Marx got many things wrong about capitalism, but this capital glut dilemma is now playing out in 70mm.
If the world is turning protectionist, from USA to Britain to even mainland Europe, where anti-immigrant parties are growing in strength, there are several reasons for it. Jobs, growth and incomes have not been rising in the western world.
But underlying this “secular stagnation” is a stark reality of the global political economy: the balance of power between capital and labour has tilted dramatically in favour of capital in recent decades, thanks in part to globalisation, automation, and the relatively greater freedom and tax benefits given to facilitate global capital movements relative to labour.
Put simply, capital moves more easily across borders than labour, and capital owners are taxed less than those making a living from labour, whether physical or mental. This is why Warren Buffett, the iconic investor, says he pays a lower tax rate than his secretary.
This state of affairs makes even less sense when the world is awash with excess capital and an abundance of “relatively less skilled labour” (hence the voter attraction to Trump, and for Brexit), which ends up making things worse.
When capital is in surplus and cheap, and returns on capital taxed lower, it is even more tempting to replace labour with capital (which means more automation, and a dramatic shift in the focus of employment from the less skilled to the more skilled, which further increases income skews and the creation of even more capital surpluses).
To give just a few illustrations of the kind of cash sloshing around with corporations, here are some pointers.
Apple Inc alone has $246 billion in idle cash right now. Around the middle of last year, the top five tech companies (including Google, Oracle, Microsoft and Cisco) accounted for more than $500 billion in corporate cash holdings.
A CNBC report says that US corporations are holding around $2.5 trillion (more than India’s GDP) abroad, and another $1.94 trillion in domestic assets. Over and above this, the US money markets held $2.66 trillion in investor cash, while banks were stashing another $2.15 trillion in excess reserves with the Fed. Taken together, that’s $9.25 trillion in idle cash – half the size of the US economy.
In Japan, thanks to two decades of flat or shrinking demand, corporate savings have been consistently over 20 per cent of GDP for some years now.
In Britain, the FTSE companies were sitting on $66 billion of free cash some time ago.
In our own country, cash-spewing companies are not that many in number, but concentrated in the tech sector. According to a Business Standard calculation, Infosys hold nearly 15 per cent of its market value in cash, TCS 8 per cent, HCL Tech 8 per cent, and Wipro a massive 27 per cent. Such high cash levels in these companies are indicative of low investment opportunities at current valuations.
But India’s tech companies are exceptions, and pale in comparison to the first world’s growing cash surpluses. These indicate low possibilities of profitable investment, especially in a climate where the central banks have been offering almost zero-cost money to borrowers. The people gaining most from this free money are speculators, who have used cash to invest in shares and other assets, including bonds at low yields, increasing income inequalities and the wealth skew.
The global financial crisis of 2008 and consistently misdirected policies of central banks – especially endless cheap money – have helped enrich exactly those people who brought the financial sector crashing eight years ago.
The only way to start ending this capital glut is to reverse the current tax situation, where earnings on idle capital (capital gains on shares, interest income, dividends) are given kid-glove treatment, and income and corporate taxes are higher. It is time to tax earnings on passive capital on a par with earnings from business and wages/salaries.
Tax incentives must be focused on encouraging real job-creating investments, including public and private investment in public infrastructure, and not retention of savings with cash-rich companies.
Rebalancing the taxation of capital and labour earnings will, hopefully, lead to more job creation and less capital-intensive investment.
The world is simply too awash with capital to really create jobs. Beyond a healthy level of corporate savings, surplus cash is counter-productive. The more capital accumulates, the easier it gets to invest in labour-displacing investment.(evident from the leanings of previous Industrial Revolutions)
It’s time for capitalists to read Karl Marx, who predicted precisely this kind of capital glut and a maldistribution of incomes that reduces the possibility of expanding markets. Marx got many things wrong about capitalism, but this capital glut dilemma is now playing out in 70mm.
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In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)