By W.A Wijewardena –

Newly formed SLAPE to generate public discussion

Tamara Kunanayakam, formerly a UN official and Diplomat and presently, civil and human rights activist cum public voice maker, presented last week a well-researched paper on the theme ‘Dynamic Inter-relationships among Economic Policy, International Relations And National Sovereignty’ before a fully-packed audience in Colombo.

The event had jointly been organised by the newly formed Sri Lanka Association for Political Economy, abbreviated as SLAPE, Colombo University’s Economics Department and its Economics Students Association. A summary of her presentation has been published in Sunday Times.

Loss of economic sovereignty

Kunanayakam’s thesis was that Sri Lanka has lost economic sovereignty, implying that it cannot decide on its economic destiny anymore. Her accusation was in general levelled against all previous administrations, but, in those accusations, a larger weight was placed on the present Good Governance Unity Government. Even then, the accusation was primarily on the Prime Minister’s side of the government and not on the President’s side. All the examples she had documented related to decisions taken by the Prime Minister and his leading Cabinet colleagues.

Formation of Mont Pelerin Society 

She had laboriously collected material relating to her thesis and analysed it carefully, highlighting its relevance to present Sri Lanka’s case, before synthesising that Sri Lanka has already lost its economic sovereignty. She traced Sri Lanka’s present problem back to the Mont Pelerin Society or MPS, formed in 1947.

The reference here is to the formalisation of liberal economic thinking by a group of leading economists in the mid-twentieth century, at a meeting in Mont Pelerin in Switzerland. Though Kunanayakam named Friedrich Hayek as the man behind MPS, it was not a creation by a single man. There were other leading economists of the day such as Frank Knight, Ludwig von Mises, George Stigler and Milton Friedman, in addition to the philosopher Karl Popper. Their aim was to promote, among others, the freedom of expression and free market economy system. Their aim was to create a forum of free exchange of views, and not to function as a propagandist movement. In their view, the happiness of mankind arises from its freedom to do what it feels as desirable and MPS would, therefore, look into all areas where such freedom is restricted or violated.

Three of the above, Hayek, Stigler and Friedman, were Nobel laureates in economics, while one of them, Knight, who had taught Friedman and Stigler, was the guru of two of the Nobel laureates. The non-economist Karl Popper is generally regarded as the leading figure who pronounced the foundations of scientific inquiry in the 20th century. Hence, by any standard, the initial founders of MPS were not greenhorns but giants in the science of economics in the 20th century. Hence, Kunanayakam should be commended for her bold attempt at critiquing such a society of giants.

Influence of Mont Pelerin Society on world nations

According to Kunanayakam, it is this MPS which has influenced the thought leaders in Sri Lanka when it comes to deciding on appropriate economic policies for the country. The theoretical basis which these thought leaders use is the neoliberal economic thinking. Neoliberal economic thinking advocates free movement of capital from developed countries to developing countries. It then calls for the preparation of the developing country economies to accommodate such capital funds.

This policy package consists of shrinking the government sector, privatisation of the state enterprises, deregulation and liberalisation of economies, and introduction of free and open trade and external sector policies. Multilateral lending institutions, specially the International Monetary Fund or IMF, use their lending powers to enforce this policy package on developing country economies. They then influence the local thought leaders to influence their governments to go for such neoliberal economic policies.

Kunanayakam had identified two such Sri Lankan institutions, which have been the leading advocates of neoliberal policies in the country. One is the Institute of Policy Studies or IPS, established with the Dutch Government’s financial and technical support in 1989 as an independent policy think-tank. The other is the recently established Advocata Institute, which seeks to accomplish the same neoliberal mission as the Fraser Institute in Canada and Atlas Institute in USA. To Kunanayakam, the appointment of the neoliberal economist Razeen Sally as the head of both these institutes is a proof of her point.

Third-Worldism to counter western economic ideas

The line of arguments made by Kunanayakam is not new. Before her, many Third World country thinkers like Egypt born Samir Amin, German-American economist Andre Gunder Frank, and American sociologist Immanuel Wallerstein, have written on the capitalist exploitation of Third World countries by the Western economic and political powers. The type of ideology propounded by these thinkers is loosely called ‘Third-Worldism’. The Venezuelan journalist, Carlos Rangel, in a book published in 1985 and titled ‘Third World Ideology and Western Reality’ (translated into English as Third-Worldism and hence, credited for coining the term), listed the main features of Third World ideology as follows:

nFirst, the development of the Western world and the underdevelopment of the Third World are mainly attributed to the old colonial rule exercised by the developed West over the Third World countries;

nSecond, there is no way for achieving wealth and prosperity by one country without harming another country;

nThird, the developed world exploits the developing countries by selling their industrial products at inflated prices and buying the primary products of the developing world at suppressed prices;

nFourth, the external debt is a way for both the Western world and the multilateral lending organisations, like IMF, World Bank, ADB, etc., to exercise neo-colonialism on the Third World countries;

nFifth, there is a cultural colonialism on the Third World countries through downgrading the local and indigenous practices and values and superimposing the values of Western culture on them, and

nSixth, the brain drain from the Third World countries to the West is another way of robbing the intellectual wisdom of the former by the latter, thereby denying the developing world the opportunity to attain its true growth potential.

Rescue of dead Third-Worldism by national leaders 

These are of course debatable representations. They are also not substantiated by real world economic data and facts. Yet, they continued to dominate the thinking of Third World thought leaders, until the fall of the Berlin Wall in 1989 and the simultaneous dissolution of the Soviet Bloc that removed the Second World from the scene. Since the Third-Worldists drew much of their ideology from the Second World, the collapse of the Second World saw the collapse of Third-Worldism too. However, in some parts of the world, political leaders continued to propagate Third-Worldism to protect their power base till recently.

