20 January, 2022

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An Economic Roundtable For A Middle Path Through The Crisis: Reply To Hema Senanayake

By Dayan Jayatilleka

Dr. Dayan Jayatilleka

Mr. Hema Senanayake says in response to me: “So, he [Dr. Dayan Jayatilleka] argues “middle path” is the solution. In economic reforms, there is no middle path I can ever think of. There is only one way to do it, at least when we consider macroeconomic fundamentals on which the progress of whole economy rest upon.”

I beg to differ, not for the purpose of disputation but because of the dangerous consequences of Mr. Senanayake’s supposition.

Firstly, the call for the Middle Path eschewing the extremes was made by one of humanity’s most advanced minds, namely Gautama, the Buddha. He was postulating the Middle Path as a universal truth. No realm of human activity or life was exempt from it. Not even economics.

Secondly, the same point was made by another of humanity’s finest minds, who has contributed to laying the foundations of thought in the human and social sciences up to this day. I refer to Aristotle and his doctrine of the Golden Mean. He too critiqued the extremes and argued that the best solution lay in the average, the median line, between any two extreme positions. Hence the Golden Mean.

If I had to choose between, on the one hand, the “more erudite thinkers and true leaders” who “think differently” as referred to by Mr. Senanayake, who does not name them, and on the other hand, the Buddha and Aristotle, I hope I will be pardoned for opting for the latter.

It is my cultivated habit to look for the Middle Path or Golden Mean, and when I do, I find that this provides and has almost always provided the best solution.

Let us move on to economics, or more precisely, economic reforms. Mr. Senanayake writes that “In economic reforms, there is no middle path I can ever think of. There is only one way to do it…”

This I’m afraid says more about the limits of Mr. Senanayake’s preferences or knowledge than it does about economic thinking or economic policy. The economic paradigm of John Maynard Keynes is an excellent example of a middle path between free-market capitalism and state-controlled communism. If we move into the realm of economic reform at times of grave crises we have President Roosevelt’s New Deal, which was a middle path between unreconstructed capitalism and Marxist socialism. While many countries were succumbing to the lures of either Fascism or Communism, the Rooseveltian New Deal saved US democracy from being rent by civil conflict and class struggle during the great depression.

Keynesianism was the animating spirit of the Beveridge plan and the welfare state erected by the Labour government of postwar Britain.

In the USA today, the economics of President Joe Biden represents, in his own words, a return to the philosophy of Roosevelt’s New Deal.

If Mr. Senanayake thinks that these are old-fashioned ideas, I would suggest he reads the writings of Nobel prize winner Joseph Stiglitz and Paul Krugman, not to mention Jeffrey Sachs and Robert Reich.

Mr. Senanayake has obviously not heard of Social Democracy, which is a Middle Path between Right and Left, consisting of a synthesis of ideas of Right and Left.

How has the Middle Path in economics and especially in the context of economic crisis, worked in Sri Lanka? At a time of devastation through civil wars and interventions, Presidential candidate Ranasinghe Premadasa deliberately struck a neo-Rooseveltian chord, entitling his 1988 election manifesto “A New Vision & A New Deal.” In his policy practice he eschewed the twin extremes of, on the one hand, the establishment thinking of rapid growth which awaits ‘trickle-down’, and on the other hand, and on the other, the crassly egalitarian socialism that the JVP stood for.

The Premadasa paradigm was of growth with equity, which succeeded in reviving growth rapidly, attracting foreign investment, rejuvenating the stock market while simultaneously—not sequentially—reducing inequality through a plethora of programs such as Janasaviya, free school uniforms, free mid-day meals etc.

In a recent speech on the ongoing economic crisis, Prof Howard Nicholas of the ISS at the Hague, and the University of Rotterdam, emphasized that industrialization was the only solution, and pointed to President Premadasa as the only leader who actually embarked successfully on that path.

Premadasa consistently took a Middle Path and did so creatively. In 1992, he addressed the problem of loss-making plantations neither by maintaining the status-quo nor by selling the plantations to foreign corporates as President CBK did in 1995. Instead, Premadasa granted 5-year renewable management contracts to Sri Lankan private companies.

Another example of the Middle Path in economics is that of East Asia, namely Japan, China, South Korea and ASEAN, most notably Vietnam. Theirs was not the path of relying excessively on the free-market to work its magic, as in the West. The role of the state is much greater in the East Asian model than in the neoliberal one. Therefore, the formulae of Lankan neoliberals, to slash state expenditure, has to be looked at more closely and with greater discrimination.

