By W.A. Wijewardena –
The debate on potential output of Sri Lanka heats up
The reader writing under the penname ‘Practical Economist’ in a response to ‘My View’ last week has expressed his pleasure of this writer’s thanking him for entertaining his diverse views on important economic issues facing the country but filled his response with unnecessary personal remarks.
The objective of his response, as he has mentioned right at the beginning, has been to “offer a few additional thoughts” so that readers “could benefit even more through this interesting debate”. This is indeed a noble objective since it is only through free dialogue and discussion that human beings could expect to enlighten themselves.
The Buddha: Don’t seek to win a debate by resorting to cheap tactics
The rules for conducting dialogues and discussions by wise people have been laid down by the Buddha some 2,600 years ago. In the Kathavatthu Sutta in Anguttara Nikaya, the Buddha has qualified a person unfit or fit to be engaged in dialogue and discussion by a wise person. Accordingly, if a person when asked a question wanders from one thing to another, pulls the discussion off the topic, shows anger, hatred and displeasure at his opponent, seeks to crush the opponent by ridiculing him or grasping at his little mistakes or comes up with irrelevant matters, such persons are not fit for dialogue or discussion. Those who do not display these weaknesses when being questioned are fit for such exchanges.
Three hundred years after the Buddha, his follower Emperor Asoka directed that in conducting debates and disputations, as noted by Nobel Laureate Amartya Sen in his 2005 book The Argumentative Indian, the opponents should be “duly honoured in every way on all occasions”. These ethical principles are unbounded by time and have laid down the ground rules for the wise to have intellectual discussions.
Practical Economist: Personal remarks plus tackling selected issues
Now back to the response by the Practical Economist. It still contains a fair amount of personal remarks which have sought to ridicule this writer which the Buddha and Emperor Asoka have not approved of.
In addition, it has chosen to comment only on some selected items which this writer had presented in his first as well as the second article ignoring the main arguments presented in them. These two areas have to be further reviewed if the readers are to be enlightened properly.
Deriving perverse pleasure by making personal innuendos
The personal remarks made by the Practical Economist seeking to ridicule this writer have been the following. First, the currently reported single digit inflation in Sri Lanka has been achieved by the Central Bank after this writer has retired from the Central Bank implying that had he still been in the employ of the bank it would not have been possible. His innermost happiness about this remark has been displayed by the ‘exclamation mark’ he had added to end the sentence.
Second, the Practical Economist has claimed that it is “fortunate” that this writer “was not an advisor to President J.R. Jayewardene in the 1970s and 1980s” because had President Jayewardene been guided by this writer, “Sri Lanka may have been highly vulnerable to the world energy prices and also perhaps facing severe food crisis today”.
Third, the Practical Economist has opined that this writer has been a beneficiary of the educational reforms being undertaken by the Government in the country today on account of his involvement in educating the youth. The implication is that if no such reforms have been undertaken, there is no possibility for this writer or anyone else to engage in such an enterprise.
Fourth, the Practical Economist has demanded that this writer should “honestly admit that he is a politically-biased writer who is espousing the economic view point of the Opposition party, and stop hiding behind a screen of a technical ‘Economist,’ reputed or otherwise”. Once again, he had added the title ‘reputed’ and then questioned it though this writer had in all humbleness denied it, claiming that he is still a student of economics.
A high-standing practical economist need not descend to a low level
These personal remarks need not be a part of the debate since they do not add value to readers’ understanding and enlightenment. They only display the motive of the Practical Economist to ridicule this writer and crush him in the belief that his readers too will endorse his strategy. They may appeal to those with freakish minds but not to the civilised.
It has in fact downgraded an intellectual debate to the level of political debates which one finds on TV and even in Parliament where opponents are answered, not through intellectual and informed arguments but by personally ridiculing them. A Practical Economist of high standing as this writer has noted earlier should not degrade himself to that level.
The remark by the Practical Economist that the country had achieved single-digit inflation only after this writer had retired from the bank is fraught with three defects.
First, it gives a wrong account of how monetary policy is conducted in the Central Bank. Second, it has taken into account only information favourable to the Practical Economist ignoring the inflation track-record of the Central Bank over the full career period of this writer. Third, it has attempted to inform the readers that if the inflation is at single-digit level, the consumers are at their best.
