Glocalization Without Financialization
By Ameer Ali –
The open economy model introduced by JR in 1980s dragged Sri Lankan economy into the dynamics of neoliberal economics and globalization. It was more a hurried act of revenge against the economic policies of the previous leftist coalition regime and a yearning to join the free market mania rather than a calculated economic strategy. Globally, the 1980s marked the dawn of a new era that witnessed the collapse of Keynesianism and breakdown of its associated Bretton Woods financial arrangements, the grand failure of Soviet and Maoist socialist economic experiments, and the ascendancy of free market economics, all in the wake of an oil inspired stagflation. The neoliberal economic philosophy and globalization promised unparallel prosperity and sustainable economic growth to all nations that embraced the new paradigm. Francis Fukuyama, a globalization enthusiast prematurely described the new wave as the “End of History and the Last Man”. Alas! after more than four decades of its reign, instead of levelling the interconnected economies neoliberalism has actually widened the wealth gap and plunged the world into successive financial and economic crises. Instead of the promised 50:50 ratio globalization actually produced the 90:10 ratio between the rich and poor nations.
One of the factors that contributes to this inequality is increasing financialization of real economies. Financialization refers not only to the increasing size and importance of a country’s financial sector to its overall economy, but also the increasing diversity of transactions and market players as well as their intersection with all parts of the economy and society. In US for example, the size of this sector had grown from 2.8% in 1950 to 21% in 2019, and in UK this sector contributes about 12% to its GDP. With the growth and expansion of this sector, the role of finance itself has changed fundamentally from being a means to an end to become the end in itself. From being a facilitator of production and distribution of goods and services in the real sector, financialization and financial accumulation have become the end product of all economic endeavour. As a result, the real sector has been deprived of valuable resources to develop and therefore forced to borrow from and fall into debt to the financial sector. As a result, the whole world is living in debt today. For example, according to the IMF Global Data Base, global public debt had increased from 61.2% of global GDP in 2007 to 95.7% in 2021, and global private debt from 136% to 153.5% of global GDP. US alone has accumulated a total public debt of $31 trillion by October 2022 and that would never be paid. How does one fathom this world of unpayable debt and deprivation, which is fashionably called as the New Economic Order (NEO)?
With this background what prospect does tiny Sri Lanka have to emerge out of its current bankruptcy debt free and economically robust especially with the advice and assistance of IMF, the guardian angel of NEO? IMF’s primary focus is to stabilize the country’s financial sector so that that sector would be able to inject more resources into the real sector to generate economic growth. But that the recommended measures to achieve that stability and growth are hurting the majority poor more than the minority and elitist rich is not its serious concern. Its recommendation for a social safety net like the aswesuma scheme currently being implemented is not going to make life better to this majority, because the rising cost of living will eat away the little benefits from aswesuma. Moreover, once the economy is normalized with the removal of all import restrictions and capital controls, and once domestic and foreign debt restructuring is completed, the structural weaknesses of the economy let alone pervasive corruption and mismanagement, all operating on an ethnonational political edifice, would keep the economy open but its growth modicum at best. In that sense, President Ranil Wickremesinghe’s 2048 target for an export oriented and high-tech driven economic transformation appears sheer fantasy.
The irony is that all existing political parties except NPP seem to have accepted this questionable recovery path drawn by IMF. But IMF’s own prognosis about economic slowdown in the developed economies in the short and medium-terms doesn’t augur well for the recovery of Sri Lanka. The World Bank also endorses this pessimism. Unlimited financialization of economies seems to have reached a critical point to cause another GFC. Is there an alternative?
Glocalization, a concept derived from the Japanese word dochakuka implies the “simultaneous occurrence of both universalizing and particularizing tendencies in contemporary, political and economic systems”. This concept became popular in 2000 with the protest movements against globalization and economic liberalism. Although it lost its currency amidst several other competing ideas its substance still remains relevant when one studies the gross injustice experienced by a number of developing countries by succumbing to the dictates of free market economics. Glocalization is not anti-market but market friendly with added focus on the growth of the local real sector. The financial sector’s growth should be aligned to the growth of the real sector rather than be allowed to take an independent trajectory. Localization with a global window appears a sensible option, and NPP’s concept of a social market economy reflects that option and therefore deserves serious and sympathetic consideration.
But glocalization with a social market economy would be a misfit with the existing political paradigm. That is why system change is imperative. Neither the current president and his coalition partners nor their opponents except NPP are prepared to go for that change. A new system with a new constitution and a new economic model advocating glocalization without financialization is the most sensible alternative to the current political and economic paralysis. Otherwise, the seventeenth intervention of IMF is not going to be the last.
As a footnote to this short piece, one comment on the latest Anti-Terrorism Act (ATA) deserves inclusion. ATA is nothing but the previous Prevention of Terrorism Act (PTA) with few cosmetic changes. The new Act is specific enough to curtail all protests against the ruling system and elastic enough to counter criticism. The system needs ATA/PTA as an instrument of protection. Therefore, it is no use protesting to reform ATA without broadening the protest to remove the socio-political framework within which ATA is going to operate.
*Dr. Ameer Ali, Murdoch Business School, Murdoch University, W. Australia