One man’s loss is said to be another man’s gain. The 100%cash margin deposit for what the Central Bank (CB) considers non-essential goods has left importers reeling in shock. Among the commodities listed by the CB are imported garments. This measure, however, has gladdened the local garment manufacturers beyond measure. Some of them, based in Pamunuwa, Maharagama, gave a press conference on Sunday,welcoming the government move, and promising to ensure that there would no shortages of garments due to import restrictions.They said they had been supplying garments countrywide for decades although not many people people were aware of their market share. Taking a swipe at the Opposition, which has made an issue of the import restrictions on underwear, they undertook to ensure that no Sri Lankan would be left without undergarments!
History, according to Karl Marx, repeats itself—first as a tragedy and then as a farce. One can see a replay of history at present, but one cannot yet say for sure if what is playing outwill turn out to be tragic or farcical. Events unfolding on the economic front, however, bring to mind the 1970-77 era, when the SLFP-led United Front government’s statist policies led to the imposition of strict import restrictions and foreign exchange controls to overcome the country’s Current Account problems and also as an economic experiment. Those measures may have worked well for the economy, as claimed in some quarters, but surely did not go quite well for the government of the day politically, for public opinion turned against its austerity drive,which caused untold suffering to the people. It was the Cold War era, and the left-of-centre coalition with some prominent leftists in its fold, under Prime Minister Sirimavo Bandaranaike, drew inspiration from the socialist bloc, antagonized the West, and was known for its antipathy towards the Bretton Woods Twins.
From 1970 to 77, stringent import and exchange control and the promotion of local industries that manufactured import substitute helped strengthen the rupee, and a decrease in external borrowings eased stress on the country’s Current Account. When the economy was opened up, in 1977 under a UNP government, it was thought that the country would not experience import restrictions and exchange controls ever again. But nearly 45 years on, they have manifested themselves!
Statism still alive
It will be far-fetched to consider what we are witnessing as a retrogression to the 1970-77 era. The world has changed, and the economic system Sri Lanka had during the 1970-77 period ispossible only in a hermit kingdom, in the modern world, but statism is far from dead and has the potential to make its presence felt in some form or the other, even in capitalist societies. In fact, economic analysts argue that even the US is no exception.
What Adam Smith advocated in The Wealth of Nations is not found in its purest form even in the modern-day US, whose founders endorsed the view that the state should play a limited role in economic affairs, and governments should confine themselves to national security, the rule of law, especially the protection of private property and the provision of a few public goods such as education.
Henry Kaufman, a former senior partner of Salomon Brothers, president of Henry Kaufman & Co, writing in The Financial Times (UK), last year, observed that American capitalism was rapidly disappearing, and its demise had been under way for some time, and the economic devastation wreakedby the Covid-19 pandemic was the latest blow to America’spolitical economy. Kaufman concluded confidently: “With the federal government and the Fed firmly joined at the hip, the transformation of capitalism into statism is gaining momentum, perhaps irreversibly. This is a great departure not only from the vision of the US founders but also, I suspect, it is not the kind of economic system most Americans living today want to leave for future generations.” Whoever would have thought a few decades ago, the US, which considered it better to be dead than red, would find itself in such an economic and ideological dilemma. The US is lucky that its dollar has been the international reserves currency, but if the dollar is knocked off its perch by any chance, Washington will face what it is trying to wish away.
Political fallout of restrictions and controls
Sri Lankans, too, are averse to statist economic policies, just like Americans and others, as evident from the trouncing of the SLFP at the 1977 election, and obviously they did not want to ‘leave it for future generations’. It must have been the realization of this fact that drove the SLFP to embrace open market policies; the JVP, too, has softened its stand on the open economy. This paradigm shift in the SLFP’s economic policies occurred under Chandrika Bandaranaike Kumaratunga’s stewardship.
The fate of the SLFP-led government had been sealed years before the 1977 general election, and the UNP would have wonwith hands down even if it had not campaigned hard. But the UNP leaders, especially J. R. Jayewardene and Ranasinghe Premadasa (father of current Opposition Leader Sajith Premadasa) left nothing to chance, and launched frontal attacksagainst the SLFP. Premadasa Snr tore into the SLFP, and carefully chose issues to be flogged to turn public opinion against the SLFP. His tactics were populist and impressed the public. He lamented that the Sri Lankan children born after 1970did not know what apples and grapes looked like, and ridiculed the import substitutes such as locally-produced sarongs. The UNP offered to flood the local market with apples, grapes, cheese among other things. Controls on essential commodities such as textile, rice, flour, sugar and chillies under the SLFP government made the UNP’s task even easier.
In short, there were numerous reasons for the SLFP’s humiliating defeat at the 1977 election, which the UNP won with a five-sixths majority, but perhaps the most important among them were restrictions on imports and foreign exchange, various controls and chronic scarcities.
Sajith’s call for an election
Opposition Leader Sajith Premadasa has drawn a lot of criticism for his recent call for an election. Even the JVP has lashed out at him, suggesting that anyone who needs an election while people are dying of Covid-19 should have their heads examined. Premadasa seems to think his party, the SJB, would be able to exploit the current import restrictions and exchangecontrol, the way his late father and other UNP leaders did prior to the 1977 general election.
But the situation is different from what it was about four and a half decades ago. Shortages of essential commodities are not so severe as to turn the public against the government to the extent of people going all out to oust it. Restrictions and controls currently in place are not due to any socialist thinking or an ill-conceived experiment or statist policies of the ruling coalition which consists mostly of former SLFP heavyweights; they have come about due to the current pandemic, which has not spared any other country.
In 1977, the UNP was able to offer an alternative to the economic model the United Front government had adopted, and successfully sold it to the public, but today the SJB, which has eaten into the support base of the UNP, has nothing new to offer. Most of all, the public cannot be unaware that the circumstances that have led to the present situation are not likely to change even if the present government is voted out, and the Opposition is not considered a better manager of the economy, a reputation that the UNP once had but lost after the demise of President Premadasa. So, it is doubtful whether the time is opportune for the SJB to press for an election. However, it will be a big mistake for the SLPP government led by President Gotabaya Rajapaksa, and Prime Minister Mahinda Rajapaksa, who cut his political teeth under Sirimavo’s leadership, to try to wish away the political fallout of the current restrictions and control that hurt the public.
