15 August, 2020

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A Rationale For Five Year Economic Planning

By Laksiri Fernando

Dr. Laksiri Fernando

Democratic planning requires full consumers’ sovereignty, as distinguished from the narrower concept of ‘consumers’ free choice.” – Carl Landauer

Despite India’s replacement of the National Planning Commission with more ad hoc NITI Aayog (National Institute for Transforming India), India along with China will stand as good examples for the benefits of economic planning in a developing country. India was supposed to complete its 12th Five Year Plan this year, and China initiated its 13th Five Year Plan last year. India’s recent decision under neoliberalism might go in history as a mistake.

It is true that economic plans themselves would not reap results, however superb they would be on paper. Action is needed with leadership at various levels and not only at the centre. In the case of Sri Lanka, the provincial councils and local government institutions should be closely involved. In this sense, an economic plan is a road map for where to go, possibly with outlining alternative routes and scenarios.

Apart from correct action, there are so many other variables, national and international, that would affect development, stagnation or crisis in an economy. One of the major weaknesses of the 1972-1977 Five Year Plan of the United Front (UF) government then was its failure to take into account these external factors. It is also true that international free trade managed properly for their own benefit has benefitted China and India immensely in their recent growth and development. Thus, ‘state/public sector planning’ alone should not be considered a panacea. What might be required, therefore, is overall planning with a whole area left for the market. China has even preferred the term ‘guideline,’ instead of ‘plan’ in recent times.

Further Reasons for Economic Planning

It is generally assumed that arguments for economic planning come from socialist type of thinking, while the retention or reinstatement of unplanned or free market economies are inherent in capitalist thinking. This may or may not be the case, but Sri Lanka could adopt a more pragmatic approach in combining the two at least at the present juncture. After all Sri Lanka is a Democratic Socialist Republic!

When the Western economists (other than the socialists) were advocating planned economies or several aspects of them in 1930s, their immediate objective was to avoid the recession or to come out of it. This is also the case today. After the ruptures in the European Union (i.e. Brexit) and apparent protectionism in the USA, the world might experience tough times, if not a full blown economic recession.

However, in the case of Sri Lanka or in any other developing country, apart from the above international trends, the rationale for economic planning should be to achieve and sustain economic development, growth and prosperity. The development also should be people centred (consumers’ sovereignty), enhancing their living conditions and bridging the gaps between income distribution. Therefore, economic planning has a more fundamental imperative than conjunctural reasons. It is unfortunate in this context that Sri Lanka never ventured into consistent economic planning after independence, and few ad hoc attempts even became abandoned after 1977 altogether.

There are of course other reasons as well. These are mostly located in the economic and social rights of the people. Take the example of education. Unless governments allocate sufficient funding for education, covering the primary to university education, the right to education could not be achieved. Then there are issues of ‘what kind of education’ that could also be resolved through a better planned economy, including teacher education and training. Educational planning does not limit to the targets. The nature of the education and contents should be determined through evidenced based planning and advanced pedagogy. Education is not only a right, but a long-term investment to generate growth and development.

We are living in a period where there is much talk about human rights. But often, economic, social and cultural rights are neglected even in the UNHRC sessions in Geneva, giving priority only to civil and political rights. If a country is supposed to implement, for example, the International Covenant on Economic, Social and Cultural Rights (ICESCR), that cannot be done without a planned economy. Such an implementation undoubtedly would contradict the Washington Consensus on neo-liberalism. This is something even the present drafters of the new constitution have not taken into consideration so far under the chapter on fundamental rights. At least the imperative of economic planning should be highlighted under the chapter on the ‘Directive Principles of State Policy.’

Some Economic Fundamentals

Sri Lanka has gone through several upheavals of ‘nationalizations’ and ‘privatizations’ without proper direction for the economy through a system of five year plans. If there is a system of planning, through experience and evaluation of the past, any imbalance or defect could be rectified in the future. There should be a clear idea about what should be handled by the public sector and what ought to be left for the private sector.

