No clear direction to develop economy

Chmpika Ranawaka
Monday, 07 July 2014
Today, we as a nation are going through an era where the debate on national economy has
probably assumed unprecedented heights. et, it is an irony that no clear dialogue has yet
emerged about the !uture strategic direction o! the de"elopment o! #ri $an%a&s economy& said
by the Minister o! Technology and 'esearch, (atali )hampi%a 'anawa%a in his speech at
*+),#T on 7th July 2014 at -aters. /dge.
The !ull speech as !ollows
#ome seem to belie"e in and act upon the premise that a !urther enhanced ser"ice economy,
with a "ibrant leisure0and0entertainment sector, would result in economic growth. There are
others who, despite 1uestioning the issues o! corruption and good go"ernance, do not bother to
1uestion the abo"e approach to economic de"elopment, simply because they cannot thin% o!
any other alternati"e strategy.
+n the meantime, there are still some others who argue that the economic policy o! the country
should be one centered on domestic production !or import substitution, using local resources,
within the one0time e2perimented approach o! the closed economy. +n addition, there are also
other "oci!erous critics, despite ha"ing no clear "iew o! their own, who critici3e anything and
e"erything as usual, ob"iously with little %nowledge on the sub4ect o! economic de"elopment.
The time has come !or us to "iew the economic !uture o! the country !rom a more rational
perspecti"e, a"oiding the two e2tremes o! sel!0anestheti3ed optimistic e2aggeration o! isolated
instances o! economic success on the one hand, and on the other, "icious baseless criticism.
5uring the past !ew decades, we ha"e e2perimented with se"eral di!!erent models o! economy
and identi!ied some socio0political issues as impediments to growth.
5uring the era 1678 9 1670, the go"ernment adopted an approach in which there was a hea"y
slant towards industries and agriculture. 5uring the period 1670 9 77 the dri"e was aimed at
sel!0su!!iciency through import substitution and in the post 1677 era we ha"e adopted a !ree
mar%et economy. The !ree mar%et economy o! this era, as you %now, had to sustain se"ere
attac%s o! terrorism 9 both in the :orth as well as the #outh. There was a time it was argued
that the largest impediments to economic growth were war and political instability.
;n independent "iew on the e2perience o! the open economy shows that during the period
167< 9 <2 or the !irst !ew years under the ad"ent o! the open economy, there was a surge in
economic growth rates and e2port products. =arments, in particular, got established as a ma4or
e2port product in the country. >oreign debt, grants and in"estments !lowed into the country
due to the ad"antage o! being the !irst open economy in #outh ;sia, with cheap rural labour as
well as the pursuit o! a !oreign policy that readily aligned itsel! with the geo political interests
o! -estern powers.
?owe"er the 16<7 9 61 era landed the whole country in crisis with heightened socio0economic
and political issues including unemployment, debt, in!lation, political instability and social
unrest. This situation, which got stabili3ed to a certain e2tent during the period 1664 9 2000,
once again deteriorated during the 200102004 period due to political instability, a growing
energy crisis and social unrest leading to a ma4or catastrophe. 5uring 2007 9 2006, despite an
intense war0e!!ort there was a mar%ed impro"ement in in!rastructure de"elopment.
;s we %now the year 2006 witnessed the de!eat o! the decisi"e impediment to economic
growth 9 terrorism, thus sowing seeds o! an optimum le"el o! political stability. The 1uestion
be!ore us today in 2014 is whether our economic growth is heading in a healthy direction.
#ri $an%a&s economy entered into the middle income territory in 166<. This according to
today&s rates is @#A 1,060 9 12,887 threshold. The country&s o!!icial state economic
institutions maintain that we are steadily progressing !rom the ran% o! a lower middle income
country towards the ne2t higher income brac%et o! @#A 4,000 9 <,000. They also !orecast a
consistent and sustained growth rate e2ceeding <B during 2017 9 201<. ;ccording to those
statistics, growth in the economy is consistent and steady. (o"erty, unemployment, in!lation,
and "ariability o! e2change rate ha"e been brought down to a single digit. The indicators such
as li!e e2pectancy, literacy, access to electricity and telephones etc. are in par with de"eloped
nations while political stability too remains 1uite strong.
=oing by these statistics, there should be no strong impediment to continued and sustained
growth. ?owe"er the international monetary institutions "ersion o! this narrati"e is a wee bit
di!!erent. They say that going by the current position o! the !actors o! production, the ma2imum
achie"able growth rate would be somewhere between 8.7 9 8.7.
They also say that the !actors o! production ha"e got contained due to the characteristic
constraints e2erted on a middle income country that is stri"ing to increase income. They are
the increasing cost o! labour, increased imports !or consumption and rising costs o! !uel and
electricity in the absence o! a comprehensi"e energy policy.
