Recently some taxes and administered prices were reduced. In the commodity list which was subject to these revisions, there were some imported food items as well. I received two separate phone calls with different requests to make comments on these policy changes. According to one of them, I felt I should speak on how these [...]

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Recently some taxes and administered prices were reduced. In the commodity list which was subject to these revisions, there were some imported food items as well.

I received two separate phone calls with different requests to make comments on these policy changes. According to one of them, I felt I should speak on how these policy changes would relieve consumer costs. According to the other, I thought of commenting on how the policy changes would hurt the domestic producers.

If I had picked up both questions (which I didn’t), I would have given the following comments:

  •  For the first question, I would have said “the policy changes were good for the consumers, because they would relieve the consumer costs and raise poor people’s living standards”.  For the second question, I would have said, “the policy changes were bad for the producers, because they would adversely affect domestic production and hurt the poor farmers”.

 

Politics over economics

If you happened to see me giving the above comments, you might think that economics is very confusing! Some of you might understand that this subject can be manipulative as the way we would like it to appear is how we express our views!

In fact, both answers are technically correct; therefore, you cannot stand for one and ignore the other. But many would choose to do so depending on the way they see it.

Even though both answers are correct, objectively when they are taken together, they don’t give us any policy direction. This is where politics has an upper hand over economics not only in policy-making but also in economic-thinking!

Now we have an important question to deal with: How do we give a sensible economic answer to cover both questions providing a policy direction?

Let me begin with a few important features of good economic policies:

Visionary

Visionary is thinking about or planning the future with wisdom and imagination. All of the economic policies of a nation should be able to consider as bits and pieces of a bigger vision of a “visionary leader”. When the policies, whether they are small or big, are essential parts and components of a bigger vision, it is difficult to pick them up one by one in isolation.

“Nation without a vision is bound to perish”: There cannot be two separate visions for the leader and for the nation; it is the same vision for the leader and for the nation. As a nation, what is our vision as conveyed to us by our leaders? In other words, for example, what would be the economic position of Sri Lanka in the world or in the Asian region in another 10 – 20 years’ time, as our future vision of the nation?

The vision for a nation is not to lead the nation back to the ancient times such as the King Parakramabahu era, but to the future.

File picture of a farmer and his wife. Agriculture is one of the areas that have seen short-term policies.

Law of the lid

How big is the vision of the leader to lead the nation to the future? When I was learning about “leadership qualities” from Dr. Ranjit de Silva – a leadership teacher, whom I admire so much -, I remembered how I was excited about John Maxwell’s “Law of the lid”.

This law shows that if the leader’s vision is “smaller than the nation’s potential”, then it imposes a “cap” constraining the nation’s visionary progress. This is because the nation’s vision is limited by the leader’s visionary capacity which is a lid.

Principle-based

Policies are based on economic principles, and not feelings and emotions. Today, much more than ever before, we are better informed of failed policies of some nations as well as successful policies of some other nations. We have adequate lessons to learn from both types.

We are also better equipped with a set of appropriate policies to lead the nation to achieve its vision. It is not necessary to waste time anymore by doing experiments with policies.

Failed policies show us with examples from different countries in the world that how miserable it is to adopt such policies; we know for sure that such policies will not lead the nation anywhere along the progressive path. In contrast, successful policies also with ample examples from different countries show us for sure that such policies would lead the nation to reach its vision.

In fact, we need not look around for examples for both policy failures and policy successes. Sri Lanka’s development history alone provides ample evidence with respect to both dimensions.

Far-sighted

Policies are said to be good, when they are aimed at achieving far-sighted objectives rather than short-term results. This feature is important because quite often there is a contradiction between “short-term” and “long-term” objectives of policies.

Some policies lead the nation to “feel good” today, getting the nation to pay for them in the future; perhaps, those who pay for such feel-good policies would be their own next generation.

Most importantly, short-sighted policies tend to extend the distance to reach the nation’s vision.

The issue is very clear when we examine Sri Lanka’s frequent policy swings. It is common sense that as some would argue our policy-making is guided more by the election cycles than the policy visions.

Wider coverage

Good policies should cover the totality and, not the different parts of it such as some economic sectors and community segments within the nation.

In the first place, the best policy mix is apparently for the nation and, to lead the nation to achieve its vision. Policies should not be guided by the vested interests of the pressure groups or providing special favours for different sectors or different peoples.

The last but not least, policies should not be aimed at politics or politicians, but the problem is that they are the ones who need to take policy decisions!

Consistent and predictable

Policies should be consistent. This means that the effectiveness of one policy should not be nullified by another policy. For instance, while we promote investment by some policies, it is discouraged by some other set of policies. While we opened our economy by liberalizing tariffs, we have closed it by adopting para-tariffs.

Another feature of a good policy set is its predictability. They should not come as a surprise! People who make millions of economic decisions day-to-day should be able to make their decisions without risks and uncertainty. If business decisions are affected by surprises with “midnight” policy changes, there is no predictability.

If economic policies are affected by political changes, then it is an unpredictable policy environment. Investors do not invest and businesses do not progress in an unpredictable policy environment.

Misconception

Some would argue about a contradiction between policies and politics, which is a misconception to my understanding. The argument is that good economic policies are bad from a political point of view so that politicians opt to choose populist policies. On the contrary, populist economic policies are bad; they are attractive from a political point of view, because they bring about good political outcomes too.

Part of my reservation on this argument is that it ignores the distinction between short-term and long-term. Which political regime in Sri Lanka survived in the long-run by adopting short-term populist policies? To my knowledge, none.

Moreover, it is also the ability and capacity of a “visionary leader” to convey his vision for the nation and to win and lead the nation to achieve that vision.

The question that we focused on at the outset is not whether the policy changes are right or wrong! Different people can take any side and, begin to argue on the matter. The bottom line is on how the policies fit into and contribute to the future vision of the nation. In that sense, policies do not emerge out of the blues.

(The writer is a Professor of Economics, at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk)

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