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From International Socialism, No.26, Autumn 1966, p.33.
Transcribed & marked up by Einde O’Callaghan for ETOL.
Foreign Investments in India
Michael Kidron
OUP, 50s.
Profound changes have taken place in recent years in the mode of operation of metropolitan capitalism in (ex-) colonial countries and in its relationship with the native bourgeoisies. Any theory of imperialism in the world today must evaluate and take account of these changes. The new forms of colonial investments are most advanced in countries such as India which have a fairly developed economic base which is essential for the new mode of colonial exploitation. Michael Kidron’s study of foreign investments in India, which describes and documents the changes in the pattern of foreign investments, in its fields of operation, its organisational forms and its relationship with the Indian bourgeoisie makes a valuable contribution to the understanding of the new imperialism and must be welcomed as such. It is an important work for it is the first detailed and systematic analysis of its subject.
The first part of the book describes the decline of the old-type foreign capital and the transfer of its enterprises into Indian hands. This was a process which was already well advanced before independence. Amongst the factors which contributed to this change was the increasing marginality of rentier capital (the principal source for the old-type colonial investments) in the metropolitan economy and its displacement by giant self-financing industrial corporations. A parallel set of factors was the increasing marginality in the world economy of natural raw materials, which were the principal field of activity of the old-type foreign investment, and the rich new prospects for manufactured products in the developing economies which now attract the new-type foreign capital. In the Indian context Kidron emphasises also the decline in flexibility of operations due to the proliferation of State controls, the key factor which had made it possible for the old-type foreign capital to retain control of enterprises in which it did not have majority ownership. These changes were, however, well advanced in the thirties and by the time of independence in 1947 the situation had already been transformed radically. Equally the growth of the new-type foreign capital was by then under way although its most dramatic growth came after independence. In Part II of his book Kidron shows how government policy leaned in favour of foreign capital, despite the initial protests of Indian capital, which subsequently acquiesced and collaborated with foreign capital. In view of the actual pattern of these developments which he describes, many of Kidron’s statements are somewhat ill-considered and misleading. For example, referring to the passing of the old-type of foreign capital, he speaks of ‘the final heave towards full and explicit Indian hegemony (by the mid-fifties) in nearly all but the most technologically intensive fields’ so that ‘by independence the balance of advantage for the Indian investor swung decisively towards "national" capital,’ etc. By his own account this is clearly a mistaken view.
In view of the familiar Indian incantations of socialism and the widespread belief that the State in India after independence has been, in some sense, a bulwark of ‘national’ interests or an instrument of the national bourgeoisie, Kidron’s account of the actual role of the State in India vis-à-vis foreign capital comes as a revelation. Despite the fears of Indian capitalists and their hostility towards foreign capital, Kidron tells us, ‘The Government set about attracting it (i.e. private foreign capital) very soon after independence ... The 1948 Industrial Policy Resolution ... marked a substantial retreat from previous attitudes towards foreign business ... (despite) the outcry from domestic interests (which was) shrill.’ But it was the Indian capitalists who eventually had to come to terms with foreign capitalists, because investment opportunities for them were made contingent on finding foreign partners. Kidron notes that ‘It is now virtually impossible for an Indian firm to start up or expand without presenting a scheme for foreign collaboration.’
Kidron’s most valuable contribution lies in his analysis of the collaboration between Indian and foreign capital. However, the large extent to which foreign capital continues to operate without local collaboration is obscured by the data which Kidron uses extensively, viz. Consents for New Capital Issues which do not include foreign investment in Branches. In fact in 1961, according to the Reserve Bank of India Survey, as much as 40 per cent of the foreign investment was in branches. Although the relative share of such investments had fallen from the figure of 55 per cent of total foreign investment in 1955, in absolute terms investment in Branches and Subsidiaries had continued to increase having risen from Rs 3,622 million in 1955 to Rs 4,784 million in 1961. Kidron is therefore quite mistaken when he says that ‘It is almost as difficult for the potential foreign investor to keep out Indian capital.’ He is evidently misled by the figures of Consents for New Capital Issues which he has reproduced extensively in 13 tables. The reader would have been much better served if he had found room for just one corresponding table from the Reserve Bank of India Survey to which the reviewer would refer the reader who seeks reliable data. This is because the RBI Surveys cover actual investments while the Consents for New Capital Issues refer to the stated intentions of applicants for permission to issue capital. The Consents show the figure of ‘Authorised Capital’ which is normally considerably in excess of the capital which is actually Issued, Subscribed and Paid Up. Nor are the proportions between domestic and foreign capital exactly as reflected in the Consents. Thus Kidron gives the figure of ‘the average authorised foreign share of foreign controlled issues’ in the period 1956-64 as 56 per cent. But the RBI data indicate that taking all foreign controlled companies in 1961 the foreign share was 72 per cent (and considerably higher in earlier years). It is evident, however, that the trend is towards increasing collaboration between foreign and Indian capital. Kidron elaborates a number of reasons why such collaboration is attractive for the foreign partner. ‘Government pressure might be less effective were it not that many foreign firms have cogent reasons of their own for seeking local collaboration.’ In any case such pressure could not be very great for, as we have just seen, 72 per cent of foreign capital continues to operate without local partners – and much of it is new investment made in recent years. ‘Financial collaboration is not the only nor perhaps the most important form,’ writes Kidron. ‘The vast majority (of Indo-foreign joint ventures) are for technical collaboration only ... On closer scrutiny, even some of the financial collaborations appear to be no more than technical collaboration agreements.’ Such technical collaboration introduces a wholly new element in the manner of overseas expansion of Metropolitan capitalism and its full implications for the theory of imperialism have to be elaborated. This was discussed by the reviewer in his contribution to the Socialist Register 1964.
