Short term economic perspectives
Putting into place the correct economic policies is half the requirement for economic growth. The other half includes institutional reform and social engineering. All these components for economic growth require a long-term perspective and commitment. That long-term perspective and commitment is sadly lacking in Sri Lanka. The preoccupation with current problems prevents any resolution of the fundamental problems faced by the economy.

The forthcoming budget that we are looking forward to may say some of the right things; even dole out figures favourable for long-term growth, but the final outturn is not likely to match the rhetoric. No doubt immediate political imperatives are at the root of this problem of short-termism. All democracies suffer from this defect, ours probably more than most others.

Among the fundamental problems that will remain unresolved is adequate taxation to meet the expenditure of government that we discussed last week. Another illustration from recent months is the reluctance to pass on the burdens cast by the oil price hike to consumers thereby increasing the fiscal deficit and increasing the public debt. This fundamental weakness continues to grow rather than diminish. On the other hand, needed curtailment of costs is also not resorted to owing to political imperatives.

There are many reasons for this state of affairs. The constitution of the country is at the base. With the inability of any single party to obtain a clear majority, incumbent governments are unable to take bold decisions. The fact that they are also constituent political elements makes the task even more difficult. The lack of a political consensus between the two leading parties means that governments use economic policies to pander to the people rather that adopt them for long-term economic development.

There are yet other reasons for the prevalence of these economic policy perspectives. People at large have a mistaken idea about governments. They are of the view that governments are able to dole out benefits ad infinitum. There is no realisation that what governments give is given by the resources of the people. The government is seen as a source apart from the people's resources.

Fundamental to this attitude is the low proportion of people that are income tax payers. In countries where the income tax base is broad, whenever a government promises reliefs or extra expenditures, people ask the question from where do the resources come? Are we going to be taxed more? In countries like the US or UK voters are conscious that " there is no such thing as a free lunch".

In Sri Lanka people pay for the dole outs through increased taxes on commodities, inflation and cuts in development expenditure. Overall long-term economic growth and development are sacrificed and the country remains underdeveloped.

A change in these perspectives and the political setup is indeed vital for long-term economic development. Neither the political culture nor the values that we have developed over time are likely to change in the foreseeable future. In the meanwhile we can comfort ourselves with Keynes celebrated saying the "in the long run we are all dead".

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