Special Economic Zones -
Neoliberal "Enclosures" In IndiaBy Soumitra Bose
17 May, 2007
Radical NotesSpecially Enclosed Zones for forming Capital through production or servicing within a nation-state and without the encumbrances of law of the native land is what gets called as Special Economic Zone (SEZ). What speciality of Economy this zone is going to provide is hazy not only from the content point of view but even from every angle of view one looks at it. Can a nation state, by definition, have multiple "economies" within its territorial boundary? Can an "Economy" be quantified through any stretchable definition of qualification as one co-existing with "others"? Is the usage of "Economy" over determined by factors other than "Economy" or if not then where is the line drawn to distinguish the exchange mechanism or production process or even production relation with the regulating rules relating to human rights, social benefits and even simple polity of the nation-state?
The concept of enclosed space has changed its point of incidence. Marx saw an enclosed space as a catchment basin from where cheap labour will be evicted and culled in to work in industries. Labourers from not specialized but specially charted out areas will be brought in to the most "advanced" type of production relation or that is what will be touted. In reality it will never be the most advanced type of production relation but will have the most advanced type of surplus extraction from the labourers. In Marx's days, the entire nation-state territorial space was the hearth of the Capital, spaces were enclosed and insulated to juice out the labour power, evict them, make them readily available for the Capital sector- today in SEZ the enclosed space is the special sector of Capital, whatever we have outside is the area from which labour power will be uprooted, evicted and made available for the "enclosed spaces". This very specific nature of the transposition requires a huge space or innumerable middle range spaces to be declared as the SEZ where the "advanced" Capital will establish the most advanced form of labour extraction, rent extraction and super-profit extraction. This would be the most "advanced" form of not production relation but of extraction relation. That too let us harbour no illusion that advanced might mean sophisticated. Sophistication would have brought in more organic composition of Capital that in turn would have meant advanced organic composition both in Fixed Capital and in variable capital.. In addition to adding more machines in the production process more technical composition of Capital would have to be brought in the personal skills of the labourers and daily tools used by the labourers. Let us be very clear that no such thing is going to be the essential part within the case study of the production process within SEZ. We must also not overlook that the SEZ may not have any production coming out at all. It could be a simple centre for hospitality, and centre for entertainment. We might call that as production, but no one will deny that no Capacity will be built up. No means of production may be produced. Special Economic Zone would therefore attain some credential in its description because it is a different kind of animal of economy that is going to be garnered here, one that does not require that profit and super-profit comes out of the Capital invested in some or the other production process.
Primitive accumulation of Marx's description has essentially come back and is active. Capitalism has created within itself sub-sectors and shows partiality on one over the other. At this day today, agriculture is not outside the Capital project, nor is small scale industries or even what gets called as the Sunset or traditional industries. Capital is moving towards a regime of a different and a more restricted kind of Capital formation in one or two preferred sub-sectors at the cost of her other sub-sectors. Moribund nature of Capital is still a convincing proposition because the project of Capital has therefore become more skewed, focussed and living off itself. Agriculture had just started to form Capital with the newer machines and factor inputs. Agricultural produces then were just getting forwardly linked to other processed products and even giving rise to large scale mass consumer products. Agro-industry had a possibility of taking a dangerous turn through GM food industry [cash crop] but could equally have taken a rather desirable route of developing retail-food consumer industry. Retail industry in India has been very conservatively poised to be flourishing up to Rs 28 billion in the next two to three years based on the present production capability. The huge potential of the augmented production and processed production would have transgressed even into the so-called traditional near-static realm of the security food production. Cereal too had shown all signs of becoming a viable and very important cash crop. Economy based on the agricultural showed the promise of becoming the most spread out and most popular industry and yes, even heavy industry there too. The agricultural equipment building up capital industry, the storage industry, the preservative industry, the processing mills industry, the distribution and Just-In-Time supply chain all these had the possibility of being the best optimized network in the human history. Capital, and especially Capital in the third world had chosen to ignore that route and go for what it perceives as a faster track of building up SEZ on some low graded low skill assembling industry and hospitality industry. It has chosen to ruin down even all present capabilities of agricultural and agro-industries and for the sake of realty industry- this is the famous python eating off its own tail. That is the very specific nature of the accelerating rate of moribundity of Capital.
