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Surviving the World economic crisis

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The outbreak of the Covid-19 pandemic precipitated a world economic crisis. Many commentators suggest that the pandemic caused the crisis. In actual fact, several economists, such as Sri Lanka-born Howard Nicholas, have predicted this economic downturn for several years.

The roots of the crisis go much deeper than the Coronavirus. The economies of the world are mired in debt. Because of the hegemony of the financial elite, companies in the advanced industrial nations have not, for years, invested in new plants and machinery but have, instead, used government subsidies to buy back their shares from shareholders. Investors have used this mechanism to increase the apparent value of their assets, enabling them to borrow more from banks.

This is because investors expect to make money, not from the dividends enabled by company profits, but by speculating in company shares. Many of the so-called “unicorn” companies (new, fast growing companies valued at over US$ 1 billion) make no profit, but grow because investors believe they will grow in value.

Economic stagnation

For the same reason, many big companies, such as Apple, Facebook and Google, instead of increasing their own value by investing in production, or research and development, buy other companies. Profitability is increased by reducing staff numbers, or hiring temporary staff at much lower remuneration, often on a “gig” (for-the-job employment) basis. This in turn has an effect on workers’ purchasing power, which affects the growth of markets negatively.

This kind of economic stagnation occurs from time to time. It used to be solved by more “inefficient” companies (that is, companies that do not make a profit, even if they happen to be more efficient by other criteria) going bankrupt, and more profitable companies expanding into the space they create. This has changed now. For example, the old hiring-car-based company Hertz, which made a profit of US$ 168 million in the last quarter of 2019, went bankrupt, while Uber, which made a loss of US$ 1.1 billion in the quarter, is doing famously. Companies able to attract capital prosper, while those seen as not expanding, fail.

The economy recovers from such crises by investing heavily in new technological methods to increase productivity. In the last two decades, however, companies in the West, especially in the USA, have invested in technologies that enable them to extract the greatest profit from “gig” labour, and essentially in sales, delivery and other services, rather than production.

On the other hand, East Asian countries have invested heavily in high-tech manufacturing industries. China, Japan and South Korea, together, account for two thirds of all new industrial robot installations, while Europe and North America only account for 30%. In the context of the current crisis, such countries will probably lead the recovery, with brand new technologies. Other up-and-coming industrial powers, notably Vietnam, Iran and India, will also accelerate their technological capabilities.

The continued economic stagnation, in the USA, has several corollaries. In the first place, as the world’s biggest consumer of imports, the exports of export-based economies will suffer. In the second place, investors are fleeing the US Dollar for gold, the price of which has risen from US$ 48,000 per kg in March to over US$ 65,000 per kg today. The consequent fall in the value of the US dollar (from € 0.94 in March to € 0.85 today) means that exporters will be even more disadvantaged.

The USA is also the world’s biggest consumer of petroleum – using more than the combined consumption of the next two countries, China and India. The price of crude petroleum in Dubai fell from US$ 64 in January to US$ 23 in April. Although the price rose again, to US$ 43 in July, the lower value of the US Dollar means that the real increase is less than this. This means the income of the Middle East and Russia will be affected severely.

Different approaches

How have other countries coped with the economic downturn? The USA, China and Germany represent three different approaches to the problem.

Apparent economic growth, in the USA, before the pandemic, was based on short-term, low wage jobs. Once Covid-19 hit, the country experienced its fastest unemployment growth in history. In reaction, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which budgeted US$ 2 trillion (10% of GDP) to boost the economy. More than half of this went to companies, while less than a quarter went as compensation to poor people losing their jobs or otherwise affected by the crisis.

This stimulus package helped cushion the collapse of the US economy. However, the payments made to the affected poor people often went to pay immediate food and rent needs. Most of the consumer spending due to payments to individuals went to online delivery companies, such as Amazon and Uber, which employ workers on “gig” terms. They did not spend it in shops and supermarkets which employ permanent staff, so unemployment rates remain high.

Unfortunately, even this funding ended at the beginning of August. The government and the opposition (which controls the legislature) argued about a new stimulus package. President Trump wanted to spend only US$ 1 trillion, reducing payments to unemployed people. The opposition Democratic Party wants to spend US$ 3 trillion, mostly on benefits to the affected people and on government programmes, including schools. The two sides could not agree.

