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FDR’s second Bill of Rights: Industrialise, now! 

22 Jan 2022

By Kusum Wijetilleke Modern American history can be defined by several speeches by some of the most influential presidents that the last century has known. These include, but are certainly not limited to: Reagan on the 40th Anniversary of D-Day (1984), Kennedy on the space race in 1962, Eisenhower’s 1961 farewell address and the reference to the Military Industrial Complex, and Obama’s 2008 Iowa primary caucus victory speech.  Sometimes overlooked is the State of the Union address delivered by President Franklin D. Roosevelt (FDR) in 1944, the 78th anniversary of which was just over a week ago. At the root of it was FDR’s understanding that rising inequality would risk the hard-fought battles that led the US out of the Great Depression of the 1930s: “We cannot be content, no matter how high that general standard of living may be, if some fraction of our people – whether it be one-third or one-fifth or one-tenth – is ill-fed, ill-clothed, ill-housed, and insecure.”  In 1944, FDR was making this speech having just won his fourth Presidential election. There were no term limits at the time. FDR was the only President to win a third and fourth term, but his legacy had been assured following his first two terms, whereby he introduced a number of far-reaching public sector-led projects and programs as well as significantly reforming the financial sector, delivering what came to be known as the ‘New Deal’.  This is where the 1944 State of the Union Address becomes so poignant, delivered by a President in failing health, one that had more or less achieved political immortality within his lifetime. At the very beginning of his fourth term, FDR would reaffirm the American Bill of Rights and the Political rights it bestows upon Americans with the need to ensure economic freedom; “equality in the pursuit of happiness”. Individual freedom and economic truths “This Republic had its beginning, and grew to its present strength under the protection of certain inalienable political rights…We have come to a clear realisation…that true individual freedom cannot exist without economic security and independence…People who are hungry and out of a job are the stuff of which dictatorships are made.” It is a deeply philosophical equation, one that Americans wrestle with to this day; the implicit recognition that individual freedom, a cornerstone of Americana, depends on the acceptance of ‘economic truths’ and thus as FDR proposed, a second Bill of Rights. This proposed set of economic rights includes the right to a job; essentially, a federal jobs guarantee. The right to a wage adequate for not just food and clothing but also ‘recreation’; an acceptance that the human experience cannot be confined to a measure of productivity. FDR specifically mentioned the farmers and the need to ensure a fair price for crops, a price that affords the farmer’s family a “decent living”.  Aside from further endorsing the right to shelter, healthcare and education, FDR makes reference to protection from “economic fears” named as “old age, sickness, accident and unemployment.” FDR even touched on industrialists, stating that all commerce must operate in an “atmosphere of freedom from unfair competition and domination of monopolies at home or abroad”. When FDR came into office in 1933, the US was in the depths of the Great Depression. The day after FDR’s inauguration, on 5 March 1933, the New York Federal Reserve Bank would not open for fear of mass withdrawals. Unemployment, though not officially calculated at the time, was estimated to have been around 25% in 1933. America saw the rise of ‘hoovervilles’; ramshackle tents and shacks built by the homeless on abandoned parking lots and desolate street corners.  FDR famously blamed the Great Depression on the banking industry and in principle, on the quest for profit, thus becoming perhaps the most important American President to critique capitalism. The great de-industrialisation Regardless of how Sri Lanka escapes financial collapse, whether through the IMF (International Monetary Fund), bilateral assistance or negotiated restructurings (most likely a mixture of all three), what becomes critical is the roadmap to sustainable economic growth.  Dr. Howard Nicholas made an excellent analysis at the recent Sri Lanka Economic Summit, noting that policymakers were overly focused on budget deficits and should instead look to industrialise the local economy. Dr. Nicholas noted that during the ’90s Sri Lanka was advised by multilateral institutions to address their persistent budget deficits. This renewed focus on the budget deficit during the ’90s oversaw a decade of stagnant economic growth. In the period leading up to this, starting in 1989, Sri Lanka saw a rapid expansion of its industrial capacity, mainly through the expansion of garment manufacturing capacity.  Dr. Howard’s presentation also noted that all under-industrialised countries ran large budget deficits with Vietnam being a case study in how to successfully transition to an industrialised economy. Sri Lanka instead focused on financialisation and trade liberalisation during the ’90s and worryingly, policymakers repeated the mistake in the post-war period.  