By Kumar David –

Prof Kumar David

Of monks and dice and dismal sciences: All things sans gear and tackle and trim

This piece is not about monks prancing with casino moguls; but that story, which painted Colombored last week, gives me my point of departure which is that things no longer are what they seem to be. Hopkinswould grumble that all things have lost “their gear and tackle and trim”. It was reported that some venerable monks, all bearers of great esteem, conducted a news conference one morning last week to lambaste the government’s stratagem of making Colombo Fort a casino den. Then at noon the same day, these worthies presented themselves at a posh Colomborestaurant to be fed and feted by a leading casino magnate. They departed the repast their limousines laden with gifts and goodies, no doubt showered by the mogul in his quest for merit in his dismal journey through samsara. These bare facts, to the best of my knowledge, have not been contradicted.

The incident evoked dismay since these august personages are held in high esteem and prized as learned men of high scruple; they are not nobodies in yellow robes. Clearly something was amiss; things were not what they should be. It would be impertinent to conjecture how Gautama would have dealt with the dilemma, were he to speak against a misdeed and then be implored by the wrongdoer to accept alms; but of one thing we can be certain, the Master would not have left the laity befuddled and confused. It would be an opportunity to teach right attitude, instruct in right understanding, and show right action in practice. The disciples, this time, failed the Master, they cross-dressed; robes at one moment, the raiment of seduction by temptation at another. 

I had a piece about “Political cross-dressing” on 6 October. This incident gives me a handle to continue. My real topic is not monks and roulette wheels, but more to my style it is about the dismal science, or if you will, the black art of economics. It is about the paradoxical cross-dressing of left and right; of hard-core Marxists and the conservative austerity school; of shared ground between social-democrats and sincere liberals. The first correlation is superficial, when you grope beneath you’ll find different tangibles dangling there; in the second case the ornaments and appurtenances of the social-democrats and true blue liberals are much the same. It is worth probing this corporeal reality, for as I said before, complexities of economy, society and life in modern times, underlie unusual correlations.

Grave-diggers and saviours unite!

Social-democrats and liberals with a warm and beating heart are mortified by the harshness of economic austerity programmes; cases in point, Greece, Spain and Portugal, and even Britain and France. Statistics abound even in theUSof how wide the income and wealth gap is, and how precipitate the decline in ordinary people’s living conditions. I will turn to what these two schools of thought advocate for the redemption of capitalism, a little later.

The austerity school, the other branch in search of medication to resuscitate capitalism from near death, has a different diagnosis of the ailment. This school sees waste, profligacy and unearned easy lifestyles. The populace consumes too much they say, social services and welfare costs (health, education and poor relief) exceed what the economy can bear; unemployment doles are too generous; pension obligations will bankrupt the future. Finally they believe that government is “too big”. That is government involvement (the nanny state) in providing welfare is unsustainable and the role of the state in economic management harmful. Usually, partisans of the austerity school stand on the right of the political spectrum, but these days many austerity advocates, among them an old buddy of mine in New Zealand, are social and political progressives – this one, however, is bipolar, he goes to church!

Interestingly, and by some perverse paradox, there is a degree of correlation between the diagnoses of the austerity school and the Marxist view of the rise, reign, boom and eventual decline of capitalism. Though their argots are different there is this something in common. Both locate the problem in deep contradictions and agree that the system in its current design and function is unsustainable and unstable. Their moral stances are different and they prescribe incompatible medications, but there is parallel intellectual and analytical rigour in their assessment of the malaise. Marxists contend that the welfare and good times showered on the working classes and the population at large, in boom years – say the second half of the Twentieths Century – was the price capitalism was willing and could afford to pay for stability. It kept revolutionary fiends and socialist ogres at bay; it was the escort of shared values, national pride and unity – “One out of Many”. 

Then where do Marxists and austerity aficionados differ? They differ in theory. The latter believe that capitalism per se is not flawed but governments and policy makers, businesses, and consumers failed to exercise prudent discipline in the fat years. They allowed the fat to run amok; prevented uneconomic entities (private and state enterprises) going to the wall; failed to regulate consumption, welfare and borrowing within limits that output could bear long into the future. This is different from the Marxist thesis that capitalism cycles through a phase of growth to arrive by its own dynamic at precipitate disaster? The difference lies not in the domain of outcome or end point, but in the domain of causation. Austerity aficionados see the genesis in social and political behaviour, in things that could have been avoided if stakeholders were smarter. The Marxist sees the iron logic and internal logic of capitalist evolution unfolding with near irreversible determinism.

Their expectations also differ; Marxists vision that internal contradiction will drive capitalism to breakdown opening the way to a brave new socialist world, while austerity aficionados strive to revive the former glory of robust capitalism. The social-democrat and the liberal see both as dreamers. 

The social-democrat and the liberal went to sea

SG was a Samasamajist and a hard Marxist in our university days; today he is open to social and liberal democratic views. I could do worse than quote from his recent e-mail (he is now in the UK) to cogently get this case across to the reader.

“I am not sold on the virtues of austerity for the less privileged. The definition of austerity is confused. I agree excessive household, corporate and government debt is unsustainable, especially the foreign component during trade deficit periods. Hence I am against high deficit budgeting (siding with the Republicans). But debt that can be serviced can support higher growth. Welfare focuses on education, health, housing, assistance for the un- and under employed, the old and single mothers. The argument against cutting is that they are provided at low, not luxury levels, compared to rich nation per capita income. Cutting further will push people into poverty – unethical and unproductive economically and socially. It is known in UK that the current minimum wage translates to poverty for many households.

“The critical issue is how to raise government revenue and what to spend on. The main contributor has to be surplus wealth generated by current production, and income generated from accumulated wealth.  Big capital’s lobby has sold the concept of austerity instead; to be imposed on the poor, not the rich!

“Advanced capitalism cannot induce affluence without social welfare. The issue is the level of direct and indirect taxes to raise state revenue. Recent studies show the positive multiplier effect from welfare expenditure is considerably higher than the negative effect of taxing the rich. There is evidence that economic growth is promoted by multiple, and seemingly contradictorily strategies (e.g. welfare plus higher taxes; lower tax and reduced state expenditure). In other words, there are other factors like economic capacity, consumption and demand, and exports and imports that play an important role. Growth per se needs to be a neutral variable. Sober pro-marketers will argue for welfare capitalism with higher taxes on accumulated or hoarded wealth and on incomes generated from there”. 

The quote is a bit long but it gets the point across nicely but a serious concern with this approach is tax avoidance, widespread in the US, and the US tax code which is replete with loopholes like a sieve. American investors have gamed the system to perfection; a good example is the profusion of “pass-through” companies in recent years. Structured half way between partnerships and joint-stock companies, they do not retain any of its profit but pass everything through to big investors and stock holders. In this way these companies pay no corporate tax at all. They go by acronyms like MLP (Master Limited Partnership), REIT (Real-estate Investment Trust) and others. In 2012 they raised $110 billion in equity (30% of the total) and an amazing 60% of the year’s company profits.

I would have no argument with SG’s case in general, if only a Marxist could be persuaded that capitalism can be revived instead of buried. Nor would austerity advocates disagree that, if viable, a softer approach which protects the poor and the underprivileged is the best. But this is where the ink runs dry and cross-dressers have to be unfrocked. It is a hard sell for social-democrats and liberals to persuade Marxist and austerity cynics that their remedy is feasible.