Breaking the cycles of Lanka’s extremist economic policies

“We must never forget one basic truth of development…[there] is no substitute for the wisdom of poor people” – President Ranasinghe Premadasa

This regime has repeated the policy package of the 1970-’77 Government in worse form (especially in agriculture, sell-out to foreigners, etc.) and cannot expect a better outcome than that visited electorally upon the Sirimavo Bandaranaike administration. It may try the Myanmar manoeuvre as a last resort but will find that it is in the wrong place (the Indian Ocean) at the wrong time (Quad and AUKUS pushback, targeted ‘universal jurisdiction’)

Recently the centre-left Labour Party won the Norwegian election, unnoticed and certainly without comment by the Sri Lankan political class and intelligentsia (except for noting the young woman MP of Sri Lankan Tamil origin). Similarly unnoticed, Pedro Castillo, a left populist, won the presidential election in Peru earlier this year, beating Keiko Fujimori, the rightwing authoritarian ex-President Fujimori’s daughter. 

At a time when the US Republicans are at their most unpopular in the world, and just lost the recall vote in California too, both camps of Sri Lanka’s political and policy intelligentsia remain ideologically closer to the Republicans than the US Democrats. The Rajapaksas, because they liked Bush and Trump. The UNP/ex-UNP types, because Ranil Wickremesinghe affiliated them with the International Democratic Union co-founded by the US Republicans and the UK Conservatives. The Rajapaksas are pro-Republican for cultural reasons (nationalism, rightwing religiosity). The UNP/ex-UNP types, for reasons of economic ideology.  

Blinkers, blind spots

What is understood and marketed as ‘economic liberalism,’ and the international personalities paraded as ‘classic economic liberals,’ in Colombo caucuses are doctrines and figures of economic neoliberalism and free-market fundamentalism which undergirded US-UK Republican and Conservative administrations, including neoconservative ones, not to mention dictatorships in Latin America such as that of Pinochet (which make Gotabaya Rajapaksa seem like Jacinda Ardern). 

While Jacinda Ardern’s gender is rightly noted in applauding her success in COVID control, her Labour Party social-democratic ideology and policies aren’t recognised by Colombo’s economic commentariat. Kerala’s success in combating COVID goes unmentioned in Colombo circles, though its architect, Health Minister K.K. Shailaja is a woman. The silence is probably because she’s also a member of the Communist Party which governs Kerala.  

Economic neoliberalism or ‘classic economic liberalism,’ which is intellectual currency in Colombo, went out of respectable global circulation in three phases: the 2008 global financial crisis, Brexit and the Trump shock, and COVID-19 with its damage to supply chains and re-prioritisation of social/public infrastructure and Rooseveltian New Deal stimulus. 

What came into its own was progressive liberalism as expounded in the economic domain by two Nobel Prize winners, Joe Stiglitz and Paul Krugman, and at least two others of similar intellectual standing and inclination, Jeffrey Sachs and Robert Reich. All are intellectual descendants of the iconic John Kenneth Galbraith, the leading economic thinker of the liberal-democratic JFK presidency.  

By the US Presidential Election, Jake Sullivan and Antony Blinken had already denounced neoliberalism/neoliberal globalism in policy journals as responsible for losing the ‘heartland,’ the blue-collar workers and the middle class, to Trump’s ultranationalist rightwing populism. Biden broke through to the blue-collar heartland by pushing a neo-Rooseveltian New Deal package. 

Flying in the face of free-market fundamentalism, President Emmanuel Macron, former Economics Minister and an authentic liberal-centrist, rather than a rightwing ‘classic liberal,’ restored the State’s planning mechanism of post-war Gaullist France earlier this year. 

