By Hema Senanayake –

Hema Senanayake

Global Economic Revolution Is Overdue: Part 7

With the Western Region Megapolis Development project one important economic factor is going to be changed. That factor will be the land use regulations. “Poor land use in the world’s greatest cities carries a huge cost.” This is true and this quote is the subtitle of an enlightening article which is titled “Space and the City” published in The Economist magazine in April this year. Will our own Western Region Megapolis do the same mistake? I hope we can avoid it now but not in the future.

In the said article it argues that “in fact land is not really scares.” I like that argument because I too argue in this series of articles that if we remove the systemic push for extreme consumerism, in fact with continuing inventions and the development of technology, human civilization can create abundance in goods and services for the wellbeing of its all members. The market mechanism is the conduit through which we can reach that goal. Upon reaching there, it requires unprecedented adjustments for the market mechanism because it is common sense that with having abundance in goods and services the normal market mechanism cannot prevail. Let us leave it there for the time being and let us get back to our topic.

However, even though land is not really scares, the land use policy and land use regulations can make land scares and make prices skyrocketing. When this happens the economic effect is that much of the gains of economic activity would not flow to workers and entrepreneurs/investors. Rather more of the gains of economic activity would flow to land and property owners. Why is this bad? It is because that most of the cost of doing businesses would be to pay for building cost. For workers who live in rented houses or apartments, the major component of their income would be eaten up by the house rent. For people who live in their own houses or apartments, much of their income would be ended up paying mortgage cost. These things have to be changed from the beginning of our much anticipated first Megapolis.

I like the concepts of Megapolises and Mega-regions. They increase economic efficiency but not by default but by careful conscious planning. When it is planned properly, for example, it must reduce the relative cost of office space utilized by a business, it must reduce the relative cost of house rent or house mortgage rent of working families. So should be for any productive business ventures including factories. Will our first Megapolis do it? The planners of the project must answer to these questions.

I have observed that the government and some Ministers sometimes say that Megapolis project is similar to Mahaweli River Development Project. By definition and scope Mahaweli project was a massive infrastructure project but I do not think that Megapolis project has the same characteristics. Let us investigate about it.

Any infrastructure project should basically have the character of an intermediate product. Second, it should have the character of increasing productive power of the nation and third, it should have the character of improving the economic standard of living of the population. Let me explain these matters a little further.

The value of an intermediate product is truly appeared in the final product. This equally applies to infrastructure projects. Accordingly, it is in the final product, of which infrastructural development becomes an intermediate component, the benefit of infrastructure project to national economy could be found. With this definition you may now analyze the Mahaweli-river development project. It’s one of the main objective was to provide irrigation water to many farmlands. Hence, it is in the recurring final harvest that we could see the benefit of Mahaweli project. In that sense therefore, Mahaweli project is truly a good infrastructure project.

Also, in the above, I mentioned that infrastructure project should have the character of increasing productive power of the nation. Another important objective of the project was to generate electricity. The electrical power facilitates the use of machinery and as a result the productive power of the nation in general is increased. Again, by this criterion, Mahaweli project is a good infrastructure project. Thirdly, I mentioned that a good infrastructure project would increase the living standard of the population. Mahaweli project did it by providing water for drinking and irrigation, by providing electricity to businesses and houses and other places etc. Hence, Mahaweli project was a good infrastructure project identified and facilitated by the UNDP/FAO as far back as 1969.

Now, what would you think about the Mattala airport? You may make your own judgment about it. But what is certain is that if any infrastructure cannot increase the productive potential of the nation and if it cannot reasonably increase the economic standard of living of people, then such a project would turn into a so called project of “white elephant.” We do not want the Megapolis project be that kind of one. Hence alternative plans, designs must be looked into. Perhaps, the concept of Mega-regions could be a competitive one. Whatever the case is, when it comes to economics the most important measure is the “comparative advantage.” It means alternative plans must be studied.

So far, we have been discussing the importance of megapolises, how megapolises can effectively remove the land scarcity and whether Sri Lanka’s first megapolis project is truly an infrastructure project by definition and scope. Yet, we, as people of this country, should be interested most not only about the megapolis plan. What we should be interested most is about financing of the different components of the project. It means we need to know about the components which are to be undertaken by the government. Why?

It is because Sri Lanka is not a country that runs with a surplus in its “current account.” Sri Lanka has been posting a current account deficit for a long time. Also, its current account deficit is not balanced out from the non-credit inflow of foreign currencies such as U.S. dollars. This means the country’s Balance of Payment (BoP) is maintained with continuing borrowed money from foreign sources. Under such circumstances I particularly concern about the financing of Megalopolis project and how it is going to affect the country’s current account and BoP in the medium to long term. Project planners must explain elaborately on this point.