Connect with us


Finance Capital after COVID-19



Kumar David

Hyman Minsky (1919-1996) is celebrated for his thesis that economic recessions seemed to be triggered by shocks to the financial system. Downturns in the last 70 years were prompted by stock-market crashes, financial defaults and in 2008–09 a shock in the banking system. Though the underlying cause may lie in declines in the rate of profit, disruptions in production, surplus value extraction bottlenecks or supply-demand dislocations, the actual breakdown manifests itself in the financial system not in the production systems – the oil crises of the 1970s was an example of an exception. Marx was well aware that the crisis first manifests itself in the “circuit of capital”, vide Kapital Volume II, but it was Minsky who spelt it out most clearly.

The actual instant of free fall inauguration has even earned the name Minsky Moment. The current (2020) recession is different: it was triggered by a global pandemic although the conditions for a recession had been maturing in the womb of global finance capital for several years. Covid was the catalyst, imbalances in global finance capital the cause. I do not need to expand on this remark since it is recognised. Recall the reckless expansion of money-supply as otherwise capital would have gone under the bus globally (quantitative expansion); exploding debt (for example US Federal Debt will reach 100% of GDP at end 2020); income and wealth inequality at grotesque levels; and QUAD a US led group including Japan, India an Australia has commenced, de facto, a strategic and economic cold-war against China which will fracture already dislocated global supply chains.

Nevertheless, the pregnancy remained under wraps until Covid tore off the cover and exposed a wobbly global economy. Covid proved to be more than a catalyst; it has turned into a calamity. Let me quote a few simply unbelievable events. The Australian government has announced that international travel won’t resume until the very end of 2021. “International travel by tourists and foreign students will remain closed until late next year”, said Finance Minister Josh Frydenberg in a statement after the federal budget last week. “Citizens are banned from leaving the country and no international travellers are allowed in except for those on a short list of exemptions”.

The Country has gone into lockdown, literally. What will happen to Australia’s economy? Where are India and Brazil going? It seems that the Modi and Bolsonaro governments have given up; they are unable to cope. With seven and five million cases respectively, they have neither the hospital facilities nor quarantine accommodation. In country after country, the better the less said about the USA and UK, a despondent message is coming through: “It’ll never be the same again; there will be, there has to be transformative change in the global economic and political order”. This short essay will make some comments on the future of global finance capital with brief asides about Sri Lanka.

Livelihood and employment will be the imperatives driving any government and any economic arrangement that hopes to survive. I don’t know if the revolution, anarchy or psychological depression is around the corner, but look down the road a few years and surely it cannot continue like business in the past. The World Bank predicts that the pandemic will force 150 million into extreme poverty globally (less than $1.90 per person per day); and how many more into not so extreme poverty? You have to dig it out of the report but it seems more than a quarter of the world’s population will have to survive well below the $3.20 line. Nope, it’s impossible to prevent that drastic restructuring. Even if capitalism, with finance capital at the helm survives, how will it be transformed by international pressures, domestic class warfare (make no mistakes it’s on the way) and by government actions?

At a minimum a tough new regulatory environment will slot into place in all countries. These will include new health & occupational safety requirements, income protection and environmental regulations. Income protection will be a major concern in the coming years because Covid related disruptions will not go way tomorrow. My guess is that economic disruptions related to Covid are unlikely to abate for three to five years. (Sri Lanka can kiss goodbye to bikini and beach tourism for the next three years but culture and nature related tourism may revive sooner). Income protection is an idea that is catching on. In some places including some Indian states the government will pick up two-thirds of the salary bill when factories are closed due to Covid induced shutdowns. This can be recommended to our two-thirds besotted regime but the problem is that it is of no help to self-employed (think three-wheeler wallahs) and the informal sector (think itinerant journeymen and kerb-side hawkers).

