Politics of inflation and welfare state

Inflation, hyper inflation and chronic inflation

Inflation, as understood by the unsuspecting citizen, is the rising cost of prices over a period of time. This interpretation is far from satisfactory. It is high time people were educated as to the real causes of inflation.

Dissecting the inflationary causes would be a difficult task for an ordinary citizen as he does not have the facts and figures that contribute to inflation. When price levels soar, it would be difficult for people to buy products and purchasing power diminishes drastically. The people then resort to various alternatives in order to meet the rising cost of prices. The value of money takes a nose dive.

This would cause social unrest as people increasingly resort to basic necessities and the wrath of people is held in check by a latent equilibrium. When the social equilibrium tilts then people would come to streets and might end up in lawlessness or might even turn into a social revolution.

People of this country underwent extreme economic hardships during the period 1970 – 77 and this wrath was expressed at the 1977 general election where UNP returned to power with a five-sixths majority in Parliament. This was an unprecedented feat as far as electoral politics were concerned as the voter turnout was around 80%. One could conveniently say it was a protest vote.

At every election, lofty promises are heralded, but once a party comes to power, it tries only to consolidate power and in some cases rides roughshod over the sentiments of the people, thus diluting the very plank on which the party came to power.

Cost of living

The cost of living has been a topic of discussion at public affairs forums but nothing concrete seems to have been done to contain the inflationary trend. It is the responsibility of the Government to contain the inflation by adopting various fiscal and monetary policies. There is a popular concept that inflation begets further inflationary expectations which begets further inflation.

Inflation could also trigger massive mass demonstrations. The Government must be conscious that the hunger and heat of the belly would determine future elections. People would forget the great war victories brought about the Government.

Hyperinflation and chronic inflation are the worst form of inflationary pressure and would cause people to lose faith in the national currency and they might resort to hoarding a stable foreign currency. Inflation would totally distort the concept of savings and interest rates as people would find that the loss of the value of money would bring nothing from their savings. Banks too would adopt measures to counter their spread of risks.

The import cost of raw materials for industries would be exorbitant and it would raise the cost of production and the products would then not be competitive for overseas markets. This will then result in loss of export earnings and cause redundancies. Then the balance of payment crisis would loom large.

The Government would have to bend its back and kneel down at IMF and will have to accept IMF terms and conditions. So the rhetoric and the patriotic songs of the Government would be meaningless and the so-called heroes and patriots would turn into purveyors and betrayers overnight at the mercy of foreign lending institutions.  

Welfare state

What then is a welfare state? The simple interpretation is that it is a concept of government in which the state takes control over the protection and promotion of the economic and social well being of its citizens especially those who are unable to avail themselves of the minimum standards required for a good life.

Under the welfare state concept of governance, the state provides affordable housing, healthcare, basic education. State also implements poverty alleviation programs through various social benefits for lower income level citizens such as ‘Janasaviya’ and ‘Samurdi’ programs.

When the Government loses revenue it would find it hard to stick to its own welfare promises and policies. This is a vicious circle. If the Government is unable to keep its promises it would lose its popularity and might find difficult to face elections. It would then tend to resort to political propaganda and cause mass hysteria thus forcefully shifting the focus of people from the real issues to unreal fears and phenomenon’s such as “grease yakas/devils” or any such monsters.

There has been and there continues to be a false sense of insecurities and articulation or the meaning of ‘patriotism’ in order to galvanise masses and keep them busy with acts of false patriotism. Anyone who opposes the Government would be baptised as being ‘unpatriotic’.

This was a very success propaganda technique in Germany under Hitler. Hitler pursued very ruthless policies and made use of propaganda effectively. He invaded Soviet Union for no reason and people supported him blindly and there was zero resistance to him either because resistors have met their brutal fate or lulled them into submission through coercive tactics.

Finally the tide turned against the Nazis and were being forced to bite the dust and pushed back till Red Army triumphed over Berlin and finally secured its victory over Nazi tyranny. Hitler exploited the difficulties of Germans, especially the galloping inflation, after the Treaty of Versailles and kept the population busy with work related true German idealism and patriotism.

Politics of poverty

A responsible Government cannot turn a blind eye to causes of poverty in Sri Lanka. The crime rate and lawlessness have gone up by leaps and bounds, social unrest is very visible. These are all signs that stem from economic hardships and poverty.

Let’s take a closer look at poverty. UNESCAP, the most common approach in defining an absolute poverty line, is to estimate the cost of a bundle of goods needed to assure that basic consumption needs are met.

As far as Sri Lanka is concerned, the most important component of a basic needs poverty line is usually the food expenditure necessary to attain some recommended food energy intake, incorporating a modest allowance for non-food goods. There are basic assumptions that determine the level of poverty such as ‘calorie consumption per person’, ‘head count index’ or the ‘nutritionally at risk’. These indexes vary from country to country.

The common international poverty line or the ‘poverty threshold’ is usually determined by the total cost of all essential resources that an average human adult consumes in one year. But this does not reflect the cost of housing, economists now tends to believe the basic shelter also causes poverty.

Focus on globalisation has also caused neglect in poverty alleviation measures as governments of the world tend to invest in infrastructure that would provide opportunities for global competition. Governments have been forced to fall in line with global competition in order boosts exports.

The other criticism levelled at welfare state is that citizens would always depend on the Government and there is no real contribution by the efforts of an individual for the economy. Some critics argue welfare state as being a ‘Nanny State’ where government basically “baby” the populace by being in charge of or in control all of its needs and necessities.

(The writer is a freelance journalist and a political lobbying and government affairs consultant.)