In response to an article I wrote last month in the Economic and Political Weekly (EPW) on the second wave of neoliberalism in Sri Lanka, Muttukrishna Sarvananthan and Kumar David have offered disparate critiques from diverging positions. While Sarvananthan claims that government policy is insufficiently neoliberal (EPW, 21st September 2013), David takes the view that neoliberalism is more or less redundant (Sunday Island, 15th September 2013). In the meantime, several interesting questions about neoliberalism were raised in a discussion organized by the Social Science Study Circle in Jaffna last week. In this article, I try to explain the theory of neoliberalism in order to bring more clarity to these debates.
There has been considerable discussion and work on neoliberalism in many parts of the world, particularly in relation to the economic crises of recent times. However, there has been little work and little debate on neoliberalism in Sri Lanka. In a previous article (Sunday Island, 4th September 2011), I advanced the argument that a second wave of neoliberalism was fast transforming the post-war economy in Sri Lanka. These economic changes, I argued, were shaped by policies prioritised in the second term of the Rajapaksa regime and the fall out of the global economic crisis with capital flowing to “emerging markets.” While I historically located my argument in the neoliberal character of the Sri Lankan economy over the last three decades, I argued that the acceleration of neoliberal policies in recent years in the context of post-war stability and an authoritarian regime was rapidly reshaping class relations in Sri Lanka.
In order to stimulate discussion around these developments, a group of us organised an eight session long seminar on the facets of neoliberalism in Colombo last year. Some members of that seminar formed the Collective for Economic Democratisation this year; a forum committed to political economic work including analysing neoliberal dispossession in Sri Lanka. That was the background to my recent article in the EPW.
Neoliberalism and Financialisation
The global economy, in particular the Western economies, went through a long boom after the Second World War, which lasted into the late 1960s. Some economic historians characterise this period as the golden age of capitalism where economic prosperity and strong labour movements led to the implementation of social welfare policies. However, capitalism is prone to periodic crises, which political economists associate with different factors such as the falling rate of profit, over-production and under-consumption. In any event, the Western economies went through a major economic crisis in the 1970s with a fall in the profits of capitalist firms.
The conjuncture of this economic downturn and the rise of certain regimes around the world including Reagan in the US, Thatcher in the UK, Pinochet in Chile and Jayawardena in Sri Lanka, led to the slashing of social welfare and the attack on organised labour. With these drastic measures, capitalist accumulation returned, but centred on financialisation and dispossession. Finance capital took a central role in various aspects of the economy; state expenditure was dictated by finance capital, industrial firms became dependent on financial markets and households got enmeshed in financial instruments from credit cards to pension funds. Furthermore, rather than focusing solely on production and profits, there was a move to accumulate by dispossessing people’s assets and entitlements. This accumulation strategy was taken forward by finance capital backed by authoritarian state power.
Neoliberalism then is the set of policies, institutions and ideology that took varying shapes depending on the local context in different parts of world after the major global crisis for capitalism in the 1970s, and consolidated the power and accumulation of finance capital in the ensuing decades. Indeed, Marxist geographer David Harvey characterises neoliberalism as a class project which emerged in response to historical developments, and was consolidated by the nexus of finance capital and state power. It is therefore much more than an economic ideology of free markets and privatisation. As a class project, neoliberalism draws on the ruling regime and the finance capitalist class to propel capitalist accumulation, and its ideology and practice can be in contradiction as with states bailing out banks during financial crises. Furthermore, neoliberalism is prone to repeated and frequent financial crises: Latin America in the 1980s and 1990s, East Asia in late 1990s and the global economic crisis of 2008.
I highlighted the relevance of financialisation in post-war Sri Lanka in my EPW article. Specifically, I discussed the processes of financialisation including global financial flows into the country, the domestic changes in the banking sector and their implications for rural debt. Since writing that article, the National Savings Bank has floated a 750 million dollar bond in the global markets. Although the Central Bank Governor boasts that the bond has increased Sri Lanka’s foreign exchange reserves, the enormous costs of 9% interest rate for a five year bond and the attendant future financial problems raises serious questions. Meanwhile, although the Government has not yet moved full force on privatisation, the stage has been set by opening capital markets and mortgaging the country.
Understanding neoliberalism requires making such connections with capitalist economic processes over time and space. Both Sarvananthan and David fail to address financialisation in their respective articles. While Sarvananthan is completely silent on the issue, David reduces it to the “stratosphere of finance capital” without theoretically engaging questions of finance capital and financialisation. It is such lack of theorisation on the part of both authors that leads to flawed analysis. Sarvananthan reduces the repression of the Rajapaksa regime against forms of resistance, as with the opposition to the private pension bill and pollution of water in Weliweriya, to the realm of ethno-religious oppression without recognising the political economic underpinnings. David, on the other hand, needs to re-read his Marx and Gramsci. Rather than drawing on an analysis of class forces and hegemony, David simplistically attributes the problems of the economy to an “ad hoc economic order, cut, patched here and there, and tailored to suit the venality, corruption and power hunger of the leaders.” While Sarvananthan and David approach neoliberalism from very different perspectives, they are similar in their reliance on liberal analysis.
