Connect with us

Features

Finance Capital after COVID-19

Published

on

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 *

Features

Ranking public services with AI — A roadmap to reviving institutions like SriLankan Airlines

Published

on

Efficacy measures an organisation’s capacity to achieve its mission and intended outcomes under planned or optimal conditions. It differs from efficiency, which focuses on achieving objectives with minimal resources, and effectiveness, which evaluates results in real-world conditions. Today, modern AI tools, using publicly available data, enable objective assessment of the efficacy of Sri Lanka’s government institutions.

Among key public bodies, the Supreme Court of Sri Lanka emerges as the most efficacious, outperforming the Department of Inland Revenue, Sri Lanka Customs, the Election Commission, and Parliament. In the financial and regulatory sector, the Central Bank of Sri Lanka (CBSL) ranks highest, ahead of the Securities and Exchange Commission, the Public Utilities Commission, the Telecommunications Regulatory Commission, the Insurance Regulatory Commission, and the Sri Lanka Standards Institution.

Among state-owned enterprises, the Sri Lanka Ports Authority (SLPA) leads in efficacy, followed by Bank of Ceylon and People’s Bank. Other institutions assessed included the State Pharmaceuticals Corporation, the National Water Supply and Drainage Board, the Ceylon Electricity Board, the Ceylon Petroleum Corporation, and the Sri Lanka Transport Board. At the lower end of the spectrum were Lanka Sathosa and Sri Lankan Airlines, highlighting a critical challenge for the national economy.

Sri Lankan Airlines, consistently ranked at the bottom, has long been a financial drain. Despite successive governments’ reform attempts, sustainable solutions remain elusive.

Globally, the most profitable airlines operate as highly integrated, technology-enabled ecosystems rather than as fragmented departments. Operations, finance, fleet management, route planning, engineering, marketing, and customer service are closely coordinated, sharing real-time data to maximise efficiency, safety, and profitability.

The challenge for Sri Lankan Airlines is structural. Its operations are fragmented, overly hierarchical, and poorly aligned. Simply replacing the CEO or senior leadership will not address these deep-seated weaknesses. What the airline needs is a cohesive, integrated organisational ecosystem that leverages technology for cross-functional planning and real-time decision-making.

The government must urgently consider restructuring Sri Lankan Airlines to encourage:

=Joint planning across operational divisions

=Data-driven, evidence-based decision-making

=Continuous cross-functional consultation

=Collaborative strategic decisions on route rationalisation, fleet renewal, partnerships, and cost management, rather than exclusive top-down mandates

Sustainable reform requires systemic change. Without modernised organisational structures, stronger accountability, and aligned incentives across divisions, financial recovery will remain out of reach. An integrated, performance-oriented model offers the most realistic path to operational efficiency and long-term viability.

Reforming loss-making institutions like Sri Lankan Airlines is not merely a matter of leadership change — it is a structural overhaul essential to ensuring these entities contribute productively to the national economy rather than remain perpetual burdens.

By Chula Goonasekera – Citizen Analyst

Continue Reading

Features

Why Pi Day?

Published

on

International Day of Mathematics falls tomorrow

The approximate value of Pi (π) is 3.14 in mathematics. Therefore, the day 14 March is celebrated as the Pi Day. In 2019, UNESCO proclaimed 14 March as the International Day of Mathematics.

Ancient Babylonians and Egyptians figured out that the circumference of a circle is slightly more than three times its diameter. But they could not come up with an exact value for this ratio although they knew that it is a constant. This constant was later named as π which is a letter in the Greek alphabet.

Archimedes

It was the Greek mathematician Archimedes (250 BC) who was able to find an upper bound and a lower bound for this constant. He drew a circle of diameter one unit and drew hexagons inside and outside the circle such that the sides of each hexagon touch the sides of the circle. In mathematics the circle passing through all vertices of a polygon is called a ‘circumcircle’ and the largest circle that fits inside a polygon tangent to all its sides is called an ‘incircle’. The total length of the smaller hexagon then becomes the lower bound of π and the length of the hexagon outside the circle is the upper bound. He realised that by increasing the number of sides of the polygon can make the bounds get closer to the value of Pi and increased the number of sides to 12,24,48 and 60. He argued that by increasing the number of sides will ultimately result in obtaining the original circle, thereby laying the foundation for the theory of limits. He ended up with the lower bound as 22/7 and the upper bound 223/71. He could not continue his research as his hometown Syracuse was invaded by Romans and was killed by one of the soldiers. His last words were ‘do not disturb my circles’, perhaps a reference to his continuing efforts to find the value of π to a greater accuracy.

