Forging ahead with infrastructure and skills

I feel honoured and privileged to be invited to deliver this Memorial Lecture in tribute to the late Lalith Athulathmudali. Besides being a trustee of the Lalith Athulathmudali Foundation I have had many contacts with him particularly during the period he served as a minister. I also consider it a special honour to succeed the distinguished speakers of previous years at this event.

I have known Srimani Athulathmudali herself for a long time. She and her parents were family friends even before she came to UNCTAD in Geneva in 1974, my first year with that organisation. Lalith Athulathmudali himself attended UNCTAD conferences as Sri Lanka's Minister for Trade. These included the Trade and Development Board in 1978, high level meetings of the Ministerial Meeting of the developing country Group of 77, and the world conferences of UNCTAD in Manila in 1979 and in Belgrade in 1983.

Indeed I like to think that it was UNCTAD that made this match between Lalith and Srimani. In fact, they married in Geneva and I had the privilege of serving as an attesting witness together with Tilak Gooneratne. The reception thereafter was held at my residence to which she had invited a number of friends but without saying what the occasion was. I still recall the surprise registered on their faces when they saw Srimani, bouquet in hand, standing alongside Lalith and accepting all the congratulations and good wishes! So neither husband nor wife were strangers to me. All those happenings seem like the other day. But today I am conscious of the flight of time when I see Serala, their pretty daughter, before us quite grown up - a reminder of how the years have caught up on those like me.

I cannot recollect when I first met Lalith. But I do remember his name attracting my attention when I learnt that he had been elected President of the Oxford Union. This was, and remains, a highly coveted and privileged office. In my time, some years before Lalith went up to Oxford I attended debates at both the Cambridge and Oxford Unions but lacked the courage to speak at either! So I know how privileged the post of President is and how much of an honour it is for a Sri Lankan to secure that position.

However, it was in the context of UNCTAD that I came into closer contact with Lalith. As I said before, he attended the world conferences of UNCTAD - UNCTAD 5 and UNCTAD 6 - in Manila and Belgrade as head of the Sri Lankan delegation. But prior to these, in 1978, he presided over the first ever Ministerial meeting of UNCTAD's Trade and Development Board, of which Sri Lanka held the chair for that year.

The Ministerial meeting was the result of a decision previously taken at UNCTAD 4 in Nairobi to deal with the issue of Third World debt. This was the first time that the debt problem of developing countries was taken up for special attention within the UN system. Lalith took his task very much to heart and held consultations with leading personalities at the meeting. Finally, he succeeded in obtaining a carefully worded, but unanimous, decision in terms of which the ministers of creditor countries undertook to "look to" the granting of debt service relief to the "poorer countries". 

In the period that followed, a number of creditor governments - including Britain and some of the European countries - took action to write off much of their official credits to those developing countries. Sri Lanka itself was one of the beneficiaries of this decision. Although the debt relief was confined to official credits the cancellations totalled $ 6 billion, a sizable amount at that time. This was the first decision of that kind in the realm of debt relief and was seen as a triumph for UNCTAD, one that was looked upon as one of the achievements of the organisation. This result, as I said, owed much to the dedicated efforts of Lalith Athulathmudali.

I do not have a subject, given in advance, for my address today.

I want to start by referring to the changed global environment in which we now find ourselves relative to the period Lalith was a minister. Already from 1977 onwards, the time he was in office, Sri Lanka endeavoured to make a break with past policies that had accentuated control and regulation by the state and to focus more sharply on opening up the economy to private enterprise and market forces. This approach has since been adopted, more commonly, not only by Sri Lanka but also by many, I would say most, other countries of the world.

The result of all this was that the income gap between the richest and the poorest countries was widening instead of narrowing on the world scene. Critics complained that what was happening was not globalisation but its opposite, a kind of "polarisation". What is more, there were negative manifestations that were beginning to emerge even within the developing countries that were following prescriptions of market oriented growth. Income gaps between the rich and the poor internally also began to widen giving rise to social and political stresses of various kinds.

What I wish to do today, however, is not to elaborate upon developments on the world scene but to draw your attention to the lessons that Sri Lanka and other developing countries could derive from those developments. As I said earlier, Sri Lanka, beginning in 1977 and ahead of the fanfare on globalisation and liberalisation, embarked upon policy changes in the direction of opening up the economy and of deregulation in some areas of state intervention. But this thrust has since gathered momentum and the commitment to an open economy, internally as well as externally, has now become common to our major political parties, whether in office or in opposition.

This is not true only of Sri Lanka. Almost in every country these days the division between political parties is not based, as was more the case in earlier times, on different platforms of economic policy. There may be nuances and differences in emphasis here and there but the actual contest seems to have shifted to areas other than those of economic policies. There seems to be a remarkable meeting of minds on what should be the thrust of such policies. In the case of developing countries it would seem that the influence of the World Bank, the International Monetary Fund has been particularly strong, even decisive.

I do not intend to expand at length on the content of these adaptations and modifications. But I would like, all the same, to highlight a few for reflection. One of these concerns the role of the state. The enthusiasts for globalisation and liberalisation have a kind of bias towards giving the state an ever shrinking role in the economic life of a country. I once said, somewhat in jest, that there is now a meeting of minds between Karl Marx and Wall Street in favoring the "withering away" of the state! Current prescriptions favouring liberalisation want the state to step back to allow private sectors to take on the task of economic development in the name of efficiency. Well, there is, perhaps, some validity in such arguments since the contribution of the state to economic activity and management in many developing countries in earlier years did not yield the desired results. But all the same, I remain convinced that in poor countries the state does need to exercise a rather strong leadership role in guiding the economy. 

