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Effects Of India’s Move To Increase Tariffs Of Palm Oil From Malaysia

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On 28th September 2019, in a speech in United Nations General Assembly speech, Malaysian Prime Minister Mahathir Muhammad said that India had “invaded and occupied” Kashmir by scrapping off Article 370 of Indian Constitution.[1] In retaliation, Indian Govt. threatened to ban, or impose high tariffs on, palm oil trade with Malaysia.[2]

Through this paper, the researcher attempts to show how a single political statement can influence the trade relations between countries and in turn their economies.

The researcher has undertaken the research on the assumption that Indian Govt. will highly increase the import tariffs on import of palmoil from Malaysia. In this paper, researcher analyses the impact on Indian and Malaysian economy under two conditions –

-Indian traders continue to purchase from Malaysia despite an increase in palm oil tariffs.

-Indian traders shift to other countries for purchasing palm oil.

It is important to know that for the fiscal year ending 31st March 2019, Malaysia’s imported from India goods worth $6.4 billion, while exported to India goods worth $10.8 billion.[3] Thus, Malaysia is in trade surplus with India of $4.4 billion. This is because India imports high-priced goods such as petroleum and palm oil at a large scale while India exports commodities such as sugar, wheat, rice, meat, etc.[4]In 2018, India imported palm oil worth $5.5 billion of which $1.3 billion was imported from Malaysia. This trade between the two countries constitutes 0.05% of India’s GDP and 0.41% of Malaysia’s GDP (GDP of Malaysia is $314bn while that of India is $2.5tn.).

A major limitation of the paper is the paucity of scholarly articles on the subject since the incident in question happened in October 2019.Therefore, the researcher has primarily relied upon newspaper articles to substantiate his arguments.

India Continues To Purchase From Malaysia Despite Increase In Tariffs

Indonesia and Malaysia constitute 85% of the total palm oil production, therefore the first response of Indian buyers is to buy palm oil from Indonesia but that may be improbable.[5] The reason being CPOPC (Council of palmoil Producing Countries) which is an organisation and both Malaysia and Indonesia are a part of this and their goal is to fight together against nations that increases tariffs on import of palm oil.[6] This opens a possibility that Indonesia may not sell to India and Indian buyers have to buy from Malaysia for want of alternatives. In this chapter, the researcher will analyse the impact on both the countries when Indonesia refuses to sell to India, whereas in the next chapter, the researcher will look into the impact when Indonesia agrees to sell to India.

Impact On Indian Economy

Due to an increase in import tariffs, it would now be expensive for Indian buyers to buy from Malaysia.This tax would not be borne only by the buyers of palm oil from Malaysia but also by its final consumers in India. The burden of tax increase will almost be equally borne by both consumers and sellers because of in inelastic supply as well as an inelastic demand.

Inelastic supply means that the supply of palm oil is not dependant on price in short run while inelastic demand means the demand of palm oil is not determined by the prices of palm oil in the short run. The elasticity of demand and supply play a major role in determining the prices of the goods and services. For Example- The demand for medicine is inelastic the price doesn’t come in the way of purchasing medicines. Also, the supply of water is inelastic as its availability doesn’t change with the change in prices. It is the elasticity of both demand and supply that determines the price.

The supply is inelastic as the palm oil trees bear fruits after 30 months of planting and continue to do so for next 20-30 years.[7] Therefore, it is not possible to see a change in supply when tariffs are imposed on the import of palmoil. The demand is also inelastic because of no alternate nation to get supplies from and there is lack of availability of economically viable substitutes. On one hectare of land, there is a yield of 3.7 tonnes of palmoil as against just 0.38 tonnes and 0.48 tonnes of soybean and sunflower oil respectively.[8]Though some consider soybean oil to be a substitute, data shows otherwise.

Palm oil and soybean oil are cross-price inelastic.[9]Their cross price elasticity at 0.103 shows that for 1% decrease in demand forpalm oil, there need to be approx. 10% reduction in the price of Soybean oil, thus Soybean oil is not a good substitute in lieu of palmoil.

The extent of the taxes borne by the sellers will reduce the profits and revenue of the businesses. The increase in cost of production will affect most of the FMCG companies, whether big or small, as they use palm oil as a raw material. This can also lead businesses to reduce the no. of workers they employ. As of now, the FMCG sector is 4th largest in our economy and provides jobs to 3 million people and 5% of the total factory employment in the country. Recent government reports have shown that unemployment rate in India is at its four-decade high. It can get aggravated by purchasing palm oil at increased tariffs.[10]

The extent of the taxes borne by the buyers will make the goods costly for them. Palmoil is used in products like soaps, shampoo, ice-cream, detergents, lip-stick, etc and increase in price of these daily-use products will adversely affect the expenditure budget of the households. Therefore household savings will reduce. Also such an increase in price of a bundle of goods may also lead to inflation.

