Utsa Patnaik on Agrarian History and Imperialism

Max Ajl speaks to the Marxist economist Utsa Patnaik about agrarian history and imperialism. Her work on the economic history of India and other countries under colonial rule, shows how the experience deepened food insecurity and unemployment, trends which reemerged again under neoliberalism. The interview was conducted as part of the activities of the workshop on ‘Agriculture and Imperialism’ in November 2018, Beirut, Lebanon, organised by the Thimar Collective.

Good morning and thank you very much for being with us today. Can you start by telling us how you began your study of economics and what your initial research was?

I got interested in economics at an early age because there was quite a lot of Marxist literature in our house – Karl Marx’s Capital, the Marx-Engels volumes and Lenin’s writings. My father, though an engineer by profession, was interested in Marxism. Because I read this literature as a teenager, I thought of learning economics. I joined the Delhi School of Economics for graduate studies. We had excellent teachers at that time including Professors Sukhamoy Chakravarty, Amartya K. Sen, K.N. Raj. Then I completed a DPhil in economics at University of Oxford in England on the subject of the development of capitalist farming in India, returning in 1973 to teach at the new Jawaharlal Nehru University in Delhi, where I taught for 37 years before retiring in 2010.

You have developed a strong criticism of the advance of neoliberalism in India. Can you tell us a little bit more about how you saw that process?

The main criticism of neoliberalism is it destroys our food security and undermines livelihoods of small producers. The economic history of India and other countries under colonial rule, showed there were certain alarming economic trends of deepening food insecurity and unemployment at that time which were coming back again under neoliberalism. If you did not study this history and simply looked at present day neoliberal policies (of free trade and cutting back public spending, ‘austerity’) you would never be able to identify those trends. The most important was the inverse relation under free trade colonialism, where exporting more from agriculture always reduced our food security. The mechanism was income deflation. The consumption of the peasantry in India was severely restricted by very high taxes and rents so that peasants were forced into growing and selling export crops. Grain-producing land was diverted to tropical crops, exported to satisfy the metropolitan demands that were insatiable because their cold lands can produce only one crop. Our lands are very productive because we can grow at least two crops per year, and in some areas of India up to three crops.

There is heavy, continuous and one-sided demand that the North always has on our lands, for the simple reason that agriculture is constrained by climate, and so is very different from any other sector. You can produce shoes and textiles anywhere in the world, but no amount of capitalist technological change, will allow North America to produce sugarcane or Germany to produce coffee. They can never import-substitute in these goods, but this reality is never mentioned in their economic literature. They want an international division of labor in which we specialize in growing tropical non-grain crops to export to them while they export to us the grain they can produce in great amounts. Not in the past – Britain was dependent on India then, even for part of its wheat imports. But with rising productivity, Europe and North America now have large surpluses of grain and dairy products, but their rich populations don’t want to eat only bread and dairy products or fresh vegetables only in summer. They want coffee, tea and cocoa, they want tropical products and fresh vegetables, fruit and flowers in the middle of winter. But they are incapable ever of diversifying their own production to these crops. So today they demand the products of our lands, to an even greater extent than before. A lot of things fall into place once you understand that – why they have always wanted and got access to our lands, but we don’t need access to their lands. That is what the WTO is all about, the repeated mantra is: open up your agriculture.

The people who support free trade policies might be puzzled and say, ‘What’s wrong with that? You’re earning foreign exchange for exporting more, your farmers are getting more income!’ The problem that they do not see, is that even though our lands are more productive they are limited in area, we cannot actually satisfy the huge appetite of rich advanced countries populations and also feed our own population. It’s just not possible. Through studying history, I find the inverse relation obtained not just in the India-Britain dynamic. If you look at Java under the Netherlands, or Korea under Japan, you find the same inverse relation. I gave the data in my book The Republic of Hunger (2007) for Java and for Korea. For the people in Java rice availability went down sharply as the Dutch diverted land to tropical export crops. From 1910 and 1945, Korea was a Japanese colony. The Japanese took over half of Korean rice output by the 1930s so the Korean peasantry was pushed down to near-starvation level. In every single developing country, I found this inverse relationship. In India, from 205 kilograms per head food-grain output and after exports, 197 kg available for consumption (average for 1909 to 1914) the availability went down to 159 kg (average for 1933 to 1938)  and dropped further to 137 kg by 1946, our worst year. Daily per head calorie intake went down by 650 calories. Grains supplied a little more than three quarters of the daily calorie intake as well as protein intake of the average Indian even as late as 2005 and there was even higher dependence earlier. Poor populations cannot afford enough milk and other animal products and depend heavily on cereals and lentils. Even in Lebanon, I find that apart from vegetables, people are reliant on basic food staples such as cereals, lentils and beans.

