The Expropriation Act has resulted in great injustice

‘A ruler with a depleted treasury eats into the very vitality of the citizens and the country. A ruler, who impoverishes his own people or angers them by unjust exactions will also lose their loyalty Impoverishment, greed and dissatisfaction are engendered among the subjects, when the ruler among other things

(i) fails to give what ought to be given and exacts what he cannot rightly take;

(ii) indulges in wasteful expenditures and destroys profitable undertakings;

(iii) fails to protect the people from thieves and robs them himself;

(iv) does not carry out his part of what has been agreed upon, and

(v) by his indolence and negligence destroys the welfare of his people.

The ruler should hear at once all urgent matters and not postpone them, for postponement makes them more difficult and sometimes even impossible to settle. The ruler shall be ever active in the management of the economy. The root of wealth is economic activity and lack of it brings material distress. In the absence of a fruitful economic activity, both current prosperity and future growth will be destroyed. A ruler can achieve the desired objective and abundance of riches by undertaking productive economic activity.’ -Kautilya-The Arthashastra –translated by L.N.Rangarajan -Penguin Classics

On Wednesday 9 November, 2011 Sri Lanka’s Parliament passed a law allowing the government to take over private businesses which are deemed to be under-performing. The Act in its schedule listed 37 companies to be taken over under the law, titled “Revival of Underperforming Enterprises and Underutilized Assets.” The Supreme Court of Sri Lanka previously had decided that the bill proposed to acquire private businesses was consistent with the constitution. But economists opine that the bill was not consistent with the fundamentals of economics or with the economic realities of the country hence it is not in the best interest of the country’s economic development and recommended that the law should be repealed as early as possible.(Hema Senananayake-Lanka Guardian).

Demand and supply

The economists state that any producer country’s economic stability depends on two equilibria in the system. The first is the demand and supply equilibrium at consumption level and the other is the demand and supply equilibrium at the total output level. If these equilibria break the economy should hit a major crisis and this law has the power to break these two equilibria in the near future. It is further explained that in the economic system entrepreneurs present their consumable goods and services to the market expecting that consumers would buy those goods. Therefore if entrepreneurs get back what they expect from consumers out of their expenditure then the first (demand and supply) equilibrium will come into being..The second equilibrium must achieve at total output level. Total output includes consumable goods and the goods that are used for the production of goods (capital goods). First equilibrium leads to the second equilibrium at total output level because capital goods and services are in demand in order to produce consumer goods. This means that the equilibrium at total output level will exist only if consumers spend enough money for the economic system to achieve the first equilibrium referred to above.

Taking risks

Senanayake further explains that ‘the word “entrepreneur” was coined by Jean Baptiste Say, a French economist to define “risk-taking capitalist investor”. Entrepreneurship is not just involved taking risk but it demands a great deal of human creativity and management. This creativity is not simply aroused when you think that your business might be taken over by the government for having to lease a piece of land from the government on which the business is built upon. This law will badly affect the “creative enthusiasm” of entrepreneurs as well as bankers. If the entrepreneurs did not invest in new businesses, this will result in the reduction of the increment of debt free consumer income. This affects to reduce the consumers’ collective ability to borrow. This means if entrepreneurs do not invest in new businesses there will not be enough consumer liquidity in the system as a result that will break up the first equilibrium. In such a situation the only mechanism to maintain the status quo of the consumer spending is to increase the government’s deficit spending. If the government can’t increase deficit spending then equilibria break and an economic crisis will erupt instead of development. This law definitely disturbs investor confidence both local and foreign.’

The media reported that the revival of Celestial Residencies one of the premier iconic properties of collapsed Ceylinco group of companies had turned in to a problem due to the owning company being erroneously listed in the schedule to the law. The owning company is Ceylinco Homes International Lotus Tower with Ceylinco Homes International, Ceylinco Capital Investment (a subsidiary of troubled Shriram Capital Management) and Ceylinco Insurance being its main shareholders. The company listed in the Act is Ceylinco Leisure Properties Ltd, which has no connection whatsoever with the owning company. The monies for the purchase of the land and the construction of Celestial Residencies were collected from the depositors of the failed Ceylinco Group of Companies.

Negligence of public duty

These depositors include retired persons, who had deposited their EPF and ETF funds, people who have sold their only residential properties to raise money due to the attractive interest rates paid by these companies to send their children abroad for higher studies, sickly and elderly people who had invested their savings in the hope of receiving a regular income in their old age. The Ministry of Finance, under the purview of the Minister of Finance turned a blind eye to the illegal deposit taking activities of the troubled Ceylinco Group of Companies and due to their negligence of public duty in spite of a report by the Special Investigations Unit of the Central Bank permitted the said Companies to operate thereby depriving the hapless depositors and their families of their life savings.

Curses will fall upon this regime

The curses of these depositors and their families would definitely fall upon this regime for acquiring property belonging to citizens of this country who have been reduced to paupers, without refunding their deposits, bypassing the orders of the Supreme Court to refund such deposits without further delay, that have gone into the investment in Celestial Residencies due to the negligence of duty by the Minister of Finance and the Governor of the Central Bank. There is a saying that God acts in strange ways and that may be the reason that the legal draftsman had to make a mistake in the listing of properties under the Act. As Kautilya very correctly stated a ruler who fails to give what ought to be given to his people and exacts what he cannot rightly take; indulges in wasteful expenditures and destroys profitable undertakings; fails to protect the people from thieves and robs them himself; does not carry out his part of what has been agreed upon and by his indolence and negligence destroys the welfare of his people, impoverishes his own people or angers them by unjust exactions will also lose their loyalty and impoverishment and dissatisfaction are engendered among the subjects.

Great injustice

There is no doubt whatsoever that the Expropriation Act has resulted in meting out great injustice to the Sri Lankan people and therefore should be repealed without further delay lest economic disaster strike our country in the near future due to loss of investor confidence.

The writer is an Attorney-at-law