17 January, 2022


Educating & Persuading The Public In Economic Hard Times

By Kumar David

Prof. 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.Ravi K

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.

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Latest comments

  • 0

    You say there is money available but you are mistaken. What is available is fiat currency, paper IOU notes issued by the central bank which we call money. Real money cannot be inflated. Real money is in fact gold and silver – proven by thousands of years of market decision.

    Investment can only come from savings. Savings have been eroded due to the insidious tax that is inflation, caused by printing fiat currency. Since Sri Lankans have little savings of value, only little investment and growth can take place.

    Furthermore our economy and resources have become very severely distorted through public education teaching us skills mismatched to what the market needs, public healthcare which has created artificial barriers and costs to health access, public infrastructure which has forced our citizens into particular modes of travel and particular places of business and residences. Public control of the money system – aka the central bank. And so much more…

    For Sri Lanka to get back on track it must study the principles of true free market capitalism as explained in the Austrian School of Economics (which is distinct from the now obviously failed Keynesian school) and study Libertarian values as explained by Mises, Rothbard, Bastiat etc. The American model of old (19th century) did well under such a system – this was the great American experiment and it resulted in the most powerful economy in history. What public services did the government offer? Well, very little if at all.

    Modern day champions of liberty are Ron Paul, Peter Schiff, Tom Woods, Lew Rockwell, Mike Maloney etc. do a good job explaining things on Youtube and listening to these people would be a good start.

    • 2

      Kumar: Thanks for solid analysis as always! Educating the public is always a good idea.

      But let us be clear; the root of the economic crisis in Sri Lanka today is corrupt politicians and political culture.

      Politicians have become a blood-sucking CASTE GROUP – we may call them the NEW POLITICAL CASTE in Sri Lanka who only drive in super luxury SUVs!

      It is this political caste that is responsible for the financial crisis. This privileged political caste that parties in the Diyawenna Oya Parliament is looting the people and national economy of Sri Lanka and the corruption is cross party – UNP, SLFP, SLMC. Only the JVP and TNA have some integrity on the subject of Financial corruption and economic crime. The Sri Lankan people need to be educated about this first!
      Then the people of Lanka need to be educated about the role of the IMF and World Bank in producing massive GLOBAL inequality and poverty and legalizing financial crimes, big bank and corporate looting of the global public commons, tax havens and crime – as revealed in Panama Papers – to ensure that the rich get richer and the poor remain in debt! The name of the IMF and WB game is TRICKLE UP!

      • 0

        Indeed, this Christine Legard, head honcho of the IMF – the ONLY woman and she is in a SUIT here!

        She is the biggest looter of the public commons and her policies IMPOVERISH millions of women in the third world while she sprouts Feminism for and women’s rights for White folk.

        What a joke this so called woman at the IMF who is worse than the men and has impoverished and devestated Greece which is in massive debt is. She like Mahendran should be fired.

        Mahendran should be INVESTIGATED For financial crimes too.

    • 0

      Today the people are hit by floods, fires, and huge cost of living and tax increases due to bad development and governance policies by A-Yahapalanaya Sira-Ranil-CBK-Mahinda Jarapassa crooked team.

      The real reason for multiple crises that people face today is the CORRUPT POLITICIANS and political culture of ALL political parties. Sri lankan politicians are cunning and nasty, and distract the moda masses from cross-party corruption by playing ethnic and religious hate politics.

      Gota Jarapass the wanna be military dictator of Lanka is the Czar of Hate Speech against minorities. But At the end of the day Jarapassa, Sira, Ranil, CBK are all in the same Political Corruption and money politics game to DIVIDE, DISTRACT and RULE the masses.
      1.1 billion worth of cars is to be dished out for corrupt crooks at the Diyawenna Oya Parliament MEGA PARTY circus to SLFP, UNP stooges. Corruption is bi-partisan in the giant Cabinet. The putrid political culture is a the root of the economic crisis – please educate people on this.

  • 3

    Another apologist for the calamity brought about by the Yahaplanaya crowd due to gross mismanagement and incompetence. The Yahapalanya crowd tried to impose neoliberal economic policies that are completely incompatible with the social, cultural and political environment. Stigltz and Soros may have patted them on the back but that will not bring in the critical FDI, which has completely dried up under their tenure. Now a Hong Kong based expat is preaching to the people that they should accept their fate as nothing better could have or should have been expected. As Marie Antonitte said to the peasants “Let them eat cake” or perhaps in the Sri Lanka context “Let them eat bananas”

    • 3

      Hear! hear!!

      Angelo Perera has said everything that needed to be said. He hit the nail on the head. Couldn’t have been put any better.

      Kumar Davids and Prof Wijesurityas of this world only have a little fig leaf to cover their privates now.

      Sobhita hamuduruwo will at least be in peace.

    • 2

      Angelo Perera

      “The Yahapalanya crowd tried to impose neoliberal economic policies that are completely incompatible with the social, cultural and political environment.”

      I must confess I am an economic illiterate and bit thick as well.

      Could you tell us what you perceive as “neoliberal economic policies” which you consider completely different from the previous regimes’s Mahinda Chintana (in action).

    • 0

      I think what Angelo has said contains truth and validity.
      The question ultimately is how people in the SL govern themselves in order to progress and to live and survive.That is an evolving process and it is not entirely about making corporate profits but it is concerned with with the role of us as a people to play during our lifetime to come together in harmony for our own welfare and that of our descendants in the island.
      That is why taking a cue from history of what had happened in other countries of the world, I am confident that the time is ripe for people of SL to raise against illegitimacy, corruption, injustice and intolerance to live with dignity.

  • 4

    Our politicians don’t have the balls to do what is economically right but will always do what is politically right.

    Way forward:

    1 reduce military strength to what is required during peace time
    2 recruitment to govt sector to be limited to critical areas such as health, education etc
    3 broaden tax base with all employees of govt and private sector to file simple tax returns electronically
    4 all SoEs providing commercial services to face competition and hence open up to private sector
    5 moving away from a welfare state to a state where people pay for services received
    6 strengthen judiciary and make it independent
    7 no guaranteed jobs for university graduates in public sector
    8 focus on improving export sector

    • 0

      Prof David’s write-up is absolutely correct. So are the prescriptions you have set out.
      The problem is NOT the politicians. It is the voters. The politicians know that the dumb voter will vote for the one who promises the most free goodies. Govt jobs, duty-free cars, cut-price scooters, salary increases ,what have you.
      Jayalalitha does this with great success in Tamilnadu. The difference is that whereas TN has a robust industrial economy to provide the money. Sri Lanka has to borrow it. Our leaders get us further into debt.
      In the final analysis, SL voters are as stupid as the TN ones.

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