My topic today however is not these small potatoes abut finance capital. Research in the US has shown that contrary to expectations lockdown did not have a much different impact on the three sectors, services & retail, manufacturing and finance. All three sectors, given their heterogeneous exposures to demand and supply factors, suffered similarly, but for different reasons of course. Banks due to curbs on interest rates and limited borrowing, manufacturing due to factory shut down and itinerant workers and the informal sector were killed by curfew. Both the manufacturing and banking sectors witnessed reduced net portfolio inflows. Fiscal and monetary stimulus – that is exertion by the state to save capitalism – played an important role in attenuating the negative impact of the global shock.

A curious factor in the US is that yield on the Treasury Bond has plunged; the ten-year bond for example it is trading at well below 1% and this underpins interest rates in general. The bond yield falls when folks rush into bonds because they have lost confidence in the future of the investment economy and seek a safe haven. When bond prices rise interest rates fall, driving savers, pensioners and banks into difficulty; it should be attractive for investors but in the prevailing post-2010, and now worse, gloomy scenario the well-heeled borrow to invest in stocks (for asset price inflation) and property (a safe haven) exacerbating wealth inequity. Companies in the US and the UK are not investing in manufacturing or the production economy

Finance capital is typified by the big banks, hedge and other funds and investment houses and billion-dollar investors. Banks have felt massive effects from the crisis and are not able to play their usual role in getting the economy back on track— they are fearful of providing loans to businesses that have buckled. Banks are taking massive provisions, and offering negative guidance for coming quarters. If the next three years go badly bank capital will fall below CET1, a capital benchmark used as a precautionary means to protect banks from buckling. If the financial system’s plunges liquidity and assets can evaporate quickly in a plunging market.

Hence a major expectation in the coming period is the introduction of stringent new controls on banks and investment houses, that is on finance capital which is playing Ludo with other people’s, money; viz. market money. But in the wake of these changes will also come politically and socially driven adjustments. Demands for the protection of livelihood, that is provision of decent food and adequate housing even when the virus disrupts employment will soon become a mass demand. No government or economic system that is unable to satisfy these needs is likely to survive. True food riots and civil disobedience are not on the horizon, the infection itself makes collective action of this nature very difficult but there are limits to patience and the example of the USA where mass disregard of sensible protection, beginning with an asinine President Trump, could catch on. But governments all over the world are becoming unpopular; Gotabaya backed out of a referendum on certain clauses of 20A because he knows as sure as night follows day that he will lose. The pendulum has swung halfway back and Covid gets much of the credit.

Deeper and stronger government regulation will curb the freedoms of finance capital and the run of market forces. The writing is on the wall. Even the IMF in its 2020 Global Financial Stability Report praises China for its financial stability during the pandemic and ascribes it to “limited external financial linkages, a strong role of government-owned financial institutions, and proactive efforts by the authorities that helped stabilize market conditions.” Indeed, China’s commercial banks remained healthy and posted profit in the first quarter of 2020, however the banking sector is under challenge. China’s financial opening and reform, would undermine banks though the government remains committed. Majority foreign ownership in securities, futures, insurance and currency brokerage will be allowed. It is possible that some of these trends will now be reversed.

In Sri Lanka traditional economists constantly repeat a call on the government to reduce expenditure and increase revenue. Both may prove impossible; it is untenable for political reasons to cut welfare or raise prices of essentials if the government wants to survive A second wave of Covid will make it utterly impossible. Increasing revenue can only be done by raising taxes on the rich and the super-rich; the government is quite unwilling to do this as it will anger its class and business base and those who financed its election campaigns. Even the Brandix fracas has put the current Administration in a bind because the multimillionaire Brandix is said to have financed its election campaigns.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *


Neuro-science that underlies Buddhist philosophy



Dr Channa Ratnatunga

Buddhist philosophy does not mention the Brain, only the mind or citta. It does not mean that the organ i.e. the brain was unknown at the time. Recorded in the Maha-Vagga, ’the book of Discipline’ of the Tripitaka, one Jeevaka Kohombacha a reputed physician was trephining the skull, presumably to drain blood accumulated within the skull. He would have known how it could affect brain/mind function.

