By W.A. Wijewardena –
As I mentioned in the previous article in this series, an important requirement of the social market economy policy being pursued by the Ranil Wickremesinghe administration to deliver richness to Sri Lankans by 2048 is the delivery of the economic democracy to people. However, economic democracy has not been defined and the administration seems to expect the people to intuitively understand it. Hence, it is necessary to understand what it is and what should the people expect of it.
Light treatment of Lincoln’s definition of democracy
Political democracy has been enjoyed by Sri Lankans since independence in 1948 with power to elect or oust governments in periodical elections. Many analysts have drawn on Abraham Lincoln, the 16th US President, to describe what it is. Lincoln, battling a civil war, stressed to fellow Americans in his very short but powerful Gettysburg Address of 1863 that American nation shall not allow democracy which is a ‘government of the people, by the people, for the people’ to perish from the earth. His concern was that democracy being such a precious asset should not be dismissed lightly by any freedom loving person.
When this was raised in Parliament in August 2023 by the Opposition leader immediately after Wickremesinghe addressed it, he in fact took it very lightly questioning the opposition whether it expects him to do everything which Lincoln had done as the President of the United States. His reference was that Lincoln had dissolved several states which had voted for separation from the Union and whether he should also follow the suit. Wickremesinghe won the argument for the time being but that should not have been the response of a leader who has promised to follow the social market economy ideology to deliver prosperity to fellow citizens.
Democracy can be captured by powerful groups
Since Lincoln’s original pronouncement, his description of democracy as people’s government has become the standard definition of political democracy. But the defect of this definition, as many critics have pointed out, has been that the people under reference may not be the masses at large but only a few individuals belonging to an exclusive class that has captured political power through popular elections. This is self-evident in Sri Lanka. As popular cartoons have depicted, during election times, politicians approach the voters with bent backs and wide smiles across faces. But after the elections, the roles are reversed where voters approach elected politicians with bent backs in total subjugation. Hence, democracy has been viewed as a form of government of which there is no voice for the people. This criticism, levelled against political democracy, is equally valid for what is now known as ‘economic democracy’ as well.
Economic democracy is ensuring freedom to choose
But the problem with economic democracy has been that it has been captured by many interested parties to propagate their own political and economic ideologies. Hence, there is no consensus as to what it should consist of. At one end, there are free market economists who believe that economic democracy should consist of people’s freedom to choose. This was the message delivered by Nobel Laureate in economics, Milton Friedman in his 1980 book ‘Free to Choose: A Personal Statement’ written with his economist wife Rose Friedman. The book was based on their previous publication, ‘Capitalism and Freedom’. In the Preface to Free to Choose, the Friedmans qualify their effort as follows: “Capitalism and Freedom examines the role of the competitive capitalism – the organisation of the bulk of economic activity through private enterprise operating in a free market – as a system of economic freedom and a necessary condition for political freedom”. The Friedmans go on labelling both the political system and the economic systems as markets “in which the outcome is determined by the interaction of persons pursuing self-interests (broadly interpreted) rather than by the social goals the participants find it advantageous to enunciate”. The corollary is that the symmetry in the two system indicates that if political democracy fails, so does economic democracy and vice versa.
Big government takes freedom of choice away from people
But according to the Friedmans, the cause of the failure has been due to the expansion of the government sector beyond what it should have been. When the freedom to choose is taken away from people and handed to a group of politicians and bureaucrats, the inevitable result is that choices are made not to benefit the people but to benefit the latter group which works in self-interest. This is known as ‘agency problem’ in economics. In terms of the agency problem, the agents, namely, politicians and bureaucrats, who are supposed to work for the benefit of the principals, namely, people who appoint and pay them, act in collusion to serve their personal interests forgetting the interests of the people. Thus, after elections, they act as masters of people instead of being their servants. That is the source of the failure of political democracy.
