Prof. Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, spoke of the three facets of Asian capitalism and what it means for Sri Lanka at a public lecture organized by Advocata and the Echelon Magazine.
Q&A Moderated by Eshini Ekanayake, an Economist at JB Securities focused on macroeconomic research and analysis on Sri Lanka.
Advocata, along with Echelon Magazine with it's new event series Think! will host Prof Razeen Sally for a talk on the state of Asian Capitalism and what it means for Sri Lanka.
Prof Razeen Sally, Associate Professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is also Chairman of the Institute of Policy Studies, Sri Lanka.
Eshini Ekanayake, Economist at JB Securities will moderate the Q&A.
Capitalism has had an astoundingly successful run since the 1950s, especially in East Asia. With China now at its centre, and, to a lesser extent, in South Asia, what will be Asian capitalism’s challenges in the next half-century? And what will it mean for Sri Lanka?
Prof. Sally will look at the three facets of Asian capitalism: economic, political, and global.
First, its economic face. So far Asia has had successful “catch-up” growth based on mobilising labour and capital, and imitating what the West has already done. Poor Asia (low-income and lower middle-income Asia) still has much room for catch-up growth. But Middle and Rich Asia (upper middle-income and upper-income Asia) have either exhausted catch-up growth or come close to exhausting it. Their challenge is to innovate, to move to more productivity-based growth. They need the “creative destruction” of “Schumpeterian” capitalism. So what are their innovation challenges?
Second, Asian capitalism’s political face. What are the varieties of institutions that underpin Asian capitalism? Are they equipped to move to Schumpeterian capitalism? What are the obstacles? Is Schumpeterian capitalism possible in a Chinese-style autocracy? Or does it need Western-style liberal democracy and “open societies”?
And third, Asian capitalism’s global face. Asian capitalism has been successful in a global and regional environment of stability and openness – the post-1945 Pax Americana. US leadership has provided geopolitical security and the maintenance of a liberal world economy. But these conditions seem to be changing, and faster than expected, with the US in seeming decline and retreat, and China ascendant and more assertive. So what are the relevant global and regional scenarios for Asian capitalism?
Find out more about the lecture and register to attend.
Advocata resident fellow Ravi Ratnasabapathy joined Bizfirst to speak about State Owned Enterprises, and the macro economy based on the new finance ministry report.
Roar Media mentioned Advocata in a recent article on sanitary napkin taxation.
An excerpt from the article:
“Sanitary napkins and tampons in Sri Lanka are taxed at over 100% at their landed cost (the CIF value), the Advocata Institute, a public policy think tank, said. It doesn’t stop there—the price increases even more by the time the product reaches its retailers, as they add a markup to the already taxed item. “
The breakdown of taxes is as follows:
CEO of JB Securities, and senior fellow at Advocata Institute, Murtaza Jafferjee made a presentation on the state of protectionism in Sri Lanka during as a precursor to Advocata's event with Prof Robert Lawrence from Harvard University's Kennedy School
Prof Ricardo Hausmann of Harvard University's Centre for International development spoke about the importance of immigration reform for Sri Lanka at a public lecture organized by Advocata and Echelon Magazine. Prof Hausmann argues that know-how which immigration brings is essential to diversify Sri Lanka's exports and help the country grow faster.
Q&A moderated by Murtaza Jafferjee
Advocata Institute in partnership with Echelon Magazine organized a public lecture by Ricardo Hausmann, from Harvard University's Centre for International Development. Following is a collection of press coverage for the lecture that encouraged Sri Lanka to take on ambitious high skilled immigration reform to increase knowhow in the economy.
From the Sunday Times : "Sri Lanka must open doors to skilled experts"
"Economist and consultant to the government on improving the Board of Investment (BOI), Prof. Ricardo Haussmann said that the immigration policy is the “lowest hanging fruit” which must expand to encourage more foreign knowhow."
From the Sunday Observer: Liberalising migrant labour policies key to propel growth - Prof Hausmann
“With the talent you have, you have the country you have. But with the talent you have, you cannot create the country you want to have. To have the country you want to have, you have to compete for talent,” the Professor advocated."
From the Daily News : Sri Lanka can create jobs, boost exports, by moving brains: Prof. Hausmann
“Only 18 percent were born in California, even though it has a population of 40 million, twice as big as Sri Lanka,” Hausmann said.” Silicon Valley would not exist if was based on locally grown talent.”
DailyFT Editorial : The immigration discourse
"Economies grow by adding new products and services to their production portfolio, and not by producing more of the same kinds of products. The key to such diversification is access to know-how, but know-how often has to come from abroad."
Immigration key catalyst for development
"Reforming immigration law to allow free movement of people through progressive laws could tackle Sri Lanka’s chronic economic challenges of narrow exports, low Foreign Direct Investment (FDI) and limited innovation, a top expert said yesterday, outlining many examples of countries that have experienced growth spurts by opening up their labour markets."
LankaDeepa Sinhala Daily
ශ්රී ලංකාව මුහුණ පා ඇති අපනයන සීමා වීම හා ඍජු විදේශ ආයෝජන මඳ බව යන ගැටලුවලින් මිදීමට ආගමන සීමාකරණ ඉවත් කිරීමේ දැඩි අවශ්යතාවක් පවතින බව හාවඞ් මහාචාර්ය හඋස්මාන් පෙන්වා දෙයි.
Articles also appeared on Ceylon Today and DailyMirror on their print versions. An op-ed on the event by Advocata was published in all major English Dalies.
