Kath Noble

Slaves to slogans

Posted in The Island by kathnoble on December 29, 2012

A few thoughts on the UNP’s criticism of flood relief efforts

sajithAs I concluded last week, it is the failure of the Opposition that has put Sri Lanka into its current mess. This political system requires competition between the two main parties, since it is only fear of being thrown out of office that limits the behaviour of the Government. When the Opposition is weak, the Government doesn’t take it as an opportunity to solve the long-term problems of the nation, free from the compulsions of electoral politics – it focuses on its own future and how it can further strengthen its grip on power. It becomes dictatorial.

Ranil Wickremasinghe has been defeated so many times that his name must surely be entered in the Guinness Book of Records. People don’t like his policies, and he refuses to change them.

His economic agenda is no more popular than his conflict resolution strategy. Indeed, they are very similar. He wants to hand over responsibility for the well-being of the Sri Lankan people and the resources that belong to them to unelected individuals with a record of exploitation.

My point was that the country seems to be doomed to undergo more spectacles like the impeachment of the Chief Justice, since the Opposition is apparently determined to remain ineffective. Eighteen years in any position should be enough. But the UNP has agreed to give Ranil another six as its leader, guaranteeing his grip on the party until well after the next presidential and parliamentary elections. (Anybody who thinks that Ranil would run the country more democratically than Mahinda Rajapaksa is an idiot – wearing a suit and tie doesn’t make him a ‘gentleman politician’!)

One really begins to wonder whether there is anybody in the UNP who is up to the job. Several of its politicians have been agitating for reforms in the party, but their campaign has now been going on for more than half a decade without any results.

And this week offered a look into the thinking of Sajith Premadasa.

Addressing the media on the floods that have afflicted Sri Lanka in recent days, he attacked the Government for its response. The Security Forces had done a good job of rescuing people, he said, but the relief being provided was condemnable. In particular, he questioned the offer of Rs. 5,000 in exchange for ten days of work, which he said amounted to ‘enslaving’ the victims.

Now, I am sure that the affected people could do with rather more than Rs. 5,000. According to the Disaster Management Centre, by Sunday, 35 people had been killed and 22 injured. A total of 44,901 people had been displaced, while 3,136 houses had been destroyed and 7,693 partially damaged. These problems obviously cannot be solved with such a small sum of money, and they are only part of the burden the victims will have to bear – the Disaster Management Centre has not collected data on the impact of the floods on livelihoods. Since the Government regularly wastes a lot more than Rs. 5,000 on totally useless activities, Sajith was right to be critical.

The people of his own district would surely prefer a bit more assistance to a Rs. 4 billion cricket stadium, for instance!

If that amount had been divided among the 66,299 families reported to have been affected by the floods, they would have each received a little over Rs. 60,000.

This is an important argument, but it is not the point that Sajith was making. He was concerned not so much with the amount as with the way in which it is to be provided – in exchange for labour. Apparently, even if the Government gives Rs. 60,000, it must be a gift.

Of course gifts are very nice. But they limit the amount that people can be given.

If the victims each need Rs. 1 million, it would require a genuinely impossible allocation, taking up the budgets of several ministries.

The idea of offering employment in exchange for assistance has already been used to good effect in this year’s drought, with farmers who couldn’t cultivate their fields due to lack of water being paid to rehabilitate local tanks instead.

The Government claims to have spent almost Rs. 5 billion for this purpose. The advantage is that instead of being cast as victims, unable to do anything to help themselves, the affected people were involved in productive work that should contribute to avoiding a repetition of the drought, or at least to reducing its severity.

Farmers will benefit from their own work, and so will the country.

We should remember that natural disasters are becoming ever more frequent. Climate change is a reality, and Sri Lanka is now facing drought and floods on a regular basis.

It is important to be prepared, and I believe that the Disaster Management Centre has done some work in that direction. But the Government should also have a clear and consistent policy on the assistance that it is going to offer to people affected by natural disasters – their fate shouldn’t be decided according to the whims of politicians.

