The New Economy
The first impact upon the political situation of the first Budget of the new U.N.P. Government is becoming clear. Try as the Government does and will to cover up the meaning of its proposals with a propaganda barrage directing attention to the "concessions" being made, it has already proved impossible to arrest the of a general conviction that this Budget is a violent attack on the living standards of the masses. The cuts in the rice and sugar rations alone have been sufficient- to drive home that lesson.
The cuts have also sufficed to point up the fact that the U.N.P. had been engaged in plain deception of the people in order to come to power. There is no doubt that wide sections of the people who voted tile U.N P. to power with its present overwhelming majority have begun to feel cheated. What many of them perhaps do not yet know or realize is that this is not the first time the U.N.P. has resorted to plain deception to get to power. But even that knowledge will begin to spread as people hark back to the August 1953 Hartal, which was the people's reaction to the great deception that they realized had been practised on them by the U.N.P. during the 1952 general election campaign. "As long as the moon and stars are there, the price of ration-rice under a U.N.P. Government will be 25 cents a measure!" On that promise, the U.N.P. won an overwhelming victory in that general election too and then turned round on the trusting masses who had elected them! The price of ration rice was raised in 1953 to 70 cents a measure in a single overnight step! The Prime Minister of the day was the late Mr. Dudley Senanayake. The Finance Minister was the present Prime Minister, Mr. J. R. Jayewardene.
It was not long before the enraged masses turned on that U.N.P. Government and struck at it directly in the form of a violent hartal or rebellion. The U.N.P. never recovered from that blow. It was even more overwhelmingly defeated in. the 1956 general election than it had won in the 1952 general election. No doubt it is Mr. Jayewardene's memories of the Great Hartal of 12th and 13th August 1953 which has caused him to set out on the task of setting up a supplementary special police force of over 16,000 specially recruited and trusted men, who will be chosen by U.N.P. M.P. s in their electorates and by the U.N.P. 'Organizers' in non-U.N.P. electorates. Shades of Hitler's brownshirted S. S. ! The road being taken by Mr. Jayewardene and the U.N.P. in the sphere of preparation to hold the masses down is clear.
So much for the impact of the Budget on the political situation. What of the politics of the Budget itself? From the politics of which class in our society does it flow? The politics of which class does it embody? The political aims of which class does it pursue? The purpose of this booklet is to seek the answers to these questions.
Finance Minister Ronnie de Mel has set out his aims pretty extensively in his Budget speech. Right at the outset he proclaims:-
"It is a Budget that seeks to put the country on a new course..."
Let us remind ourselves that Mr. Felix Dias Bandaranaike too, after he took over from Dr. N.M. Perera in September, 1975, set out on a. new course - an openly capitalist course. That course was signalised by an open invitation to foreign private capital to come into Sri Lanka on the basis of special concessions which he outlined and by the reduction of the income tax and wealth tax at the top level from the 75 per cent and 8 per cent respectively proposed by Dr. N.M. Perera down to 50 per cent and 3 per cent respectively. Is the U.N.P.' s new course perhaps the same as the S. L. F. P.'s with the changed steersman steering without the previous steersman's sharp zig zags? We shall see.
Four paragraphs further in Mr. de Mel's speech, he defines the new course:-
"..... We are committed to establish 'A Free and Just Society' in out land. The foundation, the sine qua non, for a free and just society, is a free and just economy. It is with this end in view -the creation of a free and just economy - that this Budget has been introduced as the First Budget of this Government."
The key words are of course "free" and "just." What is the nature of the economy which he considers to be neither free nor just? Let us describe it in his own words:-
"The last seven years witnessed a rapid expansion in the role of the public sector in direct production. In the agricultural sector, through the implementation of the Land Reform Act of 1972 and its subsequent amendment in 1975 (by which the company estates were nationalised - C. R. de S.) the public sector now accounts for 63 per cent of the ownership of the acreage under tea, 32 per cent under rubber and 10.5 per cent of the coconut acreage. In manufacturing, the public sector accounts for 54 per cent of the value of production. State agencies also occupy a dominant place in wholesale, retail and foreign trade and in banking and insurance."
The above is indeed quite a meaningful summary of the striking progress made by the S.L.F.P. - L.S.S.P. - C.P. Samagi Peramuna Government in its efforts to develop the public sector of Sri Lanka's economy. This development involved not only large-scale nationalisations, but also the establishment, over a wide range of economic activity, of entirely new enterprises which often represented the creation of wholly new sectors in our economy - wholly new sectors which private enterprise, that is to say, private capital, was not willing or able to enter. And, according to the Finance Minister, this development had gone so far forward that the public sector enterprises had won "a major share of direct involvement in the economy." Private enterprise, the 'free' sector, had been pushed into the lesser position.
