“Corruption is not a critical factor in delaying development. Except Singapore all Asian nations that experienced rapid development had corrupt leaders during the expansion phase. If we are ever to catch up with these Asian economies, some day a government will have to move out of the business of providing goods and services. But for that to happen we need to have a public discussion on the merits and demerits of state involvement in providing goods and services.”_________________________________
by Robert Abayasekara
(April 11, Colombo, Sri Lanka Guardian) Tragically, we in Sri Lanka do not have a single party that advocates a market economic model. Even though the UNP is pro-business, it supports the ‘big government’ where the state involves itself in every economic activity. They differ from the SLFP and its allies only in following a more pragmatic economic management.
We do not have a single party or a politician who questions the governments’ miserable failure during the past 60 years in providing goods and services to the public. All politicians while in opposition speak of the inefficiency and corruption in the public sector and believe that it can be rectified once they are in power.
When the whole economic debate revolves around waste and corruption, the symptoms and not the cause, i.e. government involvement; what hope is there for this nation?
Corruption is not a critical factor in delaying development. Except Singapore all Asian nations that experienced rapid development had corrupt leaders during the expansion phase. If we are ever to catch up with these Asian economies, some day a government will have to move out of the business of providing goods and services. But for that to happen we need to have a public discussion on the merits and demerits of state involvement in providing goods and services.
Sri Lanka is in need of a political party that believes that the government’s only business is to govern, and the government’s intervention in economic activities is bound to fail. The best example is the terrible plight of the paddy farmers. Even after the 10,000 tanks renovation project, and providing fertiliser subsidies, consumers are paying three times the price than before these interventions, and the farmer is still dirt poor.
Yet the government isn’t willing to accept the responsibility but blames the markets. If the government intervenes in controlling the market as it was done in the 1970s, it will lead to the food shortages experienced then.
In a nation where the people, political parties and the politicians and even the media believe that it is the government’s duty to be involved in every aspect of economic activity, what chance is there for a public discussion on whether we will be better off if the government involves itself only on governing, and setting the correct economic conditions for the private sector to provide all goods and services?
If this country is to prosper, we Sri Lankans will have to accept the failure of the socialistic economic model that we have been following. A vast majority of our people are reluctant to accept this despite the worldwide successes that have been achieved by debunking the socialistic economy.
Despite the overwhelming opposition for private sector involvement in sectors which are considered as ‘holy cows,’ the Sri Lankan private sector is experienced and resourceful enough to prove that they can do a better job than the public sector.
If those who oppose this are confident of the public sector, perhaps an experiment could be tried out, taking two of the least developed districts — Puttalam and Hambantota — and establishing a market economic system in Puttalam and a socialist economic system in Hambantota.
- Sri Lanka Guardian
Market economy is not the perfect model. There are good examples of development without using this economic model. What Sri Lanka needs is a model with middle path. Nothing else will work in SL context. Countries with market economy has people with stressed mind who lives with real uncertainity about tomorrow
Yes I do agree with this notion in a broader sense. However, the actual problem I visualise is the fact that "we never had a leader with a shared national vision" . We had leadres and their own "visions" but they failed to articulate their own visions with the needs and inspirations of the masses. Most of their visions disintegrated when they were pushed out of power!
Whether we want to selecta market economic model, a mixed model or any other model has to be alinged with the 'shared national vision' so that sisvion alone will be the diving force for economic development!
Unfortunately, our leaders have not been exposed think and work within and outside the boundaries of "multidimensional utility and and objective functions". To make matters worse most of their so called experts and advisors are working with 'cloured glasses on'.
So as you said we are badly in need of new breed of leaders and politicians who could think and work beoyed the 'square'. Problem though is that the current political culture appears to inhibit the development of such individuals and capabilities! It has to be initiated at the very grss root levels where the children and the families have to be educated on the perrils of the current system on blame game and without addressing the core issues impacting up on the economic development! Sureely, such a true leadre has be a professional with diverse experience and who truely believes that he /she can bring about a profound change to the country irrespective of his own self!
Thank you
Siri
This mistake went back to 1977. since then all leaders promised to export things from foreing country for cheaper price. Non of them didn't have vision to answere if exports failed such as, food crisis in other countries, rise of food prices. Our country is a agricultural country. It's late, but a vise solution to cultivate all our land that is not being cultivated. Now it's time to adopt Mrs Bandaranayaka's policy about food, but not to that extent.
