Midweek Review
Against flawed assumptions and false analogies
By Uditha Devapriya
“It is not enough to have a philosophy, you have to have the right philosophy.”
— Joan Robinson to the then Central Bank Deputy Governor, quoted by S. B. D. de Silva
Academics and students tend to subscribe to certain dominant ideological paradigms, the assumptions which underlie them, and the conclusions those assumptions lead them to. Given that universities, particularly local universities, have turned into knowledge factories preferring unconditional acceptance to critical thinking, false paradigms and analogies get perpetuated easily. They get embedded in school curricula, public forums, and of course the public sphere: as much in the lecture hall as in parliament.
Most of these paradigms delve into what the best way forward for the country should be, economically and politically, or what it should not be. For instance, the Vehicle Importers’ Association of Sri Lanka in a recent letter to the President cautions him against the belief that local manufacture and assembly is the answer to Sri Lanka’s mounting debt and foreign exchange crisis. The reason, whoever wrote that letter avers, is that the process “does not add any value to the country’s economy and is merely designed for tax evasion and higher profit margins.” Further, it warns that “setting up a vehicle manufacturing plant is a lengthy process with extensive planning and research and development.”
This is more or less a rehash of the line that advocates of free markets and free trade take up. The 2021 Budget, with its emphasis on import restrictions and concessions to local businesses, including manufacturers, compelled the same response from these advocates in Parliament. According to them, it favours import substitution over export orientation, cuts the country from the benefits of free trade, and isolates it from the rest of the world. The one leads to the other: if we manufacture locally, we lose out on trade. If we lose out on trade, we lose out on everything. Ergo, we mustn’t think or go local.
Intellectuals and commentators, especially in (but not necessarily limited to) the English language media, tend to extol the virtues of free markets and the evils of state-led growth. They seem to think that Sri Lanka for the most has been caving into the latter paradigm: the state has widened at the expense of the private sector. The solution, according to pundits and analysts, is to let the market decide, and to limit the government to the role of what Robert Nozick called a “Night-watchman”, formulating the rules of the game (the economy) without playing it (intervening in the workings of the economy). These pundits and analysts then point at societies that supposedly prospered under a night-watchman state: the Tiger economies of East Asia, the US, and Western Europe.
Now quite a lot of people believe this. They accept it as patently obvious: a tautology which, if denied, would lead to a contradiction. British philosophers of the 18th century made a distinction between two kinds of statements: “All thieves are criminals” and “Richard is a thief.” The first is self-evident: to deny it would be to defy logic. In other words it exists a priori: you know it’s true even if you don’t try to prove it. The second is not self-evident: you need empirical evidence to test its validity. Such statements of opinion require proof before one can know whether they are true or false. In the social sciences as in the hard sciences, then, critical analysis and logical reasoning are absolutely indispensable.
Unfortunately, much of the hype surrounding advocacy of free market principles and small government is built on a self-evident premise: people believe economic liberalisation will lead to growth, so they think it should be implemented in the country. Import tariffs must be reduced or preferably eliminated, export-orientation must replace import-substitution, let’s not think of local industrialisation or machine-manufacture yet because we’re an island, and let’s reduce the role of the state because, after all, in the US, Britain, and East Asia, it played a minimal role. Ignored in the emphasis on the success of the latter countries is the specificity of their historical experience.
Countries are not all endowed with the same levels or the same kinds of resources. Nor do they magically transit to free markets and small governments. To say economic liberalisation worked there and that owing to it these principles must be applied here is to assume that all it takes for a country to prosper is the implementation of policies to which those countries which are supposedly implementing them now resorted only after they had passed through certain stages. This assumption, quoting the late S. B. D. de Silva, is “a veritable non-sequitur of bourgeois scholarship.” Taking the earlier argument into consideration, such assumptions are paraded as tautologies when in fact they are not. What is missing from the argument, in other words, is the same thing its proponents accuse the other side, i.e. the Big Government protectionist lobby, of lacking: reasoned, analytical judgement.
In East Asia three distinct case studies can be identified: Japan, Taiwan and South Korea, and Singapore. The foundation for Japan’s economy was laid down long before the war by the Tokugawa shogunate; it broke the stranglehold of petty traders, privileging industrial capital over merchant finance. Taiwan emerged from the war cut off from mainland China after the Communist takeover of 1949, yet American experts and economists who formulated that country’s transition to economic liberalisation didn’t embark on free market reforms right away: at first they oversaw rent reduction in 1949, the sale of public lands in 1951, and the commencement of a land-to-the-tiller program in 1953. Land reform limited ownership of paddy land to around 4.5 hectares, much lower than the 10-25 hectare limit imposed by the Sirimavo Bandaranaike government in 1972. South Korea underwent roughly the same set of reforms before it attained first world status.
