Notes on COVID-19: “Covidonomics” and all that

9 May 2020 12:36 am - 0     - {{hitsCtrl.values.hits}}


Less than two years ago, Dr. W.A. Wijewardena, former Deputy Governor of the Central Bank, made the case against budgets that excessively promoted spending: it would put money into the hands of consumers who would spend the bulk of it on imports. H.A. de S. Gunasekara, writing on the balance of payments deficit in 1950, was blunter: 75% of ordinary expenditures were on imports. But if you read some of the prognoses for COVID-19’s impact on us, you’d swear that import substitution is the nail that will lock the coffin, and that it must be rejected. Of the op-eds I’ve read so far, only one has made the case for industry. “Once recovery begins,” writes Dr. Amir Ali, “Sri  Lanka should prepare itself to become a net producer instead of being a net distributor and consumer.” 

In the wake of the pandemic, we’ve had press releases from companies painting a picture of normalcy despite massive pay cuts and layoffs. The messages are rather mixed. Given that many companies are locked into import-driven growth fuelled by conspicuous consumption, investment decisions will be postponed. This is a double blow for a country reeling from the ravages of last year’s Easter bombings and the resultant shrinkage in tourism: with diminishing remittances from the Middle East – oil producing countries may shrink over price wars – recovery can come about only though investment and the private sector will, obviously, not look at that for some time. 

Whether or not the COVID-19 outbreak will lead to the nation gaining pre-eminence is a matter for debate.

Certainly, the ideological shift is discernible. Globalisation may well be on the retreat, if not globalisation of the unipolar, America-led sort. As political scientists all over the world have pointed out, moves towards multilateralism made by China and Russia make it clear that de-linking from the larger world is no longer the ONLY option. Ergo, the argument goes, the answer to the crisis should be, not de-globalisation, but globalisation from another vantage point, probably one led by China, Russia and the BRIC economies. The other option, of course, is a return to an autarky. The problem is that critics of the autarkic model seem to think that it’s equivalent to local industry: that is, to promote industrialisation is to promote autarky and de-globalisation. 

I suggest that the way out is neither de-globalisation nor globalisation but a radical shift of focus to production. This is, at one level, self-evident, and even institutions like the OECD in their reports have laid emphasis on it, but the extent to which it is being neglected in the local economic discourse is astonishing, if not bewildering. The truth is that no greater opportunity to reverse the adverse consequences of the “open economy” has presented itself to Sri  Lanka, the first country in the region to implement “free market” neoliberal policies. By saying that I am not contending we must cut ourselves off from the global economy. But then the one doesn’t imply the other, which is my critique of the anti-autarky thesis: industrialisation vis-à-vis a jathika arthikaya – Gunadasa Amarasekara’s notion of a self-sufficient economy, propagated in the peak decades of the ‘Jathika Chintanaya’ project, in the 1980s and 1990s – does not lead necessarily to a siege economy. 

To know why local industry has become a need of the hour, we need to go back. In the wake of the post-1977 economic reforms, certain sectors grew, and most others declined. The sectors that grew contributed substantially only in the short-term without long-term benefits: construction, banking and trade, all of which were dependent on import liberalisation and the opportunities opened up by it. Manufacturing, largely fuelled by booms in construction, grew by 4.6% in 1979, a far cry from 8% the previous year. “As a result,” ran the Economic Review’s report, “there has been a diversion of resources from production-oriented activity to trade-oriented activity.” If in the colonial era plantations had determined the trajectory of the economy, in the open market phase that role would be taken up by import merchants. 

Sri Lanka’s economy remains dominated by merchant capitalists. In his classic The Political Economy of Underdevelopment, S. B. D. de Silva noted that the reason why the European colonies of Asia and Africa – non-settler colonies like ours, where white populations didn’t predominate at the expense of natives – couldn’t develop was the prevalence of merchant capitalism, in the form of plantations and agencies, which stunted the growth of the economy and let to its stagnation. 

