Prof. Ricardo Hausmann of Harvard University’s Kennedy School of Government, who visited Sri Lanka to follow-up on a programme to build capacity among senior officials at the Board of Investment of Sri Lanka, the Export Development Board and Tourism Authority, held a lecture at the BMICH recently.
The lecture sought to examine ways in which countries such as Sri Lanka could achieve higher development by identifying bottlenecks and creating a timeline to achieve high economic growth.
Prof. Hausmann began by stating that Sri Lanka does have strengths, for example in the Human Development Index, having achieved a massive reduction of poverty levels. However, the country has suffered in the last 4 years from slow economic growth rates which are below 4 percent. This is in contrast to many of our Asian neighbours whose economies have grown at rates of about 7 percent or even more. Hence there was a need to reaccelerate the Sri Lankan economy.
Sri Lankan exports
One explanation that can be provided for the shortcoming was that Sri Lanka’s exports have not really experienced growth when compared to the growth of exports of many Asian countries. One of the main reasons for this, according to Prof. Hausmann, was that other Asian countries have diligently developed new types of businesses and have therefore successfully diversified their export base. For example in recent years China has added 70 new products for exports while Sri Lanka has only achieved 7 products. The importance of the new products to the economy is that they contribute towards boosting the GDP of the country. In the case of China the economy has also become technologically more advanced with a planned move from the production of garments to that of electronics and from there on, to producing machinery. Hence the addition of these new products has boosted China’s exports and contributed to enriching the population.
In the case of Thailand there is also a movement to go into the production of machinery. Tunisia on the other hand has not achieved this transformation and Sri Lanka is still largely depended on the export of apparel.
Not a competitor
Where Sri Lanka has achieved some successes in diversifying her exports, is in areas such as logistics, finances and tourism. Sri Lanka is also not a competitor of some of the low end countries in the area of manufacture. Hence this middle position does place the island nation in an ambiguous situation where it imperative that it moves to a higher levels of production of exportable goods.
Prof. Hausman also addressed the question of how countries become wealthier. Drawing on Adam Smith’s classic work ‘the wealth of nations’, Hausmann stated that in the 18th Century the Netherlands was considered the richest country in the world and others were more or less equivalent.
However, in today’s global economy there are enormous disparities between states with Malawi being considered the world poorest country. In the Western atmosphere that position is held by Haiti.
Furthermore there are enormous discrepancies that exist even within individual countries, with an enormous diversity between regions. In Mexico for example the poorest state Guerrero has a GDP of US$ 5,000 while the state of Nuevo Leon, the GDP is at US$ 42,000, which is comparable to that of the Republic of Korea.
Hence there is a factor of 8 just between regions of Mexico and this divergence exists in many countries in the world.
The assimilation of technology has undoubtedly an important part to play in these differences and the Prof. Hausmann elaborated as to what really does constitute ‘technology’. Technology is in fact a successful assimilation achieved by having the right tools, the right codes or procedures, but more importantly the necessary know how to make development possible.
In order to acquire successfully the necessary technology, a country should have heterogeneous teams that work together to achieve the necessary requirements needed for technology to exist.
Hausman also examined the case of two individuals, the former being an Inuit living by catching fish, building his own igloo and travelling by dog sleigh and then comparing him to a modern office worker using a computer. He added that whilst the latter may seem technologically more advanced, he would be totally incapable of surviving in a hostile environment like the Arctic. Hence the question of what really does constitute technology remains a highly debatable subject.
The technological complexity of many products manufactured today such as a Boeing airliner is often more than what a single country can hope to produce. Hence in today’s globalized economy, technology is not confined within the borders of a single country but often scattered in many parts of the world. Successful production is therefore based on the ability to work together to build complex products, such as commercial aircraft.
Hausmann said that a country like India endowed with advanced technology and therefore has what it takes to be a rich country. However, that is not a case. By the same token Greece which has relatively little technology and knowhow does in fact enjoy comparative wealth.
First for Sri Lanka to achieve greater wealth she would need to add more letters to her portfolio under so called “scrabble theory”. Sri Lanka would need to achieve greater complexity in production capability and achieve a higher quantum of knowhow. What is also needed is a clear understanding of industries and particularly acquire the ability to moving to clusters of industries. A country is in fact a collection of technologies and these determine the extent to which development takes place.
Hausman cities the case of examples of Ghana and Thailand to show how development can take shape.
Some decades back Vietnam and Sri Lanka were in fact comparable in economic terms. Sri Lanka exports today apparel, tea and rubber. But the country faces the challenge of finding a way to diversify its basket of exports. Vietnam on the other hand has succeeded in considerably widening the number of exports having initially started at a similar level to Sri Lanka.
In the future Sri Lanka will produce products such as medical equipment particularly those where textile and rubber (both leading exports at present) can be combined to manufacture specific medical products. Harvard University is currently working with the BOI and the Ministry of Development Strategy and International Trade to develop a new products space for the country.
Sri Lanka’s success in the long term will be determined by the extent to which the country can develop a great diversity of skills which in term will be the catalysts for manufacturing a wide range of advanced products.
Hausmann also raised the issue of how knowhow is a highly mobile force in the global economy. This mobility can take place between firms, through immigration, by the existence of a large overseas diaspora, through business travel and finally Foreign Direct Investment.