In the Western front, it was Galen who was thought to be the 1st to attempt changing the existent opinion, in 200AD; he held that it was the brain and not the heart that was the seat of ‘intelligence’.

We have now moved on far beyond. I thought it appropriate to place Buddhist philosophy on a more scientific footing by correlating it with current Neuro-biology of Neuroscience. The data is both subjective and objective as a science.

‘The Reptilian Brain ’

A portion of the brain of all vertebrates, becoming more prominent in mammals, more than birds and reptiles is the reptilian brain. It is now described as the Limbic system. It deals with a whole lot of reflexes which deals with survival. For a species, the typical instinctual behaviours are involved with it: flight-fight reaction, aggression, dominance, territoriality and ritual displays. In mammals, specially the higher groups, which include Chimpanzees, Gorillas and man, it subscribes to most emotional responses for survival, procreation and other basic needs of fulfillment i.e. of thirst and hunger. Links through the hormones and the autonomic nervous system, permits fulfillment of the different roles it is responsible for.

Structurally they are constituted by the sensorial input through the Thalamus (other than smell), Hippocampus, Amygdala, hypo-thalamus and the Cingulate Gyrus of the Brain (see diagram) below.

All emotional responses, are kept controlled by the pre-frontal cortex often described as ‘the leader of the Orchestra’.

Hence inbuilt into all of us by millennia of selection are reflexes for survival. Social anthropology teaches us that security of survival is enhanced by belonging to a society. After all, we are inbuilt to be, a social animal. Dominance in the society, needs suppression of competition to get the cream of both the spoils for; food and procreation. Both Tribalism and a hierarchy, is born and needs to be sustained. Anger, greed, theft, promiscuity and other ill-gotten traits are hence a part of our inbuilt armamentarium. Most are inherited by being installed on our limbic system (in the human brain). The degree of pre frontal lobe control to keep checked these primitive urges is what Buddhist philosophy is all about.

Current studies of neuroscience, using; functional MRI and other imaging and electrical recording procedures have shown that Mindful Meditation enlarges the prefrontal cortex (i.e. more cells, synapses in this area) of the brain. Mindfulness skills are now recognized in the west, as premium in many areas of human endeavour. In fact, it is hailed as the ‘way to go for evolution for the human kind!

As long as we have the Limbic system installed for survival, we will continue to volitionally (think, speak and act) behave to survive, permitting the karmic energy to be formed. Maybe the survival apparatus was installed to maintain sentient life-forms in the universe, a part of nature (could even be a natural law i.e. like gravitation). The Buddha discovered it and showed a way to avoid it, so securing avoidance of karmic generation.

With this background permit me to speculate on the philosophy we have tried to give a more solid scientific background.

The ultimate truth of human existence, we all seek: the ultimate reality, has to be within Nature, bound by laws, known and; as yet unknown that govern it.

Nature as we know it consists of the physical universe as we know it, the dark matter we are not yet familiar with, energy and dark energy associated with it and the sentient life forms that inhabit, so far in at least on our planet.

Science so far has not made inroads into the nature of sentient life forms, other than to define their detailed physical structure, the nature of their behaviour, their evolution by natural selection (Darwin). It is not known what forces form life forms; why they grow? Why the varied circumstances of their individual existence; what their designated purpose is and where they go after death. Into this vacuum, walks religion!

Having said this, all the tribalistic institutions, ceremonies, incantations, etc. that have since developed around a variety of prophets, are at best, a means of keeping man, a social animal, controlled. Society is competitive and to maintain a semblance organization within, laws have to be promulgated. The unknown, have at various times been deified, i.e. the sun, fire, a creator, a destroyer, etc. The Latin saying by Petronius; ‘Timor primus in Orbe, Deos fecit’ (Fear caused Gods first on Earth) has much to say for itself, as does the pithy advice of the Persian philosopher poet Omar-Khayam, referring to the sky and presumably deities, ‘lift not thy hands to it for help, as it rolls impotently on as thou and I’. Security offered by herd behaviour of a tribe, or as offered by supernatural power or being, in trying circumstances is a human need and faith helps. Religion Modern society needs to be re-thought, as to its place.

