Colombo Telegraph

Capitalism, Liberalism & Their Discontents

By Uditha Devapriya

Uditha Devapriya

Economics is not an “easy discipline”. As a friend recently pointed out, take out the references to real world examples and all you are left with are hard to remember, harder to apply equations. Sure, that’s a given in any profession, but it’s particularly infuriating in economics owing to the fact that this is, after all, a field that has real world implications. Foggy, obscure, sometimes obscurantist, as a discipline it has been subjected to myths and falsities which by being repeated and promoted over and over again have acquired the status of honest-to-god-truth. Probably that’s why I’ve learnt to put up with my distrust of economists. In particular, economists in and of Sri Lanka who rationalise their stances in terms of theories that have acquired the status of (honest-to-god) truth despite their repudiation by a good portion of the world.

On June 19, Advocata Institute, “an independent policy think tank based in Colombo, dedicated to economic development through free markets”, hosted a lecture titled “Capitalism in Asia and What It Means for Sri Lanka” delivered by the inimitable Razeen Sally. Professor Sally, as those who have attended his seminars (in particular, his “Night Watchman” lecture, “What makes a classical liberal?”), is in favour of free markets and less red tape and has displayed a general aversion to the Left (which explains his belief that in Sri Lanka, public and economic policy has been permeated by socialism). The June 19 lecture was no different, and it was more of the same, but it compelled an interesting riposte from an outfit calling itself (tongue-in-cheek) the “Avocado Collective”, which challenged the Professor’s worldview in clear, concise, convincing terms. The riposte (“What kind of ‘liberals’ are these?'”), published on June 29, provoked a counter-response from Advocata (“The kind of liberals we are”) on July 24 (why it took nearly a month, I cannot tell), which in turn provoked a counter counter-response from Avocado (“What neoliberals they are”) on August 10.

Advocata is dedicated to free markets. So is Professor Sally. Like all advocates of free markets in the subcontinent and the developing world in general, they espouse the gospel according to Smith, Ricardo, Say, and Malthus, the fathers of classical political economy, believing it to be the only way out for the problems of our societies. But free markets are not always free and free trade is not always fair. There are myths attached to these theories and philosophies which have come to define the trajectory of economic history in the West. So when individuals and outfits argue that, in Sri Lanka, “public debate on economic policy has been dominated by those who believe that state intervention is the answer to all our problems”, I can only scratch my head. If at all, post-1977 policy has been defined by those opposed to such intervention. What else can explain those spates of privatisation, kowtowing to foreign capital interests, and deregulation which STILL have not got us out of the debacle we are in?

The Sri Lankan economic experience, post-1977, has mostly been that of promises made and broken by administrators, of powerful industries being sold to the “free market” in the name of efficiency and eventually being turned into worthless replicas of their former selves. (Does anyone remember, as the Avocado Collective does, the Werahera CTB Workshop and the Thulhiriya textile complex?) But consider that it is not just in policy seminars that myths have been paraded as truths, and that they have formed what we assume to be the only economic reality, one which a good part of the world has rejected. We are still stuck in the “golden era” of “classical liberalism”.

Of course, this is just one way of looking at the issue. There is another way. A recounting of history. The history of capitalism, free markets, political economy, and classical liberalism, as gleaned from the transition from the manor to the market.

Why capitalism developed in Western Europe, no one has fully ascertained even today. It was born in the 16th century and was the child of the Reformation and the Enlightenment, which rationalised the world in terms of mathematics and science. It accelerated in the 18th century through the use of technologies that were invented by, as Professor Ha-Joon Chang points out in his perceptive work Economics: The User’s Guide, “practical men of good intuition.” It accelerated more so when Europe began colonising the rest of the world, forcing the conquered countries to enter into trade agreements through which the coloniser could accumulate the raw material, which it would process and export to those countries after strangling their native industries. Colonialism gradually depended on the destruction of those industries, something for which we of the developing world are still suffering after all these centuries. India was virtually castrated here; as Will Durant once wrote, there would not have been an Industrial Revolution were it not for the resources plundered from the Crown Colony of the Empire: “From Plassey to Waterloo, 57 years, the drain of India’s wealth to England is computed by Brooks Adams at two-and-a-half to five billion dollars.”

