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Mainstream, VOL LV No 29 New Delhi July 8, 2017

Small Scale Sector in Conflict with Monopoly and Finance Capital

Tuesday 11 July 2017, by Anil Rajimwale


In the course of its development, capitalist production gets stratified into various layers and sectors, each with its own characteristics, place and role. In fact, in its early phase, capitalism was dominated by ‘laissez faire’ or free competition. There were numerous indi-vidual and private entrepreneurs, owners, workshops, mills and factories, which competed with each for capital, raw materials, finished products, profits and market. In principle and practice, they had equal access to the market. As yet, there was not much difference in their levels, as concentration of capital had not yet taken place.

There of course emerged big producers at one pole, with the tendency to displace smaller ones to the other pole. Still capital was in the state of free competition.

Monopoly Versus Competition

Monopoly is a tendency opposed to competition. It emerges at a certain stage of capitalist development, when there is concentration and centralisation of production and capital.

Monopoly capital emerged in the middle of the 19th century in England and West Europe. With the emergence of monopoly capital, finance capital and large scale share markets, there took place a rapid stratification within capital and capitalism. This point is of crucial importance. Monopolisation accelerated contradictory processes at the two poles of capitalism. Capital got concentrated heavily at one pole, leading to the qualitative change in the nature of capitalism, resulting in suspension of competition. Monopoly is the opposite of free competition. At the other pole, non-monopoly capital was increasingly exploited, particularly the small scale capital, which was sought to be deprived and destroyed. At this pole, capital began to feel the pulls and pressures of loss of capital due to its concentration at the other pole. Things were made difficult for it regarding production and market. It was more and more deprived of resources and capital, and had to fight hard for its very existence. The growing merger between industrial and banking capital, and the resultant finance capital became the major threat to the small scale industrial capital.

From this point onwards, monopoly and finance capital monopolises the use of capital, forcing the small capital out of business or at least to the borders or fringe of business. It becomes increasingly difficult for the small and medium capital/business to sustain. In the history of capital, the workshops suffered a lot, often going out of business due to monopoly competition. Therefore, objectively speaking, the small business is anti-monopoly and anti-finance capital by nature. In the age of finance capital, new contradiction emerges, with monopoly finance capital exploiting both the small scale (non-monopoly) capital/business and the working class.

Fightback by Small Business

This does not mean that the small capital/business disappears or is totally marginalised. It has shown enough resilience and will to fight back. It will be wrong to reach the conclusion that finance capital has the free run and open, unhindered field to destroy small and industrial capital. The non-monopoly sector, in particular the small scale sector has fought back this tendency of monopolisation in its own way, and has established itself as an important sector of economy all over the world. While monopoly capitalism has grown in strength and has spread, the non-monopoly capitalism, particularly small scale enterprise, has also grown and established itself. The history of the countries of the national liberation era has especially emphasised the fact that the small scale capital and business play a crucial role in anti-monopoly, anti-imperialist struggle.

SMEs in Post-independence India

The small and medium scale enterprises (SMEs) have held their own in the face of stiff competition from the monopolies, finance capital, the giant corporates and the MNCs. This is no mean achievement. The colonial economy severely exploited the SMEs, particularly the tiny, household and small scale sectors. The petty producers, small agricul-turists, weavers, etc were severely exploited and suffered heavily. Among the keys to the growth of the Indian economy after indepen-dence was the strategy of vigorous development of small scale industry (SSI). This sector plays a crucial role in the growth of the country’s economy.

The protection and growth of the SSIs and the SMEs was one of the central points of ideological and economic-political struggles in the country after independence. The industrial policy resolutions, particularly that of 1956, imparted great importance to the SSI. The growth of the SSIs and the SMEs depended heavily on state intervention and democratic protection.