Here really is the key to the meaning of the Finance Minister's frequently repeated phrase: "a free and just economy." He wants and seeks an economy which is freed from this incubus of public
enterprise; if possible, wholly; anyhow, substantially an economy in which 'private enterprise' can operate freely and without hindrance from a policy of public sector development. In fact he actually claims that: "In distribution activities the policy of the Government to control what was referred to as the commanding heights of the economy through several state ventures set up for this purpose led to a virtual strangulation of this important economic activity." What he means by this observation becomes clear from the following passage in regard to the system of distribution for which the government relied increasingly on state agencies:-
"The network of co-operatives, a misnomer for state shops, has been the chosen vehicle for the distribution of essential goods in the country. The basic rations for 85 per cent of the population are served by the co-operative system. The system, which in its genesis arose as a mechanism of self-help, has now become a conduit for carrying out state policies, particularly in respect of food distribution... The Government has already taken steps to reform and revive the older system of distribution, allowing both the co-operatives and private authorized retailers to handle the essential food, clothing and other consumer goods of the people"
Manifestly, the "strangulation" he is speaking of is not the strangulation of the "distribution" system but the strangulation of the privately owned, controlled and operated system of distribution of "essential food, clothing and other consumer goods of the people." He wants that system, the private system, to be freed of strangulation by the public-controlled system of distribution, namely, the network of co-operatives.
The question arises: "freed" in whose interest? That is to say: freed in the interests of which class?
To answer that question it is necessary to ask: which was the class which suffered or lost from the rapid expansion in "the rolr of the public sector in direct production and distribution" under the Samagi Peramuna Government? The answer to that question is obvious. It was none other than the capitalist class, that is to say, the class whose position in the economy was so widely displaced by the docking of the private sector and the expansion of the public sector to the position which gave it "a major share of direct involvement in the economy."
And let us have it clear: not just any kind of capitalist but specifically the big capitalists. This will be better seen when it is realized that, for instance, the percentage of the tea, rubber and coconut acreages now in the public sector represent the nationalisation of well-nigh the entirety of the plantations proper in our country, whether formerly foreign owned or indigenously owned. What remains in private hands is substantially the mass of old and new smallholdings. There was, of course, no question whatsoever of nationalising smallholders' properties. On the contrary, the Samagi Peramuna Government passed legislation enabling the sale of the allotments they held to the tenants of state land in colonies and the like; and actually started out on the implementation of tile new law before it passed away from the scene. In the same way, it was mainly big capital that was displaced or whose arena was invaded by the state agencies which came to occupy "a dominant place in wholesale, retail and foreign trade and in banking and ins insurance." In manufacturing too, the take-overs were from big capital.
Now, how does the Government propose to set about the "freeing"? It is in fact no easy task, either administratively or politically. Nor can the economic consequences, including the sheer disorganization that would ensue, be overlooked. The political difficulties have already been illustrated by the abrupt retreat from the decision to switch the Ceylon Transport Board from the public corporation form to the company form, along -with the formation of a partnership with private capital. Even the U.N.P. workers cannot relish the prospect of a return to the regime of the bus mudalalis. Nor can U.N.P. M. P.s. relish the prospect of the loss of patronage. Both these considerations also come into play in the case of all public sector concerns, which politicians in power see primarily as a vast field of patronage and other forms of exploitation which are already rife under the new regime no less than under the old. The U.N.P. and the U.N.P. Government have, therefore, to move cautiously in this field, as is signified by Prime Minister J. R. Jayewardena's official and public assurance that, for instance, the former foreign-owned estates will be kept by the state. It is not clear whether his formula covers the rest of the nationalised estates: though he did assure the continuance of the 50 acres per family land ceiling fixed by the land reform law of 1972.
It is to be observed that this also constitutes an assurance that the ceiling will not be lowered, though he demagogically spoke of a five-acre ceiling in the pre-election period. Although a tea factory here and there and a business or two, as well as various pieces of land, have been returned to their former owners on the plea of political victimisation, the main effort to erode the public sector is through the application of the test of profitability to public enterprises and "the introduction of a degree of competition." What is meant by competition here is the opening of all fields covered by the public sector freely and without restriction to the operations of private capital. As for the test of profitability, the threat is that whatever corporation is not profitable will be closed down. And not an empty threat at that. As the Finance Minister pointedly says: "This Government has already taken steps to close down non-viable Corporations like the Weaving Supplies Corporation and we shall not hesitate to do so whenever required in the future."
As for opening the public sector freely to the operations of private capital, the means contemplated is not merely the opening of public sector enterprises to competition from private enterprise. A far more subtle means is also in contemplation; namely, the actual handing over of the management of public sector enterprises to private capitalist agencies. Even in the plantation sector, which is a totally nationalised sector which has its own state-run management structure, which displaced and replaced the Agency Houses of the old private capitalist dispensation, private management agencies are to return in the form of regional management organisations, according to Government announcements. Other "inefficient" public enterprises are also to have the benefit of the allegedly "superior" skills, knowledge and experience of the private management agencies by bringing these agencies into the management. It is not the thin end of the wedge of private capitalist interests that will be introduced by this process. It will be a whole private capitalist wedge thrust into the structure of control and management of the plantations and other public enterprises, which will facilitate the passage of the plantations and other public sector enterprises into the private sector in one way or another and to one extent and another as the situation permits. The whole operation is likely to be long-term, not short-term; not precipitate but gradual; a process of erosion rather than of frontal attack, save in exceptional individual cases.
