Ushering the nation to the first world
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I thought of posing an important question: Should we live in a different Sri Lanka at the time we approach the end of this new decade? The term ‘different Sri Lanka’ might mean different things to different people, but given the focus of our column, I must use it in an economic sense. The last decade was a ‘lost decade’ of the Sri Lankan development history, as we portrayed last week in this column.
The new government will have an unprecedented opportunity to usher the nation to the ‘first world’ within the next 10 years and to leave a legacy in the Sri Lankan development history.
I am sure that there might be differences in opinion about the emerging opportunities and challenges for the new government, but to me this is the greatest among them. At the beginning of the New Year 2020, I thought that it would be appropriate to shed light on this proposal and to inspire ourselves.
First, Second, and Third Worlds
In the past the world had been divided into three parts as the first world, the second world, and the third world. These terms appear to be little outdated today, especially because the ‘second world’ disappeared from the world map.
The second world included the countries in the ‘socialist bloc’ which were transferred by themselves since the 1980s to a new category, called ‘transitional economies.’ The transitional economies are in the state of transition from a centrally planned economic system to a market economy.
Even without the second world, however, we still understand the ‘first world’ as rich countries and the ‘third world’ as poor or developing countries. The term ‘rich countries’ can be interchangeably used with the term ‘high-income’ countries. According to the World Bank classification, at present the high-income countries are those with average income per person, which is the ‘per capita income,’ equal to or above US$12,376 a year. The countries with per capita income below this threshold, but above $3,996 are in the ‘upper middle-income’ category.
Per capita income is calculated by dividing the total income of the nation (i.e. GDP plus net foreign primary income) by population – the most widely used and simplest measure of the economic status of a country. It doesn’t mean at all to measure income distribution among the people, but ‘economic status’ of the people as a nation.
Rich in 10 years?
Approximately, Sri Lanka should have the per capita income over $12,000 in order it to be considered a rich country according to the present classification. With per capita income of over $4,000 Sri Lanka is now above the threshold of an ‘upper middle-income’ country. The point I raised at the outset is that the new government has an unmatched opportunity to ensure raising the economic status of Sri Lanka to ‘high-income’ level within a decade.
Because Sri Lanka has a track record of a slow progress, it is rather difficult for anyone to perceive that Sri Lanka can be a high-performing economy.
Central Bank Governor Prof. W.D. Lakshman (centre) with other officials at last week's media briefing. The bank's road map for 2020 will be released tomorrow.
Let’s examine how the some of our neighbouring countries in Asia have performed: Japan was the first country in Asia to become a first-world country. Japan had reached $4,000 per capita income level by 1973. It exceeded $10,000 per capita income level by 1981, and reached $12,000 per capita income level in 1985, in 12 years.
The country classification according to per capita income levels was different from time to time. When this was introduced by the World Bank in 1990, per capita income threshold was $7,620 to be a high-income country, and $2,465 to be an upper middle-income country. Therefore, Japan was already a high-income country long before it reached $12,000 per capita income level in 1985.
Similarly, some other high-performing countries in East and Southeast Asia had already become high-income countries, before they reach today’s high-income threshold. Singapore had surpassed $4,000 per capita income level by 1980, and reached $12,000 by 1990, exactly in a decade. South Korea’s growth performance was even faster than that of Singapore. It had only surpassed $3,500 per capita income level in 1987, but crossed the $12,000 income level by 1995 in eight years. China also had surpassed $4,000 per capita income level by 2010 and came closer to $10,000 by 2018.
Investor confidence
These numbers show that tripling the current $4,000 per capita income level of Sri Lanka in 10 years is not necessarily a dream, but a choice. It is a choice in order to accelerate the annual rate of real GDP growth and sustain it for longer period of time. All the countries mentioned above have maintained 7 – 8 per cent average annual rate of growth during their take-off period.
The quality of the numbers matters too. This is because the per capita income level, for instance, can be projected to be high with higher nominal values (inflation) and appreciated exchange rates. But the quality of rising per capita income can improve with qualitative aspects of growth – increased job opportunities, increased income distribution, and poverty reduction.
The question is that how to make that choice in order to ensure maintain a higher growth momentum. The answer is simple – the establishment of ‘investor-confidence.’ But its application as a policy choice over the political choices and vested interests is the challenge. In this challenge, it is sad to say that most of our leaders and the governments in the past had compromised so that they failed.
How do we establish the investor-confidence? It is not necessary to analyse the issue and write books about it or to experiment with alternative strategies. We only need to look at the best practices around us in the investment-friendly high-performing economies in Asia and adopt them. As these countries have moved so far in winning the investor-confidence – even to the extent that we cannot agree with, our challenge is how to make Sri Lanka ‘competitive’ among them. And, more than that it is important to go even an extra mile beyond them.
Some may still want to think that we can invest our own savings collecting little by little, and in our own industries through trials and errors learning by doing, and then eventually going global. I appreciate the argument and by no means underestimate its value. But the point is that we may have to wait 100s of years to see Sri Lanka becoming a rich nation in Asia, whereas we can achieve the same result within 10-20 years.
Politically correct?
No people can live in the ‘first world’ with their third world mentality. We need to prepare ourselves, and prepare our future generation with the customs, the norms and, the disciplinary standards required to live in a first world country. If we are confident that we will soon will take-off to reach the first world, it is the responsibility of the government to undertake this noble task, and begin to prepare the nation now in order to live in the first world.
Some might think of the political feasibility and desirability of radical changes that are required to establish a competitive business environment and a disciplined society. This though is guided by the deep-rooted political perception that ‘good economics leads to bad politics, and vice versa’.
In fact, I believe the opposite: My answer is already confirmed by the historical experience of Sri Lanka. Bad economics had always led to bad politics at the end of the day so that none of the past governments did not survive politically. I believe that ‘good economics will eventually lead to good politics,’ as confirmed by the established political regimes in many high-performing economies in Asia. If this is the case, it is not necessary to worry about the 5-year election cycle at which the past performance outweigh the future expectations with respect to the electoral outcome.
(The writer is a Professor of Economics at the University of Colombo and can be reached at sirimal@econ.cmb.ac.lk).