Karl marx was a German economist and philosopher, who founded the communist movement. He believed that the, capitalist class exploited the proletariat class. The bourgeoisie or the capitalist class were the owners of the means of production and thus provided employment to the wage labourers. The proletariat, in turn were the class of wage labourers, who had no control or did not own any means of production. They had to sell their services to the capitalist class, in order to make enough money to live a decent life. Marx believed that the labourers generated more wealth for the capitalists by working in the factories etc. The final product that these labourers created was sold for more than the labour value itself. Marx strongly believed that the capitalist, itself carried the seeds for their destruction. He believed that the capitalists survived by exploiting the proletariat, that is capitalism required an underclass. but he believed that his suppression and exploitation, would no longer exist in the long run as the feeling of resentment would be created in the minds of the labourers who are exploited continuously, this in turn would a revolution lead by the labour class against the capitalist. He believed that after the fall of capitalists, a new society would emerge in which the means of production would be shared equally by all the people and the class structure would disappear. He saw capitalism as progressive historical stage that would eventually be replaced by socialism. As these socialist economies, became more wealth and prosperous over time, marx perceived that the need for state control would diminish. The state element would wither away, and the stage of communism would be reached.
Apart from this, the capitalists, desire for expansion, would lead to an increase in the demand of labour, this in turn raises wages, thus inducing them to substitute machines for labour. However, the profits are mainly drawn from the use of labour. Thus with the substitution, the source of profits narrows, and the profit rate falls. Secondly, the greater use of machines, would require a bigger workplace. This increases the opportunity for the workers to interact with each other in the workspace. The use of machinery would in turn lead to specialization and division of labour, thus giving rise to alienation. The falling profit rate as mentioned above, would require the capitalist to increase the exploitation of workers. This in turn would call for greater supervision in the workplace, and thus increase the need for a more authoritarian factory. This in turn escalates the feeling of misery and resentment, among the workers. Marx called this the law of increasing immiseration of the proletariat. This increased misery can be seen as an opportunity by many individuals, to organize these workers into a strong political force. In these ways the capitalist, have themselves created the conditions that are conducive to their own destruction.
This quote ‘The last capitalist we hang shall be the one who sold us the rope’ is generally not only attributed to Karl marx but also to Joseph Stalin and Vladimir Lenin. According to my interpretation, it may mean these capitalists may provide the communists with materials and technical equipment, that they lack, that will help the communists restore their military power, which they will later use in the future to attack the suppliers or the capitalists. I think that the quote, talks about the fall of capitalism. That is, the capitalism itself would create conditions that are self-destructing. It may also talk about the short sightedness of the capitalists, who mainly focus on immediate profits, without analysing the consequences of these actions.
According to me, Capitalism wouldn’t last forever, and the revolution by the worker class as predicted by Marx, would occur in the near future, if the suppression is severe. Capitalists, according to me do carry the seeds for their self-destruction. Although they are responsible for the major innovations in the societies, they still depend on the workers to carry out these innovations and they excessively focus on the growth of profits and businesses, which although, it increases the GDP of the country, diverts their attention from the working conditions of the labourers. Segregation of classes in the society is required for carrying out the various duties in the society and to ensure the smooth functioning of it. But excessive use of this reason should be prohibited, and the workers shouldn’t be pressurized into doing things, which they do not appreciate or like. Just because the employers provide the salary, they shouldn’t expect the workers, to continuously work. However, the idea of revolution is slowly becoming obscure, as the major problems of these workers are represented by the labour unions, and the employers are also starting to recognize the importance of labour conditions, work shift, health etc.
On 17th august 1998,
financial crisis had hit Russia. It occurred just when economic development and
macroeconomic stabilization began to succeed. Since the 1980’s, the year 1997
was the first year, when positive GDP growth was recorded. The rate of
inflation reduced to 11% which was a low figure compared to the inflation rates
in the first half of 1990’s, because of this reduction in inflation, the real
interest rates also reduced. This created a positive environment which
attracted the investors.
But by May of 1998, Russia started experiencing fall in GDP, increasing Inflation and increasing Unemployment. The inflation rate hit 84.4% from 11% in 1997. The purchasing power of the holders of Ruble declined because of high inflation rate. The interest rates also increased sharply because of the loss of confidence of investors. The government deficit could not be financed because of high interest rates. The Russian government was forced to devalue the ruble, because of the ongoing crisis. Such a move was expected to boost exports and reduce trade deficits. This crisis was caused by Russian government’s failure to address fiscal imbalance. The tax system was ineffective and it failed to generate sufficient revenues. This crisis had a huge impact on Russian economy and derailed the Russia’s course towards market economy.
