By Kumar David –

Prof. Kumar David

The economy: A practicable approach

Last week I reflected on a realpolitik approach to one of our two intractable problems, the national question, and suggested that a frame of mind of pragmatic compromise provided it met certain minimum conditions was a way forward. One of the condition is that certain minimal provisions be worked into new constitution, if not explicitly at least in layered detail, to ensure reasonable devolution of power even if the regressive word unitary is nailed to the masthead. My second condition is that the compromise meets the concept of a ‘transitional programme’, that is it is a first step of a forward movement. The retrogressive provision granting Buddhism (or any religion) special recognition, instead of a clean secular constitution, I suggested, could be eroded by making it a ceremonial cavalcade with negligible clout or financial underwriting. That essay kicked off some debate; fine, let it move on. I have little more to add at this stage and will move on to the second intractable problem, gloomy and scary economic prospects.

Reams of stuff have appeared from civil society, think tanks, and economic gurus drenched in statistics laying bare Lanka’s alarming economic plight. This saves me the need to repeat statistics, except once or twice and I will proceed to highlight the concerns in words in point form. The pity is that all these learned and conscientious reports do not make suggestions more concrete than truisms like “the government must prune down the fiscal deficit”, or quaking in front of debt statistics. Yes of course that’s all true but it’s time to spell out a sharply defined strategy. What I say below may be a point of view but it’s better than no point of view about what actions to take. Let me enumerate the aliments of the economy; there is pretty universal consensus on these points.

• The fiscal deficit (government recurrent expenditure in excess of revenue) is out of control; it’s a recipe for bankruptcy. The annual deficit may be as high as 6 or 7% of GDP by the end of 2016 fiscal year and by any measure of good governance that’s ‘no, no’ territory.
• The trade deficit is almost as large as exports, very roughly they are each $10 billion a year, or the import bill is $20 billion; double exports. That’s one reason why Lanka is sinking ever deeper into dollar (foreign exchange) debt.
• Debt is a big headache. This government is said to have taken on $7 billion in two years and nearly half of this is short-term debt falling due later this year. Foreign indebtedness stands at 80% of GDP and this is not good. The figure has been floating around the 80s or high 70s for 10 years. The government says it is drowning in debt trying to service the improvident loans taken by the Rajapaksa regime to build airports in the wild, empty concert halls and pointless towers pointing at the clouds. This is partly true, but if the trade deficit is a Himalayan $10 billion, then cumulative debt will inevitably rise.
• The public service is chaotic, literally. Most state enterprises make big losses and produce little; many are looted by ministers and/or their political buddies. Nobody, and here I don’t blame any particular prime minister or president, has the clout to tame these feral creatures.
• The most worrisome point is that the economy is going nowhere. What can one point to and say: “Here development is taking off; these see the shoots of growth”. The lack of credible investment and visible economic expansion is depressing. The government is laid back; it does not want to soil its hands on economic action. The private sector inspires no confidence as a potential growth locomotive and foreign investment, for global reasons, has turned shy. It is only the ever ebullient informal sector that gives some cheer but even this silver lining is blemished. For reasons too complex to explore here, many categories of labour, including unemployed manual labour, is showing an unwillingness to enter the workforce. The evidence for this is anecdotal but persuasive.

This enumeration is not intended to blame this government, its predecessor, or reach back to Chandrika or JR. The blame game is important and balance sheets must be drafted; but that’s not the point or objective of this essay. Remember my title was a pledge to have a stab at practicable suggestions for moving on from where we are now. Everybody commentator so far implies, but nobody bells the cat explicitly, so let me say it up front. Recurrent expenditure must be cut and revenue enhanced. There is no way around this logic. People beat about the push because they don’t want to spell it out explicitly: Reducing recurrent expenditure is decreasing subsidies and allowing wages to fall through the eroding influence of inflation. Raising revenue means soaking the rich and jacking up indirect taxes such as VAT. The latter is unpalatable to the public and the rich will oppose income, capital gains, luxury goods and mansion taxes. The government doesn’t want to lose ground in the public arena to the vultures of the Joint Opposition. The chattering classes weep on the shoulders of Uncle Ranil, Malik Seeya and Machang Karu to upend attempts to screw the rich even a little.

This piece up to here says nothing new, but don’t yawn, the interesting part starts now; in essays, like in sex, the best part is just before the end. I will develop two strategies that are crucial if the economy is to gain traction. The first is, yes some austerity is unavoidable but this is doable only if the people acquiesce and it is predicated on public education and mass mobilisation. But this is not something that is up the Ranil-UNP street. Consider this in the context of the Syriz, Alexis Tsipras experience. How come Greece kept trust and let Tsipras push austerity that was the opposite of what he had campaigned for previously? This was because Syriza was what it was! It had worked with, mobilised and organised people for a long time; they were ‘our guys’. When Tsipras had to capitulate to the might of Europe’s political and financial powers, the people judged that it was not a betrayal but a defeat for Greece. Syriza had fought for the people; they judged it that way.

My point is not whether Tsipras’ capitulation was unavoidable or the people’s mandate wise. The relevance to my strategic point about Lanka is this; if you go to the grassroots, explain, work with and organise people, then they will they will trust you if you say painful austerity is unavoidable. But the UNP is an animal of a different character to Syriza; Ranil and Malik picked up their economic alphabet perched on JR’s knee. Can Ranil-UNP repeat in one year what Tsipras-Syriza built over years? Can pigs fly?

You will observe that I am a pessimist on this score. Winning the trust of the people is a sine qua non if the belt tightening, needed to get past Lanka’s economic impasse, is to have a ghost of a chance. I would be pleased if Ranil, the UNP and others in the alliance including my comrades in the LSSP Majority and Bahu’s wing of the NSSP, prove me wrong. But till I see action on the round at the grassroots my congenital pessimism will stay alert.

The second strategic imperative is also not something up the Ranil-UNP street again but it is not impossible. This is the argument goes: To be pragmatic one has to be real, that is take the facts on the ground seriously. The private sector, domestic capitalism, name it what you will, this entity is not powering ahead with investments. Money is available; banks are not squeezing big and medium size firms; a more capitalist friendly administration than Ranil’s UNP is naïve for Lanka’s capitalist class to dream about. This is fact number 1 and fact number 2 is that foreign investment is not pouring in – not only here but global investment flows have slowed down. Let’s face it (even if we have different angles on why), domestic and foreign private capital is not powering ahead with investment, job creation and business activity and economic growth.

Consequently the government is faced with the stark option that the state must assume an active and interventionist role. This goes against the mother’s milk of ‘Leave it to the private sector; the private sector is the true engine of growth’ mantras on which Ranil-Malik-Eran-Harsha have been natured. Now they have no option but to concede that things are not going that way. The State, the Administration, leaders (our Lee Kwan Yews and Deng Xio Pings) have no choice but to be pulled by the ear, taken by the scruff, and kicked on the bum into adopting an interventionist economic stance. Then the question is can this government jettison its mother’s milk and turn interventionist? Difficult but not impossible; when their backs are to the wall, as we say in Tamil, “kuthiraiku kundi kanjal vaikalum thinum” (when the going gets tough a horse will even eat straw).

A clarification before I call it a day. An active role for the state does not mean more state enterprises and loss making corporations. It means hands-on promoting investment, leading from the front and getting involved, sponsoring joint ventures (it would be smart to palm off lossmaking junk state enterprises on China, but will it swallow the bait?) and pushing initiatives like ECTA without capitulating to greedy doctors and misguided nationalists. So let me conclude by reminding readers that I am not talking about socialism or the revolution; my practicable doable project is within the grasp of this centrist government.