23 September, 2020

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Global Depression-Economics Is Not Subsiding: Blur At End Of Lanka’s Economic Tunnel

By Kumar David

Prof. Kumar David

Prof. Kumar David

There are some encouraging indicators, some perfectly hilarious ones and dark clouds on the global economic horizon. It is budget season but I leave a critique of revenue and expenditure to others. In any case, in previous years they have altered so much and so often during the year that healthy misgiving rather than supposing stable policy is wiser. So let’s relax and get to the humour first. Prime Minister Ranil is a jovial chap; did you hear that at some Asian economic forum he intoned with straight face that Deng Xia Ping (DXP) learnt reform at the feet of JR Jayewardene? Thankfully, RW remembered that the eighteenth century was not the twentieth and refrained from claiming that one Karl Marx learnt dialectics also from Uncle Junius. Phew; that was a close shave!

DXP’s economic reforms were as different from JR’s neoliberal capitulation to the IMF as the Middle Kingdom differs from base earth. (Did you know “Middle” in Chinese hubris refers not to the centre of the world, but to a land suspended halfway between heaven and earth? Hence the Emperor is the Son of Heaven). DXP’s motives had bollocks to do with neoliberalism; it was about the power and leadership of the state in managing an opening to foreign capital in the first instance since there was no credible domestic capitalist class, and then prodding local entrepreneurs and emerging capitalists. His memorable aphorisms: “It does not matter if the cat is black or white so long as it catches mice” and “It is good to get rich” were intended to encourage investment. Unlike Uncle Junius’ Lanka China morphed to state-capitalism where dynamism and innovation of capitalism and its worst side (inequality and corruption) unhappily coexist. The ace in the Chinese economic system is supremacy of the state. I said “economic system” which complements the monopoly of state power vested in the grip of the Party. Chop-sticks differ from soup spoons as much as DXP’s game plan does from JR’s or any previous economic gimmick in Ceylon/Lanka.

Ranil sees some light

This disposes of Ranil’s humorous gifts. But it has to be conceded that the guy can think on his feet. Let me digress to politics for a moment and give him credit for the dexterity with which he has damped out the rash outbursts that President Sirisena has become prone to. The First-Son behaves like a thug in a nightclub, no different from his predecessor, but his security detail has to take the rap. The Head of State abuses the Bribery Commission, inadvertently or by intent forcing the resignation of its head. In another eruption the President plays Sherlock Holmes instructing the police: “Don’t dig here, look there, search this person, ignore that one”.

This is so much askance with how a president should conduct himself that there must be something more than meets the eye. Mea culpa; I have in the past spoken highly of President Sirisena; sceptics now fault me. More important is a point I have often made; the stability of this government is predicated on the steadfastness of the Ranil-Sirisena relationship. Sirisena is now sailing dangerously close to the rocks, oblivious that the rocks are close to the dungeons? To judge from reports, Ranil seems to be retaining his composure in an effort to pacify his ally’s mithreeless angst.

Having given Ranil a pat on the back for adroit handling of Presidential shenanigans let me return to economic policy. For months I have implored the state to intervene, lead and participate in economic policy. This is where DXP was right and Uncle Junius out of this depth. If the nephew wants to do a DXP but imagine he is doing a Junius, who cares so long as in practice it is a Deng. The matter of substance is this: Is Ranil shifting gear to a dirigisme mode? Dirigisme is a term that means a high degree of economic direction setting by the state. There are encouraging signs that RW may have begun, or has been forced by events to see the light; but it’s too early to be sure.

The signs cannot be ignored. First is his declaration that DXP got it right (forget the Uncle Junius fairy tale addendum) and second is his more nuanced understanding of the Singapore model, which in so far as the economy is concerned, is a state-led not a neoliberal model. RW’s sidekicks Manik and Eran are emitting somewhat modified utterances from worship of a mythical free-market and genuflection to domestic and global capital. The PM’s admission “We have nowhere to turn except India and China” is as telling as it is true. In the final part of this essay I will explain why the capitalist west cannot help developing countries even if it wished to. The Philippine president has reached the same conclusion. But the point is that if Lanka’s industrial development leans on these two giants it cannot evade being influenced by their models.

