By C.J. Amaratunga –
It is now obvious that Sri Lanka is facing a severe economic crisis. Many people also talk about the way out of it. To find the way out, at first, we should understand the crisis. That is “What is this crisis?” and “what is the cause of the crisis?”
On the one hand, this is a clearly identifiable crisis. This has been a crisis for some time due to unproductive spending by governments increasing foreign and domestic loans. In fact, it is a crisis created by ourselves. Many people have pointed this out with examples.
However, some groups are trying to give other interpretations to this and thereby build analyses that coincide with their own ideological perspectives. They often do so in an attempt to link the issue of the current economic crisis with their political objectives. In trying to define the crisis in line with their ideology, what often happens is that a distorted interpretation of reality is created. Then such people seek answers not to the real question but to a question they have imagined. They then suggest what they think as the solution. But they do not succeed just because they contradict reality. What happens is that such movements, with their own analysis and their own politics, revolve around their own orbit indefinitely.
Some leftist movements have put forward that kind of popular analysis. I do not intend here to say who they are or to quote them. I present only the analysis. Then it will not be so difficult for the reader to find out who has set forth them and how many political parties and groups make such comments.
The analysis is as follows: This is the crisis of capitalism. It is primarily a crisis of the so-called “neoliberal” economic policy that has been in place in Sri Lanka since 1977. Every government that has come to power in Sri Lanka since 1977 has pursued the so-called “neoliberal” economic policy.
It is that policy that is now in crisis. Such is the summary of the analysis of this group. It is also important to note what they identify as the draconian features of the so-called neoliberal economic system.
The first is distancing the government from economic activities. It is to minimize government by restricting (or not doing) public investments.
The second is the streamlining of public welfare. Subsidies are restricted to those in need (Safety Net).
The third is market liberalization. That is, to liberate the market from government control. There are other features of this economic policy. It is not the purpose of this article to discuss all of those.
It is important to note that no philosopher or theoretician has put forward a ‘neoliberalism’ theory. The term is most commonly used to refer to economic policies implemented by Prime Minister Margaret Thatcher in the United Kingdom since 1979 and President Ronald Reagan in the United States since 1981. Leftist movements in those countries mostly use the term.
The theoretical economic basis for Reagan & Thatcher’s policies was provided by economists such as Friedrich von Hayek and later Milton Friedman. It is questionable to what extent and for how long Hayek’s and Friedman’s ideas have been implemented in Britain and the United States. However, Thatcher, Reagan and other followers advocated for and implemented such ideas.
Many who oppose and misrepresent this so-called “neoliberalism” do not say what they support. In the field of economics, the debate is between Hayekism and Keynesianism. Keynesianism is the economic theory introduced by the economist John Maynard Keynes. Keynesianism gave some relief to leftists who believed that socialism was a state takeover of all economic activities.
Keynes’ major contribution to economics has been to demonstrate the potential for mitigating economic crises by increasing government spending. The vision suggested that increasing government spending could lead to economic growth and that the government should borrow and spend what it does not have. The economist also said that it would be good to have a deficit in government budgets.
Hayek said Keynes’ views could be catastrophic if misused by anyone. That idea is especially important because it is so relevant to our crisis.
Do the leftists who conclude that a ‘neoliberal’ economic system was implemented in Sri Lanka after 1977 have good reasons to say so? It is unclear whether the criticism of the American or British system was imitated here without a deeper understanding.
However, JR and Ronnie de Mel opened the Sri Lankan economy before Reagan or Thatcher did so in their countries. China and Vietnam also opened up their markets after Sri Lanka did. Our leftists do not call China or Vietnam as ‘neoliberal. There is indeed no reason to say those economies are neoliberal.
