Notes on COVID-19: “Coronomics” and all that

Sirimavo Bandaranaike

You’ll notice that most of the economic diagnoses offered by think-tanks, professionals, and other organisations in Sri Lanka don’t even mention industrialisation. You’ll also notice that they highlight and emphasise the supply side, critiquing import substitution. Thus we are told to think twice about the import ban, phase it out completely if possible, and let consumption fuel growth. If neoclassical economics have fallen out of favour, let Keynesian economics rule the day. But is either of them what we need?

Less than two years ago, Dr W. A. Wijewardena, former Deputy Governor of the Central Bank, criticised budgets that excessively promoted spending: it would put money into the hands of consumers who would spend the bulk of it on imports. H. A. de S. Gunasekara, writing on the issue of full employment, was blunter: 75% of ordinary expenditures were on imports. But if you read some of the prognoses for COVID-19’s impact on us, you’d swear that import substitution is the nail that will lock the coffin, and that it must be rejected. Of the op-eds I’ve read so far, only one has made the case for industry. “[O]nce recovery begins,” writes Dr Amir Ali, “Sri Lanka should prepare itself to become a net producer instead of being a net distributor and consumer.”

In the wake of the pandemic, we’ve had press releases from companies painting a picture of normalcy despite massive pay cuts, layoffs, and cost rationalisation. The messages are mixed: Softlogic will stop hiring, George Steuart will assure job security, Baurs will keep its workforce happy while not taking premature drastic measures, and Jetwing will enforce a difficult downward payment revision. The extent to which pay cuts and layoffs will be felt will vary: at Softlogic salary cuts will range from 5% to 30% for those earning over Rs. 50,000 a month, while at Jetwing the cut will range from 10% to 50% for all. Given that many companies are locked into import-driven growth fuelled by conspicuous consumption, investment decisions will be postponed.

This is a double blow for a country reeling from the ravages of last year’s Easter bombings and the resultant shrinkage in tourism: with diminishing remittances from the Middle Eastoil producing countries may shrink too over the price wars – recovery can come about only though investment, and the private sector will, obviously, not look at that for some time. That does not automatically qualify the State to take over the important task of shoring up the economy, which is why debate that does not exclude the possibility of import substitution and industrialisation should take place. Simply put, we do not need the same stuff prescribed to us again. The same stuff won’t work.

The economic fallout from the pandemic, globally, is immense. In February, one report estimated a fallout of $360 billion; one month later, Bloomberg put the figure at $3 trillion, and in April, PWC (in its forecast for Sri Lanka’s economy) citing the ADB and OECD revised it to up to $4 trillion. Harvard Business Review was not off the mark when it noted that GDP forecasts, needed as they are, will remain “dubious when the virus trajectory is unknowable.”

But the impacts of the virus are already becoming a fact of life: the OECD says global growth will slow down to 2.4%, while a second wave, if it does hit, will bring that down to as low as 1.5%. More than 80 emerging economies are seeking help (read “bailouts”) from the IMF, which predicts the world economy to contract by 3%, while among the worst affected is Argentina, which is predicted to shrink by 4.5%. To put that into perspective, PWC predicts Sri Lanka, even with last year’s attacks – the full impact of which was still being felt at the time the pandemic compelled curfews here – to grow by 2.2%. On the other hand, the IMF predicts the economy to contract by 0.5%, while the World Bank’s forecast is bleaker, at between 0.5% and 3%.

Whether or not the COVID-19 outbreak will lead to the nation state gaining pre-eminence is a matter for debate. Certainly, the ideological shift is discernible. Dr Dayan Jayatilleka in an article observes that while globalisation is on the retreat, it is specifically globalisation of the unipolar, America-led sort, and not globalisation per se, that’s losing popularity.

The distinction, he avers, is important for the simple reason that Sinhala Buddhist war hawks and neo-cons are propping up their visions of a return to a “jathika arthikaya”, which if you may remember was one of many programs envisioned by Gunadasa Amarasekara in the 1980s and 1990s, the peak decades of the Jathika Chintana project. Dr Jayatilleka cites moves towards multilateralism made by China and Russia, arguing that the answer to the pandemic must be, not de-globalisation, but globalisation from another vantage point, probably one led by China, Russia, and the BRIC economies.

