By Kumar David –
The Government’s Vision 2025 document is titled a Dynamic Social Market Economy (plus sexy adjectives Knowledge-Based and Highly-Competitive added for good measure) in addition there are three subtitles; A Country Enriched; Hub of the Indian Ocean; A Modern Dynamic Economy. If wishes had wings, pigs would fly. But no more uncharitable comments, this essay will be measured and meticulous.
Socialist Market Economy is how post-Deng China describes itself. The word ‘Socialist’ is chosen to appease tens of millions of Communist Party cadres. The Ranil-Sirisena duumvirate chose ‘Social’ so as not to annoy much sought after foreign investors, pacify domestic business lobbies and mollify the liberal middleclass. No harm is done, words are not that important; my task is to apprise V2025 and reflect on how likely it is to succeed.
I have studied the Chinese economy for two decades – rather intensively from 1997-2000 when I had to prepare a lengthy paper. For want of a better term I employed the appellation state-capitalism; but this is misleading. It denotes capitalism (the principal noun) with meek adjectival state influence. State-capitalism does indeed describe features of the early Singaporean and Korean experiences, and fits fascist Italy, Germany and Peronist Argentina to a tee. In China, however, the Party-State leads, capitalism and the capitalist class are subordinate.
Chinese economic architecture has six cardinal features.
- Management and decision making is dominated by the Party-State
- Power is monopolised by the Party which dictates to Central and Provincial governments.
- Basic factors land, banks, finance, energy, mining and large industry are state owned.
- Village land is de-facto peasant owned but nominally administered by county/village entities.
- A dynamic, technically vibrant, capitalist sector drives growth and dominates exports.
- Rich and super-rich classes devour economic riches but want of political power.
This introduction was necessary to make the point that though labels Socialist and Social sound similar, the Chinese economy and the vision in V2025 are dichotomous. A ‘Social Market’ is defined in V2025 as an efficiently functioning market plus social welfare for the “vulnerable”. Leave aside whether you think that good or bad, the two models are different. I will next summarise V2025; what the text says, challenges to implementation, and credibility of the vision.
V2025 is a vision-driven manifesto; it is not an implementation plan. We have had no discourse on economic perspective for 30 years, hence the document will initiate dialogue at three levels: (a) priorities and perspectives, (b) are targets realistic and achievable within proposed time-frames, and (c) what about the fundamental outlook. In the next subsection I will deal with (a) in the next section and (b) in the subsequent one. Readers who have done me the kindness of perusing my pieces will be prepared for differences on (c). I will reserve that for the closing paragraphs.
Perceived as a vision document initiating discussion of development perspectives, the drafters have to be congratulated for coverage. They have enumerated and broadly grouped Lanka’s economic concerns. True, you will find all the issues touched on explored someplace in a thesis or study, reported in some NGO or IMF publication, or discussed at a conference or seminar. What makes V2025 useful, at least as a study tool, is that it has brought them together into a single short report and assembled them in categories. V2025 does not advocate concrete plans for taking forward the vision, but it contains many topics useful for PhD study – there, there, the stupid academic in me is getting the upper hand.
In order to give readers who do not have the patience to read through the document a flavour of its scope, let me enumerate some important chapter titles.
- Constraints on growth (Chapter 2)
- Strengthening the macroeconomic framework (Chapter 5)
- Growth framework (Chapter 6)
- Land, labour and capital markets (Chapter 7)
- Social infrastructure (Chapter 8)
- Technology and digitisation (Chapter 9)
- Agriculture and sustainable development (Chapter 10)
This is only half the story; there are seven more chapters on delivery, governance, coordination, a social safety-net, an introductory chapter on vision and a conclusion. To delve a little deeper allow me to list the bullet points defining Chapter 5 on the Macro-economy: Fiscal consolidation, fiscal reforms, rationalised expenditure, reducing debt to 70% of GDP, prioritising capital expenditure, ensuring price stability and sanctioning market driven exchange rates.
A similar deconstruction of Chapter 6 on Growth reads: Ease of doing business, investment policy predictability, encouraging private-public partnerships, integrating small and medium enterprises into the formal sector, simplifying and clarifying trade policy, expanding use of Free Trade Agreements, encouraging and diversifying exports and emphasising service sectors. Tourism gets considerable mention. Making Lanka a global and an Indian Ocean logistical hub gets a bullet point. I was surprised it did not get a whole chapter as it is a subtitle of the main document. The elephant that was absent was coverage of industrialisation and industrial policy – the opposite of Mody next door.