The process of re-opening the economy to the free and full operations of private capital via the systematic erosion and penetration of the public sector goes forward right now under cover of a barrage of often considerably justified criticism of the management and functioning of the public corporations and of the co-operatives. The Finance Minister goes to town on this question to the point of falling into a screeching performance. But we cannot miss the wood for the trees. The purpose of his histrionic, sometimes almost hysterical, performance is not reform but replacement; not the reform of the public sector and its continued development, but its replacement through the establishment of a "free" economy; that is to say a totally capitalist economy along the principles of Adam Smith, who, unlike the late Karl Marx, is never "out-dated"!
This brings us to another and larger aspect of the free and just economy of the Finance Minister who insists in his speech on his "pragmatism." Let us turn to that aspect.
Very early in his speech, the Finance Minister says:-
"……..the establishment of a free and just economy after more than 20 years of controls and restrictive practices which hampered and hamstrung economic growth and development is not an easy task. It is, in fact, a massive operation of the highest magnitude. The operation must be performed successfully and without killing the patient. The costs of freeing our economy, both in money terms and in the hardships which our people will be called upon to bear for some time, cannot be under-estimated … The period of transition from a completely restricted economy hemmed in by all sorts of controls which added to the burdens of the ordinary people, to a free economy, will be a difficult one."
Note first, that the sickness relates back to 1956, when first the: U.N.P. was toppled from power and a government installed which included "the father of Marxism in Sri Lanka," Mr. Philip Gunawardena, and which carried through the first major nationalisations. In the period thereafter to 1977, the U.N.P. was out of power for some 16 years! So that, the operation which has to be successfully done by the new U.N.P. Government, "without killing the patient" is the reversal, the complete reversal, of the policies conducted by the governments since 1956, including presumably (Mr. de Mel does not make it clear) the short-term U.N.P. Government of 1960 and the full-term U.N.P. Government of 1965-1970; both, let it be noted, governments led by Mr. Dudley Senanayake. It certainly will have to be "a massive operation of the highest magnitude"!
Note, secondly, what the sickness is. It is the sickness of "controls and restrictive practices," "a completely restricted economy hemmed in by all sorts of controls." It is to cure this sickness that a massive operation of the highest magnitude has to be performed "successfully and without killing the patient." Whether the patient is the economy or our people is also not clear, since it is the people who have to bear "the hardships" while it is the economy that is to be "freed." Let us for the present keep to the economy.
What are these controls from which the Finance Minister is setting out to free our economy at such cost in money terms and such "sacrifice" (his words!) in human terms? Controls which, as he says in another passage, have made it "necessary to carry out almost a total economic and financial transformation in our land, almost a revolution in our financial and economic framework which has been hemmed in by controls for nearly thirty years"!
The answer to the above question is to be found in the "Proposals" section of the Finance Minister's speech. Here are the relevant passages:-
"Effective midnight tonight the exchange rate will be unified at an appropriate level and the F.E.E.C. scheme terminated. This rate has been fixed at Rs. 16 to one U.S. dollar. The unified exchange rate will be permitted to float... It also follows from the establishment of a floating rupee that a very large part of exchange control will also cease to exist."
"……a substantial degree of liberalisation of out external trade"..... "…..changes in import tariffs….will, on the whole, lower the average incidence of import duties."
"... relaxation of import controls, the prevailing complex structure of import controls, allocations and licensing procedures will cease to exist effective from midnight tonight ... Prior licensing of imports will be reduced to a limited list of items. Consistent with these measures, effective from midnight tonight, we are also taking effective steps to liberalise the entire import trade, and import monopolies which had been extended to public sector agencies will have been largely ended. In particular, the public sector monopolies for the import of cotton yarn, textiles, crude oil, fertilizer, milk, medicines, tractors and certain other commodities will be terminated. Consequently private sector participation in both domestic and external trade will substantially increase. The private sector already participates in the domestic distribution of flour and sugar after many years. We are now extending further such participation in commodities such as fertilizer and textiles."
"….most price controls will be abolished…"
"The country has for much too long relied on a proliferation of subsidies of one kind or another which by pre-empting resources for consumption have severely limited progress towards development and employment. I propose in the Budget to rationalise our extensive food subsidy and distribution programme. It is now proposed to reduce substantially the distribution of rice at subsidised prices by withdrawing the rice ration from that part of the population deemed to have income above a certain level . . . . We have set the cut-off point at Rs. 3,600 per year in terms of money income."
"The (Sugar) ration will only continue in respect of children under 12 years of age of those who belong to the protected category.. at 11/2 pounds per child per month at 72 cents per pound."
Over and apart from the above "relaxation", "abolitions" and "liberalisations," export controls are also relaxed. However, export duties have been remodelled with a view to creaming off to the state a considerable part (in the case of tea, a very considerable part) of the higher rupee prices resulting from the massive devaluation of the rupee.
Further, internally, rice is brought under the operations of the free market, with Government standing by with a guaranteed purchase price of Rs. 40- per bushel of locally grown paddy, thus providing a bottom to the market. It will also import rice and build a buffer stock to provide- against shortages.
