By W.A. Wijewardena –

AKD’s Satana

President Anura Kumara Dissanayake, known to electorate as AKD, in a more than three-hour long marathon talk show on Sirasa TV last week, said that his acceptance of the IMF’s Extended Fund Facility or EFF and its associated debt restructuring plan was done by necessity rather than by choice[1]. He admitted that the country could not absorb, unhurt, the shock of not having IMF behind Sri Lanka. But it does not mean that in the future he will go along with this program without amendment.

Since IMF policy is guided by now defunct neoliberal economics, by accepting IMF package, he instantly became a neoliberal as I had pointed in another article in this series[2]. However, his explanation in the above-mentioned talk show demonstrates that he is more a Kautilyan Statist – economic ideology espoused by the 4th century BCE Indian economics Guru Kautilya in his treatise The Arthashastra – rather than following neoliberalism to the letter.

AKD: Man of the Match in politics

AKD, a lone guest at the talk show, was questioned by a team of hosts from the TV channel who are noted for their probing and scathingly predatory tactics when they deal with their guests. Though the talk show was called Satana or Fight, there was no fight at all. The hosts seemed to be willing listeners agreeing with AKD to everything he said. If they had used the same probing and predatory tactic with AKD, it would have helped him also to rethink about his economic strategies and correct himself. However, it appeared that those militant hosts were no match to ‘this science-graduate turned economist’ with an explanation to every question posed to him.

In my view, AKD demonstrated that he has a depository of information on a wide array of subjects, can access to that information quickly when prompted by another, can explain himself in layman’s language, and could win over his questioners with his innate charm and his cool disposition. He is also the ‘most-viewed politician’ of the day equivalent to the bestseller record of a book. By the time this article was written, this three-hour plus long talk show had been viewed by 1.2 million viewers. No other politician in Sri Lanka has been able to come even close to him.

Experience is immaterial to a quick learner

But his critics charge that he is without experience in statesmanship. Being a first timer in presidency, his critics are technically correct because he does not have a track-record. But experience does not matter to a person who can quickly grasp an issue, has a ready ear to listen, and change himself suitably to an emerging diverse situation. He has shown this adaptability by accepting IMF’s EFF as the most pragmatic way forward for Sri Lanka without dragging the country to a destabilising shock as predicted by his critics. AKD has the capacity to convert information to knowledge strengthened by experience, a requirement of knowledge as presented by Albert Einstein[3]. Hence, in the period ahead, he should work to show that his critics had been charging him without foundation.

Commanding heights

In the election manifesto titled ‘A Thriving Nation; A Beautiful Life’[4], AKD has not explicitly declared the role of private sector in his policy strategy to make the country prosperous. However, in numerous places, the State sector investments in health, education, transportation, science and technology development and even in promoting culture have been highlighted. Therefore, when his Government adopted the neoliberal policies with the acceptance of IMF’s EFF, his policy strategy saw a major shift into an economic stabilisation program based on private sector participation. This is a marked departure from the accepted policy stance.

After the Bolshevik Revolution of 1917, Vladimir Ilyich Lenin, faced with a crisis ridden economy, had adopted a New Economic Policy that relied on the private sector for the recovery of the economy. In 2022, at the Fourth Congress of the Communist International in St Petersburg, he was charged that he had betrayed the communist cause by promoting the private sector in the country. He defended his program by proclaiming that the commanding heights or vital sectors had still been in the state sector and only unimportant economic sectors had been allowed to be in the private hands[5].

From what AKD said on the Sirasa Talk Show, it can be surmised that he had followed Lenin, and his Government will ensure that the commanding heights would be in the State sector. But it will mean a part abandoning the neoliberal policy enshrined in the IMF program. Instead, it seems that he has embraced a Kautilyan type state led economic growth policy package.

Businessmen: Thieves?

