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Neo-liberalism is not a solution, but the principal cause of the problem. I would like to offer some personal insights here from my working life with regard to the manner a non performing entity can be made more efficient and responsive without resorting to the sort of tactics the neo-liberals are obsessed with. Neo-liberal tactics of austerity make the working people more oppressed at the expense of tackling key structural issues the country is faced with, which are at their heart political and economic. One of the best early examples in this regard was the top down approach used in 1970, after the dictatorial coup in Chile, which rammed home an austerity program without the consent of the people and the disastrous consequences its citizenry had to endure as a result.
This article describes the ideological frameworks underpinning the IMF’s approach to a country’s debt crisis. Its economic statements about fiscal responsibility and debt repayment pay little attention to the socio-economic and political causes that this debt crisis allows to emerge from time to time in a country such as Sri Lanka or Ghana.
Neo-liberalism is not the solution
When neo-liberal economy was introduced in 1977, successive leaders of Sri Lanka told people that their future was going to be free, successful and marvelous. However, the future that materialized did not accord with what they predicted. Instead, we have a society where social and economic inequality and bad governance prevail and people’s freedoms are being taken away. This is the same situation in other countries where neo-liberal economics have been imposed on.
Neoliberalism focuses on economic regulation rather than economic planning. It promotes competition and protects market orientation against any controls. Neo-liberals encourage people to embrace entrepreneurship with the belief that at the micro level it creates wealth for the individual and at the macro level they need to accept socioeconomic inequalities deriving from such behaviors.
Instead of human rights, rule of law, civil liberties, freedom from prejudice and prosperity, what we have is a system that promotes authoritarianism, which gradually erodes our rights and freedoms over the years and justified in the name of a strident mono-cultural nationalism. The language and logic we hear are about democracies but in reality, what we have are economic dictatorships under the rhetorical guise of growth and productivity. Meanwhile the economic fruits have increasingly flown into the hands of the top echelons of society.
Skewed economy a trap
If this untenable and unfair economic system is not modified, the economic and political elite will continue to pay less tax for the riches they have acquired from the productivity gains made through labour and other inputs. The political elite who benefits from this inequitable system have no desire to make them pay their fair share of tax; instead, the regime offers them tax cuts on the erroneous premise that it is good for generating more employment opportunities and humane working conditions.
Instead, people are trapped in working long hours just to put food on the table for themselves and their families. They do not have much time for socializing or relaxation, having forced many of them to endure poor working conditions with no security, so they do not have the luxury to quit the job looking for alternatives.
The prevailing system and its supporters have blunted our ability to choose what our prosperity will look like or how to live our lives. We have lost the right to pursue our freedoms in our own ways without depriving or impeding the freedom of others. Enjoying that right is restricted to those who can afford to purchase that freedom to love, leave, leisure and creation. This is not only unfair but is also irrational.
Running a business and governing a country
Governing a country is not like running a business entity or managing a home although there are situations where similar strategies can be used. Financially insolvent situations can be considered as one. Let me start with my own business experience so as to reinforce the point of a collaborative approach to addressing the crisis. In 1987 I took over several business units of the largest non-governmental organisation in Sri Lanka that were running at a loss, with the responsibility of transforming those into viable, profitable units. I was able to show results within a year but also expanded those units and the workforce and paid them better wages. This transformation was achieved during an extremely tough socio-economic and political environment in Sri Lanka.
This was not a unique situation as many face similar daunting tasks of turning around failing business entities under the influence of many factors both internal and external, such as project or market failure, diminishing sales and market share, shrinking profit margins, lack of timely and correct information, a disheartened workforce, lack of financial control and inept management. I believe that most of the time, such business failures are self-perpetrated.
Dealing with an insolvent situation
If a business is not solvent, its senior personnel in collaboration with their staff need to come up with a plan on how to improve their economic survival. The best way to do this, would be to openly discuss what has gone wrong so far and what everyone, including the leaders, could suggest making the economic prospects better.
Leadership needs to seriously consider and analyse the existing circumstances, decide on certain lines of action that are fair by the owners, managers, and employees, both consultatively and inclusively. They may seek advice of professionals with demonstrated business experience. Then those decisions need to be implemented proactively with contingency plans in hand in case of failure.
This is tough, although not an impossible task. Otherwise, the alternative is to resort to immoral and illegal ways through political patronage, corruption and black money. By doing the right thing, many businesses bounce back, even performing better and stronger, for the success is dependent on the leadership of the organisation; whether they take advice on board, evaluate the advice and make tough but necessary decisions. Thus, they successfully implement the turnaround plan without creating bitter and hostile environments.
Addressing an insolvency
According to my experience, businesses can continue to focus on producing and selling what they have been selling well already. At the same time, they need to develop new products/services to compete and survive in the market place. Here the focus should be on what customers need and if what the entity provides can satisfy their needs.
To regain trust, existing products/services may need to be improved or new products/services, less expensive and of better quality, can be provided in the market place. Branding may also need to change and new marketing strategies followed. Pricing needs to be competitive but must generate reasonable profits to ensure the financial viability of the entity.
Additionally, human resources need be allocated to appropriate positions so that skills of each employee and their contributions are better utilised. The business should have an adequate cash flow to settle its bills in a timely manner, including the payments on monies borrowed. The business must manage its finances well. Also, the business should be accountable and transparent and its transactions should be traceable. Bad financial reporting practices can lead to bankruptcy and closure of the business. Such practices should be stopped immediately. Hence, maintaining better financial reporting becomes crucial.
The next part of this article will point out that the economic panacea in the form of austerity is not only unfair but also has a detrimental effect on the unity of state as it does not address the underlying structural causes of the crisis.
To be continued
Read Part 1 here: https://groundviews.org/2023/08/08/debt-restructuring-austerity-and-the-imf-a-panacea-or-an-exacerbation/