24 July, 2024

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Lanka: Dilemmas & Economic Programmes – Do We Consume More Than We Produce?

By Kumar David –

Prof. Kumar David

There are gentlemen (and ladies too I presume) who pontificate in learned terms that it is OK for a country to consistently consume more than it produces and everything will eventually turn out fine. One such instance is a vapid discourse by Professor Howard Nichols and two local academic economists, Dr Ganeshamoorthy and Dr Kalpan Rajapaksa. It is available on YouTube.

The discourse is indeed laden with platitudes. The poor are having a hard time; price inflation of everyday goods has become painful (electricity, food, imported stuff; on some essentials inflation is over 50%);  there have on occasion been short periods when a primary surplus was absent but the economy ploughed on and didn’t go down the tubes; government revenue sometimes fell short of expenditure but the economy did not collapse; we can go ahead and print money endlessly, what’s wrong with printing; the fundamental crisis in Sri Lanka is the impact of neo-liberalism and so on. All exciting populist music to my leftist ears! All bullshit to may rational intellect!

To my mind the fundamental question underling our economic past and future is: Has Ceylon/Sri Lanka, considering the post-independence period as a whole, been consuming more than it produces. If the answer to this question is “On the whole, yes” these three gentlemen are bull-shitters ducking the real issue. If on the other hand the answer is “On the whole, no” then their case that the Sri Lanka is being robbed by foreign agents and neo-liberalism and being ripped apart from by the IMF holds; the tasks in that case are purely political.

Statistics, hard facts of national output and consumption covering the whole post-independence period are available and economists and international agencies have extracted them. Surely it’s an open and shut case that broadly, national consumption has exceeded national production and that is why we are in deep debt. Inanest was Ganeshamoorthy’s comment that “government expenditure of course far exceeds government revenue, but that’s not consumption by the people”. In welfare sodden Sri Lanka blessed with free education and healthcare, fertiliser subsidies and free rationed rice for decades, down which hole did the government’s deficits disappear? Oh yes, most Ministers and MPs rob but not even a dozen Rajapaksas could have robbed this much – a significant portion of the entire government budget. Tens of thousands of public service employees are corrupt, the billions that corrupt public servants pocket too reach the people. Aren’t they too a very numerous segment of the people? Morality aside, undeniably the money filters down to the populace.

Central Government expenditure was about 14.3% of GDP in 1965, declined steadily to a low of 7.4 % in 1982 and then rose to a high of 17.6% in 2009 at the height of the war. It then fell sharply at the end of the war and hovered in the region of 10% of GDP since then according to World Bank sources. It almost doubled recently (Covid?)! I have shown private consumption from 2012 to 2021 in a figure. It has fluctuated between 75% and 80% of GDP in the last 10 years but the definition excludes purchases of dwellings. The bottom line is that government and private consumption together use up all the GDP; so, where is there money left for capital investment? Capital expenditure was about 14% of GDP in the 1960 and remained in the 25% region for many decades. It shot up to nearly 40% in the 2014 to 2019 period for reasons I don’t understand.

Source: World Bank

When you live in a naïve universe of make believe left-populist politics of course there is no need to address the most important task; a National Development Programme. What for, our three panellists proclaim we are doing fine, we are only being robbed and cheated by the neoliberals; our tasks are political, not programmatic. We have to “struggle” they imply. That’s why their video conference had not one useful word to say about a national social and economic development plan or programme. 

In a very broad sense, the condition of the Sri Lankan patient may be diagnosed as follows.       

* National consumption has exceeded production much of the time and we ate our way into debt. 

* Excess consumption was financed by foreign borrowing, remittances and outright grants. 

* Foreign borrowing plunged the country into a black-hole of ‘dollar indebtedness’. 

* Export earnings generally fell short of import expenditure (balance-of-payments deficit). 

* Government finances were out of kilter with revenue falling below expenditure.

* Government indebtedness was paid for by rupee printing (chronic fiscal-deficit). 

* Rajapaksa (Mattala Airport, Hambantota Harbour & Stadium, Lotus Tower) bankrupted the country. 

* There has been a breakdown of the rule of law and judicial independence.  

* Ethnic and religious minorities have been marginalised; traumatised is more truthful.

The programme of economic development must contain some obvious components. State and the non-state sectors both have roles – the broad directive role of the state, a capitalist sector, the rural economy and small and medium enterprises (SME). White elephants like Air Lanka must be got rid of and enterprises with excess manpower (petroleum distribution for example) must be gradually rationalised. A broad skills development and retraining plan has to be initiated. The private sector must be allowed to get on with its job. A basket of support has to be provided for the needy. All this has been said ad nauseum and each of these elements all has its place. The trick is prioritising and balancing; a thousand times easier said than done! 

The economic programme has to be modern, that is grounded in Twenty-first Century opportunities. An old-fashioned programme that has no familiarity with what’s going on in modern times is worthless. Enterprises need flexibility to innovate and that in turn requires that they have the ‘democratic freedom’ to make risk burdened decisions. This is not a strong suit of state led enterprises but arms-length institutions, think-tanks and private enterprises are better positioned to innovate. I have not thought this through but at this programme drafting stage. It would be good if young minds such as the National Peoples’ Power (NPP) movement turned to the matter.

Flexibility is important in technology heavy enterprises. Let me drop some keywords not to impress you but to signal out the areas: digital technology; bringing together masses of technology and data to extract useful decisions; artificial intelligence; web/internet/social media related concerns; I am very suspicious of crypto-currencies (buy gold instead is my advice) but the block-chain is a powerful tool for ensuring integrity in data management; I am an advocate of wide use of block-chain technology. Risk taking and tech-heavy financial ventures are unsuited to state or state led ventures; flexible arms-length institutions or private or semi-private ventures are more suitable. I hope I have given you an idea of the directions in which I am pointing.