In terms of economic democracy, it is the people who should make choices for themselves. But politicians and bureaucrats who appropriate the right to choose on behalf of people will make choices that are beneficial to them or a select group of people and not to the people at large. But the irony is that it is the people themselves who ask the politicians and bureaucrats to make choices on their behalf. Acting under those powers, they pass legislations of numerous kinds and impose rules and regulations on private behaviour claiming that they all are done to serve the people. But in the process, they grab more and more powers to take the freedom to choose away from the people. The Friedmans say that there is an invisible political hand operating to promote ‘special interests’ of those who back politicians instead of promoting ‘general interests’ which they are supposed to do.
Milton Friedman: Governmental solutions create more problems for people
The Friedmans claim that the solutions suggested for overcoming the problem of abuse of power by politicians and bureaucrats do eventually become another problem leading to a big government. First, a government institution is created to provide a service to people. When that institution fails, another institution is created to check on its work. That institution will function as a regulatory body with enormous powers assigned to it by laws. Acting under those laws, they issue rules and regulations in the name of protecting people from the abuses of the governmental institutions. But little they realise, according to Friedmans, that their action is the problem rather than the solution. Hence, as Friedmans have put it “they inevitably become persuaded that they are indispensable, that they know more about what should be done than uninformed voters or self-interested businessmen”.
It is people who give extra powers to governmental authorities
But the result is the growth of a government in size and power affecting the relations which a citizen is having with his government. When the government becomes too big, citizens also cultivate the habit of seeking favours from their elected politicians to move the bureaucracy that does not move at the speed they expect it to do. This gives extra powers to politicians and instead of working for the general interests of the people who have brought them to power, they start working for the special interest groups that cultivate relations with them. This leads to possibilities for bribery and corruption. Finally, for citizens to have services from the government they have created, they must give more powers to politicians and to high level bureaucrats handing their right and freedom to choose to the latter group. Thus, new legislations are introduced using rhetoric and labels that they are intended to serve the public whereas they are intended to provide a better service to special interest groups. This natural bias in favour of the governmental intervention is the source of the failure of both the political democracy and the economic democracy.
Hailing free market economy as assuring freedom to choose
Hence, according to free market economists, economic democracy can be assured by permitting free market to rule the world. The choice which people have, according to them, is violated only with the intervention of the government in the economy in the name of safeguarding their rights. Hence, excessive governmental intervention is an evil and when that evil is removed, people would naturally enjoy economic democracy. But not everyone subscribes to this view.
The criticisms have come from non-economist leftist writers as well as from mainstream economists.
J.W. Smith: The current world order has destroyed economic democracy
Of the leftist writers, a key figure has been J.W. Smith who wrote a treatise on the subject in 2005 under the title ‘Economic Democracy: The Political Struggle of the Twenty First Century’. His thesis has been that in the current world economic order with corporations and Western advanced economies choosing on behalf of people, there is no economic democracy in the world. Corporations have become an imperialist force taking advantage of the disabilities and poverty of poor countries. They, by funding think-tanks that ideologically support their presence, have interfered with freedom of thought enjoyed by people in both developed and developing countries. Developed nations, through international organisations, unequal trade, money, and finance have suppressed the choices of people in poor countries. To save the world from these unsavoury interferences, Smith suggests having a system of common resources to be enjoyed by people in both rich and poor countries in the areas of world currency, financial system, lands, technology, and internet through Wi-Fi. For him, economic democracy is having an egalitarian society across the world.
Shortcomings in Smith’s claim
There are several weaknesses in this type of economic democracy. First, it disregards the valuable contributions made by corporations in developing new technologies and introducing innovations that have helped people throughout the world. Hence, dismissing them with a single statement that all corporations are exploitative, imperialistic, and serving only the interests of their owners is far from the truth. For instance, in the modern times, the contribution made by Google or Apple of USA in making high technology affordable to people throughout the globe could not be dismissed lightly. Second, a common resource base as suggested by Smith will lead to ‘the problem of the commons’ where no one has incentive to develop a common property but to enjoy the benefit without paying. Hence, common resources are to deplete faster than privately held resources. Third, trade is not imposed on poor countries by the rich countries but allowed to take place voluntarily. Fourth, international institutions which Smith alleges as serving the interests of only the rich countries are in fact serving the whole world equally. Hence, it is not advisable to go for the type of economic democracy suggested by non-economist leftist writers.