Finally, it will be noted that the food subsidies are treated as a control or restriction in that they constitute a "pre-emption of resources" in the course of "attempting to ensure that the basic needs of the population were being met." It is clear from the Finance Minister's speech that "the provision of free health and education services is regarded by him as a similar "commitment." Indeed, the entire welfare expenditure of the state is looked at in this way.
What is the broad picture of the economy sought by the Finance Minister that emerges from the proposed measures outlined above?
It is a picture of an economy freed from an officially valued or pegged currency, which will now be left to float on the international exchange markets, finding its value through the inter-play of forces in that market; an economy freed from import and export controls in which all parties whether governmental, private, local of foreign will be free to compete; an economy which is freed from price controls and relies on competition as the regulator of prices; an economy in which the private sector prevails over the public sector, whose current dominance will be steadily and systematically eroded and narrowed till it is of no particular importance or significance in the functioning of the economy. In short, it will be a competition-regulated market economy which is open to the unregulated or uncontrolled interplay of market forces, both local and foreign; that is to say, an economy laid more or less totally open to the unrestricted impact of the forces of the world market: forces in relation to which it relies on its own strength, save for a period of "transition" in which international and foreign aid agencies, such as the I.M.F. and the World Bank, friendly foreign countries, private lending institutions and the like, will be assisting to sustain it against those very forces, of course, at a price!
"This free" and "open" market economy will sustain a social system in which the people are not spoon-fed through "the pre-empting of resources for consumption. "Unlike today, the "free" and "open" market will look after the distribution of resources and of the social product, except perhaps for some corrective measures through taxation, and some "income" support in the period of "transition." Both the economy and the people will be "self-reliant"; the economy absorbing competition in a market open to the world; the people buying their requirements at uncontrolled prices in the open market with such wages and incomes as they earn. Above all, it will be an economy which is wholly private or as nearly so as makes no difference, an economy which is absolutely dominated by private capital and its profit-seeking operations.
The Finance Minister is, of course, not unaware of the difficulties in the way of achieving his objective of a return to an open and full-blown capitalist economy in Sri Lanka. His first major obstacle is the fact that the capital resources, the investment capacity, of the always weak and now further weakened capitalist class of Sri Lanka, are anyhow too meagre to be able to bear the investment burden of developing Sri Lanka's economy to the levels of which the Finance Minister dreams at a pace which is politically tolerable. If nothing else, he is conscious of the urgent pressure upon the U.N.P. Government of 1,200,000 unemployed, most of them educated, young and therefore impatient, to whom the U.N.P. had given rosy promises before and during the general election.
In spite of that consciousness, however, while freeing the road from controls and restrictions, be has been unable in this Budget to provide the massive financial assistance they need either with adequate immediate tax concessions, because of his Government's financial needs, or with an adequate slashing of mass living standards, because of his Government's political needs. No wonder he complains that "it is indeed a difficult task to arrive at a proper mix and a proper balance between economic growth and social welfare in the context of Parliamentary democracy and liberty." What he would wish perhaps is "a little bit of totalitarianism" which was Mr. Felix Dias Bandaranaike's prescription; but that too cannot be had over-night in a country of established parliamentary democracy and electorally stimulated great expectations. He therefore has to rely on "The massive majority that the people had given us (which) has for the first time since 1956 laid a sure foundation of political stability without which no Government could ever hope to go forward." For the same reason he recognises that: "The success of this Government will depend on our ability to effect this correct balance or correct mix (between economic growth and social welfare) in our policies."
It is this "dilemma," as he himself terms his problem, of a correct mix or balance between the needs of capitalist economies and of electoral politics, that has pushed the Finance Minister to an exercise in brinkmanship. On the one hand, he has struck at the masses as hard as he dared; directly through the cuts in the rice and sugar rations and indirectly through a massive devaluation whose real impact on mass living standards will be even more massive in the long run than the ration cuts. He tries to soften the blows with promises of a Rs. 50/per month wage increase all round and of "income support" to the unemployed at Rs. 50/- per month. However, it is already clear that he and his Government are up against it on this front. They are already on the retreat with one announced concession and another, such as raising the cut-off point and bringing down the starting point of concessions according to size of families. The pressure mounts through the Government's own ranks and from outside, and, as the threat of counter blows by the masses begins to loom, it is very much a question whether the Government will have the strength and the nerve to hold the line. Quite eminent intimates of the Prime Minister have shown themselves jittery on that score. In any event, every concession to political pressure will upset the sought-for balance of the announced measures and, in turn, tend also to upset "the sure foundation of political stability" on which the whole exercise in brinkmanship rests. If we may change the metaphor, the masses have already begun to rock the boat!