Returning to the subject of this essay, Newton (Laws of Motion), Einstein (Laws of Gravity), Maxwell (Laws of Electro-Magnetism), the strong and weak force of atomic structure, and others have propounded physical laws for, that govern matter and the known energy forms that exist in the Universe. Based on the accuracy of the application of such laws, man has set foot on the moon. Science prides itself on accuracy and being evidence-based.

If sentient life-forms too are part of nature, the detailed laws have yet to be postulated by science. Unlike the study of matter, a need to understand the ‘nature of existence of life-forms’ has not yet been undertaken by the scientific community. After all, survival and procreation to live on the harsh environment that exists at the time seems to be their only purpose.

To hypothesise, speculatively, could it be that Siddhartha Gautama, by meditative practice of a high order, enlarging his pre-frontal cortex of the brain, broke into ‘the insightful realization of how life forms are governed: it’s laws in nature’.

As evidence-based data has to be adduced for this possibility, I will now place evidence, as to these conclusions, speculative no doubt.

It is claimed that he realised the truth of reincarnation, i.e. rebirth, samsara and the sorrow. We sow and we reap, and the Karmic law will enact Samsara for eons to come.

Rebirth will account for the protean differences that exist in human form, circumstances, talents, life events (Narada Mahathera’s text reproduced in The Island last Poya Day (01 Oct). Stevenson’s1 detailed scientific enquiry on children who could recollect past lives, birth marks attributed to trauma provides anecdotal evidence.

The scientific value of past life regression (PLR) by psychiatrists using hypnosis on selected subjects, Near Death Experiences (NDE) is difficult to assess. For instance, it has been shown that diminished blood flow to the brain as experienced in certain circumstances can simulate NDE.

This leaves the practising Buddhist to focus on meditation to see the veracity of the truth of rebirth. That rebirth is sorrow, I think can be realized, as death in most life forms be it animal or insect, is painful. According to Buddhism, to be born in a human life-form with pre-frontal decision making ability is a great opportunity to negate rebirth and sorrow. This opportunity is yours.

Continue Reading


What’s the Plan?



We have a new government in Aotearoa; we even have a Sri Lankan born MP! The landslide victory of her party was so marked that some said that even an inanimate object put up as a candidate for the labour party, under Jacinda magic, would have won. Not fair methinks on this young lady who apparently worked her electorate very hard. There is a celebratory dinner to be held for her next month. I look forward to attending that and gleaning a few more facts for my readers. On the other hand I may be banned by the cohorts of her countrymen forming barriers (protective or offensive) around her.

So, the new Government has big plans. Improve the availability of houses, especially for first home buyers since the National Party when they governed allowed foreign investors to buy up multiple properties with small deposits and then making the tenants effectively pay the mortgage, creating a massive shortage of houses. There was also a rather grandiose plan named Kiwibuild that was supposed to “create houses” at low cost and in no time for those who desperately needed them. There is also Child poverty in NZ, believe it or not. Ranging from children not having lunches to take to school, to not having shoes to wear to school and older children leaving school early to work and earn money to support their families. This of course almost exclusively among the Maori and Pacific Islander communities.

Unemployment is also rampant Covid19 is being touted as the excuse but to be frank we were heading for an economic slump before Covid in Aotearoa. This level of unemployment is blamed on the work ethic or lack thereof among the Maori and Pacific Island communities but there is a deeper connotation to this. It was recently found out that the big fishing companies in NZ have been flying in crews for their trawlers from Russia for 25 years! These fishermen fly in during the Russian Winter and crew on the massive sea going trawlers. This was only highlighted because a whole lot of these fisher folk got Covid 19 while in quarantine. The official story is that for 25 years they have been unable to train or find people who can work on these ships from among the people in NZ. If you buy that, I’ll throw the harbour bridge in free!