During FY 12 and FY 17, India’s saving rate (the percentage of GDP saved) has been constantly declining and the main reason is the reduction in household savings. During the same time, the share of the households in total investment also dropped. There is a direct correlation between the household savings rate and household investment rate.[11]Thus, a further decrease in household savings due to increase in prices of those products manufactured using palmoil will leave people with less money to save and invest in banks, stock market, mutual funds, etc. it will decrease the investment in India to some extent which in turn leads to less infrastructural development.[12] This will hinder the growth of small and new businesses and will lead to reduced economic growth in India.

In the current scenario, when the Indian economy is badly hit and growth rate is very low, doing something that will increase the cost of production of almost entire FMCG sector which is 4th largest sector in India’s economy will be detrimental to Indian economy.
Indian Traders Shift To Indonesia To Purchase Palm Oil

When Indian govt. increases tariffs on the import of palmoil from Malaysia, it makes such a trade with Malaysia less attractive for the buyers in India. They would thus import from Indonesia as it is the only viable option after Malaysia as both of them together produce 85% of the palmoil production. As regards the CPOPC, there is no formal agreement and there are high chances that Indonesia will sell the oil to India. In this chapter, researcher shall analyse the impact of the same.

Reduced Foreign Exchange Reserves

The impact on the Malaysian economy will be very detrimental as India buys palmoil worth $1.3 billion annually and total exports of Malaysia are only $240 billion. When this trade shifts to Indonesia, it will lead to a reduction in exports and foreign exchange reserves in Malaysia by $1.3 billion.

As of 15th Nov 2019, Foreign Exchange Reserves of Malaysia stands at $103.2 billion.[13] And losing 1.25% of their Foreign Exchange reserves can have serious impacts on the economy in long run. These reserves are used for making payment outside the country and thus is important for payment of imports. Having sufficient reserves also help in preventing a country from external crisis. If Malaysian foreign exchange reserves were to fall, it would reduce its ability to pay for making payment for imports without incurring debt. Also, it would minimize the capacity to mitigate external shocks such as fluctuations in currency rate as selling or buying foreign exchange reserves can change their currency’s value.[14] Foreign Exchange reserves help to maintain international confidence which may take a hit if the reserves level reduces in Malaysia.

Reduced Trade Surplus

With a reduction in exports by $1.3 billion due to India not purchasing palmoil from Malaysia, the Balance of Trade surplus will fall by 5.7% of the 2017 level. The graph in annexure 5 shows the imports and exports of Malaysia from the period between 2007 and 2017.[15]The graphin annexure 6 shows the Balance of Trade in Malaysia.[16] Malaysia is one of a few countries whose balance of trade runs in surplus i.e. exports exceed imports.

A trade surplus is beneficial for an economy as it provides the nation with competitive advantages. Since the country is running in ‘profits’, they produce more which leads to more employment, a reduction in unemployment and generation of more income. This increases the standard of living of the people residing in the country. Also, the country has the capacity to import more. The 5.7% reduction will not be detrimental to the Malaysian economy as it already is enjoying trade surplus but can reduce these perks of being in trade surplus.[17]

Conclusion

The analysis by the researcher shows how a political statement can influence the trade relations among countries and also their economies. In the given case when India threatened Malaysia, it is analysed that the Indian economy will suffer if India purchases from Malaysia due to increase in cost of production and decrease in household savings but if India purchases  from Indonesia, it will prove to be detrimental to Malaysian economy due to reduction in foreign exchange reserves and trade surplus.

This is not the first time there has been international trade affected by politics. The government’s intervention in trade is not uncommon despite the growing trends of globalisation. In fact, political factors have a huge impact on such trades. After Pulwama attacks took place, India imposed 200% custom duty on all imports and took off the status of Most Favoured Nation (MFN) from Pakistan. Ideally, India should not have taken that step considering the stance it took in 1991 to open up the economy to the world and imposing such harsh import conditions on one nation is a blatant violation of the same. But considering the history of Indo- Pakistan relationship and to improve your political standing as a daring country, India took that step. It shows us how much international trade is intertwined by politics that is seems almost impossible to be able to separate them.

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Democracy in decline and its fate after the crisis: Why will the big crisis kill liberalism with or without the demos

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Being praised as never before, democracy was in crisis. The reality of the economic problems of 2008-2020 led to a new critical moment. All this makes us think about the meaning of the word “democracy”, about the economic logic of history and much more.

Twilight of a new big crisis

The countries of the core of capitalism had to face a new big economic crisis in 2008. In semi-peripheral and peripheral countries, democracy was outwardly similar to the central, with the difference that it was much more formal, implicated in falsifications and did not exclude coups and turmoil, though formally they started as a struggle for fair elections. Neoliberalism in a broad sense had no alternative and could only be mitigated in some countries. Therefore, due to its strength and rootedness, the encounter with the crisis was delayed and turned out to be completely unpleasant. In 2020, this story has not yet been concluded.

Neoliberal doctrine and ideology brought market and commercial freedom to the forefront, while public interests were pushed to the background. Under the pressure of neoliberal reforms, the social structures supporting democracy, as known in the 20th century, weakened, mass participation in them declined. People resorted to private life and the elites boldly practiced manipulations. The protest became anti-globalist with faith in social networks and a growing mistrust of “rotten parties.” The criticism of neoliberalism and the democracy that it subordinated, namely liberal democracy by the “stars” of anti-globalism was spectacular. It was not effective, as its countercultural pathos did not prevent it from fitting into the mainstream.

