Digitalising the mess
View(s):As they navigated the winding mountain roads, he attempted to overtake a public bus that was struggling to climb the steep incline. The bus was moving slowly, releasing thick black smoke that engulfed Nihal’s jeep, making the journey uncomfortable for his passengers.
At the end he decided to take the risk, but failed as he was caught by the Police. His driving licence was taken by the Police, and he received a charge sheet. He must now pay the fine at a Post Office and produce the documents at the respective Police Station in the area to get his driving licence back.
File picture of a police control room checking traffic.
He could not do it on the same day, as he was responsible for transporting the guests to Badulla on time. There was no way for him to do it next day either, because it was a weekend, and the Post Office would be closed. There is no other option than coming back by bus on a working day. For that he must take leave from the office, sacrificing one whole day from his annual leave entitlement.
Delivery service
While chatting with his friends about the incident and the need to apply for a day’s leave to retrieve his driving license, someone offered an alternative:
“You don’t need to go back. There are delivery services now which handle that kind of task. You just pay the service fee, and they’ll take care of it for you.” Nihal took the suggestion. Though he had to pay for the delivery, he managed to save a full working day.
Meanwhile, an online payment system for traffic fines is currently being tested as a pilot project in selected areas of the country. If successfully rolled out nationwide, it would allow motorists in Sri Lanka to conveniently pay their fines on the spot and retrieve their licences immediately—eliminating the need for unnecessary costs, travel and delays.
However, the initiative has not been welcomed by all. A Postal Trade Union expressed concern, warning that the proposed system could cost the Postal Department an estimated Rs. 600–800 million in annual revenue. According to their media briefing, this financial loss is a direct threat to their operations.
The underlying message seems clear: digitalisation is being resisted. And this isn’t an isolated case—similar opposition has surfaced in other government agencies, where progress through technology has been met with reluctance or rejection or even sabotage where it has been implemented.
Business opportunities
Undoubtedly, hundreds of thousands of motorists across the country have faced the same dilemma as Nihal. It’s no surprise that this recurring inconvenience has given rise to a business opportunity. Companies offering delivery services have stepped in to bridge the gap, allowing customers to save time—albeit at a cost.
That’s the essence of entrepreneurship: providing solutions to real problems or needs. Business success hinges on understanding what people genuinely require, designing effective solutions, and continuously improving them.
The businesses that thrive are those that adapt to serve market demand—whereas many fail to do so because they try to push offerings the market doesn’t actually need.
This dynamic has driven economic progress for centuries. The rise, competition, and evolution of individual enterprises have fuelled innovation and created wealth, playing a central role in the development of nations.
Rent-seeking
There are two kinds of business activities which we find in my opening story: One is the delivery service activity, and the other is the work performed by the postal service. But the problem is that both these “business activities” had been created by “regulations” and not by the market opportunities.
Markets can be improved, and efficiency can be enhanced by allowing technological progress to do its part facilitating the business activities. But this progressive business environment can be prevented by keeping the regulations which create different kinds of opportunities to make money.
Unless there are such regulatory barriers, these non-market business opportunities cannot survive. The delivery service as well as the post office business both will wither away.
If we examine deeper, such businesses generate incomes and create jobs too if we look at these activities individually and exclusively. However, the main issue is that they don’t create wealth and add value to the national economy. They only result in a “transfer” of money from one hand to another, which are known in economics as “rent-seeking” activities.
Regulatory environments
The term rent-seeking gained prominence in the 1970s, particularly through the work of trade economist Anne Krueger. It describes the practice of earning income or profits by manipulating or exploiting the existing environment—without contributing any real value to the economy.
At that time, many developing countries had heavily regulated economies, where governments exercised strict control over markets, including imposing import restrictions. In such environments, even basic aspects of life—including what people should eat or wear—were dictated by the government regulations.
These rigid regulatory frameworks became fertile ground for rent-seeking. Individuals, business firms and government agencies began to exploit loopholes and manipulate these systems to secure unearned profits. Rather than generating wealth or enhancing productivity, rent-seekers merely diverted resources—often by helping others navigate the same regulatory barriers they quietly profited from.
In this light, rent-seeking is seen when individuals, businesses, or even public institutions—like the Post Office in our earlier story—attempt to claim a share of the nation’s wealth created elsewhere, by others. As long as regulatory barriers exist to distort market dynamics, such unproductive behaviour is likely to persist.
Hindering progress
Rent-seeking behaviour, often enabled by regulatory barriers, significantly hinders a nation’s economic progress. Rather than contributing to wealth creation, it focuses on capturing existing wealth—thereby stalling growth in production, productivity, and innovation.
To operate, rent-seeking activities consume valuable resources such as labour, skills, and capital. In our earlier example, both the delivery service and the postal service would have had to allocate human resources, paying salaries and other costs to facilitate the process—not to generate new value, but to navigate an inefficient system.
This leads to a clear misallocation of resources. On one hand, it draws labour and capital away from more productive uses foregoing productive activities elsewhere. On the other, it demands compensation for these misused resources, thereby draining additional wealth from the economy.
The combined effect is a drag on the country’s potential growth. Economists refer to this as “deadweight loss” which is an invisible loss of wealth that evaporates into air. It occurs when resources are wasted, opportunities are missed, and ultimately, no one truly benefits.
Size of rent-seeking
If you look around and examine your day-to-day affairs closely, you’ll likely notice the widespread presence of rent-seeking behaviour—whether from middlemen, businesses, or even government agencies. The delivery and postal services surrounding traffic fine payments are merely the tip of the iceberg.
Whenever market activity is constrained by excessive regulation—and the adoption of standard technologies is blocked—rent-seeking flourishes, stifling real economic progress.
Digitalisation—the use of modern technology—is a promising tool to curb such inefficiencies. However, it’s not a silver bullet. Digital transformation must be accompanied by thoughtful regulatory reforms.
Without this parallel effort, we risk nothing more than “digitalising the existing mess,” merely reinforcing inefficiencies with newer tools, rather than eliminating them. And it has already happened in many places doubling the work to carry out tasks simultaneously in both digital forms and manual forms.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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