Of course the Government doesn’t like to guarantee anything.

In lieu of such a promise, it has started to push insurance schemes.

Mahinda Rajapaksa announced in the budget speech that farmers who receive chemical fertiliser from the Government at a subsidised rate will now have to pay Rs. 150 per 50 kilo bag towards crop insurance. No doubt the motivation behind this move is not what is best for farmers but how to reduce the cost of the fertiliser subsidy, on which the Government spends more than Rs. 30 billion. Instead of providing bags at Rs. 350, they will be given for Rs. 500. This is not very honest, but perhaps one should not complain too much since the fertiliser subsidy is clearly not the best way to support farmers. (In addition to the now widely accepted impact on the environment, and hence on our health and the economy as a whole, the fertiliser subsidy is totally inefficient. To cultivate one acre, farmers use three bags of chemical fertiliser. These are sold to them for Rs. 350, when the market rate is Rs. 6,500. For the amount that the Government thus has to hand over to the manufacturers to support a single individual – nearly Rs. 20,000 – it could have bought them an indigenous cow! And such an animal would have fertilised as many as 30 acres for several years, without any of the disadvantages of chemical fertiliser. Why is it not done? Because the fertiliser companies are enthusiastic sponsors of a whole range of activities of both officials and academics.)

The problem with ulterior motives is that things don’t generally work out as we expect. One would have to see how easy it is to make a claim, since it is well known that the other major intervention in agricultural markets – purchasing at a minimum price – is largely ineffective, with the Government purposely making it difficult for farmers to take advantage.

Better than insurance schemes, or at least as well as them, would be a guarantee of work in exchange for a minimum income.

My advocacy of this idea is inspired by the experience of India’s National Rural Employment Guarantee Act, passed in 2005, which guarantees 15 days of employment at the minimum wage to Indians living in rural areas willing to do manual labour. Despite being plagued by corruption, as most things are in India, it has made a vital contribution to the development of the country.

The situation in rural areas in Sri Lanka is nowhere near as difficult as in India, except perhaps in the former conflict areas, but the country could still think of such a scheme islandwide.

Alternatively, this could also work as a Disaster Recovery Scheme.

It would be the opposite of enslavement, since it would confer on the Sri Lankan people a new right that they do not as yet enjoy, without imposing on them any new duties.

And that is bound to be popular.

Sajith Premadasa had better give it some more thought.

Of course Ranil Wickremasinghe cannot be expected to approve. His neoliberal handbook says that it is only a matter of time before we are all as rich as him, so long as the Government doesn’t try to help the process along.

He must love being in the Opposition!

This article was published in The Island on 28th December 2012. The internet version may be accessed here.

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The limits of the budget debate

Posted in The Island by kathnoble on December 17, 2012

What sloganeering misses about the budget and what the budget tells us about Mahinda Rajapaksa’s popularity

chamal rajapaksaParliament has become a place where its members go for a free lunch when they have no better offer. And it would seem that MPs receive plenty of attractive invitations, since most of them are rarely to be seen in the chamber, even for a nap on the comfy recliners the Sri Lankan people have so thoughtfully funded, assuming that their representatives would be spending long hours debating the future of the nation.

The Speaker admitted as much last week. There is no point in holding the budget debate, he said, when the responsible ministers are not present.

In principle, he was quite right. Why bother to ask questions about the allocation for higher education when SB Dissanayake is not there to answer or at least to hear what is being said? Suggestions cannot be taken into account in formulating policy if the person taking the decisions is ignorant that they have even been made. And on the day Chamal Rajapaksa made his statement, only four out of the scheduled twenty-two ministries were represented!

However, practically speaking, we should probably breathe a sigh of relief when ministers stay away.