If we invest a lot in improving our agricultural productivity – then, yes, in theory we could do both, we could export as well as maintain production for our own needs. But the neo-liberal policy regime is predicated on governments cutting back on expenditure – that is one main policy pillar, apart from free trade, which is the other. There is a basic contradiction: governments are asked (by international financial institutions) to cut spending, and so not only India, all developing country states have been cutting very sharply their rural development expenditures, and research on new crop varieties. As a result, you cannot raise land productivity, and at the same time you are asked to export more and more to fill supermarket shelves in the North. Income deflation plus free trade – these colonial policies are being replicated in new modern forms. Our food grain output per head was bound to go down and mass incomes were also being squeezed by income deflation so demand per head was falling. From the early 1990s, I was the only person who was warning repeatedly that free trade and cutting public spending are dangerous because our food security will be badly affected.

That is precisely what has happened, from 182 kilograms per head output and after exports, 174 kg. availability in the early 1990s we went down to 159 kg. availability by 2008, the same level as in the 1930s seven decades earlier!

This was a period of imperialist advance worldwide. Can you connect what happened in India to your macroeconomics of imperialism? Especially that contained in the recent book that you co-authored?

It is a complex phenomenon. In post-war Europe and America policies were quite different from what they were from the 1970s onwards which saw a big policy shift. Post-war Europe was engaged in reconstruction, the dominant theoretical discourse then was strongly influenced by Keynesianism. The post-war reconstruction boom was helped by American aid to war-ravaged Europe. The idea that you had to build up lost employment and purchasing power through government spending, dominated. It is only after the oil price shocks of the early 1970s that policies changed, West Asian oil money was deposited in the Northern banks producing an enormous increase in liquidity and the power of finance grew very suddenly, very fast. Financial interests have traditionally always had a very clear agenda – an income deflating agenda.

Firstly, they have an inflation targeting agenda, and to do so, they carry out an income deflating agenda. I think it’s not too difficult even for non-economists to understand, that those who make their money income by lending money to others, which is what financiers do, have a different set of interests as Karl Marx had explained long ago, from those who make their money from investing in production. A capitalist manufacturer wants an expanding market and he wants cheap credit for carrying on production and for investment – capitalists want to borrow at low interest rates. The financier wants exactly the opposite, he wants high interest rates because he is making his money as interest return from lending, not from producing anything. However, the nominal interest rate is not what interests financiers, they want to make sure that the real interest rates are high. If the inflation rate goes up their real rate of return will fall.

To illustrate, suppose the interest rate is five percent and the rate of inflation is five percent then for the person lending money the real interest rate, is zero. The interest rate has to be higher than the rate of inflation. In order to maximize the real interest rate they always want the inflation rate to be very low. That is why you hear of inflation targeting all the time, when finance dominates industry. But there is more than one way of targeting inflation. The best way is to increase production especially in agriculture, as fast as demand is increasing, then prices will not rise and this method benefits, it does not hurt people. But the path that financial interests choose is always to restrict demand for a given production level – they don’t want mass demand to rise. Even when unemployment exists, they always advise governments that you can’t spend more, putting forward wrong arguments. But the real reason is that higher public spending will set in motion the Keynesian multiplier, in turn mass incomes will rise, so demand would rise, inflation may rise especially for primary goods, and they hate inflation because it means their own returns will fall. A manufacturer would like his output price to go up relative to his input price because he profits from that. But the financier absolutely hates inflation and when finance dominates industry you get these income deflating policies badly affecting people, which are uniformly applied by the IMF and World Bank across the world as ‘austerity measures.’

