The Emperor’s New Clothes: Pathfinder Foundation’s Economic Blueprint

24 Jun 2015 - Editorial

The Pathfinder Foundation’s prescriptions in its recent report, ‘Charting the Way Forward: Prosperity for All’ are a blueprint for the failed neoliberal policies of the past and would lead to prosperity for few and misery for many. While vague and superficial in its analysis and conclusions, the Pathfinder Report’s conceptualization of structural changes to Sri Lanka’s economy has many faulty if not dangerous assumptions. In particular, the Report proposes cutting back on state budgets while promoting labour regimes that will further undermine workers’ rights and incomes. These ideas will only consolidate tendencies of political decay in Sri Lanka, further removing citizens from decisions made by economic “experts”. Finding alternatives then must inevitably expose the hoary claims in the Report that are being rejected around the world in the wake of economic crisis.

Financialisation and Austerity

While the Pathfinder Report talks about the success of the East and South East Asian economies as a model for Sri Lanka’s development, it does not consider the earlier role of the state and public sector during their high growth period in those countries, and their subsequent domination by global finance which led to the East Asian economic crisis of the late 1990s. The Report highlights that Sri Lanka is “increasingly exposed to the discipline imposed by rating agencies and international capital markets”, while simultaneously calling for “financial sector consolidation”, “capital market development”, “encouraging angel investors and venture capitalists”, “developing the mortgage industry” and “boosting the pension industry”. In other words, these are the very processes of financialisation that will put Sri Lanka further at the mercy of rating agencies and capital markets, increasing the possibility of devastating crises.

Concurrently, the Pathfinder Report proposes austerity, in the form of budget cuts to control government spending, which coincidentally is now being promoted in Southern Europe in the wake of financial crisis. In the case of the East Asian export-oriented countries, new thinking is beginning to question the orthodox assumption that such countries must force lean budgets on their citizens, particularly as consumer demand dries up in the West. The Report does not address the possible consequences of austerity including increasing inequality and crippling poverty.

Reinforcing Inequality

The Pathfinder report further claims the government should tackle poverty through “targeted” mechanisms and a “carefully calibrated poverty line” despite increasing evidence that universal social welfare measures are the more prudent policies to address poverty and inequality. The UNDP’s ‘Human Development Report 2014, Sustaining Progress: Reducing Vulnerabilities and Building Resilience’, had precisely made this point. The Gini coefficient, which measures inequality, had declined during the period of Sri Lanka’s welfare regimes, and immediately began increasing after the introduction of the “Open Economy” in the late 1970s. Part of this was a result of the curtailment of the rice subsidy, in addition to other benefits, which people had used in order to sustain their household income. Significantly, a recent IMF Report titled, ‘Causes and Consequences of Income Inequality: A Global Perspective’ released in June 2015 argues that increasing incomes for the lower rung of society leads to higher economic growth. The Pathfinder Report in ignoring inequality, seeking to manage poverty and making claims about economic growth, seems to be falling behind even the discourse of the neoliberal institutions such as the IMF.

More fundamentally, the Pathfinder Report’s conception of poverty is disconnected from analysis of exploitation, including global capital’s “race to the bottom” for cheaper jobs such as those found in Sri Lanka’s Free Trade Zones. The Report wants to streamline the labour regime, going hand in hand with recent calls by the Employers’ Federation of Ceylon to make labour regulations lax in order to improve productivity. The EFC along with the Pathfinder Report complain that existing provisions in labour amendments curtail businesses ability to hire and fire, the latter which supposedly boosts the efficiency of the market. They blame the labour laws, even as their lack of enforcement leads to the spread of subcontracting, outsourcing, and other forms of disguised and precarious work, which are characteristic of the new forms of exploitation of labour. From another angle then, the Pathfinder Report can be seen as part of a dangerous shift in a discourse that undermines organised labour.

Anti-Democratic Attitude

Perhaps the most worrying aspect of the Pathfinder Report is its tendency to rely on a notion of policy making that attempts to insulate crucial decisions about citizens’ welfare from the public. The Report frequently takes an anti-democratic tone, referring derisively to the impact of “political cycles” in generating calls for government “handouts” and demanding instead more distanced decision-making by policy experts. This echoes more recent attempts in the West to promote government by technocrats, ignoring popular demands for accountability and inclusion in economic decision-making. While Sri Lanka’s political culture must change, what is needed is not a retreat from public engagement but a more vibrant conception of democracy that strengthens citizens’ participation.

Thus the Pathfinder Report’s problems are fundamental; its blinders are not just in its economic thinking, but its core assumptions of what should drive society. Its emphasis on “efficiency” ignores the predicament of ordinary Sri Lankans, whose basic needs to survive and thrive would be most affected by these massive economic changes. While the Report vaguely alludes to creating an “aspirational society”, it ignores the economic constraints on people’s lives that inevitably affect social mobility, including access to free universal education.

While as a manifesto the Pathfinder Report is couched in a rhetoric that “unleashes the capabilities of Sri Lankans”, it is in fact a sounding board for well-worn austerity policies and under-cutting people’s livelihoods. These are increasingly being challenged in the very centres of neoliberalism in the United States and Europe in which they emerged. The Report is repackaging outdated and empty ideas, and selling them to Sri Lanka’s political elites as part of a push for a deeper form of regime change, which is worryingly undemocratic. Sri Lanka undoubtedly faces its own unique problems with political decay. However, such decay can only be critiqued by grasping the basic inequalities and undemocratic tendencies in society which they reflect. As for addressing the more fundamental problems of the political economy of Sri Lanka, the Pathfinder Report like the emperor in his new clothes stands naked.

This piece was also published in the Daily Mirror on 24 June 2015