Even in conventional economics, not all the private sector businessmen are viewed as positive contributors to society. The 4th century BCE Indian Guru of economics, Kautilya, had remarked in The Arthashastra that ‘merchants are all thieves in effect if not in name. They shall be prevented from oppressing the people’[6]. Adam Smith, the father of modern economics, observed that when traders of the same commodity met socially, the discussion invariably zeroed on a conspiracy against the public or how to increase prices meaning that their selfishness was not in alignment with the self-interest for the consumers[7].

He also condemned the monopolist efforts of traders and entrepreneurs. If the traders are to be supported, according to Smith, it should be done when their interests are compatible with those of consumers. Their desire to hold property should be analysed from the social point of view when it contributed to the common good and the reproduction of humankind. What this means is that there is justification for government intervention when there are monopolistic practices by traders and entrepreneurs.

Perilous rice market

The rice market in contemporary Sri Lanka is facing a grave problem. Rice is the staple food and ensuring its adequate availability at affordable prices will guarantee food security. While paddy is being produced by millions of small farmers scattered throughout the country, it is being milled and supplied to consumers by private millers and traders. Farmers have a very low annual yield at about 4,000 kg per ha. Though the current level is a massive improvement from the low yields in 1970s and earlier, it has come to a stagnant point with minor increases annually. As a result, when the cost of production goes up, farmers become poorer. It has created a grave social and economic issue: no new investment in the paddy sector. Paddy is purchased by private rice millers and there is an allegation that they push down the price arbitrarily denying a safe income for farmers.

At the same time, there is another allegation that major players in milling are made up of an oligopolistic cartel, meaning a few millers dominating the market. They are also alleged to be controlling the supply at their will thereby creating an artificially high price in the market. Hence, the problem in the paddy sector is that both farmers and consumers have become victims of low farmgate prices and high retail prices, respectively. Governments in the past have failed to provide an effective solution to this issue.

Beating oligopoly through competition

When AKD was asked about his solution to this perennial problem, he offered the following explanation. Governments in the past had tried to resolve the issue by imposing minimum farmgate prices and maximum retail prices. But these measures are not effective because there is no mechanism to influence the supply. The only solution is through the Paddy Marketing Board or PMB, the state institution created in early 1970s to buy paddy from farmers at the guaranteed price fixed by the Government, stockpile the same, mill it through its own as well as private millers, and supply to the market so that consumers get the required rice uninterruptedly again at affordable prices.

This social institution, says AKD, does not perform its duty by the nation today. It is financially bankrupt and depends on the Treasury to pay even salaries. AKD plans to revive PMB, make it buy paddy from farmers, store it in its silos and those belonging to the Food Department, mill the paddy and supply to the market. In this way, the state is going to compete with the private sector breaking its oligopolistic power. By mid-March 2024, this system will be in place and the problems in the paddy sector will be over. In addition, no one will be permitted to buy and store paddy unless he is registered with the Government.

Also, they will be required to report on the stock positions to the Government weekly so that the Government can monitor the supply positions regularly. It will end the uncertainty about the supply as well as prices. If private millers do not cooperate, AKD threatened that he will import rice from India and supply same at half the present prices. These measures, he was confident, will force private millers to align themselves to the government policy.

Plans to ride a horse with a broken leg

From the point of promoting competition, this measure will be effective as also was suggested by Adam Smith. However, the Government is planning to do it by using a government institution infected by inefficiency. It is so inefficient that, as confessed by AKD, it cannot even come up with a firm figure of its indebtedness to banks and the Treasury. The private sector is technologically advanced, financially prudent, and managerially efficient. Hence, to compete successfully with such a sector, PMB should also be put on an equal footing. This is an impossibility in the near run, specifically during the current Maha season. Also, causing the rice prices to collapse in the market through cheap imports to punish the millers is not a prudent long-term solution to the problems in the paddy sector. Farmers are also faced by the problem of high cost of production. If market prices collapse to the level which AKD has prognosticated, almost entirety of the farming community in Sri Lanka will get bankrupt. It will simply breakdown the present supply chain.