These models are not airports in the wilderness, highways to nowhere and towers pointing at an empty blue sky. If we engage in production and establish joint economic zones, then Chinese and Indian influence on our development philosophy will be significant. The former model as is well known is state led public-private, but don’t reduce Mody’s model to mere abdication to capitalism. Of course the private sector is powerful in India, but “Make in India” is a state-led initiative. IT-cities and railway, highway and sanitary facility upgrading are state led. A mix involving capitalism and the public sector, with the state setting clear goals, is the right approach for transitional bourgeois states like Lanka. This is the blurred light at the end of the tunnel which the government seems to be groping towards. Keep your fingers crossed.

Global capital’s protracted recession

The health of global capitalism is parlous. British economist Michael Roberts calls it the Long Depression in The Long Depression, Haymarket Books, Chicago, 2016. I like the terms New Depression or Wobble-U Shaped Depression and have illustrated the wobble in a booklet published by the Ecumenical Institute for Study and Dialogue in 2010. Whatever the name it is important to ask what to expect in the medium term. The rest of this piece leans on my booklet and Roberts’ book. I plan to get across a broad brush summary since the difficulty Western capitalism encounters in investing in developing countries is germane to my case.world-rate-of-profit

The 2008-2010 Great Recession is the longest and deepest capitalist slump since the war. The forerunner credit-fuelled boom collapsed and investments plunged. Government debt hit the roof since trillions had to be spent bailing out a string of bankruptcies, crashing banks, insurance giants and iconic companies. The titanic debts the US and other OECD are now up to neck in were NOT incurred to mollycoddle the unemployed or shore up desperate working class and wilting middle class families. No these debts WERE incurred to rescue drowning finance capital, busted dot-coms and failing firms. This nightmare scene is straight out of Kapital III.

The Volume III storyline does not end there. It says a prolonged crisis will drag on after an upheaval such as this till war, ruin or an erosion of the productive powers of society – a great blood-letting – prepares a wasteland on which capitalism can rise again. The prolonged depression since 2008 with no recovery in sight is haunting confirmation. GDP growth in OECD countries has mostly been stuck below 1% (US is best at 1.75%) and firms are not investing for fear that risks are too high. Easy money that central banks spew out is used to buy back shares, ignite stock-market asset bubbles or hoard money. Productivity gains outside IT and investment outside the hot-money finance sector remain abysmal. Interest rates are held at near zero – in some cases real interest and even nominal ones are negative – by central banks terrified of bursting asset bubbles and the ensuing market turmoil if they advance rates even fractionally. Consequently there is disinflation (inflation less than signalled by economic health) or actual deflation in Japan and some European countries. Moderate inflation is a sign of investment and growth when capitalism is ticking along at a healthy sprint.

This then is the depressed scenario across Europe, Japan, the US and South America. The disease has spread to four of the five BRICS countries – India is the exception. China, so far, has caught only influenza, not life threatening pneumonia. Why did global capitalism (USA, Germany, UK, France, Greece, Japan, Italy, Spain, the list goes on and on) come to this pass? The explanation must be generic. Apologies trotted out by bourgeois economist fall flat. Greenspan says he did not see it coming; Nobel Prize winners the late Milton Friedman, Robert Lucas, Eugene Farma and Ben Bernanke are speechless. The Keynesians are up the gum tree, Friedman’s monetarist acolytes glum, their propositions all contradicted and negated. It would take me far too afield to summarise and dismiss their drivel, but what I am saying is not new; this critique is now customary among intelligent commentators.

There is one thesis empirically validated by six decades of data that stands. It is the falling rate of profit theory and dovetails the observation that the organic composition of capital rises in periods of expansion such as from 1945 through the Golden Age called the post-war boom. [Organic composition is the ratio of capital asset-value to productive profit-earning labour cost, but this is not the place to pursue this discourse]. The crucial point for the purposes of this essay is this. It is not the fault of this or that person, not Bush nor Obama, not Alan Greenspan or Janet Yellen. It is inevitable, an outcome that cannot be negated by Trump, Hilary or Theresa May. The syndrome has to run its course; hence we in Lanka are not going to get much succour from global capitalism and have to learn to play ball in an uncomfortable international amphitheatre.