The philosophical and ideological dimensions of the matter, as well as Dr Jayatilleka’s conflation of de-globalisation and siege economics – with which I beg to differ, but which doubtless provides food for thought – are best discussed elsewhere. For now, the question is what bearing all this has on the economic dimension. And the dilemma to be resolved here is this: in a context where supply chains, demand levels, and finance capital are shrinking if not diminishing, concurrently rather than consecutively, what is the way out? Certainly not a one-sided resort to supply chains (privatisation), demand led growth (Keynesianism), or finance capital (monetary policies).

I suggest that the way out is neither de-globalisation nor globalisation, but a radical shift of focus to production. This is, at one level, self-evident, and even institutions like the OECD in their reports have laid emphasis on it, but the extent to which it is being neglected in the local economic discourse is intriguing, if not bewildering. The truth is that no greater opportunity to reverse the adverse consequences of the “open economy” has presented itself to Sri Lanka, the first country in the region to implement “free market” neoliberal policies. By saying that I am not, of course, contending that we must cut ourselves off from the global economy. But then the one doesn’t imply the other, which is my critique of Dr Dayan’s analysis: local industrialisation vis-à-vis jathika arthikaya does not lead necessarily to a siege economy, or a garrison state, or a majoritarian ethno-state.

In the wake of the post-1978 economic reforms, certain sectors grew, and most others declined. The sectors that grew contributed substantially only in the short term without long term benefits: sectors like construction, banking, and trade, all of which were dependent on import liberalisation and the opportunities opened up by it. Manufacturing, largely fuelled by booms in construction, grew by 4.6% in 1979, a far cry from 8% the previous year. “As a result,” ran the Economic Review’s report, “there has been a diversion of resources from production oriented activity to trade oriented activity.” If in the colonial era plantations had determined the trajectory of the economy, in the open market phase that role would be taken up by the trade and the import sectors; that is, the import merchants.

Which leads me to my main point. Sri Lanka’s economy remains dominated by merchant capitalists. In his classic work The Political Economy of Underdevelopment, S. B. D. de Silva noted that the reason why the European colonies of Asia and Africa – non-settler colonies where white populations didn’t get to predominate over locals – couldn’t really develop was the prevalence of merchant capitalism, in the form of agencies, that stunted the growth of an industrial bourgeoisie.

How did Japan grow so rapidly, and how did countries like South Africa and Australia enjoy sustained growth while India and Sri Lanka stagnated? In Japan, the Tokugawa clan broke down the monopoly of the merchants, while in South Africa and Australia – settler colonies, where the whites gained the upper hand over the natives by disenfranchising them (South Africa) or decimating them (Australia) – the local white population distanced itself from the home country, in this case Britain, and became independent. Merchant capitalism thrived only insofar as the needs of production capital were met.

In Sri Lanka’s and India’s case, on the other hand, merchant capitalism relegated plantation capitalism to its needs, thereby depriving the latter of a potential to expand and depriving the country of an industrial bourgeoisie. This was more pronounced in Sri Lanka than in India, where the bourgeoisie formed an alliance against imperialism while at the same time allying itself with British interests. As Aditya Mukherjee once noted, Indian nationalists were among the first in the world “to evolve a multipronged, detailed, and sophisticated critique of colonialism.” By the time of independence they had acquired a Janus face: they “entered into compromise with British imperialism”, yet also “spearheaded the struggle for national emancipation.”

The Sirimavo Bandaranaike economy, which Dr Jayatilleka carefully distances from the majoritarian readings of it by Sinhala Buddhist ultraconservatives, was closed insofar as it implemented land and housing reforms that were far, far less radical than those being implemented across East Asia: land ownership in Sri Lanka was limited to 10 hectares at a time when the Tiger economies had limited it to two or three hectares, for instance.

As Vinod Moonesinghe once correctly pointed out, the very use of the word “closed economy” was fanciful, “an emotive creation of neoliberal propagandists, placed by then in opposition to the so-called ‘open economy’”, which casually if not conveniently brushed aside the fact that Britain had followed the same policies in World War II that helped it out-produce the less regulated (but still tightly regulated) Nazi German economy. Eric Hobsbawm’s thesis that the British education system led to the decline of Britain’s industrial growth can be flatly contradicted by the strides industry made in the wake of a regulated wartime economy: to give one example, modern US reconnaissance aircraft are all based on the English Electric Canberra.

