Financial Times

But bureaucracy and corruption slow growth
Labour productivity drives economic growth
ByDilshani Samaraweera

Labour experts say Sri Lanka’s national growth is driven by labour productivity, but bureaucracy and corruption are reducing productivity and slowing economic growth. According to the International Labour Organisation (ILO), over the last few years, Sri Lanka’s economic growth has been driven mainly through improved labour productivity.

“In Sri Lanka, during 2000 to 2007, around two-thirds of the national growth has been because of labour productivity. About one third of the growth was due to increased employment. This is similar to Thailand. In China, about 90% of growth was due to increased labour productivity. But in countries like Pakistan, growth was mainly driven by the increase in the size of the labour force,” said Steven Kapsos, a labour economist from the ILO regional office for Asia and the Pacific, speaking at an ILO workshop last week.
But given Sri Lanka’s slower growth of labour force, the experts point out that labour productivity needs to continue to improve, to sustain strong economic growth.

“In the context of a slowing labour force growth, increasing labour productivity will be essential for Sri Lanka to achieve healthy economic growth. If not, economic growth will slow down. That is a given,” said Mr Kapsos.

Red tape and corruption
However, labour productivity itself, is linked to other factors. For instance, trade unions point to corruption and red tape, in the public sector, as a major reason for low productivity of nearly one million people working in the government jobs.

“Only about one fifth of the end value of a product is labour. So, there are many other factors that contribute to productivity. For instance, low productivity in the public sector is largely due to the bureaucracy and corruption,” said the General Secretary of the Sri Lanka Nidahas Sevaka Sangamaya, Leslie Devendra.
“The lack of accountability in the public sector results in corruption and lower productivity. Public enterprises are run down to the ground instead of adding to national production, but no one is held accountable,” said Mr Devendra.

Bureaucracy and corruption in the public sector also holds back productivity in the private sector.
“Corruption and bureaucracy in the public sector also directly hurts the private sector, because it is the public sector that services the private sector. For example, for an investor to set up in Sri Lanka, they have to go to so many different government agencies for licenses. So when there are delays and corruption in these departments, it discourages investors from coming,” said Mr Devendra.

The trade union says overall national productivity is also linked to national infrastructure. “When someone has to travel in overcrowded buses and trains for hours, they are in no frame of mind to be productive. They are so tired when they come to work they need more time to recover. So productivity is also linked to our infrastructure. Infrastructure, like public transport and roads, need to be improved to get more productivity from working people,” said Mr Devendra.

Poor management in both public and private sectors, says the union, is another reason for poor worker motivation, lower profits and poor productivity. “So these ‘other’ factors must also be addressed for overall productivity to improve, for higher economic growth,” said Mr Devendra.

Generating more jobs
Generating more jobs for more people, is another way to fuel economic growth, but the experts say creating low-end jobs will not make a big impact. Instead, jobs need to be created in sectors that give comparatively higher returns. In Sri Lanka’s context this means creating more jobs in services and even in agriculture.“Faster productivity is needed across all the three sectors of agriculture, industry and services. But industrial productivity is lagging behind in Sri Lanka. Agriculture and services have done better,” said Mr Kapsos.

“The services sector has the highest productivity. So if you focus on services, it would have the highest impact. On the other hand, because of the large rural populations, focussing on agriculture productivity would have the widest impact on reducing poverty and improving living standards,” said Mr Kapsos.
The ILO says Sri Lanka needs to identify and focus on specific areas in industries, services and agriculture that have the greatest potential for driving economic growth in the future.

Meanwhile, the ILO is working with government agencies and the Ministry of Labour, and other stakeholders to develop a national ‘Labour and Social Trends’ report to help this process. The Labour and Social Trends report is expected to help develop growth oriented national policies by providing labour and social trends analysis for policy makers.

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