The Ranil-Mangala budget and why SLFP must reject it

Mangala Samaraweera clearly reveals that the guiding philosophy of his Budget and indeed of the government’s economic policy is manifestly not that of President Sirisena but rather that of Prime Minister Wickremesinghe when he says “Mr. Speaker…In line with Vision 2025…”

Mr. Samaraweera’s budget is filled with lies, half-truths, dangerous ideas and outrageously treacherous policy suggestions. Its guiding philosophy, just as that of the Government’s Constitutional proto-draft contained in the Interim Report, is that of nihilism. The two are part of the same project of a de-nationalizing Counter-Reformation.

It is a strategic policy intended to cause a tectonic shift in Sri Lanka’s economy and Sri Lanka’s very being and destiny. Its very philosophy intends and denotes a shift from autonomy to irretrievable dependency. It is intended to shift ownership, power, preferences and resources from national to foreign, from medium and small capital to big capital mainly foreign, from the working people including the middle classes to big capital, and from the peasantry to the comprador capitalists.

In other words, it is nothing less than an agenda to roll back all reforms and policies that built up a national capitalism and a national capitalist class (I mean Sri Lankan, not ‘nationalist’) from the early decades of the 20th century and accelerated through the post-independence decades. The Ranil-Mangala economic policy intends to destroy the very basis of such a national capitalism and a national capitalist class.

There is no coming back for this country from Mangala’s Budget if it goes through and is implemented– and fast track implementation is something Mangala is good at. The Ranil-Mangala policy has two main prongs. It targets the national economy and the Sri Lankan peasantry. For decades, dating from Independence but even before, in the days of the Ceylon National Congress in the expanding colonial legislature, under universal suffrage since 1931, the main thrust of Ceylonese economic policy has been the building of a strong Sri Lankan capitalist economy and protect the Sri Lankan peasantry. The Ranil-Mangala policy attempts to roll all that back.

Samaraweera opens his speech with a section entitled “Fast Tracking Liberalization”. He goes on to openly declare that “Mr. Speaker… Sri Lanka needs to liberalize and globalize.” While no sane economic voice today anywhere in the world is against globalization and for nativistic protectionism, no sane economic voice today anywhere in the world argues simplistically for a country to “liberalize and globalize”!”Fast-tracking”neoliberal globalization is precisely what Mangala Samaraweera is talking about.

Any literate politician knows that the problem is not about globalization as such, but about which model of globalization, and that another globalization which isn’t fast-tracked liberal globalization, is not merely possible but underway, with China and the East Asian (state-led) model in the vanguard.

The evidence is in on neoliberal globalization and its time has come and gone. While globalization remains valid and desirable, a certain model of globalization, i.e. neo-liberal globalization, is in crisis and has caused crisis. It is even blamed for the rise of extreme forms of nationalist, religious and cultural backlashes. However, it is precisely this outdated, widely discredited and dangerously de-stabilizing model that Ranil and Mangala seek to foist on us.

Quite apart from the paradigmatic and conceptual fallacy, Mangala plainly says: “Mr. Speaker, while we introduced an open economic policy regime in 1977, in the last decade we have lost momentum, with many of our laws remaining archaic and regressive.” Far from having lost momentum in the last decade, our economy was singled out in 2010 by the Singaporean Deputy Prime Minister (and Defense Minister) of that time as the fastest growing economy in Asia– the fastest growing economic zone in the world– with the solitary exception of China, which was growing faster.

Mangala lists the legislation which Ranil and he hope to gut, and it should be noted that almost all of them fall into the category of legislation passed by two SLFP-led, and more pointedly, Bandaranaike-led center-left coalition governments.

This is legislation that no UNP government chose or dared to touch, and in fact went on to build upon them because they had become part of Ceylon’s/Sri Lanka’s distinctive social democratic development model.

What Ranil and Mangala are trying to do is to scrap all the progressive legislation from 1956, and indeed post-Hartal 1953. This includes Philip Gunawardena’s Paddy Lands Act and Pieter Keuneman’s Rent Act.

“…For example; the Rent Act, No. 7 of 1972 which limits the ownership of houses and the rent to be charged requires amendments; Paddy Lands Act, No. 1 of 1958 and the Agricultural Lands Act, No. 42 of 1973 will be amended to allow the farming of alternate crops; the Shop and Office Employees Act, No. 15 of 1954 will be amended…”

Mangala hopes to tamper with prices and property rights. In his pre-Budget media briefing at which he announced a few modest price reductions he said that “in an open economy there is no place for price controls”.

That not only shows his economic philosophy it also shows how little he knows about economics in general and the Open Economy in particular. He should sit at the feet of Ronnie de Mel and learn why the JRJ-Ronnie model retained price controls. It did not affect the Open Economy at all—which clocked 8% growth in its first years. It was a very conscious choice made by JRJ and Ronnie not to do away with price controls, and to make any change gradualistically rather than as a Big Bang which subjects prices of basics to the vagaries of the market, including the global market. The reason was that JRJ had learned at his cost, just what could happen if food stuffs were not subject to price control—he was a political victim of the Hartal of August 1953. He was determined not to make that mistake again. Mangala plainly does not know the economic history and the history of economic policy-making in Sri Lanka.