Not everything looked unequivocally gloomy in the era preceding the 2008–2020 crisis. When Bill Clinton came to power in the United States and Tony Blair in the United Kingdom a considerable number of ordinary people felt a certain turn. In France, such a feeling was created later by the victory in the elections of socialists led by Francois Hollande. In Greece by the election of the party “Syriza” and Alexis Tsipras. In practice, the turn did not occur, everything turned into manipulative simulations, convenient for continuing the old course. They undermined faith in the seemingly existing democratic mechanisms. Might the opposition have found a solution to the neoliberal mainstream? Wasn’t there an alternative to the “outdated” base organisations of trade unions and parties, the idea of network organisation? In the 2000s it was widely cherished in Europe and America.

Alas, the networks did not become the basis for the revival of “genuine democracy,” and faith in them only helped conserve the opposition of neoliberalism. In these networks it rotted, telling itself from time to time not to follow the way of old parties, they were all evil, they killed the egalitarianism of a genuine popular movement and not to suggest designs instead of the people and for the people (all these congresses, committees and commissions) for in this way the true spirit of democracy will be completely ruined. As a result, the “genuine spirit” existed only in imagination.

When the time of social networks on the Internet came, it showed how much they enable the control over individuals and how little horizontal connections of individuals mean to them. With such networks it was easy to organize a wave of protests and after a change of power (a coup by order of the United States or the Eurocracy) to return the mass participants to their places.

Democracy in an era of crisis once more in crisis

In 2008, the time of sustainable financial globalisation ended and the great global economic crisis began. The waves of crisis came one after another until 2020. And then it finally became clear that the seeds of the anti-globalist alternative give rotten seedlings even in the United States: Bernie Sanders withdrew from the elections at the most dramatic moment for his people in the 21st century. Before that there was a series of unsuccessful attempts by society to influence the process in Europe. It turned out that he has no structures and understanding of the mechanics of their work and personal work in them, lacks solidarity and understanding of the situation. As a result, the liberal elite retained dominance over “democracy”.

But liberal political constructs have become an obstacle in the fight against the crisis. And if in Russia and China the shift from neoliberalism to a new practice neo-mercantilism started from above, without the help of republican mechanisms set in motion by the people (the starting point were the problems of economic development),  the situation was different in the West. The manipulative liberal democracy preserved the crisis, blocking attempts to change politics. Even Trump, with his conservative transformation plan, came up against the resistance of liberal forces from the Democratic Party and its adherents in the power system. He could not overcome the checks and balances.

An extensive programme about which my colleagues and I in the Department of Political Economy and the History of Economic Science of the Plekhanov Russian University of Economics spoke in the report “Donald Trump and the Economic Situation” back in 2016[1]. In another report, entitled “A Society Without Opposition,” prepared with my participation in the Institute of the New Society, many vices of the left were revealed that prevented them from acting as the main force of transformations[2]. One of the problems lies in the desire to apply ready-made schemes to new historical conditions and the belief that capitalism cannot have anything new in itself, nothing that would not have happened before.

“Revolution or reform?” and myths about the ways

The disappointment in democratic mechanisms brought the old question, which in 1918 was included by Rosa Luxemburg in the title of her pamphlet “Reform or Revolution”, back to life. Reforms over the past 40 years have been neoliberal, and therefore the word “reform” often evoces negative emotions in people. In Russia, it is difficult for many citizens to accept the fact that the socio-patriotic reforms that are taking place in the country are not liberal, they are not shattering, but strengthening society. Therefore, the question remains valid.

But this question is false. However, it seems logical to many, as since the 1980s it was suggested that there are two ways that contradict each other: a seemingly tough and a seemingly soft one (identical to liberal democracy). In another interpretation: a progressive and an opportunistic, destructive or reactionary. Neoliberal reforms inspired the latter understanding, as they were destructive and antisocial in nature everywhere. However, under the influence of the global crisis of 2008-2020 at its very end, that is presently, reforms of a different type are now becoming possible. They are associated with the need to overcome the protracted era of economic crisis and the resumption of a sustainable growth and development. Naturally, they should increase the stability of the states in which they are implemented and, as a result, make them stronger in international rivalry.

Reforms of a new type and dictated by the new era became possible. In Russia they have already begun and with them another social reality started to form. But what about cliches? And what about the vulgar, but in practice voluntaristic understanding of revolutions based on disappointment in liberal democracy?

In the book “Capitalism of crises and revolutions how formation epochs alternate, new long waves are born, restorations die and neomercantilism advances” I devoted many pages to the complexity of such a phenomenon as the great modernisation revolution, as well as the Great Russian revolution. Here there is a unity of both revolutionary, evolutionary and reformist stages (not methods!). Voluntarists of “revolution” will never understand nor accept this. For them, all sorts of reforms of Russian or other capitalism will be a deception of the masses, and their support will be a betrayal of the “cause of the liberation of the working people” or a reactionary measure. There is no dialectic in such a vision of history. That is why voluntarists, adherents of maximalist phrase, are not related to real social revolutions with their complex diverse consequences.