In the conditions of the post-colonial economy, the SSI can be attracted by two kinds of powerful economic forces of opposite kinds: monopoly capital/big corporate business, and the public sector. Monopoly and finance capital, by its very class nature, is strongly opposed to the growth of the SSI. At best, it would use it as its auxiliary and adjunct, and would not allow its independent development. The monopoly capital puts every hurdle in the path of concessions and protection to the small scale enterprise. It wants all those industries for itelf, and opposes concessions on the plea of ‘free competition’ The Indian monopolies have consistently opposed the government policies of development of state (public) sector on the pretext of killing ‘free’ enterprise. This is a peculiar characteristic of monopoly capitalism: while killing any competition in economic (and political) practice, it poses as the advocate of ‘competition’ to destroy or stunt the growth of the non-monopoly, particularly the SSI sector.

Public Sector and the SSI

The growth of a powerful public (state) sector in free India has been a pillar of strength for the SMEs. The public sector has supplied the basic infrastructure, means of production, light and heavy machinery, energy and power, raw materials, bank loans, and other forms of state help to the industries of the micro-, tiny, household, small and medium sectors. The nationalisation of 14 monopoly banks in 1969 was a big boost for the SMEs. Consequently, a large number of industrial areas came into being all over the country.

The state reserved a list of hundreds of items to be manufactured by the SSIs alone. This was a progressive, anti-colonial, anti-monopoly move. This was sharply opposed by the monopoly houses and their economic and political representatives.

The tiny and household industries also prospered in this period. The Khadi sector is one example, among many, which today has shown a substantial growth. It has become a sector with countrywide network. It produces quality goods including clothing, soaps, eatables and other items. It has shown brilliant results in competition with big industrial houses. Other examples can be the milk and dairy products of Mother Dairy, Amul and such other sectors in various states. They have brought about a kind of ‘white revolution’ in India. Conspiracies continue to be hatched to sabotage and break up these small scale, cooperative, people-oriented commodity production enterprises. The cooperative textile sector is a huge movement in Tamilnadu and some other States. Some of them, in fact, came into being in the pre-independence period due to efforts of progressive nationalist forces. After all, political independence does have an economic base. Otherwise it is threatened with disruption and disintegration.

‘Departments one and two’

Department one in economics refers to the production of means of production. It is crucial for the whole of economy. Without it, production cannot go on. Department two refers to the production of the rest of the commodities, particularly of the consumer goods. For any economy, department one has to be primary and strong. In our country, the public sector has played the role of the ‘commanding heights’. Today, it is sought to be destroyed. Almost everybody agrees today that the public sector has to be saved; otherwise our economy and country’s independence will be in jeopardy.

The commanding heights of public sector provided the basic resources to the SMEs for their extraordinary growth. The industrial development needs oil and energy, iron and other ores, other raw materials, machines, electricity and water, buildings and so on. It also needs a viable banking system. The public sector has played this role successfully. In this way, it has been able to keep the monopoly financial sectors at bay and away from interference in the SSIs, to a considerable extent.

Political Battles

The history of post-independence India is one of sharp battles between the forces of progress and reaction. The progressive forces adopted the strategic aim of keeping the finance and monopoly capital at bay and of protecting the growth of the SMEs. This strategy had the public sector as its core or the central axis. The Rightwing strategy was to stunt the growth of the SSIs, to keep them only as an adjunct of and dependent upon the monopoly and private finance sector and confine them to the selected consumer and auxiliary goods only. To this end, they tried to attack and sabotage the public sector and its policy.

The Rightwing tried its best, inside and outside Parliament and the Assemblies, to sabotage any help to the growth of the SSIs and SMEs. Consequently, the growth of the SSIs and SMEs is, objectively speaking, an anti-monopoly, anti-imperialist and anti-finance capital policy. Consequently, it is a crucial component of the progressive, democratic revolution and of democratic transformation of the economy.

The representatives of the Rightwing parties constantly opposed the moves to build public sector and to give concessions to the SSIs. They always tried to take away as many items of manufacture from the reserved list as possible. They attacked the strategy of developing the SSIs and the public sector as ‘socialist’. Sharpest battles were fought on these and related questions.

Unfortunately the anarchist and ultra-Left forces and ideologies also attacked the public sector, making common cause with Rightwing reaction.