“The Democratic Party continues to insist on radical left-wing policies that have nothing to do with the China [sic] virus,” Trump said. On 9 August he signed four “executive actions” regarding payment of reduced unemployment benefit, a moratorium on income tax for poor people, relaxing rules on evicting tenants and action on student loans. Critics say the executive actions may not be workable.

“Six guarantees”

China, the world’s biggest manufacturing nation, the first to suffer from the Covid-19 pandemic, has seen its economy recover. According to “The Economist” magazine’s Intelligence Unit in Beijing, local government investment, in public medical facilities, city infrastructure, old community renovations, transport, power grids and telecommunications, drove construction growth. This, in turn, stimulated production of construction-related machinery and goods, driving up manufacturing output.

The Chinese government has revealed a “six guarantees” recovery plan, based on creating jobs, giving financial support to ensure livelihoods, protecting small and medium enterprises, food and energy security, stability of the industrial supply chain, and facilitating the path from lockdown to a vital social life.

The Standard Chartered Bank says that China’s government is prioritising social goals ahead of GDP growth by creating employment and indicating that fiscal policy will be its preferred way to stimulate the economy. Officials have suggested that they are willing to almost double the budget deficit to support gross domestic product growth, while allowing money supply and credit growth to reach higher levels. There also appears to be a clear shift in China’s strategy; moving from an export focus to paying greater attention to domestic demand, to releasing consumers’ potential, and investing in new and traditional infrastructure projects. It projects a growth rate of 2-3% this year, a surprisingly high outcome for an economy which shrank rapidly in the first quarter of this year.

“Green” recovery

Meanwhile, Germany, the biggest European economy, has put in place a radical “green” recovery plan. The € 130 billion plan consists of fifty measures designed to boost consumption and speed-up economic recovery. The Government of Germany’s actions will be structured on this recovery plan. It is based on three pillars: € 78 billion on short-term economic recovery (about), about €5,000 billion on investment in future-proof and green technologies, and, € 3 billion on European and international solidarity (in addition to the efforts of the European Commission’s recovery plan).

Reducing VAT by 3 percentage points (12 percentage points for the catering and restaurant sector) – to stimulate consumption and revive employment in businesses, particularly in the hard-hit food and beverage sector – will cost the government € 20 billion.

The short-term recovery plan includes a huge green effort: subsidies on consumption of renewable energies, together with a carbon tax, will move use to electricity from other modes. In the transport sector, subsidies for buying electric vehicles are doubled, and support is given to battery and charging infrastructure, modernising commercial vehicles, ships and aircraft, and to public transport and railways. The construction sector has € 2 billion allocated for energy efficient retrofitting to existing buildings.

A key point in the plan is the new green hydrogen (produced by electrolysis from renewable electricity) sector, for which the government is allocating € 3 billion to develop 10 GW of electrolysis units by 2040. Together with the budget for European and international solidarity, this will put Germany firmly in the lead in this technological area.

Lanka’s markets

In the second quarter of this year, the USA’s gross domestic product declined by 35%, and the government recorded 23 million people as unemployed, the highest rate in 80 years. In the European Union the GDP declined by 7%, and unemployment increased to 14 million. In Britain, GDP has declined by 9%, driving unemployment up to 2.5 million. In Russia, GDP dropped 8%, and unemployment rose to 1.7 million. Middle Eastern economies will slow by 5%, affecting migrant labour employment.

These are Sri Lanka’s biggest markets. This shrinkage will adversely affect Sri Lanka’s economy. Both exports, and foreign labour opportunities, will decline. With a collapsed tourism sector, this will allow the country little foreign exchange to buy the things it needs.

In this situation, what can countries like Sri Lanka do? There are a few simple answers to this question. First, reduce imports to match the reduction in foreign exchange sources. Second, find new foreign markets to replace the declining economies. Third, find new products to replace the ones currently being exported. Fourth, develop the domestic market for domestic products, to advance the economy.

Of course, walking the talk will be less simple. How can it be done? The path taken by the USA is the road to ruin, while Sri Lanka does not have the financial resources to emulate China or Germany – although it can emulate many of the measures they have put in place, on a far smaller scale. It remains for the state to create the policy parameters to drive recovery on new paths, using our existing resources, and developing indigenous knowledge. New technology will be a large part of this, but we must use it wisely. We have an educated population which can adapt itself rapidly to new skills. That is our biggest resource in this economic battle.