In the United States, Britain, Western Europe and Japan, the situation is special. There neoliberalism has gone far in influencing society. From manipulations with the help of liberal institutions, it proceeded to the destruction of the basic norms of morality and relations, not centuries-old, but largely cultivated in the 20th century. Nuclear family was attacked as “slavery of the patriarchy”, trade unions as fetters to the market, the right of the majority to laws in its interest as the anti-democratic egoism of white men, discriminating minorities. Minorities themselves were nurtured and helped to fragment a society in which, as the events of 2008–2020 showed, no forces were found to overturn neoliberalism from the bottom in a left, reformist or more radical way.

Without being defeated, neoliberalism will die from the fact that its time has passed. This is already evident in some parts of the world, but not obvious in others. However, the impossibility of overcoming the crisis on the basis of neoliberal policy is the absolute proof of this thesis. And then what about democracy?

Neo-mercantilism is approaching

Left-wing intellectuals love to write phrases like this one: the struggle for social and cultural reforms, for another world with opportunities for every person to creatively find themselves, to be free, to control power and not be afraid to be poor, will continue and lead the world to success. In parallel, they can criticize the national conservatism of the “right”, and talk about the benefits of diversity in society, without which there can be no democracy. But truth requires adding at this point the story of Socrates. Athenian democracy did not at all tolerate his liberties and forced him to drink poison. His disciple Plato was forced to behave more carefully with the people. In modern realities, we must be prepared for a democratism that is conservative in spirit.

Neoliberalism has created a moral opposition in society, the foundations of which are considered traditional. The liberal left is indignant about this unrighteous, in their opinion, way of denying globalisation and the ideas of “free trade” in all spheres of life. However, conservatism is very limited here. It is not very religious, since society in countries with developed markets is not very religious, and the protection of family values and the importance of marriage is more like the defense of the Soviet understanding of relationships and lifestyle; it should be borne in mind that the emancipation of the 20th century is irreversible, universally recognised and inseparable from society, and these are not “patriarchal mores,” but the product of modernisation. Though this modernisation took place not so long ago. Therefore, anti-neoliberal conservatism does not at all refer to old morals, and only because of the love of religious justification of its position can be called right. However, there is also a reference to the national values and interests of nations, opposing the interests of global financial structures. And here it is important to finally accept the fact: neoliberalism hit the organised working class, the old class and left structures (including their structure) so hard that it left only a limited number of means to eliminate itself. The dismantling of neoliberalism is not a socialist act, but a bourgeois measure ensuring the further development of society. Another thing is that in the process in some countries a revival of the social state is possible.

The era of globalisation has taught many people to view democracy as something universal. Neoliberalism has replaced the dictatorship of modernisation in the countries of the semi-periphery and periphery of world capitalism. There was not much personal freedom and public freedom in them. But with neoliberalism, the local elites were able to cover up their rule with the word “democracy”. The plans of the elite of the countries of the centre did not include the transformation of part of the countries of the production periphery into new centres of development of capitalism, as candidates to play part in the core of the global economy. It was not part of the plans of the old centres that the local top officials should search for support in the “lower strata”, largely due to the rejection of the neoliberal course and reliance on social and patriotic measures. And the bold and independent behaviour of the highest bureaucracy, grand bureaucracy, is absolutely perceived in Washington and Brussels as a riot.

But it is precisely this rebellion that sets the limit to neoliberalism politically. Leaning or trying to rely on the majority of the country’s population (especially in Russia), it is democratic in its own way, reflecting the demos’ requests for social policy, the revival of national pride and the growth of prosperity based on the patronage of the state to its market, production and its mass buyer. This turn from neoliberalism, however, is not a turn created from below, that is, formally democratic, organised not under the pressure of society, but by society itself. In this regard, it is necessary to acknowledge the failure of attempts to end neoliberalism from below in many countries. With a firm commitment of the “upper strata” to this policy, it is not eliminated from above either. Even the split of the upper strata in the United States with the advent of Trump to the White House did not lead to such a development of events, the processes were blocked. Therefore, neoliberalism has not yet completed its history, it simply has lost economic efficiency and cannot be the basis for the exit of certain countries from the era of the great crisis. But this is not its complete end.

Democratism instead of democracy?

Nevertheless, the end of neoliberalism is inevitable. In some cases it will come in the form of a conservative in shade, and a socio-patriotic in form turn. In another case, problems in the economy will bring about movements that can either be such as in countries claiming to be new centres (Eurasian countries), or society will be able to move from an unstable and weak in content movement like the French “yellow vests” to something stronger and more productive. Finally, there is a scenario where popular intervention in politics will be like an outbreak such as in Argentina in the early 2000s. But in this case, progressive shifts will be the fruit of a new grand bureaucracy, simply not neoliberal.