Sri Lanka’s version of the regulated economy failed, and was shut out, not because of the flawed vision of its policymakers as some critics think, but because of the unpredicted inflationary pressures from OPEC’s decision to raise oil prices, and the interests within the Sirimavo Bandaranaike regime that actively, if not subtly, served to manipulate the economy, something S. B. D. de Silva referred to when he observed that the J. R. Jayewardene regime made it possible for racketeering intermediaries to do openly and legally what they’d been doing covertly under Bandaranaike.

Do the conditions that prevailed in 1940s Britain and 1970s Sri Lanka prevail here now? By no means. These case studies are relevant to their period. At the same time, however, we must realise that the present climate provides an opportunity for wholesale reform, by means of the same medicine.

Many of the diagnoses for the post-COVID-19 Sri Lankan economy not only seriously misinterpret, but also rebel against, what is and what should be done; for instance, the theory that import bans should be phased out, since consumption is the main driver of GDP, even though consumption is dependent on imports and relying on imports given global supply chain disruptions may prove to be unsustainable. I am not in favour of a siege economy or a garrison state, but a return to basics shouldn’t lead one to either. The numbers, and the problems we had until COVID-19 hit us, point at that only too well.

However, two factors preclude a return to a completely closed economy, which in any case should not be the ONLY aim of the government: the rise of a militant Sinhala Buddhist middle class to which Dr Jayatilleka refers, and the emergence of a counter-hegemonic international order favouring a broad alliance of Third World nations against Western superpowers.

I differ somewhat with Dr Jayatilleka’s and Newton Gunasinghe’s thesis that the Sinhala bourgeoisie idealised the closed economy since it favoured the majority; if this is true, by the end of the 1980s the Sinhala bourgeoisie had adjusted itself to changing realities, mainly due to a paradigm shift brought about by Ranasinghe Premadasa who popularised open economy policies among the masses. As such the Sinhala Buddhist Alt-Right, as Dr Jayatilleka sees it, did not just oppose a return to the pre-1977 economy but also had come to believe that, in the pre-1977 configuration, the Sinhala entrepreneur lost out; critiques of the “closed economy” soon found their way to Alt-Right parties, including the Sihala Urumaya (the S. L. Gunasekara phase).

For good measure, I quote the section on the “national economy” (literally, “jathika arthikaya”) from the latter party’s manifesto of 2000: “… going back to a closed economy is unthinkable; while availing of (sic) the opportunities thrown up by globalisation certain safety nets must be in place in order to protect the domestic entrepreneur and the economy from its ill effects.” These were not the words of a moderate globalist. These were the words of a representative from a Sinhala Buddhist nationalist outfit. They make the issue less reductionist than Dr Jayatilleka’s interpretation of it; the truth is that the Sinhala Buddhist Alt-Right was not as forthcoming as he supposes them to have been in opposing the open economy, and embracing a “jathika arthikaya.”

Globalisation, in today’s context of Fanta and Coca-Cola (a campaign against which Nalin de Silva led in the Kelaniya University in the early 90s), is much less opposed from the economic angle than it is from the cultural angle by many nationalists. How and why this happened is best explored in depth elsewhere, but you see the point: the so-called Sinhala Buddhist Alt-Right is as ambivalent in its responses to (the economic, non-cultural dimension of) the “closed economy” as “intellectuals” are in their responses to the “open economy.” That does not, and should not, undermine the importance of local industry. The same goes for the rise of a new international order: not all the Chinas of the world can conceal the fact that we still import most essentials, and that the solution isn’t to continue but to reform.

Let’s be clear, concise, and precise here. The way out for countries like Sri Lanka, where merchant capital and import-led and consumption-led growth impulses continue to dominate, is not what people and organisations and think-tanks dedicated to the preservation of the status quo ordered. It can’t be Keynesian economics, and it can’t be privatisation and deregulation, since a program of state bailouts to the private sector on one hand and cooperation with it on the other will lead to the entrenchment of merchant interests in which production oriented activity counts for very little.

Other recommendations, such as signing the MCC deal despite the fact that the US economy, as of today the worst affected in terms of casualties, is limited in its scope to divert funds to such projects, are at best lopsided, and at worst ill-timed. No. The solution can’t be anything other than production. Local, industrial, agricultural, fully automated production. This does not and cannot lead to a siege economy. To think it will is to assume that every jathika arthika endeavour – which is what it should be, with or without the Amarasekara-ist reading of it – is one step towards a garrison state. It is not.

The writer can be reached at


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