Starting in 2009, State expenditures on infrastructure increased and it seemed that lessons had not been learnt as there was little to no focus on industrialisation. In fact Dr. Nicholas notes that Sri Lanka has essentially deindustrialised since 1990, with manufacturing as a share of GDP declining during the period.  As Sri Lanka enters a new phase of its economic history, policy makers would do well to heed some crucial lessons from FDR and the New Deal, not least its focus on industrialisation whilst simultaneously improving worker conditions and expanding labour protections. The National Industry Recovery Act of 1933 along with the Public Works Administration was a cornerstone in the industrialisation drive that led to double-digit GDP growth for half a decade or so in the mid-1930s.  The New Deal had many faults and there is strong academic research that challenges the consensus on some key New Deal programmes, but for Sri Lanka, it is imperative that we understand the importance of strong institutions. The New Deal led to the Securities and Exchange Commission, Social Security Act, multiple fair labour statutes, federal deposit guarantees as well as regulation of the financial industry through Glass-Steagall.  American historian David M. Kennedy notes the common misconception that the New Deal represented a state takeover of industry while competing with private capital. Instead, as Kennedy notes “the New Deal itself was very cautious about expanding governmental authority…” and compares the response to the Great Depression in England and much of Western Europe, which saw the nationalisation of entire sectors of industry. Relief for symptoms, reforms for causes One way to conceptualise the New Deal is by categorising the various programmes by their intended function; to provide relief, aid recovery, and implement reforms. Sri Lanka must approach each of our own economic challenges in similar ways.  Firstly, by providing relief for the symptoms in the form of assistance to the poorest and most vulnerable and jobs for those that are willing and able to work. Secondly, there has to be a mass mobilisation by the financial sector to allow for both recovery and growth. Third and most importantly, to reform the system to ensure that past policy errors will not be repeated, that large scale projects and heavy borrowings must be carefully analysed and spending prioritised towards expanding Sri Lanka’s industrial capacity.  The Sri Lankan administration’s recent use of a massive Rs. 229 billion stimulus package with cash handouts has divided opinion. Many find the cash payout, with a ceiling of Rs. 5,000, to be wholly inadequate but ultimately, better than nothing. Others have a hard time reconciling the source and cost of funds while many more worry that the country has simply wasted many hundreds of billions.  FDR famously worried about people becoming dependent on relief handouts and preferred programmes that provided employment. Through FDR’s prism and considering the aforementioned comments by Dr. Howard Nicholas, even a much smaller programme of coordinated industrialisation between the public and private sectors may have provided significantly better and more sustainable outcomes.  The academic and intellectual consensus is quite clear on the fact that the ‘Gota Tax Cuts’ were a major contributor to the economic destruction currently unfolding. A September 2021 analysis by PublicFinance.lk showed that corporates were taxed as low as 14% stating that “many of Sri Lanka’s income peers charge a much higher corporate income tax rate”. The same analysis notes that only 15% of Sri Lanka’s tax revenue is generated from corporations, a far lower percentage than income peers.  At the height of the depression and during FDR’s first term in office, the US saw the largest mobilisation of labour unions and worker forces in its history, organised through a communist party and at least two major socialist parties.  FDR was astute and understood that revolutionary movements would further undermine any potential for recovery and turned to the American business and industrial elites; an establishment he was personally familiar with given his own privileged background. American Marxian economist Richard Wolff has stated that FDR convinced the industrial elites that it was in their best interests to support labour reforms. The top-line marginal corporate tax rate in the US which had declined from 58% in 1922 to 24% in 1929, reached 60% in the period after FDR’s first election.  Since the onset of the pandemic, some of Sri Lanka’s major conglomerates, companies and financial institutions have recorded surging revenues and profits, share prices are soaring, and the stock market has reached historically high levels; all while members of the working poor quietly slip into destitution.  During this period, the bulk of the relief – as well as virtually all of the rewards – seems to have gone to the corporate sector. As the lower middle-class hollows out, no small measure of political bargaining will suffice should revolutionary forces begin marching. This might be the ultimate lesson Sri Lanka simply must learn from FDR and the New Deal.  (The writer has over a decade of experience in the banking sector after completing a degree in accounting and finance. He has completed a Masters in International Relations and is currently reading for a PhD at the University of Colombo. He is also a freelance writer and researcher, and can be reached on email: kusumw@gmail.com and Twitter: @kusumw)


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