All these paths are not easy. Democracy in them will probably be expressed not in procedures, but in mass support for the new agenda. It is hardly to be expected that the “lower strata” will restore the forms of organisation and practice that were characteristic of the 1930-1970s. In this sense, the prospect of the triumph of “pure democracy” soon seems doubtful. Republican procedures and structures will live, as society is agitated everywhere. However, even overcoming neoliberalism from above to a greater extent than from below will become a common scenario for overcoming the era of the great crisis, it should be taken into account: economic growth and social development in general will work for future democracy.

Formal Republics, where development does not stop and degradation does not happen (which is possible for some countries) will become more social. Relying on social unity, on the construction of nations and their associations, for example, during the Eurasian integration process, administrations will awaken reformist activity in society. As a result, formal Republics will move towards real Republics, where people influence processes not only through expression of mood. This will be the beginning of a new revival of democracy.

Here it is necessary to summarise. It was said enough by virtue of what economic processes neoliberal democracy (the right format of ideas and practice) found itself in a crisis, and was unable to provide a mechanism for leading the countries of the old core of capitalism out of the crisis and ensuring a change of power in Russia, China and other Eurasian states, claiming to be new centres of capitalism. There, the neoliberal “democrats” at the top are increasingly oppressed by the neo-mercantile grand bureaucracy. It can restart the growth of economies and this growth will continue for about 25 years. The big crisis will end and a new upward wave of development will begin; only shortly will commercial crises interrupt it, none of which will be similar to the era of 2008–2020. The establishment of a non-mercantile economic reality in the world launches a mechanism for mastering the practices and ideas of democracy in the conditions of strong national states of Eurasia, solving the tasks of continental integration and rivalry with the old global leaders. How the process of democratisation or the revival of democracy will develop is not yet clear. But economic recovery will be a better environment for this process than the last big crisis.

On the whole, the history of democracy is not only incomplete, but by and large is just beginning. And if in most countries in the era of neoliberalism democracy was a pure imitation, in a different era everything will be different.

 From our partner International Affairs

[1] Report of the Department of Political Economy and the History of Economic Science of the Plekhanov Russian University of Economics “Donald Trump i ekonomisteskaya situatsiya: strategiya kandidatov v presidenty i Vroraya volna krizisa v SSHA”  // Institute for globalisation and social movements. – URL: http://igso.ru/trump_situation/ (publication date: 28.10.2016; reference date: 27.08.2018).

[2] Report of the Institute of the New Society “Society without Opposition: the crisis of the left in the era of neoliberalism and afterwards”// Institute of the New Society. – URL: http://neosoc.ru/%d0%be%d0%b1%d1%89%d0%b5%d1%81%d1%82%d0%b2%d0%be-%d0%b1%d0%b5%d0%b7-%d0%be%d0%bf%d0%bf%d0%be%d0%b7%d0%b8%d1%86%d0%b8%d0%b8/ (publication date: 28.10.2016; reference date: 27.05.2020).

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New trade rules vital to protecting the planet

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As satellites from NASA zipped over the planet Earth yesterday, they saw what they have seen every day for months: fires, hundreds of them, tearing through virgin rainforest and other vital ecosystems.

Many of the blazes, which come at the tail end of a devastating fire season, are believed to have been set by farmers eager to clear land and sate the booming global demand for beef and soybeans.

A new United Nations Environment Programme (UNEP) report, jointly produced with the International Resource Panel, says that type of unbridled international trade is having a damaging effect not only on rainforests but the entire planet. The report, which called for a raft of new Earth-friendly trade rules, found that the extraction of natural resources could spark water shortages, drive animals to extinction and accelerate climate change – all of which would be ruinous to the global economy.

“The economic fallout of COVID-19 is just an overture to what we would see if the Earth’s natural systems break down. We have to make sure that our global trade policies protect the environment not only for the sake of our planet but also for the long-term health of our economies,” said Inger Andersen, Executive Director of UNEP.

The environmental toll

The new report, titled the Sustainable Trade in Resources, was unveiled Monday by UNEP Executive Director Inger Andersen at a meeting of the World Trade Organization.  

It found that in 2017, 35 billion tonnes of material resources, from oil to iron to potatoes, were extracted from the earth specifically for the purposes of trade. While that helped create millions of jobs, especially in poor communities, the report found it had a profound effect of the planet. Resource extraction was responsible for 90 per cent of species loss, 90 per cent of water stress and 50 per cent of greenhouse gas emissions in 2017.

With the demand for natural resources set to double by 2060, the report called on policy makers to embrace what is known as a “circular” economic model.  That would see businesses use fewer resources, recycle more and extend the life of their products. It would also put an onus on consumers to buy less, save energy and repair things that are broken instead of throwing them away.

The benefits of going green

Those changes could pay big dividends for the planet, the report found. By conserving resources, humanity could slash its greenhouse gas emissions by 90 per cent.

While the circular model could have “economic implications” for countries that depend on natural resources, it would give rise to new industries devoted to recycling and repair. Overall, the report predicts, a greener economic model would boost growth by 8 per cent by 2060.

“There’s this idea out there that we have to log, mine, and drill our way to prosperity,” said Inger Andersen. “But that’s not true. By embracing circularity and re-using materials we can still drive economic growth while protecting the planet for future generations.”

