In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.
Originally appeared on The Morning
By Dhananath Fernando
We may worship different gods but as Sri Lankans, we all have one enemy – poverty. According to data on Sri Lanka’s poverty line, 4.1% of our population is “poor”, but nearly 50% of our population is eligible for the Samurdhi Programme. Another 1.4 million is employed in the government sector. Therefore, the majority of Sri Lankans are just above the poverty line.
This was confirmed recently by the World Bank (WB), when it downgraded us to a lower middle-income country from an upper-middle-income country, as our Gross National Income dropped in USD (dollar) terms. In other words, we have become poorer.
Our economy has grown by 2.3% in LKR (Sri Lankan rupee) terms but in reality, we have become poorer as our GDP growth in USD terms has dropped to the standard of living that existed in Sri Lanka in 2005. Even though we were an upper-middle-income country for a short period, Sri Lanka’s province-wise income told a different story. Apart from the Western Province, the other provinces were way below the upper-middle-income range. It is clear that our average income was skewed by Western Province data.
At a time when we have all become poorer, the last thing we need is to fight amongst ourselves based on cast, creed, religion, or ethnicity.
If you look at Sri Lanka’s history, our highest growth rates and higher levels of production were achieved when the country was in peace. Although there were many interpretations of it, after 2009, which saw the end of the civil war, the country experienced tremendous growth rates above 7% with the Northern and Eastern Provinces joining the national economy.
However, unfortunately, we failed to establish the fundamentals of our economy post-war, and we have been paying constantly for our early mistakes. We only reaped the advantage of ending the war but we failed to utilise the opportunity to put in place basic fundamentals such as incentive structures, competitiveness, and price-based mechanisms in our economy. Till we establish that basic building block, we will have to go back and forth, and will not be able to experience sustainable growth to defeat our common enemy – poverty – and reach high-income status.
An encouraging work environment as a country
A country with a motivated workforce is one determinant the next Government needs to establish if we are serious about a prosperous Sri Lanka. Political parties may be victorious after the election but making Sri Lanka a victorious nation goes far beyond just securing a winning majority at an election. Winning elections is the same as an opportunity to play a cricket match representing the national team. In order to make Sri Lanka prosperous, it needs to put in a game-changing performance that ends in victory. A motivated workforce can only be built on unity between all Sri Lankans so that we can all work as one team, resulting in increased productivity. According to Frederick Herzberg’s Two Factor Theory (of Motivation), there is a hygiene factor instead of a motivator and in the absence of hygiene factors, people get demotivated easily. The biggest loser from tensions between the people and racial disharmony will be our economy, a fact that has been proven throughout history.
Most aspirational Sri Lankans are now tired of experiencing lost economic opportunities and revisiting these never-changing issues. Aspirational Sri Lankans expect to work harder, have better living standards, and to not be entangled in micro issues.
The recent downgrade to lower-middle-income status has a greater impact, after the Easter Sunday attacks and tensions we witnessed thereafter. Even before the Easter attacks, the riots in Digana and internet blockages were indicators that alerted us about tension between ethnicities – a move in the wrong direction. International investors need stable and peaceful destinations to invest their money. Internal ethnic tensions and communal disharmony tend to scare away potential investments that could drive domestic economic growth.
This phenomenon is key, among many other reasons, for our lethargic performance on the economic front over the last few years. Recent incidents connected to licensed banking institutes, which were shared widely over social media, highlight that tensions still prevail. If allowed to grow and fester, the price we all have to pay for these untreated wounds will be enormous. All Sri Lankans as well as the Government should understand that a peaceful, secure environment with a motivated and skilled workforce is a basic requirement for a small island nation of the calibre of Sri Lanka.
What should be our strategy and solution?
As outlined in this column, and as many other intellectuals have highlighted repeatedly, Sri Lanka’s strength is in its location and connectivity. Our weakness is that we are a small market and our resources are limited, while the available resources are not optimised. So we are left with no other strategy but to produce for a bigger market than our 22 million people and be competitive on all we produce by global standards. However, we cannot be competitive without having our house in order.
Our success as a country depends on our ability to understand other people’s needs and the ability to provide goods and services for their needs and address gaps in the market. If we produce only for ourselves and for our own consumption, isn’t it a very short-sighted and selfish approach, which will limit us from reaching our full potential?
If we blindly follow some trends in the US and other parts of the world which have far bigger domestic markets and very different economic indicators, we will be wasting our advantage of connectivity and location while also expanding our weakness as an isolated and divided society.
As Frédéric Bastiat said, “when goods and services don’t cross borders, soldiers will”. We should ensure all Sri Lankans engage and trade with all Sri Lankans, beyond manmade intangible borders such as caste, creed, ethnicity, and religion. At the same time, we should trade beyond our shores and country borders if we are serious about making Mother Lanka prosperous again and defeating our common enemy – poverty.
The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.