Resisting the austerity budget

By the Alliance for Economic Democracy

The story of austerity has been told many times around the world. In the aftermath of the financial crisis in 2008, many governments chose to slash budgets for social spending in the face of a massive recession. As a result, ordinary people had to pay for the misdeeds of bankers, who continued to profit from the crisis. 

The ideology of austerity, however, has been laid bare, and people are coming out in droves to protest it on the streets in Europe, for example, from London to Athens. In contrast, in Sri Lanka, the principles of austerity are quickly becoming the new economic piety preached by the current regime and its experts. Why are they turning to this outdated ideology? 

The truth is that while experts here claim to resolve the looming “crisis”, the rhetoric of budget cuts is being used to justify drastic measures that will increase inequality. Similar to other places, Sri Lanka faces four phases of neoliberal crisis and the austerity response: 

1) The causes: the ‘Open Economy’ attacks on organised labour and the collapse of tax revenue for the welfare state. 

2) The symptoms: increasing foreign borrowings, including through policies of free trade and capital flows, which put further pressure on the balance of payments. 

3) The responses: explaining the resulting crisis as the outcome of a “budget deficit” pursuing cuts to public services and burdening the people while promoting a discourse of “individual responsibility.” 

4) The effects: the massive expansion of wealth inequality and the undermining of democracy. In light of the recent history of the rest of the world, we are heading toward the precipice, which makes a course correction all the more urgent. Why is the current regime and its experts advocating a faulty solution that has been proven wrong time and again? They could very well be getting a head start on policies that will have drastic effects on inequality, likely increasing the gap between the rich and poor, while reinforcing the damage caused by the crisis. If austerity has not worked as a solution in other countries, is there any reason to believe it would be more effective in a fragile economy such as Sri Lanka’s?

Neoliberal crisis

In order to understand why austerity is being posed as the solution, we must understand neoliberalism as a ‘class project’ designed to ensure the upward accumulation of wealth. Since 1977, when the J.R. Jayewardene regime introduced the ‘Open Economy’, the Government accepted the dictates of powerful international institutions such as the World Bank and International Monetary Fund. Western countries encouraged the same neoliberal shock experiments that would have dangerous long-term effects on the middle class in their own societies, resulting in the extreme polarisation of wealth. The Jayewardene regime broke the back of organised labour, while putting the squeeze on revenue streams such as direct taxes that funded the welfare state.

In order to pay for imports, the Government also encouraged the shift to an “export economy” that included sending migrant workers abroad for remittances, and large tax breaks for Board of Investment enterprises. 

These sources of foreign exchange, however, did little to curtail the long-term pressure on the balance of payments, including the rising cost of imports. The situation came to a head due to the massive spending spree of the previous Rajapaksa regime, which borrowed extensively in order to cover the costs of mega infrastructure projects amidst a global crisis. The current regime blames Rajapaksa, but the reality is that both the SLFP and UNP have long since accepted the neoliberal paradigm of free markets, reducing tax revenues from the wealthy and shifting to private borrowing. Sri Lanka’s economic experts now promote trade and financial liberalisation, which will further aggravate the problem.

As a result of the looming effects of crisis in Sri Lanka, the current regime is trying to shore up “investor confidence” by implementing IMF conditions based on its recent $ 1.5 billion Extended Fund Facility agreement. The call for cutbacks to public services along with financial deepening, including the construction of the Colombo International Financial City, is the product of the same thinking that led to crises around the world. 

Nevertheless, the current regime seems to willingly accept these policy recommendations. Capitalists will likely benefit from decreased social spending along with the possible privatisation of enterprises. The reality is that while austerity may undermine the economy in the long term, the rich few can still profit.

What, ultimately, are the effects of austerity? It is safe to say that responding to financial or economic crisis through austerity measures further weakens the position of organised labour, encourages privatisation of public services, increases health, education and other social costs for the vast majority of people, and results in persistent indebtedness among the masses. 

In Western countries, despite the fact that material living standards are still vastly superior to many other places, people have become increasingly frustrated, providing room for chauvinist forces. Rightwing populists have been able to capitalise on the discontent, promoting xenophobia and threatening even greater social disintegration.

In the context of Sri Lanka, we seem to be looking over the edge, unsure of when the full effects of neoliberal globalisation and its tendency toward financial crisis will hit. The rest of the world’s path toward crisis, however, from Latin America to Europe, shows us that austerity is not the solution. It will result in massive cuts to social spending, which is apparent in the Appropriation Bill for 2017, with drastic declines in the allocations for health, education, agriculture and social services; the definition of an austerity budget. 

The likely result is increasing inequality and an even bigger burden for the poor and vulnerable. The liberals who support or are silent on this austerity budget will not be able to claim the moral high ground when racist forces take advantage of feelings of frustration and resentment caused by the economic fallout.

Confronting austerity

Ultimately, the current regime, similar to its predecessors, continues to play by the rules of the neoliberal game, including now the austerity budget, because its capitalist backers will not face the economic consequences. 

In addition, popular discontent is being channelled into a discourse about political corruption, ignoring the massive cutbacks to spending that are being prepared in the budget, in addition to future policy measures such as undermining workers’ rights through labour law reform. 

It is easier for the media to focus on politicians from the two major parties slinging mud at each other, while the local experts remain thick as thieves on the question of austerity. This is a dangerous situation because when crisis hits the vast majority of people will struggle to survive, while the elite will have the policies they desire.

The only other option then is to challenge austerity now. The experience around the world proves that policies inspired by austerity damage the economy and society. Yet amazingly our economists seem happy to repeat its foibles. In contrast, there is an emerging consensus led by Joseph Stiglitz, Paul Krugman, Thomas Piketty and other reputed economists that point to the dramatic increase in inequality and dispossession as a result of the long-term decline of the welfare state and the austerity response to financial crisis. Even mainstream economics is waking up to the fact that austerity is not the solution to crisis.

These dangers, however, will not be offset simply by what a few famous economists say, although they provide an important counterpoint to neoliberal ideology. The reality is that the regime will only change course if people mobilise against austerity. This means pre-empting the Government’s attempts to cut social spending. People must get out on the streets and demand better health, education, and services against the proposed cuts. They should directly counter the austerity narrative, including the despicable rhetoric that the poor simply feel “entitled.” And they must force policymakers to sit up and take notice. 

The toiling masses in our country must refuse to bear any more of the costs of decades of damaging neoliberal policies, reckless borrowing through massive loans and financial markets and other economic risks. The austerity budget for 2017 will not only be a worrying shift in budget-making in this country, it will encourage the State’s abdication of responsibility toward its citizens. 

Nevertheless, the resistance of the masses may very well reinvigorate democracy, including through broader alliances between workers, students and other marginalised sections of society. There is an alternative to austerity in Sri Lanka then, and its name is protest.

(Members of the Alliance for Economic Democracy: Devaka Gunawardena - Collective for Economic Democratisation; Lakmali Hemachandra - Labour Activist; Sylvester Jayakody - General Secretary, Ceylon Mercantile Union; Linus Jayathilake - President, United Federation of Labour; Ahilan Kadirgamar - Political Economist; Keshara Kottegoda - ExCo Member, Ceylon Bank Employees Union; Chintaka Rajapakse - Moderator, Movement for National Land and Agricultural Reform)