Some countries, both in the developed and developing world, have embraced the concept of a circular economy. But the report said international trade agreements can play an important role in making those systems more common. It called on the World Trade Organization, which has 164 member countries, to take the environment into consideration when setting regulations. It also recommended that regional trade pacts promote investments in planet-friendly industries, eliminate “harmful” subsidies, like those for fossil fuels, and avoid undercutting global environmental accords.

“Re-orienting the global economy isn’t an easy job,” said Inger Andersen. There are a lot of vested interests we have to contend with. But with the Earth’s population expected to reach almost 10 billion by 2050, we need to find ways to relieve the pressure on the planet.”

UN Environment

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Democracy in decline and its fate after the crisis: Economic waves and democratic procedures

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An economist and historian specializing in economic crises from ancient times to the epochs of commercial and modern industrial capitalism. Head of the Institute of a New Society, Lecturer at the Plekhanov Russian University of Economics. In early 2008, he gave a surprisingly accurate analysis of the current crisis, a long-term painful fracture, a major crisis transforming the world economy and the life of society. The forecast of changes caused by the crisis continues to be realised, confirming the theory of cyclicality of big crises. Koltashov headed the drafting of numerous analytical reports. In his book The Crisis of the Global Economy (2009), he spoke about the logic of the first wave of global instability, warning that the crisis will return. In 2013, at the beginning of the second wave of the crisis, the author returned to Russia after six years of analysing the economic catastrophe in Greece. In the same period, he began to study the connection between major crises and the great modernisation revolutions of the era of capitalism. Thus, for the first time, an economic and socio-political analysis of such phases as the restoration and glorious revolution was carried out.

In the 21st century one could observe the rise of democracy. In the 20th century for a long time it also seemed that democracy was developing steadily moving from the formal to the real. However, the big crisis of 1973-1982 led to a historic turn in its fate. Everything turned out to be more complicated than previously thought.

A brief pedigree of democracy

The emergence of democracy was associated with the development of the Greek polis economy. This happened after the “dark ages” that followed the great economic crisis of the 12th century BC. The old economic system collapsed whereas the new system had not formed yet.  It took several centuries of decline and degradation for it to occur. Another great crisis in the 3rd century dealt a severe blow to the municipalities of the Roman Empire with their democratic practices stemming from earlier city states. In history the great and big economic crises (they appeared after the great crisis of the 14th century) had a huge impact on social structures and relations, which are usually associated with the concept of “democracy”. The era after World War II is no exception. From that time to the present, democracy as a form of power and organisation of social structures has undergone enormous changes.

The concept of “democracy” is used widely, but is very controversial. It would be much more accurate to speak in most cases about the republican form of state, party and other structures, public consciousness and relations. But the word “democracy” always remains in fashion in politics, even if it is not created by the social “lower strata”, but the “elite” of nations or even the nomenclature of parties. The rejection of its widespread use will cause misunderstanding, although it would be right to treat it with extreme care. Finally, the anarchist extreme is also harmful: the belief that genuine modern government could exist in modern and even earlier socio-economic realities, not burdened by either bureaucracy, professional politicians, or oligarchs (the USA, for example, is an oligarchic republic) nor by faith in leaders and missions.

Democracy in the 21st century, no matter how contradictory this concept is, will eventually bloom. However, its current state and immediate prospects can be estimated only after analysing all the changes that have befallen it. And one should start with the crisis of democracy itself, the way the world knew it in the 20th century. It was in crisis when citizens of the former USSR saw it in its US-European liberal format.

The way 20th century democracy worked

In 1989-1994 alternative elections of heads of state and assembly of deputies, freedom of speech and press seemed the universal rules of democracy to many people in Eastern Europe. They were seen as Western standards, characteristic of a free, open, and pluralistic society. Western Europe and North America themselves seemed standards of freedom, where states flourished in democracy. Have not peoples fought here for broad public freedoms since the 18th century? Did not this struggle have results so attractive to residents of the Eastern bloc countries?

In fact, in the West, as they say in Eastern Europe, a necrosis of what is commonly called representative bourgeois democracy was taking place. No one formally abolished freedoms, like no one abolished many political freedoms in the USSR, but democracy became more and more liberal, even neoliberal, almost one-party, but most importantly, increasingly pushing the “bottom” away from decision-making. This is not to say that the “lower strata” did not cut themselves off from participating in governance, supporting neoconservative professional politicians. But most of all, they were cut off by processes in the economy. They reduced industry and the concentration of workers. But was this the only thing? Did only the dispersal of workers weaken their structure?

The concepts of “liberalism” and “democracy” have a weak connection. Democracy emerges as the power of a large number of people, while liberalism was largely an elitist trend of supporters of political freedoms, which should not be used by the “lower strata”. Therefore, it was not the power of the liberals that gave the world universal suffrage. It is known that Otto von Bismarck used universal (male) suffrage against liberals. Previously, Napoleon III had done this in France. However, the growth of industry gave rise to the development of trade unions and parties of the Social Democratic type, and later of the Communists. They made up the structures that ensured the flourishing of democracy in the West, that is in North America and Western Europe. With their help, the “lower strata” received not only the universal right to elect and be elected, but also the opportunity to have their own deputies. At least, as was the case in the United States, workers’ organizations participated through their superiors in transactions with non-worker’s parties and candidates.