"Primitive Accumulation process" had accumulated Capital through accumulating the sources of Capital that is labour, in turn labourers had to be provided, that created more jobs and more distributed income and therefore more small savings. The present day SEZ-patterned neo-modern primitive capital or what we may term as predatory capital is evicting producing farmers to snatch their land, render them jobless and provision less and skill less gradually. The only thing that is extracted of them in this SEZ is the cheap labour without any strings attached. The whole logic of enclosing the other way around has come up simply due to this narrow objective of extracting the cheapest possible labour without bothering about the provisions given to them for keeping them alive and work-worthy for the next day. The traditional definition of wage comes into question here. What therefore the labourers in SEZ would get is a diminutive form of wage that is destined to go down progressively. This downward shift in wage or remuneration may be in real terms or in nominal terms (in absolute terms or in terms of inflation adjusted basis), but the lowering down of the wage down the tenure is a fact nonetheless. The Enclosing is done also to avoid the competitive wage war between different companies within one industry - that is why it is predatory. The enclosure ensures physical insulation from intra-industry competition, intra-market vagaries and cross-industry side effects. Enclosure establishes a corporate fiefdom on the production process and is eked out to be isolated from the general society or the production environment of the surroundings and the nation-state in consideration. This is the crux of the benefit that globalised Capital gets from any SEZ - regardless of the ontological position of the industry, its standard, organic composition, technical composition, labour law, democratic polity, comparative advantage or disadvantage or general labour market, any enclosed zone can be prepared with the exact desired level of input-mix and then packet it as one single product exactly right for maximum profit extraction. The entire process of production is now a product and a package. SEZ is the one package comprising the product that is sold in the market (service, solution or material product), service that goes along with it. The market however is usually not the open market; it is a specific market in a distant territory or a link in the forward chain of an end product. The market therefore does not have the immunity to withstand on its own as an independent product and is solely dependent on a parent firm in some distant metropolitan region. The product is the optimized output-mix with the lowest variable capital or labour involved. SEZ abhors among other things any kind of normal market competition. Here comes the specific import and necessity of SEZ distinct from any producing firm. The enclosure then extends to every aspect of life for the labourer and gets in or out of the enclosure as per the profit consideration of the owner of the SEZ. Labourers may pour in the SEZ every day and pour out at the end of the work or they may be interned.
Colonisers colonised the native land through gradual occupation of cities and then moved on to the feeding base for those city markets and eventually the whole territory. SEZ is a mechanism very similar to that kind of project with the only difference that every SEZ is different from the other and for all other life carrying activities it has to depend on the unenclosed area - the "other". Capital is a social relation is what Marx opined and went further to say that it transforms every human relationship into itself. SEZ does the same thing with a more wholesome form.
