Quo Vadis (Where are you going) Sri Lanka?

Whichever way Sri Lanka chooses to go, will ultimately be determined by its core values

Sri Lanka, since independence has been on a road that was not quite destined to reach a destination. Then, after almost 30 years of independence, with light to moderate progress, the economy underwent a radical change in 1977. We were told that this would make Sri Lanka a developed country in a short time span.

Things did not work out as expected and the next four and a half decades brought us to bankruptcy. There is not much purpose in blaming others, when we ourselves were to blame.

What is clear is that there was a huge thinking deficit on our part, as we believed all the West was saying and advising about development and how we should be getting about it.

We did not open our eyes to see what was going on in the Asian region and how they got about developing their economies. We believed Western diktats without question and followed the Washington Consensus without a murmur. The ultimate result was that we lost whatever gains that had been made prior to the redirection of the economy in 1977, lived beyond our means, became addicted to foreign borrowing, lost interest in industry, financialised the economy, individual interests were prioritised over social needs, and self-enrichment grew at a huge socio-economic cost. All this on borrowed money.

However, when things were not working out as expected, our common sense did not kick in. It has still not happened. We were made to live on hope and pray for the impossible, while continuing with addiction to foreign and local debt financing, which was beneficial only to the financial sector to extract as much as possible.

Now, the President seeks to tie future governments to the failed policies and methods with the new Economic Transformation bill, presented to Parliament.

Though Sri Lanka is well and truly caught in the IMF program, an alternate program needs to be developed, to be able to get out of it, while realising that we have still not got to the stage of paying our foreign debt and how much of the country would be left, after the present thinking sells local assets and opportunities, to meet part of that debt.

A new thinking needed

What is clear as daylight is that we cannot expect the same thinking that got us into a mess, to get us out of it. We need a radical new thinking.

In a country that has a huge thinking deficit, it is not an easy task, particularly when the leaders are adamant on following a proven failure, as a path to an unknown future.

When countries in Asia, developed beyond their own expectations, using common sense above orthodox economic theory, Sri Lankan leaders and their advisors, continued to follow certain aspects of orthodox economics, which has now been proved as mere ‘myths’. What is alarming is that many in authority, still cannot identify what and where things went wrong, but want to continue with it.

They fail to understand that the IMF, with their own recommendations in the past was a major contributor to the present situation. The Washington Consensus is a classic example. Though John Williamson, the author of the Washington Consensus, himself agrees that it is a dead document, Sri Lankan leaders still keep faith in it and have made it their ‘guide’ to the future.

The fundamental problem is that many view money, as if we were still on the Gold Standard.

Many fail to understand the potential of monetary policy for development, as they think only of the narrowed aspects of it and are unaware of greater possibilities within it. This is the most crucial aspect that has to be properly understood, but at present over-ridden by neo-liberal thinking.

In such a situation, it is more than clear that we need new thinking, that takes us to a new ‘clash of ideas’ that generates much more discussion.

One should realise that monetary policy is at present restricted to a narrow margin, whereas it has much greater potential but unable to perform, as it has to satisfy other requirements, other than the needs of development.

A good example would be the nuclear industry. Nuclear power has two known fuel cycles, Uranium and Thorium, with its own pros and cons. Thorium is more abundant, safer and cheaper, but it was the Uranium fuel cycle that is mostly used. The reason being, it was needed for the Atomic weapons program, whereas Thorium cannot be used in such a program. The point is that it was not only power generation that was sought, but the needs of the weapons program. However now, we are slowly getting to the safer option, as China, India and the US (though late) has developed Thorium based nuclear power plants, which would be commercially available in the future.

What has happened to monetary policy is somewhat similar, as it has to serve another need above that of the people, the financial sector, that thrives on extracting interest and in some sectors, leaves a trail similar to a nuclear fallout.

Therefore, there is much more thinking required. In Sri Lanka, we have not even scratched the surface with regard to economic possibilities, but only been a sucker to the diktats from the West, knowing fully well that they used different methods for their own development.

Where is that new thinking to come from?

Where would that ‘new’ thinking come from, is the question. Normally, it is expected from the left, while those who want to conserve the present, gang up to discredit and denounce the left. Today, there is hardly a ‘left’ to talk about, and question marks with regard to the JVP-NPP combine, which is still to express their economic thinking.

However, the Sri Lankan situation at present is quite worrisome, for many reasons, as none of the main contenders for office, if an election is held, have been able to identify the main cause, that is holding us back. Which in short is, how development should be brought about, including how it should be funded. That, in itself, is a cause for worry and even more. The SJB thinking is very much the same as the President’s, with minor differences in style and both could submit the ‘Washington Consensus’ as their election manifesto, as they both are in the same thinking mode. The JVP-NPP combine, is quite unsure of its economic stance, though they seem intent of wanting to move forward. They have dropped some of their earlier expressed ‘left’ thinking and absorbed some ‘liberal’ as well as ‘neo-lib’ thinking, partly by default.

I sincerely hope the JVP-NPP would get their economic act together ASAP, as I do not wish to see the hopes and aspirations of all those who vote for them to be dashed, as witnessed over and over in our past history.

