Economic gains undone by corrupt politicians

The Sunday Times FT poll on the 30th anniversary of the free market drew additional comments from its readers in addition to the Y (Yes), N (No) or U (Undecided) answers they gave to the questions posed.

Here are the comments under each question:

Sri Lanka this month marks the 30th anniversary of the free market system. Has the open economy brought gains to this country?

* The gains have been impacted by lack of political stability and political consensus on national policies, lack of long term valid binding policies that can optimize the benefits of the open economy, lack of statesmanship driven by a vision placing the nation and its people first and lack of good governance.

* It will only work well if infrastructure/ proper administration/fair play is prevalent and there is no corruption.

* One must consider the historical context of such a question. The only economic system that has been of any significance to Sri Lanka, historically, has been an agrarian-based, dictatorial one prevalent for much of the country’s pre-colonial history. With this etched in the psyche of the country, perhaps the answer is that Sri Lanka was not prepared for the free-market economy. And consequently hasn’t gained as much as it could.

* It brought gains to some and few benefits to others. This is to be expected.

* It has damaged most of our market potential. People have got lethargic, want quick money and are not bothered with government rules. People have become selfish, not innovative, not creative. Countries like Malaysia, China, Thailand and Indonesia have overtaken us. With labour export, people have started to live with no value. Sri Lankans are willing to do anything for other countries but not for their own. Babies are being exported; prostitution has increased. They would one day demand rights and legitimacy. What good has the free market brought us? How can we be happy?

Another Singapore if not for ethnic conflict Ronnie de Mel, Finance Minister and architect of the free market system under J.R. Jayewardene’s regime, was unavailable for comment as he is abroad. However here are comments he made to The Sunday Times FT recently on the depreciation of the rupee which are valid for today’s series. Ronnie de Mel “If not for the ethnic conflict that has ravaged the country, Sri Lanka would have been another Singapore,” he said. In a 1977 budget speech in Parliament, De Mel justified the statement he made to make the Sri Lanka rupee the strongest currency in the world. At that time, the country had seen a growth rate of 8.3%, the 'highest in the whole of Asia and probably the highest in the world.' At that point in time, he said there was no China and India so there was justification for his hope. “ Unfortunately, my hope was never fulfilled." De Mel said that since 1983, Sri Lanka's economy has been moving backwards and attributes the decline to the ethnic conflict that has ravaged the nation. He recalled that in 1978, Lee Kwan Yew, the former Prime Minister of Singapore was invited by then President J.R. Jayawardene to come to Sri Lanka to offer some advice as to whether the country was going down the right economic path. "Before us, Lee Kwan Yew was the only person to liberalize an economy with the exception of Chile was done under a military regime," De Mel said. "There was opposition from various people in Sri Lanka who were advocates of a closed economy. All newspaper groups opposed me. All were against it and there was some confusion and a fair amount of doubt even within the Cabinet." During his visit, Yew told De Mel that Sri Lanka would get to Singapore's level within ten years, if the ethnic conflict could be settled. De Mel said that after 1983, the problems that arose have severely prevented Sri Lanka from 'being one of the tigers of Asia .' The problems never ceased even though there have been periods of ups and down but by and large, as long as there is no peace, it will always be difficult to get stable economic growth of over 8% and sustain it over a long period of time. (NG)

Would we have done better under a free market if not for the conflict that broke out in the early 1980s?

* We would certainly have done better.
* Maybe we were not ready for it then. Now that Sri Lankans know how bad the situation can get, our people will be more willing to work to build a prosperous nation.

* The conflict represents a diversion of productive resources for destructive purposes. These could have been better deployed on infrastructure and social development.

* The free market runs independent of the conflict, as it does in many nations across the world. There are ripple and knock-on effects of course. But what has happened in Sri Lanka is that a large part of economic growth stems from infrastructure development. This of course means that in a war-scenario, there is negative growth. We could have managed this better through smart use of capital markets and international financing opportunities, which we have unfortunately squandered.

Assuming there was no conflict, would Sri Lanka have developed to become a successful state like other thriving Asian economies?

