PRABHAT PATNAIK* On the Political Economy of Economic "Liberalisation" IN A NUMBER of Third world countries in the post-war period, the state played an active role in promoting capitalist development, not only through its trade and tax-policies, but by undertaking large-scale state spending. The ideological inspiration for such intervention was derived from diverse sources : the successes of the Soviet economy made the word "Planning" fashionable; the triumph of Keynesianism-as-a doctrine and the adoption of Keynesjan demand management in the advanced capitalist countries underlined the necessity for active state intervention in capitalism; partly preceding Keynes and partly following him, the shift of emphasis in bourgeois economics itself was towards a study of "market-failures", and above all, for wide sections of Third World intelligentsia, the state, seen often as a supra-class entity, represented a deus ex machina to mitigate the rigours and the uncertainties of capitalist development, to ensure that even as economic development proceeded -by-harnessing private-enterprise, the solution of pressing social problems like hunger and unemployment did not become passively contingent upon the long-run and dubious fall-out of spontaneous capitalist development. While this ideological climate provided the milieu and the justification for active state intervention, this intervention itself was dictated by the real exigencies of the prevailing situation. The first phase of import substituting industrialisation, initiated in the Thirties in varying degrees across the countries of the Third World, had run out of steam, thanks to the narrow domestic markets of these countries. To widen the domestic market, to carry import substitution further, the bourgeoisie needed-acrive State tnvtrtvement; to take advantage of the widening domestic market so provided, the bourgeoisie needed state support for mobilising-adequate capital, for obtaining the requisite infrastructure facilities, and for keeping down its risks; and above all, to ensure that the expanding opportunities did not slip altogether out of its own hands into thos6 of metropolitan capital, with which it perforce had to collaborate, the bourgeoisie needed the protection of the-state. In short, state spending on a lai^ge-scale, state setting up of financial institutions for providing capital for investment projects, protectionism, state regulation of mul- 4 Centre for Econorhk Studies & Planning, Jawaharlal Nehru University, New Delhi