This article is absolutely spot on. Think about it from this viewpoint also. Upon gaining independence, the British had left Ceylon the strongest economy in Asia. And Sri Lanka had and still has great potential for economic growth. The highest literacy rate in the developing world (98%). In fact this country should have been a Singapore decades ago. Admitedly there has been a backlash due to terrorism, but once this obstacle is defeated, Sri Lanka can surge forward if under the right direction. The country needs a government which believes in and follows a capitalist stance. The message must also get to the people that capitalism is not evil and that the socialist policies of former governments are a primary cause alongside terrorism in stifling our economy. How is it that the strongest economy in Asia in 1948 which had huge potential did not become one of the richest in 2008? Look at how Japan has risen from the devastation of war. The same can happen in our case. Also it is important to note that even China, which has socialist based ideology, has thrived and surged forward due to its capatilist economic policies. The potential is there; what we need is the right leadership and the end of Sri Lanka's obviously flawed socialist system.
The author of the article is absolutely correct. It is because of the extreme socialist policies that we have our problems today. No one debates the need for a welfare system to help those in need. But equally to help everyone in the country, whether they be richer or poorer, we need a market economy. Look at the successful economies in the world today; including I might add, China's.
All our problems today are because of the socialist policies of our post independence governments, in particular after 1978. Land reform, which broke up efficient estates, the expulsion of British and other Western businesses in nationalisation plans, restrictions on the sizes of assets of Sri Lankan businesses and landownership, the lack of encouragement for today's young Sri Lankan entrepreneurs to be able to thrive in a capatalist low tax environment. - These are the policies of our so called competent political masters. They are all wrong. The reason why so many people are poor and some even homeless today is because of these flawed socialist policies. Because our economy cannot move forward and thrive with these policies. Thus we are in a constant position relative to the progressing world. And in fact we become poorer. We MUST move to a market economy. The politicians are to blame. Look at the names of political parties - they nearly all involve a socialist aspect to them trying to play to the gallery. The name of our own country as well - the Democratic "Socialist" Republic.We need politicians of sound judgement, like the beloved father of our island Don Senanayake. We need politicans who have the guts, conviction and sense to lead this country forward. It is interesting to note that the socialist policies that ruined the family businesses and estates did not seem to effect the glorious policians who put those measures into effect.Perhaps then, we need to eliminate corruption, just like Singapore did to discipline our own government as well as the country so we can develop.
Exactly the case. Well done, the article is spot on. But we also need to defeat terrorism and eliminate corruption. Maybe we need a Lee Kuan Yew!
The writer's faith in a market economy seems as idealistic as that of Margret Thatcher who believed governments should do nothing to regulate them.
In a perfect world of markets, prices and wages rise smoothly. Supplies of cheap commodities arise from highly competitive market conditions. Consumers have the benefit of watching prices being pushed constantly downward.Efficiency too improves as resources are allocated on the basis of profitability.
Sadly, such a scenario only exists in the papers of academics. We just have to see how the shortage of rice and other cereals is leading to riots in countries that have governments who have abandoned intervening in commodity price regulation. Look at what is happening in Egypt.
The cost of free market distortions lead to prices becoming distorted by shortages, whether they are real or artificially created. All governments need to respond to such situations. In Sri Lanka the rice market is distorted because it continues to employ too many people. It remains a largely subsistence agricultural system. To be efficient it has to rationalise itself into a modern agri-business. I wonder how free marketeers like Mr Abayasekra would go about achieving this structural change.
Countries further to the east have not had the shackles of having to be democratic societies while growing. Singapore did not have to listen to the voice of her people. The government there did not need to negotiate prices to stay in power.
What however, we can learn from her is that in time if Sri Lanka follows a policy of encouraging foreign ivestment in export led industies we will eventually see benefits on the home front too. The domestic economy develops rationally once the export industries are world competitive institutions.
There are no easy fixers for Sri Lanka. Governments of the past created a highly educated population but failed to teach them to be entrepreneurial. When the war is over more foreigners must be encouraged to invest in Sri Lanka's highly educated labour force. That is when Sri Lanka's economy will take off.
Just a market economy means maximizing one variable and forgetting all others.
See, what USA is going through. Sri Lankans are free thinking people. that is why, I think, even the JVP failed.
There are many factors to be considered.
Living conditions, Environment, Culture and the society.
In the USA, family values are gone, environment (both the physical, the social and mental) are polluted.
We need a balanced economic model. We can not abuse everything.
A Response from MONLAR
In fact, we have not only had a continuous “public discussion on the merits and demerits of state involvement in providing goods and services.” but also have had direct experiences on the merits and demerits of reduced state involvement in providing goods and services to people, through out the last 30 years. Sri Lanka is one of the best cases to study this issue and compare the two models because we have tried out these two models during the last 60 years after independence.
