Trust between two elites when financial discipline is lax

By Usvatte-aratchi

‘The executive of the modern state is nothing but a committee for managing the common affairs of the whole bourgeoisie.’ The Communist Manifesto (1848)

‘… where political and business elites are intertwined in corrupt dealings, each reliant on the other’s power for survival… the downfall of one party can drag the other down with it.’ Precarious Ties, …. Meg Rithmire (2023).

‘For Japan issuing public debt … colonial government bonds.’ In defence of public debt’, Barry Eichengreen and others (2023), p.75.

Meg Rithmire teaches at Harvard Business School. Her recent book, read in light of Marx’s deep insights in 1848, enables a clearer understanding of the volatile political situation in our country and several others. It is far superior to concepts like ‘crony capitalism’ and ‘state capture’ in understanding major political developments in some societies. Rithmire examines relations between political elites and business elites in Indonesia during the Suharto dispensation, in Malaysia during the Barisan Nasional Coalition, and in China in a recent period of growth. I am not equipped to comment on her work, as from where I live, access to the literature and discussions on the subject are entirely sparse. So far as reading is concerned, I live in a bit of a hellhole. I would rather make use of her conceptual models she builds to understand political alignments in our country. Furthemore, I am more than a bit uncomfortable using terms like elites and class, I guess, mainly because I am poorly read in those subjects. For the moment, let’s blunder along.

There is not much argument that our society smells foul with corruption, beyond high heavens, if they exist. There is ‘petty’ corruption perpetrated by those in lower levels of employment: policemen will overlook an offence when paid a small bribe to do so; a school principal will admit a student to Grade 7, because a friend of hers who works in another place asked her to do the latter a favour; and a clerk will speed up a file for final signature for a consideration. ‘Grand’ corruption is not only massive in size but also destructive of the functioning of the economy and society. Twenty percent of a $7 billion contract is $1.4 billion (Lkr.445 billion at 320 rupees to the dollar), a sum large enough, when well-managed, to maintain in luxury many sets of stupid offspring of powerful politicians. Multiply such bribes manifold over 10 years and you have the situation in Sri Lanka: a political ‘elite’ corrupt to the gills and a population with burdens of public debt, which condemns that economy to bankruptcy. The tragedy of that disaster is that the population did not understand the scale of the woeful fate that awaited them and repeatedly voted into office those same corrupt politicians. The irony of it is that those politicians walked comfortably into office in 2019 and 2020 on an ‘intellectuals’ way’ (viyath manga) carved for them by well-educated but impossibly gullible professionals. Ensconced well in power, those politicians drove the country into bankruptcy and the public into misery.

In our instance, this scale of ‘petty theft’ and ‘grand theft’ would not have been feasible without the connivance and active participation of public servants at high levels of authority and power. ‘Laxity in financial discipline’ is an inadequate ‘euphemism’ to explain the complicity of the ‘bureaucratic elite’ in the prevalence of corruption on the scale and in the length of time the phenomenon has prevailed in our society. That phrase falsely lulls us to the fancy that public service ‘elites’ looked on helpless while others committed day light robbery. Who prepared cash flow tables to estimate NPV to justify the feasibility of the Nelum Pokuna project or the Nelum Kuluna project or the Mattala airport or the broad highways (‘…where the deer and the buffalo play.’) in the Hambantota district? What was the rate of return in each? Who recommended to President Gotabaya Rajapaksa to reject the light rail project which was almost a gift from Japan but carried no opportunities for bribery? Surely, public servants and not ‘Mr. 20 percent’. The practice of hiring retired senior public servants to do the bidding of politicians was critically important for scams to continue. Wishes of powerful politicians in office to place those errant public servants in positions of authority prevailed over clear and emphatic verdicts of the Supreme Court. The contrast with public servants and politicians of an earlier time is far too purple to have missed the eye of sociologists, except that they preferred to wear pitch-dark glasses.

Borrowing is never a bad thing in itself (Forget about Polonius. Borrowing blesseth both the lender and the borrower, although it droppeth not as the gentle rain from heaven.) It is a critically important means of mobilising capital. Banks exist for that purpose. (There was a fine account of county banks in England that collected rural savings and moved them to cities in a book (written by Presnell(?) which I read in Peradeniya.) Most corporations and most governments, the world over, have borrowed to grow and both the lender and the borrower have been richer into the bargain. Banks have thrived on those practices. In our country, political ‘elites’ and business ‘elites’ borrow to rob and steal, the people; the borrowers’ enterprises wither but the borrowers lead princely lives. It is the inexorable logic of false entrepreneurs, who with the connivance of errant politicians, rob state banks. That sort of corruption prevails in connivance with business elites although much of the wealth stolen cannot be invested in the anemic private sector in our economy. The consequent outflows of wealth give rise to severe balance of payments crises. Lax financial discipline permitted – indeed facilitated – by public servants who share in the stolen wealth made sure that those guilty were not brought before courts of law. Law enforcement offices are yet to bring to trial any of the alleged perpetrators. The government in China has convicted dozens and executed some. The recent celebrated Supreme Court trial was not about corruption. No amount of legislation can help if there is laxity in their enforcement. Political elites and business elites have connived to manipulate government financial practices and procedures to rob and steal several billion rupees from the government treasury: the treasury bond scams 2015 and 2016 are classic incidents; the sugar tax imbroglio in 2020 is another; a large number of enterprises, who with the connivance and active participation of powerful politicians, borrowed billions of rupees from state-owned banks and let them run into bad loans is still another; and distilleries and other business units that refuse to pay assessed taxes (summing to billions of rupees) but are left to continue their illegal practices using that wealth, as powerful politicians protect them is a fourth set. The impending sale of state assets will create a few small-scale ‘oligarchs’ as earlier perestroika in the USSR laid the fertile soil on which mega oligarchs germinated and thrived.

Here is clear evidence of Rithmire’s proposition. The political elite survives and prospers because the business elite promotes and sustains them; economic elites exist and prosper because the political elite repays the compliment. If one falls, the other fails. When one is threatened, the other comes to prop up the ill-affected. Some sections of the bureaucracy (another elite?) enable these practices. There are early signs of a clearer alignment of forces on lines demarcated by Rithmire’s hypotheses. The current symbiosis, while promoting the good health and robustness of these elites and providing a semblance of stability, is inimical to the good health of the body politic and economy. The well-being of our society depends on the growth of its economy and not on the stability of the status quo. It is fair to seek stability in the short term but growth in the economy in the long term is always destabilising. A telling example is the recent migration of hundreds of millions of people from the countryside to work in factories in cities in China. The Communist Party in China has provided the stabilising glue. Beggars and highwaymen in early 19th century England were symptomatic of social instability. Western Movies are about opening lands in ‘the wild West’ in the US and belong in a time when populations moved West where law and order had yet to prevail.

In the US, in the 1920s, masses of people moved north to escape the ‘Dust Bowl,’ and the appalling poverty in the South, to seek fortunes in the booming motor car industry there. When a new stabilisation emerges with economic growth, new alignments of social forces come about.