Illusory Economic Justice in Crisis Management and Reforms

Herath Gunatilake

Sri Lanka is awaiting the IMF bailout package to find some breathing space, so that it can provide basic needs of energy, medicine, food and essential inputs for agriculture, industry, and services. Following the IMF, other donors are expected to resume their lending to Sri Lanka. The government is expecting moratorium on loan repayments for 5 years or so that economy can bounce back and get to a trajectory of growth resulting higher tax revenues to repay about $ 98 billion foreign and domestic debt. Achieving this best-case scenario is a herculean task which requires painful reforms and maintaining reasonable economic justice is of paramount importance for social harmony and economic stability during the transition period.

What is Economic Justice?

Economic justice is defined as “a set of moral principles for building economic institutions, the ultimate goal of which is to create opportunities for each person to have a dignified, productive, and creative life beyond basic economics.” The term ‘healthy individual’ may help one understand “economic justice” better. As the WHO defines the healthy individual, “it requires a state of complete physical, mental, and social well-being and not merely the absence of disease or infirmity.” In both cases, the pursuit of health and economic justice aspires to something greater than simply physical well-being or financial solvency. The goal is, rather, to shape the fundamental conditions—i.e. higher incomes, or freedom from preventable disease—that allow people to live fulfilling, sustainable lives free from concerns about meeting basic needs, or about falling into poor health.

Economic justice is founded on the idea that the economy will be more successful if it is fairer. The goal of economic justice is to create opportunities for all to succeed regardless of sex, race, age, disability, colour, creed, national origin, religion, or genetic information. The main principles of economic justice include sufficient basic income, income equality by gender and race, and equitable opportunities for employment and credit. Thus, economic justice embodies a set of principles for which economic infrastructure is developed around, wherein the ultimate goal is to create an environment with equal opportunity for each individual. and to establish a material foundation of which people can achieve a creative, dignified, and productive life.

The necessity to pay attention to economic justice is rooted in the inability of the modern market economies to ensure equitable distribution of the economic outcomes. As such, the goal is to create opportunities for everyone to potentially thrive and prosper, based on their abilities and efforts. Achieving ‘economic justice’ requires government intervention in the free market economy through policies such a progressive taxation, minimum wage, diversity inclusion, and sufficient basic income, which should be set at a level that provides the basis for a “modest but decent” standard of living.
The above-described approach to economic justice is essentially intragenerational; the equitable opportunities are within the present generation. A somewhat different concept of economic justice is entailed with inter- generational equity. Given the wide-spread depletion of natural resources and environmental degradation, leaving sufficient amount of natural capital and environmental services for the future generation has become imperative. Climate change raises the question of very survival of the next generation. Economic justice related to intergenerational issues require separate discussion and the focus of this article is on intrageneration economic justice.

Economic Justice as Equitable Sharing of Burden

The economic justice described above is applicable to well-functioning mature market economies. Conceptually, economic justice approaches the problem from the entitlements point of view. There is a need to revisit the concept of economic justice in an economic crisis situation. The current economic crisis will reduce employment and livelihood opportunities and consequently the household income and consumption. Per capita income has already reduced to about $3000-3500 from about $ 4000. The economy is shrinking further, and inflation, higher taxes and higher utility bills will further erode the real incomes and purchasing power of the public. Under such circumstances, economic justice should be redefined as equitable sharing of the burden of the crisis by of different sexes, races, age groups, nationalities, and religious groups. Moreover, the burden should be shared equitably by ruling class including the richest segment of the population and the rest of the public. A cursory look at the reforms already implemented shows that economic justice hasn’t been given due attention. For example, the electricity tariff increase has taken away the protection provided to poor groups through a block tariff system. From the economic efficiency perspective this is justifiable but there are wider claims of inefficacies and mismanagement by CEB. It seems that subsidies provided to apartment buildings are still in place. An independent investigation is necessary to quantify the “so called” inefficiencies. If they are real, passing the cost of these to the public questions the economic justice. Unpaid electricity bills by some of the parliamentarian also add to the economic injustice. Is it justifiable to only charge the higher prices to the public?

Recent tax reforms are also a case in point. Tax reforms were done in haste without increasing the tax base, improving the governance to minimize tax evasion by privileged professional groups and big businesses. There were no efforts to punish the companies which were caught for tax frauds. Moreover, there were no systematic approach to reduce the government expenditures. The attempts so far are largely to balance the budget by increasing taxes without a systematic approach to streamline the government expenditure. Transparency, and inclusiveness is given only scant regard so far in the reform process.

The economic burdens of the crisis were passed on to the public while the ruling class retaining all the perks enjoyed by them. One could argue that from a macroeconomic perspective, reducing the perks to rulers and top bureaucrats may not have significant savings. However, such genuine burden sharing would have very high symbolic value which would augment heavily eroded trust between the government and the public. Paying attention to economic justice during crisis management would be of paramount importance to garnish the support of the public for painful reforms. At the moment economic justice seems illusory but the need of the hour is for the government to change the course of action to be fair, transparent, inclusive and follow consultative approach in continuation of the much-needed reforms. Failure to do so might result in social disharmony which could derail the entire recovery process. Signs of such developments are already evident.

Economic Crimes and Accountability

The economic crisis is not a random event or unavoidable natural disaster. It is manmade through wide-spread corruption and economic mismanagement. The biggest worry in the minds of the public is that the same group of political elites and bureaucrats will go back to the same way of (mis)managing the economy after IMF interventions stabilize the economy. In few years of time Sri Lanka will have to declare bankruptcy again if there are no deeper fundamental reforms on economic institutions in the country. Impunity enjoyed by ruling elites in relation to corruption should be ended and responsible person for deliberate economic mismanagement should be brought to justice. Institutionalizing better economic governance and transparency is vital for Sri Lanka to avoid repetition of the same mistakes which lead to the current unprecedented economic crisis. The Government may have undertaken the reforms in a hurry to meet the IMF conditions. It may have a broader agenda to have social protection measures to reduce the impacts of reform on the poor. However, if there is no transparent and consultative process with a proper communication strategy these efforts are bound to fail. Restoring the trust between the government and the pubic requires equitable sharing of the economic burdens as well as institutionalized accountability, so that much needed public support for the reforms can be forthcoming.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views and policies of CEPA.