Consider the Parliamentary Select Committee that has been impeaching the Chief Justice. Ministers enthusiastically attended every one of its sittings. But what did they contribute? When they were not calling Shirani Bandaranayake names, they were justifying a very obviously unjustifiable process on the pathetically simplistic grounds that what Parliament says goes. There was no debate about the decision to require the Chief Justice to reply to more than 1,000 pages of ‘evidence’ literally overnight. It was simply declared by the ministers present. Likewise, once she had walked out of the proceedings in protest at her treatment, there was no debate about calling the ‘witnesses’ they had previously said would not be available for cross-examination. They arrived within minutes, once the coast was clear. And by the following day, the Parliamentary Select Committee had managed to finish its ‘deliberations’ and prepare a lengthy report (including references to cases from as long ago as 1852!) – more work than any of the ministers had done in the previous year.

But what Parliament says goes. And in this case it said that it didn’t care to give the Chief Justice a fair trial according to the principles that Sri Lanka applies to everybody else (including ministers!).

In any case, the budget debate is generally used by MPs not so much for commenting on the Government’s plan for the following year as for presenting what they hope will be a headline-catching soundbite, on whatever subject happens to take their fancy.

And this time was little different.

The Opposition quickly latched onto a catchy slogan. The budget was summed up with the phrase ‘lamborghinis for politicians, badagini for the people’, which no doubt resonates with the middle class in Colombo. However, it is not really accurate. If things were that simple, Mahinda Rajapaksa would be a lot less popular than he is with the masses.

Of course the war victory is important in explaining the support he enjoys among the majority Sinhalese, but it can no longer be the only factor.

We need to understand the secret of his success. For if the President were even somewhat more unpopular, his capacity to use the powers that he has won would be considerably restricted. He would not be able to control Parliament to the extent that he does today.

And then the Chief Justice might just stand a chance.

As the Government’s plan for the following year, no matter how many changes are bound to be made later, when nobody is paying attention, the budget gives us an idea of Mahinda Rajapaksa’s appeal.

The lamborghini-badagini slogan is not really accurate, but it is not completely inaccurate either. As the UNP’s chief economist MP Harsha de Silva pointed out, the budget maintains taxes on food such as milk powder and tins of salmon while exempting racing cars. He called it a budget for the 0.1%, no doubt consciously evoking parallels with the popular campaign of the Occupy Movement in the United States and elsewhere that talks about 1% of the population controlling an ever greater share of the country’s wealth. His point was that only the richest of the rich can afford racing cars, which are now going to be cheaper thanks to the Government’s proposals, while the price of basic food items is of most concern to the poor.

The Treasury issued a totally ridiculous statement in response to this criticism. It seems that it is not lamborghinis but go-karts that are being exempted from tax. Well, that’s a relief, isn’t it? People are constantly complaining about the cost of go-karts!

Of course tax exemptions for racing cars of whatever kind are completely misguided.

The proliferation of such random concessions is one of the many things that are wrong with the Government’s tax policy. The more complicated the system, the easier it is to avoid paying one’s dues. At the same time, exemptions mean less revenue for the Government.

Far too little attention is paid to the appallingly low level of tax revenue being collected in Sri Lanka. Taxes amounted to only 12% of GDP in 2011, far below the international benchmarks of 25% for a Middle Income Country and 18% for a Low Income Country, as noted by Anushka Wijesinha in a recent article on the Institute for Policy Studies ‘Talking Economics’ blog. And rather than improving with average incomes, the ratio is getting worse. This is a massive anomaly.

In the absence of sufficient tax revenue, the Government resorts to borrowing, which tends to push the country ever further into debt.

Another huge problem is the extraordinary dependence on indirect taxes, meaning taxes that fall not directly on incomes but indirectly through consumption.