Ha-Joon Chang criticising the market system
Of the mainstream economists, one leading critic has been the Cambridge University Don Ha-Joon Chang who makes his views known through bestselling publications as Milton Friedman has done. In his 2010 book, ‘23 things they don’t tell you about capitalism’, Ha-Joon makes a serious indictment on those who believe in the working of the free-market economy system properly and those who believe that big governments are bad. According to him, there is no such thing as a free market and therefore, to believe that there is freedom choice in the free-market system is a myth. He further contends that leaving everything to the market will not be a good idea since markets too fail due to market participants’ having no capacity to act rationally. To substantiate his argument, he draws on Nobel Laureate Herbert Simon’s concept of ‘bounded rationality’. Simon says that people are unable to make rational choices since they are constrained by lack of information, time, and brainpower. Hence, the rationality of people is bounded by these limitations. Ha-Joon also contends that welfare states characterised by big governments are not necessarily bad since they allow people to take more chances with their jobs or economic decisions. Hence, big governments, according to him, do not restrict the freedom of choice but enhance it.
Big governments do not choose for people
What Smith, Ha-Joon and all others who write on these lines have forgotten is that big governments taking over the function of choosing for people do not choose for people but for those in power. Hence, it is like the shortcoming in democracy, the power to rule others is captured by a select group of people placing all others under their subjugation. True economic democracy requires avoidance of this possibility.
Economic decisions being made for the benefit of special interest groups
Sri Lanka, in promoting economic democracy, should not get into this ideological debate. Each side of the debate has plus points as well as minus points and therefore serves as a poor guidance for policy. 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.
Need for having wide consultations for economic policy making
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.
Empower civic society institutions to represent people
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.
Poor track record of Wickremesinghe administration
The track record of Wickremesinghe government relating to economic democracy so far is very poor. It is bent on making decisions without consulting the stakeholder groups to which they apply. Selecting superannuation funds for domestic debt optimisation, continued power cuts when students were preparing for a national level examination, decision to deprive the farmers of irrigation water, and illogical price controls on poultry products are some of them. As a recent OECD report has recommended to Germany, the country of origin of the social market economy ideology, policymakers “should maintain a continuous dialogue with stakeholders throughout the preparatory stage” of a policy. It also has recommended the wide use of e-participation for conducting such a dialogue effectively and efficiently.
These are matters which should not be treated lightly if Sri Lanka desires to deliver richness to its people by 2048.
*The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com
Related stories: Target 2048
RBH59 / August 21, 2023
Political democracy has been enjoyed by Sri Lankans since independence in 1948 with power to elect or oust governments in periodical elections.
Ranil is Politician but contravasial democratic, what ever agreement target for 2048 can be subject to twist due to his borrowed votes and elected as a care taker untill the election. Being deeply loved by votes of people gives you strength The people not forget how you made them feel how you grab the position. while the people needed the change of system.
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Native Vedda / August 23, 2023
Ravi Perumal Perera
The Sinhala Speaking Demela
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Where are you?
Your cousins in South India have sent a toilet to moon.
I was stunned when I heard it actually landed on moon as planned.
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Okay when do you think our own space scientist Rohitha Rajapaksa is going to land his home made spacecraft on moon?
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RAVI PERERA / August 25, 2023
Thala Veddo,
“Your cousins in South India have sent a toilet to moon”
The Thala nadu toilet has been rejected in the moon and had been sent back to Toilet Nadu.