Prof Ricardo Hausmann, Harvard economist and renowned development expert to give a public lecture on “Accessing knowhow for Development” in Colombo. More details are available here
Advocata Institute is organizing a Public lecture by Prof Ricardo Hausmann, the director of Centre for International Development (CID) at Harvard University. The event is to be held on Wednesday 16th May at the Lighthouse @ LKI. 24, Horton Place, Colombo 07. 5.30 PM to 7.45 PM
Prof Hausmann is a leading expert on development economics and a practitioner on finding enablers for growth in developing countries. He will speak on the topic of “Accessing knowhow for development”.
Economies grow by adding new products and services to their production portfolio , and not by producing more of the same kinds of products argues Prof. Hausmann. The key to such diversification is access to know-how, but know-how often has to come from abroad. This is because it is often easier to move brains to new countries than to move new know-how into brains. In the experience of Singapore, India, Vietnam and most other dynamic economies, three channels of know-how transfer stand out: FDI, immigration and diaspora networks.
In this lecture, Prof. Hausmann explores the relationship between economic development and the accumulation of know-how. He will in particular discuss how to tackle Sri Lanka’s limited export diversification.
Prof Hausmann and his team at CID has been conducting research on ehow to diversify sri lanka’s exports to compete globally, achieving dynamic growth and upgrading knowhow in the economy.
Before joining the faculty at Harvard, Prof. Hausmann was the Chief Economist of the Inter-American Development Bank (1994-2000), where he created the Research Department. He has served as Minister of Planning of Venezuela (1992-1993) and as a member of the Board of the Central Bank of Venezuela. He also served as Chair of the IMF-World Bank Development Committee. He holds a PhD in economics from Cornell University.
The lecture would be followed up Q&A moderated by Murtaza Jafferjee, CEO of JB Securities ltd. You can register here.
Advocata Institute is an independent free-market policy think tank based in Colombo.
To own and live in your own house is the dream of most Sri Lankans. Sadly for over 2.5 million families it will only be just that, a dream. According to the housing needs assessment and data survey conducted by the Ministry of Housing and Construction, over 2.5 million families either live in temporary housing, on rent, in partially constructed housing, in cadjan roofed houses or are homeless and landless.
When Dhananath Fernando first saw the statistics he was taken aback. “This means that half the population, that’s ten million people, are in need of housing,” he says emphatically. Which is why for Dhananath, the high protectionism taxes placed on construction material is so problematic, with wall and floor tiles being levied 108% import tax and 90% on construction steel.
The high taxation on building material disproportionately affects those with lower income due to the regressive nature of indirect tax, and thus makes it far more difficult for the average Sri Lankan to own a house. This impact on the poor and vulnerable in society is what then motivated Dhananath, a policy researcher to find out where exactly this extra cost comes from.
Dhananath’s research study –‘Cost of construction and protectionism’ won the main award at the Asia Think Tank Shark Tank Championship held in Jakarta, Indonesia in February. The competition which was held during the Asia Liberty Forum pitted think tank professionals from across the region in front of a panel of thought leaders – the prize – a USD 10,000 grant for their project.
This year’s eminent panel included former Finance Minister of Indonesia and Ash Centre Senior Fellow at the Harvard Kennedy School, Harvard University Dr. Chatib Basri; Prof. Razeen Sally from the National University of Singapore; Chairperson at Atlas Network Linda Whetstone -; CEO and Co-founder of Free the People in the United States Terry Kibbe and Siegfried Herzog – Regional Director for East and Southeast Asia at the Friedrich Naumann Foundation for Freedom. Of the three finalists, Dhananath’s pitch was adjudged as creating the most impact on public policy for helping the economic prosperity of Asia.
This victory has meant that Advocata, the freemarket think tank founded by Dhananath, can go forward with his research study. He intends it to be a twofold one with the first part focusing on the regional comparison of construction and material cost within the South Asian region, for benchmarking purposes. The second part will be an industry analysis on the challenges faced by the industry as well as identifying the areas in which efficiency can be achieved. Dhananath intends the study to result in a policy brief for the consideration for the government and engagement with the local industry stakeholders. But the final objective for him is to help those he calls the most vulnerable, the poor consumer.
The issue of high protectionism taxes on construction material first came to his attention when reading a report published by a local conglomerate, the Jafferjee Brothers. Though such taxes are applied across several industries, what surprised Dhananath was the sheer scale of it especially when there is a dire need for housing, with even basic necessities such as sanitary fixtures being levied upto 70% in taxes. The argument for such protectionist measures is acceptable during the infancy stages of industries, however as Dhananath points out it has been decades since these industries have started up. With no publicly available plan by the state detailing a timeline for protectionist measures and the end of such measures, it appears that there are no plans to phase them out according to Dhananath. “A 108% tax rate shows that the local industry is very inefficient,” he says, questioning why the general consumer must bear their inefficiencies.
The high construction costs may even explain why Sri Lanka has failed to attract the level of FDI initially expected. Dhananath recounts speaking with developers and investors who’ve stated that it’s cheaper to build in other parts of the region rather than in Sri Lanka, which allows them to recover the cost of their investment faster.