Reviving it to functioning form again will be a near impossibility. Hence, AKD should be careful not to run into the same fatal fiasco of Gotabaya Rajapaksa who sought to convert the country’s agriculture to organic farming overnight. Its deadly costs are still being borne by the country’s economy. If the private millers are removed from the scene through the revival of an inefficient Government outfit, the farmers will be thrown from the hot pan to the burning fire.

Tourism’s low carrying capacity and value addition

When he was questioned about his future economic plans to develop a thriving economy as promised in his manifesto, he explained two such quick measures. One is the expansion of the tourism industry to make it a $ 5 billion contributor to the economy. The other is the digitalisation of the economy to make it a competitively advantageous one to be on par with Sri Lanka’s competitor countries. The promotion of tourism is a short-term goal and given the country’s present inadequacy of foreign exchange relative to the demand, it will provide a temporary relief to the economy. However, two issues must be tackled in this case to make it a viable growth strategy. Sri Lanka’s carrying capacity-airport handling, hotels, transport, and food chains-should be improved significantly to accommodate them. The other is the low value addition generated by tourism sector due to high import content needed to maintain a tourist.

Digitisation necessary but not sufficient

The digitalisation of the economy is a must, and it will help almost all the sectors to improve productivity, gain competitive advantage, and promote efficiency in economic activities. But it is a medium to long-term goal. What is needed by Sri Lanka is a comprehensive economic plan like the one being developed by India’s National Institute for Transforming India, or NITI in short, to make the country a developed country by 2047 under its Viksit Bharat goal[8].

Follower of Kautilyan economics

The Kautilyan economy is a State-led economy with all vital sectors in the hands of the monarchy. In addition, Kautilya has recommended all the ‘sin-type economic activities’, namely, gambling, alcohol use, and brothels run by licensed courtesans, to be handled by the king so that the output as well as its quality can be maintained. What is being proposed by AKD is also an economy where all the vital sectors are handled by the State, just like Lenin’s Commanding Heights proclamation in 1922. This will work in the short run but as I have mentioned in my previous articles, it will run the risk of generating the Gilgamesh problem unless the participants in the economy are strictly monitored and controlled to avoid the misuse of the newly acquired powers[9].

State enterprises: make profits and avoid losses

In Kautilyan economies, both the state and the private sectors were engaged in businesses. The enterprises run by the king – commanding heights as said by Lenin – were expected to generate a profit for king’s treasury. If they had not made losses, according to Kautilya, the managers had not only eaten up king’s resources, but also swallowed the value of labour[10]. They should be punished for their mismanagement of the businesses. If it is the treasurer – minister of finance today – who has caused losses to the king, Kautilya has said that he should be whipped in public[11]. This shows the importance given to State enterprises. Today, AKD cannot whip his minister of finance. But as the German chancellor did recently, he could sack him from the job if he has failed in his duty.

These are serious issues which AKD should look at and the hosts at Sirasa TV had failed to probe.

Footnotes:

[1] https://www.youtube.com/live/EyyRglCjRvc?si=85nBisHvGL4IPpTe

[2] https://www.ft.lk/columns/IPS-s-SOE-2024-Manual-of-growth-strategies-for-AKD/4-767908

[3]https://www.researchgate.net/publication/267331439_Learning_is_experience_Everything_else_is_just_information

[4]NPP, 2024, A Thriving Nation A Beautiful Life, available at: https://www.npp.lk/up/policies/en/npppolicystatement.pdf

[5]Yergin, Daniel and Stanislaw, Joseph, 2002, The Commanding Heights: The Battle for the World Economy, A Touchstone Book, New York, p xii.

[6]The Arthashastra, LN Rangarajan translation, 1987, Penguin, p 86.

[7]Smith, Adam, 1776, The Wealth of Nations, Bantam Classic Edition, 2003, p 177

[8]https://www.niti.gov.in/sites/default/files/2024-07/WP_Viksit_Bharat_2024-July-19.pdf

[9]https://www.ft.lk/columns/What-can-AKD-and-also-SP-and-RW-learn-from-Economics-Nobel-Laureates-in-2024/4-768187

[10]The Arthshastra, p 75

[11]Ibid, p 218

*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com