Prof. N. A. de S. Amaratunga

In asking the  above question I do not refer only to us in Sri Lanka though that is high up in my mind as a matter of concern but to the whole world, particularly its economy and the environment for we are in this together and we are in it not because we want to be in it but because neo-liberalism has taken all of us in its grip. As Sri Lanka is our main concern it could be said that the IMF which is a tool of neo-liberalism has put in place a deal that would result in the tightening of the grip neo-liberalism has on Sri Lanka. Before we look at Sri Lanka’s plight in detail we shall see how neo-liberalism has faired so far in the rest of the world.

Neo-liberalism is charaterized by free market policy and least government intervention to the extent that human beings are treated as commodities and even art and culture being subject to market forces. Moreover public expenditure and welfarism are minimized. We experience the adverse effects of these policies in Sri Lanka at present with the purchasing power of the middle and lower classes undergoing rapid decline. While that is the lot of the not-so-poor and the poor the rich has significantly increased their wealth.

Let us now look at what is happening in Sri Lanka. After independence the country was benefitted from the Korean war in 1949 and was able to build up its foreign reserves by a fair amount but after the war ended this secter declined and again in 1955 due to a good tea market it could rise up. It is seen that the capacity to earn foreign exchange depended on external factors. Our export earnings had remained around 15 – 20% of the GDP since 1960s and has not improved despite all efforts. This is the story in most of the developing countries and it is a feature of  neo-liberalism which had caused relative stagnation of the economy when calculated on the purchasing power parity basis (PPP). It is the PPP that gives a true picture of an economy and its parameters, specially the true value of the household incomes. On this basis household incomes and expenditures of middle and lower classes in Sri Lanka  have drastically dropped in 2024 compared to 2021. Nutrition and health are badly affected and the repercussions of these dvelopments would be felt in the future unless corrected as soon as possible. This is due to the economic downturn in the aftermath of Covid pandemic and the subsequent strictures applied by the IMF which has made matters much worse for the less affluent. It is a case of from the frying pan into the fire” for these hapless categories of the population. A world Bank report on Sri Lanka issued in April 2024 states; …poverty rates continued to rise for the fourth year in a row, with an estimated 25.9% of Sri Lankans living below the poverty line in 2023, (ie. more than 6 million). Labor force participation has also seen a decline, particularly among women and in urban areas, exacerbated by the closure of micro, small, and medium-sized enterprises (MSMEs). Households are grappling with multiple pressures from high prices, income losses, and under employment. This has led to households taking on debt to meet food requirements and maintain spending on health and education”.

With regard to IMF programmes it has been found by several studies that under these programmes developing countries experience increased poverty, unemployement and cost of basic services (Biglaiser & McGauvran, 2022). These studies find that IMF policies are geared to help the big industry and as dictated by neo-liberal capitalist principles work in the expectation that the less affluent would benefit by the trickle-down effect which unfortunately keeps dwindling. There is very little that IMF can do to alleviate poverty in the developing countries except to bale them out at regular intervals. The cycle of events comprising economic stability followed by collapse and an IMF bale out would continue for ever. Capital accumulation and environment degradation would continue with devastating effect.

Some of the questions that pertains to the West but also relevant to us in Sri lanka could be as follows; why/how has inequality grown for the last several decades? Why have good jobs disappeared? Why have median wages stagnated for more than four decades in the US and since the 1970s in the UK. Why is housing unaffordable in England now? How has the debt regime at both sovereign and household levels surfaced in the US/UK and, regarding sovereign debt, in the Eurozone and Japan?  

These are the chronic ills of neo-liberal capitalism. Those phenomena are neither accidents nor totally unrelated incidents. Neoliberal deregulation policy has unleashed greed in the financial sector, causing these  financial crises. Scholars concerned about this problem mentioned above are focussing on alternatives to neo-liberalism. They look at three models in the main; (1) return to keynesianism, (2) return to real socialism, and (3) encourage new development experiences such as Mondragon, Kerala, and the so-called socialism of the 21st century.

Numbers (1) and (2) have been practised with a degree of success. As capitalism is entrenched globally return to real socialism may not be feasible as a sudden change. It may be possible to gradually bring about change, perhaps first try out a return to Keynesianism which was in practice in the West in 1950 to 1970 resulting in a Golden Age of economic performance.

Model number (3) focuses on Kerala in India, which is an experience of development with high people participation and administration through the state. It has been a successful case of public action to democratic means”. In spite of historically poor economic performance, Kerala has obtained good social indicators. In some of them, Kerala has achieved the same level of development as advanced countries ( Parayil, 2000, Franke and Chasin, 2000).

So called socialism in the 21^st century” was developed in Latin America mainly in countries like Venezuela with a degree of success in the face of incessant US intervention. The world if it is to avoid being completely devastated and made a barren planet may have to dismantle neo-liberalism and adopt a more human and environment friendly model.

Prof. N. A. de S. Amaratunga