Colombo Telegraph

Groundwork For An Interventionist Economic Policy

By Kumar David

Prof. Kumar David

The proof of the pudding will be in the eating: Groundwork for an interventionist economic policy

Prime Minister Ranil seems to be edging to a Deng Xio Ping – Lee Kwan Yue interventionist state overview of the economy if one takes the Development (Special Provisions) Bill gazetted on 26 November 2016 at face value. Both domestic capital and foreign investors have left him high and dry, so he has no other option. Whatever road he takes to Rome, it will good news if he gets there.

I am cautiously supportive. Why cautious, why not enthusiastic? There is one tangible reason and two attributable to congenital prudence. The tangible concern is that the structure is complicated with too many Agencies and Boards with overlapping functions, and there is no mention of statistically driven decision support units. There is a real possibility of operational logjams. This piece is a description of the bill and weaknesses that can be put right, but probably will not. However, prudence motivates caution on two other counts as well. Who will be appointed to the Agencies and Boards? In addition to indispensable community input will there also be multidisciplinary, intellectually savvy talent with global experience, or will it be the usual political detritus? Bad experiences make Lankans fear that this may be another rabbit’s warren for the corrupt to infest? Second is the usual concern about good intentions failing in action. For now I say just one hearty cheer; the proof of the pudding will be in the eating.

Modi, the most recent leader to turn unabashed populist sings, “Those looting the nation will not succeed because I wear the raksha kavach (protection shield) of 125 crore countrymen”. He plans to follow up by confiscating black-money deposited in banks and going after black assets. Circumstances are driving political leaders beyond their natural limits worldwide. The sooner RW sees this the better prepared he will be for the unavoidable. Unfortunately RW lacks Modi’s force of character; if only he had half the gumption and one third the balls – or should it be an even fraction – of his Indian counterpart!

The structure

The objective is good – to Accelerate Economic Development and establish mechanisms for the state and in particular the PM to drive it; an approach I laud. A mini Deng Xiao Ping strategy, or if you prefer to choose your examples from the other side of the ideological divide, a Lee Kwan Yew approach. I will describe the structure through which this is to be achieved first, before making critical comments.

There will be five types/levels of organisation:

  • A Policy Development Office (PDO)
  • An Agency for Development (AfD)
  • A Board of Rural Modernisation headed by the President (BRM)
  • Five Regional Development Boards (5xRDB)
  • An Agency for International Trade (AIT)

No I am most not making all this up. Buy the Gazette and read it. Was this drawn up by a bunch of bureaucrats in search of lifetime sinecures? Search me, but this is what it says in black and white. The coverage of none of the RDBs includes Colombo and the Western Province; presumably one more entity or a link with the Ministry of Megapolis and Western Development is intended.

Before I criticise the blurring of boundaries from (a) to (e) I must say that I am supportive of the intention which is for the state to muscle in on development. The private sector left to itself has failed despite this government being the most capitalist friendly that it can hope for. Direct foreign investment will not materialise on a large scale in Lanka or any other country at this point in the global economic cycle. Meanwhile Trump intends to put a stop to free-wheeling American corporations investing abroad.

If domestic and global capitalism does not measure up to expectations, then the alternative is for the state to play a directive role. From this perspective the objectives of the bill are justified. The government must ignore laments from the old bourgeoisie and its new spokesmen. The lament against “illiberal economics”, demands for a stronger private sector to improve productivity and competitiveness (which is just what it has failed to do despite freedom of the wild-ass for two years), and calls to boost foreign investment by trade and tax liberalisation, are simply that much hot air. This is the old concept framework of the neo-liberal era which has been discarded almost everywhere in the developing world – now even by Modi in India. Furthermore, if the government attempts to mess with peasant rights by granting land to big corporations it will be its undoing. (See Sandun Thudugala in Ceylon Today, 15 Dec 2016 )

The functions of the PDO inter alia include:

  • Develop proposals for a National Policy framework on any subject including development
  • Coordinate and assist in implementation national policies
  • Set goals for all economic and social sectors; monitor progress
  • Review the performance of government institutions and the provincial administrations
  • Revisit existing policy and upgrade it to meet new challenges
  • Ensure policy is in consonance with goals set by government
  • Review global economic, political, social and environmental trends and their impact on Lanka

The functions of the AfD inter alia include:

  • Stimulate, expand and develop economic growth through the National Policy framework
  • Strengthen the economic base and modernise the economy
  • Generate employment, increase personal incomes and improve consumer welfare
  • Upgrade technical skills and enhance productivity
  • Provide access to finance and infrastructure
  • Prevent collusion among market players and ensure competition
  • Enable Lankan goods to enter the global value chain and enhance competitiveness
  • Improve the balance of trade and promote export of goods and services

