18 September, 2021

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New Drivers Of Inequality

By Bhadraja Mullegamgoda

Bhadraja Mullegamgoda

The Government has ignored the crucial factors, perhaps knowing or unknowing, which aggravated the COVID-19 movement, although given priority to the vaccination process which could have at least a tiny possibility to restart the activities. It is a well-known fact that most of the people celebrated this new year without giving any concern to the COVID-19 spread while Government was failed to monitor the situation then, and still the administration is not learning from their past mistakes. Previous lockdown was the third consecutive major hit to the economy within three years while the economy is longing to be heated up.

It is worthwhile to note, there are so many success stories and lessons to be learned from our neighboring partners, India, Pakistan, and Bangladesh to revive the domestic economy in the phase of this pandemic. However, aside from the COVID-19, still we are looking at a country with various scales of disparities in terms of economic well-being. Somewhat centralized authorities and weakened institutions have worsened this situation. Following represents, few randomly selected and observed disparities as of today.

Domestic Market

Sri Lankan business environment consists of 92% micro and 7% small enterprises. If the growth is inevitable, the share of micro enterprises has to decline along with scaling up businesses. This was not the case in the post-war period even though administrations announced many initiatives to bolster the MSME sector. Disparities in the decision flow process is one of the major reasons to offset these outcomes. Also, institutions who are providing support to MSMEs are highly politicalized whilst ideology and competition among them have worsened the condition. In the middle of the pandemic, the Government has introduced credit lines to MSMEs and encouraged borrowings taking advantage of lower rates. But the question is, how many of them are benefited through those schemes? In Sri Lanka, 75% of micro establishments are not recording their financial transactions and they are the most vulnerable population to any kind of disasters, and they require most of the assistance from the Government. Only the enterprises who have more abilities benefited via those schemes while the poor remained the same. This depict another major fact that commercial bank’s credit monitoring systems are also outdated, and they have no capacity to monitor the riskier businesses.

Digital Divide

As a bright side of this pandemic, distance learning and blended learning concepts have promoted drastically for every level in education sector. Likewise, majority of economic activities consists of a potential to “go online” in near future.  Sri Lanka has the largest share of rural population as a South Asian country, and many of them are wage paid workers. Data cost in Sri Lanka is relatively high while telecommunication market also entails with some degree of market failures. Consequently, wealthy individuals will be benefited from knowledge transfers, accessibility, and other economic gains with these digitized initiatives while people who do not have access to the digital economy would leave with a narrow window to escape from poverty. No agency or organization including Government has addressed this issue and they have ignored this fact completely. Another critical fact is the limited IT infrastructure in the country whereas rural regions have a catastrophic 4G network while the majority of applications need a stable connection to login. It also requires “digitized communities” to operate which is non-existence in Sri Lanka. Therefore, benefits would only direct to the urbanized population providing a breathing ground for the enablers of inequality.

Race to the Bottom

During previous decades, after President Reagan’s initiatives, it has been controversial that relaxing regulations, tax exemptions, reducing labour costs and other factors encourage the provision to grow investments to incur trickling down effects to the public. President Joe Biden’s priority on a minimum global tax rate shows us historical doubts about relaxing regulations. Of course, the general public would be benefited in the long run-in terms of knowledge transfer, obtaining know-how, R&D etc. But as Mr. Keynes said, “In the long run we are all dead”. The same notion also could apply for the “Port City Colombo”. A strategic development has to create both backward and forward linkages in an economy. For instance, building a luxurious housing apartment complex in Colombo is not a strategic development. The raw materials, knowledge, and many other inputs have to be imported, and only upper-class wealthy individuals obtain the accessibility, that is 1% of total population. Reducing the space of regulations to commence these kinds of investments would worsen the disparity and reduce the well-being of the people since it is not aimed at providing tangible benefits to the public. Social sustainability is completely ignored by the respective bodies in consideration of similar kinds of investments in the country.

Data and Information

Sri Lanka is stagnated in the context of research and development in every sector of the economy. In today, data is more important than ever before. The importance of acquiring timely data to prevent COVID-19 also signified in the UN Advisory Paper-Sri Lanka which provides major recommendations to establish COVID data hubs. Adding to this, people are also not aware of the benefits of obtaining accurate data, which may be the fact that our culture is not R&D oriented. Consequently, many adverse effects could arise whilst two major bottlenecks are lower levels of innovations and market failures. Pinpointing the second effect, unavailability of information and unwilling to disclose reliable information could reduce the effectiveness of decision making by the majority of the population which spread across poor communities to Micro-Small enterprises. Only the rich would have the privilege to use information to make gains. The term “Data” comes at a price where the poor could not bear that cost to obtain it and authorities need to make sure the availability and accessibility for the data and information for a fair trade. In a data driven industrial revolution, the gap between rich and poor could be widening if the Government did not adopt similar kinds of favorable policies.

Institutions

Well known fact is that unfavorable policies and dysfunctional institutions in Sri Lanka were some of the major factors of economic tragedy which the country is encountering at present. Our grandparents did not have the privileges in terms of accessibility to resources as it is today. Along with the development of ICT, hard infrastructure, supply chains etc., a breathing space for economic freedom has increased within the communities. Many countries around the world within the last three decades, specifically emerging economies have diverged their institutions to a more democratic space where societies could be benefited in terms of well-being. Sri Lanka were struggling with center left and right asymmetries over many years which allowed institutions to be destabilized. Similar institutions would increase inequality in the country and prevailing centralization would worsen this situation. Empirically, think of three families, urban high-income, central highland farming, and Eastern coastal line family. The accessibility and availability of basic needs, financial and social security and ultimately well-being would have drastic differences within a small land area of 65,610 square kilometers, which is a greater evidence of institutional failures. Institutions have to play a major role in reducing these disparities. The latest addition to this is the controversy of “organic farming”.

*The writer is a PhD student at University of Colombo, and could be reached via email at mpbhadraja@gmail.com

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Latest comments

  • 4
    1

    “Well known fact is that unfavorable policies and dysfunctional institutions in Sri Lanka were some of the major factors of economic tragedy which the country is encountering at present.”

    Rajapaksas objective is not creating favourable policies and functional institutions in Sri Lanka towards economic development but their focus is creating a unstable country but to share all the benefits from deals with external powers unproductive dysfunctional institutions and unfavourable polices and projects to keep the country under their military control. The vaccination business is also profitable for the family.

    • 1
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      “The term “Data” comes at a price where the poor could not bear that cost to obtain it and authorities need to make sure the availability and accessibility “
      No, data itself is not really expensive. What counts is the skill to wade through everything that’s available on the internet. Take YouTube for example. There are plenty of good ideas on it. But there is also plenty of BS like the posts that claim you can get free energy from a magnet. It is easier for people to fall for that stuff than wade through boring ( but accurate) technical details. Similarly, there is plenty of good advice on how to survive Covid , but even more fake news about miraculous cures.

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