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leelagemalli / August 25, 2023
Ravi Perera must be the reincarnation of Eagle Eye. These men are the hate mongers of this stagnated nation. what a nation we should be ?
This donkey should be aware for what purpose we fought a war for 30 long years pushing the development of the country aside.
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Sinhala radicalism, extremism, racism, feudalism, bastardism must be destroyed. If you can’t do that, you can’t make a way to treat everyone as one nation.
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Pundit / August 21, 2023
Oh no Doctor, not again.
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old codger / August 23, 2023
“Hence, according to free market economists, economic democracy can be assured by permitting free market to rule the world. “
In the real world, there is no free market any more than there is absolute democracy.
Take the medical profession for example. In most countries it is a closed shop. In Sri Lanka, even Russian qualified doctors must redo their exams, and, despite the fact that Indian surgeons come here to perform operations that locals cannot, they still have to register. In Australia, our specialists earn more as bus drivers.
In the US, auto manufacturers gang up against imports, and drug companies gang up against Asian generics.
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SJ / August 24, 2023
OC
Well said.
*
May I add that economic democracy could be extended to mean one being assigned votes in some proportion to one’s wealth. That way politicians may not need to buy votes but tag along with some big money bags and do as they say.
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old codger / August 24, 2023
SJ,
“tag along with some big money bags and do as they say.”
Isn’t that what they do anyway?
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Native Vedda / August 24, 2023
old codger
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I understand your concerns.
However would you like to take this island to the Hahatta Hakkuru Era of SJ’s old flame (Weeping Widow)?
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If not what is the alternative?
Do you suggest one hundred percent state owned factors of production and control over supply of everything including rationed birth control products thereby rationing joy of Sex?
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old codger / August 24, 2023
Native,
“If not what is the alternative?
Do you suggest one hundred percent state owned factors of production and control over supply of everything including rationed birth control products “
Being realistic is the alternative. Living within our means. Forget 2500 year old glories, if any. Stop using the forces as employment exchanges. Figure out why rice farmers are so under-productive, instead of doling out compensation. As for WW’s time, it was hard for private business, especially the ones like tea exporters, who were replaced by clueless boorucrats. BTW, those tea guys have bounced back. I saw one in the bus yesterday, and you should have seen the security guards rushing to open the factory gate for him when he got off the bus.They live well inside their means.
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old codger / August 24, 2023
Native,
Did you know that our Nelum Kuluna cost USD 113 m, whereas Chandrayaan cost 70 m?
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Native Vedda / August 24, 2023
old codger
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“Did you know that our Nelum Kuluna cost USD 113 m, whereas Chandrayaan cost 70 m?”
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Chandrayan 3 cost about INR 650,000,000 about $8 million.
Are you saying it would be cost effective to hire as many as Chandrayans to carry (tourists) passengers up to 1,168ft and bring them back to ground?
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Good idea.
However at which point do you think our politicians could claim their rightful cut (10, 15, 18, 20, …%)?
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Do you think members of our transport union could build it much much cheaper than the $8 Million?
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old codger / August 25, 2023
Native,
“Chandrayan 3 cost about INR 650,000,000 about $8 million.”
1 USD is 82 INR.
BTW, another story about toilets, but not where you expect:
https://nltimes.nl/2020/06/24/enough-public-toilets-amsterdam-especially-women-wheelchair-users#:~:text=According%20to%20the%20Court%20of%20Audit%2C%20the%20main%20cause%20behind,per%20year%20for%20management%20costs.
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leelagemalli / August 24, 2023
OC,
Btw, Rohitha Babys rocket costed the country 320 millions of dollars… nearly 3 times of the cost of Nelum Tower. .. hik hik.. hik… not even JVP is mentioning it today… hik .. hik..
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Today s Paraih s sources speculate that Rajapaksa’s Bastard son was not involved in sending a rocket to the moon, even though it was a mere fiction. That is destiny is similar to ” DAIZY grand ma and MANIK MALLA” and ” all other allegations” ende dup cleaning their involvemnts… can you imagine.. ?