Since early 1930s when Sri Lanka obtained universal adult franchise, people educated and organized by the Left movement in Sri Lanka, that people have a right to influence elected governments to serve their interests, were able to push governments to adopt policies that ensured access to food at affordable prices (thus a food /rice subsidy) and to safeguard their livelihoods (thus a whole package of policies that supported small scale agriculture and rice production in particular) and also essential services such as education, health, irrigation that were provided free. Encouraged by such achievements people pushed the governments further to expand facilities for education, gaining access to higher education in the indigenous languages and for employment opportunities and opportunities for social mobility to those who came from the less privileged rural social backgrounds. The changes thus brought about in the period, particularly after the political change in 1956, created higher aspirations among people, particularly among rural youth who fought for more radical transformation of the social and political systems. This period from 1948 to 1977 could be broadly categorized as the period of the first model. During this entire period the market, lead by the private sector was not allowed to have a free hand.
The whole of next 30 years (from 1977 to the present), was a period when the second model of allowing the market to have a freer hand was tried out by all governments irrespective of the party in power. In fact a close examination of the policies adopted by all governments, since then, will easily show that during this period the governments have gone far beyond allowing the market economy or the private sector to take over. The policies advocated and pushed by International Financial Institutions (WB/IMF and ADB etc.) which were willingly accepted by all governments led by the limited group of very rich elite, have very strongly intervened in dismantling the state sector, privatized industries and services after allowing them to deteriorate and have even sold out state enterprises that were making very clear profits.
Initial justification of this model was that “faster economic growth was necessary for poverty reduction”. Fast economic growth was to be achieved by not only allowing, encouraging and providing incentives to the local private sector, but by inviting as much foreign investment as possible, that was expected to bring in capital, technology and access to international market. Liberalization of imports including even goods that we could have effectively produced such as, domestic food and other agricultural goods was part of this policy. It is important to note that none of the countries that are said to have achieved successful growth in industries and agriculture have done this type of market liberalization and they are not doing it even now. This growth was expected to trickle down and reduce poverty.
When these policies of “market led growth” began to fail, what was done was to provide further concessions and incentives to the private sector, such as longer term tax holidays, more expenditure on infrastructure development and further dismantling of state sector involvement in providing goods and services. Privatisation of health was encouraged by a conscious weakening of the services provided by the Government health services. Privatisation of education was also encouraged by a process of cutting down state services in education. Privatization of water and irrigation was proposed by the WB/IMF and ADB as a means of discoraging small scale farmers from growing paddy and later “land titling” was proposed by the world bank as a means of encouraging small scale domestic food producers to sell their land and move out of agriculture so that land more land gets transferred to richer operators and big companies to be used for high value export crops in place of low value domestic food.
The writer, Mr. Robert Abeyasekara takes the example of the pathetic situation of rice farers and the impossibly high prices that the consumers have to pay for their rice. How did this happen? The policies adopted by the early post independence governments of supporting the paddy farmers and having a marketing system of giving them a reasonable price and of providing rice at an affordable price to consumers, a majority of whom are very poor, was totally dismantled on the basis of the recommendations made by the WB in its policy recommendations in 1996 ‘ Non Plantation Sector Policy Alternatives – June 1996 – Robert Hunt and Douglas Lister. This was to allow the private sector market to handle the purchasing of paddy and selling of rice to the consumers. This was a total disaster, when private traders, assisted by Government with very low interest loans replaced the Paddy Marketing Board ( PMB). This, together with market deciding on prices of inputs and and the devaluation of the rupee, which was also another adjustment to enter into a market economy led to extremely high costs of production, extremely low prices of paddy to the farmers and an exorbitantly high prices of rice to the consumer. Today the situation is so bad that the low income earning families can not afford to buy enough rice for a single meal even if they spend their full month’s income on rice alone. It is said that rice will increase to Rs. 100 Kg from the present price of Rs. 60 – 80 /Kg
What happened with allowing the market to takeover milk, closing down the National Milk Board is even worse. Domestic milk production collapsed as a result of the big milk companies such as Nestle, Anchor and Maliban not wanting to strengthen domestic milk production and to protect small scale milk producers since they preferred to sell imported Powdered Milk that was in excess in those countries. Today the children of poor families receiving less than 1 USD / day can not have have milk even if the family spends its total income on milk for the child (at Rs. 275 / packet of 400 gms a child would require Rs. 2750 /month for milk alone for 10 packets prescribed as necessary )
Governments even now are wiling to give much more to further move in the “market economy’ direction. For instance, the amount of money to be borrowed by the government to further improve Infrastructure to make the country more attractive to foreign investment for the next ten years is Rs 890 billion. This is the estimated borrowings for infrastructure such as express highways, airports, harbours, thermal power stations etc. These will add on to the already unbearable burden of debt on the poor. The poor will be burdened with these additional loans since the invited investors will come, if they come at all with long periods of 100% tax holiday.
These are some blatant indicators about what market has done and what it would do if given a freer hand. Do we really want political parties that would add more disaster to what has already been brought about by the so called “market economy” champions. What do we have governments for and political parties for if not to protect and safe guard the poor people whose survival is already under serious threat?
Sarath Fernando
Movement for land and Agricultural Reform ( MONLAR )
13th April 2008
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