By Laksiri Fernando –

Dr Laksiri Fernando

At least it is taming of the ‘rip-offs,’ if not capitalism. It might however show the future possibilities of taming even capitalism utilizing democratic means. The Swiss people this Sunday (3 March 2013) voted overwhelmingly in a landmark referendum in placing limitations on all listed companies in paying exorbitant bonuses, ‘helicopter entry’ and ‘exit handshake’ payments to directors and other top officials including consultants. Usually amounting to billions of Swiss francs or dollars, the payment of exorbitant bonuses have been the corporate practices so far in many countries. The Swiss people, well known for some of their direct democratic devices have taken the initiative.

Background

From a democratic public eye, these corporate payments are ‘rip-offs’ not only of the dividends of the shareholders of such companies but also the wage levels of all other employees, their meagre annual bonuses and the health of any economy. The Swiss public became outraged in 2008 for two reasons. A major Swiss bank UBS was about to collapse due to risky investments of the big bosses and the ordinary tax payers had to shoulder the burden in a government bailout. There is a close connection between the risky investments to make high profits and the bonus payments to big bosses. Then the shareholders came to know that the outgoing chairman of the chemical company Novartis, Daniel Vasella, was about to be paid a $ 78 million handshake payment. They and the public were outraged and Vasella finally agreed to forego the payment due to public pressure.

The ‘shame’ factor worked. Since then an independent MP in the upper house of Swiss Parliament, Thomas Minder, has been campaigning to curb some of the practices of big companies and financial institutions that could jeopardise the wellbeing of the Swiss economy. Some of the companies (i.e. UBS) were bigger than the Swiss economy itself. This effort was characterized as an effort at ‘saving capitalism’ by the far left as Minder himself was a medium scale businessman before turning into a politician; and even after. But his campaign had a seeming rationale. Some of the reasons for the American and European financial crises were related to the ‘risky business of the big bosses’ aiming at their bonuses and other payments. Since the Swiss economy managed to prevent itself from a major financial crisis like in other Western countries it had more reason to take rational policy measures to safeguard the interests of the people, including of course the investors from suicidal financial risks.

Referendum

When the referendum was held on Sunday, the verdict was overwhelming. Majority of voters turned out and 67.9 per cent of voters and all 26 Cantons endorsed the measure. This result was despite the incumbent government and the big business lobby Economiesuisse opposing and fiercely campaigning against the measure. There are arguments that the business companies may find loopholes or necessary space to circumvent the referendum verdict. But the referendum mandates three year jail terms for those who break the law after the measure is properly instituted as legislation. Unfortunately the referendum is not legislation. On the basis of the referendum, the legislation still has to be drafted by the national Parliament and there is a possibility of the incumbent government or others employing delaying tactics. Democracy is unfortunately slow.

In a capitalist system, behind parliaments or other democratic institutions, there are structures and forces operating to safeguard its existence. This is the case in Switzerland as well. However, given the overwhelming mandate for the referendum, and strong sentiments expressed by the people, it is quite unlikely that anybody would be in a position to circumvent the referendum verdict. It has never been the case in Swiss democracy however capitalist it has been. Those political parties, who were wavering before, even with social democratic title names, now have come around and hailed the referendum. In the Canton of Zurich, the citadel of Swiss capitalism, 71 per cent of voters endorsed the referendum to curtail the rip-offs of big bosses that go quite contrary to the interests of the people.

It is obvious that capitalism cannot be tamed or changed through referendums alone. Swiss people are allowed referendums only for four times per year by the present constitution. Anyway, referendums cannot be held every day. What the recent referendum signifies is the possibility of people moving against at least some exorbitant aspects of capitalism and perhaps by that way bringing certain sanity to the system.

There is increasing awareness with the predicaments of the international financial crisis that wage gaps even in the private sector should not be so vast. The proposed norm seems to be the maximum of 12 times from the lowest wage to the highest paid. It is well known that a company in America pays average of five times for an equivalent executive in a company in Japan. The Brussels has proposed a policy of caps to bonuses in the private sector in EU countries. The British Premier, David Cameron, is resisting but even he might now succumb to the proposal as an influence of the Swiss referendum. We should not have, however, illusions that capitalism in the West would be soon reformed. But we can have confidence whether in the West or in the East, people can be mobilized against at least the exorbitant aspects of capitalism as a beginning and moving from there onwards, of course if you have some faith in some form of socialism.