There’s no doubt that today’s takedown doesn’t draw clear lines between fact and fiction. It was made for their own benefit.
This gives me the opportunity to inform you of the supervisor name of Rohitha’s thesis in Mathematics (Dr. Jagath Wijeratne, Dept of Mathematics, UOC, Sri Lanka). https://science.cmb.ac.lk/mathematics/personel/
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https://www.youtube.com/watch?v=amrtRAbjoC4
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old codger / August 25, 2023
LM,
Chichi baba didn’t buy a rocket. He simply booked a transponder on a Chinese satellite.
But nowadays, watching TV off a satellite is obsolete. Even Dialog knows that.
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SJ / August 24, 2023
“Hahatta Hakkuru “
ha Ha HA!
(thaan ariyach chingalam ….)
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Lasantha Pethiyagoda / August 21, 2023
I am amazed that the writer is still considering Ranil Rajapakser’s promises and statements with any seriousness. Surely a veteran economist who had earlier worked at the central bank must know that this rascal has never been sincere in his words and has proven himself to be a liar like many others who have wielded state power over the years. Yet, the writer uses long sessions of economic theory and history around what this fellow has said or publications he has released in the name of government policy. What makes him think CT readers will be interested, knowing that there is really no plan for 2048 and it is mere hog-wash?
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davidthegood / August 21, 2023
2048, Most likely to be dead. So why take seriously
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leelagemalli / August 21, 2023
We hold different opinions about our politics and the country’s people’s mind. So those same traditional politicians are still more likely to succeed than those who make every effort to grab ” full pound of flesh”.
The composition of the members of Parliament, clearly evident in the last two elections, reflects the voting mindset of Sri Lanka
. I mean controversial figures who came back to power with a resounding victory (2019 and 2020) until the Rajapaksa brothers managed to accomplish everything the Rajapaksa brothers wanted. That was with the constitution amendments that empowered the executive presidency like never before.
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What is the point of being powerful as a leader if you don’t bring reforms to fill the gaps in law and order?
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2015 -Good Governance – Major parties, movements and groups under late Reverend Sobitha defeated Mahinda Rajapaksa. However, those people voted against the brutal thugs of Mahinda Rajapaksa who stole during the 2005-2015 regime, they were sent home.
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2019- Saubagya Governance – Ex-DUO brothers who were branded as real criminals by PEOPLE s verdict, the ruling government elected only parties, conventions, movements and camps shrouded in Sinhala-nationalism, sinhala racism supporters, with minority selfish groups (Ali Sabry led muslims and Dewananda and some other tamils groups that favoured Rajapakshes regardless of clear signs).
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tbc
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leelagemalli / August 21, 2023
cont.
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JVP-NPP was also there, stood against Rajapkshes, to brand as real criminals under FCID and they were able to file many criminal cases against various Rajapakses and their close ministers and others who looted the state during Mara regime (two terms).
( dont underestimate, sick people (10 millions of voters out of the total of 15 millions) elected them again,… it is the people of this country that suffer from estranged sort of amnesia)
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Mr. Pethiagoda or other ex-professors, respected learned professionals, now my million dollar question to you is how do you ever expect one party to change its mind, which has not developed enough voting knowledge? Focusing on winning the next election?
The next election? What assurance do you have about that? In addition JVP-NPP will use “Maxist ideology”. Do our people agree with that at all?.
*Can we make a silk purse out of a Sow’s ears ?*
Your unbiased thoughts can certainly guide the main majority of this Sinhalese-Buddhist (similar to jainists, or even way primitve other adherents and dont mix them with true-buddhists) country. If we really want to see a palpable change in the system, It is your responsibility to change the situation and improve the mindset of the vulnerable.