That is on the side of the people. On the other hand is the question of the local and foreign capitalists, generally, and of the I.M.F. and World Bank, those agencies of world capitalism, in particular. Here the exercise in brinkmanship relates to another set of considerations. Considerable concessions have in fact been made to the local capitalist class but neither the Finance Minister nor the Government can make much noise about them, while chattering to the masses about "democratic socialism," and about "removing the ugly face of unbridled capitalism," about being "not a capitalist government" but one which acts "in the interests of the common man." If the Government is even to attempt to keep that image before the masses, whom they are just attacking in a major way, the Finance Minister has to screen his major concessions to the capitalist class with at least the appearance of a left jab on "the ugly face of unbridled capitalism... in the interests of the common man." That is why he starts out on his taxation proposals with the announcement : "The previous government, in order to safeguard the new capitalist class which aided and abetted it, reduced personal income tax to 50 per cent. In the interests of the common man, I am increasing the rate of personal income taxation to 70 per cent. Our aim is to minimize taxes on the incomes of capitalist classes that can bear the burden and use such funds to give relief to the common man." He goes on to add: "We expect to limit the maximum monthly salary even in the private sector to Rs. 3,500 and also to restrict the entertainment allowances and other special allowances."
We have seen his rice and sugar relief to the common man! He has thereby relieved more than half the population, including the children, of their rice and sugar rations!! Now he proceeds to relieve the capitalist class of the expenditure tax and of the tax on capital gains that is levied on gifts and on death. He exempts the profits of certain companies from taxation for five years. He reduces the Business Turnover Tax and raises the point at which the tax begins to operate. He limits the incidence of wealth tax and income tax by providing that "the total of the two taxes that a tax-payer is called upon to pay will not exceed 80 per cent of his income from all sources "including Exempt income." (His italics). Incidentally, this ceiling will cover wealth tax payment on the compensation received under the Land Reform and the nationalisation of company estates. He remodels capital allowances so as to enhance them. To cap it all, he proposes in the name of "pursuing tax evasion relentlessly" to place the burden on the Inland Revenue Department to prove that a tax return is incorrect while also limiting to three years the period during which additional assessments can be made.
Quite a list, is it not, without including the windfall profits flowing into capitalist pockets from devaluation; not to mention the enhanced rupee profits from export production, despite the raising of export duties designed to cream off some of the benefits of devaluation to the state coffers!
A special word on Devaluation is called for in this connection. The most far-reaching relief the Finance Minister has given the capitalist class in his Budget is the massive devaluation of the rupee. In relation to the standard rate of roughly a little less than Rs. 8/- to a dollar, the devaluation is over 100% In relation to transactions covered by the F.E.E.C. rate of 65%, the increase in terms of the standard rate is about 35% and in terms of the F.E.E.C. rate about 17%. And he has done it all in the name of "unifying" the exchange rate Some unification!
This massive, devaluation has a material bearing on our theme of Budget help to the capitalist class in two principal ways. To begin with, it operates as a massive wage and salary cut. Since the cut is effected, not directly but via the falling buying capacity of the currency, the devaluation method of wage and salary cuts has also the advantage to the employers of not immediately rousing working class resistance. Secondly, devaluation adds to the rupee in comes and profits of exporters and producers for export. This is the stimulus intended to be given to the economy by devaluation. The theory is that higher profits strengthen the propensity to invest!
And yet, not all these concessions and assistance enables the capitalist class of Sri Lanka to generate capital funds which even come within sight of the investment needs of the economy for its resuscitation and development at the rate required to lift it quickly out of its relative stagnation and take it within a reasonable; period to the take-off point under its own steam. Hence the capitalist U.N.P.'s turn to the search for foreign private capital on almost any terms. The capitalist class of Sri Lanka seeks a partnership with foreign private capital, if possible, or to service foreign private capital which the U.N.P. seeks to attract on the only terms on which it can namely, on foreign private capital's own terms. In the cases of partnership, Ceylon will of course be the junior partner, whatever be the proportion of shares it holds in any given company. In any event, in any such set-up the capitalists of Ceylon, like their forefathers in the days of
Colonialism, will be nothing other than compradores, the neo-compradores of neo-colonialism.
However, it is in relation to foreign private capital that the U.N P. comes up against another major obstacle. There is nothing in the economic and political set-up which Sri Lanka has built up over the years since 1956 which attracts foreign private capital and much, very much, which repels it. To use accustomed terms, the political and economic climate in Sri Lanka is not one in which foreign private capital cares to operate. If foreign private capital is to be attracted, the prevailing political and economic climate must be radically changed in such a way that foreign capital is given the necessary freedom to function according to its own principles and methods.
And there's the rub! The economy of Sri Lanka is a controlled economy in which , moreover, the state plays a direct, a powerful, and, as the Finance Minister has pointed out, a major part. And not by accident, or for "doctrinaire" reasons, but because the situation of the bourgeoisie in independent Sri Lanka and their colonial inheritance dictated these developments.
The Ceylon which the British "handed over" in 1948 had one policy, but two economies; not the two economies of the Finance Minister, namely, an official economy and a black-market economy, but a highly developed, highly organised and fully monetised modern plantation economy, serviced by a transport, trading and banking system which had grown up primarily to serve its needs, and a substantially subsistence rural economy based principally on paddy cultivation. The plantation economy was and is oriented outwards from the country, being hitched directly to the international market. It was through this set-up, in fact, that the exploitation of Sri Lanka by British imperialism was carried out. The rural subsistence economy, on the other hand, was backward, primitive and only imperfectly monetised; its surplus product went entirely to the internal market and its circuit was primarily within Sri Lanka's confines, although it had come increasingly under the influence of price levels and fluctuations in the world market.
