Towards a National Economic Policy

Friday, February 2, 2018 

Except among professional economists and the like problems of the country’s economy are hardly the subject of public discourse. Even students of economics and their teachers are concerned more with text book content and they shun practical or applied economics. This situation has become a boon for politicians and pseudo-economists to pontificate on economic issues superficially and even weave grandiose development projects which never materialize. Such for example, is the construction of a parallel southern coastal railway line as defense against future tsunamis, cable car to reach Sri Pada, car assembly plant in Kurunegala, use of luxury liners for round the island tourist travel etc.

Let us start with the ground realities. Sri Lanka is a small island with its 21.2 million inhabitants occupying 65. 6 km2 territory. It has, however, a 200m maritime economic zone covering 517,000 km2 space.

Though largely an agricultural society its agriculture is lagging behind contributing less than 10 percent to the GDP. Service sector dominates over production, both industrial and agricultural (including fisheries and forestry). Female participation in the labor force is about 30 percent.
A considerable part of the labor force is under-employed or unemployed. The latter equals 300,000 at present. Though literacy is high functional literacy of the population is below par.
The Yahapalana Government has so far failed to produce a National Economic Policy (NEP) for development as promised when forming the ruling alliance. Instead it is drifting along without a NEP like its predecessor. To make matters worse planning mechanisms that were earlier in place have been dismantled in embracing the neo-liberal economic model lock stock and barrel.
Economic development

It has been an obsession with our governments to make Sri Lanka another Singapore, which is impossible for the simple reason that it is vastly different in many aspects – geography, political history, culture and demography et al. It is not possible to replicate another country and its economy. Sri Lanka has to find its own independent path of economic development. In formulating such a NEP there are few home truths that should be kept in mind. We wish to mention a few.

Firstly, the Sri Lankan internal market is so small that it cannot absorb our production as a whole. Hence, it is imperative that production should be geared for export. In today’s globalized world no country could stand in isolation. It is to the extent that it participates in the international division of labor that a country could prosper from trade. To trade in the world market our goods should be competitive. However, due to high costs of production our goods are at a disadvantage for the average prices there are lower than our production cost.

Therefore, it is necessary to enhance the productivity of labor by resorting to higher and improved technology. This in turn, necessitates allocation of more resources for Research and Development (R& D). At present Sri Lanka lags far behind most South Asian countries in R & D, with budget allocations less than 2 percent of the GDP. It would also be prudent if new technology is applied to key industries which have the potential of lowering the production costs below the average prices in the world market. Otherwise, the benefits of export orientation would be lost.

Sri Lanka is blessed with a skilled work force but it should not be satisfied with it. There is a growing demand for human resource development, especially in new fields of investment as well as to replace outdated labour practices with modern ones. This entails the development of academic as well as vocational education and introduction of methodologies to inculcate a habit of entrepreneurship and innovation overcoming the inherent inertia among the students.

Expenditure on education should be viewed as an investment instead of consumption. All developed countries have spent substantially on education in the years preceding their development. e.g., Malaysia, China, South Korea.

Having a debt burden for the servicing of which much more than the total income of the country would be necessary in 2019, Sri Lanka would have to depend inevitably on foreign investments as our savings and investments are insufficient. However, we have to be selective in deciding upon the type of investments required so as not to endanger nascent as well as mature local industries. Contrary to the practice of the last Government foreign investments should be primarily production oriented so that their utilization would generate new wealth.

Power politics

On the one hand, unsolicited proposals from foreign investors should be subjected to rational cost-benefit analysis and environmental feasibility while on the other hand; the craze for mega projects for political expediency or considerations of power politics should be abandoned.

At the present juncture what is most suited for Sri Lanka is a mixed economy instead of the State withdrawing completely from business, a practice found nowhere in the world. Strategic industries and key services affecting national security and financial stability should remain in the hands of the State. Nor should the State abdicate its vital role of regulating various industries and services to ensure fair play and efficiency.

It is very important to install a national planning infrastructure to work out, coordinate and implement the NEP. Also a holistic approach towards planning is necessary. Planning is related to all spheres of economic and social activity. Nor could one separate politics and economics. They are inter-connected.

Further, development should also ensure economic democracy. Here should be ways and means of ensuring the participation of the public in economic policy formulation, planning and implementation. Devolution of economic power and decentralization of the economy could attract mass support.

It is also necessary to think outside the box. For example, it is high time to switch over from curator to preventive medicine and integration of Western, Ayurveda, Unani and traditional medicine systems upon a scientific basis.

A pre-requisite for all this is a survey of the country’s resources including those in the Maritime Economic Zone (MEZ).

Finally, economic development must ensure equality as well as equity. For the latter purpose, it may be necessary to implement special programmes to overcome the backwardness of downtrodden and marginalized communities.