This Is A Crisis Of Socialism, Not Capitalism

Reagan and De Mel

By C.J. Amaratunga –JANUARY 23, 2022

C.J. Amaratunge

It is now obvious that Sri Lanka is facing a severe economic crisis. Many people also talk about the way out of it. To find the way out, at first, we should understand the crisis. That is “What is this crisis?” and “what is the cause of the crisis?”

On the one hand, this is a clearly identifiable crisis. This has been a crisis for some time due to unproductive spending by governments increasing foreign and domestic loans. In fact, it is a crisis created by ourselves. Many people have pointed this out with examples.

However, some groups are trying to give other interpretations to this and thereby build analyses that coincide with their own ideological perspectives. They often do so in an attempt to link the issue of the current economic crisis with their political objectives. In trying to define the crisis in line with their ideology, what often happens is that a distorted interpretation of reality is created. Then such people seek answers not to the real question but to a question they have imagined. They then suggest what they think as the solution. But they do not succeed just because they contradict reality. What happens is that such movements, with their own analysis and their own politics, revolve around their own orbit indefinitely.

Some leftist movements have put forward that kind of popular analysis. I do not intend here to say who they are or to quote them. I present only the analysis. Then it will not be so difficult for the reader to find out who has set forth them and how many political parties and groups make such comments.

The analysis is as follows: This is the crisis of capitalism. It is primarily a crisis of the so-called “neoliberal” economic policy that has been in place in Sri Lanka since 1977. Every government that has come to power in Sri Lanka since 1977 has pursued the so-called “neoliberal” economic policy.

It is that policy that is now in crisis. Such is the summary of the analysis of this group. It is also important to note what they identify as the draconian features of the so-called neoliberal economic system.

The first is distancing the government from economic activities. It is to minimize government by restricting (or not doing) public investments.

The second is the streamlining of public welfare. Subsidies are restricted to those in need (Safety Net).

The third is market liberalization. That is, to liberate the market from government control. There are other features of this economic policy. It is not the purpose of this article to discuss all of those.

It is important to note that no philosopher or theoretician has put forward a ‘neoliberalism’ theory. The term is most commonly used to refer to economic policies implemented by Prime Minister Margaret Thatcher in the United Kingdom since 1979 and President Ronald Reagan in the United States since 1981. Leftist movements in those countries mostly use the term.

The theoretical economic basis for Reagan & Thatcher’s policies was provided by economists such as Friedrich von Hayek and later Milton Friedman. It is questionable to what extent and for how long Hayek’s and Friedman’s ideas have been implemented in Britain and the United States. However, Thatcher, Reagan and other followers advocated for and implemented such ideas.

Many who oppose and misrepresent this so-called “neoliberalism” do not say what they support. In the field of economics, the debate is between Hayekism and Keynesianism. Keynesianism is the economic theory introduced by the economist John Maynard Keynes. Keynesianism gave some relief to leftists who believed that socialism was a state takeover of all economic activities.

Keynes’ major contribution to economics has been to demonstrate the potential for mitigating economic crises by increasing government spending. The vision suggested that increasing government spending could lead to economic growth and that the government should borrow and spend what it does not have. The economist also said that it would be good to have a deficit in government budgets.

Hayek said Keynes’ views could be catastrophic if misused by anyone. That idea is especially important because it is so relevant to our crisis.

Do the leftists who conclude that a ‘neoliberal’ economic system was implemented in Sri Lanka after 1977 have good reasons to say so? It is unclear whether the criticism of the American or British system was imitated here without a deeper understanding.

However, JR and Ronnie de Mel opened the Sri Lankan economy before Reagan or Thatcher did so in their countries. China and Vietnam also opened up their markets after Sri Lanka did. Our leftists do not call China or Vietnam as ‘neoliberal. There is indeed no reason to say those economies are neoliberal.

JR has two or three reasons to be called as “neoliberal”. The first reason is the opening up of the economy. However now it is clear that it is a partial opening, while maintaining great control over it. The second is the privatization of certain state institutions, which is also partial. Five hundred twenty-seven state-owned enterprises, including key sectors of the economy, are still under government control at a huge loss to the people. The third is the abolition of the free ration book that used to give free rice to the poor and the super-rich. It can be said that this is the only subsidy withdrawn by that government.

It is also clear that JR’s 1977 government significantly increased public investment through the annual government budgets of Finance Minister Ronnie de Mel. The Mahaweli development project is a huge investment as, at that time, did through borrowing money that was not available at hand. It is purely Keynesianism, not neoliberalism. Ronnie had a massive deficit in his budget proposals. No neoliberalism can be traced in those.

Read More