Sunday, August 30, 2020

Sri Lanka's import substituting economic policy

Sri Lanka seems set to return to policies of import substituting production.  I started reading Dr Eamonn Butler's primer on Adam Smith this morning and the opening paragraphs describe perfectly the current thinking in Sri Lanka: 

"The old view of economics

So much did Smith change our ideas, indeed, that it is hard even to describe the economic system that prevailed in his time. Called mercantilism, it measured national wealth in terms of a country’s stock of gold and silver. Importing goods from abroad was seen as damaging because it meant that this supposed wealth must be given up to pay for them; exporting goods was seen as good because these precious metals came back. Trade benefited only the seller, not the buyer; and one nation could get richer only if others got poorer.

On the basis of this view, a vast edifice of controls was erected in order to prevent the nation’s wealth draining away – taxes on imports, subsidies to exporters and protection for domestic industries. Even Britain’s own American colonies were penalised under this system, with disastrous results. Indeed, all commerce was looked upon with suspicion and the culture of protectionism pervaded the domestic economy too. Cities prevented artisans from other towns moving in to ply their trade; manufacturers and merchants petitioned the king for protective monopolies; labour saving devices such as the new stocking-frame were banned as a threat to existing producers."

What Smith set out to do was to show that the: 

"mercantilist edifice was based on a mistake, and was counterproductive. He argued that in a free exchange both sides became better off. Quite simply, nobody would enter an exchange if they expected to lose from it. The buyer profits, just as the seller does. Imports are just as valuable to us as our exports are to others. We do not need to impoverish others to enrich ourselves: indeed, we have more to gain if our customers are wealthy.

Given the essential truth that free exchange benefits both sides, Smith maintained that trade and exchange increase our prosperity just as surely as do agriculture or manufacture. The wealth of a nation is not the quantity of gold and silver in its vaults, but the total of its production and commerce."

To be fair, Sri Lanka is not alone in turning its back on free trade, Smith's insights are important because they are counter intuitive. We don't need to look back to Adam Smith however, we can learn from our own experience. Sri Lanka tried similar policies between 1956-77 that did not succeed but that took place over two generations ago. We may end up repeating the mistakes of the past, but given weak economic conditions and fractured society I don't know if we can afford to make any more mistakes.




Friday, August 07, 2020

On Totalitarianism

 My friend Sven Gerst sent me some interesting thoughts on totalitarianism that I thought were worth sharing. He says that when he teaches populism he also includes some aspects of totalitarianism because he thinks there is much to learn from totalitarianism.

The politics of Sri Lanka are convoluted, one dynamic being a conflict between the older feudalism of society and modern constitutionalism, but studying these various systems is quite useful to deciphering some of the local complexities. The very last paragraph in particular - think of the MCC Agreement, the Shafi affair for example seems very apt. Dayan Jayatilleka, raises some interesting points on the subject in his commentary.


Totalitarianism is most accurately defined as the idea that exercising control and direction over every aspect of the lives of a society’s inhabitants will yield the best of all possible futures. For totalitarianism to succeed in establishing itself, two preconditions are required. The first is widespread psychological dispositions that make society susceptible to totalitarianism’s temptations. The second is the skillful use of manipulative propaganda. Once put into practice, totalitarianism is a ruthless, all-encompassing socio-political force, intolerant of loyalty to anything but itself. This is the antithesis of the constitutional republics and parliamentary democracies that are the models of modern Western government.


Totalitarian regimes begin in mass movements, but it should be noted that not all mass movements are totalitarian. The American Civil Rights movement was a mass movement and undoubtedly a hugely positive force for urgently needed change. Mass movements typically coalesce around political or cultural narratives and causes that draw people together from broad segments of a national population. In The Origins of Totalitarianism, Hannah Arendt observed that the masses have very little in common in terms of interests or politics, but that a mass movement can bind diverse groups of people together with common goals and grievances. In practice, however, it is not always easy to distinguish a totalitarian from a benign mass movement at inception. The main distinction between the two is in the all-consuming nature of the totalitarian variant. The Nazi movement aimed to deprive the people of any facet of life outside of an exclusive commitment to its mission. In fact, the Nazis, the Bolsheviks, the Maoists, and the Jacobins all sought to radically remake society by compelling every last individual to become nothing more than a cog in their revolutionary machines. Any life outside of political life was seen, by the movements’ elite leaders, as not only superfluous but suspect and as a challenge to the movements themselves. [SG: That's a Schmittean insight] Even morality and reason are subordinate to the cause. 


[...]


