By Hema Senanayake –
I am an economic analyst and a macroeconomic researcher. If anybody wants to see further than others on any subject he or she has to do one thing. This was eloquently told by Sir Isaac Newton the great scientist. He said that, “If I have seen further it is by standing on the shoulders of giants.” This quote is from a letter written to fellow scientist, Robert Hooke in February 1675. The phrase is understood to mean that if Newton had been able to discover more about the universe than others, then it was because he was working in the light of discoveries made by fellow scientists, either in his own time or earlier.” This is what I always try to do in regard to economics.
Does the president or Prime Minister do this in regard to economics? I do not think so. And most importantly, there is no necessity for them to do it. They are politicians elected democratically to hold the most important public offices. They have to perform many duties. Among them what I consider most important are; “(1) activating and mobilizing citizens into participating in political decisions and transforming their opinions into viable policy options and (2) channeling public opinion from citizens to government.” (This quote is from The Electoral Knowledge Network).
Now, if the president or Prime Minister tells something wrong in regard to the pursuing of economic policy or part of it, what should I do? What their economic advisors should do? I am serious about this question. Why?
Around the world, many politicians elected to governments believe that they know better than economists. This happens even in many advanced countries. A few years ago, for an example, about seventy or so congressmen in the United States proposed to have a constitutional amendment which makes it mandatory to have a balance budget on the Federal Government. This was proposed to stop the ever increasing public debt on the federal government. If the budget is required to be balanced by law, there is no necessity to borrow for the government. In the event, public debt cannot go up.
Luckily, the congress and the senators consulted many leading economists who advised as to why the common sense proposal for balance budget was bad for the country. Finally, politicians gave it up. In fact, most of the common sense proposals of politicians do not work in the economic system. One of the most ridiculous proposals was submitted by Stalin to stop using money in Russia in early 1930s. There was inflation by that time in Russia. Stalin’s argument was simple. In order to combat inflation he argued that, “when there is no money there is no inflation.” His economic advisors defended Stalin’s policy. Are our advisors different? I do not know.
Recently, I heard that the Government of Sri Lanka is to launch a campaign to cultivate lands which did not use for cultivation. State owned lands which have not been cultivated will be used for food production in the future. If uncultivated lands are owned to private individuals then land owners must cultivate those lands or those lands would be temporarily taken away for cultivation by authorities. The objective is to cultivate all empty lands with whatever the food that can be grown locally without importing them. The idea seems simple and noble but unfortunately uses a wrong approach. Why I say so?
Before I answer the above question let me tell you a small story. One time there was a Director General (DG) heading the Sri Lanka Samurdhi Authority (SLSA). By that time SLSA was receiving a certain amount of money from the Treasury for development projects out of which most funds had been allocated for income generation projects for Samurdhi recipients. This DG had struck a wonderful idea. He had said that SLSA must justify the use of treasury money. In order to do that SLSA must prove the contribution it made to increase GDP (Gross Domestic Product) by utilizing that money. He did not stop there. Subsequently he came up with a creative idea. It is interesting.
He ordered to provide agricultural seed pack worth of certain amount of money to each household of Samurdhi recipients. Let us say one seed bag worth Rs.50/=. When seeds are planted they would get a certain harvest. Now the harvest was valued at market prices even though the harvests were intended to consume by the beneficiary households. The valuation of harvest came to a staggering amount. Somebody told me that the value came to be around Rs.27 billion but the funds used for seeds was a fraction of that amount. The said DG was happy and assumed that SLSA had increased GDP by contributing Rs.27 billion. He did not stop there either.
He wanted to share his findings with the then Treasury Secretary. He presented his calculations to GDP. Treasury secretary being an economist gave him one simple comment. He said that, what is grown in home gardens and consumed by the household is not taken into the GDP calculation but the cost expended in buying seeds would. The DG was a highly educated man in the field of management. But his commonsense GDP calculation was an arrogant mistake.
Similarly, the government can force cultivation of bare lands. The government can temporarily acquire privately owned uncultivated lands and handed them over to others for cultivation. But unfortunately this effort is not sustainable and would not help economy to grow and would not contribute to increase GDP in a sustainable manner. Here, the objective is really good but the approach is wrong. The government must forgive me for airing my genuine opinion.
In the economy there is a certain definition to define a growing economy. Also there are definitions to explain stagnant and recessionary economies too. Let me explain it as simple as possible.
In the economic system a certain amount of goods and services are sold. In a practical sense the selling means “the supply” of goods. This point is clear. Now, you can’t sell something if somebody is not buying it. The act of buying means “the demand” on real time. Therefore, it is now commonsense to understand that the demand and supply must be in equilibrium always. It must be in equilibrium at total output level. Let us use this knowhow to develop a definition for a growing economy. It is simple.
“When the demand-and-supply equilibrium takes place at increasing output levels year after year, we will have a growing economy with continuing GDP increases.” This definition is simple, clear and precise. Isn’t it? Now, let us define the stagnant and recessionary economies too.
“When the demand-and-supply equilibrium takes place at decreasing output levels, we have a recession” – And “when the demand-and-supply equilibrium takes place at constant output level we have a stagnant economy.”
Let us apply this simple economic definition for our cultivation of uncultivated land program. I will submit it as follows:
“If the cultivation of uncultivated land program could ensure that the demand-and-supply equilibrium takes place at increased output level, then we will have a growing economy with increased GDP.” It justifies the program.
However, the demand and supply equilibrium takes place when the selling and buying takes place. This means the growing/cultivation must be demand driven or in other words there should be market for the produce. If there had been a proper market for agricultural produce, then none of these uncultivated lands would have been there being empty. What does this mean?
This means, the problem though appears as a problem of cultivation, the real problem is market arrangement. Hence it requires a shift in the approach of this program. However we now know that the unsold produce is not taken into the calculation of GDP here too.