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Latest comments

  • 2
    0

    Loot CB coffers and Invest in shares to overcome Global despression.

  • 4
    2

    Seems like you got training from Colombo University arts faculty family dept. There sociology PhDs are appointing as Economics Professors.

  • 1
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    Pay attention to the backlash against Free Trade Agreements. Trump promises to abrogate NAFTA which was a republican baby signed into law by Clinton. But back then the majority of Senate and Congressional Republicans vote FOR it and Democrats voted against it even though Clinton through some arm twisting got some support from his own party. The results, as Ross Perot predicted,was the “giant sucking sound” as capital and industry fled South of the Border where labor was cheap and plenty and environmental regulations scanty. Now blue collar sub-educated (people without college degrees) are suffering in the Industrial heartland. Bernie Sanders was consistently against NAFTA and TPP. Hillary was for TPP because of the benefits to US farming etc but suddenly became “against it” as sentiment in the nation grew.

    Add to that the record of Bill Clinton destroying Haiti’s nascent Rice farming when he coaxed and twisted Haiti’s arms to do away with Tariffs on imported Rice. Obvious beneficiary? US Rice producers, a lot of whom are in Arkansas which is the NUMBER 1 Rice producing state in the USA; was there a queer effort to help his good ole boys in Arkansas? possibly. He only apologized for this crime much after he left the Presidency.

    BREXIT sent a signal. This election in the US will send another signal. At the rate of Hillary’s email scandals, Trump might actually win now. With that will come a welcome America First attitude but also possibly problems for non-white people here.

    Tariffs and home grown agriculture was expanding in SL too until the open economy wiped it out. Jaffna farmers benefited greatly from the agricultural policies in the 1970s growing chillies and onions. Oh well we live and learn.
    Trump promises tariffs against Chinese dumping and a re-examination of all trade agreements. He has named China-India etc of nations playing unfair. US Steel industry suffers from cheaper Chinese steel. So essentially while American companies and their shareholders benefit the American workers did not. This is something Nobel prize(in 2001) winning Joseph Stiglitz has said many times. He said free trade did NOT help the American worker but helped American companies. Look at their profits. They are at unprecedented levels. So Ranil had him in SL. Did he listen to what Stiglitz said? He also had Soros there. Has Soros helped and bring in FDIs?

  • 1
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    156 Democratic Congressmen voted NO to NAFTA
    Only 43 Republicans voted NO to NAFTA
    Bernie Independent 1
    total 200

    102 Democrats voted YES to NAFTA
    132 Republicans voted YES to NAFTA
    total : 234

    SENATE:
    NO votes Democrats :28
    Republicans :10

    YES votes: Democrats 27
    Republicans 34

    So total YES both Senate and Congress Republicans : 166
    YES both Senate and Congress Democrats : 129

    NO Totals Republicans : 53
    Democrats : 184

    So Trump is running as an Anti Free trade Republican because free trade is a cornerstone of Republicanism.

  • 1
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    “Nobel Prize winners the late Milton Friedman, Robert Lucas, Eugene Farma and Ben Bernanke are speechless.”

    Bernanke is not a Nobel laureate. Anyway, by giving the prize to both Eugene Fama and Robert Shiller, the Nobel committee showed it was clueless.

  • 0
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    Everything in this Article is Kumar David’s imagination and not the true picture.

    the “doctored” graph shows the profits in the USA of which the development began just after the war. That graph is not evn for Europe because by that time Britain etc., had begun to go bankrupt. IT shows ecconomic crashed which proceeded 9/11 etc.

    One economic model is use mega – free trade agreement covers the whole globe and eventually that makes the globe a good playground for multinationals which can easily gobble up local players of small companies. Political instability which comes in the form of human rights, ethnic rights and deviding the old world alone ethnic lines will make the politicians backed by multinationals the victorius. IN that model United Nations is one like Vatican and it controls the whole world.

    Anyway, Brexit has shattered that dream. Multinationals won’t be able to reach the world via EU. London is sperated from Europe. If China South China is ours and no one can come there, US will not go to war. they only make others go to war and sell weapons.

    Quantitative easing has made the unstable but gigantic – US banks stable and full of money and it did not work for people who sre shooting at each other out of despair.

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