In my opinion, after safeguarding primary interests of people in the public sector, all others could be left for the private sector, while promoting a competitive cooperative sector. In addition, there is an increasing understanding that there are spheres where public private partnership (PPP) is most appropriate. Without clear guidelines and documentation, even when budgets are presented, there is fundamental lack of reliable data and analysis to gauge the future directions of the economy.

Take the example of the last budget for 2017. On the most important subject of ‘Investment’ for growth and development this is what it says.

“In the last decade, investments were maintained at 30.1 percent of GDP, but the bulk of it came from the Public Sector. This resulted in the country carrying a debt burden of almost 76 percent of the GDP, which is higher than that of our peers. At the same time, private sector investments have been stagnant.”

When it says, “in the last decade, investments were maintained at 30.1 percent of GDP” it is not only vague, but also unreliable. In my opinion, the figure cannot be true, unless the government/s and the businesses might be doing something else in the name of ‘investments.’ On the other hand, the government does not have a clue about the breakdown of investments between the public sector and the private sector when it says, “the bulk of it came from the Public Sector.” What do we mean by the bulk? No one perhaps knows?

Let me just ignore the reference to the ‘debt burden’ for a moment which is ‘ideological’ or ‘political’ in the statement. But the budget speech of the Minister of Finance does not explain why the “private sector investments have been stagnant.” Is it because of the lack of ‘ease of doing business’ as the World Bank prescribes or something else? No answers are given because perhaps no one knows for sure.

The above is one reason why proper research and compilation of data are necessary from a planning perspective. If there is a National Planning Commission and a Planning Secretariat, these matters could be properly handled and necessary data and information could be compiled and available even for the public. In the case of India, the rate of investment was 24 percent out of the GDP and the contributions of the public sector and the private sector were respectively 6 percent and 18 percent as the 12th Five Year Plan (2012-2017) announced. There was a target to increase the investment rate to 35 percent with contingencies for higher economic growth. No such targets are available in Sri Lanka. A budget, obviously is not an economic plan.

Investments to Take-Off

In the absence of proper targets, estimates and strategies, the economic policies in Sri Lanka appear to be haphazard and even ideological. Instead, we should be more pragmatic. In a developed country like in Australia, for example, economic planning is not a major issue because the economy is developed. What might be necessary is fiscal management and incremental growth in sustaining the economy and delivering fairer income re-distribution. Policy and political debates are generally on those lines.

But in a developing country like in Sri Lanka, we need to build up from a lower to medium base and the economy still needs to take-off. Sri Lanka’s economy is around US $ 80 billion. Per capita income is still less than US $ 4,000, with considerable regional and social disparities, which is around 30 percent of the world’s average. The level of per capita income has an impact on labour/output ratio, among other consequences. Simply said, you cannot expect a high labour productivity from those who are on the edge of subsistence level. This is one reason why the state sponsored welfare and subsidies are important, other than for their own social merit.

If I may venture on some theoretical points, for the economy to really take-off under such circumstances, Rostow’s prescribed 10 percent of investment rate would not be sufficient. This is already proven in Sri Lanka and elsewhere. As he later clarified, this rate is applicable in a ‘strategic sector’ also depending on other factors, among which most important might be the capital/output ratio (The Stages of Economic Growth: A Non-Communist Manifesto, p. 192). This is what we normally talk as technology. Lower the technology, the capital/output ratio would be lower and even with a 30 percent of investment rate (although I dispute the figure), we cannot even achieve more than 6 percent of growth. That is not at all a take-off, however much we manipulate the overall figures.

There is some attempt in the last budget to address this issue however distortedly. I am referring again to the most important section under ‘Investments.’ It says,

The alternative is to facilitate more private sector investments and partnerships between the private and the public sector. We must promote investments in areas where the impact to the economy is high, due to value addition and employment creation. We will support domestic entrepreneurs especially in sectors such as Agriculture, Manufacturing, Fisheries, Ornamental Fisheries, Solar Panel Manufacturing, Rolling Stocks, Livestock, Poultry and Tourism.”