Economic Background
The economic restructuring
in Russia was marked by prolonged depression and instability. Between the years
1987 and 1996 there were several instances of near- hyperinflation. With the
help of international monetary fund, a stabilization programme was introduced
in 1995 to control the inflation. If focused on tightening monetary control and
achieving exchange rate targets. In the following years Russia had made
progress towards stability of prices and exchange rate, because of this
stability, the rest of the countries thought that Russia was on the right
course of reforms. Russia emerged from USSR, after it’s dissolution, and it
inherited it’s seat in UN and its responsibilities. Russia also inherited its
industries which were unproductive heavy industries. Subsidies which were given
earlier to poor people was now removed and the prices were liberalized which
led to the destruction of existing capital stock. Since the restructuring was
carried out through market forces and not by government directed industrial
policies. It led to the virtual disappearance of the entire industry. This was
called the largest garage sale in history, because value industries were
undervalued and sold at throwaway prices. (Contemporary World Poltics ,
2016)
The private investors who
bought these industries had no interest or incentive to develop these
industries. Therefore, restructuring of these industries was not possible. The
legislative and institutional reforms in Russian in the 1990’s was meagre, and
the new market structure was extremely weak. The administration in Russian was
slow and it supressed ordinary people, it was filled with rampant corruption,
it was not willing to make amends to the mistakes it had made. The
administration was unwilling to allow more openness in the government. This led
to the concentration of wealth in the hands of few people. These people in turn
used their power to influence administrators and regulatory bodies.
This section of the society didn’t acquire
wealth through entrepreneurial success, it was obtained from illegal or semi-legal
activities. These people did not have the spirit of entrepreneurship, they just
spent the money they had on expensive imports, or real estate. Therefore, none of this money was put to
productive use which benefitted the country. The government announced the
stabilisation policies of 1995 in such an economic context. Even though the
inflation reduced, the investment in the country remained hostile because of
the negative environment. This led to the fall in investment in productive
industries, which in turn weakened the sources of future growth.
After a meagre recovery in 1997, the financial situation in Russia started to deteriorate again. Exports of energy resources was the main source of income for the country. The Asian crisis of 1997, came as a big blow for the country. The prices and demand for these resources reduced. The income earned from exports thereby witnessed a steep decline, which had a huge impact on Russia’s balance of payment. The tightening of fiscal policy further deteriorated the situation.
Fiscal Background.
By mid-1998 liquidity in international markets
had reduced and Russia’s current account balance further deteriorated as oil
prices continued to fall internationally. The interest rates in Russia
increased by 150% in 1998, the government tried to address this situation by
devaluing the Ruble. They used a floating peg system, with which the central
bank kept the exchange rate between ruble and dollar within a certain range.
When the ruble fell below the range the central bank used to sell foreign
reserves, so as to create demand for ruble and pull its value back up. This practice proved useful only for a short
period, as the central bank started running out of foreign exchange reserves needed
to stabilize the currency. In addition to this the government also issued a
90-day moratorium on payments by commercial banks to foreign creditors. In
September of 1998, the government realized that they could no longer use their
reserves to stabilize the value of the currency. So, they instead took a
decision to devaluate the currency. Because of this decision the Russian stock
market and bonds collapsed. The domestic debt, the government had to pay had
risen to 40$ billion.
The inflation started to rise again, and
because of this the savings done by the people in the country became worthless,
as they had to now spend more money to get the same amount of goods. The cost
of imports rose more than 400% and the prices of food items increased by more
than 100%. The businesses also stopped their employees, because of the loses
they were occurring. This increased unemployment and pushed about 30% of the
Russian population below the poverty line. Most of the regions In Russia were
dependent on their industries, so they took the biggest blow.
The agriculture sector was already declining because of unsuccessful and delayed reforms, concerning privatization. The investment in fertilizers and agricultural tools was also minimal. There were massive food shortages everywhere. In some states the leaders obstructed the export of food from their region to another within the country. In cities rationing was implemented, but no one cared about the countryside. Many people stopped paying taxes to the government, and some regional governments stated taking control of local assets. Many regions came together to set up their own banking system, to support each other and change currencies. This was against the federal law at that time. Many regions also pleaded for financial assistance from abroad. Most of the banks shut down during this period. The reason behind the shutdown was that, many people started approaching banks to withdraw their deposits. The demand of withdrawal exceeded the amount of money the banks had with themselves. The emergency measures were issued which put a halt on the withdrawals. Therefore, we can see how each and every sector was affected by this crisis ranging from food industry to labor industry to banking industry.
Source:- World Bank
From this graph we can see how the debt kept on increasing from year to year and how the value of the ruble was depreciating or how the exchange rate was increasing.
The financial crisis of 1998.