However, what has to be understood is that one cannot move forward by following something that is a huge drag, on the economy and society. All seem to be consumed by the ‘mythical’ content of neo-liberalism and are not making an attempt to look beyond.

Looking beyond

Looking beyond, within the existing neo-liberal thinking requires boldness. As the tendency, of even those who aspire real change, are so hooked on the above mentioned ‘mythical’ aspects of neo-liberalism, and seeking change within those ‘myths’, is an impossibility.

When the East Asian countries were performing their economic miracle, there was ample opportunity to observe how common sense thinking was able to beat orthodox economics, but since Sri Lankan leaders preferred looking west, we did not take note of the possibilities that were proved by the East Asians.

However, even when looking west, the more important aspects were disregarded and only the monetarist views were cherry picked, that suited the political ideology. In the last century, after overcoming the Great Depression and WW 2, the next crisis was the stagnant economy, when the new Kennedy administration took over. How the ‘new economics’ of the early 1960s was able to get the US economy moving again, would have been a much better lesson than the monetarist model of the mid-1970s.

Some of the more important features of the ‘new economics’ was its ability to distinguish between actual and potential production and the realisation that it was that gap that had to be filled. To do so, it broke away from traditional theory and followed a common sense approach by liberating fiscal and monetary policy from established taboos and got both to work in tandem, towards a common objective. It also realised that the public sector was under-nourished and needed more funds. This worked very well until the oil shocks of the mid 1970s and were unable to work out a way to overcome the situation, as the ‘new economics’ had been able to do a decade earlier.

The major difference was that the Economic Council at the time in 1960, had in Kennedy a President who kept an open mind, to all the advice he was receiving and took the correct decisions, as well as people of the calibre of Galbraith, Tobin, Samuelson and many more in the Economic Council.

However, in Sri Lanka we have a President who is adamant on ‘my way or no way’ and wants to tie down future governments to his way. Such attempts are made and probably get away with, due to the thinking deficit, mentioned above.

Another important aspect of President Kennedy’s economic outlook could be noticed when he took on big business, when they wanted to arbitrarily increase prices. This is best summed up by Marilyn Monroe, when she sang happy birthday to the President.

“… thanks Mr. President, for all the things you have done, the battles you have won, the way you deal with US steel, and our problems by the ton, we thank you so much…”

The point to note is the fact that it was understood that what was good for big business, need not be in the interests of the country and its people, which is the opposite of what is thought and practiced at present in Sri Lanka.

Task ahead

Right now, as a matter of urgency, the task is to get the JVP-NPP combine to realise its shortcomings in its economic thinking, particularly macroeconomic aspects and get the thinking towards a common sense approach, that could bring development with equity.

However, the obstacle I notice, is the reluctance on their part to engage in discussion on such matters.

Therefore, let me list some of the matters that need urgent re-thinking.

1) The role of monetary and fiscal policy – Understanding the potential within for development and enhancing the CB’s role to cover economic development which is now narrowed to inflation targeting (IT) and financial stability.

On this, a point of interest is the speech of the first Prime Minister, the late D.S. Senanayake at the opening of the Central Bank in 1950, where he draws attention to the assistance the Central Banks of Canada, Australia and New Zealand had provided those countries in their development, which was disregarded by our CB.

The establishment of development banks for the identified sectors and understand that it is a prerequisite for development.

2) The need of a development plan – A development plan takes into account the resources available in the country and how best it could be put to use in coordination with all stakeholders. All, including FDI would know where they could fit in. Plans in the Asian region have been quite different, Korea followed a very aggressive one, while in Japan it was more an indicative one with the ‘window guidance’ by MITI. In Taiwan it was more a SMI development program.

How do we change the industrial structure, so that the SMI sector can participate with vertical and horizontal integration? It is necessary in a country like Sri Lanka, for widespread gains, from industrial development, rather than develop a few big companies only.

Such a plan would indicate the areas that require attention, to meet the plan requirements, such as the human resources and technical ability.

It would also analyse to see what we should aim for at this present time. Do we need to move to high-tech industry to catch up or aim for mid-tech industry?

How do we position ourselves to participate in the Global Manufacturing Value Chain (GMVC)?

There are many more areas that require more discussion, before, during and after a plan is made.

Or do we leave all this to be met by the market, as the President and the SJB think?

3) Development of the farmer – Though much money has been spent on agricultural development over the years, the farmer remains a poor farmer. The farmer should be in a position to sell rice, not paddy. Small cooperative mills could sort out the issue with proper credit available from a development bank, to stop the exploitation of the farmer by a few.

4) Maintaining core values – Whichever way Sri Lanka chooses to go, will ultimately be determined by its core values. Some may try to impose a system that increases inequality, on the understanding of what is good for big business is good for all, which has been proved wrong, while others seem confused. Therefore, re-developing those core values becomes important. One cannot expect social core values to emerge from those who do not believe in the importance of society.

Therefore, we need a radical new thinking to overcome the thinking deficit of the past, to put our country on a new development trajectory.