8th June 1997

Comment

For the past twenty years, Sri Lanka has been committed to the open economy. The “opening” or “freeing up” of the economy has come in various stages and by various means. As a result, competition in most sectors of the economy has increased tremendously and the quality and variety of goods and services available to consumers have also increased. On the whole, this change has been good for the consumer. The open economy has not only meant more choices but also better choices, whether it be with respect to goods, services, or jobs.

There is, however, a down-side also to the hasty pursuit of an open economy. The influx of cheaper imported goods may drive local producers out of business and cost the economy valuable jobs in areas where we should ideally maintain production capacity. The “survival of the fittest” mentality that goes along with the free market may increase the gap between the rich and the poor. It may leave the poor and marginalised to face a situation of soaring prices and inadequate employment opportunities without a proper safety net.

This is not to say that the open market model is not suitable for Sri Lanka. It just drives home the fact that we should be careful to balance our romance with the free market with some practical safeguards. The free market system has a lot to offer. We should create the framework for getting the best out of that system. For example, the open marekt system should be supported by the framework of fairness, democracy, and competition.

In the current situation, we see that the concept of fairness is not being applied consistently. In many cases it seems that laws and regulations, which are formulated to protect citizens and uphold quality, are enforced only for private enterprises. State-owned enterprises are somehow exempted from many of these “rules”. We see this very clearly in the case of environmental regulations.

State-owned agencies dealing with rail transport, housing, sewerage, and other areas are seldom held to the environmental standards or the public scrutiny that private industries are. Even though these agencies contribute heavily to urban pollution, they are almost never penalised.

State agencies are also given much more leeway than private firms with respect to the quality of products and services they provide. This not only puts an unfair burden on private industry but also cheats citizens of their rights as consumers.

There are also some situations in Sri Lanka that illustrate how easily free market principles can be pushed aside to protect certain interest groups. One example is the present airline ticketing industry in which prices are set and discounting is limited to a very narrow margin as a result of an agreement among travel agents. This is similar to a “cartel” situation where producers band together and fix a price. Since this system assures the members of the cartel of a higher price, it is good for the producer but disadvantageous for the consumer.

The restriction on discounting is ostensibly to protect travel agents from undercutting each other and being driven out of business. Although a certain level of protection may be necessary to encourage some industries, we should bear in mind that the exit of unviable enterprises is one of the important features of a competitive market. Flexibility to change prices according to demand and supply is one of the most attractive features of the free marekt.

There are many other hypocrisies that we find in the travel trade alone. For example, even though the government is promoting growth of the tourism industry and is committed to privatising AirLanka, its behaviour toward allowing charter flights into Colombo has been inconsistent. There have been cases when fully-booked charter flights have been cancelled by the government in order to protect AirLanka and other airlines. The irony here is that the tourists who book the charter flights end up not visiting Sri Lanka at all because the non-charter airlines are significantly more expensive. As a result, the national economy loses vital tourist revenue.

The open market concept should not be applied only in major economic policy decisions. It is more important that the principles it embodies be applied to our markets. Principles of fairness and competition should not be cast aside to protect state agencies or interest groups. They should be applied consistently for the benefit of consumers.

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