26 April, 2019

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Restoring ‘Economic Democracy’: Is It An Elusive Goal?

By W. A Wijewardena

Dr. W.A Wijewardena

Promised delivery of economic democracy to people

One of the pledges made by the present Government in its election manifesto titled ‘The Five Point Plan for creating a new country in 60 months’ has been the delivery of economic democracy to people. In the preamble to the manifesto, the party has emphasised that the restoration of the proposed ‘social market economy’ is akin to the expansion of the frontiers of the economy alias delivery of economic democracy to people.

A concept not properly understood

This is a noble pledge, but no one had properly comprehended what economic democracy meant. Hence, in order to educate the public as well as the Government party politicians what it meant, this writer wrote a commentary on economic democracy in a previous article in this series.

In a nutshell, economic democracy means that economic choices are made by people and not by politicians or Government officials. Hence, what is necessary is to restore a proper consultation process whenever the Government moves for a new economic policy or changing an existing economic policy.

Economic democracy means that choices are made by people

This is what this writer said in the article under reference: “If people are to enjoy economic democracy, they should have the right to choose economic policies that serve them well. This is valid irrespective of whether a country is pursuing a free market economy policy or a planned economy policy. Under any system, making economic decisions should not be left to politicians or bureaucrats who are simply interested in promoting their own self-interest and not the interests of the people. As such, many large infrastructure projects that have been undertaken to promote the self-interests of top political leaders or groups of people associated with such political leaders have ended up in failure. Many examples could be found in this regard from Sri Lanka’s recent economic history.”

Consultation with public a must

“This calls for introducing suitable mechanisms to have wide consultations on economic policies that are being implemented by the government. That applies to micro-level policies as well as to macro-level policies. In the case of micro-level policies, people who have a stake in that policy should necessarily be given an opportunity to express their views on the policy. Once these views are known, the policy could be abandoned completely if there is wide public opposition to it or implement it with suitable modification having taken the public views into consideration. At macro-level, even the monetary policy being implemented by the Central Bank should come under this public scrutiny. In the present circumstances, the Central Bank implements its policies ex parte without giving a chance for people who are affected by its policies to express their views on them.”

Use civil society organisations and social media for consultations

“But one difficulty that may be encountered in a wide public consultation is the diversity of views of people and their ability to make a logical evaluation of Government’s economic policies. It will also be costly and time consuming to have a wide public consultation. To overcome these problems, two mechanisms could be suggested. One is to allow civic society organisations to represent the public. The other is to use the social media to gauge the views of the public on the policies being proposed. When the internet penetration becomes universal in the country, it will not be difficult to seek the views of the people on economic policies through social media.”

Sri Lanka has fallen to ‘Mostly Unfree’ category

Thus, economic democracy is nothing but economic freedom. However, as revealed by the data compiled by the Washington DC-based Heritage Foundation in its Index of Economic Freedom, Sri Lanka has been slipping down in the index over the past few years meaning that its people are becoming less and less free when it comes to making economic choices.

In the index for 2016 covering the period from mid-2014 to mid-2015, Sri Lanka had slipped from a Moderately Free economy to a Mostly Unfree economy, but being placed at the threshold. The new good governance government that had promised to deliver economic democracy to people was expected to halt this process and reverse it. Yet, the index for 2017 that covers the period from mid-2015 to mid-2016, during which the present Government was in power, Sri Lanka has further slipped down in the index and has become a permanent resident in that category. This is not a development about which the leaders of the present Government could be happy.

Yearning for merciful dictators

There has been a section in Sri Lanka’s society which has argued consistently and resolutely that Sri Lanka should have a merciful dictator. Such arguments are a public demonstration of the frustration of people aloud about the deteriorating economic, social and political conditions.

A dictator, although a one-track man unmindful of and oblivious to people’s wishes, would usher in a new era to Sri Lanka, they argue, if he keeps the nation’s interests above his personal interests. They quote the example of Singapore’s Lee Kuan Yew as a role-model who has proved its success. So, why not create a Sri Lankan version of a Lee Kuan Yew?

Frustrations have led to love dictators

Interestingly, the first to say so in the recent era was an erudite Buddhist monk, Rajakeeya Panditha Venerable Henpitagedera Gnanaseeha Thero, who wrote a book in Sinhala in the late 1960s under this theme arguing for the need for a benevolent dictator for the country.