+n the meantime there are disturbing trends in the labour mar%et due to an increasingly ageing
population, a phenomenon brought about by so0called !amily planning measures. This situation
is getting !urther aggra"ated with the gross e2patriation o! s%illed labour, mainly youth. The
e2port income has been continually declining in relation to both gross domestic product and
import e2penditure while the /2change continues to plummet. /2penditure on loan repayments
and interest payments is almost e1ual to the go"ernment re"enue. >oreign loan installments
and interest payments are mounting in relation to e2port income.
;lthough absolute po"erty has been brought under control, disparity in income distribution
continues to widen. +nade1uacy o! capital in"estments by the go"ernment and issues o"er
capital in"estments as to whether they are on prudent areas o! national priority ha"e raised
serious concerns.
The country wide e2pansion o! a leisure0and0entertainment economy has led to a new social
crisis and a critical dialogue has emerged in society on corruption and good go"ernance.
,b"iously, erosion o! con!idence o! the society at large has already become an impediment to
the de"elopment o! social capital necessary !or economic growth. ,n the other hand, the
literally poisonous& en"ironment, that has been brought about by the hapha3ard ad0hoc process
o! industriali3ation, with increasingly ad"erse implications on !ood production and health etc.,
has deteriorated to a point o! threatening the country&s "ery ci"ili3ation, with its share o!
conse1uences on the economy in the process.
/"aluation o! these !actors !rom an economic perspecti"e re"eals that the country is gradually
being ensnared in what is %nown as the middle income trap. =oing by the general e2perience
o! the countries in the a!termath o! opening o! their economies, it is possible to identi!y se"eral
distinct phases o! de"elopment that those economies ha"e gone through.
C (roducing e2port products using !oreign in"estment and !oreign technology
C (roducing interim products or parts o! products !or e2port using local in"estment but
!oreign technology
C (roducing import substitutes !or the local mar%et by adapting !oreign technology
C (roducing e2port products using local in"estment adapting !oreign technology
C $ocal de"elopment o! ad"anced technologies and management systems through research
and de"elopment conducted locally on technologies originally ac1uired !rom abroad
C (roducing ad"anced goods and ser"ices and systems o! management which are competiti"e
in !oreign mar%ets using local in"estment
C +nno"ation and %nowledge component become the prime process o! economic growth
;lthough nearly 40 years ha"e lapsed since the introduction o! open economy to the country, it
is ob"ious that #ri $an%a has not managed to go past e"en the second phase o! the abo"e se"en
stages. This is in contrast to the e2perience o! countries li%e Malaysia, Thailand and Dietnam,
which ha"e surpassed !our o! the se"en stages, and particularly, the e2perience o! certain other
;sian countries such as ?ong Eong, Eorea, Taiwan and #ingapore, which ha"e success!ully
gone through all se"en stages.
This se"en stage process can be generally described in terms o! three di!!erent strategies
adopted by economies at di!!erent stages o! de"elopment, namely,
C competiti"e growth achie"ed by sourcing !actors o! production such as labour, energy, and
other resources at competiti"e prices
C competiti"e growth achie"ed through increased e!!iciency o! the production processes
C competiti"e growth achie"ed through inno"ation
,ne o! the popular "iews held in this regard by some scholars, is that #ri $an%a, which relied
on the !irst strategy o! using cheaper !actors o! production in the process o! its graduation !rom
a poor country to the status o! a lower middle income country, has now reached the limiting
point o! this strategy, and there!ore, the country&s !uture tra4ectory o! growth should
se1uentially progress initially through the e!!iciency dri"en stage, e"entually to the inno"ation
dri"en stage.
There is absolutely no logical reason why the second and the third strategies listed abo"e
should be in that particular se1uence in succession, e2cept perhaps that they are listed in that
se1uence in te2tboo%s.
$adies and gentlemen,
There is absolutely no reason why #ri $an%a&s economy cannot leap0!rog straightaway to the
third stage o! an inno"ation0dri"en economic growth as its dominant strategy !or growth. The
main contributory !actors that would enable such a leap!rog are the high literacy rate,
penetration o! access to electricity, telephones and +nternet, and the energies o! social capital
such as !ree education.
$et us re!lect !or a moment, on the historical e"olution o! technology and its global impact.
-ith the ad"ent o! the industrial re"olution in /urope, labour producti"ity impro"ed. ;t a
subse1uent stage, human labour was substituted with !ossil !uel and other sources o! energy,
thereby multiplying the e!!ect o! labour.
