Columns - The Sunday Times Economic Analysis

New economics at our elections: Sri Lanka on the verge of prosperity

By the Economist

Several decades ago Lee Kuan Yew, the then Prime Minister of Singapore, described Sri Lanka’s elections as an auction of promises. That description is even more accurate today than in previous elections. There are a few differences in the promises but whoever wins the country will march forward to a new era of unprecedented national harmony and economic prosperity. The two main presidential candidates are so full of promise, or more accurately promises, that whoever wins, the people are in for a bonanza.

The economy would grow by leaps and bounds, the ethnic problem will be solved to everyone’s satisfaction, the cost of living will be brought down, salaries and pensions would be increased, employment would be provided, the Samurdhi recipients will get more, every child will get a lap top computer, corruption will be eradicated, the country will become the hub of the world and Sri Lanka will be one of the leading nations of the world. What a wonderful place Sri Lanka would be from the day the elections are over. Admittedly some of these promises will take some time to implement; others have a gestation period after which the results would be there for all of us to enjoy.

Economic prosperity, national peace and social justice are round the corner. Surely the Diaspora will return in their thousands to the Promised Land from their far off greener pastures that must seem pale green in comparison with prosperous Lanka. Many would go back to Jaffna that will be flowing with curd and honey. And may be those in Jaffna would go to Hambantota, the hub of aviation and navigation, and southerners would move to the North and East to take advantage of the economic resurgence and peaceful conditions there.

One wonders why the country could not achieve these targets in the last sixty two years of independence. Well, there is a good explanation for the last three decades when there was civil conflict and an expensive and devastating war. And before that we did not perhaps have the leaders with the foresight to follow the correct policies. Whatever the reasons the economy did not grow as fast as it should have and poverty and unemployment persisted. This no doubt is the turning point when the economy will grow faster than the rest of the world, incomes will rise to double in a few years, poverty will be a mere 2 percent and above all there would be a durable peace and ethnic harmony. Now the country is on the threshold of a new era of national harmony and economic prosperity!

The economic growth experience of Sri Lanka would change the economic paradigms that have stifled the thinking of economists the world over. Some of the blinkers that have guided economists would be removed once the country achieves these goals of economic growth and prosperity. Liberalism, neo-liberalism, free market economics and all other theories and isms in economics will be demonstrated to be utterly wrong and misleading.

New paradigms in economics will emerge and the Island nation will usher in a revolution in economic thinking. For instance one of the basic principles in economics that there is a scarcity of resources and unlimited wants will be demonstrated to be wrong.

There is no scarcity of resources in this Island where we are blessed with unlimited resources. We have plenty of people, the most important resource: the resource that uses the other resources. In fact we have one of the highest densities of population in the world at about 325 persons per square kilometre. Our people are intelligent, literate, educated and hard working. It is because of this that we are able to have the largest number of holidays each year.

We have enough fertile land and lots of water. Although we have the lowest yields in most crops that we cultivate this is an advantage because we can now raise yields two-fold and three-fold and export lots of agricultural produce. We can be a land of plenty with a surplus of rice and self sufficiency in milk and sugar and even other crops. We will soon strike oil and export oil.

Economists are mistaken in the view that the government cannot spend without limit. There are no limits to government spending. Theories that the fiscal deficit must be contained within certain limits have been designed by western economists to keep us economically beholden to them. Misguided ratios that the IMF and World Bank and some of our own economists repeat like mantras will be shown to be erroneous.

A government can spend any amount on the welfare of its people, in building infrastructure, increasing salaries and keeping loss making enterprises functioning. These are essential expenditures that even developed countries are now incurring after the recession. The United States and other western countries are subsidizing loss making ventures. We have been doing that for a long time and are doing it at present and will continue to support the Ceylon Electricity Board, the Petroleum Corporation and several other loss making business enterprises.

There is no need to be concerned with such things as fiscal deficits and public debt. As long as one spends on the welfare of the people, building infrastructure and assisting the poor, the country’s economy will grow. There is a lot of nonsense on calling expenditure of the government and investment as waste. These are investments.

There may be a little inflation but such inflation is good for stimulating investment and economic growth. Inflation is an indicator of development. Despite the war the economy has grown at about 6 percent and now that the war is over we can grow at about 10 percent.

We are an efficient government as we have the largest cabinet and ministers of state in the world. No other country, not even our large neighbour India or the powerful United States of America has a comparably large cabinet. We have a strong administration. We have the largest army of public servants per capita in the world and continue to recruit all unemployable graduates. That is the secret to keeping our educated unemployment rate low. Others we encourage to go abroad to work in other countries and send their earnings to the country. We have a balance of payments surplus because these remittances more than cover the trade deficit. So we do not need to be concerned about trade deficits.

In the late 1950s the renowned Cambridge economist Joan Robinson told an audience in Colombo that we are a people who want to taste the fruit without growing the tree and nurturing it. Have we changed much since then? Does the election rhetoric demonstrate a difference? Milton Friedman the Nobel Prize economist has told us that there is no such thing as a free lunch. What a mistaken view. We can have free lunches and free dinners!

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