This dualistic economy, of mass exploitation on the one hand and minority privilege on the other, was supplemented by a State that was all powerful and had a vested interest in the continuation of unfettered industrialisation (given that the parliament was populated by industrialists). One does not have to read Engels’s work on the working class of England to determine that the progress achieved by the Industrial Revolution (which boiled down to a paltry but still comparatively powerful growth rate in per capita income, in Western Europe, of about one percent) came at a rather enormous cost (70 to 100 working hours a week, death from overwork, and, in places like Manchester, the diminishment of life expectancy to as little as 17 years). There was nothing free about the free markets in those days. In fact there was very little that was free in the market: as Fernand Braudel, the eminent historian, has observed more than once, capitalism was the product of large corporations and monopolies vying for power against each other, and not of the eternally touted image, projected in textbooks today, of islands of small shopkeepers in a perfectly competitive market. Britain, the most powerful industrial nation (in the 19th century, it accounted for 20 percent of manufacturing output when it had only 2.5 percent of the world population), was a pioneer in protectionism. It managed to rein in on its success, not by the pursuit of free trade, rather by the pursuit of treaties which forbade colonies from imposing tariffs to protect native infant industries. Free trade was never really free. It was only unequal.

Paradoxically, then, there wouldn’t have been capitalism in Western Europe without the State, that harbinger of bureaucracy which horrifies free market advocates today. British government intervention, which picked up after Robert Walpole became the first Prime Minister, provided tariff protection and subsidies to strategic industries, a method resorted to by the “Miracle Economies” of the 20th century. (When I come across tirades hurled at the land ownership scheme of the Sirimavo Bandaranaike government, I can only smile at the irony, given that while that regime limited land ownership to 10 hectares, Japan, Taiwan, and Korea, which were geographically larger than ours, limited it to as little as two or three hectares.) When Britain did switch to free trade in 1860 – a century after Adam Smith championed it in The Wealth of Nations – it was not to the free trade envisioned by free market idealists today, but the unequal trade I sketched out above. The role of the State, put simply, was to kowtow to capital interests, something that rebels against the thinking of capitalists who fight for less state intervention. (Perhaps what they are really fighting for is, less intervention for social welfare and more intervention for their welfare.)

Classical liberalism, with its emphasis on property rights and economic freedom, was born of all this. But liberalism, more specifically liberty, is a notoriously hard to define term, and in the early days, it had a different connotation. Again, I refer to Braudel; he traced its evolution from “liberties”, which was the liberty of powerful groups wielding hegemonic power over a multitude (a system “stubbornly long-lived” and used to “exploit others often without shame”), to “liberty”, which could only be achieved through prosperity and protection for territorial states, the repositories of capitalism. Unfettered capitalism, through this, gave rise to unfettered individualism, which then gave rise to a dilemma: if everyone is free, how will society survive?

Rene Descartes, who had championed individual thought with “Corgito, ergo sum”, seemingly resolved the issue as follows: individuals are parts of a whole, and so, if the part is to survive, the whole must too. The interests of the part had to, in other words, coincide with the interests of the whole. From the 17th century then, Western society not surprisingly hardened its attitudes towards elements of society which could not maintain the unity between the one and the other: right until the Middle Ages, the peasantry had been sanctified (Christ, after all, was the son of a carpenter), but in the heydays of capitalism, they would be demonised. Hence the workhouses, capitalism’s equivalent of Stalinist gulags, which crop up so harrowingly in Dickens’s novels. The rise of classical liberalism over these decades could not have been a random affair.

*Uditha Devapriya is a freelance writer who can be reached at

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