There are two issues here. First, the two forms of taxation are not substitutes. Indirect taxes create inflation, since they add to costs – if a company has to pay taxes on its inputs, it will simply increase the price of its output to compensate. By contrast, direct taxes have no inflationary effect. And so long as the Government spends the money it collects, taxing corporate profits actually increases the level of profits in the economy and thus also the national income. This is counterintuitive, but non-economists should try to understand that this is often the case in economics. Something that is true at the level of an individual is often not true at the level of the economy as a whole. A company might believe that taxes reduce its profits, but it does not exist in a vacuum – the effect of spending by the Government increases economic activity and generates increased profits, albeit not necessarily for that particular company. (This idea should be more easily accepted now, since it was such a fallacy of composition that Keynes pointed out at the time of the Great Depression, saying that if individuals all saved more then aggregate demand would fall, which would mean a lower national income and thus less savings in the aggregate – the ‘paradox of thrift’. The Global Financial Crisis and its aftermath have repopularised his ideas regarding the need for what is now called a ‘fiscal stimulus’ to get out of an economic downturn.)

Secondly, the poor bear more of a burden than the rich when taxes are collected indirectly rather than directly, since consumption forms a larger share of their income. They may spend half of what they earn on food, but it would be physically impossible for Bill Gates to do likewise – even throwing so much food away would be a challenge!

In Sri Lanka, direct taxes constitute only 20% of the total, with the remaining 80% being indirect taxes. This compares extremely badly with other countries.

Totally ignored by just about everybody, the Government is busy making things worse. Last year, when it finally restored income tax liability to public servants, it managed to ensure that this resulted in no overall increase in tax collection by significantly reducing tax rates and doubling the tax-free allowance. And this year it has introduced a whole range of additional concessions, such as reducing the income tax rate for IT professionals to 16%, organic tea exporters to 12% and large scale poultry farmers to 10%. Meanwhile, companies that list on the stock exchange are to be given a three year half tax holiday. And these are just the new measures. Some time ago, the Institute of Policy Studies estimated that concessions offered by the Board of Investment to foreign companies cost Sri Lanka 1% of GDP, in the process of attracting investment that amounts to no more than 1.5% of GDP – and this money would likely have come anyway, since foreign companies openly state that they are not primarily interested in the level of taxation. Soon it will cost the Government more to administer the tax system than it actually collects!

Many of these issues were undoubtedly highlighted by the Presidential Commission on Taxation, which spent about a year working solidly on the issue, submitting its report in October 2010. But Mahinda Rajapaksa has declined to publish it.

When presenting the budget, he highlighted the fact that the Government has not resorted to privatisation, a recruitment freeze in the public sector, cuts in subsidies or neglect of infrastructure development, even though it is short of revenue. But what the President was hiding is that he has nevertheless cut expenditure. Or rather he has prevented expenditure on certain items – education and health in particular – from going up in line with the national income.

Why? Because he wants to meet the fiscal deficit target set by the IMF.

I would argue that there is absolutely no need to follow the advice of the IMF, but even doing so would not have been a problem if Mahinda Rajapaksa had got a grip of tax policy.

All that said, even if we limit ourselves to discussing tax policy, Harsha de Silva’s analysis of the budget is tellingly off the mark.

He wants to abolish taxes on milk powder and tins of salmon, but these are not just a matter of revenue. They are an integral part of Mahinda Rajapaksa’s programme for the development of agriculture in Sri Lanka. Backed up by a whole range of other interventions, including through the much criticised (including by me) Divi Neguma, they provide incentives to farmers and fishers to boost production, since they increase the price of imported goods. And they are working.

Sri Lanka has become self-sufficient in rice, maize and black gram, and will soon be in green gram, onion, sugar and milk.

This is a good thing, since the prices of food on the international market are now subject to speculation by financiers, who regard it as just another commodity. They are volatile and increasing at a faster rate than ever before.

It is also one of the reasons why Mahinda Rajapaksa is popular with the Sinhala masses. For he has put a lot of money into rural areas.

Rural areas have also benefited from what I would describe as his other major economic policy – maintaining a large army and putting them to work in all manner of ways. I have written at length against this on political grounds, but economically speaking it has been a key source of growth. And the budget shows that there will be no change in approach. It justifies a significant increase in spending on the police on the basis that they will take on some of the responsibilities that the army handled during the war, while making no proposal to reduce spending on the army.

