Provincial imbalance and inclusive development

By Prof. Willie Mendis
Professor Emeritus, University of Moratuwa

(September 22, Colombo, Sri Lanka Guardian) Each country strives to acquire an improved level of development overseen by its governments, whether elected democratically or otherwise. The pursuance of public policy has been to promote higher rates of economic growth as the means of facilitating the goals of development. In this regard, Sri Lanka has been no exception. Its outcome has been the rates of growth as shown in Figure 1. Its corresponding impact on development has enabled Sri Lanka to transit, by global classification, to a lower middle-income country. Consequently, indices of GDP growth rate and per capita income constitute two of the macro benchmarks to manifest the status of development. These have been dissected to provide other indices such as the Human Development Index and the Physical Quality of Life Index. The latter has been complemented by the setting of targeted measures such as the Millennium Development Goals. Accordingly, the national profile of development has a matrix of indices to derive the benefits reaped by the people. Nonetheless, the dominant focus has continued to be on the index of GDP growth rate for assessing the health of the nation’s economy.

The crisis of the index of economic growth has however arisen from its spatial disaggregate. It has exposed a nexus between growth and equity, wherein some geographical areas of the country have been able to contribute a greater share of the national economy, while others have contributed very much less. This phenomenon of spatial or regional disparity is inherent in every country whether developed or developing, due to many causes including differently endowed characteristics. Its consequence has been that the people in the disadvantaged regions reap less benefits of development than its counterparts in other regions. The same is true for intra-regional disparities. In this situation, countries have embarked upon a range of public policy prescriptions. These have included ‘safety nets’, and incentives for investments in the less developed areas and/or disincentives for same in the already developed areas. Sri Lanka, too, has followed this path, apart from the nationally available incentives to promote overall economic growth. In addition, Sri Lanka’s Constitution has mandated ‘balanced regional development ‘through the transfer of financial resources to the Provinces from the national Annual Budget. It has institutionalized the latter by the creation of the Finance Commission as per the Constitution.

World Development Report ‘09

In Sri Lanka, the issue of economic growth and equity, and the mitigation of regional disparity, have now surged to the top of the agenda of political parties of different hues. Each has proposed varying policies for alleviating spatial imbalance, ranging from those that are ‘spatially targeted’ to others that are ‘spatially blind’. Its underlying rationale has even been perceived in ‘urban’ and ‘rural’ terms. An extension of the latter has included the ‘estate’ sector. Consequently, the complexity of the matter has been recognized by economists who have inferred it to be related to the lack of ‘inclusiveness’ in public policy. Its global perception has been reflected in the World Bank Development Report 2009 (WDR 2009), which claims that the challenge is one of ‘geographically integrating the country’. It has argued (for the purpose of public discussion), that ‘the way to get the benefits of uneven growth and inclusive development is economic integration’.

In these circumstances, the tilt towards the impact of economic growth on sub-national development is now becoming technically explicit. Its policy dialogue on ‘geographic intergration’ implies that economic and physical planning must converge in showcasing the ‘blueprint’ for equitable development, its aim being to capture the potentials of economic growth in the places of concentration or agglomeration which promote specialisation and innovation to flourish. The empirical outcomes of same have been analysed by the WDR 2009. It has reviewed the main insight from long term trends of different countries and has concluded that, ‘economic growth is unbalanced and trying to spread out economic activity is tantamount to discouraging it’. On the other hand, it argues that, ‘development can still be inclusive as people who were born in economically lagging areas can benefit from the growing concentration of wealth in a few places’. In its favour WDR 2009 prescribes ‘economic intergration’.

Geography of Production and Geography of Living Standards

In the above context, the World Bank has followed up with the preparation of a report based on the study of ‘Geographically Integrating Sri Lanka’. Its first part has analyzed Sri Lanka’s spatial transformation in the post economic-liberalization era by separating the ‘geography of production’ from the ‘geography of living standards’. Its finding is that by benefitting from proximity to places of concentration, firms have specialized and risen up the value chain due to economies of scale and agglomeration. This stylized fact has been aptly shown in the economic landscape of the country with a taller hill around the Colombo Metropolitan Region (or the Western Province), and shorter hills around Kandy and Galle ( in the Central and Southern Provinces respectively ). However, it is noteworthy that in the wider international spatial fabric the Sri Lankan hills appear dwarfed when compared with the mountains around Delhi, Mumbai, Bangkok and Singapore. Nonetheless, it is patently clear that although the ‘geography of production ‘ is spatially unbalanced in Sri Lanka, the economically lagging areas should nonetheless benefit from same. Therefore, the World Bank study has advocated that the focus of public policy must be on the ‘geography of living standards’. Accordingly, it has analysed the province-wise distribution of the very basic indicators of living standards, including the incidence of poverty and the public services of education and health. Its finding is that while ‘Sri Lankan policies have helped in geographically balancing basic living standards and in the delivery of public services, the challenge now is to reduce disparities in health and education outcomes’.

