By Kumar David – 

Prof. Kumar David

No man is an island entire of itself; every man 

Is a piece of the continent, a part of the main; 

Therefore, never send to know for whom 

The bell tolls; it tolls for thee.

John Donne

Last week (7 June) this column fretted that Lanka’s economists and planners were playing the veena while the citadel was aflame. Discourse oblivious that the world as we know it has to come to an end. This is the premise of my column today. Ok, ok you must be fed up with my elephantine imagery but if the global environment has been transformed then surely don’t we need to change our approach? Last week I didn’t make proposals, just hurled abuse at others. But I know I can’t get away with it; incompetent in the dismal science though I be, I have to make suggestions of my own – Hic Rhodus, hic salta! Since “Mankind sets itself only tasks it is able to solve; the problem itself arises when the conditions for its solution are present”. 

Lanka must not turn inward to economic autarchy 

Self-reliance has become a pop term in the context of disruption of supply chains exposing how dependent we are. However, to attempt substantial self-reliance, that is import substitution across the board would be disastrous. Lanka is self-sufficient or nearly so in rice, fruits, vegetables, meat and fish. Strengthening domestic agriculture and animal husbandry in more such sectors is wise. But leaving aside the plantations, agriculture and animal husbandry account for less than a tenth of GDP, hence though psychologically stimulating this is not the location where the big match will be played. 

Manufacture and services are the playing fields that matter. The drying-up of existing markets and disruption of export chains of manufactures (apparel, rubber products, porcelain, ceramics, luxury seafoods, processed foods, beverages and jewellery) have to be addressed. We have no option but to reintegrate in fresh ways into the regional and global economy. Dananath Fernando (“Production Economy etc.”, Sunday Morning Business, 31 May) makes insightful contributions to this perspective. Now others have to take this ball and run. It may sound paradoxical but the way to go in the context of a recession in global production and disruption of supply chains is not to withdraw but to integrate in new ways into regional and transformed global networks. The challenge is to find a niche in these nets. China for example is a partner in the manufacture of computers, mobile phones and electronics. It is not a mere supplier of chips and components for finished products made in the US or Japan, but a partner in global manufacturing. That’s logistical model for Lanka, albeit on a mini scale.

What Lanka needs is not mere FDI but partners to integrate it into global production and trading networks. Seafood exports are improving their export profiles after Covid-19 and can consolidate a hold by integration in distribution systems in destination countries, otherwise now depressed meat supply, supported by strong marketing, will storm back. The apparel sector cannot depend on masks and surgical gloves; demand will be short-lived unfortunately, if fortunately, the virus too is.

Two successful examples of deep involvement are the Emirates merger and tourism. Emirates gained more from the union than Srilankan did, but it was win-win to a degree till haughty Mahinda destroyed it in an arrogant presidential huff. Thereafter, the airline was bled for billions by crooked family and friends. Regarding tourism, domestic travel agents, tour operators and the hotel industry are integrated with international counterparts and global hotel chains. This served the businesses, and foreign currency and employment needs, till the virus devasted all. There is a sting in the tail; if a sector of the global economy goes down, it will take the rest of the world in that sector down with it.

Belt-tightening is better than burgeoning debt

All governments in past excepted the Sirima-NM belt-tightening endeavour buried the country under mountains of debt to secure electoral prospects. Fiscal deficit and handouts were the sine qua non for winning elections – often that too failed. Political-populism driven consumption prioritisation led to unsustainable budget deficits, foreign and domestic debt, inflation and a fall in the exchange rate. A country can and needs to borrow to invest, produce and prosper but the last time that happened were the Mahaveli ‘stages’ and major CEB power projects. And fifty years ago, in the 1950s and early 60s, there was a rush to set up state-enterprises on borrowed money; the big ones on the whole were successful. However, in the last two decades we have borrowed to eat or rob and fallen ever deeper into hoc. Wasteful, politically-crafty, venal prestige projects (airports sans aircraft, stadiums sans cricketers, concert-halls sans events and highways in Hambantota’s emptiness not the much-needed Colombo-Kandy link) worsened indebtedness by billions of dollars. But oh dear, let’s be frank, the more rotten the deal the more enthusiastic the voter.