An old boy of St. Sebastian’s College in Moratuwa, Dhananath became interested in public policies as a child through his involvement in the Liberal Youth Guild (LYG) and debating. But coming from a traditional background, he was steered towards the sciences and medicine. “My parents wanted their only child to become a doctor,” he says, as he recounts how he attempted to enter the Medical Faculty, but missed out and instead followed a bio-science degree at the University of Colombo. However due to a lack of funds to pursue further education, Dhananath ended up working in the fields of HR and Market Research. It was during this time that his passion for public policy was rekindled. He followed courses at Atlas Leadership Academy in the USA and the Centre for Policy Research in Kochi, India. Once armed with the practical experience in research, and backed by academic qualifications, Dhananath founded the free market thinktank Advocata with a small group of friends.
Established two years ago, Dhananath explains that Advocata aims to create public awareness on public policy issues, and help governments make policy decisions based on facts and research rather than just anecdotal evidence. They’ve attempted to do the former through various articles and videos in collaborations with popular media such as Yamu.lk. “The response has been humbling,” says Dhananath, especially from the young urban professionals.
For Dhananath, the goals of Advocata and free market ideals are very personal. “Liberalisation isn’t for the rich, it’s for the poor. It gives everyone the opportunity to succeed,” he says emphatically. Witnessing the hardships faced by the poor and vulnerable during his time with the charity organization CandleAid, furthered his resolve to change things. “Sri Lanka has not met its full potential. We’ve been doing the same thing for the last 70 years,” he says critically, noting that we’ve slid towards greater protectionism, that mostly benefits a few and not the public as a whole.
Coming from modest beginnings himself, he truly believes that everyone should be given an opportunity to succeed. “I wouldn’t say things were difficult, but rather that things weren’t easy,” he says, recounting how as a student he used to provide for his retired parents by conducting tuition classes. Learning English too was an obstacle having grown up without studying in the language. Which is why having presented his proposal to the eminent panel at the Asia Think Tank Shark Tank and winning the grant is also personally satisfying to him as it shows how far he has come.
Advocata Institute has been named in the list of best new think tanks in the world in 2017 by University of Pennsylvania's Think tanks and civil society program (TTCSP). The list appears in the 2017 Global Go to Think Tank Index published annually by the university, widely regarded as the benchmark study of global think tanks.
This is the second consecutive year Advocata Institute ranked on the “Go to Think Tank Index” under the category of “Best Upcoming Think Tanks in the world”. Advocata Institute is a young think tank formed in May 2016, working on economic Freedom and free markets in Sri Lanka.
Advocata conducts research issues related State Owned Enterprises (SOEs) in Sri Lanka, Protectionism and tariff reform as well as ease of doing business in the country.
Professor Rohan Samarajiva, Professor Premachandra Athukorala, Professor Suri Ratnapala and Dr.Nishan de Mel are few top academics serves in their board of advisors while Anarkali Moonesighe the CIMB CEO joined their advisory board from the corporate sector
Advocata recently hosted Prof.Robert Lawrence from Harvard Kennedy School on a session on “Path for Prosperity: Free Trade or Protectionism” and managed to win the “Asian Think Tank Shark Tank” competition in Jakarta for a research study on cost of construction & protectionism.
According to the “2017 Global Go to Think Tank Index” report there are 7815 (6486 think tanks in 2016) think tanks and civil society organizations in the world working on an array of issues of interest in environment, economy, international affairs and etc. The report has identified 32 think tanks and civil society organizations in Sri Lanka.
Regional centre for Strategic Studies(SL) ranked 32nd in the Best Think Tanks in Southeast Asian Region and Institute for Policy Studies(SL) followed them in the 33rd Ranking. Centre for poverty analysis (SL) (CEPA) ranked 44th and Institute for National Security Studies (SL) Ranked 100th in the same category.
Lakshman Kadirgamar Institute for International Relations and Strategic Studies ranked 126th as the Top Foreign Policy and International Affairs Think Tanks
Brooking Institute in the United States was rated as the best think Tank in the world.
The key objective of the study of University of Pennsylvania is to helping to bridge the gap between knowledge and policy and the 2017 report is their 11th anniversary edition.
Harvard Economist Prof Robert Lawrence delivered a lecture on Protectionism and free trade, following is a selection of the media coverage for the event.
"In Sri Lanka total tariffs on steel was raised to as much as 90 percent which includes customs duty, cess, port and airport levy, nation building tax, Murtaza Jafferjee head of JB Stockbrokers told a forum organized by Advocata Institute, a Colombo-based think tank."
"There is no rationale for most of these tariffs,” said Prof. Lawrence, adding that historically, imposing tariffs has been more a case of who exerted the most political influence rather than any calculated economic strategy - hence the need for a simplification of the system. “When you increased trade protection, your imports went down, as did your exports,” he said, pointing to a strong correlation internationally between reduced tariffs and increased exports."
"However, even when infant industry protection is well–intentioned, it is difficult for governments to know which industries they should protect and to what extent they should do so, because goods and services of such infant industries may never grow up to enter the global market. In many cases, a tax on imports is a tax on exports. Hence tariffs such as these (para tariffs) could hurt the same industries the protectionist measures intend to help", he pointed out."
Reforms are best served when political leaders are good at communicating them to the ordinary people in a convincing way, whether they be fiscal consolidation, monetary policy, public spending, collection of state revenue, tariff frameworks or signing of free trade agreements, a Harvard economist said"
“90 percent of your tariffs should be in the simple schedule, and then there may be some exceptions,” he said. He added that those exceptions should be for firms that actually had long-run growth potential.
“What Sri Lanka needs is tariff reforms. What you need is simple and significantly lower tariffs. We are not saying you should move there overnight, in the sense, you need to have a long-term agenda in which you move to a much more simple system with significantly lower tariffs,” Prof. Lawrence said.