In many countries, they have pushed for actual legislation to prevent governments from spending more, they will say first that you have to keep your fiscal deficit down to 3 percent and countries have cut it down to 3 percent. Then they’ll say that you have to balance your budget that is, cut spending even more, so that fiscal deficit is zero. And probably then they would want surplus budgets namely negative fiscal deficit! It is very clear, this deflationary agenda of ‘austerity’ which has been pushed by financial interests successfully now all across the world. And it has had a disastrous impact on employment and living standards for the mass of the working population.

In India too the Fiscal Responsibility and Budget Management Act was passed 2004 under pressure from global financial interests. It has an additional objective for them, to squeeze mass demand so that land and resources are shifted away from local consumption to meet the consumption demands of advanced countries.

Your theory of imperialism sees this as differentially applied, particularly vis-à-vis depressing the prices of tropical agricultural products.

There are multiple layers of contradiction. On the one hand domination of finance means that ordinary people in the advanced world too are hit by it because you have higher unemployment. The rise of the Right in the advanced world is because the Left has not understood the agenda of finance and has not sufficiently opposed neoliberal policies. To a very large extent it has got intellectually hegemonized by all the wrong theories that financial interests have put forward. All this hype about globalization, efficiency, free trade – they have succumbed to it. When progressive people do not have a clear theoretical perspective that austerity imposed by finance is hitting the interests of the working people, then in the advanced countries too, you will see the rise of fascist elements as happened in the classic case of Germany in the 1920s and 30s (where Germany’s creditors had insisted on deflation). The Left there was very strong but not wise enough to unite with others and mount an effective theoretical as well as practical challenge against the rise of fascism. These fascist forces come in and say to the people, you are unemployed or losing income. Who is to blame? It is the immigrant who is to blame, or the religious minority. They divert the people’s anger into the wrong channels – targeting minorities, targeting immigrants, and so on. That is precisely what Trump is doing. That is precisely what is happening in Brazil and in India. I think the theoretical opposition to neo-liberalism has been too weak on the part of the progressive Left. It needed to have a much stronger and uncompromising opposition, but they were all taken in by the hype about globalization being good.

In fact, globalization represents nothing but a new phase of the domination of finance capital domestically within the Northern countries, but also economic re-colonization of the global South. You have discontent and unemployment in advanced countries. The attempt by their governments and by global finance is to shift the burden as much as possible to the developing countries. They are constantly told to devalue their currencies, so their products become cheaper for the North. Despite their poverty, their own public grain procurement and distribution for ensuring some food security, is at present under attack in the WTO so that the North’s surplus grain can penetrate their markets. They are pressurized to cut public development spending. Such income-deflating and unemployment raising measures lead to far worse outcomes for them, because the initial level of income itself is so much lower.  The advanced capitalist countries start with much higher income levels, they have some kind of unemployment benefit and social welfare schemes. Finance tries to attack these, but in Britain the doctors have stood out against the dismantling of the National Health Service which used to be practically free, and which was set in place by the Labour government immediately after the Second World War. There is still some protection.

But in developing countries where the population has such a low level of income if you say that you cannot have development expenditure and you have to have private high-cost health and education, market-pricing of energy and inputs for farmers, that you must also remove any kind of price support to farmers and expose them to global price volatility, the result is disastrous. We never heard of farmer suicides due to debt before the 1990s in India, only from 1997 when the neo-liberal attack on farmers took effect did you hear of debt-driven suicides that by now exceed 300,000. And the sad thing is it is our own government which is the instrument – our finance ministers, our economists, who are so completely hegemonized by the wrong theories peddled by global finance that they are attacking the interests of their own people by implementing these policies. Can you imagine anything more tragic than that?

I think this also underlines the importance of theoretical resistance. We must show up the fallacies in the theories which are uncritically accepted. I’ve tried to do that to some extent by critiquing the incorrect theories that justify past and present globalisation. For example, Ricardo’s theory of comparative advantage says that there is always benefit from specialization and trade for both trading countries, but it is a logically incorrect theory. Ricardo himself was a poorly educated, but very clever stockbroker. He was a very modest man you know. He said ‘I am not as learned as Adam Smith. I have not studied philosophy, I have not studied history.’ If you read Ricardo, you see he had very good reason to be modest! Because if he had studied philosophy, which includes the study of logic, he could not have put forward the theory of comparative advantage, which assumed that both countries entering into trade could produce both commodities. This is a very simple material fallacy, namely an incorrect statement of fact since Ricardo’s country could never produce tropical goods whose ‘cost of production’ could not even be defined in his country. His basic assumption is not true for any Northern country, so the conclusion of mutual benefit is not true as I have pointed out with numerical examples in my essay ‘Ricardo’s Fallacy’ (in K S Jomo ed. The Pioneers of Development Economics).