What is pretty obvious is that big business in NZ is allowed to prosper regardless of the economic implications of them doing so. They are allowed to use and employ foreign sources purely on a profitability basis with no concern for the domestic economy or the strengthening of same. There are lots of semi monopolies, supermarkets being a prime example. All the major supermarkets are owned by two parent companies. Is it a wonder that groceries are so ridiculously expensive in NZ when compared to Australia? Are we denizens of Aotearoa really expected to believe that an oligopolistic enterprise is charging fair prices? Let’s hope the Labour Government with its huge majority that we have just appointed, looks into these matters.

The thing about the traditional Kiwi is that they spend money. They do not save everything to be able to give houses to their children or dowries! Now that they are “trapped” in their islands, they are spending the money they would have used for foreign travel for domestic tourism. They are also spending on improving their houses and property and of course retail therapy. The NZ economy is still not floundering. In fact, it is buzzing, how long that will last is of course the multi-billion-dollar question!

The Pearl doesn’t look that good does it? No income from the housemaids, tourism at a standstill and even the garment factories under fire. The big hotels are closed except for those who have

been able to wrangle a contract to house those being quarantined. I know for a fact the tragedy of the boutique hotels and other mid-sized tourism ventures. All forms of spending must be curtailed, so, the “wheeler” drivers must be destitute. I don’t even want to think about those paying off leases and mortgages.

Now I see many articles to the papers these days. Written by people with qualifications that would take up the first 500 words of the articles I write, and designations that would account for the balance, size of my articles I mean. Some write them like scientific dissertations, other dabble in humour and innuendo, however I have read nothing so far that has any content that shows us a pathway out of the economic morass that the Pearl is in.

Borrowing has its limits and it has connotations that scare the living daylights out of me. Printing money can of course go on and be used to pay wages in the grossly overstaffed Government institutions that are currently closed and distribute largesse to the selected few. If there are any younger readers of what I write, do you know that the Sri Lanka Currency was Rs15 = US$1, when I started working. Can you even believe it? The last time I checked I was not a thousand years old!

How are we going to stop chaos and mayhem hitting the streets? When people cannot feed their families what are they going to do? WHAT IS THE PLAN? If we are going to grow our own food in our back gardens, use our hotels as storage facilities for the produce, re-export and sell off all those ludicrously expensive automobiles that our politicians gad around in, sell our elephants to zoos, find oil off the coast of Mannar or whatever the hell we have to do, shouldn’t we START doing it now?!! Waiting until the proverbial s— hits the fan and then ordering the army out into the streets under martial law may not work O, people of the Pearl.

Maybe, the plan is to fall back on the good old tea industry. Rubber and coconut seem to have been totally decimated. For your information the tea industry that used lay the golden egg has been so mismanaged by brain dead proponents of management theory and with plantations largely handed over to our rival India for management, what else can you expect. The export trade is so fragmented and totally without principals or ethics that any buyer worth his salt has only to fish around among the many exporters to get the rock bottom price for what he wants. Others have used political influence and robbed the funds demarcated for that wonderful institution the Tea Promotion Bureau (a concept far ahead of its time) and built their own family dynasties and brands. That horse or goose is well dead and long buried.

My question to the brand-new government of Aotearoa which has a massive majority in parliament and the not so new Government of Sri Lanka which now has the 20th amendment to the constitution passed, is WHAT IS THE PLAN? It better be good and it better be quick, because the people are going to be very desperate real soon. It is solely down to the leadership and there are no excuses!

Continue Reading


Executive presidency or premiership?



Better option:

by Dr Upul Wijayawardhana

I have been fascinated by politics all my life though not directly involved in it unlike some others in my family. I have devoted some of the free time COVID-19 pandemic has given me to pondering the merits and demerits of the executive presidency and whether it is less democratic than an executive premiership. For a long time, there has been a clamour for the abolition of the executive presidency, but since the election of President Gotabhaya Rajapaksa opinion seems to have reversed. The SLPP sought a mandate to abolish 19A and, using the unexpected two-third’s majority, it enacted 20A ensuring reversal to an executive presidency.