This fallacy was echoed and extended in his budget:

“Mr. Speaker…In line with Vision 2025, we need to undertake bold reforms in factor markets in order to eliminate price distortions and restore property rights in accordance with market principles aiming at promoting faster and sustainable growth. Capital market reforms to capture its full potential are imperative for ensuring high growth over the medium-term and beyond. Without proper ownership of land and property, no country could achieve faster growth ensuring prosperity for all. In this context the country’s land and property ownership issues need a careful and urgent appraisal. Country’s labour demand against the constraints on labour supply requires a closer examination of all areas of the labour market including labour laws, to pave the way forward to harness the productive resources of the economy.”

There are four clear targets here. Firstly, prices, which we already discussed. Secondly, the various measures that made ownership more egalitarian, more national, and shifted it towards both the national middle classes and the poor. This is true of the peasantry/agriculture and lands and the urban poor and middle classes i.e. housing policies. Thirdly, labor laws, which Ranil and Mangala wish to alter, so that wages are no longer protected and the playing field is heavily tilted in favour of capital, especially big foreign capital. Though intrinsically desirable, his chatter about flexible hours for women workers is a disguise for commencing total deregulation of labour which in turn will drive down wages.

Fourthly, the capital market. The East Asian crisis of 1997 which Mahathir Mohamed’s unorthodox policies saved Malaysia from, clearly proved that opening up the capital markets means extreme vulnerability to market manipulation and “hot money flows”, which can suck out a country’s capital, de-capitalize a country, leaving it an empty shell. Ranil Wickremesinghe tried to introduce capital market liberalization in 2001-2003 but mercifully he was turfed out. Now Mangala and he are back at it!

The Ranil-Samaraweera model hopes to de-industrialize Sri Lanka and shift it to trading and commerce, rather than industrial and agricultural production as well as industrial production based upon agriculture (the Chinese lift-off strategy under Deng Hsiao Peng).

“Mr. Speaker …The dormant spirit of competitiveness must be reawakened to make Sri Lanka the trading and the commercial hub it deserves to be. The country needs to shift away from being more protectionist and inward-oriented. Sri Lanka’s border measures need to see a complete revamp through well-targeted and time-bound trade reforms promoting growth. Our over dependence on non-tradable drivers challenges growth in the coming decade.”

“We have tried many strategies including protecting local industries through tariffs. We have legislations that do not allow foreign investments in certain sectors. Perhaps, most of all, our complex labour laws and bureaucracy have unwittingly obstructed foreign enterprises from entering into the country, thereby, preventing the much needed competition for the local industries. Trade reforms are integral to national competitiveness. Let me say this, competition breeds success. It tests our limits and forces innovation. As such, let me assure our local private sector, our Government’s policy of entering into Free Trade Agreements (FTA) and the removals of para tariffs should not be viewed as a threat to our local industries. The para-tariffs applicable on the tariff lines which do not at present carry any Customs duties will be abolished within the next 3 years in keeping with our policy of liberalizing and globalizing.”

Even the Blue-Green economy is the equivalent of the central bank bond scam. An island must build up its shipping and push outward into the sea-lanes. Instead the Ranil-Mangala vision is merely to convert it into a port of call, and a place where ship building is not local (we built our own fast attack craft) but foreign owned. Note also that there is no mention that the “independent port regulator” will be totally national/local—it could very well have foreign involvement with grave national security and strategic consequences.

“The Sri Lanka Ports Authority Act, No. 51 of 1979 and the Merchants Shipping Act, No. 52 of 1971 will be amended to cater to the demands of the modern day logistics and marine industry. This will also ensure healthy competition, an independent Ports regulator will be introduced. Restrictions on the foreign ownership on the shipping and the freight forwarding agencies will be lifted. This will enable major international shipping lines and logistics operators to base their operations in Sri Lanka.”

“As I already mentioned, we will remove restrictions that limit the land ownership rights of listed companies with foreign ownership together with the restrictions on foreigners’ ability to purchase condominiums below the 4th floor.”

The Ranil-Mangala Budget is one of a completely, totally Open Economy; a wide-open economy, unregulated and unprotected. It is not the Open Economy strategy (JRJ-Ronnie-Premadasa) that is at fault but this crazy cowboy version of it; this is an Open Economy on crack or worse, Fentanyl. What this will achieve is the wrecking of a Sri Lankan industrial capitalist class and the development of a manufacturing base, which are the twin factors at the heart of the Malaysian, South Korean and East Asian miracle as a whole.The Mangala Budget and the underlying Ranil-Mangala strategy completely change the goal and aim, the very project and path, of Sri Lanka’s bipartisan economic policy since Independence, from one of (national) development to (mere) growth. Overall what is intended is a shift to foreign ownership which will crowd out all the national social classes. It must be resisted tooth and nail. The SLFP must rebel against it.

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