Karl Marx had actually attacked, in Theories of Surplus Value, Ricardo on rent, in fact Marx is scathing about Ricardo’s logical mistakes with respect to the theory of rent. Marx as a trained philosopher would have criticized Ricardo’s theory of trade as well, except that he never completed his intellectual project. He intended to study ‘capital, landed property, wage- labour; the State, foreign trade, world market.’ He set out this project in the Preface to A Contribution to a Critique of Political Economy published in 1859. Reading his plan of work you realize he completed less than half of his intellectual project and never formally discussed ‘the State, foreign trade, world market.’ I have no doubt at all that if he had got around to analyzing international trade, he would have spotted Ricardo’s mistake and would have pointed out that the theory was fallacious. It remains very important to critique the wrong theories which have dominated our syllabi, which are taught to this day to our students and completely mislead them. That critique has to be carried out constantly.

Can we go a touch deeper into Marx’s thought? In A Theory of Imperialism, you discuss how Marx anecdotally and journalistically analyzed colonialism. But this was only very partially carried forward by the subsequent Western Marxist tradition – for example, you state Lenin and Luxemburg put forward analyses that may have been incomplete but were certainly highly attentive to imperialism.

As I mentioned earlier there is a basic problem and this is that Marx’s own theoretical project was never completed. He did write about colonialism at length in his newspaper articles, for the New York Daily Tribune, but Northern academics don’t take those articles seriously, the economists especially only look at the three volumes of Capital, (only the first volume was published in his lifetime) which do not discuss international trade at all – Marx never got around to opening up his closed model in Capital to foreign trade though he had certainly intended to do so.  So, there is a fundamental problem with a lack of completion of his rigorous model of capitalism, of Marx’s own project. Marxists should understand that it was an incomplete project and so you can’t treat Capital as a finished product – Marx never intended to leave it as a closed system, he was forced by debt and illness into premature death. He had a very hard life – how much could you expect one man to do after all! His incomplete project should have been carried forward by others. But you need to be a true Marxist to carry forward his project and unfortunately most of those who call themselves Marxist in Northern universities in my view are not Marxists at all. They see Marx’s published works as some kind of Bible and treat it narrowly and scholastically rather than looking at the realization of Marx’s grand project of human liberation. Humanity does not end where Europe ends, or America ends. Lenin’s contribution as well as Rosa Luxembourg’s work are both of inestimable value because they applied the Marxist method to areas that Marx himself had not touched. Towards the end of his life, Marx realized that his original vision of proletarian revolution in Europe was not going to materialize. And why not? Because the safety valve European capitalism had was emigration. They simply exported their unemployed to the new world. As a result, the potentially explosive social and economic contradictions within Europe were defused. Marx realized that and by the 1870s, he looked towards Russia, he was studying Russian and corresponding with Russian revolutionaries. What he wanted to see was revolution and human liberation wherever it occurred. If the proletarian revolution was undermined in Europe by emigration and colonial wealth coming in, he wanted to see it happening elsewhere. Lenin carried this vision forward and for the first time he integrated the role of the peasantry into Marxism, as well as the role of the colonized and oppressed peoples. Luxembourg also did so very explicitly in her Accumulation of Capital. She was the only one who talked about colonial exploitation with very specific examples, including India and Egypt.

Lenin argues that one of the constituents of imperialism is capital export. But some of your work and others such as Amiya Kumar Bagchi discuss how capital export was actually fundamentally different when it was exported to settler colonies versus capital exported to other locations.