By mid-1998 liquidity in international markets had
reduced and Russia’s current account balance further deteriorated as oil prices
continued to fall internationally. The interest rates in Russia increased by
150% in 1998, the government tried to address this situation by devaluing the
Ruble. They used a floating peg system, with which the central bank kept the
exchange rate between ruble and dollar within a certain range. When the ruble
fell below the range the central bank used to sell foreign reserves, so as to
create demand for ruble and pull its value back up. This practise proved useful only for a short
period, as the central bank started running out of foreign exchange reserves
needed to stabilize the currency. In addition to this the government also issued
a 90-day moratorium on payments by commercial banks to foreign creditors. In
September of 1998, the government realised that they could no longer use their
reserves to stabilize the value of the currency. So, they instead took a
decision to devaluate the currency. Because of this decision the Russian stock
market and bonds collapsed. The domestic debt, the government had to pay had
risen to 40$ billion.
The inflation started to rise again, and because of
this the savings done by the people in the country became worthless, as they
had to now spend more money to get the same amount of goods. The cost of
imports rose more than 400% and the prices of food items increased by more than
100%. The businesses also stopped their employees, because of the loses they
were occurring. This increased unemployment and pushed about 30% of the Russian
population below the poverty line. Most of the regions In Russia were dependent
on their industries, so they took the biggest blow. The agriculture sector was
already declining because of unsuccessful and delayed reforms, concerning
privatization. The investment in fertilizers and agricultural tools was also
minimal. There were massive food shortages everywhere. In some states the leaders obstructed the
export of food from their region to another within the country. In cities
rationing was implemented, but no one cared about the countryside. Many people
stopped paying taxes to the government, and some regional governments stated
taking control of local assets.
Many regions came together to set up their own banking system, to support each other and change currencies. This was against the federal law at that time. Many regions also pleaded for financial assistance from abroad. Most of the banks shut down during this period. The reason behind the shutdown was that, many people started approaching banks to withdraw their deposits. The demand of withdrawal exceeded the amount of money the banks had with themselves. The emergency measures were issued which put a halt on the withdrawals. Therefore, we can see how each and every sector was affected by this crisis ranging from food industry to labour industry to banking industry.
Source: – International monetary fund.
From this graph we can see how the inflation in Russia reached its peak during the crisis.
Policies.
Firstly, I think the tax regime should have been
re-established with proper guidelines. The punishment and fines should also
have been strictly laid out. The number of taxes collected should have been
restricted, so that tax evasion would reduce. This would have ensured a secured
flow of income to the government, thereby reducing the deficit. Special
policies should have been exercised with regard to private investors who bought
the state’s heavy industries. Increased production of these industries would increase
the GDP of the country, which in turn means more income for the government in
terms of taxes.
Privatisation should have been systematically like
the one in china, privatizing one industry after an another. These industries
should have been sold more carefully, to those investors who really had
interest and funds. Such a move would have increased the productivity of these
industries. Productivity of public sector enterprises such as energy, gas and
oil etc, should have been increased through strict regulation and transparency.
These regulations would have prevented corruption in the system and the transparency
would help each and every person know where the money is going and what
activities are being performed. Transparency is the main component of
democracy. This would also help create a positive environment, which would in
turn induce or attract foreign investors.
Non plan expenditure should have been reduced. If
this type of expenditure was reduced then, the extra money which was saved
could have been used to reduce the deficit.
The construction of democratic institutions was not given the same attention
as economic transformation. The foundation of these institutions should have
been strengthened, when the symptoms of the crisis occurred before 1998. The
government should have allowed more openness and transparency. This would have
allowed the citizens to question and criticize the leaders. Corruption could
have been eliminated. Instead of stopping the salaries of workers and giving
pensions to old people, the government could have asked other countries for
help. The government should have tried to raise money by asking other countries
for help, on reasonable terms. This would have been a better alternative than
stopping salaries.
The government should have promoted foreign direct
investment into the country, by giving these companies tax benefits and
providing them area in special economic zones. This would have helped in the
development of infrastructure and would have increased the GDP of the country.
If the salaries were not ceased then, these workers
would have actively contributed to the GDP. The government should have kept the
interest rate under control, the businessmen and individuals would have
borrowed money and would have spent it on goods and services. In this case
these funds could also have been used to replace worn out capital assets and
build new infrastructure. I know that the interest rates were increased to
reduce inflation, but as we can see this policy failed as it began to rise
again. In this case there is a trade-off between inflation and interest rates.
But since increasing interest rates didn’t work, the alternate seems more
practical and workable. Inflation targeting should have been adopted by the
government to bring inflation under control. The government should have
employed these workers to build new and improved infrastructure. This way the
government would have created employment and increased the standard of
living. This would have improved the
overall condition of the citizens in the country.
Economics 