Eric Hoffer began his book The True Believer: Thoughts on the Nature of Mass Movements by pointing out that all mass movements are partly born of a desire for change in personal and social circumstances—totalitarian movements are no different. The individuals who are most susceptible to joining mass movements are characterized by loneliness, hopelessness, self-disdain, disappointment, and boredom. People who are contending with those kinds of feelings are initially attracted to the novelty and excitement of a mass movement, and quickly come to identify in it those aspects of their lives that are missing. In societies accustomed to progress, people who are actively dissatisfied with their personal and professional lives are especially susceptible.

In his book A People’s Tragedy: The Russian Revolution 1891–1924, Orlando Figes pointed out that, for the revolutionaries, the most appealing thing about joining the revolution was not the promise of improving society, but rather the “sense of ‘wholeness’ which might give higher meaning to their lives and end their alienation from the world.” Arendt likewise noted that mass movements thrive in societies that have experienced social atomization because this laid the groundwork for “self-abandonment into the mass” and “the passionate inclination toward the most abstract notions as guides for life.” An appealing mass movement creates the chance for the disaffected individual to lose the unhappy person that they are and remake themselves anew as a part of a seemingly benevolent mission.

[...] 

Humans are social creatures, but we also have strong tribal tendencies. It turns out that how we self-identify is closely related to the cultural groups with which we associate. In his essay “The Dangers of Tribalism,” the philosopher of science Kevin deLaplante argues that our ideas, knowledge, and values are largely shaped by our individual sense of tribal belonging, and it’s this perception of belonging to particular groups that provides the context from which we draw much of our self-esteem as individuals.One of the most relevant forms of tribal identity to have emerged in America in recent decades is partisan identity. In her book Uncivil Agreement: How Politics Became Our Identity, Lilliana Mason argued that partisan identity is more important to individual partisans than the actual issues. In fact, partisans often maintain their political identities in the face of contradictory policy positions. In the US, competing partisan identities have grown increasingly divergent since the 1980s as citizens have been sorting themselves into mutually exclusive geographical and cultural tribes.


....


A permanent feature of democracy accounts for much of what is potentially threatening about America’s relative political ineffectiveness as well as its fascination with social discord. In The Authoritarian Dynamic, Karen Stenner [SG: if you buy one book, buy this one] argues that about a third of people in Western liberal democracies have an authoritarian personality. People with this personality profile exhibit strong preferences for “unity and conformity” in society. They want society to believe in the same values and norms and they are avoiders of complexity. This type of personality is manifest in intolerant behaviors and attitudes, activated by perceived threats to “unity and conformity” in society. Accordingly, exposing authoritarians to a diversity of beliefs and the failure of political leadership to inspire the confidence of the citizenry, makes them less tolerant of any kind of differences in society. When authoritarians are experimentally exposed to news of social discord, they are much more likely to favor banning dissident political speech and to crack down on immigration.

This is a source of danger for democratic governments, which depend for their legitimacy upon the consent of the governed. Distrust in government as well as in the institutions of society allows totalitarian movements’ propaganda to thrive. Any information that is mysterious, hidden, secret, or granted attention by mainstream society offers a potential basis for totalitarian propaganda. Disaffected people want to escape from reality, but they also yearn for a consistent narrative—a desire that can be satisfied by movement leaders peddling paranoia and intrigue. It can be the inner workings of the Democratic National Committee or explanations for disparities in outcomes and other forms of potential social injustice.


Thursday, August 06, 2020

The role of the opposition

The election is over and although the results are not yet clear, victory for the SLPP is certain. The only matter in doubt is the size of majority and whether the necessary numbers to muster the two-thirds of seats needed to amend the constitution can be obtained.

What then should the opposition do? Should it view its role as simply to oppose everything the government does? Out of disappointment and frustration it is tempting for opposition members to be obstructionist and oppose every single thing the government does, good or bad. Opposition members may realise that the country faces a deep crisis and may imagine that by obstructing necessary reforms-tax increases, privatisation or spending cuts for example that they will push the country into a crisis which can lead to them ascending to power.    

Not only is this view short-sighted, it is also selfish and immoral because it places the interests of the opposition members ahead of the interests of the people they are meant to represent.

"Guidelines on the rights and duties of the opposition in parliament", a document unanimously adopted by the participants at the Parliamentary Seminar on Relations Between Majority and Minority Parties in African Parliaments (Libreville, Gabon, 17–19 May 1999) sets out some duties that are summarised below. 

The most important is that they must offer alternative programmes to what the government is doing. It is not simply a matter of opposing, they must also offer an alternative plan to whatever is being proposed. An alternative tax or investment policy for example.  