There is a clear overlap between progressive economists and policy-makers outside and inside the USA. Jeff Sachs was a friend and consultant to Yanis Varoufakis, Economics Professor and Greece’s former Finance Minister (who resigned when Prime Minister Alexis Tsipras betrayed the massive 61.3% ‘NO’ vote given by the Greeks at the referendum on austerity for debt repayment). As France’s Economics Minister, Macron supported Varoufakis, while President Obama was very warm and empathetically engaged. Reviewing his gripping volume Adults in the Room, Sachs calls Varoufakis “the Thucydides of our time”. The economist James (“Jamie”) K. Galbraith, son of John Kenneth Galbraith, partnered Varoufakis in Greece’s negotiations with the EU and the IMF. 

Conspicuously absent in Colombo’s elitist economic policy discourse is Thomas Piketty’s Nobel Prize winning work on capital, and its sequel, on inequality. 

UNP Prime Minister Wickremesinghe and the UNP-run Finance Ministry studiedly ignored Nobel Prize winner Joe Stiglitz’s urging, while on a panel in Colombo in 2015, that post-conflict economic development policy in Sri Lanka had to be front-end loaded with a drive for equity. Stiglitz posted his perspective on Sri Lanka on his Harvard website. 

While all of this is ignored in the UNP/para-UNP set, you do however read and hear the hysterical trashing of every leader or thinker who ever made progressive economic policy, ranging from Roosevelt to Raul Prebisch, while the names mentioned approvingly, those of antediluvian rightwing thinkers, would not be intellectual currency anywhere except among the illiberal Far Right governments in Baltic and ex-Eastern bloc states, and the rightist rearguard in the West.  

The cyclical repetition of economic policy regimes is from one extreme and dogmatic model to another and back again. Each extreme policy regime triggers another type of cycle, that of violent sociopolitical conflict. Conflict then wrecks the economic prospects

Exiting economic policy cycles

Three decades ago, Prof. Mick Moore writing on Sri Lanka, remarked more generally that economic policy regimes seem to have a cyclical life form. That was probably true and might even be OK, except that just as certain islands are prone to cyclones, Ceylon/Sri Lanka since Independence has been prone to violent conflict. The longer conflict occurred in the north-east, but the one that reloaded and replayed was in the south. While the northeast conflict has been primarily ethnic, the southern uprisings though having a nationalist overlay, have been primarily socioeconomic in causation.

The cyclical repetition of economic policy regimes is from one extreme and dogmatic model to another and back again. Each extreme policy regime triggers another type of cycle, that of violent sociopolitical conflict. Conflict then wrecks the economic prospects. Contemporary history and logic thus teach us that the economic policy model must be rid of strategic and structural design flaws. It is imperative to follow the Buddhist philosophical aim and exit the cycle(s).

Sri Lanka did precisely this massive policy correction and re-balance once, having paid a copious cost in blood for not doing so sooner, despite fierce warnings. And yet, both sides of the political and ideological divide are now back to the dangerous old economic models, having forgotten the inevitable cost.

One the one hand we have the return of the closed economy/import substitution industrialisation model, albeit tweaked by the Port City and the China backstop. Its crudest defenders use the discredited discourse of the Sirimavo Bandaranaike-NM Perera days, reinforced by the ultranationalist Jathika Chinthanaya slogans of a “national economy”. Ultranationalists Asoka Abeygoonewardena and Dr. Anuruddha Padeniya inspired the catastrophic fertiliser-weedicide-pesticide policy. 

The more sophisticated exponents of the regime’s economics camouflage it as the Chinese model (responsible for the Chinese economic miracle), and more generally the East Asian model. Instead, in reality it is a grotesque witches’ brew of rampant foreignisation, semicolonial enclaves, spoliation of peasant agriculture, rip-off of forest reserves, and oligarchic crony capitalism, boiling and bubbling in a cauldron which will either blow-up or melt-down. 

This regime has repeated the policy package of the 1970-’77 Government in worse form (especially in agriculture, sell-out to foreigners, etc.) and cannot expect a better outcome than that visited electorally upon the Sirimavo Bandaranaike administration. 

It may try the Myanmar manoeuvre as a last resort but will find that it is in the wrong place (the Indian Ocean) at the wrong time (Quad and AUKUS pushback, targeted ‘universal jurisdiction’). The combination of the internal (economic austerity, socioeconomic upheaval) and the external (geopolitical/geostrategic realities) will crack its shell open. 