Vinod Moonesinghe

 

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Opinion

Cattle slaughter ban and common sense

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By Rohana R. Wasala

It was reported in the media (September 8, 2020) that Prime Minister Mahinda Rajapaksa’s proposal for a ban on cattle slaughter received cabinet approval, as well as the approval of the government parliamentary group. Some Buddhist monks, and allied groups who have long been agitating for such legislation to be enacted, raised euphoric cries and invoked blessings on the Prime Minister and the President. I don’t know how the two privately reacted to the acclamation they received on the basis of a controversial measure, tentatively proposed, but not finally agreed upon: Did they accept the still unearned accolades with a feeling of exultant self-vindication or with a sense of gnawing doubt that the whole thing might misfire? They are more likely to experience the latter state of mind, because this ban cannot be imposed without harmful repercussions, given the unalterable ground realities that must be recognized and accommodated before enacting and implementing the proposed ban. This is so particularly in relation to the prevailing economic and political crises in today’s globalized world, of which Sri Lanka is a small member, hardly noticed, except for her strategic location and her beleaguered state due to the same circumstance, trapped between three superpowers – two global and one regional. The domestic fallout could be even more critical. This is the worst imaginable time for such a radical measure to be implemented, however popular it could be among a section of the people.

But let’s not be too alarmed. Media Minister and Cabinet spokesman Keheliya Rambukwella (a good choice for the latter job, in my view) managed to assuage the fears of sceptics, like me, who are not convinced about the actual benefits, but are really concerned about the possible unsavoury economic, socio-cultural, and political consequences, of a ban being imposed on cattle slaughter, when Rambukwelle told the local media that Prime Minister Rajapaksa ‘hopes to ban cattle slaughter’ and that ‘he  would decide when to submit the proposal to the government’. The government announced that a final decision will be delayed by a month (as reported in the online Istanbul/Turkey based TRT News Magazine). Rajapaksa’s cautious non-commitment hints at the possibility of  a reassessment of the pros and cons of the move and points towards the likelihood of sanity finally prevailing. But this will need a lot of reverse convincing to do among the convinced (I mean, among those who are for the ban).

From my point of view (for what it is worth), it is vitally important to be mindful of how the ban would be viewed abroad, as well as among domestic non-Buddhist religious minorities, though it might go down well with a majority of Buddhists and Hindus. There is no question about trying to assert our rights as an independent sovereign nation and to pursue political and economic policies that we believe serve the best interest of our people. However, divisive party politics of the recent years have landed Sri Lanka in such a vulnerable situation, globally, that any government  that even occasionally dares to defy undue superpower pressures in order to accommodate the legitimate demands of its own people, gets labelled as undemocratic, autocratic, oppressive, and therefore ripe for replacement. For a Sri Lankan government to be on its best behaviour is no guarantor of its survival in a context where India, China, and America are each looking after their own national interest in a competitive relationship with one another at the expense of Sri Lanka’s very survival. But what can we do about it?  I think that the present government, under the joint leadership of the President and the Prime Minister, is doing what it can in these internationally beleaguered  and internally treacherous times. Insisting on passing potentially divisive legislation is no way to help them. 

Today, with Gotabaya Rajapaksa as President, we have the first executive head of government since independence who has found a way to consult with the Maha Sangha as a monolithic entity through non-political, non-sectarian interaction. He appointed a board of monks called the Bauddha Upadeshaka Sabhawa (the Buddhist Advisory Council) to advise him, and had its first meeting on April 24, 2020. It consists of the Mahanayake Theras of the Three Nikayas and a group of prominent scholar monks, who are specialists in various fields, connected with the Buddha Sasana, in which they have time-honoured claims and commitments. The monks meet with the President on the third Friday of every month. In their last meeting, on September 18, they commended the President for taking steps, in accordance with their proposals, for, among other things, the protection of historical sites of archaeological importance, development of Pirivena education, designing of a national educational policy, control of the drug menace, etc. But, as far as the Derana TV news coverage was concerned, there was no mention of the cow slaughter ban proposal. Can’t this be an indication that it is not being perceived as such a pressing issue? 