* Conflict is only one factor. Leftist politicians would have ruined us anyway.

* Unlikely, given our inability to work towards common goals, and political infighting

* If there was no war our leaders would have become more lethargic and neglected their duties and the country would have suffered in a different way.

* Unlikely because in-disciplined politicians and corruption would have still deterred growth.

* Lack of proper vision and leadership has hampered development; conflict has added to the issues.

* As a race, Sri Lankans are not hard working. When the state promises free or subsidised water, electricity, food, education and medicine to 85 % of the population, it creates a society of beggars and not a dignified workforce willing to work hard.
* A country will only become prosperous if the proper structures are in place. If these are absent in the 'open economy' as it is in most cases today, only 'bribe giving' entrepreneurs will succeed.

* It is estimated that the conflict has trimmed 2 percentage points off our GDP each year. The compounded effect is that our per capita income would have been at least 60% higher than it currently is. Besides, the 'brain drain' phenomenon wouldn't have been as rapid.

Local industry been affected by the free market:
* This was due to inconsistent and short sighted policy decisions taken by the politicians for their own advantage. The right model and framework would still have safeguarded local investors.

* Paved the way to a natural death

* While it destroyed some, it helped others to grow.

* Resulted in much stronger industries coming up unlike before 1977.

* Now products that could be home grown in abundance are imported.

* Yes, for the better. Without opening our markets our industry would have behaved like frogs in a well.

* Competition and transfer of technology foster rather than destroy local industry. Protectionism leads to complacency and lack of investment in R & D.

* If local industry was affected, it was simply because the goods they produced were inferior, had no utility value and couldn’t match international standards.

* Protected and inefficient local industries have shut down but new industries have emerged and more than compensated for those which fell. On the other hand the inefficient state institutions are continuing to drag the economy down with huge subsidies.

Additional Comments:
* Before Sri Lanka embraced the free market policy the exchange rate was less than 9 rupees to a dollar, today Sri Lanka is an importer of fish, milk, sugar and other agricultural produce not because of the conflict. The dollar today is at around Rs 110. Even the US, the self proclaimed free trade evangelist, protects selected local industries. But our leaders have blindly allowed our local industries to be ruined by the free market economy, some obviously profiting in the process. Of course the free market economy has made those in Colombo richer, fostering a culture of hedonism while the rural masses have become poorer. Today even the rural folk buy imported milk powder when a generation ago they had fresh milk from cows in their backyard. We are importing inflation today thanks to the misdeeds of our politicians.

* All successful free markets are managed economies. This is the case of Japan, South Korea, Taiwan, Singapore, and in the latest case, China.
Countries like Sri Lanka that unleashed unregulated free market forces as prescribed by the World Bank and IMF were (and still are) losers in the global economic game. In fact, so successfully did the Japanese regulate and manage trade and economic growth through the Ministry of International Trade & Industry that they classified industries into "sunrise" and "sunset": the government led industry in identifying global niches and providing protectionist policies and lucrative economic incentives to stimulate growth ("sunrise").
When the government saw a global decline in a particular industry, or felt that the country had migrated to the next rung in the product cycle, it mercilessly closed those same industries it had nurtured, forcing the businesses (once again, through economic incentives) to migrate to new sectors and industries ("sunset").
Another interesting example: the zaibatsu or large conglomerates like Nissan, Toyota, etc were compelled to have a government bureaucrat-technocrat on their board of directors. This was to ensure the business community towed the government line.
The question, therefore, is not about the free market per se, but about astute political leaders and technocrats who understood how to manage and regulate the free market.

* The government administration has become the biggest winner, not the people. Private sector workers work hard and long hours and pay taxes while state workers get off at 4.15 pm, get tax free salaries, tax free cars, subsidized loans at 4 percent and deposit them at 15 percent in a private bank!
* The free market affected our social values, influenced our culture in a negative way and encouraged more corruption.

* We should take a cue from India and make every effort to develop the local industry and be self sufficient in all aspects. Sri Lanka has an abundance of resources to become a developed country if all Sri Lankans make an effort to be “Sri Lankan” rather than patronizing and embracing “foreign goods”.