Lanka reached the end of this road some years ago but thanks to Chinese largess, for whatever reason, or much perfected pirouetting with a begging bowl for the entertainment of the IMF, Brussels and Washington, Lanka’s bowl was frequently replenished. Now we have shot past the end of the runway into a ditch dug by the virus. Maybe the Chinese, Indians or IMF will bail us out again, maybe not. It doesn’t look good because the Central Bank clawed back $1 billion from foreign currency reserves to part-service some $4 to $5 billion in interest and repayment due in Q3. (Reserves are like the current-account on which a family subsists. National debt is like mortgages, overdrafts and bank loans that keep you awake at night).  

There is no farther we can go on this road; the belt has to tighten, the rich have to pay, the poor too. The military is being strengthened to deal with unrest if austerity is imposed with no economic renewal visible. By far the single most important element in the economic programme will have to be employment creation. Joint-ventures as well as private investment, if they include the integrative element I spoke of in the previous section of this essay, will be vital and the much spoken of but stone-dead Hambantota, Trinco and other Trade Zones must be given the kiss of life. They will create hundreds or at best a few thousand jobs. But the challenge is tens or hundreds of thousands – factor in the forty thousand skilled and semiskilled workers already registered as “wanting to return”.

The secret to big time job creation lies in SMEs and much more so the Informal Sector. Units in the informal sector are way smaller than SMEs. Typically, an informal business comprises a family or a one-man show; a mini-contractor who calls for an additional carpenter, electrician, mason or worker when needed, owns a double-cab and has a garage or roof-top workshop at home. It is an error to identify the informal economy only with the pavement hawker, the newspaper delivery man and the veralu amme. It is the itinerant small contractor, plumber and electrician who decamped when the Middle East opened that will matter in future. They are on the way back; the employment multiplier of each will be another two or three. These smaller-than-SME enterprises must be nurtured. 

The way in which planners can help is not only by making credit available for tools, a van and a home-workshop, but also establishing websites where plumbers, contractors etc can be located. I was amazed by the number of micro-contractors (one or two man shows) I could locate by clicking “gas”, “home electrical” or “plumbing” on any US home-laptop. Planners must also create sites where handbooks, guides and do-it-yourself manuals on every topic can be accessed by English literate informal sector craftsmen. Raj Gonsalkorale says in a personal mail; “Our population is largely in agriculture and agricultural industry contributes to the economy through import substitution. Most are self-employed. If the state intervenes to strengthen the internal supply chain, import substitution will increase”. Obviously, he is thinking along parallel lines about strengthening opportunities for millions of small producers. Their contribution can go beyond import substitution to integrate into broad development networks.

But belt-tightening requires the cooperation of the populace. This is not possible unless it is seen that corruption is being curbed and income and wealth inequalities are being reduced. This is another dimension too big to take on board in today’s column.

Two-man carpentry micro-enterprise

Intellectual and educational reforms

Before education system reforms must come a revolution in the way of thinking; otherwise change will be limited to tinkering with the curriculum. Sans across-the-board attitudinal change the challenges of the decade of the 2020s cannot be addressed. It may sound paradoxical in the context of set-backs in the global economy, but the way to go in the next difficult decade is not to withdraw into empty self-sufficiency but to integrate ever more intelligently into regional and global networks. We have to stop fooling ourselves with Rata Jathika Abimane (pride in nation and race) and learn English, teach young fellows to master a digital manual, learn about other cultures and understand international economics. Lanka needs a population that is agreeable to a relationship with the world and does not do so by simply salivating after a Green Card. 

Reform of the curriculum has been much discussed and I don’t need to repeat; perhaps only a few keywords to round off this paragraph of the essay. The oft used keywords are: skills orientation, pride in hands-on than desk-jobs, a rational and scientific disposition rather than – well I don’t want to be lynched by the monks – and English, English, English. I will confidently say Sri Lanka will get nowhere until its people, or at least all its young people can communicate in an international tongue as in Singapore, Shenzhen and Seoul. And in the last two that’s not much.

You may ask me for a more explicit statement of why intellectual and educational reform is relevant as a response to the specific economic difficulties arising from the global recession sprung by CV-19?  The answer is that we have to integrate more, not less with regional and global production processes and supply chains. Why is China crazy about English in secondary schools and universities, why are Chinese university students more competent in English and have a better awareness of what’s going in the world than ours? Because they have cottoned on to what I am saying in these paragraphs. I have raised just three points in what will have to be a much larger discussion. I rest my case for now.