In the case of the Middle-East, that too saw its demise with the revolutions that took place in Tunisia, Egypt and Libya, removing those national leaders from power. But in Asia, especially in Sri Lanka, leaders and opinion makers still cling onto Third-Worldist ideology by taking a pro-nation and anti-neoliberal stand. Their opposition is then extended to any foreign nation that tries to harness the available economic opportunities in the country. Any concession given to them is viewed as a gross betrayal of national interests. Any such attempt is viewed as a conspiracy perpetrated against the nation.

Conspiracy theories are a galore

Throughout history, mankind has been susceptible to the claims of conspiracies perpetrated against them by many unseen enemies. One important conspiracy is that foreigners are always bent on destroying their culture, economy and civilisations. In the past, the enemy was the rich West. Now, in addition to the rich West, growing Asian economic powers in Asia are also considered enemies. This is demonstrated by popular sentiments often expressed against the Indians and the Chinese in contemporary Sri Lanka.

Economic nationalism 

This is again fertile ground for breeding economic nationalism by crafty national leaders in developing countries.

Economic nationalism rejects the market and preaches the virtues of self-sufficiency in everything. At household levels, irrespective of the nature of occupation in which one is engaged for a living, self-sufficiency in food is promoted as a way to beat the rising cost of living and perceived irregularities of the market.

But, the old adage is that ‘Jack of all trades is Master of none’ and therefore, when one devotes his time for an activity for which he has no speciality, he loses on every count, because his outcome becomes inefficient. For instance, if a manufacturer of brass fixtures is asked to grow his own vegetables, he will not do well in his traditional occupation as well as the new engagement.

Rejection of international trade

At a national level, economic nationalism rejects international trade. Buying goods manufactured by other nations is considered an activity promoting incomes of peoples in those countries. Hence, imports are considered a taboo. But, on the other hand, selling one’s goods to foreigners is considered virtuous. But, what matters is that one cannot sell unless one is prepared to buy from others too. If all nations try to become sellers as upheld by economic nationalism, no nation would be able to sell; the solution is for all nations to do both buying and selling simultaneously.

Demonisation of IPS 

Kunanayakam’s demonisation of IPS as a cat’s-paw of a neoliberal conspiracy is not borne out by its track record in the past. Its reports, specifically its State of the Economy Report released every year, have presented only sound economic principles for adoption by economic policy makers of the country. These principles have been upheld by all economists, not necessarily by neoliberal economists.

For instance, one principle which IPS has upheld throughout has been that a nation cannot generate sustained prosperity by borrowing from itself as well from external sources, unless it chooses its investment options prudently. It has pointed that Sri Lanka should, as a long-term policy option, divert its resources from consumption to investment. To do so, it has to increase its savings. That initiative should be started by the Government, which at present consumes more than what it earns, by generating a surplus in its revenue account. Anyone who does not follow this will buy himself bankruptcy, no matter whether he is neoliberal or non-neoliberal. It is common-sense known to any layman, and not a preserve of the species that practices the profession called economics.

The Buddha paraphrased it in Singalowada Sutta as follows: “The wise will divide his income into four parts; the first should be used for his and his family’s consumption; the second should be used for treating pious wise men; the third should be kept away for use in a disaster; and the fourth should be invested for earning more wealth.” This is a too-strict allocation of one’s resources, since it requires one to save and invest a half of his income. What is true for a single individual is true for a nation as well. In modern times, only countries like Singapore and China have followed this Buddhist principle of household resource allocation.

Advocata institute going after sound economic principles

The same argument is true for Advocata Institute or its Chairman Razeen Sally. What both have proposed in the last three-year period is that Sri Lanka should consolidate its budgets because it is beyond the country’s resource endowment, state enterprises should be run efficiently because the taxpayers cannot continue to bear their losses, and if the economy is to attain its competitive efficiency, it should give up restrictive regulations and rules. These are again common-sense economics, and not a preserve of those who are known as neoliberal economists. It would have been better had Kunanayakam carefully studied the writings of IPS, Advocata Institute and Common Chairman Razeen Sally, before branding them as conspirators to destroy Sri Lanka’s economy.

Countering of Kunanayakam by Colombo University Economics students

Kunanayakam had a mixed reaction from the audience. Some appeared to be visibly moved by her revelations. However, in the discussion time, the audience showed that not all were in agreement with her conspiracy theory. A member in the audience making a comment reminded her that she was just exaggerating that USA was all bent on launching an economic conspiracy against other nations in the world.

It was two undergraduates from the economics department of the University of Colombo who made the best contribution. Speaking in fluent English, one female undergraduate brought to her notice that she was not comfortable with Kunanayakam’s conspiracy theory, which is being repeated ad nauseam like a mantra by some. Her implication was that there is no novelty in this theory which they have heard enough.

The other undergraduate, speaking again in fluent English, drew her attention to the interdependence of economic relationships in a complex economic world, in which no single unit could function independent of each other. Kunanayakam, like a matured researcher, thanked all those who had critically probed into her presentation.

Pragmatic approach to economic issues

Pragmatic approach requires one to shed all ‘isms’, be it neoliberalism, Third-Worldism, capitalism or communism. An economist today is like a technician with a box of diverse tools. If one tool does not work, he will choose another tool. If it also does not work, he will go for another. Likewise, there is no permanent loyalty to any particular theory or set of theories.

This was pragmatically put by modern China’s economic revolutionary Deng Xiaoping, when he said that he did not mind whether the cat was made of clay as long as it could catch mice.

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