Relevance to Sri Lanka

Why do I say this particularly to a Sri Lankan readership? Although Sri Lanka is still an underdeveloped capitalist country, income and wage gaps are so vast proportionately even compared to a developed capitalist country. This is not about ‘Dhanapathiya Bhangaveva’ (Down with the capitalists), but justice to the people. In the case of Sri Lanka, the most outrages currently might be the corruption and plunder on the part of politicians. Unlike Switzerland, Sri Lanka is mainly a ‘state capitalist’ country and most of the perks, commissions and profits are ripped-off by the politicians, their families and close business associates.

It is not long time ago that the share market became manipulated and the small scale investors were ripped-off without any preventive action taken by the government. There were clear indications that the insider trading was conducted by the people who were well connected to the political establishment. The chairman of the monitoring organization, the SEC, resigned and the whole matter was hushed up unceremoniously. It was during these manipulations that the National Savings Bank purchased nearly 8 million shares for almost double the price of the market value from the controversial The Finance Company. Whether the sole responsibility for this corruption rests with the former chairman or not is a matter before the now increasingly manipulated judiciary. It is most recently that the Transport Minister admitted when questioned in Parliament that a fraud to the tune of 6.4 billion rupees had taken place in the Motor Registration Department. These are only some recent highlights even without mentioning about the Mihin Air financial scandal.

There was a time when the state intervened in the economy (i.e. 1970-77), the people were reassured that there would be some reasonableness in economic benefits and income redistribution. But the period was pathetically primitive with queues and scarcities. Then came the open economy and we are now back to ‘state-capitalist intervention’ in a different form and one might say in an ‘advanced form.’ The state acts as a conduit for capital accumulation for a particular political elite and one may say for the national bourgeoisie proper. There is also a visible military element within this national bourgeoisie like in Indonesia under Suharto (1967-1988). The main characteristic of the system appears to be the blatant corruption and financial manipulation covered up through political rhetoric of patriotism. One might even argue that corruption plays a ‘progressive role’ in capital accumulation!

It is true that the per capita income in money terms was doubled during 2005 and 2010. Equally true is the doubling of the income gaps between the poor and the rich and widening of disparities between the centre and the periphery. Apart from the ethnic angle, there is an economic element to the opposition for the provincial councils and devolution by the national bourgeoisie. The leading elites of this class may come from Hambantota or Kandy but they want to concentrate their political power in Colombo.

It is true that modern democracy in the West became invented initially by the capitalist classes in their struggle against the feudal classes and the feudal state. But democracy’s potential is beyond specific classes or specific historical periods. In Sri Lanka, there is no such a remaining feudal class that threatens the ascendancy of the bourgeoisie. The national bourgeoisie is visibly the offspring of the feudal remnants. That is why their role has always been regressive in respect of democracy. Even against imperialism they have not championed democracy. Take the example of their opposition to the universal franchise in 1931 or the disenfranchisement of the (Tamil) plantation workers in 1949. Take the example of concentrating power in the executive presidential system in 1978 or enhancing that power in 2010 through the 18^th Amendment.

If there is any enemy or an obstacle to the corrupt national bourgeoisie it is nothing but the people and the enlightened professional groups. This is the very reason why the rising national bourgeoisie based on the regressive state is not interested in enhancing democracy or preserving the rule of law or independence of the judiciary. It is left for the ordinary people in alliance with any enlighten sections of the business milieu to preserve democracy, rule of law and independence of the judiciary. Unlike the ‘big bosses’ that outraged the Swiss people, there are various professional layers of the business milieu in many countries including Sri Lanka that would work for reasonable salaries, remuneration or ‘profits’ to enhance business and economic development of countries.

Swiss people became outraged because of high bonuses for the private sector bosses and government bailouts for the mismanaged banks. Sri Lankan people can and should become outraged because of rampant corruption and enlarging economic disparities between the rich and the poor. This is apart from other apparent injustices.