25 October, 2020

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Economic Policy Strategies That Suit Sri Lanka: Have A Wider Consultation When Making Policies Affecting People

By W.A. Wijewardena –

Dr. W.A. Wijewardena

A book in Sinhala, Apata Gelepena Aarthika Kramaveda or Economic Policy Strategies that suit we Sri Lankans, by Rohan Samarajiva and C.J Amarathunga was released in Colombo last week.

Why should one consider this book-launch an important event? That is because it has been written by a pragmatic economic policy thinker and a versatile Sinhala writer for the benefit of the laymen wishing to know of the ‘less-known other side of economic policy making’ in Sri Lanka.

Economic literacy of many not adequate

All species – plants, animals and humans – are economic entities seeking to make the best for themselves out of the resources scarcely available to them. But, many among us in the contemporary society do not appear to have adequate economic literacy to look at every possible consequence of a change in economic conditions facing them. From what they say or write or how they behave, one can conveniently make the judgment that their thinking on even basic economic issues does not go beyond the limit of their eye sight. Thus, when an economic proposition offers them a small benefit immediately but imposes an enormous burden later in life, it is embraced by many without thinking of the overall loss arising from such proposition. Economists call this ‘myopic behaviour’ or short-sightedness of people and that behaviour by some provides an opportunity for other crafty people to come up with schemes to profit from their weakness. Hence, it would be useful if learned people help them understand the complex intricacies involved in every economic decision making by sharing their thoughts on economic policies. This role is usually played by mainstream economists by making regular contributions to learned economic journals. But those papers are written in such technical language – often filled with mathematical equations – that they are beyond the comprehension of ordinary laymen. Hence, at the very first sight, such papers scare the ordinary laymen away.

Laymen need economic wisdom in simple language

In this scenario, educating the ordinary public of the suitability of economic policy strategies which the country should have is a necessity, but it also poses a daunting challenge to educators. This is because it requires educators to have a clear knowledge of different economic policies before them coupled with superior communication skills to convey that knowledge to ordinary people. This writer recalls how the economic Gurus at Simon Fraser University in Canada advised the students at the time he was a student there on the final acid test of learning a complicated economic theorem: If a student is able to explain any complex economic theory to a janitor at the university without using mathematics or technical terms, then, the student is deemed to have learned it. The book, though it has covered many complex areas of economic policy making, is a demonstration that the two authors are well-talented in that art. The two writers have put their message across to readers very cogently without using frightening mathematical equations or filling the book with boring technical terms. It is an easy read prompting one to finish it in a single stretch.

Samarajiva Chinthana in Amarathunga’s words

The contribution of each author has been clearly laid down in the foreword to the book written by co-author C.J Amarathunga. According to him, the book is a presentation of the economic thinking, wisdom and knowledge of Rohan Samarajiva and Amarathunga’s contribution has been to put that body of wisdom to simple and readable Sinhala. Hence, Apata Gelepena Aarthika Kramaveda could be described as Samarajiva Chinthana, if one goes by a popular contemporary concept used to describe a body of knowledge arising from an identified thinker. Hence, in this review, reference is made to Rohan Samarajiva as the creator of the body of knowledge presented in the book.

Critical qualities of economic policy strategies

The book has not touched upon the macroeconomic policy strategies which Sri Lanka should adopt in realising its economic prosperity goals. Instead, it has extensively discussed policy strategies pertaining to five burning issues in the country. They are policy strategy issues relating to transportation, water, electricity, telecommunication and education. In the first chapter to the book, Samarajiva has presented some key principles which have to be in place in order for any policy strategy to be a success.