There is no apparent intention of the government to enhance the public-sector investments, unless it is a private-public partnership. As the Minister has said “given the fiscal constraints that the large debt burden has imposed on us, I do not think that it is prudent to continue in the same vain and pile up more debt.” Let us say, that is understandable. But has the budget identified a ‘strategic sector’ where private investments could be encouraged and diverted? It doesn’t appear to be the case. The sectors identified are “Agriculture, Manufacturing, Fisheries, Ornamental Fisheries, Solar Panel Manufacturing, Rolling Stocks, Livestock, Poultry and Tourism.”

The identifications are quite vague (obviously without planning or much thought), with ‘agriculture, manufacturing and fisheries’ mentioning as general areas. The specific areas mentioned are ‘ornamental fisheries, solar panel manufacturing, rolling stocks, livestock, poultry and tourism.” There cannot be any doubt that all these areas have great potential for contributing to the economy and while some are new (rolling stocks), other are not so new (solar panel, ornamental fisheries). It is also not clear whether in the case of ‘rolling stocks,’ whether the government really think that those locomotives could be manufactured in Sri Lanka? It is good if it the case, but what we know from last year is that the Minister of International Trade was approached by two (SOE) Indian companies for the building of railway lines and supplying of locomotives (EconomyNext, 6 July 2016).

Be as it may, the whole section on ‘Investments’ is haphazard without at least expected targets from the local private sector or through FDI. What it offers instead are concessions of capital allowances, tax concessions, visa for investors and expatriate labour and liberalization of foreign exchange transactions. Some concessions are undoubtedly necessary, but the purpose should not be of creating a capitalist class at the expense of ‘sovereign consumers’ interests.

Conclusions

Finally, let me turn to some of the misconceptions about economic planning in Sri Lanka and in general. First, the recognition of the market economy is not a reason to give up economic planning for a country. Economic planning can encompass even the private sector without unnecessary strictures or constraints for them. Their input in formulating national plans is also important. This is further important where the public-private partnerships are feasible and beneficial.

Second, as Montek Singh Ahluwalia, the Deputy Chairman of the Indian National Planning Commission, explained in his Preface to the 12th Five Year Plan in 2013, “National planning is a process of setting national targets, and preparing programmes and policies that will help achieve those targets.” These targets are not only about growth and narrow development, they are about raising the living standards of the population as a whole. As Ahluwalia further said, “Along with programmes, the policy content of the Plan deserves much greater attention than it typically gets. In an economy in which the private sector has grown in scale, decisions taken by individuals and firms determine many critical economic outcomes, and the policies which influence these decisions are therefore important.” The above is equally valid for Sri Lanka.

Third, if the private sector has demonstrated capability of investing and stimulating growth in certain areas, the public-sector initiatives and investments might not be necessary in those areas. However, if the private investments are stagnant (see the budget speech) whatever the reason, the government should not unnecessarily try to stimulate ‘profit making’ like in the case of ‘bond issues.’

Fourth, in the last Budget, as well in other statements, there had been much talk about a ‘bloated’ public sector. As I have pointed out in my last article (A Review of Razeen Sally’s Sri Lanka: Three Scenarios for the Future), 1.5 million employees are not excessive for a country like Sri Lanka for around 21 million people. Australia has 1.9 million in the public sector for a little over Sri Lanka’s population. The issue is not the size, but its output and orientation. That can be corrected through retraining, restructuring and with specific performance targets. The private sector has ample opportunities, if they have funds and initiative, to expand into other areas. They don’t need to encroach into the public sector! While allowing 1.9 million in the public sector in Australia, the private sector employees roughly about 10 million people. In the case of Sri Lanka, this is only about 4 million and that also includes a large number of self-employed people.

