The very first article of the 1978 constitution says Sri Lanka shall be known as the Democratic Socialist Republic of Sri Lanka. One can argue that Sri Lanka at present is neither democratic nor socialist. As for the ‘democratic’ part in the constitution, what exactly is a democratic form of governance? This is a way of making collective decisions in society, which requires free and fair elections to be held at the right time and respect for the rule of law and freedom.
University of Manchester Professor of Political Science Gerry Stoker argues that the perception about the breakdown and weakness in the democratic political system is not a matter of politicians being more corrupt. This is because the task of political governance becomes much harder due to some major shifts in society, such as the dominance of individualisation and consumerism, rise of professionals and role of media, etc.
If we are permitted to add one more thing – the major weakness in the Sri Lankan context is that the political decisions are taken without due regard to evidence- based policies and much-needed sustainable development criteria, where most of the time, the operation of the economic system works to the common detriment. According to Article 27(8) of the constitution, the state shall ensure that the operation of the economic system does not result in the concentration of wealth and the means of production in the common detriment.
We, Sri Lankans, follow a neoliberal, free market economic system with very little social welfare activities, where there is some kind of foreignisation of the private and public business activities within the overall economic system to the common detriment, thus violating the letter and spirit of Article 27. No wonder the majority of people, especially the millennials, are now fed up with the political authority as an effective system of governance that can deliver results to improve the social and economic welfare of the people on a sustainable basis.
Why politics matters? Political engagement by professionals
Politics matters because collective decisions matter. Politics matters because there are conflicts and differences of perspective in society about what to do, what resources to collect and allocate, how to spend and how to redistribute wealth and other resources through taxation and subsidies and how to put in place a system of governance to determine such policies that could be implemented efficiently and effectively.
For almost everyone, what happens in the wider society makes a huge difference to their ability to get a job, access to better housing, health and educational facilities for their
Some people take the position that politics is something that should be left to the career politicians only. However, the positive side is that democratic decision-making requires knowledge and practical experience: asking professionals their views and ideas enables their opinion to be registered in the governance system.
In short, democracy should give ordinary people – especially the true professionals, academics and entrepreneurs, a say in the affairs that govern their lives. You don’t have to be a career politician and you don’t even have to be socially gifted and coming from a political family and you don’t have to be wealthy.
Every individual affected by a decision of the political authority should have an equal opportunity to participate in that decision-making process. Political engagement, at least participate in the policy shaping exercise by professionals therefore, is good.
Dependency syndrome: Sri Lankan economy during last ‘40-year’ period
It is sad to see that the Sri Lankan economy is deteriorating from bad to worse. Our country is also losing some of its very best human resources to other countries. For a small economy of US $ 89 billion like Sri Lanka – with a domestic consumer market of a mere 21 million, the external demand from the international markets for Sri Lankan products and services is critical in order to sustain medium-term economic growth.
However, the Sri Lankan external sector performance –balance of trade – remains a critical issue mainly due to a steady deterioration in the ‘competitiveness of the exports’ coupled with low productivity and lack of consistent policies and implementation snags, red tapes, etc. It is regretted to mention that an ‘export-led growth strategy’, which has been practiced for the last 40 years, has become a mere slogan. Sri Lanka is now dependent on India, Singapore, Japan and China to buy goods and is heavily dependent on the US, UK, Russia and the Middle East for little exports and to buy few other goods and items.
What is heartening is that during the last ‘15-year’ period, the total imports from say, one trading partner, India have gone up by US $ 3,662 million, whereas our exports have increased only by US $ 620 million. Forty percent of our trade deficit comes from India with the so-called ‘free trade agreement’ signed.
The cumulative trade deficit increased during 2018, reflecting higher import expenditure. Real reasons are many and in my view, it’s due to, in simple terms, ‘bad governance’. On a cumulative basis, import expenditure recorded its historically highest value of US $ 22 billion in 2018. The per capita income is stagnated during the last four years and it is around US $ 4,102. This figure doesn’t really show the income inequality and huge disparity among the rural ‘bottom of the pyramid’ people.
More than 25 percent of the people are poor as per indicators set by the World Bank. Based on the World Bank statistics, the GDP per capita for Sri Lanka last year was US $ 22,195 and for Singapore, it was US $ 87,832 (ppp adjusted)
Although the gross official reserves of the country stood at US $ 6.9 billion by end-2018, these foreign reserves are not ‘earned’ but with additional foreign borrowings, which includes the issue of international sovereign bonds. During the next five-year period, Sri Lankan foreign debt repayment works out to US $ 15.5 billion. In addition to the above, the government budget deficit will widen and needs to be financed through further borrowings.
The Central Bank has been repeatedly emphasising the need to address the ‘deep-rooted structural issues’ in the economy, which have prevented the country from maintaining a high and sustainable GDP growth rate over time. According to the world economic outlook of the IMF/World Bank, the global economy
The low export performance was due to the supply-side issues than demand side and therefore, signing FTAs alone will not reverse the trends. As for the low economic growth rates achieved during the last five years, the development economists have predicted that any growth rate below 4 percent, it will take Sri Lanka at least 32 years to catch up to some successful Asian countries’ GDP per capita levels and based on a growth rate of 7 percent annually, we could reach Malaysia’s current GDP per capita levels in 12 years.
Persistent savings: investment gap in Sri Lankan economy
As can be seen, Sri Lanka is slowly but steadily moving away from our production-based economy to a begging nation depending on few foreign countries to provide food and shelter to our 21 million people.
The real issue lies with the shortfall in the investment required for the desired economic growth. Low levels of FDI inflows have been a chronic issue in the Sri Lankan economy. Therefore, it has to be some kind of an ‘investment-led growth strategy’ that could drive the export sector and economic growth.