However, don’t go overboard. The mass of the populace will not find this mumbo-jumbo meaningful unless it is converted into rice and parripu (bread & butter). The real economy, the needs of the people consists of tangible material goods. Hence the high-flying programme drafter’s politico-economic space is constrained by the need for tangible, fungible material goods. Let the young and the brilliant battle it out, I have done my bit by pointing out a direction. 

Last Sunday, 26 March, writing about Joe Biden’s dilemmas I agreed that global banking instability is creating anxiety among policymakers and the week before, 19 March’ in a piece about Godot mentioned that in the view of many thinkers the only way the world could move forward was global overhaul. On 5 March in a piece on Dystopian Civilisations I mentioned that Paulo Coelho had said the time has come to make changes of a fundamental nature. Pulling these strands together no one will deny that there is global instability. Nevertheless, I hold that the expectation of a quick collapse of the global order, a world revolution around the corner, is unrealistic. The reasoning of Professor Nichols and his two companions in the YouTube video (para 1) makes sense only if the short-termism of neglecting that national consumption exceeds national production is justified. This expectation and complacency are utopian. 

Returning to the refrain of an economic programme, that is to come up to date with the opportunities of emerging technology and the possibilities of the Twenty-first Century, one matter is clear. If institutional or workplace democracy and innovation are to flourish, things have to be done differently. Innovation implies risk taking, not common in state-owned enterprises. To reap the benefits of innovation and entrepreneurism, avant-garde institutions must be free to make risk laden decisions. Re innovation in financial and business matters the difficulty that state-linked institutions are up against is well understood. True I am talking about only a small fraction of enterprises and institutions but I am emphasising the point because it puts flexibility and “workplace democracy” on the agenda.

My readers will recall that I have long predicted that the West will, for reasons that I have often repeated, not let Sri Lankan democracy go to the wall or allow this country to collapse into anarchy. It came as no surprise to me that the IMF approved a three to four year $3 billion bailout package, subject to regular review in the hope that our debts can be restructured. Maybe we will con our way out, again, when that time comes. Maybe Ranil will be the lucky sod to benefit! 

‘Big picture democracy’ is another matter, it’s a political demand. The news services are overloaded with reports of mass uprisings for democracy as a political demand all over the world. I don’t need to add my voice one more time to this fulsome chorus.

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Latest comments

  • 3
    0

    Prof. KD asks: “down which hole did the government’s deficits disappear? Oh yes, most Ministers and MPs rob but not even a dozen Rajapaksas could have robbed this much – a significant portion of the entire government budget.”
    Exactly what I have been saying in this forum. There are many who seem convinced that Rajapaksa thievery caused the present crisis. The Rajapaksas may have robbed millions or even billions, but that cannot compare to the size of the national budget, which is in trillions.
    It was the people themselves who spent themselves into this mess. Living beyond our means is a national pastime. Many people sneer at Marutis, preferring even used Japanese hybrids. Drivers plump for hybrids because of the high mileage, only to suffer heart attacks when battery replacement time comes round. False economy is the order of the day.
    Then there are the Ceypetco , CEB, and Water board employees who enjoyed their 25% annual increments, the hundreds of thousands of holders of uniformed sinecures……Is it any wonder the country is bankrupt?

    • 1
      0

      I completely agree with Dr. Nicholas in the discourse.
      .
      Public institutions in every field should be distributed among several private institutions so that any country can expect benefits. I mean it’s telecom, it should be divided into several companies.
      The reason I say that is that since Deutsche Telekom was a telecom monopoly at the time, telephone charges for local and international calls and internet access charges were significantly higher than even the middle class in Germany could afford.

      There may be several reasons, but I personally believe that it should be divided into several private entities as stated by Dr. Nicholas in his exchanges. It should be recommended that our politicians better consult with world experts before handing it over to one private entity.
      .
      Today, however, per-minute rates for phone calls to landlines and mobile connections in Germany have dropped to significantly cheaper levels. This should be discussed extensively before final decisions are made.

  • 2
    4

    Dear Professor Kumar David,
    .
    Isn’t it turning out as we feared? We do not have a legitimate government, yet the IMF and The World Bank blithely set about their business as if they don’t have to make at least a credible show of objection to the need for good governance. These two reports bear that out:
    .
    1. https://english.newsfirst.lk/2023/4/3/sri-lanka-to-hold-talks-with-imf-and-world-bank-officials-next-week
    .
    2. https://economynext.com/international-community-turning-blind-eye-to-sri-lanka-concerns-imf-deal-must-ensure-rights-ai-117070/
    .
    But when, after we are well and truly further mired in debt, and this government has been overthrown and a government more to our liking has been installed, and the new government refuses to pay back what has been lent to illegal regimes, I guess all sorts of sanctions will be applied to any government that we install.
    .
    So, it looks as though all that we have been told is true! These two institutions are bodies that callously work against the needs of the poor when it suits the interests of the West.

  • 1
    0

    “Sri Lankan power couple piled up luxury homes, artworks and cash offshore as ruling family rose and rose.
    .
    Secret files reveal Rajapaksa ruling family member and husband used secret companies to stash riches around the world.”
    .
    https://www.icij.org/investigations/pandora-papers/sri-lanka-rajapaksa-family-offshore-wealth-power/

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