That’s an unhappy ending but ending there will at least be. However, it could be an ending which proves to be a portal to yet another cycle of violent conflict. 

I say this because a build-up of radical rightwing economic opinion is apparent in civil society caucuses and among some politicians. A young friend sent me in manifest horror a tweet which understandably praised J.R. Jayewardene on his 115th birth anniversary, less understandably ignored his executive presidency, and least understandably applauded his 1977 economic program as co-authored in 1966 by the Indian economist B.R. Shenoy (described in the tweet as ‘classically liberal’). The tweet exclaimed that “we need JR+Shenoy reform once again”.

If the post-UNP/ex-UNP Opposition of today wishes to win a 1977-type victory, it has to focus on the reform that’s really needed “once again” and immediately: that which the UNP underwent in Opposition in 1973-1977, not the ‘JR+Shenoy reform’ of 1977. If not, the ex-UNP formation will not enjoy a repeat of 1977 but rather of 1965, and form a 1965-1970 type government which will face a 1970 replay down the road. 

If the new Opposition party is to kick the Ranilist UNP habit of forming sporadic, simple-majority, one-term administrations, decades apart, it must kick the Ranilist ideology including the economic philosophy/agenda.

Lalith Athulathmudali, writing in the Lanka Guardian in 1980 tells the story of the UNP’s reform while in the Opposition: “… It had to change its image in theory and in practice. It had to stand on the side of the underprivileged, it had to provide answers to their problems…A new policy and programme proposed by a committee headed by R. Premadasa was adopted. Family power and privileged group power were dethroned and the fact that these very monstrosities were being strengthened in the other parties only served to consolidate the UNP. In the popular mind the UNP often thought of as being concerned with the few, came to be considered as the party of the masses. The UNP had built itself a new political base.” (Lalith Athulathmudali, Lanka Guardian Vol. 2 No 17, 1980 p13-14).

Premadasa’s political economy 

This is what – and who – ensured the landslide of 1977. After that landslide victory which owed so much to his remodelling of the party and its program, Premadasa was hardly entranced by any ‘JR+BR Shenoy’ 1977 model. In his 23 February 1978 Parliamentary speech on so solemn and significant occasion as assuming the Prime Ministership, with the new economic model clocking an 8% growth-rate, Premadasa spoke out forcefully, prophetically:

“Our people are facing untold hardships. The efforts of our youth to obtain opportunities for work, economic progress and social security have been unsuccessful. The forbearance and fortitude of our people who are shouldering great burdens of the cost of living, must not be mistaken for weakness. This atmosphere of poverty is about to overwhelm the limits of their patience. If so, none can tell what might transpire. Policies must be formulated, implemented… bearing this in mind.” (‘Prabuddha Shakthiya’, p170, published by B. Sirisena Cooray, printed by MD Gunasena & Co., June 1978.) 

Exactly a decade after his speech assuming the Prime Ministership, in his speech accepting the UNP nomination as presidential candidate at the party’s Special Session on 9 October 1988, Premadasa squarely blamed the intense crisis and conflict on the structural asymmetry inherent in the dominant (JR+Shenoy?) economic paradigm; asymmetry he had warned against, which now threatened the entire system, bequeathing him “a torch ablaze at both ends”. He reiterated his re-balanced alternative paradigm: 

“The base of our country is the common people. If half of that base is in dire poverty and degradation, doesn’t that amount to the sinking of half the foundation of the building? Isn’t it a surprise that those walls are cracking when the foundation is sinking? Isn’t it what has happened to our country? Therefore, what we should do is to strengthen the base. In other words, we must help the poor people to live. We must assist them to participate in making this country prosperous.” (President Premadasa, His Vision and Mission, Selected Speeches, p15)   

Today, the economic discourse on both sides of the political divide is about ‘bold, tough measures,’ ‘sacrifices,’ ‘structural reforms,’ ‘bitter medicine’ and ‘public sector reform’. The crucial questions are avoided: who will bear the brunt of the crisis? Who will make the sacrifices? On whom will the measures be ‘tough’? Who will take the medicine and taste the bitterness? Those have already suffered the most and can afford to bear burdens the least? When and how will these ‘tough’ and ‘bitter’ measures bring its benefits to the vast majority of citizens? Are the multitudes, ‘the 99%,’ meant to wait for the benefits to ‘trickle down’? 