“One of the ideas we would like to promote is that Sri Lanka needs tariff reforms, by moving to lower and a simple tariff structure. We are not saying you should move there overnight, but you should have a long-run agenda to move in there gradually.“You might be surprised, but flat tariff rates get you more money than very high tariff rates that cuts off the import lines,” said Professor Lawrence who currently serves as Faculty Chair of The Practice of Trade Policy executive program at Harvard Kennedy School.
Advocata Chief Operating Officer Dhananath Fernando won the Asia Think Tank Shark Tank championship in Jakarta for a research study titled ‘Cost of Construction and Protectionism’.
The Asia Think Tank Shark Tank is a championship for Asians to pitch their ideas on creating an impact in public policy to help economic prosperity in Asia.
Dhananath contested in the final round with two fellow contestants from Nepal and Indonesia and won the Asia Think Tank Shark Tank Championship title with a $ 10,000 project grant for Sri Lanka to conduct the study.
Dhananath made a strong case on the high cost of construction in Sri Lanka and highlighted that more than 10 million Sri Lankans would benefit if border taxes were brought down. He explained the total taxes at the border on wall tiles and floor tiles which is 108%, construction steel which is 90% and sanitary ware (commodes, squatting pans) which is 72% were completely unfair for a country where about 10 million people dream their entire life of building a basic house. He added that the cost of construction was 40%-60 % higher in Sri Lanka than the rest of the region which has negatively impacted the entire construction industry.
Dr. Chatib Basri - former Finance Minister of Indonesia and Ash Centre Senior Fellow at the Harvard Kennedy School, Harvard University; Prof. Razeen Sally from the National University of Singapore; Linda Whetstone - Chairperson at Atlas Network; Terry Kibbe – CEO and Co-founder of Free the People in the United States; and Siegfried Herzog - Regional Director for East and Southeast Asia at the Friedrich Naumann Foundation for Freedom were on the panel of judges
Dhananath is currently the Chief Operating Officer and a founding member of the Advocata Institute. He is a volunteer at Candle Aid Lanka, a humanitarian organisation and was a member of the founding team of the AK Lit Fest, a platform for local literature lovers.
He hosts two flagship TV shows on ART Television namely ‘Public Space Sri Lanka’ and ‘Wake Up with ART’.
He is a graduate of the Atlas Leadership Academy, Washington DC and a graduate from the University of Colombo in Bioscience and Biochemistry.
Originally appeared on Sunday Observer
‘Gap in market could be exploited’
The introduction of the Goods and Services Tax (GST) in India from July this year has opened up an array of opportunities for Sri Lanka’s IT services sector to clinch projects from India’s smaller firms in the fields of accountancy and taxation services, a top former Indian bureaucrat said last week.
Speaking in a public virtual conversation with Chairman of the Institute of Policy Studies of Sri Lanka, Prof. Razeen Sally, the former secretary to the Ministry of Finance in India, Dr. Narayan said there is a gap in the Indian market where the Sri Lankan IT services industry can exploit because the big IT companies like InfoSys and Tata are so busy with government work and the smaller companies are finding it difficult to get their jobs done.
“There are opportunities for a small software firm, an accounting firm or a tax filing firm to do work virtually for the Smaller and Medium Indian Companies.
All that you need to do is to put out your availability out into the media and say that you are willing to do this work and work will come your way,” said Dr. Narayan, who also served as Economic Advisor to former Indian Prime Minister, Atal Bihari Vajpayee said.
He said that in India a lot of tax filing work and others are now being increasingly done online following the introduction of GST in India on 1 July 2017 which replaced multiple cascading taxes levied by the central and state government.
“Large companies like Infosys, Wipro and Tata are handling big government work like driving licenses and vehicle registrations etc. So they are employing thousands of people to handle this while for GST there aren’t enough jobs available,” Dr. Narayan said. Hence, he said that for an ordinary business such a little company out there, they have to figure out the software and file it online.
“People are not available as everybody is busy with big work, while small firms are all blocked up,” said Dr. Narayan, who counts nearly four decades in public service in the State and Central Governments in India. The virtual conversation by Prof. Sally with Dr. Narayan was organized by Advocata, an independent policy think tank based in Colombo and was held at the MAS Innovation Centre.
Advocata Resident Fellow at the Advocata Institute, Ravi ratnasabapathy appeared on the nationally televised Face the Nation to speak about reforming State Owned Enterprises in Sri Lanka and particularly the fate of the troubled SriLankan Airlines.
Dr Narayan, a former economic Adviser to the Indian Prime Minister says there’s ample opportunity to further India - Sri Lanka Trade.
Dr. Narayan, former secretary to the Indian Ministry of finance and former economic adviser to the Indian Prime minister, made such statements by pinpointing to several sectors where opportunity for growth is visible. One such area for Sri Lanka to exploit is the market for consumer goods, he said, given the nature of India’s vast internal market. He alluded to the current success of the export of Sri Lankan sausages as a case study for his claim. Sri Lankan sausages, is preferred over local sausages , especially in Southern India, due to its higher quality, which results in gains in income for Sri Lankan sausage producers and exporters. At the same time, India benefits from higher quality when its local producers aim to perfect their production process to match the quality of Sri Lanka exports, which leads to mutual gains for both countries.
