Can elitist ‘economic’ summits really help reduce inequality?

A leading private sector business chamber will be holdings its annual ‘economic’ summit yet again this week. The event will provide Sri Lanka’s socialite businessmen yet another chance to be photographed with their fellow corporate buddies, and not-so-secret partners-in-crime; the politicians.
Of course, a dozen or so plenary sessions and speeches to further the capitalist agenda of monopoly, mercantilism, globalization, automation, unemployment, mindless consumerism, and austerity for the common folk will be on high display, along with the attendees’ designer suits, dresses and sarees, and would be made somewhat sweet for the digestion of the plebs by sprinkling a few words of corporate social responsibility on top.

Perhaps these hedonistic modern-day slave masters sincerely believe that giving back a few rupees in wages and donations after sucking out millions and piling on their private risks on the nation through their dealings with the rogues in Diyawannawa, would be fair. As always, they will politely clap at the end of each session, before taking up the whip and returning to their daily routine the following day.

This year, there will be one session on the ‘Greener Path’ and the sustainable development goals. While commendable, one has to wonder how far this discussion will go before the crowd starts murmuring about their donations during the floods and droughts, and their tree planting campaigns as adhering to the green principle. Charity is praiseworthy, but totally irrelevant to any company attempting to become sustainable.

Income puzzle

Meanwhile, this weekend, Public Enterprise Development Minister Kabir Hashim gave a reminder of the true objective of economic management.
“We believe in the free market economy. We believe in the social market economy. We need to begin more equity, and that’s what we believe we need to do. We need to balance incomes, we need to bring down disparities, and give everybody an equal chance,” he said.
Those who believe in the free market tend to forget the rest of the explanation given by Adam Smith when advocating this system. 
“Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it,” Smith said.
This in itself explains that the free market system could cause distortions in the economy due to the selfish nature of economic agents. The social market economic model was introduced in order to create safeguards for the society stemming from the ill-effects of the free market.

"Why are they lobbying so hard for preferential trade agreements, which actually contribute to regression in the global trade nexus, by disrupting free trade flows and promoting inefficient utilization of resources?"

But even in Germany, where the social market economic policy is practised so fervently, the system has only managed to keep income inequality from degrading further, at an uneasy equilibrium, instead of reducing the gap.

Inequality is the greatest economic issue facing the world today. Even in Sri Lanka, it could be argued that except for the almost insurmountable debt problem, income inequality is the most acute economic problem. How far do these so called summits contribute towards this? These business chambers may argue that the lack of growth through exports is what holds the country back from paying back its debt and achieving greater prosperity, and that addressing this is also required for firms to pay their employees better.

This theory could almost hold water, since even Thomas Piketty says that increased growth reduces inequality - although the accumulation of wealth, especially among the top executives and capital owners grows faster and Piketty advocates taxing them heavily to account for the disparity.
Even IMF staff papers published in 2014 show that increased trade and globalization in today’s world has only served to uplift underserved segments from abject poverty into poverty, with very little progress beyond that.

How many members of these business chambers are lobbying to have themselves taxed further to account for inequality? The US city of Portland is adopting a law-based on Piketty’s principles where a company paying its CEO over 100 times the median salary of its median employee salary will be charged super taxes. Piketty responded saying that the ratio should be considerably lower. Perhaps this ratio should be in the range of 1:5 or 1:10 and should be extended to each of the top executives in a firm.

It makes enormous sense to give a greater share of the economic pie to the, sections of society shedding their blood sweat and tears to fatten the wallets of their masters since this will increase the marginal rate of spending within the bottom 90% of the income pyramid, thus leading to greater economic growth. 

After all, for the minority of hedonists earning hundreds of thousands or millions a month won’t spend much if their income increases by Rs.100,000 but for the millions earning less than Rs.30,000 - 40,000 a month, such an increase would be ground-breaking. 

Perhaps these business chambers should be lobbying the private sector for much more attractive salaries and working conditions for these workers instead of complaining about the 
lack of labour.

No transparent trade negotiations

Setting this aside, these chambers’ export promotion argument’s main points of working towards tariff liberalization, preferential trade agreements, and trade facilitation, seem to be at odds with each other. Why lobby for tariff liberalization and preferential trade agreements simultaneously?

If tariffs are liberalized, there would be no need for preferential trade agreements. Perhaps these calls for tariff liberalization - the goal each country should work towards - are just lip service, knowing that the cash strapped government would not do this.

Why are they lobbying so hard for preferential trade agreements, which actually contribute to regression in the global trade nexus, by disrupting free trade flows and promoting inefficient utilization of resources? Trade agreements in the long-run could lead to a country continuing to import from high cost, inefficient producers and exporting inefficiently produced goods by excluding other economies from these agreements.

"Perhaps these calls for tariff liberalization - the goal each country should work towards - are just lip service, knowing that the cash strapped government would not do this"

One has to wonder how much of a benefit Sri Lanka would get from these agreements, given that trade between countries Sri Lanka has signed agreements with is greater outside the trade agreements, than within them. It is however clear that the other countries are fighting for the much more attractive prize of the control of the Indian Ocean, by having Sri Lanka’s economy dependent on them.  Also, is it coincidence that the membership of these trade chambers includes monopolies and oligopolies which rose to the top based on protectionist tariffs imposed through political influence? Who would bet against an outcome where these industries could be in the negative lists of the preferential trade agreements being negotiated? 

Why should these trade chambers get a seat at the negotiation table, while the public are not given details on the key points and progress of negotiations, which could tie Sri Lanka up with another country, with deep economic and diplomatic repercussions attached to attempts at exiting such arrangements if they become harmful?

Inconsistency abound

It is also dizzying to comprehend why these business chambers call for policy consistency from the government, when their members can’t follow such a principle themselves. While some of their members call for trade liberalization, others call for import protections and price floors.
Isn’t it weird that Former Finance Minister Ravi Karunanayake said that just 25-30 hotels pay taxes? There are around 600 hotels. Perhaps these trade chambers should clean their houses first before asking the government, which too is similarly made up of parties with differing viewpoints of cleaning itself up.

If the event to take place this week were really an ‘economic’ summit, most of the discussions would be centred on how to create a better economy for the normal Sri Lankan by reducing inequality and creating a symmetric information system. But instead would it continue to lobby politicians to further the perverse capitalist agenda?