07th, September 1997


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By Business Bug

Powerful shock

The majority of corporate results for the first half of this year are encouraging, most notably in the manufacturing sector.

But last week's announcement of a more than ten per cent hike in electricity tariffs is likely to dampen that growth rate, top business magnates argue.

And they have infact presented their case to the powers that be asking that power charges be reduced at least for specified industrial concerns such as those in the BOI.

But the response has been less than encouraging, we hear.

Interest rates to come down

A wave of downward revision in interest rates is likely to be announced by leading investment houses this month.

This follows the lead taken by commercial banks in lowering their deposit and lending rates.

At least two finance companies have already announced reductions in rates ranging from one to two percent. More will follow suit shortly.

Luxury bus service move

The Transport Ministry's plans to operate a luxury bus service to and from the city's suburbs to Colombo has evoked interest in a similar project in the private sector.

The Ministry's fleet is woefully inadequate to meet the demands of commuters, they feel and say there will be a ready demand if such a service is operated by the private sector.

One big business house is seriously considering the idea but the greenlight has to be given by the Ministry first, they say.

Need to explain policies

Last week we observed that the increasing credibility of government policies was a significant factor in the recent economic upturn. Equally important is the need for conviction that a government's economic policies are in the correct direction. If most people are not convinced that the thrust of economic policies is not for their benefit, a government could face various impediments in the implementation of policies.

The lack of conviction among a significantly large proportion of our people that the economic policies pursued are to their advantage is indeed one of the reasons for difficulties in implementing policies.

In the 50 years since independence, the country alternated between socialist and capitalist policies. There was a deep conviction among many that socialist policies and a welfare oriented system ware the best for the country. Governments since 1977 have pursued very different policies.

The liberalisation of trade and foreign exchange, the privatisation of public enterprises, the removal of subsidies and a greater reliance on private enterprise have characterised the changes in the last two decades. While most intellectuals and the western elite are generally convinced that these are the correct policies, there is no such conviction among the bulk of the population.

They see the policies of privatisation, liberalised trade and encouragement of, and concessions to, private enterprise as being ones favouring the capitalist class and working towards the detriment of the poorer segments.

Such a situation is not conducive to effective implementation of economic policies, particularly in a democracy such as ours. It is vitally necessary to explain why these policies are pursued and how they could benefit the economy and the people at large.

There are several reasons why it is easy to object to current economic policies. First of all there are many people who are left behind by the thrust of trade liberalisation and privatisation. The economic policies have resulted in higher consumer prices. Those who have failed to find employment opportunities as well as those in employment whose wages do not compensate them for the higher prices are worse off.

There is a perception that only a few benefit from the new economic policies, particularly in the first round. And others who benefit do not really see the connection between their benefits and the change in economic policies. For instance the large numbers in employment in the new industries such as garments may not necessarily credit the new economic policies for their employment.

On the other hand, they themselves might be critical of these policies because the real value of their wages keeps getting eroded by increasing prices. The removal of subsidies hits the poor. They see in the removal of these subsidies the disadvantages of liberalised trade and a private enterprise-led economy. There is a tendency for the new economic policies to enrich the rich while the poor could get worse off. Also being worse off is often a relative one.

When people see conspicuous consumption of the rich, it is difficult for the poor to accept their vastly different condition, even if in fact their condition has improved over time. These factors make it difficult to sometimes convince people of the rationale of liberalised and market-oriented economic policies. Yet there is no reason why the effort should not be made.

The rationale for these economic policies must be explained in some detail and in simple language in the Sinhala and Tamil media. The nature of these economic policies must be placed in the global context and the economic experiences of other countries, particularly of East Asia, must be explained in some detail. This would help in developing an understanding.

It is a sad commentary on public affairs that after 20 years of these policies most people are unaware of the rationale for them. They still hold on to ideological positions based on socialist principles. Even when communist countries are changing their economic policies our educated youth are still of the view that socialist policies must be re-introduced in the country.

This says much regarding the lack of communication with the Sinhala and Tamil educated public about economic issues. There is very little point in the English educated community discussing these policies. These discussions must reach the larger numbers outside these circles.

Although it is quite late to explain economic policies which have been in place for quite some time, yet it is better to begin that task now, than not to do it at all. The seeds of social tension and labour unrest are features which would erode the capacity of the government to implement economic policies.

A frank discussion and explanation of these policies may help the government to implement them. It may also help the government not to make extravagant promises which cannot be kept.

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