Dr. Narayan also pointed to the IT sector as an area filled with opportunities for Sri Lankan firms. Despite India being an IT giant, and attracting a lot of IT related investment into key cities like Hyderabad and Bangalore, where you would expect Indian firms to dominate, there is so much scope for Sri Lankan IT firms to exploit. He claimed that since recently, many large Indian IT firms like Oracle have been preoccupied with government work alone, that they are missing out on other potential customers. This is what creates the market for Sri Lankan IT firms to target, and prosper in the process.
Such sentiments were expressed in a Facebook Live event organized by the Advocata Institute, held at the MAS innovation centre on the 21st of November. Dr. S. Narayan was joined by Professor Razeen Sally, associate professor of the National University of Singapore and the chairman of the Institute of Policy studies. The discussion progressed into a session of active engagement between the audience present at the venue and the audience connected through Facebook. Common questions asked were along the lines of whether India is a threat to Sri Lanka, bringing to light the transfer of professionals and skilled labour from India to Sri Lanka. The Facebook audience seemed concerned about the NT trade barrier removal and the degree of commitment India is showing to facilitate trade. Professor Sally went onto to ending the discussion on a light note, stating that we as Sri Lankans should be much more optimistic about Indo-Lanka relations and the opportunities that may arise from such a relationship.
Advocata fellow Ravi Ratnasabapathy was on Newsline speaking about the 2018 budget proposals
Advocata advisor Ambassador Frank Lavin commented on U.S. President's Trump's five nation visit to Asia. Speaking to Forbes Ambassador Lavin says "President Trump must go beyond merely asserting U.S. goals for the region and put forth a positive framework that allows for natural friends and allies to be supportive.".
The 12 day trip that takes the President to China, Vietnam, Japan, South Korea and Philippines is important step in creating some coherence in the administration's policy toward Asia. Observers are also looking for clues as to how President's stated trade policy of "America First" plays out in his dealings with these leading Asian countries.
Seasoned Trade policy expert Prof. Razeen Sally told forbes that "a worst case scenario would involve an escalation of threats from Trump towards Seoul that could cause a Korea-US FTA [KORUS] breakdown similar to NAFTA, thereby endangering the security relationship with South Korea and the regional geopolitical balance."
Another sticking point of the tour is how President Trump would deal with the increasingly tense relationship with North Korea. Ambassador Lavin says it's likely as a first step that the Trump administration would use the trip to make it known its solidarity with South Korea and that we could see increasing pressure on North Korea going forward.
Advocata fellow Ravi Ratnasabapathy was on Face the Nation program a nationally televised program on current affairs and policy.
The State of Economic Freedom in Sri Lanka by Fred McMahon
Anushka Wijesinha on Economic Freedom in Sri Lanka
Eran Wickramaratne on Economic Freedom and Policy in Sri Lanka
Panel Discussion - Is Sri Lanka ready to embrace Economic Freedom?
Published on Colombo Telegraph
Good Morning ladies and gentleman, honourable State Minister Eran Wickramaratne, a lot of other familiar faces in the room, and of course the dynamic team at Advocata who have really taken this think tank from a start up to really making waves in the Sri Lankan think tank circuit.
It’s a real pleasure to be with you this morning and deliver a keynote at the Advocata and Fraser institute Economic Freedom Summit.
In my remarks to you today I’ll highlight some aspects of Economic freedom from my own perspective. They don’t neatly tie into the economic freedom index necessarily-my comments are a little broader- but you’ll realize through some of the running threads that they link up quite a bit with some of the elements of the Economic Freedom Index.
Much of these remarks will be from my own perspective, my own personal viewpoint. And some of they may find some resonance with you and try to provide food for thought for further discussion whether it’s for today’s proceedings, or for institutes like Advocata to take forward later on. It’s of course by no means an exhaustive discussion about economic freedom in Sri Lanka. I’m sure you’ll find many things you wish I had said, and you’ll find fault with me for that, but I’ll try and keep it to some perspectives for you to ponder on.
My keynote will be on three parts: part one is on policy orientations and the role of the state-might be an unusual point to start on given that this is a largely a free market discussion but I think it’s an important discussion to have on policy orientations and the role of the state, in part two I flag a few examples of contradictions or tensions in our economic debate where I think the lens of economic freedom needs to come in very strongly and very quickly that will enrich the debate here in Sri Lanka, and in part three my comments will be about how we can create and shape a popular narrative around economic freedom in our country.
Lets dive right into part one with a few thoughts on policy orientations and the role of the state. I must state upfront that I’m not a believer of absolutes, either blindly following that market forces can solve everything and we should just leave it to that, or that the state must overbearingly do everything because there are too many market failures. I think to be absolute in this debate will be missing the opportunity to make real change and really influence policy, but might be disconnected to the growing acknowledgement globally that there is a need for both the market and the state so long as we get the balance right. But hey, I guess that’s the big elephant in the room-getting that balance right- and we seem to have not gotten that balance right lately.
I recall a conversation that I had with the chief of UNIDO (United Nations International Development Organization) a year or so back. We were driving to the SLINTEC Nano tech facility in Homagama and we had a chance to chat. I asked him having seen so many policy orientations across the world with his work, what would his one piece of advice be to Sri Lanka. And he answered choose pragmatism over dogma. And he recalled, once again you might find it odd that in an economic freedom discussion we are referring to China- but this is just his remarks, he recalled Deng Xiaoping’s famous remarks — “It doesn’t matter whether the cat is black or white as long as it catches mice”.