To sum up, I would use the markers ‘Keynes’, ‘Roosevelt’, ‘Social Democracy’, ‘East Asian model’ and ‘Premadasa’ to demarcate the third space in economics and economic policy; the Middle Path which Sri Lanka should follow.

At a moment when the JVP’s Anura Kumara Dissanayake and the FSP’s Pubudu Jayagoda and Duminda Nagamuwa have attacked the IMF as a solution, and given that these parties drive a powerful union movement, I would renew my call for an Economic Roundtable to arrive through consultation at a broad consensus, based on mutual trade-offs, so as to manage the economic crisis.

The country must go to the IMF only having agreed on the parameters and red-lines as pertains to austerity measures which will impact upon the working people and the poor.

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Latest comments

  • 5
    2

    Dayan Jayatilleka

    “The country must go to the IMF only having agreed on the parameters and red-lines as pertains to austerity measures which will impact upon the working people and the poor.”

    Why IMF?
    Why not Sri Lanka’s all weather friends Pakistan and China?
    I would like to remind Dayan that majority of the working people and the poor voted for SLPP.

    • 6
      1

      “the Rooseveltian New Deal saved US democracy from being rent by civil conflict and class struggle during the great depression.”
      Not really. It was WW2 that brought the US out of the depression. It became the factory to the world, including the USSR. Factories worked non-stop producing weapons, vehicles, aircraft, etc. Much of this stuff (trillions worth) was destroyed or dumped at war’s end to avoid disruption of the US economy.
      The New Deal partly involved creating employment on huge federal infrastructure projects like dams and highways. Our people would prefer to drive tuks than wield shovels. That is the basic problem.

      • 4
        2

        old codger

        Why doesn’t Sinhala/Buddhist state/government redevelop KKS Cement Factory, Valaichchenai Paper Factory, Paranthan Chemicals, …….allow non-Sinhala/Buddhist to fish in their own area (near their habitat) instead Taiwanese, Chinese, Japanese, Korean, ….. factory ships are fishing in the East …… ?

        By stupid colonisation schemes Sinhala/Bauthas think they could overwhelm North East with Sinhala/Buddhist settlements. However the signs are that they are beginning to lose South and West.

        I love to see/meet Anuradha Yahampath the Governor of Eastern Province in 20 years time. I am willing to take our own Casanova Nimal Fernando with me. Any objection?

        • 2
          0

          Native,
          I believe colonization should be the other way around. Colombo is a commercial hub because minorities are free to achieve their potential there. More areas should be opened for minority participation instead of the tacit apartheid that prevails.

          • 0
            0

            Native,
            “allow non-Sinhala/Buddhist to fish in their own area”
            Isn’t it the problem that good Sinhala Buddhists eat fish but don’t actually fish?

  • 5
    1

    There is no middle path to find the truth! The fact is that country need financial help. China is happy to give loan, USA is happy to give loan, India is happy to give loan. IMF is happy happy to give loan. None of them will give it free or without any conditions because loan means you have to return it with interest.
    Why Sri Lanka become a poor country unable to feed this country? What happened to those investments and loans and help from various countries and institutions for decades? We have destroyed the economy benefits again and again mis managed investments. So, Does this country need only a financial solution? What guarantee there that it will be used profitably if you get the money?
    Just imagine, Since 1958 how many times ( 1962, 1970, 1977, 1981, 1983 and 1983 to 2009 and 2019 businesses and infrastructures are destroyed again and again. Sri lanka’s budget is much higher proportion of GDP than many other developed countries. Corruption and mis use of power grown exponentially over time. We never tried to solve the problem. Instead we created problems after problems. To day you can buy a judge easily, you can buy a politician simply. You can buy a scientist undoubtedly.

    • 4
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      Dear Ajith,
      …. China is happy to give loan, USA is happy to give loan, India is happy to give loan. IMF is happy happy to give loan…..
      Of these lenders, except the IMF which will impose conditions for overall benefit to the citizens, all other loans are with a quid pro quo and no questions whether used for real development or 25% looted. Only exception is Japan which is always beneficial, and the ADB, but the ADB is only for specific development purposes.
      This is the reality.

  • 3
    0

    The only way out of this mess is to appoint a National Government with all-party participation, but with a much smaller cabinet. AG, Central Bank Governor, Speaker of the Parliament, Sarath Weerasekera, and Dilum Amunugama should be removed from their respective posts for sure. Once these things happen there will be a better way forward.

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