The leaders of Sri Lanka promised the people ‘Vistas of Prosperity and Splendour’ as they introduced modern monetary theory and organic agriculture. They delivered only calamity.
Despite its small size in the shadow of its neighbour, India, the Democratic Socialist Republic of Sri Lanka was not a poor country. Its GDP per capita in purchasing power terms was rising strongly, and in 2019 was higher than that of South Africa.
But that was before the Rajapaksas.
In 2019, Gotabaya Rajapaksa, the former military officer credited with ending the Sri Lankan civil war against the rebel Tamil Tigers in 2009, won the presidential election in Sri Lanka.
A year later, a coalition of centre-left to far-left parties called the People’s Freedom Alliance, led by Gotabaya’s brother and former president, Mahinda, won a two-thirds majority in Parliamentary elections. Mahinda became prime minister again, a post he had held both before and after his ten-year term as president.
Armed with a super-majority, the Rajapaksas set about rewriting the constitution to give the president extraordinary new powers.
They had campaigned on a populist left-wing ticket that promised policies greatly favoured by green-left politicians and activists in the West. They called it, ‘Vistas of Prosperity and Splendour’.
Key among those policies were the adoption of modern monetary theory (MMT), and a wholesale transition to organic farming.
Magic money tree theory
MMT is popular with progressive politicians such as the darling of America’s left, Alexandria Ocasio-Cortez, and South African commentators such as financial journalist Duma Gqubule.
Last year, I called it magic money tree theory, noting that it was created in 1993 ‘entirely independently of prior economic thought’.
I explained how it works: ‘The basic idea of MMT is that government spending is unconstrained by revenue. As long as a government has the power to print its own currency, budget deficits don’t matter, and neither does government debt. Governments can create and spend as much money as they like to stimulate economic growth or finance social security programmes. Their only constraint is price inflation, but this can be regulated by taxing money back out of circulation.’
If it sounds too good to be true, that’s because it is.
Still, the Sri Lankan government committed to MMT with the fervour of a new convert, and began printing money hand over fist, while cutting taxes with gay abandon.
Organic farming
The other key policy was a mandate directing Sri Lankan farmers to transition to organic farming practices. The government imposed an outright ban on agrochemicals, including ‘synthetic’ fertilisers and modern chemical pesticides. Farmers were expected to replace them with crude, old-fashioned alternatives such as manure and blue vitriol.
I have written about organic farming, too: ‘Organic food, say organic farmers, is better for the environment and produces healthier, tastier food. Except that it isn’t, and it doesn’t. It’s a money-making racket which is rooted in esoteric mysticism, not science,’ I wrote.
Plenty organic food activists and a few ivory-tower academics claim that conventional agriculture is unsustainable and that organic agriculture could feed the world.
While it is true that conventional agriculture could stand some reforms and improvements, integrated farm management can achieve most of the claimed benefits of organic farming without any of the downsides.
Because organic farming requires far more land per unit of output, it will never feed the world without a massive expansion of agricultural land.
Double catastrophe
So, how are the glorious left-wing experiments in Sri Lanka going? How are the ‘Vistas of Prosperity and Splendour’ unfolding?
The short answer is ‘catastrophically’.
Mahinda Rajapaksa, the prime minister, resigned last month amid violent repression of anti-government protests.
A month earlier, Basil Rajapaksa (another brother of the president) resigned the finance minister’s post, and his replacement lasted a grand total of 24 hours before the pressure became too much for him.
Having burnt or torn down statues to the Rajapaksa clan, the people want the remaining brother to resign the presidency, but he has yet to do so.
The reasons for these resignations, and for the popular anger so soon after the Rajapaksas were elected, are an imploding economy and looming famines.
While the finance ministers were playing musical chairs, the Sri Lankan government halted payments on external debt for the first time in its 74-year history, raising the spectre of a full-blown default. That default arrived last month.
Shortages
The country faces severe shortages of food, medicine, fuel, and electricity. Inflation is rising out of control, from a respectable 5.2% in June last year to 39.1% last month.
This is, of course, not surprising. The country’s money supply has increased by 42% since 2019, and it is now printing money just to meet civil servant wage bills.
Its currency is collapsing. Once soft-pegged to the USD at 200 rupees to a US dollar, it broke the peg in March, and is now trading at about 360 rupees to the dollar.
Sri Lanka’s GDP per capita was last measured in 2020, but by then it had already fallen precipitously from over $13 000 in 2019 to just over $12 500. Figures for 2021 and 2022 will without a doubt be much worse.
Agriculture losses
The prohibition of chemical fertilisers, the government claimed, was designed to reduce healthcare costs attributed to the ill effects of chemical fertilisers and pesticides. The sudden shock, however, left a third of Sri Lanka’s agricultural land fallow.
The country had been self-sufficient in rice production, but rice yields promptly fell, reducing its total crop by 20%. It had to import $450 million of rice as prices increased by 50%.
The tea industry, a major earner of foreign exchange, was also badly affected, with losses of $425 million further weakening the country’s foreign exchange situation.
Organic farming does not have a good record, even if introduced gradually, and even in the rich world. In Switzerland, for example, a recent proposal to ban pesticides was defeated in a popular vote, but had it passed, the Swiss Farmer’s Association says it would have cost the country between 20% and 40% of its agricultural output.
Shocks upon shocks
The policies are, of course, intertwined: the real reason for the sudden fertiliser ban, instead of a gradual approach over ten years as initially announced, was simply that the government did not have foreign exchange to pay for imports.
Like other countries, Sri Lanka has faced multiple external shocks in the past few years, including the Covid-19 pandemic and the spiralling food and fuel prices caused by the Russian invasion of Ukraine.
Having blown its budget on MMT lunacy, however, the Rajapaksa government had no way to absorb these shocks.
It turned out that printing stacks of Sri Lankan rupees, as MMT charlatans had advised, could not buy the country out of trouble. Foreign creditors did not want rapidly devaluing rupees backed by nothing but a government printer, and were no longer keen to lend to a country run by nepotistic cranks.
Experimental socialism
Policies such as MMT and organic farming are loudly advocated by green-left politicians, social democrats, democratic socialists, environmental lobby groups and activist academics. When implemented, however, they have disastrous results, as the Sri Lankan people are discovering the painful way.
Experiments in socialism have never gone well. Let us take a moment to appreciate the lessons so generously offered by the mad Rajapaksa rulers of Sri Lanka.
[Image: https://pixabay.com/photos/flag-banner-nation-emblem-country-2529123/]
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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