On gaining Independence we opted to be a dominion with a Governor-General representing the British Crown; he had some room for manipulation although the Prime minister held the reins of power. In 1972, we became a republic, and the prime minister became even more powerful and a titular President was appointed! J. R. Jayewardene changed all this. Elected with a massive majority in 1977, JR metamorphosed from Prime Minister into an executive president. JR started well, pulling the country out of the economic hellhole created by the Sirima Bandaranaike government, but intoxication with unbridled power affected him.

JR brought about this radical change of having an elected Executive President for good reasons and opted for the French presidential system rather than the American system. Some may argue that JR should have gone for the American system because his main argument was that a presidential system which could produce results quicker was more suited to a developing country. In the American system, Cabinet positions are held by non-elected technocrats. Perhaps, like in the US, had we allowed the elected representatives to debate issues in Parliament, formulate laws governing the country and sit on committees overseeing the appointments for senior posts and performing the function of oversight of their work, a greater purpose may have been served. It would also have prevented politics from turning into a money-making business. The President could have chosen experts in various fields with proven track records to run various ministries to usher in rapid development. Perhaps, this is the sort of radical change we need that warrants serious consideration by those who are tasked with the onerous duty of formulating a new constitution.

JR opted for the French system where all the ministers including the prime minister are elected representatives. The phrase some commentators use ‘Prime Minister is reduced to the status of a peon’ is ludicrous and may well stem from the unguarded statement made by Ranasinghe Premadasa, the first non-executive prime minister. Instead of being impatient, he should have worked towards defining the role of the prime minister in the new system. Of course, JR’s ill-judged remark that he could do anything other than changing the gender, albeit in jest, also contributed to the growing suspicions about the presidency.

All executive presidents, elected directly by the voter at tremendous expense, vowed to abolish the executive presidency just to please the voters but none even attempted to do so. But Gota was an exception, never making such a promise. Further, during the short period he had been in office he had behaved very differently to his predecessors. He has shown that he is there to work, not for the glamour of office. Therefore, I would argue that what matters more than the office is the person who occupies it. This imparts even a greater responsibility on the voter to elect the right person.

In any country, either the president or the prime minister would have to be powerful. In the UK, the ‘Mother of all Parliaments’, Boris Johnson holds power and makes all the important decisions. It is only rarely that Parliament acts to change his decisions. Ranil considered himself to be the executive prime minister and set up various units at Temple Trees, and some of them were not lawful. This too highlights my view that it is not the office that matters but who holds the office.

If not for the powerful presidency, we would still have been fighting terrorism. How the Opposition mocked the war efforts is a long-gone memory. The worst possible scenario is where the power is shared, as happened during the ill-fated yahapalana regime. What is transpiring before the Presidential Commission of Inquiry on the Easter Sunday attacks amply illustrates how security of the country was neglected

The passage of 20A is a turning point in the history of our country. By giving the mandate for this to the SLPP, the voters have opted for a presidential system of government and it is my humble opinion that this was almost entirely due to the statesmanlike behaviour of President Gotabaya Rajapaksa. During his campaign he never attacked his opponents but proved his ability to perform any responsibility he was tasked with. On being elected, he dispensed with glamorous frivolities and got down to hard work. He has faced many challenges with vigour and has been successful so far.

What makes Gota different from all other ‘chief executives’ of Sri Lanka is that he is the first non-politician to hols this coveted position. Perhaps, that is what we needed. I do hope he would set the example for what a good executive president should be so that the electorate would not regret the momentous decision it made. I do hope that he would introduce a new Constitution, which gives due place to technocrats and usher in true reconciliation by ensuring that we obey one law as one nation as well as getting rid of race and faith based political parties which have been the bane of unity. The only purpose these parties have served is sowing the seeds of division and disunity whilst making some leaders rich and powerful.

I do hope Gota would prove that the executive presidency is the better option.

Continue Reading