Does Capitalism Have a Future in Sri Lanka? (Part 1)

By sumanasiri liyanage

The present situation is characterized by three crises, economic, epidemiological and ecological. The dispute with regard to Eastern Container Terminal (ECT) is likely to lead towards a political crisis if the government fails to come to an amicable solution with the workers of the Sri Lanka Port Authority (SLPA). These quadruple crises are not isolated events. They are interlinked and superimposed on each other so that an understanding of them needs the cognition of the structure and the process in its entirety. 

As Jairus Banaji has mentioned in another context the word origin may not be the pertinent term to portray the rise of the present moment in Sri Lanka. An economist who thinks in terms of per capita income as an indicator of the economic situation would say the present crisis began in 2013 and continues thereafter. Hence the crisis predates Covid-19 pandemic that of course had exacerbated it. If one thinks long durée s/he may propose that it began in 1978 with the introduction of open economic policies and the crisis is a necessary outcome of the neo-liberal economic policies that was seen at the time as a panacea for all the economic ills Sri Lanka had faced under import substitution growth strategy. Post- 1977 period is marked by two major trends. The first trend has been the inconsistency in performance of the Sri Lankan economy. The interdependence and mutual determination of cause, effect and symptoms of the crisis. I shall take a few minutes to explicate these two trends.

Figure 1: Rate of Economic Growth 1978- 2018

An Inconsistency in Performance

One of the myths is that 1978 policy package has contributed to accelerate economic growth after a sluggish growth performance under the inward-oriented strategy with expressive social welfare bias. During this 42-year period, the rate growth has exceeded the magical 7 per cent level only in six years. The most important and critical issue is not achieving a high rate of growth, but its capacity to sustain the continuity of the process. Sri Lanka was able to maintain a growth rate of above five per cent for a continuous five-year period in only two clusters of years during this period, namely, during 1978- 1982 and 2003- 2007. The second cluster may be extended until 2012 with the growth rate slowing down during the intensified internal armed conflict in 2008 and 2009 but bouncing back after the military victory of the security forces over the Liberation Tigers of Tamil Eelam. Both these clusters are characterized by state led infra-structure investments:  infra-structure investments during 1978-1982 were financed by lucrative foreign assistance while resort to foreign loans occurred during 2007-2012. As Figure 1 shows, regular fluctuations in the percentage rates of growth convey the impression that a growth dynamic was not embedded in the 1978 policy package despite isolated years of prosperity. Therefore, it stands to reason that the future is likely to be bleak if the same policies continue.

As W. A. Wijewardena noted, “Sri Lanka has now been downgraded from a higher middle-income country to a lower middle-income country on account of its poor economic performance in 2019. With the economic downfall arising from the COVID-19 pandemic, Sri Lanka is going to live in this lowered status at least in the next few years. Thus, it has been a stumbling block for the country to reach its goal of becoming a rich country in a single generation”.        

Causes, Outcome and Symptoms

Understanding the nature of the crisis is invariably marred by the complex relationship between the triggers of crisis, crisis outcome and the apparent symptoms. For example, low rate of growth is a symptom and a result of the crisis, but at the same time it may be viewed as cause of the present crisis. Moreover, poverty is not just an outcome of the crisis, but also a variable that trigger economic disequilibrium. The list can go on.

    I will define the present crisis in Sri Lanka as an ‘organic crisis’ brought about by truncated capitalistic development. To understand the distinction between “organic” and “conjunctural”, it is advisable to relate them to a real historico-political situation. As Antonio Gramsci noted, “a common error in historico-political analysis consists in an inability to find the correct relation between what is organic and what is conjunctural”. For him, organic movements are relatively permanent while a conjunctural phenomenon appears as occasional, immediate and almost accidental. Nonetheless, he did not mean that conjunctural disequilibrium is not exogenous to accumulation dynamics of the capitalist system. In this sense, conjunctural disequilibrium, the origin of which lies in the dynamics of capitalism itself, shakes out over capacities either in inventories or in production. It is neither unnatural nor illogical to see the capitalist system as a crisis-ridden one.

Capitalism in the Global South

Let me make my position clear without leaving a room for misunderstanding. I do not deny the possibility of capitalistic development in countries in the Global South I view it as one among the vector of possibilities open for the countries of the Global South. In fact, many countries have made and attempt to develop their economies within the framework of capitalism, but only a few has succeeded in achieving the goal. In 1977, when new economic policy was introduced by the UNP government headed by J R Jayawardene, the aim was to emulate Singaporean or South Korean path of economic development. The experiment of 40 years has miserably failed. How do we explain this failure? Has the growth been truncated by the continuous presence of pre-capitalist mode pf productions? Many mainstream economists seem to think that capitalistic development was marred by not applying a correct dose of the reform package so that the operation of market fails to produce optimum outcome.

    This begs the question. Contrary to orthodox view, I hold the position that the development on capitalistic line has not produced results primarily because of the fact that the operation of market in itself had become a hindrance to capitalist production. As we all know, under capitalism the transfer of capital takes place in response to the behavior of the rate of profit or as Marx said rate of profit of enterprise. Capital moves from low profit sectors to sectors of high level of profit. Hence, there is a tendency for an equalization of profit rate. In Sri Lanka, high profit rates exist in the sectors like banking, trade, insurance and real estate. The relative profit rate in industries and agriculture is lower. Hence the growth of the production was made sluggish because capital has moved to unproductive sectors. The nature of the political class in Sri Lanka has refused to take steps to reverse the capital flow thus truncating the possibility of capitalistic development. 

(this is a text of the speech given to a group of Sri Lankan living in Australia, Europe and North America.)  

Courtesy Ceylon Today, January 29, 2021