Archimedes can be considered as the father of geometry. His contributions revolutionised geometry and his methods anticipated integral calculus. He invented the pulley and the hydraulic screw for drawing water from a well. He also discovered the law of hydrostatics. He formulated the law of levers which states that a smaller weight placed farther from a pivot can balance a much heavier weight closer to it. He famously said “Give me a lever long enough and a place to stand and I will move the earth”.

Mathematicians have found many expressions for π as a sum of infinite series that converge to its value. One such famous series is the Leibniz Series found in 1674 by the German mathematician Gottfried Leibniz, which is given below.

π = 4 ( 1 – 1/3 + 1/5 – 1/7 + 1/9 – ………….)

The Indian mathematical genius Ramanujan came up with a magnificent formula in 1910. The short form of the formula is as follows.

π = 9801/(1103 √8)

For practical applications an approximation is sufficient. Even NASA uses only the approximation 3.141592653589793 for its interplanetary navigation calculations.

It is not just an interesting and curious number. It is used for calculations in navigation, encryption, space exploration, video game development and even in medicine. As π is fundamental to spherical geometry, it is at the heart of positioning systems in GPS navigations. It also contributes significantly to cybersecurity. As it is an irrational number it is an excellent foundation for generating randomness required in encryption and securing communications. In the medical field, it helps to calculate blood flow rates and pressure differentials. In diagnostic tools such as CT scans and MRI, pi is an important component in mathematical algorithms and signal processing techniques.

This elegant, never-ending number demonstrates how mathematics transforms into practical applications that shape our world. The possibilities of what it can do are infinite as the number itself. It has become a symbol of beauty and complexity in mathematics. “It matters little who first arrives at an idea, rather what is significant is how far that idea can go.” said Sophie Germain.

Mathematics fans are intrigued by this irrational number and attempt to calculate it as far as they can. In March 2022, Emma Haruka Iwao of Japan calculated it to 100 trillion decimal places in Google Cloud. It had taken 157 days. The Guinness World Record for reciting the number from memory is held by Rajveer Meena of India for 70000 decimal places over 10 hours.

Happy Pi Day!

The author is a senior examiner of the International Baccalaureate in the UK and an educational consultant at the Overseas School of Colombo.

by R N A de Silva

Continue Reading

Features

Sheer rise of Realpolitik making the world see the brink

Published

on

A combined US-Israel attack on Iran.(BBC)

The recent humanly costly torpedoing of an Iranian naval vessel in Sri Lanka’s Exclusive Economic Zone by a US submarine has raised a number of issues of great importance to international political discourse and law that call for elucidation. It is best that enlightened commentary is brought to bear in such discussions because at present misleading and uninformed speculation on questions arising from the incident are being aired by particularly jingoistic politicians of Sri Lanka’s South which could prove deleterious.

As matters stand, there seems to be no credible evidence that the Indian state was aware of the impending torpedoing of the Iranian vessel but these acerbic-tongued politicians of Sri Lanka’s South would have the local public believe that the tragedy was triggered with India’s connivance. Likewise, India is accused of ‘embroiling’ Sri Lanka in the incident on account of seemingly having prior knowledge of it and not warning Sri Lanka about the impending disaster.

It is plain that a process is once again afoot to raise anti-India hysteria in Sri Lanka. An obligation is cast on the Sri Lankan government to ensure that incendiary speculation of the above kind is defeated and India-Sri Lanka relations are prevented from being in any way harmed. Proactive measures are needed by the Sri Lankan government and well meaning quarters to ensure that public discourse in such matters have a factual and rational basis. ‘Knowledge gaps’ could prove hazardous.

