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Sri Lanka opposition for 'social market economy'

Jan 05, 2015 07:19 AM GMT+0530 | 0 Comment(s)

COLOMBO (EconomyNext) - Sri Lanka's opposition is for a 'social market economy' where macro-economic stability and economic freedoms will be maintained allowing benefits to be enjoyed by all citizens, Harsha de Silva, an opposition legislator said.

"There has to be political and social justice within a market based economy," de Silva told reporters in Colombo Sunday.

"This is a social market economy."

De Silva said the market economy was the most efficient system in the world that has emerged so far but there were fears of social justice, where benefits may not be distributed fairly.

Economic Freedom

"We believe in economic freedom," he said. "We are fundamentally committed to re-establish economic freedom."

"But that does not mean we will take forward a fully neo-liberal framework. There is a big difference."

Neoliberalism has been attributed with many meanings over the last half century, both positive and negative but in Sri Lanka it is associated with pejorative meanings given by those who want to promote a large state and spending.

The social market economy such as that emerged in Germany after the defeat of National Socialism and 'historical economics', generating the German Economic Miracle (Wirtschaftswunder) was closer to classical liberalism with minimal state intervention and sound money.

Sound money in the form of a strong exchange rate and low inflation deprive statists and any interventionist elected ruling class of their most powerful tool of mass-impoverishment and financing excesses - that of currency depreciation and high inflation.

De Silva was told by reporters that some of the elements in the Maithri manifesto involved higher ruler spending, which may expand the state and further burden the ordinary people with either high taxes and debt or currency depreciation and inflation.

The manifesto included elements such as a new state agency for three wheelers, as well as higher salaries and pensions for state workers, which were admittedly sharply eroded by currency depreciation in 2012.

Sound Money

The success of the German social market economy of Ludwig Erhard for example came with a strong currency, which protected ordinary workers from potential attempts by interventionists to destroy their real salaries or rob the savings of the old and weak pensioners by inflating away debt with depreciation.

The creation of the Deutsche Mark, from the older hyper-inflating nationalist Reichmark was the cornerstone of the social market economy in post war Germany.

"We will keep inflation and the exchange rate stable," de Silva said. "We will maintain the macro-stability of this country.

"We will guarantee that. We will have a stable policy, rule of law and property rights." High inflation and currency depreciation is a direct result of state attempts to keep interest rates down when credit demand goes up, including due to deficit spending.

De Silva said rather than debt, investment led growth will be created.

"We will give equal opportunity to all," de Silva said. "That is not what happens now. Now only political henchmen have opportunities."

He said some of Sri Lanka's statistical averages looked good, but it was like one foot being in the fire and the other being in ice and claiming that the average temperature was mild.

Spending Priorities

Referred to concerns that the opposition manifesto envisaged higher expenditure and lower taxes, simultaneously, he said the spending priorities of a new administration would be different.

"Our priority list is not that of Mahinda Rajapaksa. There will be no spending for ego boosting. So it will be a re-allocation of resources."

De Silva said for example tower project in Colombo city was costing billions of rupees to build with one foot costing 130 million rupees and a rotating restaurant on top.

Costs of many infrastructure projects were inflated, he charged.

One of the most deadly items in the manifesto could be guaranteed prices offered to items like rubber at a time when global commodity prices are coming down.

De Silva said taxes on basic foods had to be brought down.

Critics have pointed out that a combination of British 'corn law' and textbook German nationalist Ernährungsautarkie style self-sufficiency policies had kept food prices in Sri Lanka among the highest in the world and probably contributed to the malnutrition of poor children.

An aggressively nationalist party, the Jathika Hela Urumaya which had intervened in people's food freedoms in the past, is also part of the opposition camp.

"We will allow the people to eat first," de Silva insisted. "But yes we will raise the taxes on some areas. We will raise the taxes on casinos. Every business pays 14 percent value added taxes and NBT. Casinos pay 5 percent. Is that just?

"Should we not make the casino tax 50 percent? Taxes have to be just. High food taxes are not just."

Analysts say high food taxes are maintained in countries where the farming and land-owner lobbies are strong and where the urban intelligentsia and 'economists' follow agrarianism - an offshoot of European rural nationalism - as well as German historical economics.

He said sugar was imported at 57 rupees and sold at over 100 rupees.