So he went onto argue that for too long academics have been preoccupied with trying to classify development paradigms to neat, discrete categories. But given the complexity of our world today, the impatience of societies to prosper, and the pragmatism required of politicians, clinging on to particular ideologies may not help. Instead he argued whatever policies that can get the job done. In this case, gets the job done of expanding prosperity to more Sri Lankans is where the focus should be. So we need to be pragmatic about our policy mix but it certainly doesn’t mean that we shouldn’t focus on economic freedom — that should be our anchor.
But really what I’m saying is that we need to figure out what’s the best part to advocate for it in order to make the change. So focusing on economic policies that affect the prosperity of our people and the success of our firms would be a good way to go about it, and I think that it’s exactly what this summit tries to do today.
A useful way to anchor a policy debate on the role of the state is in my mind is about the government knowing when it should help create the way and knowing when it should entirely get out of the way.
So on the first part of that- on getting out of the way. You and I would both agree that we would love less government in our lives to deal with. An important part of this agenda is improving business regulations. The good news on this is that we are seeing a lot of attention on this and some progress. There are now eight ease of doing business task forces under the Ministry of development strategies and international trade with a roadmap of reforms for 8 areas on the World Bank’s ease of doing business index ranging from the speed of starting a business, the speed of obtaining construction permits, to the speed of settling commercial disputes.
So I think that’s definitely steady progress and I think the jury’s still out on how soon we will see results on but I certainly think that’s a lot of progress. But there are also regulatory issues beyond these often sighted ones. An important process that uncovered these business regulations beyond the ones we hear in these indices was the National Export strategy that we are now finalizing and the private sector has very much been a part of this process. During this, which took a sector by sector approach, there were several bottlenecks identified in particular sectors and across export sectors. For example in the IT sector (the honourable State minister has heard this at a recent meeting with us) for an IT company to bring in from overseas, a specialized person with a specialized skill set that’s not available here and can help take that company to the next level, the company has to make a request from the Department of Immigration for visas, but, that request has to then be forwarded to the relevant line ministry relevant to that company, so in this case, the Ministry of Digital infrastructure and telecommunication, who in turn refers that to a competent line institution, in this case, the ICT agency, who in turn takes a call on whether that company actually requires that particular person and that particular person’s skill set or not and then gives approval and then finally the visa is issued. This is an example of these kinds of regulation but thanks to the process we are having now and the support from the ministry of finance I believe, this is to be soon, streamlined.
Another example that I would like to cite. There’s a really cool manufacturer of wooden framed sunglasses. And he has to get a permit from the ministry of forestry for every batch of “Sunnies” that he exports. And that permit only lasts for a few weeks, and even if hundred sunglass frames are made from one tree and he has got the permit evidence that this has been sustainably forested and so on, he has to get a permit for every single shipment. And he wanted to go down the ecommerce route, and in ecommerce you don’t ship a hundred units in one go. Right, so you would order one from Canada, one from India and another person orders it from Belgium, so all of these would go in individual units so imagine having to go and get a permit for every single occasion.
But you can’t blame these institutions because for many years, they’ve been wired to think about protecting, so now the challenge is to rewire them to think about facilitating. There’s an economic problem here apart from just economic freedom and regulatory processes, because it makes the difference between him being able to capture value in Sri Lanka, retail value, versus capturing wholesale value which is what he has to do now. And these are just some examples at the national level.
We often talk about the Doing Business Index. But by its very design, the DBI only measures the business climate in a country’s largest commercial city – so in this case, Colombo. Having done a lot of work on SMEs I can tell you that the sub national business climate is very different, and I think we’ll all agree that these have important links back to economic freedom.
One thing I must confess here is that in the agenda of advocating where the state should get out of the way and reforming regulatory and procedural issues, I found that our private sector has also disappointed us.
At the Ceylon Chamber, whenever regulatory issues arise and companies tell us about it, we always say tell us what the specific regulation or act you are having trouble with, send in something in writing, help us make the case for it so that we can take it up quickly with the government. Often, the complaints come, but the follow up documents rarely ever do. Or we get very generic one liners like reform labour regulations or we get lengthy complained essays without anything specific. Now this makes it so much harder for us to advocate for regulatory changes and business and trade associations really know best what is pinching them. Folks are quick to complain but when it really comes to specifying what the issue is, either they don’t know or haven’t thought about it, or they just can’t be bothered putting pen to paper and would prefer to keep blaming the government for it. So many of these issues get unresolved because we just don’t find the bandwidth or interest even in government for them to take this on and dig in deeper. So here’s where I feel that we must do more.
Now the reason I bring this up is not to make one party look good and the other look bad, but if we are really keen about regulatory reforms we have got to be a part of it. And we have got to be proactive- it’s not going to happen with the click of a finger like magic.
Anyway this was all about the government getting out of the way. How about creating the way- does the government have a role there?
Now here is where I think it gets a bit contentious. Beyond the usual provision of public goods, health, education and so on I believe there is one area in which I think it’s a no brainer and that is supporting R&D and innovation. A lot of innovation activities globally, including in the countries that are the most economically free –so there isn’t mutual exclusivity there- are supported in some way by the government. Sri Lanka has a few examples of how good partnership with the state can catalyze innovation. The Sri Lankan Nano technology centre, for example, and the Science Park there, trace expert city. One of my favourite examples is the Gamma irradiation facility where private rubber gloves manufacturers can use this facility as a shared technology resource to make their gloves into surgical rubber gloves, which requires it go through this gamma radiation. And they’re able to capture more lucrative export markets.