Lenin was right about the general importance of capital exports, relying on data from J. A Hobson. But the scholarly information they had access to a century ago, was very limited. You cannot expect an individual like Lenin both to lead a revolution in Russia and to research the details of colonial exploitation! Later UN historical trade data series compiled in 1942 and in 1962, showed that it was the tropical colonies that had huge trade surpluses and earned gold and foreign exchange from the world. Researching the details, we find that the metropolis took all of the colonies’ foreign earnings, and this allowed the metropolis to export capital to regions of European settlement. The producers of the export goods back in their colonies were never actually paid for their exports because the ‘payment’ came out of the cash taxes collected from the very same producers.

This mechanism once explained is actually quite simple, but until explained, it was not so easy to understand. It is only by studying both Indian and British trade data intensively over many years, that I could see the real patterns emerging. The question I asked myself was, if there was a drain of surplus from India which was huge compared to Britain which was tiny in terms of resources, it had to show up somewhere in the British statistics. So why was not a single historian of British industrialisation, including Eric Hobsbawm who was a Marxist, giving even a single reference anywhere, not even a footnote, to the Indian literature on the drain of wealth?

I realized that the British historians were making incorrect estimates of their own trade. Phyllis Deane and W.A. Cole had published in 1967, British Economic Growth 1688–1959, which was standard reading for anyone wanting to know about British economic history. Yet they were using a wrong definition of trade, a definition which is not in any macroeconomics textbook – which is not used by the World Bank, or UNCTAD, or the IMF, the bodies which present trade data for all countries. Deane and Cole were leaving out re-exports completely and measuring only part and not the whole of Britain’s trade. They added up imports used within their country and exports of their own goods. But the correct definition is total imports plus total exports, including re-exported imports. I reworked the data using Deane and Cole’s own series for the 18^th and 19^th centuries. By the year 1800 the actual trade was £82 million, but the figure that Deane and Cole give us is £51 million! The correct trade to GDP percentage was 56 percent at that date, not 34 percent as they stated. It is very important for us to look at what Northern academics are doing with their own data, but we remain intellectually colonized and we take it for granted since they are well-known professors from Cambridge they must be correct, but very often they are not.

What Britain was getting from its Indian and other colonies was international purchasing power by taking these goods as the equivalent of tax. It was a very clever system. But the producers themselves did not realize that they were not being paid, because the government agent who bought the goods from them was different from the agent who took their tax money, and the transactions took place at different times, so they did not connect the two and did not realize that a part of their own money was coming back, so that effectively they were not being paid but were being taxed out of their goods. Suppose you are a peasant farmer in Lebanon, and I am the foreign power taking 100 lira in taxes. I use 50 of those lira to buy your fruit for export. You think it is a normal market transaction because you are getting money for your fruit just as you would get from a local trader. But it’s not a normal transaction because actually you are not getting paid. Part of the tax you have paid is merely being converted from cash to goods.

Phyllis Deane wrote a book called The First Industrial Revolution in 1965, in which she had a whole chapter on how important re-exports were because they helped Britain to buy strategic goods from Continental Europe and North America. Then in 1967, two years later she published the joint book with Cole, in which that discussion was cut out completely, and from the data series they cut out re-exports so giving wrong estimates. Were they doing it deliberately, or was it just a conceptual confusion? We will never know. It doesn’t matter, but the fact remains it’s a wrong estimate.

All of the discussion of British economic growth ignores the drain of wealth from colonies completely. Therefore, it is theoretically and analytically an incomplete discussion. In fact, the quality of scholarly work on British economic growth itself is quite poor in my opinion, because they can’t explain why that country was the first to industrialize. Naturally, for they ignore the fact that it already had the largest empire in the world. From the mid-19th Century, after the great rebellion in India, 1857-59, the governance of India passed from the East India Company to the British Crown. They put in place a more complicated looking mechanism of taking our earnings, but essentially still very simple, by using Bills of Exchange. The minister in Britain in charge of Indian affairs was called the Secretary of State for India. By this time Indian goods were going directly all over the world. The Secretary of State for India in Council told foreign importers of Indian goods who needed to pay for their imports,  ‘You deposit your gold, or sterling, or your own currency with me in London in exchange for a bill to an equivalent Rupee value that you can send to Indian exporters for cashing in rupees in India.’ So all the gold and foreign exchange Indian producers had earned, the international purchasing power went into the account of the Secretary of State in London, for Britain to use. The exporters in India receiving Council Bills deposited them in banks and were issued the rupees, but not in the normal manner – the rupees for cashing the bills were paid to banks by the Treasury in India, out of the budget. About one-third of the budget went for cashing the bills, a very abnormal use of budgetary funds we do not ever see in any sovereign country. Today in independent India, say I export $1,000 worth of goods to USA. The dollars come to the Reserve Bank of India (RBI) which of course keeps the dollars, they add to India’s international purchasing capacity. But at the current exchange rate of Rs.70 per dollar, the RBI makes a fresh issue of 70,000 rupees to me not connected in any way whatsoever to the budget. But in colonial India our foreign earnings never came back to the country, additionally even the rupee value was not actually paid to the producers since they were cheated by cleverly using their own tax payments to reimburse them out of budget funds. That is why the export surplus was a correct measure of massive transfer of our foreign earnings to Britain, and our producers got poorer and poorer the more they exported because then they were taxed even more heavily.