Meanwhile, there could be no doubt that Sri Lanka’s sovereignty was violated by the US because the sinking of the Iranian vessel took place in Sri Lanka’s Exclusive Economic Zone. While there is no international decrying of the incident, and this is to be regretted, Sri Lanka’s helplessness and small player status would enable the US to ‘get away with it’.

Could anything be done by the international community to hold the US to account over the act of lawlessness in question? None is the answer at present. This is because in the current ‘Global Disorder’ major powers could commit the gravest international irregularities with impunity. As the threadbare cliché declares, ‘Might is Right’….. or so it seems.

Unfortunately, the UN could only merely verbally denounce any violations of International Law by the world’s foremost powers. It cannot use countervailing force against violators of the law, for example, on account of the divided nature of the UN Security Council, whose permanent members have shown incapability of seeing eye-to-eye on grave matters relating to International Law and order over the decades.

The foregoing considerations could force the conclusion on uncritical sections that Political Realism or Realpolitik has won out in the end. A basic premise of the school of thought known as Political Realism is that power or force wielded by states and international actors determine the shape, direction and substance of international relations. This school stands in marked contrast to political idealists who essentially proclaim that moral norms and values determine the nature of local and international politics.

While, British political scientist Thomas Hobbes, for instance, was a proponent of Political Realism, political idealism has its roots in the teachings of Socrates, Plato and latterly Friedrich Hegel of Germany, to name just few such notables.

On the face of it, therefore, there is no getting way from the conclusion that coercive force is the deciding factor in international politics. If this were not so, US President Donald Trump in collaboration with Israeli Rightist Premier Benjamin Natanyahu could not have wielded the ‘big stick’, so to speak, on Iran, killed its Supreme Head of State, terrorized the Iranian public and gone ‘scot-free’. That is, currently, the US’ impunity seems to be limitless.

Moreover, the evidence is that the Western bloc is reuniting in the face of Iran’s threats to stymie the flow of oil from West Asia to the rest of the world. The recent G7 summit witnessed a coming together of the foremost powers of the global North to ensure that the West does not suffer grave negative consequences from any future blocking of western oil supplies.

Meanwhile, Israel is having a ‘free run’ of the Middle East, so to speak, picking out perceived adversarial powers, such as Lebanon, and militarily neutralizing them; once again with impunity. On the other hand, Iran has been bringing under assault, with no questions asked, Gulf states that are seen as allying with the US and Israel. West Asia is facing a compounded crisis and International Law seems to be helplessly silent.

Wittingly or unwittingly, matters at the heart of International Law and peace are being obfuscated by some pro-Trump administration commentators meanwhile. For example, retired US Navy Captain Brent Sadler has cited Article 51 of the UN Charter, which provides for the right to self or collective self-defence of UN member states in the face of armed attacks, as justifying the US sinking of the Iranian vessel (See page 2 of The Island of March 10, 2026). But the Article makes it clear that such measures could be resorted to by UN members only ‘ if an armed attack occurs’ against them and under no other circumstances. But no such thing happened in the incident in question and the US acted under a sheer threat perception.

Clearly, the US has violated the Article through its action and has once again demonstrated its tendency to arbitrarily use military might. The general drift of Sadler’s thinking is that in the face of pressing national priorities, obligations of a state under International Law could be side-stepped. This is a sure recipe for international anarchy because in such a policy environment states could pursue their national interests, irrespective of their merits, disregarding in the process their obligations towards the international community.

Moreover, Article 51 repeatedly reiterates the authority of the UN Security Council and the obligation of those states that act in self-defence to report to the Council and be guided by it. Sadler, therefore, could be said to have cited the Article very selectively, whereas, right along member states’ commitments to the UNSC are stressed.

However, it is beyond doubt that international anarchy has strengthened its grip over the world. While the US set destabilizing precedents after the crumbling of the Cold War that paved the way for the current anarchic situation, Russia further aggravated these degenerative trends through its invasion of Ukraine. Stepping back from anarchy has thus emerged as the prime challenge for the world community.

Continue Reading

Trending