Fifth, if there is a planned economy, and research and surveys towards that end, all these facts could be known more accurately without much speculation. If the government is interested in assisting the private sector, in promoting economic development, that can be done through the banking sector without actually channelling public funds to the private sector. Public funds are people’s money and not of politicians’. The banking sector is thriving, including the public-sector banks, and they can lend necessary funds to the private sector, if the latter wants. For all these matters, what is important is to have a planned economy for Sri Lanka, including a vibrant private sector. The economy could have two engines of growth and not one: public engine and the private one.

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Latest comments

  • 1
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    “Public funds are people’s money and not of politicians’.”

    Not in case of Sri Lanka!

  • 3
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    Looks like a nothing economic plan with a lot of words.

    The writer thinks the banks are thriving. They are not, even if they are, they won’t be thriving for long, if they lend in Sri Lanka under current circumstances, because the companies or people can’t pay back.

    Not surprising, considering that the writer is a sociologist trying to dabble in economics. Keep to your day job Dr Fernando.

  • 1
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    As long as corruption and nepotism is accepted as part of democracy all plans – economic and otherwise – will not succeed.

    Laksiri’s submission is tinged with idealism. Politicians are not like you Laksiri!

    Democracy is all about staying in power or grabbing it. Economic planning has become a vehicle to make money part of which to keep and some invested on staying in power.

    India is probably the worst example. Why the hell do they talk of a Palk Strait Chunnel? Based on sound economics? What was the recent demonetization for? Days into this people were standing for days in bank queues. A minister has cash to charter 50 planes to carry guests for son’s (or was it daughter’s?) wedding!

    Is the advent of Hindu bigotry in India part of economic planning?

    In Myanmar the Burmese Junta initiated genocide of Rohingyas is unstoppable. What has economics to do with this?

    Examples of “planning” which have turned with adverse effects is endless. Whoever thought that China will go “extreme capitalism” way?

  • 1
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    Dr Ranil launched his 5 Year Plan from day One of Yahapalanam…

    Look at the results, man.

    All UNP Mps and Ministers are Multi millionaires in just 24 months , thanks to the Yahapalana Car permits.

    Dr Ranil’s AmbaYaluwa Singapore Mahendran and his loving Son in Law are Billionaires.

    Commiserations to Srilankan FPF.

    Yahapalana partners, the TNA members and supporters have done better on hose figures.

    Add the Sira mob who have helped themselves too, like Sira’s own siblings , Dummy baby and his landlord , even the Blue Shirt Brigade have done ok , although their scores are not in the same league as the UNP and the Vellala Diaspora,the other Two Pillars of Yahapalanya.

    And it keeps rolling with Dr Ranil’s mates at the Srilankan paying Millions of Dollars to brokers, to save the Flying Peacock.

    And Kirra is narrowing Freeways to save money in the UNP Piggy Bank.And Mallika and Galleo selling our Magampura harbour.

    Then there is real Development work in building Factories to assemble Folks Wagons, make Pirreli Tyres and even a new Aloysious Still to make Mendis Special.

    I think Dr Luksiri is a bit too late ..

    • 1
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      KASmaalam K A Sumanasekera

      “Dr Ranil launched his 5 Year Plan from day One of Yahapalanam…”

      He published his 5 year plan in his election manifesto of 2001 from which Mahinda stole many ideas and projects and incorporated it in his Mahind Chintana, later made him and his clan very rich indeed. Is it true Ranil is now force to sell family silver to pay the bills?

      It would be very difficult for you to recollect facts.

      “Dr Ranil’s AmbaYaluwa Singapore Mahendran and his loving Son in Law are Billionaires.”

      Where is the rest of the story about those mango friends? Probably you forgot the point what you wanted to type here or you never had a point in the first place.

      It appears that there is a link between too much malt and developing Alzheimer too quickly.

      • 1
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        Dear Native,

        Apparently there is strong medical evidence that people who consume Alcohol regularly are least likely to get Alzheimers or Dementia.

        You should seriously consider upping your Kassippu intake.Or are you on cheap Vino?..

