When Disenchantment Turns Radical

Tisaranee Gunasekara-March 16, 2019, 7:10 pm 
"Inequality is a choice."
Joseph Stiglitz (New York Times – 13.10.2013)

"Godfather of inequality research," The Economist called Sir Anthony Atkinson. The sally came in a review of Prof. Atkinson’s book, Inequality: What can be done? Prof. Atkinson begins the book by defining what he means by inequality: "I’m not seeking to eliminate all differences in economic outcomes. I’m not aiming for total equality... Rather the goal is to reduce inequality below its current level in the belief that the present level of inequality is excessive." The aim therefore was not the peddling of a utopia but seeking ways to evade dystopia.

As open democracies fail to address – or even acknowledge the gravity of – income inequality, an antithetical narrative is gaining ground, again. According to this narrative, the rampant and persistent inequality many countries are afflicted by doesn’t stem from Hayek’s triumph over Keynes, the codification of the Washington Consensus and the transformation of trickle-down economics into an article of faith. Inequality, this narrative claims, is a result of policies which favour the ‘Other,’ over ‘Us,’ the national, the organic, the real. The solution is the enthronement of a tough leader who can pack off immigrants, keep minorities in place and return the country to its ‘real owners.’

This, for example, was the narrative adopted by the Trump campaign in the 2016 US Presidential election. According to a Reuters/Ipsos poll, 75% of American voters who went to the polls early on election morning said they want a "strong leader who can take the country back from the rich and the powerful."i Of course, as President, Mr. Trump has worked to help the rich and the powerful, at the expense of the poor and the powerless. For example, his recent budget include proposals to slash retirement benefits for federal workers, reducing allocations for food stamps, farm subsidies, crop insurance, Medicare and Medicaid, and education. The new Trump budget, if passed, will have a punitive effect on poor and middle class – and mostly white - Americans who voted for him in the belief that he will return the country to them.

In 2018, a group of European and British economists, historians and former politicians led by economist Thomas Piketty published a blueprint for a fairer EU. The Manifesto for the Democratisation of Europe identified four main issues which need to be prioritised if Europe was to remain united and democratic - inequality, migration, climate change and disenchantment. The inclusion of disenchantment in the list is timely. History, especially 20th Century history, demonstrates that disenchantment with the status quo can be a radical thing. There is every reason to believe that in the 21st Century too, disenchantment will play a key role in upending countries.

In Sri Lanka, this trend is evident in the putative presidential campaign of Gotabhaya Rajapaksa. His political platform is built on a carefully constructed narrative against liberal democracy. Rights are dismissed as counterproductive, freedoms excoriated as dangerous and democracy ridiculed as soft, flabby and ineffective. Complex problems are simplified, depicted as solvable through the ruthless exercise of Will by a powerful leader. In this narrative, warfare state is what a country and a people need to stay safe and get ahead. If the war on terror is over, there is always the war on crime, on drugs, on alien influences...

If the space has reopened for this anti-democratic narrative in Sri Lanka, it is thanks to the failures of the Sirisena-Wickremesinghe administration. A government, any government, is elected by multiple constituencies for multiple reasons, some mutually compatible, others not. This was particularly so in the case of both President Maithripala Sirisena and Prime Minister Ranil Wickremesinghe. But a majority of these divergent constituencies had one demand in common – reduction in their economic burden which had grown to unbearable levels thanks to Rajapaksa economics. According to an opinion poll carried out by the Centre for Policy Analysis in August 2014, cost-of-living was identified by a plurality of respondents as their number one problem. This was true for all Lankans, as well as for Sinhalese, Tamils, Muslims and Upcountry Tamils.

Had the government kept its promise and worked to bring about a degree of economic fairness, economic justice, the electorate might have forgiven it for other failures. But the government opted not to, opted to implement a slightly sanitised version of Rajapaksa economics - sparing the rich, taxing the poor and spending on military hardware and physical infrastructure.

Four years on, the payback time is drawing near.

Clueless Economics

When statistics don’t reflect reality, policies made on the basis of those statistics too become unmoored from reality. This is the case in Sri Lanka in the realm of income statistics. The gap between the official figures and the observable reality is so wide, that the official figures seem more like fiction than fact. For example, in 2016, the richest 20% of the households (not individuals but households) was categorised as households receiving a monthly income of Rs. 81,372 or above.ii This categorisation is indicative of a problem that has a bearing both on economic policies and political outcomes – the extremely high levels of unreported income in the country.

Unreported income is also untaxed income. If the government was serious about shifting the country to a less economically unjust path, it should have made a concerted effort to correct this massive hiatus between official and really-existing realities in terms of income levels. But no such effort was made, a clear indication that that the government was never serious about economic fairness, that it was nothing more than a catchy slogan, like good governance.

