Columns

Non-economic conditions have been the determining factors in Sri Lanka’s below-potential post-Independence economic development. The preconditions for rapid economic development have been missing and successive governments have been unable to pursue and implement pragmatic economic policies. Consequently, high sustained economic growth has eluded the country and only an annual average economic growth of 3.5 percent was achieved in the past seven decades.

Whenever the country had a prospect of a takeoff to a higher trajectory of growth, political disruptions, communal tensions, riots and a prolonged civil war hampered development.

Preconditions

The preconditions for long-run economic growth and development pointed out in last Sunday’s column were  peace and  security, political  stability, social harmony, law and order, the rule of law and certainty and effective implementation of pragmatic economic policies. Furthermore, ideological commitments have prevented the adoption of appropriate and pragmatic economic policies that would have   propelled the economy to a higher level of sustained economic growth.

An honest and firm leadership that takes measures to eradicate corruption and ensure meritocracy is also vital for economic development. In pluralistic societies, it is essential that firm policies are adopted to ensure ethnic and religious harmony while extremism is eradicated. A country cannot achieve economic development in an environment of insecurity amid ethnic and religious tensions. This has been amply borne out by Sri Lanka’s experience of economic disruptions.

Politics

These essential conditions have not been achieved owing to the country’s political culture and milieu that have been inimical to adopting such policies. In contrast, South East Asian countries, which are known as the Newly Industrialised Countries (NICs), and China and Vietnam later, developed owing to their adopting pragmatic economic policies.

At present, the country is in a state of disrupted development owing to a political hiatus, communal tensions and security concerns. Only a significant transformation of these conditions could put the country on a path of economic development.

Business Times

Coincidentally, Professor Sirimal Abeyratne’s column, “Down to Earth Economics” in last Sunday’s Business Times, too, made this point directly and emphatically by drawing on the development experience of Singapore. He pointed out that Singapore was able to develop in the fastest manner owing to three attributes: meritocracy, pragmatism and honesty. Three attributes are conspicuously missing in Sri Lanka. No doubt these were complimented by other attributes such as social and ethnic harmony and hard work.

Corruption

Professor Abeyratne rightly emphasised that corruption is an obstacle to economic development. He illustrated his argument with the approach of Singapore to eradicate corruption in the public sector. This is in sharp contrast to Sri Lanka where it is openly admitted that corruption is rampant.

Professor Indraratna

There is a clear consensus in the country that corruption is rampant and spreading like a virulent cancer. When the late Professor A.D.V. de S. Indraratna pointed out the high level of corruption over a decade ago, voices were raised that he was exaggerating the extent of corruption in the country. Time has borne out that, if at all, his was an underestimation of the extent of corruption. Now even the President of the country and Ministers admit that corruption is rampant and an obstacle to development.

Impact

How does corruption impact on economic development? Corruption retards development in several ways. It distorts priorities in public spending towards mega projects that have large kickbacks. Governments even undertake nonproductive or projects that are “white elephants” to get huge bribes. They also deal with governments and companies that give such kickbacks rather than less costly and more efficient ones.

Readers would recall such foreign-funded large infrastructure projects undertaken by the government. These had a long gestation period to yield results and some even had no economic benefits. These “white elephants” and large infrastructure investments have increased foreign debt and the country’s external vulnerability.

Another effect of corruption is that it can lower the quality of public goods and services and even threaten safety. The collapse of a building or a construction defect that requires to be redone is further costs to the government. Adoption of technologically defective or inefficient power plants and industrial plants are further examples of such serious distortions.

One serious result of corruption is that it reduces foreign and even domestic investment. Foreign investors find negotiations to invest in corrupt countries tedious, time consuming and costly.

Contrarian view

However, the World Bank has found that countries with more predictable corruption have higher investment rates. For instance, Thailand and Indonesia that have endemic but predictable corruption have had strong investment growth. There is a school of thought that economic development has been accelerated in some countries by corruption.

Costs of corruption

Although the costs of corruption are difficult to calculate, there is no doubt that corruption retards economic development. Countries that have developed have minimised their levels of corruption. Singapore is a prime example of this, while Hong Kong has also progressed owing to its low levels of corruption.

Summary

The slow growth of the Sri Lankan economy has been due to the inability to maintain peace and security, political stability, social harmony, law and order, the rule of law and certainty in economic policies and their effective implementation. The ideological or political culture has not enabled the adoption of   pragmatic economic policies to achieve a higher level of sustained economic growth akin to those of South East Asian countries, China and Vietnam and now India and Bangladesh.

These countries have shunned political ideologies and impractical economic policies that retarded their economic development. They developed owing to their adopting pragmatic economic policies.Sri Lanka has been also hampered in its development owing to the widespread corruption among politicians and the administration. As Imran Khan, the new Prime Minister of Pakistan, has said “Countries are poor because of corruption”.

Conclusion

All things considered, rapid economic growth can be expected only if these obstacles are removed. Such a massive transformation is difficult to envisage in the current political environment. Yet, Sri Lanka can achieve sustained high economic growth only if there is a revolutionary transformation of the polity that brings about the preconditions for development.