OUR economy runs on an unfair status quo model where elites protect their big privileges while the poor get the crumbs. Now, hit by repeated economic crises after short booms, this decades-old elitist model is emitting signs of collapse.
The case of Sri Lanka shows that global turmoil that cuts our low remittances and exports bases may trigger a currency, and thus, economic collapse. That may be very chaotic for a nuclear-armed 200 million-plus state facing extremism, external threats and ethnic strife.
We need a new economic model that ends our perennial issues of low growth, twin deficits and inequity. The main state models are East Asian (export-led), Scandinavian (welfare), American (large domestic economy), Gulf states (natural resources), Caribbean (tax havens), North Korean (reclusive) and some criminal states. The last four are not possible or desirable. But linking parts of the first three, we may devise an innovative ‘poor-led progress’ (PLP) model.
Many economists now support pro-poor or inclusive growth as poverty harms not only the poor but also national progress via conflict and small economic size. But going beyond such models, PLP sees investing in the poor not just as an ethical or anti-conflict concern but actually as the main driver of national progress. Economists oppose policies that penalise the rich and cause capital flight. But PLP shows how reducing poverty ignites win-win growth that also benefits the rich.
We need a new economic model that ends our perennial issues.
Our internal market is small, despite a large population, given the low incomes of the majority. Increasing their incomes expands the market size and profits for producers. This in turn expands jobs and incomes for the poor and ignites a virtuous cycle of national progress. The poor spend more on local goods than the rich, benefiting local producers and the external account. So investing in the poor, largely seen as a moral aim, can actually be the main national growth engine under trickle-up economics that puts those at the bottom at the top.
A seven-step approach (COMPASS — credit, organisations, market power, protection, assets, skills and social services) that goes beyond giving only cash handouts serves as the compass for PLP.
One, we must expand the poor’s ownership of assets. This includes land reforms, key to the East Asian progress. Two, we must expand easy credit for the poor. Three, we must expand the access of the poor to appropriate skills and technology. Four, the government must ensure the rule of law to protect them from economic and physical abuse, eg evictions, false cases and labour abuse. Five, the state must expand locally devolved quality education, health, family planning, disaster and other social services for the poor. Six, there is a need to support community-based groups which mobilise, link and advocate for the poor. Seven, increasing the bargaining power of the poor in markets is key. Minorities, women and people in far-flung areas must be prioritised. All this may require the state to invest a trillion-plus rupees yearly on the poor above current funding which it can do by increasing agriculture, property, retail, transport and wealth taxes; and cutting state enterprise losses, elite subsidies, defence outlays and tax evasion.
PLP will give growth, fiscal balance and equity. But external deficit will still be a challenge. Thus expanding exports through special economic zones but also where possible by supporting small and medium export units of non-elites will be key. Leftists often advocate delinking of poor states from the global economy to avoid its vagaries. That has failed as in North Korea. But strategic, selective delinking in three key areas that expose them most to such vagaries and external deficits may help: food, fuel and finance.
It means more food self-reliance by upping agricultural output via small-/medium-sized farms; more fuel self-reliance via wind, solar, micro-hydel units, fuel saving etc and light curbs on hot money inflow. All this is especially doable for us but only if the state builds a mostly missing unified progress strategy that ties fiscal (tax and outlays), industrial, labour, social, gender, trade, environment, debt and investment policies cohesively to achieve these aims and escape the IMF’s clutches forever.
PLP needs a new social compact and bargain among the strong and weak that alone can give peace and progress in a badly conflicted state. Despite its value for all, elites may oppose it as it is not just reform but societal restructuring. Political action by activists at the risk of getting jailed, kidnapped or killed will be key to mobilising masses and confronting such interests, especially those who have made us a security state and are all-in-one security, landed, real estate and corporate super elites.
The writer is a political economist with a PhD from the University of California, Berkeley.
Published in Dawn, June 28th, 2022