Globalisation and Imperialism
In contrast to Sarvananthan and David, the responses by members of the Social Science Study Circle in Jaffna to my presentation of the second wave of neoliberalism, was more nuanced and meaningful. The Study Circle, which meets every Poya Day in Jaffna to discuss contemporary social issues, was attended by about thirty left oriented activist intellectuals on the 19th of September. I devote the rest of this article to addressing some important ideas that emerged from my discussion with them.
Questions emerged about the relationship between globalisation, neoliberalism and imperialism. The discourse of globalisation paralleled the emergence of neoliberalism. But many see globalisation as an autonomous process that has led to the increasing flow of goods, labour and capital as state borders and the state itself is weakened. In this way, the dominant perspectives on globalisation understand it as a natural process to which states needed to attune their economic policies.
On the other hand, neoliberalism and modern imperialism - introduced over a hundred years ago by Lenin and Luxembourg - emphasises the continuing importance of the state and class power. It is with US imperialist backing that neoliberal institutions such as the IMF and World Bank push financialisation, trade liberalisation and privatisation. Thus globalisation is an ideological mask for neoliberal policies shaped by imperialism and pursued by local regimes. The larger point here is that global processes just as much as repressive national regimes are shaped by class forces, particularly global finance capital and imperial power.
Alternatives, Organising and Resistance
Some members of the Study Circle offered strong examples of neoliberal dispossession in Jaffna, from indebtedness to social exclusion and were eager to discuss viable alternatives. Successful alternatives cannot be drawn in drawing rooms; they must emerge through practice, organising and struggle. However, a major step towards economic alternatives would be reversing neoliberal financialisation. And for that, there must be a massive country-wide movement against the ruling regime, a regime that has wedded its fortunes with global finance capital.
Analysing the impact of neoliberal financialisation on the economy is an important paper by Deepankar Basu and Duncan K. Foley, ‘Dynamics of Output and Employment in the U.S. Economy’ published by the Political Economy Research Institute in January 2011. These two economists in critiquing the assumed relationship between GDP growth and fall in unemployment analyse the role of Finance, Insurance and Real Estate (FIRE) in distorting the relationship between economic output and employment. They further argue:
“From a long term labour perspective, the weakening of the relationship between measured real GDP growth and employment poses serious questions about the viability of globalizing growth strategies for economic development in the US economy and around the world. Understanding these developments will be a necessary first step in fashioning alternatives to neoliberal economic policies that can generate growth in employment and protect labour interests such as the right to collective bargaining, adequate wages and benefits, acceptable working conditions, adequate and secure pensions, and democratic political institutions.”
In the Sri Lankan context also, rather than blindly following the local economic establishment’s mantra about GDP growth, it is essential that we critically assess its relationship to financialisation and the employment possibilities for our citizenry. Related to this point, is the Central Bank’s recent release that Northern Province GDP had grown by 25.9% in 2012 propelled by growth in construction and banking. Such growth has not translated into sustainable employment and livelihoods, rather, I would characterise it as construction and banking on debt.
In searching for alternatives, the discussion identified the strengths and facets of Jaffna society. First, there is a need to reflect on the potential role of the cooperatives for creating sustainable employment and livelihoods. The fisher cooperative and the palm development cooperative are two examples of such endeavours. Evidence to their success is that both cooperatives contributed much to sustaining their war affected membership through collective production and distribution. Ironically, having survived the war, both cooperatives face tremendous pressure in the face of post-war market expansion and financialisation.
Second, women bear the brunt of neoliberal policies, particularly as social welfare is cut and cost of living rises. With women increasingly entering the work force, from agricultural and road work to the professional classes, organising women will be crucial to resisting neoliberal dispossession. That would also mean rejecting the neoliberal micro-finance schemes, which dominate rural organising of women through the expansion of credit at exorbitant interest rates. Rather, there needs to be a shift towards building cooperatives and trade unions that can be led by women workers and women engaged in a variety of rural enterprises.
As the second wave of neoliberalism pushes Sri Lanka towards a major economic crisis, the public must be made aware of the ruling regime’s role in accelerating neoliberal economic policies in the country. But this requires understanding the class project of neoliberalism and the regime’s commitment to processes of financialisation. Whether a neoliberal economic crisis will generate a turn towards the fascist right or more progressive alternatives will crucially depend on the emergence of forms of resistance.
This piece also appears in the Island on 29 Sept 2013