Economy & Its Woes In The Debt Trapped Sri Lanka

By Siri Gamage –April 30, 2017

Dr. Siri Gamage

Economy and its Woes in the Debt Trapped Sri Lanka: Is there an Alternative Economic Development Model?

During the Yahapalanaya government of President Sirisena and Prime Minister Wickremesinghe, it appears that a concerted effort is being made to invite foreign investors of various sorts, primarily from the Asian region, supported by multilateral agencies and bilateral agreements. Such efforts seem to follow in the footsteps of export-led growth strategy adopted by former President J.R. Jayewardene presently under a national government of the two main political parties and minority parties. Though the efforts of the government to enter into contracts and MOUs with foreign entities and partners seem to attract political comment, very little economic comment, particularly critical, is forthcoming. Long term social and cultural consequences of promoting foreign investor-oriented and export led growth is also not being critically reflected upon.

In this article, I examine the two main layers of the economy, who benefits from the foreign investor-oriented economic development and the potential for creating a large subservient and dependent class (or classes) with a view to generate further critical/constructive discussion. It is suggested that the political and civic leaders whose loyalties are for the long-term national interest take the scenario discussed here seriously and develop ‘a political and economic strategy’ that can serve the national interest rather than the investor interest. It is hoped that the conceptual distinction made between two layers of the economy –one highly integrated to the global economy and the other not so – can serve as a vehicle for understanding the context and risks of following a foreign investor driven economic development strategy for the unreconciled nation.

Super Economy (Supiri Arthikaya) vs. National Economy (Jathika Arthikaya)

When we talk about the national economy, economists usually talk in terms of various sectors, e.g. agriculture and mining, manufacturing, tourism, services. In this era of globalisation and multinational corporation activities, we have to make a distinction between the Super economy and the national economy. The former refers to the multinational corporate sector with their manufacturing plants, marketing and service outlets, export facilities, offices, and commercial plantations. Multinational companies generally come under the BOI purview, as they are large-scale investors. Such entities can be private sector companies or state owned depending on the country of origin. If the company is from a country like China, the entity can be state-owned. These entities operate under the laws applicable to the BOI sponsored projects, services (such as education and health) and various industries and commercial activities.

The capacity of the government to control such entities is very limited. These entities are responsible to their superiors and shareholders in the origin countries. Decisions pertaining to their operations are taken in the world capitals where their headquarters are located. To protect their interests, they obtain professional services of accounting, legal, and other services from abroad and if necessary locally. This supra layer of economic activity (and service provision) is at the top of the economic pyramid of a developing country like Sri Lanka but in the day to day political discourses inside and outside the parliament this layer seems to be out of bound for critical scrutiny. It is almost taken as a given and a blessing for the country’s economy and future prosperity. Take for example the tourism sector. The more foreign investments coming to the country is considered as a blessing. What harm such ventures are inflicting on the country’s public space, core values and customs, etc. are not even discussed. That is how far we have been brain washed about the merits of foreign investments over decades of governance based on neoliberal, free market economy doctrine couched in the globalisation discourse with a positive slant.

If there is any foreign control of the country’s resources, workforce, and any threat to national sovereignty there is no any other agency that have detrimental effects than this layer. Its impact on the so-called ‘national economy’ that means the rest of economic activities not connected to this layer or global economy is not even mentioned? Yet, the impact of this supra layer and its activities on the national economy can be substantial not only in terms of foregone business, trade and manufacturing opportunities for the local agriculturalists, manufacturers, entrepreneurs but also the extensive competition brought about by this layer plus the import trade to the consumer market. In the political discourse, finger is pointed at a given country if not a given minority ethnic community as the cause for the country’s economic woes.

This supra layer of economic activity is organised around the profit motive. Various entities are operating as part of a regional or global network of similar entities managed by highly efficient managerial staff and a mainly local workforce being employed at subsistence level wages (wages that are just enough to live, no surplus). The entities and their owners appropriate surplus produced by such workforce. Government is receiving a tax benefit but in many instances these entities have been offered tax holidays extending to a period of decade or more. Thus the benefit can mainly be in terms of the employment for the local population and its ability to participate in the consumer market.

Read More