As eminent economists have identified, the obstacles to development are self-reinforcing, where low levels of household income preventing domestic savings, which in turn retards capital formation, thus low investments hinder productivity growth and keep household income back at low levels. This is the poverty-growth vicious cycle. As a result, the successive governments are compelled to borrow funds to finance the deficits.
In addition to this, the public sector inefficiency, lack of coordination among ministries and departments and human resource skill gaps, coupled with political instability have contributed to the poor performance.
This means Sri Lanka needs to achieve sustainable high growth rates for long periods of time based on inclusivity and community-based approach to develop agriculture and industries. Relying on neoliberal development policies under the advice of the western nations would only aggravate the problem.
With a disciplined political leadership that can harness a competent and efficient bureaucracy and a firm commitment to a bottom-up based industrialisation through private sector participation, Sri Lanka has the potential to achieve high level of economic development to uplift the economic welfare of the people. Time is opportune to radically transform the way we think and do business and governance.
Success stories from comparative Asian countries
The balance of economic power has already shifted from West to Asia, with China, Japan, South Korea, India and many other East/South Asian economies leading the global economic recovery. The World Bank forecasts global economic growth of 3 percent in 2019 and the growth in so-called advanced economies is expected to be around only 2 percent in 2019.
The economic growth in emerging markets is projected to strengthen around 4.5 percent. China, Vietnam, South Korea and India will perform much better. According to the latest reports of the World Bank, the projected growth rate for South Asia countries (India, Bangladesh and Pakistan, etc.) during the next two to three years is around 7 percent, whereas the Sri Lankan growth figure is much lower than the above; it will be around 3 percent.
Sri Lanka continues to be relied on the Western markets for our export earnings and the bulk of the Sri Lankan exports (60 percent) has been to the US and EU. As seen above, the Asian economies attain a strong growth. The Asian growth champions, China and India, are predicted to grow at an impressive 6-7 percent.
As for the success stories from comparative Asian countries, the correct land use policy reforms and consistent and well-coordinated agricultural policies made possible more equitable distribution of land and the optimum use of labour in rural economies to optimise agricultural output. The governments also supported farmers, for instance, to limit farmer risks; there were guaranteed minimum prices for agricultural products.
It also provided the know-how for value-added crops, processing and marketing for export-oriented agricultural products. With these interventionist policies, as well as with the emphasis on small family-owned farms, these countries were able to increase the
agricultural yields.This increased agricultural surplus and per capita farm incomes led to higher rural purchasing power that had promoted ‘proto’ industrialisation. Proto industrialisation is the initial phase of the industrial revolution, a necessary transition from an agrarian society to a mass production economy.
It was an early stage in the development of modern industrial economies that preceded and created conditions for, the establishment of fully industrial societies. In this stage, with increased farm incomes and savings, agriculture labour was able to move into the production of the most basic industrial goods. This bottom-up approach was the success of the ‘Asians’, as a first step.
Way forward: production-based and real export-led growth strategy
Sri Lanka should not use neoliberal development policies. Neoliberal economics is an updated version of the liberal economics of Adam Smith. The core of neoliberal agenda includes ‘laissez faire’ with no or little government intervention, deregulation, privatisation, opening up of international trade and investment and certain forms of monopoly.
If we want to have rapid economic development, we need to look closely at the success stories of the East and other Asian countries. When these countries were initially developing, they followed ‘interventionist’ policies. As we know, the necessary prerequisite for economic development is political stability. Strong political leadership, having a powerful ‘executive presidential system’ could establish this stability. This allows the correct economic policies to be implemented in a disciplined manner for an extended period of time without disruption. Once political stability is established, a bottom up, three-pronged approach like what the successful Asian countries adopted must be used for rapid economic growth.
In the three-pronged approach, first there must be a clear policy intervention to uplift the agriculture sector and regional-based industrialisation. This policy should address land use plan reforms, agricultural best practices, focus on the entire value chain for the produce, so as to increase the productivity and incomes of the agriculture sector workers, which constitute around quarter of the working population.
With increased incomes and savings, these workers should be encouraged to invest in producing basic industrial goods to supplement their incomes. The primary goal of the government here is to increase the purchasing power of the predominantly rural
Second, use the surplus labour in the rural areas to create simple industries that produce light consumer and basic industrial goods. The government should intervene to provide the know-how, help with importing the machinery and create markets domestically.
There should be active government intervention in financial policy, finding export markets and making sure domestic companies will be competitive in international markets. The more promising ventures that have export potential should be subsidised but assistance should only be based on the export success.
If this stage is successful, the workers know-how and skill levels will improve to take on the third, the next level of industrial production. The talented youth, especially ICT-savvy guys, nurtured and supported by the government under the knowledge-based economy, could find more foreign markets for their ‘BPO back office work’ such as accounting, financial restructuring, etc. (Already the foreign exchange income exceeds US $ 2 billion, compared to tea of US $ 1.5 billion only per year).
Furthermore, substantial markets will be created for consumer goods, machine tools, infrastructure and energy because of the increasing purchasing power due to the increase in worker’s incomes. Assistance to industries should be strictly based on export performance under a true export-led growth
strategy for the country.
If we are to truly fast track development initiatives to improve the economic welfare of the people of this country, we need to start from zero-based primary business development. This is the way forward.
(Jayampathy Molligoda is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka. He has obtained his MBA from the Postgraduate Institute of Management and has also successfully completed an Executive Strategy Programme at the Victoria University Melbourne, Australia. He was conferred the ‘Professional Excellence Awards 2014’ at the CMA National Management accounting conference held in 2014. He counts over 38 years of executive experience in the fields of financial management, strategic planning and human resource development and international tea marketing. He is a freelance journalist and a social activist)