How did Japan grow so rapidly and how did countries like South  Africa and Australia enjoy sustained growth while India and Sri Lanka stagnated? During the Edo Period in Japan, the Tokugawa shogunate broke down the monopoly of the merchants, while in South Africa and Australia – settler colonies, where whites gained the upper hand over the natives by disenfranchising them (South Africa) or decimating them (Australia) – the white population distanced itself from the home country, in this case Britain, and gained autonomy. In both instances, merchant capitalism thrived only insofar as the needs of production capital were met. In Sri  Lanka’s and India’s case, however, merchant capitalism relegated production capital to its needs, depriving the country of local industry. 

The Sirimavo Bandaranaike economy was closed insofar as it implemented land and industry reforms that were far less radical than those being implemented across East Asia: land ownership in Sri Lanka was limited to 10 hectares at a time when the Tiger economies had limited it to two or three hectares, for instance. As Vinod Moonesinghe once pointed out, the use of the word “closed economy” was in itself fanciful, “an emotive creation of neoliberal propagandists, placed by then in opposition to the so-called ‘open economy’.” Sri  Lanka’s version of the regulated economy floundered not because of the flawed vision of policymakers, but because of the unpredicted inflationary pressures from OPEC’s decision to raise oil prices, and interests within the regime that manipulated the economy, something S.B.D. de Silva himself noted in an interview in 2017. 

To be sure, two factors preclude a return to a completely closed economy, which in any case should not be the ONLY aim of the government: the rise of a militant Sinhala Buddhist middle class to whom the notion of a closed economy remains surprisingly ambivalent, and the emergence of a counter-hegemonic world order of an alliance of Third World nations against Western superpowers. 

I differ somewhat with the conventional thesis that the Sinhala Buddhist middle class or bourgeoisie idealised the closed economy since it favoured the majority; if this is true, by the end of the 1980s the Sinhala bourgeoisie had adjusted itself to changing realities, mainly due to a paradigm shift brought about by Ranasinghe Premadasa, who popularised open economy policies among the public. I’ll delve into that later, but my point is that the Sinhala Buddhist Right, if you peruse history, did not just oppose a return to the pre-1977 economy but also had come to believe that, in the pre-1977 configuration, the Sinhala entrepreneur had lost out; critiques of the “closed economy” soon found their way to nationalist parties. Indeed, no less an outfit than the Sihala Urumaya, in 2000, explicitly rejected a closed economy. In its section on the “national economy” (“jathika arthikaya”), the party acknowledged that “going back to a closed economy” was “unthinkable”, and that when in power, it would avail itself “of the opportunities thrown up by globalisation.” 

Globalisation, in today’s context of McDonald’s, Fanta and Coca-Cola, is thus less opposed from the economic angle than it is from the cultural angle by nationalists. You see my point: the “Sinhala Buddhist Alt-Right” as it’s somewhat unfairly called is as ambivalent in its responses to the “closed economy” as “intellectuals” are in their responses to the “open economy.” That should not undermine the importance of local industry. The same goes for the rise of a new global order: not all the counter-hegemonic alliances in the world can conceal the fact that we still import food we can grow here, and that the solution isn’t to continue, but to restructure. 

The way out for countries like Sri Lanka, where merchant capital and import- and consumption-led growth continues to dominate, is not what people and think-tanks dedicated to the preservation of the status quo want. It can’t be Keynesian economics and it can’t be privatisation and deregulation, since a programme of government bailouts to the private sector on the one hand and cooperation with it on the other will in all likelihood lead to the entrenchment of merchant interests in which production oriented activity counts for very little. The answer, ergo, must be local industry. 

Other recommendations, such as finalising the MCC deal despite the fact that the US economy is severely limited in its scope to divert funds to overseas projects, are at best lopsided, and at worst ill-timed. No. The solution can’t be anything other than production; local, industrial, agricultural, and technologically driven production. This does not and cannot lead to a de-linked nation. To think it will is to assume that every jathika arthika endeavour – which is what it should be, with or without the Amarasekara-ist reading of it – is one step towards a centralised autarky. It is not.     

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