The Sunday Times Economic Analysis

The Sunday Times Economic Analysis By the Economist

Are we guided by misconceptions on economic development?

Many recent statements indicate misguided ideas on economic development.
Shallow draughts of economics appear to intoxicate many that they ignore the contextual situation in the country. This could be dangerous. An economic strategy that ignores the contextual characteristics of a country could be an ineffectual exercise. In fact it could do more harm than good.

Economic growth is a gradual process. Though the process could be speeded up, it follows certain stages that cannot be avoided. Economic growth cannot be achieved by willing it; it has to be attained by a sustained process of building up a number of pre-requisites.

Economic growth is not dependent on economic factors alone, socio-political and cultural factors have an important bearing. It is therefore an exercise in social engineering that has to take into consideration the particular socio-political context.

With the very best of intentions some want to speed up the process of development by trying to imitate developed nations. They want to achieve what other countries have taken a long time to attain without many pre-requisites being developed over time.

Let us illustrate the weaknesses in our development thinking with three examples.

First, Many reforms efforts in several areas do not take into consideration the political milieu and the practicality of the reforms. In a context of one half-century or more of welfareism in the country, reforms that take away benefits enjoyed by most of the population are not likely to be acceptable to the people. Neither is it politically feasible.
Besides, these reforms are the design of foreigners who are not aware of the ground realities in the country. The Minister of Economic Reforms once said that the reforms are not those of the World Bank but what the government wants. There is little evidence that the government has done any thinking of its own that is different from those of Washington.

The government should present white papers on education, health, administration and other areas of reform to be discussed widely and then adopted with needed changes. Without such discussion a broad consensus on the proposed reforms cannot be forged. Such discussion enhances the chances of popular acceptance. The reforms must take into full consideration the actual situation in these sectors and the political and social realities of the country. They must be "made in Sri Lanka".

The view that we should concentrate on high value added technically advanced industry rather than the cheap labour-intensive industry with a large import content has been advanced often. This is no doubt a much-desired objective of industrial policy. Yet have we got the infrastructure to usher in an industrial development of such sophistication? We are aiming at being a transport, financial and other services hub, yet lacking in the prerequisites to having the skills and human resource development to enable these. Even our unsophisticated industries are facing severe difficulties owing to inadequate economic infrastructure that is a constraint on their productivity and raise their costs of production. We must be mindful of these limitations and attempt to remedy these as a forerunner to achieving the lofty ideals of technological advancement.

A third illustration comes from the policy attitude towards agriculture. There are two aspects of misguided approaches to agricultural development policy. One is that governments since the late 1980s have only paid lip service to agriculture but in fact neglected it. They have neglected institutional support services especially extension and marketing. Research expenditure has been inadequate and inefficiently utilised. The performance in agriculture since 1990 demonstrates this very clearly. Yet governments have failed to take remedial action owing to their unarticulated position that future economic growth rests in other sectors of the economy. This ignores once again the ground realities and future potential on agriculture. Since yield levels in most crops are far below their potential, increases in productivity could be large, and would contribute to economic growth, decrease unemployment reduce poverty and importantly mitigate rural social discontent.

Similar to the approach on industrial development, the agricultural strategy appears to be to develop commercially viable and technologically advanced agriculture. This must certainly be the long-term objective of agricultural development policy. Yet it must not be at the neglect of traditional agriculture that has a substantial potential. Much of the current development thinking appears to be based on the notion that " to be developed we must be developed". There is a lack of appreciation of the processes and pre-requisites to growth. Alien thinking that has little basis in the facts of the ground situation and the political and cultural milieu are guiding us in our path of economic growth.

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