      • 1
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        Oy Jegath,
        Mahinda stole the idea to kick the shit out of terrorist sun goat!
        May be Hambantota port, Sooriyaweva air port all Ranil’s wisdom, so we got nothing to blame Mahinda for?
        Looking at the rate the national assets are sold you may be right!

  • 0
    0

    This comment was removed by a moderator because it didn’t abide by our Comment policy.For more detail see our Comment policy https://www.colombotelegraph.com/index.php/comments-policy-2/

  • 1
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    Dr. Fernando,
    Now the Yahapalana hearse has passed the point of no return! It is slowly moving toward Kanatta. U may bring your Plan to the next medical team that believes the patient is still curable. (You know this Y- government is left with only a little more than 2 years to survive, and that too could be shortened if the current level of agitations, demonstrations, strikes, and civil disobedience movements, continue and end up in Ratupaswala type disaster.)
    This government is like a chronic patient in a coma! Leaders (RW +MS) think (or act as if) the patient is dead and that’s why their colleagues are taking the patient in a hearse to Kanatta!
    This is the sad story of our patient: Y-Pala. He suffers from multiple complications; if one complication is treated his vital organs are seriously and negatively affected. On Jan 8, 2015 the care takers changed the chief physician and chose a new one (Prez Sirisena) with a new medical team. Unfortunately he and his funny medical team act like butchers rather than surgeons! When Ypala had a complication called ‘VAT’ at the very beginning the surgeon in charge (called Ravi K) operated him 3 or 4 times without giving anesthesia; he did not care about Ypala’s pain. Then, he forgot an important surgical tool (a pair of scissors?) in Ypala’s heart! Ypala’s caretakers had to go to Supreme Court since this adamant surgeon,(unfortunately chosen as the best ‘surgeon’ of Asia by a Bloody Bank magazine) denied any mistake or wrongdoing! The current trend is that this funny ‘Medical Team’ fights at almost every important meeting where they should make vital decisions affecting Ypala’s survival. Yesterday a national TV channel showed one such ‘fight’ chaired by a team member called a cabinet minister; he finally abandoned it.
    Interestingly, some ‘doctors’ under-graduated’ from SAITOM, are in the team and trying to sell Y-pala’s vital organs even before his death; some have already sold Ypala’s blood to International Black Cross. Sri Lanka’s Central Blood Bank is now empty and we all know why!
    Yesterday, I listened to a popular TV discussion; one of the participants said any consideration by any minister of the current Yahapalanaya on any investment project depends on $$$ commission offered to them!
    Dr. Fernando, did you allocate any funds as commission in $$$ in your FY economic plan; otherwise, they may call your sincere attempt ‘a five year comic plan’!

  • 0
    0

    Excellent and very cool idea and the subject at the top of magnificence and I am happy to this post..Interesting post! Thanks for writing it. What’s wrong with this kind of post exactly? It follows your previous guideline for post length as well as clarity..

  • 1
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    Dr Laksiri
    These are nice things only if our dick heads agree to implement! You know perfectly in a country where MPs bribe themselves a car permit just to make them millionaires, these things are summa!

    Maithreepala preach about corruption with out any idea about the meaning of corruption!

    Does he think it is his privilege to take his sons on state visits?
    Does he think it is his privilege to appoint his family members to government jobs without proper interviews?

    Line of thinking of Ranil is also not much different!

    It is same Mahinda wine with Yahapalana label!

    What economic policy are we talking about?

    • 0
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      [Edited out] Comments should not exceed 300 words.Please read our Comments Policy for further details.

  • 0
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    CT his master voice of the current govt. policies of “good governances and rule of law” advocated by Dr Fernando.

    This is fine combination of CT and Dr Fernando of that cohabitation of Christen politics support by Western political agenda ?

    Do you really doing not only misled public,[Edited out]

  • 1
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    Dear Professor Laksiri

    “A Rationale For Five Year Economic Planning” should involve a transition process for change of government – do you agree?

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