Saturday, December 13, 2008

Is the economy important?

I have been having an on-going debate with a number of people on the economy. Debate on this subject tends to include the war, because it is a very important factor in any discussion on the subject, but as a result the discussion tends to get unnecessarily heated and taken off track. This is not helped by the fact that the subject is complex and terminology obscure. Because of this economic policy tends to be viewed by some as an abstract, distant and unreal.

Is this really so? And does the man on the Galle Road or traveling in the 138 bus have no interest in the matter?

At the outset let me state that I am no economist. I have done some rudimentary study of the subject but I am by no means an expert and therefore am quite open to correction.

Returning to the question, what exactly is the economy? In short it is the living standard of people. People fortunate to live in rich countries enjoy a lot of things that those in poor countries do not. They have a far wider selection of goods and services to enjoy. These range from foodstuffs, to entertainment, to recreation, to the arts, to sports, in short to a lifestyle. Not everyone enjoys these equally and there is plenty of poverty and misery in rich countries but a majority of people are able to lead better lives.

There is legitimate debate on the quality of life, that more does not necessarily mean better but man is a base creature and the satisfaction of base cravings will bring pleasure, even for a while. There is also the important factor of choice. There are many different paths that the people of rich world may tread. They may chose the the path of the ascetic, live simple frugal lives on wholesome organic produce in idyllic rural settings. They may chose the path of gluttony and greed, gorging themselves on cheap junk food that leads them to obesity, ill health and an untimely death.

The important thing is the choice is actually there to be made. One is not locked into a single rutted grind of constant poverty.

Look back to the 1970's in Sri Lanka when living standards were far lower, when there was no television, when a radio or an electric fan were considered luxuries. A time when imported goods of any description were very scare and travel abroad was a rare luxury. A time when almost everything was rationed from cloth to basic foodstuffs and shortages were rife. Produce was bought largely at the co-operative shop, on the production of a ration card and people grew as much vegetables at home so that they would have something to eat.

A friend related an incident from the time. There had been a shortage of soap. (since foreign exchange was strictly controlled imports were difficult and factories were forever short of raw materials, scarcities were common). His father had known someone working at the (now defunct) British Ceylon Corporation (BCC). They produced soap under the such delightful brands as Night & Day, Sno-Wite and most famously Sovereign Bar soap, which was a washing soap that was a about two feet long. My friends father had managed to obtain a number of cakes of soap which they had stuffed into a cardboard box and they were taking it home. On the way the box broke and the soap was scattered around the bus and their fellow passengers had been exclaiming "soap", "soap" almost as if it were manna from heaven.

That was poverty, of 25% unemployment of shortages, of a GDP of US$200 or US$300. In a strange way society was slightly better because inequality was not a big problem. The majority of the people were struggling, the rich were a tiny fragment of society and even they were not so rich and in anycase they faced much the same struggle with daily necessities.

That was what was left behind by growth and that is why the economy is important. Compared to the drudgery of the 1970's, people of today enjoy vastly better standards of living.

That was in the past. Now things are better, so what is the problem? The danger is that things can slip back. Stagnation will lead to increased unemployment which will cause a lot more stress than in the old days. People who enjoy a certain standard of living will feel their lifestyles changing, their quality of life degrading, their choices diminishing. This is made worse all the glitter of the things that are flashed before their faces and which they cannot have, but which they once might have had, at least occasionally. They also see a select few enjoy much much higher living standards. This will cause of resentment, discontent and possibly social unrest. The Banlieues of France did not erupt for nothing.

But surely all this is far-fetched I hear the critics say? We've left this behind, there is a temporary dip but as soon as the war is won we will be alright.

Unfortunately it is not so simple. The problems of the economy are deep seated and fundamental. The makers of policy have dug a pit so deep that it will be extremely difficult to get out of it.

I keep looking with horror, to Zimbabwe. Once the breadbasket of Africa, now a basked case (in the words of no less a person than Desmond Tutu) in the span of twenty-odd year. This is the most extreme example, but there are plenty of others; Pakistan for instance or in many other places in Africa or Latin America where similar short-sighted policies have wracked havoc with the lives of people raining, misery, poverty and destruction on millions.

That is why the economy is important. It is what life is largely about.


indi said...

In Zimbabwe they're dying of cholera because raw sewage is flowing in the streets.

The economy isn't important until it's down, and then it's on everyones minds. Especially average people who live hand to-mouth. They feel these little dips as crashing waves.

Economy is life, and people who say it's not are just riding some weird Sarah Palin anti-intelligence argument. Which is stupid.

Me said...

Most of lunatics who claim that the economy isn't important are usually and ironically slaves of the economy in real life. The so called "middle class" if you will. The local university graduates who demand that the government for jobs. The public sector workers who think they're the most pristine individuals of the whole wide world. Etc.

Sheltered by their employers, they live in a romantic world where reward is alienated from effort.

The tragedy is that after 30 years of free economy, people still have the same socialist ideologies of 1956. The language barrier is not what's holding us down, it's the lack of knowledge about capitalism, free will and choice.

PseudoRandom said...

"...there is a temporary dip but as soon as the war is won we will be alright."

I think we'll be ok if a sound economic policy is implemented upon completion of the war. The problem is that our people seem to be split into two groups (I'm generalising here, but it's just to illustrate a point) - the business-minded minority who drive the corporate machine and can therefore help effect change, and the hand-to-mouth majority who don't care about global markets etc. as long as bread and rice are cheap. I am yet to see a policy that appeals to both these factions. And forced to choose between the two, all political parties will choose the group that keeps them in power, rather than attempt a compromise.

Jack Point said...

Pseudo Random,

true. This requires some competence in this matter, which we are yet to see. In fact, even with the war we would be much better off today if the government had not spent merrily all this time, borrowing and printing to finance the spending.

human said...

I think for most people 'winning the war' sounds much more exciting than 'developing the economy'.

Some might say "..That was in the past. Now things are better, so what is the problem?.." I think that would only apply to a small number of relatively lucky people living in places like Colombo. But for a farmer living in a rural area or a plantation worker things aren't much better.

While there are fewer people living below the poverty line, For most Sri Lankans working conditions are really bad, they don't get good health care and their children don't get the same kind of educations that the relatively well to do kids in places like Colombo are getting.

I think it works like a cycle. Without good education and a a decent quality of life,people don't even realize what they are missing. For most such people the state media is the only source of information. So they can be easily fooled by politicians who say the Economy is doing fine and war is the solution to all their problems. They keep voting for crazy politicians and then they go back home and continue their struggle for the next meal.

Jack Point said...


"I think for most people 'winning the war' sounds much more exciting than 'developing the economy'.


It grabs, headlines, makes people feel good and distracts from more fundamental and difficult problems.

A dream product in marketing parlance, from a politician's point of view.