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paragon / August 21, 2023
WEERASEKERA,GONPULLE AND WEERAWANSE Have started uttering anti tamil verbal attack thinking about the next election.BY THEIR SELFISH ACTION AND IF THEY CREATE ANOTHER ANTI TAMIL ATTACK LIKE 1983 OR 2019 IT WILL MAKE TAMIL DIASPORA MORE POWER FULL As it will make it easy for more tamils to claim refugee status in the western countries and canada.As in the past the immigration officers at the air port also become very rich by helping tamils to flee the country on forged or fake documents.KEDU KUDDY SOL KELATHU.
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sonali / August 21, 2023
Come on. There are some of us who read such serious-minded articles. They enlighten us in areas of thought we are not proficient in. Surely not everyone wants to read articles that are full of bitterness, rage and intemperate language? Give us a break.
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srikrish / August 22, 2023
RAW
When did Ranilwicramasinghe promised as claimed by the author to follow the social market economy ideology to deliver prosperity to fellow citizens.
Could anyone provide references to validate?.
Then clarify what is a social market economy?
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Douglas / August 22, 2023
In the first place, irrespective of all these “Economic Theories”, it is very essential for the people of this country to understand their present predicament in relation to the economy, social and political situation of the country. To a large extent, people do know what they are faced with because much water has flowed under the bridge. In addition, a majority are experiencing the adverse impact of the devastation that the Administrators have done to this country for which the people were not accountable or answerable. The total National Debt (both local & foreign) would exceed 18 Trillion. But what have our “Administrators” done with that? According to Audits, we have only around 3-4 Trillion worth of “Assets”. What happened to the balance of 15 to 14 Trillion? No answer to that. Yet the people have to pay back those “Loans”.
The question is: Do the People know this problem? I don’t think they know the gravity of the problem and neither the authorities let them know it. Do, those who want to get power offer how-to and what to do about it? No. Not yet. What we hear is only the details of the origin but no solutions. It looks like all are playing a game and the people are made to suffer for no fault of theirs.
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davidthegood / August 23, 2023
When you are up to the neck in loans, it is crazy to take more loans for the robber families to collect more commissions. Let these families get up and work for a living wage to feed themselves and their generations instead of being parasites on the nation
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old codger / August 23, 2023
Douglas,
“a majority are experiencing the adverse impact of the devastation that the Administrators have done to this country for which the people were not accountable or answerable”
Don’t you think that the 6.9 million who gave Gota all the power he wanted are answerable?
Unfortunately, even the others have to suffer.
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leelagemalli / August 23, 2023
Hello Douglas, you are usually a thoughtful person, so am I, I have no doubt about it. But why do you say that people should not be responsible for the mess they have made themselves?
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Let me remind you that by November 2019, as if you were not in the country, many Sinhalese rallied behind the racists and surrounded the Muslims with false patriotic slogans of “national security should be everything”. Hundreds of innocent people were killed on that easter sunday nonetheless, it should not end up as a communal explosion, if you were in Dr. Safi’s shoes, how would you feel at that moment?
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Why on earth could not a single good BUDDHAGAMA monk come forward and appologize for their mistake yet today ?
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leelagemalli / August 23, 2023
cont.
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Was not that the monks in our country took the lead in bringing back former criminals? Can Madagoda Abeythissa, Athana Methan Natana Rathana, Kotuwe masturbating freak, and all other low class SB monks wear the same cloths before the nation today ?
How can politicians be entered into a parliament if stupid voters did not vote in favour of them ?
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How can you say that people are not responsible for the mess they made themselves? In fact, it is the people who created the mess, nobody else. That is why I always feel good riddance to bad rubbish.
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I hope you would come with a constructive response to this. As I always say, mirror image of the society is the composition of parliament. People cant get away easily from it.
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Buddhist1 / August 24, 2023
For economic principles to be followed the first act should be to hold the ministers who cancel tenders and contracts without due process. Even now the LNG arrangements are being violated and the Minister is trying to purchase on the spot market.
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