I believe that the government will be launching soon an innovation and entrepreneurship initiative that provides exporters with support to develop new products, test and prototype, upgrade their technology and also an additional programme to support very early stage start ups. Now these are all examples of where the state can create the way whilst it gets out of the way in other areas.
Moving on to part two, I will highlight a few contradictions or tensions that I see, just a couple of examples in our debate on economic issues. Things that bug me and it might be bugging you too.
The first relates to trade and investment policies. We often here about the desire to promote exports as an important strategy of attaining faster growth and achieving greater prosperity. Yet we often hear about the desire to curb imports- exports good, imports bad. This really links back to our trade policy and the kind of protectionism we have.
Whether it’s in the public sector or in the private sector, I’ve heard few people explore the virtues of imports. Their idea of economic freedom is that we must export as much as we can but prevent imports as much as we can too. This thinking was particularly relevant under the economic management of the previous administration, but remnants of it still remain in both the public and private sector today. We must recognize that exports and imports are two sides of the same coin and it’s especially important considering contemporary trade patterns which are dominated by what economists call global production networks, where importing parts, components and raw materials at sensible prices are integral for a firm’s ability to be successful as exporters. Curbing imports while trying to boost exports is somewhat oxymoronic.
Another aspect is FDI. I’ve received many a letter from our members at the Chamber who want me to advocate for tighter controls on foreign investments, from companies that are pretty successful in overseas markets. They have benefited from open, investor friendly policies overseas, but are adamant that Sri Lanka should curb the freedoms of foreign investors here at home.
The second aspect in my contradictions and tensions theme relates to issues in the labour market. At meetings this week on finalizing the national export strategy, several industries complained of a shortage of workers. Not only shortage of skills necessarily, but a shortage of absolute numbers, particularly in manufacturing. They are just unable to attract young people into manufacturing.
All of them seem to have this one fantastic solution for it, and are adamant that it is the solution. “We must stop them all from becoming three wheel drivers”- and I’m sure you’ve heard these similar sentiments. The issue is that young people’s aspirations are changing; their mindsets and attitudes towards certain occupations are changing. Many are placing a premium on flexibility than a steady job; many are discounting future earnings and are taking an unorthodox approach.
Many are also having, what economists call a high reservation wage, where they would rather work as a three wheeler driver at that level of income than going for a manufacturing job. The challenge is that whilst this is a problem, too many folks I know think that the solution is to ban them from becoming three wheel drivers, or worse, curb the three wheel population as a whole.
I think this is a classic economic freedom issue that is being highlighted here.
I’ll be the first person to admit that there are many three wheel drivers who drive like crazy people in the city, and I’m sure you’ve had your fair share of close shaves due to their bad driving but the problem with making rather binary policy decisions is that we fail to realize the economic freedom element in this.
During the course of my work, I visited a number of tea estates and rural areas, and the amount of utility they gain from having a three wheeler is immense. For inhabitants of rural estates, the three wheeler is their last mile connectivity. It is their de facto public transport. It is that three wheeler that gets a mother from the estate line room to the estate clinic in time. That gets a child to a tuition class. That enables a grandmother to bring her shopping from the weekly pola. By introducing the high LTV (loan to value) ratios on three wheeler purchases, to stop young people from going into it, or to reduce the number of three-wheelers in the city, I think we’ve just vilified the three-wheeler as a whole and the reason I spent a little bit of time on this seemingly small example is because I thought it captures the case in point being the need to reshape the debate around economic freedom.
I’ll give you another example before moving on to the next part. There was a meeting once again hosted by the ministry of finance a couple of weeks ago with tech companies to discuss what needs to be done to boost the tech sector. Many folks, like I said, discussed about the need to reform payment regulations, making it easier to attract global talent and during the conversation, a point about Sri Lanka’s limited skill pool, a couple of individuals suggested that we must find a way to limit the migration of Sri Lankan IT graduates- there is too much brain drain.
I think a lot of us were rather alarmed to hear this from the industry. Now intuitively at first glance, it may sound sensible at first glance. Sri Lanka’s IT sector is growing, has great potential, IT sector is constrained by the limited skill pool, a lot of IT people getting educated here and leaving, so this must be stopped. But I think the economic freedom implications of this are rather serious.
These areas I think are areas of tensions or contradictions in economic thinking where I think an economic freedom lens needs to come in quite strongly and Advocata can help to shape that debate.
Next to part three, on creating a popular narrative around economic freedom. And for this I argue that we should take budgets and government spending as our starting point. I share with you two perspectives on that. The first is how Sri Lanka, rather ironically, taxes enterprises to support enterprises. Confused? Let me elaborate.
Sri Lanka has dozens of institutions from national level to local level that have been set up to either promote enterprise development, or industrial development. They are present in every district, in every province. They are well staffed at HQ, and on the ground. But many of these are not working the way they should anymore. They have outsized budgets compared to the services they deliver and they have rarely been questioned on the efficacy of their programmes. But they run on the taxes of entrepreneurs and workers. Imagine this, we are taxing entrepreneurs who are already operating in a rather unsupportive business climate at the local level to then fund state institutions across the country that are supposedly supporting enterprise development but really aren’t very useful or effective. I can understand the tax money going to fund roads, bridges, police, schools and hospitals-no entrepreneur is going to argue with that- but, to take tax money to fund these institutions to me seems so wrong. And to add insult to injury, it is these institutions that have been used to provide unemployed university graduates with jobs as so called development officers.