It was the bourgeoisie of Sri Lanka, operating through a British type parliamentary democracy based on the universal adult franchise, that undertook the task of developing and modernising the rural economy. They did so because their governments came under the ever heavier pressure of the predominantly rural voter whom the electoral system made the deciding force, the umpire, at general elections. The resources for that operation could be generated only in the modern sector of the economy inherited from colonialism, from which sector the massive resources had to be diverted to the rural sector. This generation and diversion could not be done without interfering with and partly even interrupting the outward flow of resources from the modern sector; hence the first important controls, such as exchange control, about which the Finance Minister is so bitter. He would do well to remember, in the context of his present proposals, that one of the purposes of exchange control was to prevent this transfer via London to East Africa for the purpose of starting competing tea plantations there, of profits gathered from the tea
plantations of Sri Lanka, profits which could well have been used to improve and extend our tea plantations so that we could better supply and compete in the world tea market. A major object of exchange control was to arrest the fight of capital, especially foreign capital, which had begun on a large scale after the war, so that these funds could be pressed into the service of Sri Lanka and her economic development. It was not the "doctrinaire" Marxists who introduced exchange control in Sri Lanka, but the bourgeoisie acting in its own interests!
What of import contro1 including the state monopoly of the import of rice and flour. It is trite and a truism that the Sri Lanka economy is an export-import economy. We sell in the international market and buy not only the capital goods and raw materials we need,
but also the very basics of consumption, such as rice, cloth, pharmaceuticals and the like. There has been no government since Mr. D. S. Senanayake came on the ministerial horizon that has not paid attention to advancing paddy cultivation. The parliamentary governments of the post-war period have laid increasing stress on that task; until, under the Dudley Senanayake Government of 1965-1970, the objective was officially adopted of self-sufficiency in rice. The Samagi Peramuna Government followed suit; as also the present Government Has the Finance Minister pondered over the considerations that pushed the previous Governments to take over the monopoly of the import of rice and flour which he has decided so precipitately to abandon?
The compelling consideration was precisely the need to stimulate paddy production. The goviya, on whom all governments have relied throughout in their drive to increase paddy production and to achieve self-sufficiency, required (and requires) above all a sufficient price-incentive if he was to break out of the confines of a subsistence economy and become the producer of a surplus for the market. And, such a price, it was found in experience, could not be assured to the goviya if he was left to the mercies of the world market, its competition and its price fluctuations. The unrestricted private import of rice would be, not simply a source of supplementary supplies to make up the national shortage, but also a channel for subjecting the goviya to competition in the Sri Lanka market from cheap producers abroad. What with price support policies for rice also coming into operation in the form of the Guaranteed Purchase Price Scheme for locally produced paddy, the control of rice imports became imperative and a monopoly of these imports in the state inevitable.
We may add that it is the same with wheat flour. Wheat flour competes with rice directly. Unless the quantity of wheat flour imported is directly adjusted to the volume of paddy production, the import of wheat flour can undermine the policy and objective of self-sufficiency in rice. And that compels control of wheat flour imports; a form of monopoly operation which is properly a state function.
One could move from commodity to commodity in this way, but what has been said is sufficient to make our point which, we may point out, is reinforced by the Finance Minister himself when, in the very passage in his speech announcing that "the prevailing complex structure of import controls, allocations and licensing procedures on external trade and payments will cease to exist effective from midnight tonight" he also announces that: "Imports of food and fertilizer will be subject to licensing procedure in order to provide for an appropriate administration of the subsidy scheme for fertilizer and to facilitate their absorption under the foreign aid programme!!" Reality impinges upon even the theories of "pragmatic" Finance Ministers!
The part that import controls and exchange control have necessarily to play, ill an under-developed economy, in the field of ensuring the proper priorities within a framework of limited foreign exchange, hardly needs to be illustrated here. Milk and medicines or caviare and whisky will be chosen by importers in an open economy with free imports and no exchange control according to the principle of greater private profitability; and let us remember that the higher profits are in the richer market!
A word on export controls. The main purpose of the principal export controls in Sri Lanka is to ensure that fair prices are received for oar exports, especially as they are the major generators of much needed foreign exchange. The prevention of smuggling also plays a part.
As for price controls, the necessity of price control in an inflation-ridden world wherever private production and distribution prevails is beyond challenge even by the doctrinaires of "unbridled capitalism." Where as in Sri Lanka, sheltered private "substitute industries" have also grown up, the need has been admittedly compelling. Even this Government has already found itself compelled to intervene in this field; and with a blare of politically directed publicity at that.
We have said enough about the origins and rationale of the "controls," "restraints" and "restrictive practices," which the Finance Minister denounces in such unmeasured terms, to show that they were necessitated by the need to protect the interests of Sri Lanka and to defend her economy against the exploitative forces of the capitalist world economy. To abandon these controls, restraints and restrictions would, therefore, be to lay Sri Lanka wide open to these very forces, leaving her economy defenceless against their exploitative operations. And that precisely is what foreign private capital demands if it is to come into the country anew in a major way. That, and no less!