Singapore is a different case, not least because unlike other East Asian countries it lacked a rural hinterland in which a transition from agriculture to industry could take place. Yet there too the role of government intervention cannot be denied, economically and also politically. Milton Friedman once referred to Lee Kuan Yew as a “benevolent dictator”, the very same epithet Maithripala Sirisena used on Mahinda Rajapaksa in 2014 after walking out from the then administration. In a 1993 essay, William Gibson described the country as “Disneyland with the Death Penalty”, bringing to mind Jagath Manuwarna’s remark about Sri Lanka at a press conference in late 2014: “kalakanni Disneylanthaya.” Unlike Manuwarna’s statement though, Gibson’s essay was banned by the Singaporean government.
Liberals and classical liberals, and even left-liberals, tend to look up to Singapore and Yew’s reforms without realising that, as Regi Siriwardena observed, their achievements rested on the denial of democratic and human rights. Hence when one columnist, drawing wildly false analogies, argues that Singapore lacked a president, yet accomplished much (implying that Sri Lanka doesn’t need an Executive Presidency to get things done), he fails to acknowledge or chooses to ignore not only that Singapore had just one political party during its transition from third world to first, but also that it curtailed dissent in a way that makes any hounding of dissent in Sri Lanka today look haphazard in comparison; when asked why he refused to tolerate political cartoons, for instance, Yew bluntly told Fergus Bordewich that in Confucian society politicians ought to be seen as deserving of respect. To my mind no parliamentarian in Sri Lanka has ever said the same thing using Buddhism as justification. I suppose that has to do with how free the media here is compared to the media there: the latest World Press Freedom Index, for instance, ranks Sri Lanka at 127, and Singapore at 158.
The absence of a rural hinterland made it all the easier for Singapore’s government to enact capitalist reforms, since it could dispense with the need to abolish the kind of pre-capitalist social relations that existed in Taiwan and South Korea. Despite this, however, government intervention swept across the country; in the words of one economist, Singapore responded to international economic forces “through manipulating the domestic economy.”
Wage adjustments vis-à-vis a National Wages Council, a high savings and investment culture promoted via state enforced and state directed abstinence, the shift towards manufacturing in the latter part of the 1960s, the growth of public enterprises (believed to have accounted for 14% to 16% of manufacturing output), and tight government control of trade unions all played a part in bolstering its prospects. As Hoff (1995) noted, the paradox of Singapore’s economic success was that while investments came from the private sector, savings relied on the public sector. It is true that the contribution by foreign investment was significant, yet had Singapore not had a rigidly regulated economy where, for instance, compensation costs for production workers were one-third that of the US equivalent by 1993, it would not have become the third world to first success story it is touted as today.
The specific conditions under which the East Asian economies transformed from developing to developed, from inward-looking to outward-looking, make their emulation in other parts of the world untenable if not unlikely. At the time the governments of these countries were imposing reforms, Western Europe was struggling to recover from wartime recession and MNCs had not become as active in peripheral countries as they would decades later. Their geopolitical alignment with the US in the Cold War guaranteed the success of the East Asian Tigers. Moreover, these were hardly what one could call classical liberal societies: political authoritarianism cohabited with economic liberalisation. Even that dichotomy comes off as false when we consider that government involvement figured heavily in these economies, something that advocates of free markets don’t seem to be aware of.
There was another significant factor: the absence of a merchant capitalist class in these countries. The Tokugawa reforms extended to Korea and Taiwan after Japan turned them into granaries for its domestic needs. The US experts hired to oversee reforms in Korea and Taiwan facilitated, rather than reversed, these processes. In Sri Lanka and much of the Third World, by contrast, experimentation with free market classical liberalism has resulted in not only political authoritarianism, but also the defenestration of an industrial sector, leading to lopsided growth financed by a Pettah merchant class: rather than manufacturing goods, they are imported and resold. The call for “going local”, then, contrary to what intellectuals, institutions, and Opposition MPs think, say, and write, has to do with more than a hysterical call for a garrison state. COVID-19 has sharpened the contradictions of the global economy. The World Bank and IMF paradigm of outward-oriented development is clearly not the way to go about, if we are to resolve these contradictions.
False analogies, assumptions, and tautologies thus will get us nowhere. It is certainly ironic that think-tanks and institutions that privilege reason over guesswork end up indulging in selective scholarship. Even more ironic are statements uttered by academics from countries which passed through several stages before making the transition from a planned order to a free market advising us to bypass those stages when implementing policy reforms here. It takes not only foresight and hindsight, but also courage, to swerve from and dispute these assumptions, dig deep into history, and understand what drives the wealth of nations and the poverty of others. Free markets alone will not do, as even the history of countries where they flourish today tell us. Something else can, and something else must.