Monday, September 12, 2005

Of subsidies and multi million dollar loans

Oh what a blissful weekend...

So Matel, Frodo and I headed over to Valley that is Happy to indulge in two of its favorite pastimes... Drinking and Football. The Lions from Nittany won the game this weekend with the new fellows doing some excellent catching and running.

Kudos to jackpoint for laying it out in black and white... I think that is the most clear and concise way in which all the issues pertaining to Sri Lanka has been laid out.

Economics... we all deal with it, some know it and some are ignorant of it. So lets examine the how and the why of how Sri Lanka is still a developing nation.

Back in the day, it was stated that for developing nations to produce a strong economy, subsidies must be in place INITIALLY. Afterwards, Laissez Faire (Hands off economics) should make things just right. After the great depression, the idea of Laissez Faire economics had to go out the window, coz the world could not afford another episode... not even with Prozac. So, they adjusted the models and did the math and came up with a formula that has managed to float almost all countries... except THE hardcore socialist i.e. former Soviet Union.

What happened in the USSR was simple. Everybody got paid the same wage regardless of the job. A brilliant surgeon/professor was paid the same as the janitor sweeping the hallways. Promotions and the like was present but the increments were minuscule and the only benefit was access to better stores/supplies and MAYBE a state assigned apartment. Now according to STRICT Marxism and Leninsm, perks and bonuses were taboo (as was the idea of religion - The Party was the only authority) but they were there for the Party hierachy. Equality was the game and you had to play it whether you liked it or not. To make a long story short, factory managers reported quotas had been met when they weren't, and everybody believed this happy song right up until the collapse. Gorbachev (bless him) saw this and managed to steer Russia into democracy before anarchy set in. Now however, due to the troubles of Russia and its rampant corruption, NUKES, yes Nuclear Missiles that will blow you and I to kingdom come are missing. God knows who has them.

Ok, why am I going on like this? Because of the economic policy in Sri Lanka.

The GOSL (the first one back in 1948) established the subsidy system as we were an 'emerging economy' at the time. Subsequent governments Blue or Green continued to uphold the subsidies coz no one would vote for them if people had to pay real prices for goods and services. Therefore, state entities which at the very least should have been breaking even started to lose money like crazy. To date, the CEB alone owes somewhere around 1 1/2 BILLION to the Treasury. DAMN.

The price of foodstuffs fluctuate a little, but does not reflect market price, therefore are underpriced. The people producing them (the farmers who have been doing this for generations) are ripped off because of this. Becasue people are not paying REAL prices they are not paid REAL wages. So things like petrol which tend to reflect INTERNATIONAL prices AFTER the subsidy are VERY expensive to the layman.

In short:

People are paid shitty wages because
Cost of Living (COL) is artficially held low owing to
Subsidies which is
Draining the treasury becasue of which
The ruppee devaluates everyday which in turn
Increases the downward spiral of the economy which
Ensure people don't get proper wages.

True, the war is a contributer to the drain on the economy too, but if we put in place proper infrastructure, all the money spent on the war will stay inside SL and contribute to its economy by providing jobs and more money in the economy. But then again, HOW MUCH was spent on the WAR when there is a ceasefire in place? I mean besides proper wahes and upkeep expenses for the defense forces... which would be spent anyway regardless of the war.

Does anyone notice that everytime the Central Bank has to take out a loan to finance a subsidy, its the peoples money and credit being risked? I mean, subsidies remain in place to curry flavor with the masses right? Reds, Blues and Greens do it right? So basically, THEY finance THEIR campaigns using OUR BLOODY MONEY. We are essentially paying them to screw us over. Ain't that just beautiful?


At 8:05 PM, Blogger dextr said...

Oh gimme a break man. You and your bloody economics.

That name suits you.

At 3:43 AM, Anonymous Dharmapala said...

You are a small minded, arrogant little shit. I've seen your kindergarten antics on other blogs as well - starved for attention aren't you?

Grow up, boy.

But you are young - and obviously far from your motherland and its troubles.

People like KS (who apart from havng a silly name is discussing serious issues - which some pipsqueak cant understand) are having a discussion on issues. If you can't understand them - go somewhere else - ideally somewhere your juvenile mind can actually grasp the flow of things.

Like KS already said in this post:

Economics... we all deal with it, some know it and some are ignorant of it.

Looks like someone is ignorant of it, but just had to say something - even though it had nothing to do with the topic.

At 6:11 PM, Blogger sittingnut said...

nice post. agree with you on all points. keep it up.

ignore dextr, he is just a loser who goes around trashing other peoples blogs with contradictory comments.

At 1:00 PM, Anonymous Naren said...

Interesting post, on the subject of economics try reading "the end of poverty" by Jeffrey Sachs, has some interesting ideas directly to relevant to what you mentioned in ur post


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