The tragedy of the situation for our country is that the U.N.P. Covernment is only too ready to take the necessary steps in that direction. Only, despite its overwhelming majority in Parliament, it has to feel its way in the country. What is clear is that the accredited international agencies of imperialism, namely the I.M.F. and the I.B.R.D., want the Government to take the essential steps at once; especially the withdrawal of all consumer subsidies, so that the country is brought to "living within its means," by depressing the present standards of living of the masses. The carrot they dangle is a huge loan said to be six billion rupees but on terms which have not yet been satisfied by the Budget which has been presented; though it has gone quite some way and then, fearful of the political consequences, recoiled and retreated somewhat from the distance it had gone. The fifty rupee dole is known to have been a last moment sweetener added to the bitter medicine which had been prepared.
While the Government is seeking to sort out matters with the J.M.F. and I.B.R.D., it is falling back on its main device to attract foreign private capital to Sri Lanka. It has started out on the much heralded Free Trade (or Industrial) Zone.
We now know precisely what is proposed because, at this time of writing, the Government has published the bill for the establishment of the Zone.
The Zone takes a two-fold shape. It provides for setting up a body called the Greater Colombo Economic Commission (G.C.E.C.). This Commission has on the one hand a geographical area of authority" and on the other a "jurisdiction" over "area enterprises" and, outside the area of authority, "licenced enterprises" which can be any where else in Sri Lanka.
The area of authority stretches along the western sea-board of Sri Lanka northward from the Kelani Ganga up to the Maha Oya, with its eastern boundary so demarcated as to draw into the area the parliamentary electorates of Katana, Ja-ela, Wattala, Negombo and part of Kelaniya. The local bodies within this area will stand dissolved, giving way to the Commission which will- have all the powers and rights of a Municipal Council.
The other jurisdiction of the Commission is over area enterprises and licenced enterprises with which the Commission enters into agreements which, subject to regulations which the Minister may make as to "the scope and extent of any exemptions or modifications" can actually exempt that enterprise from the operation of 34 scheduled laws, in whole or in part. The Minister is empowered to add to the number. The Bill itself makes 4 further laws "have no application" to these enterprises. These laws are:
(1) the Business Undertakings (Acquisition) Act, which enables the Government to take over any business undertaking at anytime;
(2) the Industrial Disputes Act, which introduces into our law of labour relations the concept that such relations must be governed by what is "just and equitable" without being tied down to or limited to contractual rights and statutory rights;
(3) the Termination of Employment of Workmen (Special Provisions) Act, which makes the consent of the Com--missioner of Labour a necessary pre-condition to the termination of employment of a workman in establishments employing 20 or more workmen; and
(4) the Companies (Special Provisions) Law, which is designed to prevent the oppressive use of the power of the shareholder majority against the interests of the minority.
As for the 34 laws which can be made inapplicable in whole or in part or modified by the Commission, they add to the two labour laws made inapplicable as above the whole body of labour legislation which the working class of Sri Lanka has won in hard struggle during half a century or more. The labour laws thus imperilled determine the status of labour and govern employer employee relations in Sri Lanka, define and protect labour's rights of remuneration both in employment and in retirement, and also labour's rights of organisation as well as the rights of labour organisations: protect the worker's security and safety in employment and enshrine his right to leisure and to human working conditions and so on. The result is a
framework of labour law which this country should regard as precious because it constitutes an effort to lift wage-labour out of its state of subjection to capital to the status of a free human being exercising rights in relation to the work-process in which his life is rooted. All
this - the achievement, let it be repeated, of more than half a century of industrial and political struggle of the working class is jettisoned by the Bill itself or can be jettisoned by the Commission as if it were so much useless lumber needlessly and obstructively littering the way of foreign capital on the road to the unconditional exploitation of Sri Lanka's labour and raw material resources by establishing enterprises in the "Zone" in Sri Lanka which the U.N.P. government is setting apart for foreign capital's unhindered and unhampered operations.
It will surprise nobody that the other laws which are made inapplicable to the area enterprises and licenced enterprises by the Bill itself or can be made inapplicable by the Commission are all laws which capital, and especially foreign big private capital such as the trans-nationals, regard as being fetters upon private enterprise in its super profit making activities: The threat of nationalisation is specifically removed. The rapacity of big capital is considerably ministered unto. Even the Inland Revenue Act, the Customs Ordinance, the Exchange Control Act, the Monetary. Law Act, the Rent Act, the Control of Prices Act and the Finance Act can be made. "not applicable" in whole or in part, or "modified" by the Commission. And finally, in the breathtaking sweep of its effort to "attract" foreign capital, this Dharmista Government announces its readiness to sweep even its declared morals under the carpet by empowering the Commission to authorise banks "to operate secret numbered accounts"! Beside this the power given to the Commission to make "not applicable" or to modify the Excise Ordinance and the Betting on Horses Ordinance in the "Zone" pales into insignificance. Our butchers always add some offal to the meat!
