putting-out system, which capitalised and destroyed the old guild system, started becoming handy once again. It was through these instruments that cheap
labour arrangements and regimes that existed locally were subsumed to avoid costlier and inflexible labour regimes that pre-neoliberal planning had
generated.

However, despite the obvious hierarchical relationship between transnational corporate structures and local industrial set-ups that mobilised surplus
labour, this relationship remained externalised becoming barriers to capitalist consolidation — concentration and centralisation of capital. Local laws that
were promulgated to stabilise the labour force in the earlier regime became hurdles for capital mobility and accumulation in labour surplus economies. It
was to avoid these hurdles that smaller and informal units were networked, but informalisation now has to be internalised and these units must be
incorporated to survive intense competition. The parcellised production and distribution is not permanently beneficial. Also needed is “the concentration of
already formed capitals, the destruction of their individual independence, the expropriation of capitalist by capitalist, the transformation of many small
capitals into a few large ones”.(9)

Banking and finance that institutionalise the power of money facilitate the concentration and centralisation of capital today by regimenting individual
capitals — big and small — and compel them to submit to the general needs of capitalist accumulation. The multiple layers of industrial forms — formal
and informal — generate clogs in the real-time mobility of financialised capital. The informal set-up provides many smaller units with legal and trans-legal
comparative advantages allowing them a kind of relative autonomy from legitimate competition. Being based on cash transactions they become
autonomous from the institutionalised finance and public credit, while fully utilising the currency issued by these institutions. It was only through monetary
and banking reforms that these economies could be contained within the structure.

We would do well to remember that one of the major battles capital has had to wage time and again is that of labour reforms. At the present juncture,
especially in countries like India, numerous legal “number filters” have been imposed that grant smaller industrial units a freedom to disregard minimal
labour standards, which bigger units have to at least legally maintain. Only by coordinating with these smaller units and utilising a labour contractual
system the corporate sector could evade the imposition and draw the benefits. There has been a continuous demand to remove these filters, so that the
benefits that the informal sector has — to openly exploit surplus population as cheap labour — could be generalised. Only through such generalisation can
the processes of concentration and centralisation become effective.

Of course, the formal sector incorporated informal entities and relationships to evade the hazards of regulation. The way cheap labour-power was bought
and exploited in the informal sector was an object of envy and is the benchmark for the formal sector entities to model the labour regime and demand for
deregulation from the state. The state and the formal industrial regime have been long trying to achieve this. Despite being able to utilise informality to
their advantage, the formal sector has been subject to humiliating bargaining tactics of smaller entities in the informal sector. The diverse local industrial
regimes in which these entities function create difficulties for formal and bigger players in the value chains. Moreover, the ancillary interests are able to
effectively compete with the corporate interests on the basis of their lower technical capabilities and cheap labour, thus leading to difficulties in the
consolidation and centralisation of capital.

As labour reforms become more conflictual, with increasing defensive struggles of workers in the formal sector, monetary policies like demonetisation go a
long way in regimenting “informal” and “small” capitalist interests. The wages of the unbanked population whom these entities have over exploited are all
paid in cash. Demonetisation attempts to mobilise the advantages of these entities, which will now be totally subservient to formal processes. It is self-

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evident that any monetary tactic that affects cash flows would have an immediate effect on the cash-based informal economy. Amartya Sen is correct when
he says, “At one stroke the move declares all Indians — indeed all holders of Indian currency — as possibly crooks, unless they can establish they are not.”
(10) However, it is not totally wrong to say that a large section of this economy is always black as transactions and contracts there are not formally
accounted for, and a substantial portion of income generated remains untaxed. But does this mean demonetisation will lead towards formality?

The notion of (in)formality is loaded with all kinds of connotations. And it is pretty confusing when we dichotomise formal and informal. In the production
and distribution networks that define today’s economy we find this dichotomy resolved very efficiently. If legal systems tend to dampen flexible
transactional and contractual relationships, informality (beyond the regulated formal relationships) seeps in to transcend rigidity. As a system, the formal-
informal relationships constitute enormous value chains. However, if we discretise these relationships, it is not difficult to find clear examples of
dichotomies in them, which actually define an intense competitive regime within the value chains — intra- and inter-sectoral competition. The entities in
the informal zones of the value chain compete among themselves and also with entities in the formal zone.

Through demonetisation a process of verticalisation has been effectuated and the formal nodes would now act as concentration and centralisation of
informal advantages. The state acting on behalf of capital in general is disciplining the devious and particularising nature of informality. Neoliberalism is a
project to look after the general needs of capital in today’s conjuncture. Demonetisation is a decisive step in that direction.

Conclusion: Vulnerabilities

“…the magnitude of the global economic crisis at times is not felt in India because of strong (parallel) economy of black money.” – Akhilesh Yadav (11)

Post-2007-08, countries throughout the globe have been struggling to set their respective houses in order. That the so-called parallel cash-based economies
in India cushioned the impact of the global crisis at the national level, acting as clogs that minimised the strains of the impact, is a strange truth. However,
in order to sustain a higher growth these economies with their particularities will have to be incorporated into the formal system, and their comparative
advantages annulled through their generalisation. What we see today is the neoliberal urge to mainstream and generalise informality and make it a ground
for systematic capital accumulation, with concentration and centralisation as its vehicle. Hence, it is in this regard that the moves like demonetisation
become effective instruments. But this would destroy the clogging effects of local and parallel economies. Hence, it would eventually minimise their ability
to cushion against global vulnerabilities.

Notes and References

(1) Karl Marx, “Preface to the First German Edition,” Capital I, Collected Works, Volume 35, Progress Publishers, Moscow, p. 9.

(2) “Indira Gandhi lacked courage to demonetise, we are paying for it: Modi to his party MPs”, Indian Express (Dec 17, 2016).

(3) The political institutional ascendancy of rightwing jingoistic assertions is not any return to protectionism, rather it mobilises and productivises the
general precarity to restrengthen neoliberalisation. By a reactionary generalisation of fear and terror that the mobility of capital and its crisis creates, it
helps the system to reconsolidate its base against any radical statism and revolutionary anti-statism. The phenomena of Modi, Brexit, Le Pen and Trump will
actually help in the final dismantling of the vestiges of older protectionist labour regimes in the name of making local economies and labour markets
competitive, so that capital finds the locality docile for investment.

(4) Costas Lapavitsas (2013), “The financialization of capitalism: ‘Profiting without producing’”, City, Vol. 17 No. 6, pp 792–805.

(5) Ibid.

(6) “Demonetisation is changing nation’s conduct: Jaitley“, The Hindu (Dec 24, 2016).

(7) Susan Soederberg (2013)The US Debtfare State and the Credit Card Industry: Forging Spaces of Dispossession, Antipode Vol. 45 No. 2, pp 493–512.

(8) “Digital payments will help lower fiscal deficit: Arun Jaitley”, LiveMint (Dec 25, 2016).

(9) Karl Marx, op cit, p. 621.

(10) “Interview: Demonetisation move declares all Indians as possible crooks, unless they can establish otherwise, says Amartya Sen”, Indian Express (Nov
26 2016).

(11) “Black money helped Indian economy during global recession: Akhilesh Yadav”, Indian Express (Nov 15 2016).

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