This phenomenon brings us to the perusal of the business model of SEZ. The entire all-engulfing market lies "outside" the SEZ - it lies out there, out in the "other". Even if for hypothetical consideration we consider there are infinite numbers of individually insignificant SEZs, individual SEZ is not capable of changing the nature of the overall SEZ scenario within a nation state. There is a proposal to visualize the whole of India as a conglomeration of SEZs - then there would be a virtual SEZ market where each individual SEZ would be a product by itself. In that condition each individual SEZ would not need any protection or special insulation from the others, it could have competed with the other SEZs. Well! That is the paradox, here. So SEZ cannot be innumerable in numbers, it has to be limited and thus it has to survive by primitive accumulation of the labour power from the "other" sector - or the normal nation-state economy sector. This is the reason why the great Capitalist China moving with a firm double digit GDP has now restricted the number of SEZ into only 6 big ones and are now slowly tightening the leash through promulgating more and more restrictive laws. Latin America has abandoned any concept of SEZ and it is only India and especially the so-known Indian parliamentary left that is full agog with SEZ concept. The dependence of SEZ on the "other" for its sustenance is not only the limiting factor in its sustenance and growth but it is also the nemesis. The growth rate in an SEZ project is bound theoretically to go down and eventually (not asymptotically) reach the zero level and head towards being negative. SEZs are bound to turn red in various time tenures, but by that time it will take down along with the entire neighbourhood, the ecology, the producing potential, and aggravate chaos and anarchy exponentially. SEZ is a fast loosing proposition in any medium to long term. A product lasts only its life cycle. Even if it is insulated from the competition and general market obsolescence, the life span of a product can only be extended but doom it will! An SEZ, as it depends on one product or one service or one type of solution or a few collections of it, has to face the same track history of that of a product. SEZ in a long term is nothing but a bankruptcy generating, devastating device creating social, political, cultural and demographic land mines. After a couple of bouts or life cycles of a set of SEZ, the whole land, labour will lose its recycle ability and desert will it render. And right here in this consideration the future value of the Capital is loosing. Every marginal productivity unit measure of unit Capital will fetch progressively lower and lower value. The short term apparent gain will be for the nation-state a gradual drain in the pent up wealth that human civilization has kept on providing all these years- it is therefore a project plan with a diminishing return. SEZ baffles the country's statistic and metric by short-term spurts but just like administering steroids it kills slowly the country in any middle to long-term tenure - it is Capital de-formation on a longer tenure- a bad proposition!
The entire concept of bundling up of the ancillary industries with the production unit of the principal product is a loosing proposition. Had this business case been successful then from the profit point of view the forward integration would have been more profitable and then again the conglomerate behemoth model of the mid twentieth century would come back. The separation of core production unit from the ancillaries brings success only when the ancillaries cater to various competitive firms within the same industry. SEZ organization inhibits that. Even if it allows such outward journey of intermediate products the transportation advantage will not be achieved and the concept of optimum supply chain will not be achieved. The concept of down stream production chain can never live long by supplying to one or a few pre-ordained customers. Any change in the order pattern would jeopardize the organization and sustenance of the ancillary firm and would turn it red. With the bringing down of the feeders the main firm will go red- this is an over determined process of doom and bankruptcy.
SEZ is an enclosed space subsidized by the government and exempted from paying the excise duties and various other normal taxes. If the number of such SEZ units grows then the nation-state will be loosing the potential income, whereas the financial institutions and private or public venture capital concerns will invest money in those. With every additional SEZ in the country the marginal productivity of one invested dollar loses its comparative sheen after the number of SEZs had reached a critical number. A country cannot sustain that as the public funds will soon be depleted of its operating generated own fund from domestic operations. They will have to borrow in money from financial institutions beyond the nation-state boundary. This fund comes along with interest tags. The interest money that will be paid is nothing but the portion of the super-profit generated from regular Capital operations. With the increase of tenure and amount, the super-profit will turn into a rent and will be siphoned off the nation-state boundary dipping the nation-state into perennial economic and thus political in-sovereignty.
SEZ needs a continuous inflow of Capital unless all its products are to be bought back. In the case of being bought back the firm loses the freedom of the market price and is bound to move towards a decelerating growth rate and faced with the inflationary nation-state economy this plateaued out growth rate would be in real terms go down over a longer period. In the case of no such obligation of being bought back the firm has to depend on the outside market and the cost of acquiring new business would be going up as more and more SEZ firms throughout the world would pour in products- in this case too the rate of return is diminishing and the entire advantage of protection and subsidy dies off. Please note this is not the general neo-con logic of free market because in an SEZ the only UPS of the final product is the cheap labour that does not grow in quality or value. Going down the value chain never fetches any medium to long-term guarantee to the producing firm. In a normal nation-state competing market protectionism at the inception hours helps stabilize the company through giving it enough fail-over during which it hones on to the value proposition and becomes capable of fighting with the external open market- that is the interest pursued by the nation-states in building up its own army of competing industries. In an SEZ case the native nation-state subsidizes revenue and does not build up any value proposition. It remains dwarf and always dies outside the incubator.