#imilarly, the capacity and the capabilities o! the human brain were also multiplied by
computer and communication technologies that subse1uently e"ol"ed. ?istory has recorded
those e"ents as the power o! technology. +n the early days, technology needs were arising out
o! the need !or creating more resources and social networ%, in order to meet the basic human
needs such as !ood, shelter, health, communication and protection.
+n the era that !ollowed, technology pro"ided a plat!orm where the con!lict between capital and
labour got de!used. The new socio0economic classes that could be distincti"ely identi!ied as
managers, technologists and wor%ers, were born in relation to the class that owned capital.
+t was a!ter considerable time that it became apparent that the de"elopment o! technologies had
gi"en rise to a serious crisis in the !orm o! en"ironmentally related degradation, and decrease o!
resources, whilst robbing the !uture generations o! their due share o! resources. ;s an e2ample
o! the measure o! economic implication o! the crisis, it has been warned that global warming, i!
continued at the present le"els, could shrin% the global economy by 7 9 20B within the ne2t 2
centuries.
*y now, it has dawned on the whole world, that technology, which is purely maneou"ered by
mar%et !orces, has no heart. >or the same reason it is absolutely necessary to e2ercise proper
4udgment in choosing between technologies to in"est. The mere increase o! per capita =5( is
not something that we can be content with. #tri"ing !or a mere increase o! per capita =5(
could well lead to social unrest and destabili3ation, and the e"entual collapse o! social capital.
-e cannot !orget the !act that #ri $an%a is a country that sustained multiple rebellions and
uprisings. +n the meantime, the ris% o! collapse o! ecological systems due to degradation o!
water, soil, air and bio species should not at all be underestimated.
There!ore, the triple principles o! economic policy, strategy or action plans that should act as
the pillars o! a sustainable !uture, should be,
C #ustainable economic de"elopment
C #ustainable social de"elopment, and
C #ustainable en"ironmental de"elopment
+n #ri $an%a, there are two main lines o! criticism about in"estments in science and technology.

The !irst, coming !rom scientists and engineers, is that the amount o! !unds spent on research
and de"elopment by the go"ernment and the pri"ate sector is a meagre amount. The opposing
line o! harsh criticism is that the !unds allocated and the concessions granted to the public as
well as pri"ate sector !or research and de"elopment, has !ailed to produce any producti"e
results impacting economy. +n the !irst place, it has to be made "ery clear that in"estment in
research and de"elopment will not yield any tangible economic results. ; mar%et en"ironment,
which is conduci"e !or translation o! research outcomes into commerciali3able products, and
!or trans!ormation o! in"entors into entrepreneurs is absolutely essential. +t is the absence o!
such a conduci"e en"ironment that has caused #ri $an%a to ran% pretty low in the %nowledge
economy inde2.
This has resulted in a "icious cycle between research and de"elopment in"estments and
economic bene!its.
There are se"eral ob"ious re1uirements that need to be met !or ' and 5 in"estments and
economic bene!its to brea% away !rom this "icious cycle and to complement each other
constructi"ely.
C +n"estments should be mainly on applied and de"elopmental research, and on inno"ations
C ;n en"ironment conduci"e !or research and inno"ation should be created
C +n"estments and mar%et stimulation !or commerciali3ation o! inno"ations should be
promoted
C ; !raction o! the economic outputs should be redirected as ' and 5 in"estments
C There should be a stable inno"ation en"ironment
+n this conte2t, we ha"e identi!ied ten priority areas !or inter"ention during the ne2t !i"e years
!rom 2017 to 2020. They are, water, !ood, health, housing, energy, garments, minerals,
%nowledge ser"ices, !undamental sciences and technologies, and en"ironment.
>urther, we ha"e also identi!ied ten strategic inter"entions. They are policy planning, research,
inno"ations, nano0technology, biotechnology, in!ormation and communication technologies,
indigenous %nowledge, science and technology in!rastructure, s%ills de"elopment, mar%eting
and promotion.
;ccordingly, we ha"e hundred acti"ities at most.
-e ha"e identi!ied the annual in"estment re1uirements by the state and the pri"ate sector,
which may change during midcourse depending on the progress. >urther, we ha"e also
estimated the economic bene!its that those inter"entions would yield to the nation under
appropriate socio0economic !actors.
There has been no state in"estment based on a national plan since the !i"e0year plans o! 1672
and 1672.
The ' and 5 in"estment proposed here is one that has to be contributed to by both state and
pri"ate sectors.
This ob"iously calls !or certain structural changes in economic and !inance policies, socio0
political policies and education policies. The !uture o! sustainable de"elopment that all o! us
aspire !or the nation will not 4ust dawn upon us.
*oth the will as well as the capability to guide #ri $an%a towards the !uture we want, are with
us.