So it’s a double whammy for a tax paying entrepreneur; not only did your tax money pay for someone’s undergraduate education, but it’s also going to pay the wages of that undergraduate to work at these institutions that have been set up to support enterprise development.
You know, I’m really surprised there hasn’t been a revolt by provincial enterprises. Now the radical solution would be to shut them all down and shove off part of the tax burden from enterprises, but I doubt this will happen in the short term. So I think we should at least agitate to get more value for money. I had a very interesting discussion with UK’s former head of the Small Business agency, David Irwin. He came from the private sector and this was his first public sector job. And so he was determined to get real value from his state agency that was meant to support small businesses. And one of the first things he did was to get his officers to go out and meet enterprises to understand their needs. This is something our institutions can do too, in the short term. Get all of these officers to go out, be foot soldiers, meet enterprises, understand what they need, resolve their issues or connect them to someone who can.
So this is just one example of why we need a strong and popular narrative around the size of government, value for money for public spending, and overall economic freedom.
The second perspective relating to this is about SOE losses. I need to say upfront of how proud I am to see Advocata take this issue head on and in their first public document last year, it was totally dedicated to the issue of state owned enterprises and kick started debate on SOEs that had been lost for many years. Taxation, SOEs, budgets have never really been sexy topics for anyone but I think we need to make them sexy.
We need to help people relate to these issues, help them understand how they matter to people’s lives. Few years ago I remember publishing a short blog post about SOEs where I made a small attempt to make them relatable. I put forward about nine alarming facts about SOE losses-this was around 2014- the two that got the most attention were relating to the two airlines at the time (2014). One- the projected losses of the two state owned airlines in the next three years will be ten times what Sri Lanka spends each year on education related welfare, like textbooks, uniforms and school meals. This was from the ministry of finance report back in 2014.
The second one that animated people – The losses of Mihin Lanka Pvt Ltd in 2013 is equal to the entire amount the government spent that year on crucial welfare programmes like Triposha, poshana malla and fresh milk for preschool children. Mihin had just three aircrafts, and these programmes served over one million people. Suddenly you take this from an economic reform debate, or an SOE reform debate, a public finance debate, a fiscal prudence debate into a debate around value for money and spending priorities for people.
I think that if we are to succeed in holding the public sector accountable the money collected from current and future taxpayers- we need to get better at creating a more interesting narrative that gets more people animated. One of my favourite approaches is how the New Delhi based, Centre for Budget Governance and Accountability (a private think tank) uses cartoons published in a leading Hindi Weekly newspaper highlighting budget issues, highlighting contradictions, highlighting irony, in a crafty and attractive way and its really gained ground.
Maybe we need to go a bit further; we need a few gimmicks and public spectacles Green Peace style. Here are a few radical ideas I would like put to Advocata to think about pursuing. Ahead of the budget next month, take a Mercedes Benz S class to the entrance of the University of Colombo, park it there and advertise that by cutting one luxury car from the cabinet of ministers we can fund a state of the art computer lab with 150 computers. For vesak next year, have a massive butter cake dansala in the centre of Kurunegala and as you begin to cut up this massive butter cake, for distribution tell people about your research on food taxes and how much of their cake goes on tax. Stand outside the Sri Lankan airlines office with bags of Triposha and flag how many more school meals estate children could have been provided- and by the way, child malnutrition in estates is the highest in the country.
As the final bit to this part I would like to put forward two key areas for further thought- these both relate to part three’s main theme on how do we create a popular narrative among people and also among policy makers. The first really is about aligning ideas of economic freedom to other ideas of economic thought that maybe more familiar to policy makers here and abroad.
And in this, I submit that the conceptual framework of inclusive growth is probably the most compelling piece of mainstream economic thinking that matches economic freedom. The problem so far has been that we tend to conflate the idea of inclusive growth with redistribution, or just welfare. Actually, inclusive growth is more about economic freedom than we realize. Inclusive growth is not just about more people benefiting from growth, but it’s equally about more people being part of creating that growth, whilst redistribution simply means growth happens in a few sectors, in a few regions in the country, you take those surpluses and then you provide welfare. That model is what we followed during the colonial plantation economy, but inclusive growth is about enabling more sectors, more people, more regions of the country to play an active and productive role in generating that growth- not just in Colombo, but everywhere. And I think this is where the entrepreneurship climate comes in, this is where opportunity and freedom comes in, this is where fair play and better government performance comes in. Inclusive growth is really about creating a climate where more people in society, where more entrepreneurs have the opportunity to thrive. And not be held back by bad procedures, and an unfair, or uneven playing field or a lack of investment in people’s health and education. So that’s one aspect of economic freedom to consider- linking economic freedom to the inclusive growth discussion. The other final aspect is how do we measure the outcomes of economic freedom in a way that matters to people.
I think Fred highlighted some metrics, particularly around the usual GDP per capita income measures, and I think the most important contribution of economic freedom Index, is that it gives us a good sense of the input factors – what are the pillars or elements that tell us the degree of economic freedom in the country. We now need to look at how we can capture something beyond that; how can we capture the degree of economic freedom felt by economic agents in an economy. I think there’s more work to be done on that, especially from a Sri Lankan perspective. If we are to create a popular narrative around economic freedom, institutions like Advocata and others would need to work on how to relate economic freedom to policy outcomes that governments seek, how to relate it to the lives of citizens and entrepreneurs, and to be able to answer a key question- what does economic freedom mean to you.
Thank you very much.