"The opposition in parliament has a duty to offer voters a credible alternative to the government in office to make the majority accountable. To be a credible alternative, however, the opposition must also be ready to exercise the responsibilities to which it aspires on a lasting basis. In other words, it must have a programme which it is ready to implement." 

The programmes need to be properly thought out and be ready to implement, meaning it must not just be an idea, practical administrative aspects must also be worked out.

"In democracy, political life is enriched by free competition of political programmes; it is impoverished by rivalry based on personal ambitions which merely disqualifies it in the eyes of public opinion.... It must engage in constructive and responsible opposition by making counter-proposals. In its action,
the opposition must not seek to hinder pointlessly the action of the government but rather endeavour to encourage it to improve such action in the general interest. " 

They need to act on the basis of principle within the basis of a moral framework, including elements like honesty and compassion.

The three guiding principles for public policy that should inform all their actions are:

1. Minimising suffering.
2. Fighting tyranny.
3. Promoting tolerance

(Taken from here)

J R Jayewardene's government with a 5/6th majority was notorious for its abuse of power. There is always a danger that a super majority can lead to tyranny, the opposition needs to stop it; by highlighting and campaigning against the abuse of power and oppression. It must speak for those who have no voice, the weak and the vulnerable. In this there must be no compromise, it must be unwavering and tenacious. 

The lack of principled opposition has been one of the causes of the destruction of democracy in Sri Lanka. Instead of offering credible alternative programmes or constructive criticism opposition parties have resorted to populism and ethnic outbidding to score political points.

The UNP looks set to lose badly in this election. There is an opportunity for the SJB to take its place but to be effective they need to start afresh, eschew cheap populism and build a principled opposition.





   


 

Hayek on economic Freedom and Security

In the chapter on Freedom and Security in the Road to Serfdom, Hayek observes:

"the policies which are now followed everywhere, which hand out the privilege of security, now to this group and now to that, are nevertheless rapidly creating conditions in which the striving for security tends to become stronger than the love of freedom. The reason for this is that with every grant of complete security to one group the insecurity of the rest necessarily increases. If you guarantee to some a fixed part of a variable cake, the share left to the rest is bound to fluctuate proportionally more than the size of the whole."

He was of course speaking of economic freedom, the freedom to engage in productive activities of our choice but it seems quite apt for the politics of Sri Lanka.

The problem he argues is that if economic security is to be guaranteed society must be organised on military lines. 

Tuesday, August 04, 2020

A watershed election

I have been reading John Richardson's Paradise Poisoned, an excellent book on conflict and development.

It uses Sri Lanka as a case study and traces important events in post-independence history to build a model of conflict. One of the most useful aspects is that gives proper weight to the economic problems and the role that they played in the development of the conflict.

I was struck by the similarities between tomorrow's election and the one faced by Dudley Senanayake in 1970.      

The election of 1970 marked a watershed. Mrs Bandaranaike swept away the government of Dudley Senananayake to be elected the Prime Minister for the second time. Dudley is said to have muddled through between 1965-70, trying to find a middle path and compromising with different forces in parliament. From the little that I have read, Dudley did seem to have carried out a difficult balancing act with relative success, a far better overall performance than the shambolic Yahapalanaya government which is it's present day equivalent.

Mrs Bandaranaike remade Ceylon in her own image with the new constitution; renaming the country, granting prominence to Buddhism, eliminating the upper house of parliament, abolishing the right of appeal to the Judicial Committee of the Privy Council in London and judicial review of legislation.

We face a similar moment today as the Rajapaksa family ascends to power. Like Mrs Bandaranaike 1970 they do so for the second time and like her, they promise to remake the state.

AJ Wilson, writing about the new government of 1970 said:
 
"first, the Senanayake-type Westminster-style constitution' which gave a certain entrenched status to the United National Party (UNP) will now be replaced with a Bandaranaike oriented indigenous type structure that will be advantageous to the Sri Lanka Freedom Party (SLFP) and its marxist allies, the trotskyist Lanka Sama Samaja Party (LSSP; Ceylon Equal Society Party) and the Ceylon Communist Party (CP-Moscow), and will provide a socialist orientation to the island's economic development; second, the public sector will consequently have much the dominant role in economic development; and third, a foreign policy will be evolved which is not necessarily anti-west but is more deliberately contrived to obtain economic benefits from both blocs"

Fifty years on, the country finds itself at almost the same place, with similar issues being debated. At the time Prof Wilson was confident to asset that "fears of Ceylon going totalitarian are mistake". Although it did not become totalitarian, the government of the day did become increasingly authoritarian. 

We shall have to see what fate ultimately brings but make no mistake, this is another pivotal moment.