Economic challenges: Restructuring welfare state

Three major developments in the latter part of the last century have changed the economic, political and ideological context of the Sri Lankan economy for good. They are firstly, we have arrived at a time where any semblance of a socialist alternative to capitalism has almost disappeared.

By Dr D. Chandraratna

Sri Lanka is in a serious financial crisis. But that is not all. It is distressing to see the emerging sporadic violence. Are we desperately losing the ability to govern, one wonders? Not many are respecting the laws of the state and anarchy reigns occasionally while the general law-abiding citizens look aghast at the spectacle. Some are admiring the Galle Face protest in wonderment while some bloggers are openly calling the armed forces to mutiny. Treasonable offence in all civilized nations! The authorities have not got the ‘guts’ to order them to disperse in the best interests of the country. A few thousand protesters have no mandate to hold the country to ransom. I do not want to malign the noble intentions of the protesters, but our system of government cannot search for solutions outside the democratic framework. If a small window is opened outside constitutional channels, elephants will walk through, the next time. Let me also state that many who align themselves with this ‘aragalaya’ are indirect/direct beneficiaries of the corrupted ‘systems’; i.e., education, health, law, universities, public service, taxation systems, customs, and practically everything under the sun, which have made governance farcical. To put the blame on Rajapaksa’s only is more ‘deserving opportunism’ than the complete truth.

Losing the trust with our representatives has been long-time coming but the voting public opted for them everytime. People have lived with patience and with much favour as justice and fairness will allow. True that patience has now run out. Few months ago, when German Chancellor Angela Merkel retired after nearly two decades in the highest public office, a six-minute applause in the Chancellery reverberated in tandem by countrymen from all over. Such wonders we are unlikely to see ever in our ‘land like no other’. Our politicians are apparently born with a wish to retire in disgrace, having forsaken all opportunities to die as revered statesmen and women. Let us not talk anymore on the subject.

As expats with a debt to the land of our birth, we are sad for the country. People with some intellect cannot see the end anytime soon. Reading the English dailies every morning we are surprised by the waste of Parliamentary time. Perplexed and disturbed, like everyone else, why are the representatives not venturing out with ways and means of earning forex or bridging the ever-expanding budget deficit—fixing the economy. I must express my appreciation to Mr Ali Sabry and some TNA representatives for being honest in their contribution to the parliamentary debates If only we had more of such people, as politicians, no matter which party, how high we could have aimed for and how valuable the Hansard be as a historical document. It hurts us deeply to hear that we are on par with Lebanon, Afghanistan and where else. Bangladesh, Maldives with respect, have become our saviours!

Systems that need Change

Three major developments in the latter part of the last century have changed the economic, political and ideological context of the Sri Lankan economy for good. They are firstly, we have arrived at a time where any semblance of a socialist alternative to capitalism has almost disappeared. Secondly, free market and globalization have become the new economic landscape and our national economy is subject to supranational economic influences. Thirdly, the national economy of Sri Lanka, like most developing countries, is subsumed and refashioned by both geopolitical and global economic systems from which we cannot extricate ourselves. Trade liberalization, and the growing importance of export and imports have resulted in the structural dependence of the state virtually on a open global economy. We knew that by 1980 the Keynesian strategies of reflation, demand management and stimulation were in disarray and the neoliberal economics unilaterally dismantled exchange controls. The major consequence for third world economies, like ours, was distancing the national economy from National State control. Instead of boosting domestic production and creating wealth through whatever stimuli the global economy offered we were unprepared to grab them due to lack of research and development capabilities. Aspirational middle classes with high consumerist tastes, credit card mentalities boosted imports creating an annually yawning deficit managed only by borrowing from lenders at exorbitant rates. We are now drowned in debt. Economic bankruptcy was inevitable.

We were like the proverbial diner who was hoping to pay for the meal from the gems inside the mussels on the plate. While Bretton Woods agencies advocated international competitiveness as the single route to resolve trade imbalances and forex shortages, countries, such as Sri Lanka, had missed the boat in entering the international marketplace, unlike India and other Western countries. We were made to depend on two things, and they were, the export of labour and tourism, the easy route. Oblivious to the ephemeral nature of these two avenues, we were ‘all band-chune’ like the proverbial crabs in the pot. The moment these sources dried up, due to the pandemic, we were scraping the barrel, insolvent and bankrupt. Credit rating agencies broadcast our failure to the world. As an aside, when you see our parliamentarians exiting ‘Temple Trees’ in a luxury vehicle parade the world outside begins to understand how the crisis unfolded. Understandably public anger has burst out in flames as the catastrophe unravelled.

Unprepared entry into the global economy

Our economy, fashioned for years under the shadow of socialism, was thrust headfirst, into the free market with the change of government in 1977. In one stroke all previous attempts to become relatively self-sufficient in import substitution was dealt a major blow. The disarray of Keynesian economics in the 1970 and 80s, followed by a fury of political violence in the ensuing decades, halted the chance of internationalization of the economy. True there were debates about ‘a middle way’ as a method to manage the private/public mix mooted in some quarters but Sri Lanka was tardy in adapting that ‘Middle Way’. The political elements put paid to any such enterprises. For example, in the sphere of higher education where we had the capacity to attract exchange, radical elements thwarted the move. These were fruitfully grasped by European countries and Australia.

The only foray into global markets was in the production of apparel but its boundaries were dictated by outside. Explosive growth of the social expenditure and the rising expectations of the middle classes in the developing world generally made national economies open to advice and restructuring by international agencies, such as the IMF and the World Bank. In the local scene, mismanagement of national finances, clientelist politics, anti-intellectualism of the legislators, the menace of corruption engulfed the whole social fabric, hellbent in pursuit of illicit windfall gains.

In the Third World, Sri Lanka included, a higher level of poverty and inequality appeared demanding more of welfare and an improved social wage. Excessive demand eroded the gains made by the welfare state in its formative years. Education and Health needed supplementation by an exploitative alternate system which was eating into the vitals of the state system. The retreat from the notions of a mixed economy plus an overburdened welfare state, euphemistically but appropriately, called the Nanny State became a millstone round the neck, wasteful and inefficient.

Fiscal crisis of the Welfare State

Sri Lankan welfare state was modelled on the British, after World War II ,to achieve national integration and nation building with national efficiency in education and health and social citizenship. The idea of a one nation with citizenship rights for all was a laudable national objective at the time. Consolidating the nation economically, politically and socially was ideologically sound and yielded fantastic results in the period up to the changes in the world economic architecture. Our ‘Quality of Life’ indices were the best in Asia. With globalisation this laudable objective has become burdensome and the hollow attachment to a lofty ideological dream has become a drain on the economy.

The ideology of welfare exerts a downward pressure on the economy. The time has come for an honest debate on restructuring the welfare state and one system that must change is the ‘Nanny State’. We must, without fear or favour address this burden and follow countries in the West who have ridden over this fiscal crisis of the welfare state. While the Sri Lankan welfare state must be enriched for the deserving by not sticking to universality and institutional welfare, we must look for ways and means to restructure it so that the needy receive a boost in their life chances and are not left behind. We can only afford a residualist welfare state where the vulnerable sections of society are assisted while those who can afford are made to pay. This has been done in many Scandinavian countries. Australia has done the best and we must learn from these nations.