The objective was to deliver prosperity and enable the country to regain its former glories. The book became an instant bestseller with many supporting its views, while only a handful had the courage to oppose them at that time. It would have been sweet music to the ears of the then politicians because the book provided the moral and ethical justification for an authoritarian regime in the event of their choosing to have one under their control sometime in the future.

Since then, many have subscribed to this view. They have diagnosed that Sri Lanka’s economy since independence has underperformed and the reason for that underperformance is the laziness of the people. The laziness of people has been attributed to the democratic freedom which does not compel people to work. Hence, it is necessary, they argue, that an authoritarian ruler should force them to work hard.

Authoritarianism does not work in the long run

Such an authoritarian rule based on coercion instead of motivation can generate higher performance immediately. But it cannot sustain that high performance over the years. It would be like the hump of the back of a camel which rises at the beginning but falls later. That is because, as this writer had argued in a previous article in this series, continued human prosperity depends on continued invention, innovation and entrepreneurship and they cannot be made possible unless people enjoy freedom of thought, expression and action.

Economic freedom brings in prosperity

The Index of Economic Freedom has documented how economic freedom will help nations to prosper continuously. There is a positive relationship between economic growth and economic freedom as such the higher the degree of economic freedom, the higher the per capita income or PCI, measured in terms of its purchasing power value where wellbeing is gauged not by the level of nominal income but by its ability to buy a designated basket of commodities.

Then, increased PCIs lead to reduce poverty levels and improved human conditions such as life expectancy, literacy, health, education and overall quality of life. The compilers of the index have found that innovation, social progress and environmental conditions also improve along with the increase in economic freedom. Accordingly, advancing economic freedom is a necessary condition for true progress of mankind.

Sen on freedom: A must for development

This has been echoed in broad terms by Nobel Laureate in economics, Amartya Sen in his 2009 book, The Idea of Justice, as follows: “In assessing our lives, we have reason to be interested not only in the kind of lives we manage to lead, but also in the freedom that we actually have to chose between different styles and ways of living. Indeed, the freedom to determine the nature of our lives is one of the valued aspects of living that we have reason to treasure. The recognition that freedom is important can also broaden the concerns and commitments we have. We could choose to use our freedom to enhance many objectives that are not a part of our own lives in a narrow sense (for example, the preservation of animal species that are threatened with extinction). This is an important issue in addressing such questions as the demands of environmental responsibility and of sustainable development” (p 227).

Main categories of economic freedom

The index for 2017 has taken into account 12 different attributes which enhance the economic freedom of people and they are broadly categorised in four areas.

  • Rule of Law (property rights, judicial effectiveness and Government integrity)
  • Government size (tax burden, government spending and fiscal health)
  • Regulatory efficiency (business freedom, labour freedom and monetary freedom)
  • Market openness (trade freedom, investment freedom and financial freedom)

Countries have been ranked in terms of the above 12 attributes and marks have been assigned to them, 100 being the best and zero being the worst. Sri Lanka’s score table in 2016 (covering the period from mid-2014 to mid-2015) and 2017 (covering the period from mid-2015 to mid-2016) has been presented in the table.

It also gives the overall score for each of the years, ranking of the country from among the countries in the index, categorisation of the country according to economic freedom and a separate calculation done by compilers of the index as to the size of the shadow economy of Sri Lanka in 2006 and 2007 as reported along with the index for 2016.

Tax burden is not a burden today

Sri Lanka has scored relatively high for tax burden and Government spending meaning that they at present do not inhibit people’s freedom. That is because the average tax revenue and the spending of the Government are very low in terms of GDP at the present levels of public finances of the country. But this is not an achievement since this score could reverse when the tax to GDP ratio and the level of the Government spending are expected to increase in terms of the policy of the Government.

Poor fiscal health of Sri Lanka

What is really stressful for Sri Lanka is its poor fiscal health in terms of stubborn budget deficits and growing public debt. Budget deficits have become the norm of Sri Lanka’s public finances with every successive fiancé minister resorting to this tactic in order to maintain the ever increasing public services. Hence, it has to borrow more in order to service the existing public debt, that is, repaying principal and paying interest thereon.