In any nation-state economy then walking over to the international market place, revenue earned strengthens the native currency against the international basket of standard currency of the SDR (Special Drawing Rights). This is simply because the repatriation is inward within the native state. In SEZ it is mostly repatriated abroad or the revenue earned is used to import foreign goods. Hard currencies bob up the countries reserve for a very short while and depletes that again as fast as it came. The foreign direct investments come in a normal market as well as in an SEZ with strings attached. As long as the domestic market is not very strong and demanding for finished industrial products FDIs are always traps. Companies will only come to the native country when they find very higher marginal returns to their dollars that again entails their getting lured by the strength and volume of the native-market. The entire credit money of the WEST would require a producing economy outside the credit capital or debt capital generating sector that can SERVE the credit offered- this is the monetary aspect of the primitive accumulation. The (M3-M1) of the WEST will be served by the M1 of the EAST.
The FIIs extract interest that gets compounded. The serving potential of a native country's operative profit goes down with every additional native dollar earned through one more unit of labour spent in the native economy. With all these the metropolitan market or the market in the west uses the native space as a space sub-serving its main product that is either produced or designed within the WEST and the biggest chunk of the sales revenue minus the operating cost goes over to the Western owner either through patents, or through owning intellectual property or through design consultancy fees. The smaller portion that comes to the native country goes to pay for the labour and the acquisition cost. With every such unit sales-revenue the differential of the Western and the Eastern allocation yawns up more and more creating an ever skewed distribution. The absolute value of the production-sales-repatriation cycle looks exciting from the native stand point in the beginning years and then figures out that it is loosing the relative value proposition competing with the WESTERN peer or the WESTERN co-producer. The value game becomes, if not war but definitely a contention of attrition.
What is the benefit of getting into SEZ then? If it is so gloomy then why all comprador corporates of the native nation-state are rushing towards this obvious doom? Yes, there is some gain; however effervescent, however fleeting there are some thrills there, but they are there as long as the overall picture is not paid attention to, as long as the collective is not taken into consideration, as long as the individual rivalries enthral the individual players without any heed to the collective doom. The euphoria of chaos, the ecstasy of anarchy, the elixir of crossing interests and the moto of contention of killing others to survive, living for a short while, for a fast buck and for cravenness for speed is what SEZ would offer- it is the same attitude that goads homo sapiens to consumerism, to over-accumulation and needless possessiveness. People frenzy as if there is no tomorrow, and Capital leads human and every relationship generating from humans into a simulacrum of no-tomorrow! Capital is the only tomorrow!
The faster a third world producing and thriving economy would SEZise itself the longer would the WEST survive and the better would it. We saw the vaporising of the Asian tigers with only surplus reserves into basket cases and tourism destinations slipping down to providing solace to worn heels of the WEST. We experienced how famous industrial centres of countries like India (Durgapur-Asansol-Ranigunge belt, Gaziabad belt, Old Mumbai belt, Steel plant colonies) turned from high skilled settlements into almost deserts within the last 4 decades or so, we experienced how new and promised lands lost their crown to newer up-comers. We also saw how producing economies and sectors are giving way to service sector and entertainment gizmos and eating away the best of the brains and wisdom into brain and skill drain.
The SEZ offers its owners a nice prelude to the Capital flight they would carry along and stash in the financial institutions abroad, to have a nicer life for may be one life time (without any consideration to their progeny) comparable to their western compatriots before the native-country ever dreams to have a convertible currency regime. The owners do not want to take any chances, if the native country sinks they are afloat transmigrated and transmuted into citizens of the world and in particular of the western world. If the country shores up for a while then they will come back to reclaim their ancestral rights as sons and daughters to the soil, they will then enjoy a cheaper economy and again the moment the signal turns amber they would take the next flight out. SEZ is that space ensuring a safer proposition of Capital flight off the native land to the promised metropolitan. Who paid for all these? Don't even dare to ask - of course those half clad, half fed, lesser children of native land, those who never could wake up to comprehend their rightful claim. Here speed is the Mantra - the faster you can fly befooling the producers the smarter you are! SEZ is that smart contraption that takes the owner places and takes the producer-labour for a song!!!
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