Rising costs of neoliberal economic policies

23 Jun 2013 - Editorial

Widespread discontent and public protests witnessed recently over the electricity tariff hikes are but the latest form of resistance to the government’s economic policy trajectory.

The last two years have been marked by many such protests, starting with the massive public action by workers that forced the state to reconsider the private pension bill in mid-2011 though not before one worker was killed. Militant student union protests in January 2012 led to the shelving of a private university bill and in February 2012 the shutdown of coastal areas by fisher-folk protesting fuel price hikes claimed another life. Later in 2012, university teachers protesting against government apathy towards public higher education led to one of the longest strikes in the history of Sri Lanka.

The thrust towards privatisation, greater market-orientation, cuts in expenditure on social welfare, and an aggressive courting of global finance capital, most evident in tourism and urban development, are all hallmarks of neoliberal economic policies in Sri Lanka. It is also significant that they mark the policy initiatives that have repeatedly met with public resistance notwithstanding state repression and even outright violence.

While the government continues to make euphoric claims of rising prosperity and a fast-growing national economy, large sections of the population are in fact experiencing the contrary. From 2010 to 2012, the Real Wage Rate Index (RWRI – which measures changes in the average rates) actually declined for workers in the Industry & Commerce sector from 73.1 to 69.7 and in the Services sector from 55.6 to 53.7, respectively; these sectors account for nearly 74 per cent of the country’s employment. In fact, during the same period, the RWRI declined or remained stagnant for most government employees as well.

Prices, however, have risen steadily; between May 2011 and May 2013 the Colombo Consumers Price Index (CCPI-Base 2006/07=100) climbed from 151.5 to 173.9. The hardest hit by this are of course the working classes, including plantation workers, rural and urban daily-wage earners and other poor households, especially those without remittances. It is in this context that the economic transformation being advocated by the present regime needs to be critically examined and challenged. A combination of rising costs of living and lagging wages coupled with cuts to social welfare raise very serious social and economic concerns.

It is claimed that reducing social welfare spending – including free education and health which has ensured a semblance of decent life despite the historically low wages in Sri Lanka – is inevitable to ease the fiscal burden. The government asserts that further increases or ‘rationalisation’ in the prices of fuel and other commodities are steps towards economic take off. But, as the recent protests have underlined, these claims ring hollow in the face of rising economic burdens that confront the larger population.

Weakening the public provision of education and health, for instance, pose an obvious risk to the well-being of large sections of the country. It may also end up pushing households into further indebtedness.

According to the Household Income and Expenditure Survey (HIES) – 2006/07, more than 61 per cent of households in Sri Lanka were indebted; and data from the last HIES in 2009/10 indicate that payment of debts accounted for 5.1 per cent of average monthly household expenditure; in fact, it was 8.9 per cent of non-food expenditure. A steady increase in prices and cost of living as well as anecdotal evidence and the expanding pawning portfolio of banks and finance companies suggest that household indebtedness is on the rise. Rising debt coupled with stagnant or depressed real wages is a recipe for high economic vulnerability.

Neoliberal economic policies, first embraced by the Jayewardene regime in 1977, are now being aggressively pursued by the present regime. Among other things, neoliberalism has widened inequalities in the country. The Gini Coefficient for measuring household income inequality has more or less steadily increased from 43 in 1980/81 to 49 in 2009/10 (HIES 2009-10), leading the International Labour Organisation to note recently that among countries with high income inequality (Gini > 40), Sri Lanka is one of two in Asia, the other being China, to have seen the more significant rises in income inequality. Neoliberalism has fuelled consumerism, including the lease-hire purchase variety, which coupled with rising costs have strengthened the hands of finance capital while leading to increasing consumer debt. In fact, according to Central Bank data, the interest on debt as a percentage of average monthly expenditure increased almost four-fold between 1978/79 and 2003/4.

Neoliberalism brings prosperity to the few at the cost of the many. It is crisis prone, but ideologically dominates ideas about our economic life and economic policy making. And to challenge it, we need to first become aware of how neoliberalism has become part of our daily life – in what we consume, what we learn and what has become of social relationships from the shop floor to the classroom. Denaturalising the ways in which the neoliberal agenda shapes our everyday existence and economic policies is central to resisting it as well as ensuring meaningful alternatives.

This piece was also published in The Sunday Times on 23 Jun 2013