Some called these deals beneficial to the working class and they actually improved its material and political position. Others called them rotten opportunism, and the masses perceived them as less and less interesting maximalists. This reformism in old industrial countries was based on the will of the working people themselves and not on deception on the part of left-wing leaders, which was remarkably shown in the book “Marxism and the Polyphony of Minds” by Andrei Koryakovtsev and Sergei Viskunov[1]. However, everything has its limits.

The crisis of 1973-1982 and a neoliberal turn

The “world revolution” of 1968 should probably be considered as the peak of the onset of democracy and social reforms. Then, students, not yet subordinated to the logic of capital by virtue of their student status, as Herbert Marcuse noted, rose to the struggle.

Many professors in the USA, Great Britain, France or the Federal Republic of Germany remembered the amazing wave of political activity of those who previously spent more time at their desks. Students demanded and sought participation in the management of universities, freedom of assembly in them and other rights. However, it would be a mistake to see in this a culmination of the struggle of employees. They often did not know what to do with the radicalism of the young. This is remarkably reflected in the film directed by Elio Petri “The working class goes to heaven” (1972): the working people solved economic problems, while the young maximalists demanded much more from them. For some time, the two streams merged and this led to an increase in wages in France and other countries. Of particular importance here was the struggle against right-wing dictatorships in Portugal, Spain and Greece. The success of these revolutions was part of the general upswing of the end of the era of economic growth of the 1950-1979s, when much seemed possible.

Finally, society was satisfied with what was achieved and the “revolutionaries” got tired. How fatigue accumulated in them is perfectly shown in the modern film “Something is in the Air” (2012). They were disappointed in the workers. Notes of this disappointment are heard in John Lennon’s sad song “Hero of the working class”. It is not difficult to see it in the transition of the hero of the Paris barricades of 1968 the anarchist Daniel Cohn-Bendit to the ranks of adequately systemic environmental parties in France and Germany. Now in the cohorts of “green” there are many critics of the neoliberalism of the 2000s. The most striking figure here is Canadian journalist Naomi Klein, the author of the book “Shock Doctrine” that denounces neoliberalism. Though, this was later… In the 1980s many parents were happy to see their “wised up” children in the ranks of office staff, among buyers of new cars, homes and aspiring to a corporate career. Hippie’s long hair was cut, and the recent criticism of parents for their commitment to the “consumer society” was forgotten.

The turnaround did not happen overnight. In the years 1973-1982 the world experienced an acute economic crisis. In the book “Capitalism of crises and revolutions how formation epochs alternate, new long waves are born, restorations die and neomercantilism advances” I dwell on its essence in great detail[2]. My colleagues from the Department of Political Economy and the History of Economic Science of the Plekhanov Russian University of Economics repeatedly pointed out in analytical reports that: the current crisis is very similar to that crisis. It was also emphasised in the report “Donald Trump and the Economic Situation”, where in 2016 it was shown how difficult it is to overcome such a crisis[3]. But the crisis of 1973-1982 according to the apt expression of the French historian Fernand Braudel was similar to a flood, and did not resemble the hurricane crisis of 1929-1933[4]. This was due to the fact that the state struggled against the manifestations, but not the causes of the economic crisis.

Almost a decade of economic crisis was enough to launch serious changes. The time had come for financial globalisation, the transfer of industry to the Third World countries and the growth of financialisation of Western economies. There industry contracted and the service sector expanded.

How the crises decide instead of us

People often look at democracy as a product of their own activity. In this sense, its development is perceived as the result of smart agitation and the rational organisation of collective interaction, and weakening as the result of incorrect actions. But history has laws and these laws are primarily economic laws. One of these laws concerns the change of long waves by Nikolay Kondratiev. These waves of development last for 20–25 years and are replaced by particularly severe, major crises. Such crises appeared after the great crisis of the 14th century. However, their regularity can be traced from the 1770s, when under the influence of the great crisis, an industrial revolution took place in England.

The development of the economy of capitalism is wave-like and can also be called cyclical. The Great Crisis of 1973-1982 is on a par with the crisis of 2008–2020, to which the analytical report “The Crisis of the Global Economy and Russia” was devoted. The report was written under the guidance of the author and reflected his understanding of processes in the world economy[5]. This report was released in early June 2008. It contained a predictive analysis of events, which were subsequently confirmed in many ways, and most importantly confirmed the correctness of the concept of big crises, an area of my research. Such crises existed before. Their full range is: 1770-1783, 1810-1820, 1847-1850, 1873-1879, 1899-1904, 1929-1933, 1948-1949, 1973-1982 and 2008-2020. In Figure 1. their place in the development process can be seen.

Figure. 1 Large economic crises before and after the industrial turn of 1770-1783.

Rallies, demonstrations, strikes, occupation of campuses and slogans at lectures in the name of democracy everywhere and always all this remained in the past by the end of the crisis-era of the 1970s. The turn was painful, difficult and most importantly (it always happens) there have been such shifts in the global economy, and then in technology that weakened the old industrial regions of the West. The removal of industry to peripheral countries, the growth of office facilities in the old centres of capitalism meant a change in the sphere of social relations and ideas.