And why all this butchery? In the interests of the economic development of Sri Lanka of course! In the words of the Bill, the object is "to foster and generate the economic development of the. Republic and to widen and strengthen the base of the economy of the Republic." The means thereunto as contemplated by the Government is tucked away in. the statement of objects: "to encourage and promote foreign investment within the Republic" the very means which Mr. Felix Dias Bandaranaike as Finance Minister of the much derided "Sirima Bandaranaike Government" put forward in almost the very words in his notorious change-of-course Budget speech in November, 1975.
Let us remember, it is the position of the capitalist - or neo-capitalist, if you like – U.N.P. and its Government that without enticing foreign private capital to invest in Sri Lanka in a major and massive way, economic development is impossible. This very Bill in fact constitutes an admission of the fact, as also does the Budget, that a capitalist Sri Lanka cannot lift itself out of its economic stagnation and social squalor by the efforts of her own capitalist class. Facilitating the re-invasion of Sri Lanka by foreign capital, which post 1956 Sri Lanka increasingly fended off, and the re-introduction in one way or another of a governmental and political system which can function in the interests of foreign capital is, therefore, from the point of view of Sri Lanka's capitalist class a "must." From the point of view of the indigenous capitalist class, the pursuit of such a course by "their own" government – as is the U.N.P. Government – is not contradictory. On the contrary, it is logical and consistent because indigenous capital has to lean on and, in its utter weakness, subordinate itself to foreign capital for its very survival.
The real problem for the U.N.P. and the S.L.F.P. Right Wing has been foreign private capital’s terms. The terms are known and, in a country of developed political democracy in which the masses have steadily matured politically, have been recognised by every Rightist Government as not politically tolerable. But the securely installed U.N.P. Government, though still moving warily, has set out on its own many-sided solution to the political problem. One side is the introduction of a governmental system in which the centre of power is an all powerful President who, certainly for the period of his power, is substantially insulated from the direct and immediate pressure of the masses. Another side is the introduction of a political system which will facilitate the perpetuation of the U.N.P. in power. This is in process of implementation. A third side is the switch to an open economy, which is the main theme of the Budget and of this booklet. The establishment of "the Zone" is another side.
What does the Bill for the Zone do? It creates in Sri Lanka a territorial enclave with its own legal, economic, administrative and political system which will function differently from the rest of the territory and domain of Sri Lanka; a sort of foreign dominated Lanka within the confines of Sri Lanka. This enclave, moreover, has the character of an octopus, for it will have tentacles stretching out into the rest of the country through the relationship the G.C.E.C. can establish with licenced enterprises." The process of the enclave's penetration into the rest of the country will also take another form through indigenous capital linking up with foreign capital and by such alliance participating in the advantages enjoyed by zonal enterprises. The Zone, it will be noted, is wider, larger and more extended than "the area of authority" of the Commission.
Within the enclave, what the Government does not dare in respect of Sri Lanka as a whole is done, partly openly and partly covertly, namely, unconditional surrender to the demands of foreign private capital; especially the trans-nationals. These demands are broadly three:-
(1) The removal of any threat of nationalisation. This has been done in relation to the enclave.
(2) Complete freedom of unhampered operation. This has been ensured in relation to the enclave.
(3) The provision of a cheap, a docile, indeed a regimented labour force. All that can possibly be done to ensure this in advance has been done by the dismantling of our system of labour laws; leaving labour in the enclave legally naked and defenceless. And all in the hope of enticing foreign capital into the enclave!
Did not Finance Minister Ronnie de Mel boast that while abroad he had assured foreign capital publicly and officially that the U.N.P. Government would give far greater concessions than prevail in any other F.T.Z. in any other country? His undertaking stands fulfilled to the letter. It .is hard to think of anything more to be given short of also handing over Sri Lanka's freedom, sovereignty and independence in the enclave. As it is, these stand grievously fractured. Besides, there is no insurmountable wall around the Zone. There cannot be. The meddling lingers of the multi-nationals can and will stretch into the politics of our land and into governmental policy making. Moreover, provision has been made enabling the wall to be broken down. The Minister stands empowered by the Bill to extend or add to the Zone by regulation! As in the case of the increase of the price of ration rice from 25 cents to 70 cents a measure in 1953, we can rise one morning to find that the whole of Sri Lanka has become a Zone!
The simple fact anyhow is that the F.T.Z. cannot substitute for the international lending agencies of imperialism. And Mr. Ronnie de Mel has already told us that the I.M.F., and no doubt the I.B.R.D., demand their pound of flesh if they are to grant the massive loans which are being sought in the name of high development and an open economy. The question is whether the price in imposing outright mass suffering, through the withdrawal of all consumption subsidies, will be paid, because it has to be paid if the open economy policy is to be seriously pursued. Although the Finance Minister says he won't, the Prime Minister and the Government may yet say they will.
Let us prepare for the worst, while struggling for the best. The last say will yet be with the masses although the Government tries to persuade itself that the general election result of 21st July, 1977 is for all time and anyhow irrevocable for six interminable years. The centre of politics has shifted from the N.S.A. to the outer arena faster than perhaps anybody expected. It will remain in that arena until the mass movement itself resumes invincibly the course away from capitalism, from which it has been deflected in the recent past. This Government has not the solutions for our country's problems.
December 77
