Market Soars On Congress Victory

John Authers, investment editor for the Financial Time, wrote:

"True surprises for markets are rare. Monday’s rise of 17 per cent in India’s benchmark Sensex stock index was an exception. It is plain that the market is very happy that the ruling Congress party won a smashing victory in parliamentary elections, which should now give it much greater freedom of political manoeuvre."

"Markets like political stability, particularly for market-friendly governments, so this reaction makes sense. But the extent of the new optimism must be tested. Morgan Stanley, for example, raised its Indian earnings forecast for next year from a 10 per cent fall to a 2.5 per cent gain ..."

The moment is opportune for us to meditate on a position of the economist Michal Kalecki, a rather well-known member of the so-called Cambridge school, which continues to withstand the tests of history:

"... Under a laissez-faire system the level of employment depends to a great extent on the so-called state of confidence. If this deteriorates, private investment declines, which results in a fall of output and employment ... This gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis ... 'political stability' [is] more appreciated than profits by business leaders ..."

This extract is taken from a piece published in 1943.

Let us see who shall benefit from the victory of the UPA.

By: on 19 May 2009


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hehe i love me some kalecki

hehe i love me some kalecki :)  i haven't read any except the short, but influential article on intermediate regimes.

I think the point raised in the quote is internally consistent and certainly you see clear evidence of it in the U.S. among other places, but it's unclear to me whether or not it applies in the current situation.  If you understand 'private employer' very broadly to mean everyone who hires labour, including even small farmers and shopkeepers, rather than just big business houses and the like then it's probably economically true. 

But if you use that assumption about what 'capital' means, then the political point is gone about having a headlock on the state, since - maybe - the politics of class in India is still very fragmented.  Anyway, this is a long debate that relates directly to the article I was mentioning above which I or someone else really should write about at some point - it's a very interesting sketch of how industrialising countries can work and what class means in them.

There is also the question of timing - I am not in India so I don't know what the mood is like but the stories of how liberalised india was that were presented to the western press are rumours that were greatly exaggerated :)  i have heard the process best described as primitive accumulation and am curious to what extent that can/has persisted - that to me is more interesting than the question of "private"/"public" sector by industrialised country understandings of the extent of the state and of society.

i do, agree, however, that the formal capital sector in india - which is tiny as far as i know - would rather have had a clear and outright win by either congress or nda than anything that increased political activity or led away from a change in the economic regime.  but i don't know if that's froma  sound conception of their own interests or because they have simply drank the kool-aid and don't necessarily understand let alone dictate the implications of the changes that are taking place.  Of course, I hold to the belief taht it may actually be impossible and is definitely highly difficult to understand, so I don't blame them for that :)

whew.  long and convoluted answer to a short quote :)  that's what kalecki does to me :)

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