Small versus Big Scales

We are usually habituated to talk about the growing domination of finance and monopoly capital, about allround spread of the big business. We try our best to show the big business is dominating everything and how powerful it has become. We try to show that all other sectors are powerless and everything is destroyed, almost. Even the economists produce data, facts and figures about the growth of the corporate houses and their all-encompassing business, and then everybody expresses helplessness about the solution of the problems and crises.

In the process we forget the contributions and problems of the SSIs and SMEs. We forget that while the big business is a big threat, the small scale is also a strong force capable of fighting monopoly domination. The fact is that the small scale sector constitutes an important sector of our economy. It is growing in the face of all kinds of problems and hurdles. It is struggling hard to grow and is adopting the STR on a big scale.

Contribution of the SSI

Certain bare data will show the growing importance of the SSIs and SMEs.

According to authoritative sources, the SSI today contributes about 40 per cent of the Gross Industrial Value Added to the Indian economy; 45 per cent of the national economy, 35 per cent of manufacturing, over 90 per cent of industrial units, over half of employment, nearly 50 per cent of exports etc. A million rupees of investment in fixed assets in the SSI produces 4.62 million rupees worth of goods and services with a value addition of 10 percentage points. The number of SSI units has increased from 0.87 million units in 1980-81 to over 3 million in 2000. In fact, the number of SSI units was only 16000 in 1950, 36 000 in 1961, to 133.67 lakhs in 2007-08.

The production from the SSIs was 1,22,154 crore rupees in 1994-95, rising to 6,95,126 crore rupees in 2007-08. Production in the last ten years has recorded a growth of 8.6 per cent.

The SSI sector has generally maintained a growth rate of three to 11 per cent from 1991 through the intervening years to 2000.

In terms of employment, the SSI is the largest employer in India, next only to agriculture. According to estimates, one lakh rupees of investment in fixed assets in the SSIs generates employment for four persons. Generation of employment industry group-wise was impressive in food products, non-metallic mineral products, metal products, chemicals, paper, hosiery, repair, services, rubber, plastics, etc. Per unit employment is also substantial.

The SSIs play a major role in the country’s exports. They contribute 45 to 50 per cent of the Indian exports, which is very important. Of this, the direct exports constitute 35 per cent and indirect exports about 15 per cent. The new technological and information revolution has made it possible for the tiny, micro and small scale enterprises to establish direct contacts with the world market. The indirect exports take place through trading houses, merchant exporters and export houses. It is also a great achievement that the non-traditional exports constitute 95 per cent of the SSI exports. Garments, leather, gems etc are important items. Sports goods, readymade garments, woolen garments, knitwear, plastic products, processed food, etc are the major export items.

The above-mentioned data and figures underline the growing importance and role of the SMEs in the India and world economies. They also emphasise the fact that despite the increasing competition from the giant corporates and international monopolies, the SMEs are success-fully facing up to and opposing them. The STR and the ICR have proved to be of great help in this struggle. Thus one can notice that the STR not only is being used by the MNCs but also by the SMEs. A conscious effort called for in this direction against the corporate capitalism.

Thus the SSIs play a crucial role in the national economy. In fact they constitute, in some ways, the positive side of the economy. They have been able to put up a fight against financialisation, thanks to the Nehruvian framework of imparting commanding heights to the public sector. This is a big contribution.

By nature the SMEs need capital and not financialisation. Without productive capital, they cannot survive. Therefore, they gain from the democratisation of the economy and politics.


Thus the reality is much more complex. A contradictory process of capitalist development is taking place, in which not only the monopoly and finance capital is growing but also, simultaneously, the small and medium scale sector is also developing, posing a challenge to the domination of finance capital, thus helping the struggle for regeneration of productive and industrial capital based economy.

[Paper presented at the Annual Workshop on ‘Crisis of World Economy: Finance versus Industrial Capital’, All India Progressive Forum, Thiruvananthapuram, December 21-23, 2016]

The author is a Marxist ideologue.

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