There is no gainsaying the fact that Buddhist monks worked tirelessly for the victory of the nationalist camp, and they did not do so for any personal benefit. There are a number of activist monk groups each articulating different issues of broad national interest such as environment protection in addition to the central issue of the threat to the Buddha Sasana, the predominantly Buddhist nation (the people) and the unitary state that comes from the handful of foreign-sponsored separatist racists and religious extremists among the peaceful mainstream Tamil and Muslim minorities, respectively. These traitorous elements dominated the previous regime. The President appointed the Buddhist Advisory Council, partly in recognition of the service they did in helping to save the country from misgovernance, but primarily in fulfilment of the constitutional requirement of giving foremost place to Buddhism. We can expect nothing but good from this interaction between the prominent Nayake and scholarly monks and the President. Is it likely that they will  fail to understand the problematic nature of the proposed ban on cattle slaughter?  

Be that as it may, we can’t overlook the fact that some well known leading activists, heads of some animal rights and public health maintenance-related organizations, welcomed the proposal with great enthusiasm, despite the principal proponent’s non-committal stance. These included such prominent personalities as the Justice for Animals and Nature Organization Chairman  Ven. Dr Omalpe Sobhita Thera, founder of Sarvodaya Dr A.T. Ariyaratne, and GMOA head, medical specialist Dr Anuruddha Padeniya. They  published a public announcement-cum-invitation to ‘all professional and civil organizations’ asking them to attend a meeting  at the ‘Sangha Headquarters,’ on Alvitigala Mawatha, on September 20. They are urging the enforcement of the ban proposal. An announcement-cum-invitation was issued on September 17, the day that marked the 156th birth anniversary of Anagarika Dharmapala, who had pioneered the agitation for putting an end to cattle slaughter. In his time, probably, it was more meaningful and less controversial to do so than today. This announcement appeared in the online Lankaweb Forum page the same day, where I read it. It must have been published elsewhere, too. The author and principal signatory to the document, Ven. Sobhita, wrote (in translation): ‘It need hardly be stressed that the principled, determined and fearless enactment of the praiseworthy decision taken by the government MPs, headed by the Prime Minister, requires the approval and support of the general public. We believe that we are going to get your fullest cooperation in this regard. We intend to call a meeting of delegates from such organizations and take decisions in connection with organizing the relevant future activities to achieve this aim.’

Personally, I have the highest respect for these three eminent persons (who have already done much commendable service to Mother Lanka in their different capacities), and the others mentioned in the document, and also empathize fully with their commitment to the cause they believe in,  but I do not share their conviction about the feasibility, the functionality, or the actual benefits, of the proposition that they are wholeheartedly supporting. I would support a movement with the same devotion to stop animal slaughter in general, not just cattle slaughter, if there was such a movement, but I know that it is an unlikely initiative, an impossibility even. I don’t see any rationality in such a project. The kind of free rational thinking that the Buddha advised the young Kalamas to adopt without blindly following him – the way to Enlightenment, budh,rational intelligence, that Narendra Modi identified some months ago, invoking the common intellectual heritage of India which we, too, share through Buddhism,  as opposed to yudh, war/conflict, as the best way to resolve problems – seems to be at a premium, i.e., there is paradoxically little available of it – in the sacred Treasury of Theravada Buddhism that Sri Lanka is often claimed to be. Occasional submergence of practical rational thinking as in this case – our rational faculty sometimes becomes manifest in its humblest form of common sense – could prove costly in more than one sense for the whole country.

Rational minds can conceive of alternative ways of dealing with a problem, when sometimes the most direct solution is likely to create worse problems than the original problem itself like the cattle slaughter ban, if implemented, will certainly do. It is not likely to contribute towards enhancing intercommunal goodwill as already implied above. Many Muslims are employed in the meat industry, and there are secondary industries, like tanning (making leather out of animal hides), shoe making, and the manufacture of leather products, such handbags, waist belts, saddles, some percussion instruments, etc. Import of beef from abroad will lead to increase in prices, in addition to the loss of jobs, and the drain on scarce foreign exchange that it will entail. We may easily imagine the problematic implications for the important dairy milk industry, the development of which is essential for stopping the import of toxic milk powder. 