The opposition of late 2014 and the government of early 2015 spoke about the iniquitous system of taxation prevalent in Sri Lanka, blamed the Rajapaksas for imposing a proportionately greater tax burden on the poor and the middle classes than on the rich, and promised to correct the imbalance. Under Rajapaksa rule, the ratio between indirect to direct taxes was a morally unacceptable and economically damaging 80:20. By reducing the purchasing power of a majority/plurality of people, such extreme levels of taxation would undermine the prospects of small and medium scale enterprises, and thereby economic growth, and income and employment generation.

The Sirisena-Wickremesinghe government had four years and four budgets to correct the imbalance. This was not a demand for giveaways; or for welfare; this was a necessary correction of a deliberately imposed structural imbalance which hurt the poor and helped the rich. As Joseph Stiglitz pointed out, inequality is a choice, and the Sirisena-Wickremesinghe government chose it, just as the Rajapaksa government did. Four years on, the 80:20 ratio between indirect and direct taxation still remains unchanged.

Budget 2019 provided the government with a last chance to deliver a measure of fairness, of justice in the all important realm of economics. It failed. And so long as that fundamental inequity remains unchanged, the government will have no option but to impose more and more indirect taxes on people who are less and less able to absorb the resultant economic shocks. In the fortnight since the budget was presented, the prices of fuel and bread has gone up, and the price of milk powder is slated to follow suit. This is a path to greater inequality, a path which will eventually veer away from democracy and carry Sri Lanka back to the autocratic past, with the freely given consent of a majority of her people.

Military-Commercial Complex and the Warfare-state

The Fourth Eelam War ended almost a decade ago. The eagerly expected peace dividend has not materialised.

The Rajapaksas implemented a policy of guided militarisation aimed at creating a financially endowed but politically flaccid military that is completely in thrall to the Rajapaksas. The military was encouraged to enter the economy in a major way, while pubic officials such as school principals were turned into military auxiliaries. Mammoth military spending thus became a financial black hole which consumed a considerable proportion of the peace dividend.

The Sirisena-Wickremesinghe government scaled back the economic involvement of the military and restored the necessary dividing line between civilian and military bureaucracies. It has returned some military-occupied land to the people of the North and the East. But it did nothing to reduce the huge military expenditure. Four years on, defence continues to claim the largest chunk of government expenditure. For the year of 2019, defence has been allocated Rs. 393 billion, while health gets 187.4 billion and primary and secondary education 105 billion.

It is important to emphasise that Sri Lanka continues to spend huge amounts on defence in the absence of any external and internal threats. Since loans are taken to purchase military hardware, it adds both to indebtedness and to the debt-service burden.

Sirisena-Wickremesinghe government could have explained the reality to the people – more money for guns means less money for everything else - education, health, a decent system of public transportation, better roads and other basic infrastructure, more research and development.... In a war situation, such a trade-off makes sense; it is necessary. In a time of peace it is criminally stupid.

To prevent a new Southern insurgency, Sri Lanka needs lower living costs and higher living standards, better paying jobs and greater hope, not more warships. To prevent a new outburst of separatism, Sri Lanka needs reconciliation and reconstruction and a workable political solution, not more military helicopters. Spending more on defence when the priorities are clearly otherwise, will not make us safer; it will make us more unsafe.

In Sri Lanka, there’s no military-industrial complex. What is there is a military-commercial complex. That military-commercial complex is as much of a bar to reducing military expenditure as the military industrial complex is in a country like the US. When expensive military hardware is imported, local agents and their political backers benefit, and benefit enormously. No wonder that we are buying helicopters instead of building houses in the North, buying warships instead of upgrading education in the Deep South.

The Sirisena-Wickremesinghe administration could have broken this logjam, but opted not to. A system of voluntary retirement, based on the ‘golden handshake’ model’ could have benefited ordinary soldiers and sailors, and would have had many takers since poverty and unemployment are the two main reasons most youth join the military. But such a scaling down would not have benefited the commercial and political operatives involved in the importation of military hardware, a process that continues to lack even a modicum of transparency.

The inability to produce the peace dividend and the failure to address the taxation issue have already created a blowback effect. The defeat suffered by both the UNP and the SLFP at the 2018 Local Government elections was a direct result of this failure. That defeat in turn paved the way to the anti-constitutional coup of October 26th.

Neither the SLFP nor the UNP has learnt the lessons of the twin disasters. This is evident in Mangala Samaraweera’s latest budget. It has several innovative and positive proposals, but without addressing the twin and interrelated issues of taxation and military expenditure, these proposals will either become unworkable due to financial constraints or be rendered irrelevant by sweeping political tides.

i https://www.reuters.com/article/us-usa-election-poll-mood-idUSKBN1332NC?il=0

ii http://www.ft.lk/opinion/A-balancing-act—Can—Sri-Lanka-overcome-regional-income-inequalities-/14-669644#.XCnkLNEngKs.twitter