The Chapter on Technology and Digital advances was a disappointment. It starts by flaunting the term “disruptive innovation technologies” – a term fashionable with business types for artificial intelligence, data mining and business computer applications. Palpably, the chapter is not the handiwork technologists but of business people familiar with computer applications in business. The chapter title is Technology but there is no reference to energy*, power*, industry, or productivity enhancement except via ICT (Information & Communication Technology). *Power and energy are mentioned in Chapter 11 under Sustainable Development.
I have difficulty in believing that the drafters intended their target dates to be taken seriously. To raise per capita GDP from the current $4000 per annum to $5000 by 2020 (2.5 years; start 2018 to mid-2020)) requires an annual growth rate of 9.3%, assuming constant population. Currently growth is running below 5% and Central Bank Governor Coomaraswamy told a Madras Hindu reporter: “We want growth to be close to 6%, if possible. This year it is between 4 and 4.5. There is a temptation for people to try to accelerate growth through unsustainable macro-economic policy”. He was demurely hinting at the Rajapaksa government’s antics with the Chinese credit driven splurge which induced a brief high, trailed by a painful debt overhang. To put it bluntly; an annual growth rate of 9.3% in the immediate years ahead is pie in the sky.
To become a “rich country” by 2025, as promised, begs the question what is rich? The lowest per capita income in all of rich-Asia, that is omitting Japan, Singapore and Hong Kong, is Taiwan’s $24,000; surely this is no realistic target. Or are we looking at Turkey, Argentina and Hungary? Today (2016) the average of these three is $11,850. But to rise from an optimistic per capita $5k in 2020 to $12k at end 2025 (constant 2016 dollars), that is a full six years, calls for an average growth rate of 15.7%! A glacial improvement in growth rates is credible but the authors of V2025 are gazing at the stratosphere!
We have no choice but to discard stargazing and settle for growth (net of population change) of 6% for two years up to 2020. Then if all goes well let’s hope for 8% for the next six years though that’s ambitious. Then nominal GDP per capita in constant 2016 dollars will rise from $4000 in 2017 to $4490 in 2020 and reach $7125 in 2025. This will make us, in 2025, about as wealthy per capita as a poorer Eastern European country, say Bulgaria, today.
I have spent time on growth to make a point. The same decompression has to be done for other targets; employment, expansion of exports and foreign investment. V2025 envisages one million new jobs (not unreasonable; the document says 430,000 have been created since 2015); expansion of exports from today’s unimpressive $10 million to $20 billion; and FDI of $ 5 billion by 2020 from its base of less than $1billion in 2016 and 2017 (projected). There is no point asking questions like “how are you going to achieve this?” in the face of so much irrationality. Mind you, this doubter prefers the yahapalana lot to the vile Joint Opposition and he aligned with the Jan 8 Movement to overthrow the Rajapaksa presidency.
The doable alternative
V2025 is a vision not a plan. That’s ok; you must have a vision (preferably with realistic targets) before planning execution and organisational. I would like to believe that data gathering, implementation studies and organisational structures, backup the V2025 vision. It would be uncharitable to say this background does not exist; but I am not aware of it. What I do know is that there is no national planning agency and no units empowered to drive implementation.
My deeper critique is that V2025 is located on the wobbly terrain. Its unvarnished expectation is that the private sector will deliver and that entrepreneurship, not the directive role of the state, will be the determinant. (“Private investment will be the key driver of growth in Sri Lanka, complimented by increased inflows of FDI” – Ch. 6. “We will (provide an) incentive regime for private investment led . . growth” – Ch.4). The government is to implement tax and labour reforms and create a conducive environment for domestic capital and foreign investors, who are envisioned to take the ball and run. Now leave aside ideology; I will back off if this is likely to work. But the lesson of decades is that this is a dead end. Even in the last three yahapalana years domestic capital has been impotent. Meanwhile the IMF “finds no evidence that making the rich pay more tax leads to lower growth” – IMF half yearly Fiscal Monitor, Oct 2017. Need I say more?
The success stories of recent decades are when government led by directing and intervening, in albeit capitalist development – vide early Korea and early Singapore. Then non-capitalist Vietnam, Central Asian ex-Soviet –stans, and recently a few East African countries. V2025 contains too much hangover from JR; it does not boldly break free of the umbilical cord. The January 8 Government did restore democracy, but in the economic arena it has been unsuccessful.
Nevertheless I do not wish to conclude on a sour note because as a vision, though not a plan, the document has virtues. An outward-looking approach, knowledge-based activities, capital market management, preventive health care, youth empowerment, transport systems planning, sustainable development, these are attractive keywords.
After the intellectual sterility of Rajapaksa desertification and decades of toxic neo-liberalism V2025 is a stimulating upgrade. Next should come concrete planning, building organisations and the cardinal requirement, directive intervention.