The Sri Lanka inherited by Premadasa in 1989 was scorched by two civil wars north and south, with enormous damage to infrastructure. In 1991 the Gulf War gutted part of our Middle-East tea market. 

Having rescued society, the open-economy, the market and democracy, Premadasa reflected on the lessons in no-holds barred interview conducted by the iconic civil servant (whose academic training was in Philosophy), Neville Jayaweera. Premadasa denounced notions of ‘trickle-down’ inherent in ‘classic economic liberalism’:

“If our democracy was to survive, indeed if society itself was to survive, we had to tackle the issue of poverty directly, without waiting for the benefits of growth to trickle down…I realised that if we merely waited for trickle-down to work, the very engines of production, and democracy itself, would be destroyed. I saw a rising discontentment, especially amongst the youth.” (A Charter for Democracy, interview by Neville Jayaweera, 1990)   

How, for instance, is ‘public sector reform’ to be achieved? Through privatisation and retrenchment? In his last May Day speech (1992) President Premadasa elaborated his program of state sector reform, termed ‘peoplisation’. Insisting that “peoplisation is not privatisation” he devoted 12 paragraphs to concretely specifying that difference, including a red line ruling out retrenchment. 

Today, the economic discourse on both sides of the political divide is about ‘bold, tough measures,’ ‘sacrifices,’ ‘structural reforms,’ ‘bitter medicine’ and ‘public sector reform’. The crucial questions are avoided: who will bear the brunt of the crisis? Who will make the sacrifices? On whom will the measures be ‘tough’? Who will take the medicine and taste the bitterness?

People’s paradigm

Half-a-decade before the second southern insurrection, Premadasa was confronting the problem of economic orthodoxy, epistemologically and radically, i.e., by its very roots: 

“If economic thinking…cannot get beyond its vast abstraction, the national income, the rate of growth, output ratio, input-output analysis, labour mobility, capital accumulation, if it cannot get beyond all this and make contact with the human relation of poverty, frustration, alienation, despair, breakdown, crime, escapism, stress, congestion, ugliness, spiritual death, then let us scrap economics and start afresh.” (The Time for Action, by R. Premadasa, 1980, p119)

He returned to this critique a decade later, as President, at the inauguration of the Janasaviya Trust Fund (1991):

“Doubters and shouters proclaimed our entire economy would crash…I was encouraged by only one fact. Our people wanted it. Why did they want it? They wanted it because they had seen governments come and government go—but poverty remains. They wanted it because of their experience. Our people at the poorest level are not theorists. They are not so-called international economists…They just know the humiliation of poverty…We must never forget one basic truth of development…[there] is no substitute for the wisdom of poor people.” (President Premadasa: Vision & Mission, p 153)   

That last line should be engraved on a plate and gifted to all Sri Lankan economic policy-makers, present and future.

Neville Jayaweera of the old Ceylon Civil Service Mandarinate, made this definitive comparative judgment: 

“…The soaring vision he [Premadasa] had for his country, and I do not mean merely for the Sinhala people but for Sri Lanka as a nation, was unmatched by any political leader of the last century, either conceptually, or in terms of the intelligence and managerial energy with which he backed it up, even though that vision was tainted by his many failings…” (http://archives.sundayobserver.lk/2009/01/11/fea15.asp)

Colombo’s economic and policy intellectuals, including ex-UNP politicians, are far too enamoured of (Ranil Wickremesinghe’s) rightwing economic ideology, to study and adopt the successful economic vision of ‘growth with equity’ of Premadasa, “unmatched…conceptually or in terms of intelligence…”.