Development: The costly price of keeping pace with wealthy nations
I have often wondered about the development projects that are sold to us by the rich countries and eagerly lapped up by mainly the economists amongst us.
I have posed this question to many accountants/economists but not had a satisfactory answer and am writing this in the hope that someone could shed some light. This essay has no political overtones to it and is only an exercise in economics.
Will the Rs.400 (per vehicle) fare for the Kottawa-Galle stretch recover the investment before repairs and routine maintenance are due? File photo
Assuming that the first goal of any development strategy is to narrow the gap between the rich countries and the poorer ones I wonder how this could work.
The average wage (not the minimum nor the maximum) in Europe and in most of the developed world would be around Euro 2000 – per month (Rs. 320,000), while the average here would be around Rs.10,000.
Say we purchase an electric turbine (the same applies to a loco engine, a bulldozer, bus, car or a kilometer of expressway, fertiliser, medicine, etc) to generate electricity. Now, this turbine having been manufactured in Europe, has built into its cost, wages at Rs. 320,000 per month. Therefore the cost of electricity generated by it would have this wage factored into it. In order to recoup the investment within the life span of the machine before it becomes obsolete (which is the same whether it is run in Europe or here) a unit of electricity would have to be sold here too at a price into which is factored the above manufactured cost. A Rs. 10,000 per month economy cannot afford electricity generated by a turbine that has been manufactured in a Rs. 320,000 per-month economy. Therefore we have to run the turbine long past its viable life to recover the investment which results in us being sent backwards. This is more than clearly seen with our railway which is running 40 or 50 year-old engines or the colour light signal system for the railway which, purchased more than 50 years ago has not been extended one centimetre. On the other hand, the moment we bought the turbine the country that sold it to us took a step forward because we paid for their research and development, nourishing food for their workers, health insurance, unemployment insurance, and holidays here for their workers! We can never narrow the gap by this exercise.
The same goes for just about anything we buy from a Rs. 320,000 per-month economy be it bulldozers to move earth at worksites, buses for our commuters, cars for company directors, restaurants, schools and even cladding for toilet- facades. It even applies to intangible imports like insurance, banking, consultancies, etc. And the myth of the foreign direct investments (FDI) and technology transfer too has now been exploded.
No sane country will part with their technology which is what keeps their commerce going. In the mid sixties a French company (Schokmon, I think) set up the Kandy water supply scheme. Fifty years later we still cannot install our own water supply schemes… so much for transfer of technology.
Is it any wonder that we have thriving used spare parts businesses, used tyre outlets, (yes, used imported tyres), used machinery, etc? The investor cannot charge the appropriate fare to keep his vehicle in shape and has to resort to such measures. Any other enterprise whether it be banks installing teller machines (when labour is cheap here), fancy LED road signs, medical treatment etc is faced with the same dilemma. Almost every enterprise or store across the country is a constant drain on our resources.
We just do (or can afford to do) only “fix it and forget it” type projects because the money needed to maintain projects or replace them when obsolete cannot be recovered. See the Kollupitiya junction roundabout. The same must happen to all the fancy renovations taking place around the city.
For the purpose of further emphasis and elucidation take the Southern Expressway which was built with just about everything imported – from the earth-moving machinery, to the asphalt, to the concrete, to the steel, the paint, the guard rails, the maintenance and patrol vehicles, the signal lights, etc except perhaps the metal which went into the concrete which again would have been crushed, shoveled, ranked and transported using imported tools and vehicles. Even the gum boots and the hedge cutters are imported. And to cap it all we have installed useless gantry signs, thus increasing costs further. Will the Rs.400 (per vehicle) fare for the Kottawa-Galle stretch recover the investment before repairs and routine maintenance are due? I think not but then again we cannot charge the appropriate fee necessary to recover the investment because it is a Rs.10,000 per-month economy. We already see that missing fluorescent reflectors are not being replaced. This is what we are facing.
Ours is perhaps the only expressway on which huge buses drive well over the speed limit overtaking saloon cars. This is a disaster waiting to happen. One small quick nick and the vehicles will go hurtling through the air. The cost to the economy in such an eventuality will be unimaginable. There are those who will rush to state that the highway brings indirect benefits but if the goal is to narrow the gap between seller and buyer this argument does not hold because if this highway was built in the selling country using their own resources and material they too would be having the same indirect benefits.
So it seems to me that almost every project hurtles us backward while the developed countries leap-frog on our backs. Every development – aid/grant is a big eyewash by the developed countries and they know it. Going by this theory our economy cannot be a car-owning one (in spite of what Ravi Karunanayake wishes); not simply because we cannot afford cars but also because we cannot afford the infrastructure for it. Already gridlock is setting in in the streets of Colombo. Thus we cannot also be a TV owning-economy; we cannot afford McDonalds, send students to study abroad and have them come back and start recovering their investment on education from our Rs, 10,000 a month economy. We cannot afford proper food (proteins, etc) medical care, proper clothes, (the list is endless) either.
I shall conclude by re-titling this article “Development Hoax” and wish that building/improving roads, building bridges, putting up fancy shopping arcades, beautiful parks, fancy buildings and apartment blocks, having state of the art equipment and computers or whatever is not referred to as development. It is similar to the guy who cannot afford it, borrowing for a wedding, painting and sprucing up his house, wearing new clothes, having good food during that short period. Would anyone seriously say that his life has improved?
India does not provide universal electricity not because they cannot purchase foreign power plants and install them countrywide (they are richer than us) but because they have realized the dilemma and decided that unless absolutely essential, if they cannot afford if they do not need it.
My question is if the investment cannot be recovered and we are in debt as a result is it development and how is it beneficial?
(The writer is a business
professional)