Look at all aspects of a policy’s impacts

First, when policy strategies are designed, all aspects relating to a policy strategy, including its impact on the current generation as well as the future generations, should be carefully identified and analysed. This is because a given policy strategy may have some beneficial impact in the present but could bring about severe burdens in the future. Hence, according to Samarajiva, policy strategies should not be designed according to the whims and fancies of a key person, however much he is knowledgeable of the intricate issues involved in such policies, since within his wisdoms he is unlikely to foresee all the good and bad impacts which the strategy may bring about. To avoid this, Samarajiva has recommended the use of experts for designing, planning, implementing and supervising the execution of all important policy strategies. If this is not done, says Samarajiva, the repercussions are catastrophic and many generations will have to pay for the sins of bad strategies adopted by those in power. An example which Samarajiva quotes is the newly built port at Hambantota in Sri Lanka. According to Samarajiva, Hambantota Port which has been built disregarding the previous expert advice against the building of a port there, is simply an inland reservoir filled with sea water which is not visited by ships and therefore not a commercially operated port. The Port authorities will disagree with Samarajiva but the future events will testify whether Samarajiva is correct or the Port authorities are correct.

Wide public consultation is new democracy

Second, Samarajiva says that a wide public consultation regarding any important policy strategy to be adopted by the government should be made because even the experts in their wisdom would not be able to see every angle of the policy consequences. This is the final check on the avoidance of unintended consequences of a policy strategy. If a policy strategy brings about unintended consequences and as a result the policy is withdrawn later, it not only causes irreparable damage to the economy, but also leads to the loss of the credibility of the government. Samarajiva says that making wide consultations with the public is in line with the democratic rights of the people. Samarajiva’s views in this case tally with those of the Nobel Laureate Amartya Sen who has said in his latest book, The Idea of Justice, that ‘democracy is government by consultation’.

Question the emerging scenario

Third, Samarajiva says that everyone – students, public servants, clergy and the public – should learn to question logically and critically the policies that are being proposed. This is specifically important because policy implementation requires funding and funding is made by people, either by paying taxes or by living with inflation. The government does not have an unlimited supply of funds and the waste of funds for unsuccessful projects cannot be afforded by any society. Samarajiva has mentioned the case of the two loss making airlines of the country: Sri Lanka’s national flag carrier Sri Lankan Airlines and its budget airline, Mihin Air. Both have become colossal waste of public money and, according to Samarajiva, even if the country does not have them, the people could still travel abroad at much a lesser cost than the losses of the two airlines.

With these three principles behind, Samarajiva has gone to critically appraise the current state of Sri Lanka’s transportation, water problems, energy issues, telecommunication matters and education.

Road network need improvement

Samarajiva says that, strangely, if one compares the kilo metres of roads per square kilo metre of land in Sri Lanka, the country is ranked with developed countries like England and Ireland. But the conditions of the road network are so appalling that it has caused incalculable costs to Sri Lankans by way of lost time, money, life and temper. While the investments in the road network have been done in a haphazard way, they have been done in the wrong way too. Roads are constructed but their life span is so short that they become unmotorable pretty soon. After that they are not maintained properly. Hence, the road users have to undergo enormous hardships making roads one of the biggest obstacles to economic development. Samarajiva says that the necessary funding for the construction and maintenance of roads could be found either by directly charging the road users or adding the road use charge to the annual licensing process of vehicles. The moneys so collected should credited to a fund, instead of the government’s general revenue and should be used by following appropriate good governance principles, internal controls and audit systems. In this sense, the government’s decision to charge the users of the Southern Expressway is a policy measure taken in the correct direction.

Make railways profitable

Samarajiva has discussed the development of the country’s railway system as a major transport method as well. Unlike during colonial times, Sri Lanka’s railways are being run continuously at a loss because the government has filled it with excess labour and been unwilling to revise the fares to economical levels. The result is that year after year the tax payers are called upon to bear the bill and that bill amounting to on average some 4 to 5 billion rupees per annum is sufficient to run six universities of medium size in the country. So, the quarrel is why the general tax payers should bear this burden since every one of them does not use the railway services. Samarajiva says that this unfair charge can be rectified by making railways profit making enterprises through a comprehensive structural reform. The essential elements of that reform is the developing of freight transportation as an integral part of the railway system as in USA and India and breaking the railway into several independent companies, possibly operated as public-private partnerships. If the services of the railway system are improved, Samarajiva reasons out, that the general public will use it as a main mode of transport as is the practice in other countries.