In such countries, and I do not think ours is an exception, the private sector is not as strong as it is in industrialised countries to rely less on state support as is the case in these latter countries. So I feel the state must not abdicate from its role of taking an overview of the development process and of the evolution of the economy. It should, rather, establish a mutually supportive relationship between itself and the private sector in terms of their respective roles. The state must identify the ways in which it can help the private sector to contribute to the growth and transformation of the economy while the private sector, in turn, must assist the state in providing the framework and the overall requirements necessary for its own success.

All this calls, I feel, for a new kind of planning. What I would like to see is a different kind of dialogue between the state and the private sector. The state should ask representatives of the private sector, particularly its major players, about their investment and expansion plans for the next few years and the products they seek to cover. It should ask what assistance and support the state could give and endeavour to provide this if consistent with national goals and targets. Into this cooperative relationship I would like also to draw in the labour and trade union movement. Labour needs to be assured that it will share in the benefits of increasing productivity and that of capital and labour. 

I would like, in an even wider context, to place a special emphasis on productivity. I believe the future development and prosperity of Sri Lanka will be increasingly linked to a progressive transformation in productivity. As I have said on so many other occasions, the overriding requirement for this is the upgrading of our skills and the development of infrastructure. "Infrastructure plus skills equals development" is an equation I have often suggested. With these elements we could perform successfully in the world economy, Without these elements we could perform successfully in the world economy.Without them we shall surely be left- behind.

All these issues are relevant, I feel, to the role of the state in Sri Lanka and our response to globalisation and liberalisation. But there are also a number of specific issues that I would like to highlight in this context. One of these concerns "protectionism". The thrust towards liberalisation and free markets has served to discredit virtually all attempts by the state to extend a degree of protection to local industries and enterprises. 

I do not regard myself as a protectionist. But in the context of the euphoria for exposing everything to competition from outside I would like to raise a small voice for not dispensing with it altogether and for allowing some room for a selective, judicious, rational and time- bound application of the instrument of protection. I have also some thoughts on foreign investment in the context of globalisation and liberalisation. Today, doors are being opened for foreign investment throughout the world. I feel that we too should encourage investment to help our development process. Foreign investment can bring with it capital, technology, management skills, know-how, and contacts with the outside world. These are things that a country like ours needs. But I feel that the main value of foreign investment is the contribution it can make towards a learning process in this country that will serve to enhance our own indigenous capabilities. 

My third point this evening concerns agriculture. I have the feeling that our present patterns of agriculture are time bound. Peasant agriculture, based on subsistence farming, will need to give way, as in so many other countries, to units of production where productivity is high and surpluses are created to help raise standards of living. A process of modernisation will inevitably get under way which offers our farmers the prospect of standards of living that approach middle class levels. The same is, in a sense, true of plantation agriculture where a resident labour force housed in lines on tea and rubber estates may be difficult to maintain in adequate numbers, a mode that may need, as in many other primary producing countries, to give way to other forms of organisation. The heart of the transformation in agriculture will be rising productivity and this should find an increasingly important place in national policy. 

There is another important point that concerns our agriculture and this relates to food production. I am, of course, in favour of diversifying our food production and producing as many cash crops as pass the test of viability. I do feel uneasy, however, when I hear arguments that in the name of comparative advantage we might do well to move away from rice production in favour of cash crops that are more remunerative in world markets. I do not think that for us the issue is one of economics. In a world of conflict and uncertainty, it would be a matter of simple prudence to retain at least a minimum degree of self sufficiency in respect of food supplies. Economics and open market doctrines must not serve to jettison the elementary logic of food security. For me, this is too obvious to require elaboration. 

I do not wish to expand my comments on the various policy dimensions relating to the Sri Lankan economy. There are, however, two areas that I would still like to highlight. One concerns the need for a better link, a better interaction between our social progress and our economic progress. As you well know we have a relatively good record to show in the social sector. The UN "Quality of Life Index" gives us high ratings for our achievements in such areas as health and education. Literacy rates, access to primary and secondary education, life expectancy, morbidity rates have all improved impressively and in some cases even approach developed country levels. But this good record in the social field has not translated into high rates of economic growth. 

The growth rate of our economy has not, over the years since Independence, differed too widely from the rates attained in other parts of the Indian sub-continent. So I feel that we need to alter this dichotomy between our social and our economic achievements. We need, in fact, to have a mutually reinforcing relationship between social and economic progress. Our social progress should be geared to accelerating economic growth while our economic gains must be designed to translate into social benefits. This, I think is one of the major challenges our policy makers will need to face up to in the period ahead. 

I have spoken so far about some important policy dimensions that we need to flag. But I have a thought which I wish to put before you which I feel could be of major significance to our development scenario not in the very near future but in the decades to come. As you are aware our rate of population increase has begun to decline.The time will come, two or three decades ahead - depending on the projections we select when the size of our population will stabilise. I believe this will provide us with a new scenario and a new opportunity. Up to now, and this was my experience when I served in the economic administration, we have been preoccupied with the problem of numbers. There was a continuous need for more schools, health services, transport facilities and so on and our energies and resources were taken up on these needs. We were, perhaps, not aware of how much the demands of quantity took precedence over our other needs. In the period to come there can be a shift to focus from the demands of quantity to the needs of quality. This will reach out to our education, health, and other services. It will bring us closer to the scenario in the more developed countries where economic and social objectives are not dominated by demographic needs. 

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