JR has two or three reasons to be called as “neoliberal”. The first reason is the opening up of the economy. However now it is clear that it is a partial opening, while maintaining great control over it. The second is the privatization of certain state institutions, which is also partial. Five hundred twenty-seven state-owned enterprises, including key sectors of the economy, are still under government control at a huge loss to the people. The third is the abolition of the free ration book that used to give free rice to the poor and the super-rich. It can be said that this is the only subsidy withdrawn by that government.
It is also clear that JR’s 1977 government significantly increased public investment through the annual government budgets of Finance Minister Ronnie de Mel. The Mahaweli development project is a huge investment as, at that time, did through borrowing money that was not available at hand. It is purely Keynesianism, not neoliberalism. Ronnie had a massive deficit in his budget proposals. No neoliberalism can be traced in those.
The state machinery was further expanded at that time. It has been stood out in the field of agriculture and in the field of irrigation. It was at that time that the Agricultural Research Production Assistant Service, also known as Kupanisa, was started as the Cultivation Officer Service. The state apparatus was also expanded to include institutions such as the Board of Investment.
That government developed public welfare service with state intervention in all three main areas of public services – education, health and housing. Universities have been established in every province since the inception of the Universities of Ruhuna and Jaffna. The system of ‘Colleges of Education’ was newly established after that.
The facilities provided to the schools are immense in this period. During this period, new hospitals such as Karapitiya and Sri Jayawardenepura were established, and facilities at existing hospitals were upgraded. I do not think it is necessary to provide information about the development of that field during this period. Launched by Prime Minister R. Premadasa, Gam Udawa became a massive relief project of one hundred thousand houses and later one million houses.
Aren’t free school books, then uniforms for school children, as well as Mahapola scholarships for higher education welfare programs? What about Janasaviya?
What do we understand now?
To what extent do these so-called draconian features of the “neoliberal” system fit in with the post-1977 economic process in Sri Lanka? Has the public sector been reduced? Has the government reduced public investment? Were the subsidies cut? Or is it the opposite process that has taken place?
Let us now look at what is being said about the current crisis. One of the main reasons for the current problem is that the government has borrowed heavily and invested in economically unproductive projects. In fact, it applies mostly to the period after 2006. Hambantota Port, Mattala Airport, Sooriyawewa Stadium, Hambantota International Conference Hall, Nelum Pokuna, Nelum Kuluna, etc. are some of the expenses that fall into this category.
Although some of these projects may be useful in future, they are not so at the moment. They might be useful only after another 15 to 20 years of time. The reason for the crisis today is not that the government has become “neoliberal” and that the government has not invested enough. The opposite is the truth.
Another cause of the crisis today is inefficient government agencies. The loss incurred by 527 state institutions after 2006 is said to be Rs. 1,200 billion. The cause of the crisis is not privatization. The policy of no-privatization is the cause.
The rulers dragged the country into this crisis, boasting, “We will not sell national assets” and squandering public money. They saw or declared it as socialism.
Another cause of the crisis is the expansion of the public sector and the recruitment of unnecessary numbers to the staff. It does not fit with any economic theory except a pseudo-socialist mentality. White elephants such as SriLankan Airline should also be included. For some leftists, all those are ‘socialist actions’.
Much more could be said about this. However, I will stop by emphasizing only three points.
The first is that the so-called ‘neoliberal’ economic policy has never been implemented in Sri Lanka. What has taken place is a more Keynesian economic process that is not ‘neoliberal’ by any consideration.
Second, the cause of the current crisis is not implementing neoliberalism but the non-implementation of some essential neoliberalist policies (not extremism). That is not implementing crucial economic reforms.
Third, the main cause of the current crisis is not any policy that has been in place since 1977, but a destructive policy with a hollow socialist look that has been in place since 2006. Failure to carry out the reforms that should have been done earlier also may have been led to the rapid escalation of destruction and crisis.
It can also be seen as an application of Keynes’ theory in the wrong way. But it can be more accurately described as a failure of pseudo-nationalist and pseudo-socialist policy. It is called pseudo-socialism in the sense that it is based on the misconception of that state ownership is socialism.