Colombo Telegraph

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

By 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.

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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