Since these obligations are almost equal to the Government revenue, Sri Lanka has to borrow again and again in order to avoid having to default its debt obligations. The corollary is the continuous growth of public debt pushing the country to the wall from which there is no escape. Thus, it is like something written on the wall that Sri Lanka has to default its public debt one day without any further resources at its command to service its debt obligations. Thus, the index for 2017 has assigned a very low score to Sri Lanka on this count, namely, 31.2. This should be a warning to all Sri Lankans about the destiny which is marked for them in the years to come.

Fighting corruption has been a failure

Sri Lanka has done very badly in its fight against corruption. In the index for 2016, pertaining to the period from mid-2014 to mid-2015, Sri Lanka’s score on this count was very low at 38. The country was expected to eradicate corruption with the election of the good governance government to power in early 2015.

However, the index for 2017 covering the period from mid-2015 to mid-2016 shows that its score on account of Government integrity has fallen to 30, a sad state depicting the waste of the country’s scarce resources, on one hand, and the plight of the citizenry at the hand of politicians and bureaucrats, on the other. Sri Lanka in fact strengthened the institutional arrangements for fighting corruption in the initial period. Yet, the poor score warns that those measures have not been effective in attaining their objectives.

The large shadow economy is a problem

The high size of Sri Lanka’s shadow economy should be another frustrating experience for policymakers. When the shadow economy is high, in Sri Lanka’s case it is about 42% of the total economy, the level of corruption is high, while tax revenues are low. It also reduces the overall welfare of citizenry since income is distributed in favour of a few people in the country. Thus, the Government is compelled to introduce costly poor relief schemes to safeguard the group of people that do not benefit from the shadow economy. It makes the inclusive growth which the Government is planning to attain a mockery.

Deteriorating economic freedom is a worry

The country is continuously ranked low in terms of the economic freedom of its citizens and in the most recent year, it has further deteriorated. Thus, restoring economic freedom has become elusive and it should definitely worry the top leaders of the Government. The implications are that it has adverse impact on growth, poverty eradication, improvement of environment, human development and social mobility and development. Hence, if Sri Lanka is to attain true development, it cannot ignore the deteriorating state of the economic freedom of its citizens.

*W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com

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    I heard, In India, when so many Train engine for the railway were imported, the ministers first order was disassemble the engine into smallest pieces and make a inventory and then make a list of what pieces can be manufactured in India.

    but, the Sri lankan system is import everything and give me a pwercentage as a political donation or into my wife’ or relative’s account.

    So, in that sense, In sinhala easy to earn business sectors are send women to middle east, Open liquor shops, Casinos, brothels with both foreign and local women – now some wants to legalize it, .promote rourism. All these are easy to earn service sector jobs . Politicians can earn big percentages. It says, almost every one of 225 has signed to pass narcotics through the harbour using their powers. So, that is how they develop the country.

    On ther other hand, if Sri lankan industry was developed on agricultural exports, value added products from agricultural products and their processed products, industry using the human skills need lot of hard work and do not earn many votes or donations into the wife’s account.

    So, the Sri lankan economy is only for a handful who helps politicians.

    People can suggest. Other than that, even the president is talking and not changing the system. Prime minister is talking but in the back he is covering up and screwing it up more.

    Only people better off are politicians, their families, politicians henchmen and businesses supporting them.

    See how every leading politician comes to CT and lislead the readers.

  • 5
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    A thought provoking piece as usual from Dr. Wijewardena.

    A benevolent dictator of the Lee Quan Yew type would be ideal for Sri Lanka.But iit s like finding a needle in a hay stack.That type of leader is extremely rare to find any where in the world leave alone Sri Lanka.Lee perhaps is the only one in that mould so far, as far as I know. In him Singapore found a rare combination of benevolent dictator, a educated man who was extremely intelligent very disciplined as well.He was simply a Statesman not a mere politician .If there ever going to be another Lee it would surely be in a society where the thoughts of Confucius is not simply followed but is literally in the blood of its people.Confucius among other things placed a premium on the organization rather than the individual ; that is all individuals owe it to the organization ( the organization can be the State or even a Company) to ensure its success. It called for a high degree of loyalty, dedication , discipline and even sacrifice by the individual to ensure the success of the organization.There was no room in it for personal agendas.

