ISSN: 1391 - 0531
Sunday, January 28, 2007
Vol. 41 - No 35
Columns - The Sunday Times Economic Analysis

Complacency root cause of economic stagnation

By the Economist

Last week, we dealt with the misleading statistics of economic growth. As a nation we appear to clutch at any evidence that gives us a sense of satisfaction and consequently a good reason not to take any measures to improve ourselves.

We pride ourselves in being much better than the other South Asian countries in a number of economic and social indicators. The higher per capita income, higher rates of literacy and school enrolment, a higher expectance of life at birth, lower rates of mortality are among those figures.

Yet the consolation that we get from these may be diminishing as the other South Asian nations are catching up. In fact the tiny Maldives has already surpassed us in both per capita income and literacy. The rapid strides in growth in India surpass ours and in the fullness of time India would no doubt get ahead of us in economic and social attainments. All we appear to look forward to is a few crumbs that may fall from the table.

The current euphoria of victories in the battlefield would no doubt make our leaders forget the serious economic problems facing us. Indeed it may even result in solutions to the ethnic problem being swept under the carpet. That would in turn mean that there could be a continuation of the conflict that would continue to plague the economy.

This characteristic of complacency has been a feature throughout. It is not a new phenomenon. At the time of independence the economy was strong; it had a reasonably good system of education in the region and among developing countries, a good infrastructure and efficient administrative machinery. All these have been run down and the country is faring badly in comparison with most Asian countries.

South East Asian and East Asian countries that were far less developed, having lower economic indicators like per capita income at the time of independence and for a decade afterwards, have overtaken us by far. Yet we continue to be complacent unable to take firm decisions and strive hard to achieve much better results. The situation is even worse as it is not merely that the economy is not faring well but that the country is being fast described as a "failed state" and an ungovernable one. The political and social conditions in the country are hardly conducive to the achievement of rapid economic growth and the resolution of the country's severe social problems such as a high incidence of poverty and unemployment.

Complacency has been the root cause of this apathy and the consequent weakening of the country's capacity for development.
The current re-embodiment of complacency arises from the statements of international agencies and foreign diplomats. Their diplomatic statements and their sweet talk often fuel this complacency. The Sri Lankan administration is quick to pick up these and give publicity to them.

The common tendency at this point of severe strains on the economy is the description of the country as one that has a resilience to face any onslaught. An example of this comes from the recent statement from Dr. Devarajan of the World Bank.

Dr. Devarajan says quite confidently that despite the setbacks the country has faced during the past decades, we have shown a remarkable ability to thrive. He says: "I think there is some intrinsic robustness of the economy and, perhaps, the resilience of the Sri Lankan people who seem to be able to weather not only tsunamis and other natural disasters, but man-made disasters, shall we say, like conflict, and manage to proceed with development."

The implication of such statements is that we need not worry too much with the current problems that are a setback to the economy as these would be surmounted and the economy would bounce back. Such a prognosis reinforces our national character of complacency with the ultimate result of the country's economy and indeed all aspects of the country's life sliding downwards. This boastful theme of resilience leads to complacency even at a time of severe economic difficulties.

There are of course other assessments that view the current situation somewhat more realistically though yet in guarded terms.
Ironically, we again quote from World Bank sources that give a different perspective of the economic situation. The World Bank's lead economist for Sri Lanka, Rocio Castro, says two decades of strife have cost the country two-to-three percent of our gross domestic product annually.

He says: "It does affect the arrival of foreign direct investment and of new emerging activities to take off....We expect it will continue this way."

His assessment is that the economy is growing at much less a pace than the potential of growing at 8 to 10 percent. The fact is that real rapid economic growth is not possible with the kind of national complacency that grips us even in the face of economic crisis.
More important than the issue of the growth rate is Castro's remark that the civil conflict prevents the government from focusing on much needed economic reforms that would give the country an additional boost.

In fact it appears that the government's attention on the economic problems continues on the back burner despite the seriousness of the problem. The government's response is the usual one of appointing a commission and pretending to be concerned about the problem. NATO (No action Talk Only) as it used to be called, is what we witness.

The current economic situation does not provide any reasons for complacency. It is an economic crisis of serious proportions. An increasing fiscal deficit, a public debt exceeding the GDP, a runaway inflation, a massive trade deficit, a balance of payments problem and a depreciating currency does not surely provide reasons for complacency. It is a time for hard unpopular decisions that can arrest the economic decline. This is what the newly appointed Economic Commission must recommend. And the government must have the political courage to implement such advice.

 
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