Supposing we had been credited even one-quarter of the massive sums we had actually earned in foreign exchange? We had this export surplus from day one, from 1765 onwards. Then we could have imported technology to build up a modern industrial structure many decades before Japan started doing it after its Meiji Restoration in 1867. But not a single dollar, not a single pound sterling from export surplus earnings was allowed to come back. That was the beauty of the system Britain operated from its own point of view, that they got this huge international purchasing power. According to the UN data for three decades ending in 1928, India was earning the second largest export surplus in the world, second only to the USA.

I estimated that the drain of wealth from India to Britain for the period 1765 to 1938 amounted to £9.2 trillion (equivalent to $45 trillion) using India’s export surplus earnings as the measure and compounding at a low interest rate of 5 percent. (My essay titled ‘Revisiting the drain, or transfers from India to Britain in the context of global diffusion of capitalism’ appeared in a book I co-edited in 2017, titled Agrarian and Other Histories – Essays for Binay Bhushan Chaudhuri).

Using its political control to take India’s and other colonies’ huge export surplus earnings for its own use meant that Britain could become the world’s largest capital exporter and help to spread capitalist industrialization to regions of European settlement. During the 50 years after 1870 it was importing much more than it exported from the European Continent and North America – namely it was running current account deficits with these regions. Yet it was exporting vast sums of capital to develop infrastructure to these very same regions, so it was running capital account deficits too with them. (Remember capital exports unlike goods export, are a negative item and normally a country would need to have a current account surplus to be able to export capital, because the balance of payments always has to balance). The fast-rising balance of payments deficit it had with Europe and North America was only possible because it took all its colonies earnings to pay for these deficits. So, today’s entire advanced industrial world actually parasitically benefited from the wealth drained from colonies.

Can you talk a little bit about the reception of your work and imperialism and your work on the drain, in both India and the Western intellectual sphere, especially Western Marxism? If there has been reception?

In India, yes, it has been quite widely read, and abroad, it has attracted some notice – I think one reason for that is that Akeel Bilgrami also insisted that there should be a commentary on our arguments. Originally, he had asked a number of people to give their comments, including Noam Chomsky, who said that our book would need careful reading which would take more time than he had initially thought. David Harvey, out of three or four people who had been approached, agreed to give his comments. It was useful because like many Marxists in Northern universities he had never been exposed to the more than century-old theory and discussion of the drain of wealth under colonialism. Therefore for him to engage with our specific project was perhaps difficult and meant entering a new terrain. We did not agree with the points that he made but it was still good that he did take the trouble of reading the book and giving his criticisms. Now, I think slowly, our argument may start percolating down because books are not read immediately, nor do ideas get disseminated very fast especially if they are not within the conventional mould.

This is an abridged version of an interview which is co-posted by Thimar and roape.net.

Utsa Patnaik has taught economics at Jawaharlal Nehru University, India starting 1973 until retiring in 2010. She has written, edited and co-edited several volumes including Agrarian Relations and Accumulation – the Mode of Production Debate (1991), The Agrarian Question in Marx and his Successors in two volumes (2007, 2011), The Agrarian Question in the Neoliberal Era (2013) with the late Sam Moyo and most recently A New Theory of Imperialism (2016).

Max Ajl is a researcher in Development Sociology at Cornell researching the Tunisian national liberation movement and a contributor to roape.net.