Water too needs pricing

In the chapter on water, Samarajiva has discussed the issue of making water available for both agricultural purposes and drinking purposes. In both cases, the issue has become acute because of the inadequacy of supply to meet the growing demand. Then, it becomes a problem of economic management: funding, maintaining efficiency, improving quality and prospective planning. Since the government budget is constrained by a shortage of funds, the allocations have always been made for other purposes which the political authority has considered as priority areas. As a result, all the problems have now compounded to a level making it extremely difficult to find viable solutions. Samarajiva suggests that, to raise funds, the multiple use of the reservoirs should be further expanded, a move of going into recreation, sea-plane landing etc. Since there is a fear among the current users that their rights will be lost, he suggests that wide discussions should be held among the stakeholders to arrive at an acceptable solution. In the case of drinking water, restructuring of the Water Board, appropriate pricing, reduction of the non-paid water usage ratio and proper monitoring have been suggested.

Produce electricity or sacrifice growth

Electricity is an important issue, since according to Samarajiva, for one per cent growth in the economy, electricity supply should be a little over one per cent. Accordingly, to have an eight per cent growth, the electricity supply should be enhanced by a little over eight per cent. If it does not happen, the planned eight plus per cent growth will become a mere dream. Samarajiva suggests a number of supply options like the development of alternative energy sources. However, the proper management of electricity production and distribution has been a crucial requirement, since the absence of such a management system has led to inefficiency and losses in the Ceylon Electricity Board or CEB. The recurring losses of CEB have been recouped from time to time by the government at a cost to the tax payers. Samarajiva has expressed the opinion that such a loss-recoupment by the government is better justified than its loss bearing of the Sri Lankan Airline because the electricity users are more widely dispersed than the consumer base of the users of the Sri Lankan Airline.

To the present writer, this argument appears to be a crooked one. The extension of a subsidy on the basis of the largeness of the consumer base is not a good economic principle because such subsidy recipients will over the time become an indomitable pressure group when such a subsidy is to be removed on account of its continuous unaffordability or when it is no longer necessary. Hence, in the opinion of the present writer, subsidising the state enterprises on a continuous basis is not a good option.

Telecommunication: The future of the world

The recent development of the telecommunication facilities in the country, according to Samarajiva, has been one of the important contributors to economic growth. It has not only made doing business easy but also helped the country to develop a complete new economic service in the style of business process outsourcing, knowledge process outsourcing etc. This would have been unthinkable had the telecommunication services remained a state monopoly. But with the privatisation of Sri Lanka Telecom, the service conditions and facilities to telephone users have improved tremendously. Hence, the successful reforms in the telecommunication sector provide a good example for the government to go for reforms in other deserving sectors as well.

Universities should evolve from certificate producing institutions to research organisations

The poor state of education, both school and university, has been the bane of Sri Lanka’s society today. While education helps a country to develop a quality human capital base, it also helps a country to improve its innovative and creative skills, a must for lifting Sri Lanka from its lower middle income country status to a developed country status. The main problem Sri Lanka faces in this regard has been the low quality of education and that low quality in turn has been caused by lack of resources. Given this status, the government monopoly in education has to be reviewed with a view to permitting private sector to enter the field under the government’s supervision and regulation.

According to Samarajiva, universities in Sri Lanka have become factories that produce degree certificates which are earned by students without reading or undertaking proper studies. It is the employers who suffer as a result of the low quality graduates being produced by the country’s education system. But to improve the quality, the quality of the lecturers should also be improved. Samarajiva has recommended the obtaining of quality lecturers from abroad as had been done in ancient Lanka when there were shortages of learned and ordained Buddhist monks to ordain novice monks. However, the existing university staff may resent such a policy action because of the preferential salaries which have to be paid to foreign lecturers.

In his last chapter, Samarajiva has recommended that Sri Lanka should have direct and active economic relationship with neighbouring India which is set to attain a much faster economic growth in the next decade or so. In view of the large market opening available, Sri Lanka is to gain and not to lose by such an economic relationship.

Overall, Apita Gelepena Aarthila Kramaveda is a must read for everyone who wishes to learn of the unseen side of Sri Lanka’s economic policy making.

(Writer is a former Deputy Governor – Central Bank of Sri Lanka and teaches Development Economics at the University of Sri Jayewardenepura. This article first appeared in Daily FT  – W.A. Wijewardena can be reached at waw1949@gmail.com )

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