French economist and writer, Frederic Bastiat famously said, “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.” That is how exactly the modern-day capitalism, also known as neo-liberalism, emerged. It is an order under which every system and institution gets hijacked to serve the top 1% of the society.
Exactly ten years ago, in 2008, most of the developed world faced a financial meltdown, which resulted from the burst of the subprime mortgage bubble in the US. Neo-liberalism glitters a lot as it enables some people to create mind-numbingly enormous wealth at the expense of the ordinary people and offers the comfort of consumption to those who have the purchasing power. It financializes each and everything in the name of financial innovation and puts them up for trade in the markets.
In the run-up to the 2008 financial crisis even the toxic mortgages, which were attractively packed into Collateralized Debt Obligations (CDOs), flaunted a Triple-A rating and sold like hotcakes in the financial markets.
The neoliberalism invariably brings forth the innate greed among humans in its full force. The investment banks pursued super profits, rating agencies pursued their fees, and people, in spite of lacking the purchasing power, pursued their housing dream and debt-fueled consumption creating a perfect bubble in the process. When the crisis struck, all the laissez-faire capitalists, who hate, resent and abhor the government intervention and leave no time in advocating ‘minimum government’, approached the same government with a begging bowl asking it to bail them out with tax payer’s money.
A crisis invariably brings out the ugly side of a neoliberal economy. The enterprise sponsored governments, who come to power with the campaign financing of the big corporations, feel obliged to bail them out citing the reason that the companies that are bankrupt are ‘systemically important’ and ‘too big to fail’. Being too big appears to be the eligibility to avail a bailout and thus an insurance against failure. When Noam Chomsky, the well-known linguist and social scientist said, ‘a basic principle of modern state capitalism is that costs and risks are socialized to the extent possible while profit is privatized’, he was speaking the plain truth.
Under this system founders and investors of enterprises have ‘limited liability’ but unlimited ability to enjoy all the profits. But when their greed and mismanagement push their organization into crisis, their status of being ‘too big to fail’ comes to their rescue. Even after a debt default, they don’t stop flaunting their wealth because their liability is ‘limited’. And they don’t even stop showering ‘retention bonuses’ on their top executives even by using the bailout money.
We learned all these hard truths by observing things in the US. Now all this phenomenon started occurring right in our country, in front of our eyes. The neo-liberalism got a huge impetus when Reagan came to power in the US. He, who advocated a small and thrifty government, declared, “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help’.” Following his footsteps, our own Reagan, Narendra Modi, started advocating ‘minimum government maximum governance’.
When he was on his way from Gujarat to Delhi a section of the media and the industrialists were showering a lot of praise on him for his ‘Gujarat Model’ of development. Gujarat model stands for gleaming physical infrastructure with nil social spending. It places excessive emphasis on human-made capital at the expense of natural, social and human capitals. And it secures the interests of the top 1% at the expense of the rest of the 99%. Many right-thinking people warned about these things but a lot of people, who were blinded by the corporate Hindutva’s dazzle, did not pay heed to them.
Modi knows very well how to control the cognitive map of the people to create an impression that he is doing a lot for the ordinary people. In fact, he has been proactively safeguarding the interests of his ultra-rich cronies even while repeatedly claiming himself to be the son of a Chaiwala. Cosmetic measures such as Jandhan and demonetization, which were supposedly pro-poor and were announced amidst much fanfare, ended up as miserable failures. As long as the crude oil prices were low, India appeared ‘shining’ once again but once the crude oil prices started rising, things started going haywire. Current account deficit started widening resulting in a free fall of the rupee. The neo-liberalism’s aversion to social infrastructure, which includes public transportation, had led to the proliferation of private vehicles. This proliferation has triggered an insatiable thirst for hydrocarbons, whose import is imposing an unbearable and potentially disastrous burden on the entire economy.
And the darlings of neoliberalism, the big industrialists, after defrauding the banks, started getting ended up overseas. The RBI refused to make the names of the defaulters public citing confidentiality reasons even after the Supreme Court passed an order to that effect.
Now the overleveraged and mismanaged Infrastructure Leasing & Financial Services (IL&FS), which is a privately-owned entity, has defaulted on its debt. The entity, being a behemoth with more than 91,000 crore debts, qualifies to be called as ‘too big to fail’ and therefore, the government came to its rescue. Now the government, in the name of ‘liquidity infusion’, will bailout IL&FS through the two state-owned investors – LIC and SBI. This is happening even while the people’s memory is still fresh with the big bailout that was given to the corporates in the name of ‘bank recapitalization’.
So finally, bailouts, tax cuts, currency meltdowns, unmanageable current account deficits and bubbles – they all have hit India, which made it equally vulnerable to the next crisis. When the 2008 financial crisis hit the world, India was largely immune to it since it was not as closely integrated with the global economy as it is at this time. Now, thanks to the neoliberal quagmire India found itself neck-deep in, it is in a vulnerable position and is all set to suffer a collateral damage once the next economic contagion starts playing havoc. Post-2008 crisis the ordinary people in the US suffered foreclosures and went homeless. There are definite indications that the heavily debt-laden global economy is imminently facing another crisis and only time will tell what happens to Indians when the next crisis strikes.