    A benevolent dictator emerging in Sri Lanka is extremely unlike since in this society the individual takes precedence over the organization.In short everything exists for the perpetuation of the individual.; for his aggrandizement. In such a society the individual e.g a political leader will sublimate everything for his advancement and perpetuation in power even if the country he heads perishes in the process.In such a society every politician comes to power pleading to work for the common good but after sometime ends up getting the country to work for his good .Felix Dias Bandaranaike once said ” a little bit of authoritarianism is good for the country” and we all know what he did thereafter.Many subsequent leaders adopted an authoritarian approach and ended up similarly.They could never desist from abusing power.Mind you ,many of them were so called educated and cultured people.

    Non Confucian societies like for instance the those in the developed West overcame the lack of such rigid ethics by putting in place stringent regulations as its societies progressed over the last 500 years years.It made leaders accountable for their actions and placed strict limitations on the ability of a leader to take the law into his hands.No one was above the law.The Rule of Law reigned supreme.

    Such a situation developing in Sri Lanka is also extremely unlikely given our historical track record of 2500 years .Sri Lankan society does not simply have it in its blood to be tied down by rules and regulations . Hence the tendency to play around with anything that regulates.This includes even the Constitution – the supreme law of the land !!So how can such a society ever hope of producing a Lee Quan Yew?At most we may produce a UB Wanninayake, a Dudley Senanayake , but such individuals were far from been benevolent dictators.They were in the best sense of the term honest politicians and perfect gentlemen.

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      Dr Wije. the expanding IMF Debt trap that Ranil Wickramasinghem has put Sri Lanka in will mean that the last vestige of economic freedom will be gone in Sri Lanka!

      Look what has happened to Greece that is caught in the EU – IMF debt trap!

      Sri Lanka is in the China IMF debt trap because of Ranil’s and Ravi K.s corruption, bond scam and STUPIDITY, and things will get worse.

      IMF wants clients in Asia so Sri Lanka is screwed now with Moda Ranil putting SL more and more into IMF debt trap.

      Christine Blackguard is going to be in Sri Lanka to screw poor Sri Lankans over – first it was VAT tax so that the poor subsidize the corrupt rich and now sell off of national assets to pay off debt. Just like IMF did to Greece/ The is very dangerous and must be stopped at all costs.

      There should be massive PROTESTS against IMF this week by civil society./

      IMF which is supposed to do global financial governance, should be asked by the GoSL to trace and return funds looted by MR and corrupt politicians, that are kept in secret banks accounts overseas , so Sri Lanka can pay off some of the national debt caused by political corruption and FAKE DEVELOPMENT projects, rather than borrowing more from IMF and dancing to its tunes and loading VAT onto poor people.

      • 0
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        Right on Don!
        Dr, your articles are very good but Sri Lanka;s epidemic of CORRUPTION, DEBT, EXPANDING ECONOMIC INEQUALITY and social unrest and protest, should also be contextualized in the GLOBAL Pandemic of Financial Crime , perpetuated and protected by the global financial governance institutions that promote money laundering from the global South to the global north, and have failed miserably.
        After all Sri lanka;s world ranging is 98 out of 173 countries which are worse than us!

        It is not an accidents that Sri Lanka has become more corrupt with greater opening of the economy and global integration. The global financial system rewards financial crime and is run by economic hit men who have rigged the system and the laws to enable looting of the global south countries..
        In the context, The Washington Twins should be shut down or restructured to track financial crime networks and the movement of funds from the global south to the global north via corrupt dictators and which is far greater than so called AID from the global north to the South.

        Please read Project Syndicatewebsite and the Daily Bell and watch the Kaiser Report on RT on the Greek Debts. Thanks!

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      Sri Lanka has been beggared by its corrupt politicians and the culture of impunity and immunity for Financial Crimes that is both local and Global.

      What has the IMF and WB done to fight Financial Crimes in Sri Lanka or any other countries in the global south?! Nothing in fact IMF turns a blind eye to off shore tax havens and global networks of corruption while forcing the poor to pay for the corruption of the rich.

