Glocalisation without Financialisation

But glocalisation with a social market economy would be a misfit with the existing political paradigm. That is why system change is imperative. Neither the current President and his coalition partners nor their opponents except the NPP are prepared to go for that change.  A new system with a new constitution and a new economic model advocating glocalisation without financialisation is the most sensible alternative to the current political and economic paralysis. Otherwise, the 17th intervention of the IMF is not going to be the last

The open economy model introduced by J.R. Jayewardene in the 1980s dragged the Sri Lankan economy into the dynamics of neoliberal economics and globalisation. It was more a hurried act of revenge against the economic policies of the previous leftist coalition regime and a yearning to join the free market mania rather than a calculated economic strategy. Globally, the 1980s marked the dawn of a new era that witnessed the collapse of Keynesianism and the breakdown of its associated Bretton Woods financial arrangements, the grand failure of Soviet and Maoist socialist economic experiments, and the ascendancy of free market economics, all in the wake of an oil inspired stagflation. 

 The neoliberal economic philosophy and globalisation promised unparalleled prosperity and sustainable economic growth to all nations that embraced the new paradigm. Francis Fukuyama, a globalisation enthusiast prematurely described the new wave as the “End of History and the Last Man”. Alas! After more than four decades of its reign, instead of levelling the interconnected economies, neoliberalism has actually widened the wealth gap and plunged the world into successive financial and economic crises. Contrary to the promised 50:50 ratio, globalisation produced the 90:10 ratio between the rich and the poor nations.

Financialisation of real economies

One of the factors that contribute to this inequality is increasing financialisation of real economies. Financialisation refers not only to the increasing size and importance of a country’s financial sector to its overall economy, but also the increasing diversity of transactions and market players as well as their intersection with all parts of the economy and society. In the US for example, the size of this sector had grown from 2.8% in 1950 to 21% in 2019, and in the UK this sector contributes about 12% to its GDP.  With the growth and expansion of this sector, the role of finance itself has changed fundamentally from being a means to an end to becoming the end in itself.  From being a facilitator of production and distribution of goods and services in the real sector, financialisation and financial accumulation have become the end product of all economic endeavour.  As a result, the real sector has been deprived of valuable resources to develop and therefore, forced to borrow from and fall into debt to the financial sector.  Therefore, the whole world lives in debt today.  For example, according to the IMF Global Data Base, global public debt has increased from 61.2% of global GDP in 2007 to 95.7% in 2021, and global private debt from 136% to 153.5% of global GDP. The US alone has accumulated a total public debt of $31 trillion by October 2022 and that would never be paid.  How does one fathom this world of unpayable debt and deprivation, which is fashionably called the New Economic Order (NEO)?

Sri Lanka’s questionable recovery path 

In this background what prospect does tiny Sri Lanka have to emerge out of its current bankruptcy debt free and economically robust, especially, with the advice and assistance of the IMF, the guardian angel of NEO?  The IMF’s primary focus is to stabilise the country’s financial sector so that that sector would be able to inject more resources into the real sector to generate economic growth.  But that the recommended measures to achieve that stability and growth are hurting the majority poor more than the minority and elitist rich is not the IMF’s concern.  Its recommendation for a social safety net such as the Aswesuma scheme currently being implemented is not going to make life better to this majority, because the rising cost of living would eat away the little benefits from Aswesuma. Moreover, once the economy is normalised with the removal of all import restrictions and capital controls, and once domestic and foreign debt restructuring is completed, the structural weaknesses of the economy, let alone pervasive corruption and mismanagement, all operating on an ethno national political edifice, would keep the economy open but its growth a modicum at best. In that sense, President Wickremesinghe’s 2048 target for an export oriented and high-tech driven economic transformation appears sheer fantasy.   The irony is that all existing political parties except the National People’s Power (NPP) seem to have accepted this questionable recovery path drawn by the IMF. But, the IMF’s own prognosis about economic slowdown in the developed economies in the short and medium-terms doesn’t augur well for the recovery of Sri Lanka. The World Bank also endorses this pessimism.  Unlimited financialisation of economies seems to have reached a critical point to cause another GFC. Is there an alternative?

With the growth and expansion of this sector, the role of finance itself has changed fundamentally from being a means to an end to becoming the end in itself.  From being a facilitator of production and distribution of goods and services in the real sector, financialisation and financial accumulation have become the end product of all economic endeavour.  As a result, the real sector has been deprived of valuable resources to develop and therefore, forced to borrow from and fall into debt to the financial sector.  Therefore, the whole world lives in debt today

Glocalisation with system change, a sensible option

Glocalisation, a concept derived from the Japanese word dochakuka implies the “simultaneous occurrence of both universalising and particularising tendencies in contemporary, political and economic systems”.  This concept became popular in 2000 with the protest movements against globalisation and economic liberalism.  Although it lost its currency amid several other competing ideas its substance still remains relevant when one studies the gross injustice experienced by several developing countries, succumbing to the dictates of free market economics.  Glocalisation is not anti-market but market friendly with an added focus on the growth of the local real sector. The financial sector’s growth should be aligned to the growth of the real sector rather than be allowed to take an independent trajectory.  Localisation with a global window appears a sensible option, and the NPP’s concept of a social market economy reflects that option and therefore, deserves serious and sympathetic consideration. 

But glocalisation with a social market economy would be a misfit with the existing political paradigm. That is why system change is imperative. Neither the current President and his coalition partners nor their opponents except the NPP are prepared to go for that change.  A new system with a new constitution and a new economic model advocating glocalisation without financialisation is the most sensible alternative to the current political and economic paralysis. Otherwise, the 17th intervention of the IMF is not going to be the last.  As a footnote to this short piece, one comment on the latest Anti-Terrorism Act (ATA) deserves inclusion. The  ATA is nothing but the previous Prevention of Terrorism Act (PTA) with a few cosmetic changes. The new Act is specific enough to curtail all protests against the ruling system and elastic enough to counter criticism.  The system needs ATA/PTA as an instrument of protection.  Therefore, protesting to reform the ATA without broadening the protest to remove the socio-political framework within which the ATA is going to operate would be a futile exercise.

(The writer is attached to Murdoch Business School, Murdoch University, Western Australia)