The hierarchy between the PDO and the AfD is blurred and there is excessive overlap. Furthermore we have an AID, whose functions also overlap, and inter alia include:

  • Promote and develop international trade
  • Facilitate exports particularly in agriculture and fisheries
  • Promote Lanka as a trade, business and logistical hub and a nodal agency for international trade
  • Promote a business and regulatory environment conducive to the growth of international trade
  • Facilitate the entry of goods and services into international markets, ensure equitable treatment in international markets for Lankan industrial, agricultural and fisheries products and services
  • Recommend, where necessary, changes to import and export policies
  • Represent Lanka at the World Trade Organisation

After all this gets done there will be nothing left of the toes of the various agencies, so heavily will they tread on each other. I suspect the chapters of the bill were drafted by different groups and blindly strung together. Nobody seems to have taken an overview of the draft as a whole to ensure it is well balanced, managerially coordinated and functionally rational. As one who favours this interventionist approach I am disappointed that the drafters have so buggered it up in formulation. I do hope the PM takes a step back, reviews the whole works and revises it into a more rational shape.

There seems to be a huge hole in the structure. Instead of this repetitive verbiage the drafters should have paid attention to the indispensable need for a decision support system to underpin planning and implementation. Decision Analysis and Support Units are a sine qua non; they do not intrude on political goals but undertake data gathering, information processing, data mining, decision coordination and optimisation. The scope, size and overlap of the activities proposed in the bill are so ubiquitous that unless a lot of data is processed and unless decisions are coordinated, contradictions will be pervasive. Association with electric power system analysis and planning for 40 years has made me sensitive to these priorities. All giant corporations have their management support and systems analysis departments.

Rural and Regional Development

Overlap does not end here. I have still to mention the RMB and the five RDBs. I agree that the RDBs are needed, otherwise the Provincial Councils (PC) will be up in arms, though by and large the PCs have been failures; politically bankrupt (NPC) or corrupt (the other eight). But there’s no remedy; in the name of devolution we are stuck with a failed system of devolution. But for my commitment in principle to devolution I would say we would be better off without our present PC system altogether.

The regional structure has two arms; five Regional Development Boards (RDB) and a Board of Rural Modernisation (BRM). Limiting the number of RDBs to five (plus the Western Province Megapolis), that is reducing the number to less the nine provinces, is sensible. An even smaller number would have been better. The BRMs are Southern (SP plus Moneragala and Ratnapura), Wyamba (NCP plus Kegelle), Central (CP plus Badulla)), Eastern (NCP and EP) and Northern (all five districts of the NP). The functions of the BRMs are much as expected: (a) coordinate and implement central and regional plans, programmes and projects and (b) facilitate private sector investment “in accordance with guidelines issued by the AfD”.

Then there is this strange animal called the BRM which will include President, PM, nine presumably otherwise underemployed Cabinet Ministers and a bunch of Managing Directors and Directors. The BRM is an artifice, a decoration. Its scope is hi-tech agriculture, hi-tech fisheries, primary industries, marketing, connectivity and infrastructure. Presumably the PDO and AfD are low-tech! The guys who wrote this up must have been at their wits end to think up something to shove in which is not already in the PDO, AfD, five RDBs and the Megapolis contraption. They failed. Could it be that the President wanted to play at the table and the drafters thought up this BRM outfit as a toy with which he can fiddle from time to time?

Implementation

Lankans are congenitally cynical and I foresee choruses of “Good intentions but just wait and see it will come to nothing in the end”. I will not add my voice to these Cassandras, but make constructive comments. Everything hinges on implementation so the people appointed to the agencies and boards need to be competent, subject savvy, honourable, honest and far-sighted – that goes without saying. A more crucial point is that the types who are allowed to put their finger into this pie MUST NOT be free-market adoring, neo-liberal philosophising, anti state-interventionist ideologues. No offence to the folks you know I have in mind, but this is not their game. If you recruit cricketers into a soccer team they will play neither soccer nor cricket but some lousy version of gudu. People from the wrong ideological stables will destroy the exercise from the start.

A third point follows from this. If you want people who have appreciation and sympathy for the role of the state in economic development, well get that kind of people! To make it perfectly explicit, draw the JVP into both the political and implementation side. The PM needs to work out with its leaders modalities of how the JVP can help take forward the concepts in the bill (after it is cleaned up as I have suggested). Maybe the JVP leaders will be less sectarian than usual and grasp opportunity by the fetlock – for once.

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