      In fact corruption in countries like Greece and Sri Lanka is good for IMF business, otherwise this lender of last resorts would have no clients. This is the reality .

  • 0
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    The rich jew loobcy controls world eveants. They bring economies down. Buy the country at a low price and later buy it back at a high price. Commodity prices have come down with the oil price. Gold prices rise on hints of the jew mafia. Trump will take on this international cartel. Credit ratings,and other tatings anmd banking are controled by them. Low cheap credit makes the people into debt. crash the cartel collects. The world is heading in this direction.The share price is about to crash . It5 has being going down. Housing will be bancraupt. Was the bond scam contrloled by the international mafia.
    We have to read world eveants correctly.l

  • 0
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    The world is moving towards chaos. The jewishmafia and the rotherchile are in control. Trump and Putin must combinne to meet the chalange. Is Sri Lanka centrl Bank 7under there control. Lets weed out the past in the central bank. Was the bond scam under this mafias control. Who are the others. Does the former CBgovernor still have control of our stock market. Were Mahanama and Cabral involved. The mafia is buying gold and destabilising currencies. Credit retins of countries are under their control. They and china are buying gold and mine fields. They probably influnce commodity prices. The press is at their command to spread ruomers to change prices.

    Mr Wijewardene can you intepret the trends. Can you name any of men who are in their pocket.

    https://www.youtube.com/watch?v=dvyb8SxZnvo

  • 0
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    The nation of Sri Lankan economic and financial crisis has turn into political-economic catastrophes since 2015 January 9th the phrase of ‘Parliamentary Democracy’ as a stereotype ceremonial phrase, that we find which be Non-Democratic means.

    Reckoning in reality of Parliament democracy with NOT the interest of the majority, but the minority and that to a reforms of “new” meaning destroying every things, which harmful and obsolete to Development and Democracy in Sri lanka, that the most resolute and ruthless manner of the political operation led by UNP politics leadership by Ranil W…CBK and MS……alliances.

    That they called ‘govt. of Compromised’ was born out of >Rainbow revolution< came into being by products foreign and local political cohabitation of old model on undemocratic governances led by MS as core leaders .
    But state power apparatus and real power of Executive operation in hand of UNP-Ranil W.. and CBK are the physical manipulators' of current misgoverning the nation.

    The ongoing globalization differ from the OLD pre-neo-liberalist capitalist system of political-economy in having created closest interconnections and interdependence of the various branches of the Economy in
    Sri lanka in locally and Globally.

    The current the Sri Lankan the Banks —— of State , Private and Foreign have become more important branches of every factors an Economy-Political-Social order which have become inseparably merged,
    it is impossible to nationalized the banks along .

    In fact proceeding to build and created a state control of trade, business, services, industries and agricultures monopoly .cannot break without nationalization of both of them.

    By and large we want earnest the regulation of Economic activities and stability would demand the state control relatively, conditional and certain period of time that simultaneous Banks and life-line Economy must come under directive of state.

    What is happing now MS, CBK and Ranil W.. regime of Neo-liberalist-outfits that time developed foreign capital formation gradually into huge capital overlapped by USA ,UK ,Japan and Indian by new capital combine of various services back by Indian and Singaporean controlled. This is most reactionary and political leadership spirit secured unaccountable scandalously high profits of UNP capitalist.

    All in all the scams of state oriented that selling of state properties by in the interest of Foreign and Local RICH magnates .All that remain transformation regulations are reactionary -police led bureaucratic norms.

    Neither the UNP-bourgeoisie nor CBK of SLFP that compromised of TNA and JVP has done anything at all.

    • 0
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      N Wimaladasa

      Could you write in a language which everyone could read and understand.

  • 0
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    Native Vedda,

    That is perfectly correct. The foundation of Economic order is shaking ,which will leads collapse of whole state apparatus .

    The People of majority Sri Lankan has been misguided by undemocratic politics of Neo-liberalism by UNP leadership. .

    The political consciences has lowest level that is not yet upgrade and updated by moribund leadership of UNP form of “Good Governances” .

    The very democracy is catastrophe .

    After 69 years the Independence country current ruling parties alliances that working towards chaos and uncertainties of ours Democratic order .

    No a single politician are take care of that Democratic system into order. .

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