Essentially it establishes an unequal partnership between foreign capital and the colonial bourgeoisie. Much of such collaboration is in the field of ‘manufacturing’ which often amounts to little more than repacking or assembly of components manufactured abroad or the completion of the final stages of the manufacturing process for goods manufactured in the Metropolitan country. This, says Kidron, secures for the foreign partner effective and relatively secure sales outlets for products (and concessions vis-à-vis customs duty and imports control because the goods are imported as ‘raw materials’ or ‘components’). Kidron explains that ‘The Indian subsidiary or associate (is) tied to a single source of supply’ and that the foreign partners also ‘exercise very strict control over the international operations of their associates in India.’ It is clear that such collaboration, far from being the starting point of independent national development, profoundly prejudices such development. It blocks the independent development and application of technology in India. The foreign partner not only retains monopoly over research and development of products but also ‘Typically, strict control is sought over the use to which the techniques imparted are put ... The supplier of the new technique is often fully protected from imparting a complete technology by clauses which specifically exclude "fundamental investigation and development" ... Unable to undertake full production, the Indian concern is often effectively prevented from adapting products or processes to local conditions and materials, or from encouraging local ancillary industries and so becomes even more dependent on imported supplies.’ Foreign investment and collaboration not only blocks the independent development of technology; it is inimical to economic development also because ‘foreign investment (has not) always complied with either the Government’s own scale of priorities or an efficient allocation of scarce resources and foreign exchange’ and has undertaken projects ‘marginal in a development context.’
It is remarkable that in this work by an avowed Marxist, on the role of foreign capital in India there is no reference to theories of imperialism nor does the word imperialism ever appear; for the present reviewer Kidron’s findings seem to confirm and amplify his own thesis advanced two years ago. [1] A rather different thesis was advanced by Michael Kidron in the pages of International Socialism. [2] There Kidron rejected the Leninist theory of imperialism and in its place argued that ‘We don’t have imperialism but we still have capitalism.’ Looking at the growing partnership between Metropolitan capitalism and local bourgeoisies in the ex-colonial countries Kidron takes the view that ‘The picture forming slowly, vaguely but surely before our eyes is one of a far more homogeneous world.’ He continues ‘The national bourgeoisie – or failing it, the national bureaucracy – has been rescued from oblivion by imperialism’s withdrawal; national independence has come to it, in many cases, without a struggle, and therewith have come the levers of economic development and its own growth; finally, it has gained greatly in strength from foreign capital’s new need for willing partners in production and from the associated flow of Cold War aid.’ But the concept of a homogeneous ‘international capitalism’ which Kidron propounds is a spurious one. The picture which has surely and clearly formed before our eyes is not one of an increasingly homogeneous world but rather of a world in which disparities grow and exploitation continues across the national frontiers. If colonial bureaucracies seem to have their hands on the levers of economic development, the commands which they hear are often given from abroad – and Kidron’s work provides us with examples of this! The partnership between native capitalism and foreign imperialism is an unequal partnership. In the face of the increasing concentration of the economic power of metropolitan capitalism and its political supremacy, maintained abroad through client bureaucracies and by the Cold and the Hot Wars waged against national liberation movements, Kidron’s concept of ‘international capitalism’ has little meaning except as an inaccurate description of the fact that given contradictions between the so-called ‘national’ bourgeoisies and the metropolitan capitalism, the weaknesses of the former incline it towards capitulation and collaboration rather than independence. The mode of imperialist exploitation has changed since Lenin’s day. It has not ceased to exist.
1. Hamza Alavi, Imperialism, Old and New, in R. Miliband and J. Saville (eds.), Socialist Register 1964 (London 1964), section V, pp.116-124.
2. Michael Kidron, International Capitalism, in International Socialism, No.20, Spring 1965.
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