Monetary policy making in the Central Bank is teamwork
The monetary policy making in the Central Bank is teamwork and a single individual cannot get credit for any achievement or blame for any failure. The team at the technical level consists of the banking assistants who compute the data, economists and senior economists who make analyses based on those data, members of the Monetary Policy Committee who review those analyses and make suitable recommendations to the Monetary Board. The Monetary Board which makes the policy consists of eminent people like the Governor, Secretary to the Treasury and three outside members.
This writer’s role in monetary policy making was to chair the Monetary Policy Committee made-up of senior professionals from the bank and canvass its recommendations with the Monetary Board. However, it is the prerogative of the Monetary Board to make the policy decision after considering such recommendations and therefore the credit for success or blame for failure lies with the Board.
Despite single-digit inflation, consumers have to pay 77% more
The single-digit inflation episodes had been there in Sri Lanka even prior to 2009 in which year this writer retired from the bank. For instance, between 1985 and 1987, it was at single digit level on overage at 5.7%, between 1994-5 at 8.1%, between 1997 and 2000 at 7.5% and between 2002 and 2004 at 7.8%. Of them, this writer was the Chairman of the Monetary Policy Committee in the last episode, but the credit for this achievement at the technical level goes to all those in the monetary policy team and at the policy making level to members of the Monetary Board.
However, single digit inflation means that prices are still rising, making it more costly for consumers to buy the selected basket of goods and services and reducing their real welfare if their money income is insufficient to buy the basket.
For instance, the basket of goods and services underlying the Consumer Price Index cost a consumer Rs. 27,972 in 2006/7. The very same basket in February 2014, despite the five year single digit inflation, costs the consumer Rs. 49,734, some 77% more than what it was in 2006/7. As revealed by Household Income and Expenditure Survey 2012-13 of Department of Census and Statistics, the average mean monthly income of the first 70% of the households in the country has ranged between Rs. 6,499 at the lowest level and Rs. 40,714 at the seventh 10%, leaving a significant deficit to finance the basket (p 17). But those in the highest 30% of income had a mean income ranging from Rs. 51,147 to Rs. 178,109, much above the required cost in the basket.
Single-digit inflation is only one aspect of economic and price stability
Since the Central Bank’s objective is to attain both economic and price stability, this writer would not have been happy about the mere maintenance of inflation at single-digit. It is like building a paper castle and being happy since the risks are high with a fundamental macroeconomic imbalance.
That includes the wide gap in the trade account (on average $ 7.5 billion or 10% of GDP), high current account imbalance ($ 2.6 billion or 4% of GDP), Government’s having to borrow more to pay interest and repay the principal of the loans (loan repayment and interest exceeding the Government revenue), having to rely on foreign hot money to build up foreign reserves ($ 4.2 billion of short term liabilities and $ 2 billion of net borrowings under swaps, etc., accounting for 89% of reserves) and the dependence of foreign commercial borrowings to sustain future infrastructure developments.
Mahaweli an engineering marvel but a failure on many counts
The Practical Economist has expressed his enormous satisfaction about this writer not being an advisor to President Jayewardene. This writer too shares the same sentiments with him. This is not because JRJ policies have been branded as neo-liberal economic policies as destructive as a terrorist movement by some sections of politicians, intelligentsia and policy makers. A good reference to this view has been the Budget Speeches of 2011 and 2012. That is because, though Mahaweli Project has been an engineering marvel on account of the availability of advanced technology from the donor countries, from a sustainability point, it has been a failure on many counts.
It has failed in human engineering (the settled farmers instead of becoming commercial farm managers continuing with the same old farming techniques and habits), social engineering (the second generation of farmers not taking up farming and becoming lessors of farmlands and taking to alcoholism resulting in high incidence of suicide), marketing engineering (no price discovery mechanism and markets for produce), environmental engineering (frequent droughts causing the electricity generators to use thermal power at high costs) and political engineering (becoming hotbeds of political unrest).
The risks arising from the failure to maintain Mahaweli Reservoirs in proper conditions have been discussed in a Box Article in the Central Bank Annual Report for 2004 (p 69).Thus, Mahaweli, failing to adopt a holistic approach for development, has not been a sustainable development project. This writer regrets missing the opportunity to give that wisdom to JRJ at that time. With regard to the current infrastructure projects, he has drawn the attention of the policymakers to this requirement in his previous writings.