Neoliberal withering of democracy

Immanuel Wallerstein could write volumes about the “1968 revolution,” but big business was the real winner. But its victory was dictated not so much by a clash with the “lower strata” as by failures during the years of the crisis of 1973-1982, which showed the need for fundamental changes in economic policy. Keynesianism has used up its historical resource.

With changes and for the sake of change neoliberal forces came to power, demanding the market to be unchained to complete freedom and the role of the state in regulation to be reduced. The main idea was simple: let the central banks rule with the help of monetary instruments. From the point of view of democracy, this means abandoning an extremely important sphere out of public control. Later, the United States will impose on countries the independence of central banks from the authorities, and Naomi Klein in the book “The Doctrine of Shock” will devote many pages to uncovering the negative consequences of such changes[6].

If central banks are independent or almost independent of the government, they are very little dependent on society. But did this mean that Western democracy shrank like the shagreen skin from Honore de Balzac’s work only due to this? In the 1980-1990s the importance of trade unions declined and the importance of left-wing parties simply collapsed. Being very serious during the crisis of the 1970s, with the collapse of the USSR they turn into parties on the political sidelines or adopt neoliberal programmes. From that moment on, all influential forces can be divided into open liberals and those masquerading as socialists, social democrats and even communists. The Green are a special type of disguise, a very effective one. The masses lose confidence in parties and the parties often lose their mass origins. They do not lose touch with their clientele, they even develop it, but they cease to be agents of the “lower strata” in the political system. The party nomenclature is adjusted to the time politically and the “lower strata” economically.

All this undermines the foundation of the very bourgeois democracy in which the propertied classes were forced to take into account the demands of the masses, since these masses had strong agents. The masses themselves were their strength. With the decline in the industrial organisation of the “lower strata,” their role in public life also deminishes. Now they are required to vote in the elections, the procedural instance of procedural liberal democracy, having even lost the indirect and largely formal power of the “demos”. But this “demos” seems to betray its former self. It follows neoliberal ideas and forces, turning away from radical left or national-conservative preachers.

When procedures prevail

Without taking into account the fact that the majority of citizens of industrialised countries followed neoliberals, such as Margaret Thatcher in the UK and Ronald Reagan in the USA, it is impossible to understand the causes of the crisis of Western democracy and its basic structures. Of course, one can believe the version that the “lower strata” were insidiously deceived, blindly followed the masters of hypnotic phrases and therefore lost faith in their own strength, the strength of their structures and in the chance of democracy. However, the truth seems different: the working class abandoned democracy and the basic working structures following the temptation to leave its class.

In those days, it was about turning people into owners of state and municipal housing (privatisation), creating small business, corporate careers, or just working in an office, which was very different from working in a factory. The temptation included the ability to dress in business style, dine in cafes and restaurants, and generally increase consumption. Many were not concerned about democracy. They did not turn against it, but its transformation into procedural democracy was not stopped.

It is amusing, but the Western working class surrendered its democratic and highly conditional dictatorship to bourgeois political management almost as quickly as the working class in Soviet Russia in 1918-1919 in a deal with party nomenclature exchanged its democratic dictatorship for new opportunities. They also included vertical mobility for some: opportunities to go up the social ladder. As a result, in the West the model of liberal democracy was established, a procedural democracy and much more formal than the form that preceded it. And if the electorate could choose parties or candidates at will, they would still get the same result, since ideologically the elections had almost no alternative. And the liberal spirit of this “democracy” was most expressed in this.

 From our partner International Affairs

[1] Koruakovtsev A. Viskunov S. Marxism i poliphonia razumov – Ekaterinburg, «Kabinetnyi uchenyi», 2016 – p. 663.

[2] Koltashov V.G. (2019). Kapitalizm krizisov i revolutsii: kak smenyautsja formatsionnye epohi, rozdautsja dlinnye volny, umiraut restavratsii i nastupaet neomercantilizm, M.: “RuScience”.

[3] Report of the Department of Political Economy and the History of Economic Science of the Plekhanov Russian University of Economics “Donald Trump i ekonomisteskaya situatsiya: strategiya kandidatov v presidenty i Vroraya volna krizisa v SSHA”  // Institute for globalisation and social movements. – URL: http://igso.ru/trump_situation/ (publication date: 28.10.2016; reference date: 27.08.2018).

[4] Braudel F. Materialnaya tsivilizatsiya, ekonomica i kapitalizm XV-XVIII . Vol. III. Vremya mira — М.: «Progress», 1992. — p. 76-77.

[5] Report of the Institute for globalisation and social movements. (IGSO) «Krizis globalnoy economiki i Rossiya» // Institute for globalisation and social movements.. – URL: http://igso.ru/world_crisis_and_russia/  (publication date: 09.06.2008; reference date: 28.01.2020).

[6] Klein Naomi.  Shock Doctrine: The Rise of Disaster Capitalism  – M.: «Dobraya kniga», 2009, p. 890.

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