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Opinion

Youth battle against drugs needed

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Twenty-one-year-old student Panusaya Sithijirawattanakul read a 10-point manifesto aimed at reform of Thailand’s politically powerful monarchy

If our university students are daring enough to challenge the government for their rights for a clear-cut education policy, that no government could change, according to their whims and fancies or for the benefit of corrupt ministers, and state officials, then our university students’ unions could also challenge the government, regarding the drug mafia.

They should follow the 21-year-old. Thailand girl, from Thammasat University, who stood up against Royalty and called for a monarchy change, saying all humans have red blood and called for various reforms, as she fearlessly delivered the manifesto, including the call to change the constitution and education. This speech could have sent her to jail for 15 years, but she stood her ground.

Our university students, for the sake of our young generation, and those to be born, could challenge the government to take genuine action, as promised at the recent election, against all those who are involved in the drug mafia, be they ministers, officials or relatives. It is a well known fact that such an amount of drugs, etc., cannot be imported without the help of VVIPs.

Only the challenging from the young generation of all fields could induce positive action to expose the culprits. Mr. President, you asked the people to give you the strength to fight all corruption. You got it, but the people are worried about the outcome. Was it an ‘election gundu’? Do it, though you may not get the goodwill of corrupt ministers and officials, but the people, the honest and the hard working parents will be thankful to you.

Save the children before introducing any long term plans. Remember this drug mafia is very much worse than terrorists, because ministers did not get commissions from the war, but drugs bring in millions of rupees.

 

Barbara Seneviratne

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Opinion

Reduce number of vehicles on our roads

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Please allow me a short comment on the perceptive article by George Braine, in The Island ( 4th September, page 6), on renationalizing the private bus service. I hope it catches the eye of our President.

Firstly, his observation about how in Hong Kong and (Singapore too), buses are washed every day, and trains are comfortable and clean. Let alone comfort, couldn’t the “higher powers” provide us AT LEAST with CLEAN public transport, despite the now ingrained lack of hygiene in Sri Lankan society (it’s now part of Sri Lankan culture!). We have become an unhygienic people immune to uncleanliness – if you doubt this, tell me the name of ONE South Asian country which is as filthy as us. (Singapore, Indonesia, Japan, Thailand, Myanmar, Hong Kong …?). Habits such as spitting betel leaf in public, onto the pavement, throwing “Buth Parcels” on to it for the purported purpose of obtaining “merit”, by feeding the disease- infected stray dogs and cats (I almost forgot to include the rats) – this is us!. If you still doubt, go have a look at the state of our Public Toilets ANYWHERE, including the “international” Airport. Our children should be taught at an early age, how to use a toilet correctly – obviously most parents don’t know this skill.

Forty years ago, the belching buses with people hanging onto the footboard for dear life, were a common sight. It remains so today – in what aspects did we lopsidedly “Develop”? Highways – for whom?

Recently I travelled from Colombo to Galle, and last week, from Colombo to Nuwara-Eliya by car. On the Galle trip, I saw private buses tearing along, racing each other on the wrong side of the Galle Road. It was reported the following day that three had died in a head-on collision. On the Nuwara-Eliya trip, even up in the dangerous winding hills, private buses were engaged in a permanent roadrace to gather passengers.

In the very same newspaper (September 4th), on page 3, headlines read – “Three persons killed, three others seriously injured in car mishap”. It goes on to say that due to speeding, two young men sent themselves to a premature death. At least three die every day in fatal road accidents. The country’s Traffic Police are out of touch with reality. Dishing out parking fines (for the ulterior motive of collecting revenue!), watching idly as trishaws (a law unto themselves), cut across the line of traffic, allowing motorcycles to “short-cut” along the pavement, Mr Braine’s suggestion that vehicle imports should be BANNED (including Duty Free ) for five years is absolutely right! I hope the President will firmly refuse to bow to pressures in this regard, in the public interest.

He will receive fervent thanks from the public at large if he can reduce the number of vehicles on our already clogged roads. By prohibiting vehicle imports he also creates jobs for the numerous vehicle repair shops needed to keep existing vehicles in good order.

 

JAYANTA KURUKULASURIYA

 

 

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