Education reforms should be kick-started
This writer has been involved in imparting knowledge for many decades and it is not a new development as opined by the Practical Economist. The educational reforms which the Practical Economist has claimed to be happening have nothing to do with it. Three points may be mentioned in this regard for consideration by the readers.
First, the claimed educational reforms are just ‘talks’ and should be elevated to a ‘practical level’. Second, there has been a continuous decline in the government’s spending on education over the last decade as a ratio of GDP reducing the quality of government education and forcing students to seek opportunities in the private sector. Third, since it is the standards and not mere spending that matters, Sri Lanka should test its standards internationally by signing up for an international assessment scheme like the OECD-sponsored Program for International Student Assessment or PISA. This assessment tests the standard of the 15-year-olds in schools in math, science and reading. Even a country like Viet Nam has offered its students for this assessment.
Equal sharing of sinful connotation of being politically-biased
This writer categorically denies that he writes for a political party. His readers are found not in political parties but in various professions. He reiterates that what he writes can be used by anyone irrespective of his political affiliations. His analyses have been based on the ideals he is having as highlighted in the previous week’s My View: freedom of choice, protection of property rights, rule of law, strong institutions and a small but a smart government. This writer is yet to find a political party which has accepted these ideals as its policy program.
Despite the detailed description given by this writer that all governments have attached the ‘politically-biased’ label to him when his analyses were not to their liking, the Practical Economist continues to give that label to him. However, if criticising the prevailing economic policy makes this writer a politically-biased analyst, the Practical Economist should be careful in his defence of the prevailing economic policies. That is because, going by the same criterion of identifying a politically-biased analyst, he too becomes a politically-biased analyst when he defends the current economic policies. Then of course, the ‘label of political bias’ loses its ‘sinful connotation’ since both this writer and the Practical Economist share that label equally.
Commenting only on selected issues of convenience
The Practical Economist, perhaps due to limitations in time and space or his preoccupation in winning the debate by making personal remarks on this writer, has not touched upon all the issues raised by this writer in the two previous articles.
Of the multi-pronged approach recommended by this writer, he has been silent about the need for developing productive infrastructure and not mere infrastructure and the role of building a law based society to sustain economic growth. About the infrastructure, he has just expressed the satisfaction that in time to come those projects will start giving the required return to the economy.
In reaching this conclusion, the important elements relating to infrastructural development have not been considered by him. They are that all infrastructure projects are subject to decay, depreciation and obsolescence. They are all engineering marvels today but they should be converted to economically-viable projects by applying rules, systems and practices relating to commercial enterprises. Otherwise, what will happen is that like the majority of public enterprises in Sri Lanka, they will become a burden to taxpayers to maintain their operations. This is not an element of risk which a Practical Economist who bases his judgments on robust evidence should ignore.
About the law-based society, it is widely recognised that the observance of rule of law, protection of property rights and maintenance of law and order are prerequisites for sustaining economic development. A quick glance through the book ‘Why Nations Fail: The Origins of Power, Prosperity and Poverty’ by two practical economists of the time, Daron Acemoglu and James A. Robinson, may drive this point to any reader.
These two authors have argued that unless these legal requirements are in place, investments in any society simply allow ruling elites to amass power and extract society’s resources generating poverty and leaving prosperity behind. This is in agreement with the Principal-Agent Problem which this writer raised in his previous article that politicians and bureaucrats work for themselves and not for the people who have appointed them to power. The Practical Economist has been silent on that issue refraining from making any comment.
The skewed debate
This debate is skewed because of the anonymity of the Practical Economist. While this writer’s track record can be questioned, verified and tested, the same cannot be done with respect to the Practical Economist since his identity has not been revealed. Many readers who have read his two interventions and are now interested in making that comparison have raised that issue with this writer. The Practical Economist, perhaps, may consider affording that opportunity to them.
If continued with personal remarks, no more debate on the issue
The Practical Economist has also resorted to the tactic of increasingly making personal remarks about his opponent in a bid to win the debate by ridiculing him. This has reduced this debate to a cheap political debate on TV and the intelligent readers do not desire to consume such a low-quality product. Hence, if he continues to resort to this tactic, this writer will refrain from making any further contribution to this debate and rest his case.
*W.A. Wijewardena, a former Deputy Governor of the Central Bank, can be reached at firstname.lastname@example.org