CBSL Prosperity Index

Interestingly, the Central Bank of Sri Lanka in its Strategic Plan has viewed national prosperity as, ‘enhancing the quality of life of people through sustainable wealth creation and inclusion of all segments of the society in enjoying the benefits of development. "Consequently, it has constructed a ‘ Prosperity Index’, inclusive of the overall progress of the provinces and its achievements of economic growth. In same, the variables considered and its respective weightages have comprised the following:

Based on the above composition, the Central Bank found that the Western Province (i.e. the Colombo Metropolitan Region) reached the highest score in the Prosperity Index compared to the national average. It also found that the Central and Southern Provinces reached a lesser score but were in close proximity to the national average in that order, while the remaining provinces were significantly different. This situation has been identical to the finding of the World Bank study that was previously described in the stylized form of hills. Consequently, the task of the Central Bank will be to track the progress of the ‘ geography of living standards ‘ in the provinces; in particular the disparities in the health and education outcomes. Its facilitation will require the convergence of the thought processes of the World Bank and the Central Bank. Accordingly, a nexus must be threaded between the three variables used in the formulation of the Prosperity Index, and the three variables of density, distance and division (3 D’s ) in the World Bank study to tailor the use of policy instruments to address the challenges of economic intergration.

Development and Physical Planning

Meanwhile, it is noteworthy that the variables mentioned above are integral factors considered in the formulation of National and Regional Physical Plans. Its aim too has been to get the benefits of both uneven growth and inclusive development. The variance is that the Physical Plans are related to the ‘economic and physical development of land’ with the object of "promoting and regulating integrated planning of the economic, social, physical and environmental aspects of the land". Consequently, it is holistic in approach, and underlies spatial efficiency in the use of the land. Furthermore, the scope of the Physical Plan includes the "securing of proper infrastructure, amenities and conveniences in it’s spatial bounds. "Accordingly, the outcome of same in policy terms have an explicit influence on the form, size and density of land use. In the latter connection, it is pertinent to note that the Regional Physical Plan recognizes the hierarchy of settlements in providing connectivity between them. Correspondingly, the National Physical Plan links the spatial configuration of the respective Regional Physical Plans; which in turn enables it to analyze places of agglomeration.

The aforementioned affirms the validation of the Physical Planning process in enhancing the spatial efficiency of production through the ‘transformation of land use, mobility of people and connectivity of places’. In fact the World Bank study has stressed that, "policies that manage the use of land becomes important by the regulations on land use responding to changing demand, enabling cities to specialize in different products over its life cycle. ‘The key requirement is therefore for public policy to determine the meeting point of the spatial efficiency of production with the use of the same piece of land configured in a holistic Physical Plan, to accommodate a rise in economic density. In this manner Sri Lanka’s spatial transformation can be facilitated by production becoming concentrated, while policies can be framed to help in balancing basic living standards and of it’s outcomes.

Physical Development Index

In the above context, it is important that public policy at the national and provincial spatial scales which takes account of the impact of the 3 D’s, is consistently followed through at the local level wherein its ground realities are manifest. The latter is critical in the urbanizing areas wherein the pace of change in the use of land may not match the pace of demand for change, due to the constraint in being required to follow the due process in the planning legislation. On the other hand, the statutory interpretation of ‘development‘ can be used to anticipate change by it’s conversion into an index. Thus, the following comprises ‘development’ as per the Physical Planning legislation:

* Parcelling or subdivision of land.

* Erection or the re-erection of a structure on the land., or

* Change of use of structure or the land.

The above activities which in economic terms consist of value-addition require the obtaining of a Permit from the local Planning Authority. Hence, the number of Permits issued can be tracked from a database. Furthermore, an Index can be constructed therefrom as follows by assigning weightages to reflect the level and pace of physical development taking place on the land :

Variables Parceling of land Erection or re-erection of structure on land Change of use of land or structure

Weightage 1.0 2.0 1.5

The aggregate of the number of Permits issued per month multiplied by the respective weightages, will constitute the Physical Development Index. The rate of change of the Index in the different areas will reflect the need to respond to demand. It’s three variables corresponds in many ways to the 3 D’s of density, distance and division, all of which will be manifest in the Planning and Building Regulations which accompanies the Physical Plan of each local area. Currently, the Sri Lanka Institute of Local Governance is in the progress of retrieving data from the Local Government Authorities to construct the Index.

The local Physical Planning Authority is the Municipal or Urban Council which administers that area. It can also be the Pradeshiya Sabha which has an urbanizing part or built-up-locality. Consequently, these local institutions need to be locked into the policy framework for economic intergration, as per the three spatial dimensions of density, distance and division to characterize different areas. In the latter context, it is noteworthy that the World Bank study has proposed a taxonomy to be developed to sharpen how Sri Lanka can tailor integration policies to the challenges in the different areas. This is because it opines that in some areas the shortening of economic distance between lagging areas and the more dynamic places could be compounded by the density of people, especially of the poor, in the lagging areas. In other places, cultural or social attributes may divide one area from another. Hence, as a way forward the World Bank study suggests the calibration of policies according to the intensity of area-specific challenges for intergration.

Thus for Sri Lanka to emulate the international experience of the upward movement of countries from low income to middle income to high income economies, it will be appropriate to rebalance policies to gain from the benefits of uneven growth and inclusive development. In same, the use of the three spatial dimensions of density, distance and division will be imperative. However, the consistency of policy across the national, provincial and local levels will be key to fashioning these drivers of spatial transformation. Hence the nexus between the GDP growth rate, Prosperity Index and the Physical Development Index will be essential.



FIGURE 1

REAL GDP % CHANGE



Decade/Year % Growth

1960-69 4.6

1970-79 3.9

1980-89 4.2

1990-99 5.2

2000 6.0

2001 1.5

2002 4.0

2003 5.9

2004 5.4

2005 6.2

2006 7.7

2007 6.8

2008 6.0

———————————————————————————-

Source: Jayampathy Molligoda,
Financial Times,19.04.09

-Sri Lanka Guardian