Is Sri Lanka sinking and Ranil Wickremasinghe’s conservative economic thinking a thing of the past?

“I don’t have to pretend to be who I’m not. My Labor party doesn’t have to pretend who it is not. Isn’t that one of the great challenges of leadership? It is hard to lead a nation when you have to pretend to be something that you’re not.” – Australian Labour Party Leader Bill Shorten

By Raj Gonsalkorale

Prime Minister Ranil Wickremasinghe should perhaps take a leaf from what the Australian Labour Party Leader Bill Shorten said at a recent National Press Club speech. Mr Wickremasinghe though has to be given credit for not pretending to be who he is not. He has always been a conservative when it comes to his economic thinking.

He has been and still is embedded in what Australian experts are now saying according to what Lenore Taylor has written in the Guardian that “Australian thinkers, and political parties, have been grappling with a growing wave of thought that the economic challenges of the 2010s cannot be solved by the old 1980s political consensus – the consensus that said economic growth is best achieved by market deregulation and lower taxes and lower spending that generate growth, and allow “all boats to rise” by providing the revenue for governments to pay for social programs and do something or other about poverty”.

Perhaps he is not disposed to rethinking as others in Australia and major economic institutions elsewhere have done that rising inequality harms growth, that smart social spending is not the kindly thing governments do after they raise the revenue, but rather as a first order revenue-boosting exercise in itself, and asserting that governments need to intervene more to get their economies through country’s in economic transition.

Institutions like the IMF, which Mr Wickremasinghe is approaching for a standby loan, have also changed their view as they have said that if the income share of the top 20% (the rich) increases, then GDP growth actually declines over the medium term, and that the benefits do not trickle down as promoted by conservatives stuck to the 1980s thinking.

In contrast, it is increasingly becoming the flavor of economic thinking that an increase in the income share of the bottom 80% (the poor) is associated with higher GDP growth.The poor and the middle class matter the most for growth,” an IMF discussion paper said.
The OECD is preoccupied with inclusive growth, too and hasstated “The linkages between the productivity and inequality challenges are still to be fully explored,and that the linkages between the productivity and inequality challenges are still to be fully explored, and each may have its own solution, but there is also good reason to think that there is a nexus between them.”

Australian writer George Megalogenis in his latest quarterly essay reaches a similar conclusion. “The debate we have to have is on the role of government in the economy,” he writes. “It is being forced on us by the market failures of the twenty-first century.
“The political system cannot restore public confidence without a more responsive government. And the economy won’t stabilise without a more active government. The default setting of politics in the twenty-first century – to trust in the market – has proven to be bad economics. Its starting point was that inequality is an impediment to growth, which means spending money on schools and universities and hospitals and employment programs are economic, as well as social, investments”.

The problem for Mr Wickremasighe is that he is part of a coalition with a minor section of the SLFP unable to be who they are, as they are with Mr Wickremasinghe, who is an avowed conservative, and as they wish to be, but cannot be, with the leader of the major section of the SLFP, Mahinda Rajapaksa who is a liberal populist.

Mr Wickremasinghe therefore has to be a very uncomfortable person as he too cannot be who he is and he has to pretend to be who he is not.

This dichotomy is harming Sri Lanka immeasurably as all current economic indicators are showing. Despite all the public utterances and postulations by the President, who seems to be grappling to be who he might be, as no one really know who he is, and the Prime Minister, that their good governance “yahapalanaya” government will deliver the goods from an economic perspective, it is looking extremely unlikely that it will, considering the fundamental differences in political ideology between the UNP and the SLFP.
The SLFP has always been for a bigger government, and therefore government intervention in economic matters, social spending in education, health and welfare and for a greater emphasis on the 80% who account for only 20% of the wealth.

More than any other SLFP leader, former President Mahinda Rajapaksa demonstrated this by expanding the public sector, providing far reaching concessions for farmers on agricultural inputs, on irrigation projects, increasing spending especially on education to develop schools at provincial and grass root level, and at the same time investing heavily on infrastructure like roads, bridges, airports, sea ports and power generation projects, which by themselves are more structural economic enablers rather than revenue generation projects or they are such projects with a long term gestation and return on capital.

Mahinda Rajapaksa’s economic vision and actual delivery cannot be faulted in conceptual terms, although the means to the end may be questioned in some instances.

At the end of the day, it is a fact that there are better roads and means for producers of goods to get their produce efficiently from the areas of growth to the points of sale. There are roads that help the tourist industry, a big generator of national income.
The power generation during his tenure improved vastly and it began helping industrialists to run their establishments with more certainty. Irrigation projects completed, and others under construction were helping farmers to irrigate vast amounts of land for agricultural purposes.

Spending on education was beginning to produce results at provincial level with the Mahindodaya project providing state of the art technical and chemical laboratories for rural students and providing them opportunities to compete with more established educational institutions in the bigger cities.

Expansion of Ports has paid dividends and although not marketed properly as the centre of a tourist hub encompassing the South and the East of the country, the Mattala airport is bound to provide a substantial return on investment in time to come.
The current regime is acting like a human with two hands and two feet that do their own thinking as there is no single brain to do that.

Sri Lanka appears to have come to a cross road. Either some of the SLFP members in the government should adopt Mr Wickremasinghe’s conservative political ideology, and its possible strengths and pitfalls, and join the UNP, and stop pretending to be who they are not, or they should join Mahinda Rajapaksa’s liberal and populist SLFP and stop being who they are not.

The SLFP has no future under President Sirisena who is yet to decide who he really is, and in any event as he has stated publicly that he is only a one term President. Unless he has an ulterior motive to be the next Prime Minister, it would be foolhardy and pointless for SLFP members to rally round him. If Mr Sirisena’s intention is to prevent Mr Rajapaksa from regaining the leadership of the SLFP, he should promote a suitable person to become the President of the SLFP and guide its destiny, and be an alternative to the UNP.

The current impasse must end for the good of the country. The country must invest in the bottom 80% who owns only 20% of the wealth. Sri Lanka can be categorized as a transitional economy considering it is just emerging from 30 years of terrorism and a debilitating war, all of which had taken a heavy toll on its economy, its governance structures and its social fabric. It is now being accepted by many reputed economists that conservative economic policies do not work in transitional economies. President Mahinda Rajapaksa’s economic policies and management, with all its shortcomings, showed that he was in alignment with this thinking.

Courtesy Asian Tribune