An addition this year is the plan to establish twenty technical colleges catering to the requirements of jobs in other countries.

Of course there are many other things to be said about the budget, but they will have to be left for another opportunity. For the moment, let us simply realise that things are not as clear cut as Harsha de Silva made out.

The UNP’s problem is that it has no coherent alternative to present to the people. Its policies under Ranil Wickremasinghe were tremendously unpopular, and he does not appear to have changed his mind about them. What is worse, the UNP does not appear to have changed its mind about him. He has been given another six years to accomplish what he could not do in the last eighteen. And the country’s problem is how to keep Mahinda Rajapaksa in check when the Opposition seems so determined to remain ineffective.

Until that question is answered, any debate in Parliament is bound to be a waste of time.

This article was published in The Island on 17th December 2012. The internet version may be accessed here.

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Overkill

Posted in The Island by kathnoble on December 5, 2012

One of the many reasons Sri Lanka needs to retain its independent Supreme Court

jaffna protestWe really should have learned by now that suppressing the peaceful activities of young people, however much we disagree with them, never actually works. There are always repercussions.

The Indian police created a massive public outcry a couple of weeks ago when they arrested a 21 year old girl for making a totally innocuous comment on Facebook. Why, she asked, should the city of Mumbai shut down for a day to mark the death of a politician? A friend who ‘liked’ the post was also indicted. They were first accused of ‘deliberate and malicious acts intended to outrage religious feelings or any class by insulting its religion or religious beliefs’, then ‘statements creating or promoting enmity, hatred or ill-will between classes’. After spending a night in a cell, during which time the cops were presumably scouring their legal textbooks for something a bit less obviously untrue, the students were finally charged with ‘sending false and offensive messages through communication services’.

The objective of the exercise was to let people know that some opinions are simply not acceptable. They will not be allowed to pass, and the response will not come only in the form of words. There will be action too.

Followers of the politician mobilised both official and unofficial agencies to get their point across to Maharashtrians. An angry mob gathered outside the police station in which the girls were being held and goons attacked a hospital owned by one of their relatives.

They counted themselves lucky to be locked up.

Such is the legacy of Bal Thackeray, founder of the Shiv Sena. The man was never so much as Chief Minister, but he was tremendously influential in Maharashtra. And he was even more controversial. A populist in the style of Adolf Hitler, who he sometimes professed to admire, he continually railed against outsiders, and he openly encouraged violence against them. After his first Dusshera rally in Mumbai in 1966, his supporters went off to burn South Indian shops and restaurants, and they never looked back. They were responsible for the first political assassination in the state after Independence too – the 1970 killing of communist party leader and trade unionist MLA Krishna Desai. And in 1974 they murdered Dalit leader Bhagwat Jadhav, announcing yet another target group.

Mumbai is now best known for the 26/11 attacks, but there have been many worse atrocities in the city. For example, riots killed several times as many people in 1992 and 1993. And a commission set up by the state government blamed the Shiv Sena for the worst of the crimes – its MLAs even testified that Bal Thackeray had personally called them and ordered them to get Muslims killed.

Analysts have suggested that his frequent obnoxious outbursts were not sincere – unlike Adolf Hitler, he did not really believe what he said, only exploited sentiments that he knew would make him popular. But that is unlikely to be much comfort to the victims.

The Shiv Sena has converted an awful lot of people to its cause over the years, including police officers.

Fortunately, Maharashtra is still part of India. And public anger in the rest of the country at the arrest of the girls had a near immediate effect. Responding to a petition filed in Delhi, the Supreme Court called for an explanation from the state, and the responsible central ministry issued new guidelines on the use of legislation designed to limit freedom of speech.

This is long overdue, since the Indian police are renowned for their eagerness to wilfully misinterpret the law when it happens to suit the powers-that-be.

Sri Lanka, meanwhile, is busy dispensing with such checks and balances.

The impeachment of the Chief Justice has been proceeding at top speed in the last few days, presumably because the Government has realised that the whole episode is going to be deeply embarrassing and had better be completed as soon as possible. Indeed.

Since we are prevented from commenting on the proceedings in the interests of fair play – ha! – let us simply hope that we do not forget Shirani Bandaranayake the moment she is ejected from her post.

For the Supreme Court has a lot of work to do.

The Sri Lankan defence establishment is renowned for its achievements on the battlefield, but even its supporters agree that it doesn’t always understand how to handle ordinary people.

Its opponents are convinced that it is intent on genocide.

I am reminded of its attempt in 2007 to evict from Colombo all migrants from the North and East. The Government argued that it was very difficult to identify terrorists, so in order to stop bombs going off in the city they had to impose restrictions on Tamils. Numerous measures were generally accepted as reasonable in the circumstances, such as mandatory registration and regular search operations, but then the Government decided to start sending people away. Several hundred Tamils were loaded onto buses in the middle of the night and sent to Vavuniya, on the basis that they had no ‘valid reason’ to be in Colombo. It was appalling discrimination of a kind that was also very unlikely to be of any use in the campaign against the LTTE. Worse, it pushed Tamils further into Prabhakaran’s open arms. Acting on a submission by the Centre for Policy Alternatives, the Supreme Court put a stop to it, and the Government apologised for what it admitted had been a huge mistake.

This was vital recognition that security matters cannot be exempt from oversight, even during times of war.

In peacetime, such reviews of Government action can and must be intensified. And the Supreme Court must start with the recent attacks on students in Jaffna.

The Government continually tells the world that complaints about militarisation in the peninsula are hugely exaggerated. It says that the military can and must be present throughout the island, and that it is taking steps to reduce the number of personnel in Jaffna. This may well be the case, but statistics are not the only thing that matters. Even a single unit can be a problem if its members do not behave appropriately.

And it is clear that the powers-that-be in Jaffna have no idea about appropriate behaviour.

According to the eyewitness report of MP E Saravanapavan, on the night of November 27th, the Army and Police forced their way into two hostels of the University of Jaffna, claiming that they suspected students of preparing to light lamps to mark the deaths of LTTE cadres on Heroes’ Day. Some of the young people called their parents, and the message got through to the parliamentarian that trouble was brewing. When he arrived at the scene, he found army officers in the process of beating up the editor of Uthayan, who he promptly took to the hospital. The situation calmed down and the crowd dispersed. Then on November 28th, the students reassembled in the campus to protest the crackdown. They sat holding posters, some with their mouths covered with black cloth to imply that they were being gagged. Saravanapavan states that when they moved from the gate in a procession, they were set upon by the Army and Police. Seven students were seriously hurt. Four were arrested.

Opinions vary over whether the students were even marking Heroes’ Day, as the defence establishment asserts, or whether they were simply celebrating the Hindu Festival of Lights, Karthikai Theepam, which happened to fall on the same date this year.

That is hardly the point.

Of course it would be preferable if Jaffna youth broke from practices begun by and associated with the LTTE. Heroes’ Day is not the best time to remember the dead, at least not without proper acknowledgement of how the LTTE contributed to their passing.

But there is absolutely no chance that simply telling young people that they should not do it is going to work.

In a politically charged atmosphere like post-war Jaffna, when the defence establishment issues orders, it only succeeds in further alienating people from the Government. And when its orders are accompanied by the use of force, the result is even worse. Instead of supporting deradicalisation, as is needed to ensure that Nanthi Kadal really was the end of the Tamil insurgency, it is playing into the hands of the extremists, giving them plenty of material to use in their propaganda.

Let us remember that this was about lighting lamps!

If the Government does not recognise that it was wrong to intervene, it needs to be told. The public may already be on the verge of losing its voice due to the sheer number of reasons it is being given to cry out, but this one is just as important as the others.

The youth are a special category in any society, as this country knows only too well.

This article was published in the Midweek Review on 5th December 2012. The online version may be accessed here.

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