00:04 [Music]
00:08 banning something is okay i suppose for
some reason but if you do it in a grand
00:12 scale you are going to fail in a grand
scale
00:20 we know where it's going to end we have
to address the problem domestically
00:26 if you don't increase productivity you
can't sustain
00:32 bite the bullet and make the changes
that need to be
00:39 [Music]
00:53 check the
amount the cost of imports that you use
00:58 and you measure it against output that
it produced
01:02 so if you if you're high productivity
that means
01:06 at the same level of use of
input cell capital and labor and labor
01:13 then you can get a higher output it
could be many things it would be like
01:18 better yoga organization of the
institute
01:22 the enterprise some technological change
some management
01:29 input
some
01:33 some
some other company that wants to buy
01:36 your output more than before so all
those things are there the
01:42 the important point to remember is that
the principles are the same whether
01:46 you're talking about a firm or a company
or a country the same principles apply
01:52 but you measure it in a different way so
if i just take a simple idea of
01:57 shook factory
producing cell physical argument 100
02:02 shoes a day
now
02:04 if they can increase that at the same
use of inputs
02:10 then you say their productivity
increased
02:13 on the other hand
if they do some change
02:18 and for the same
input that they use capital labor you
02:22 get a low
low
02:25 output then of course your product is
declined this is a very simple idea and
02:30 people using everyday conversation you
can say that enterprise or that company
02:36 is efficient it is able to get more out
of his capital more of the labor
02:42 so now if you talk about a country we
use the term
02:46 total factor productivity or sometimes
called the
02:50 multiple factor productivity
so the idea is the same you have capital
02:56 that
you have land you have labor
02:59 uh if you want to put another thing you
can put in enterprise all those things
03:04 produce
your national gross domestic output that
03:08 is the amount of goods and services that
the country produces normally within a
03:13 year
so if a country is growing rapidly so
03:16 for example we have been growing rather
slowly in the last three years
03:21 earlier our average growth rate
for sri lanka was 50 years old close to
03:27 4.4.1
4.3
03:30 but for some reason that
we
03:34 really have to inquire better although
we haven't done it very well yet
03:38 is that our growth rate fell
to
03:42 last time we measured it to 2.3 percent
from the average of 4.1
03:48 so one my suspicion is that our
productivity failed because we had
03:53 we had a very good situation for example
as we mentioned before 78
03:60 to
1994
04:03 and after the
end of the war 30 year war
04:07 between 19
2009
04:11 and 2014-15
04:14 we had really got a bump in our
output
04:20 bump in our production
gdp went down resonating product went up
04:24 it reached eight percent at one stage
after the war
04:27 then it whistles down so why
so it is not that we cannot get to it
04:33 uh but actually we can't be ending wars
so the most practical thing to think we
04:39 can change policies in order to affect
the uh
04:44 to the total factor productivity and we
have in this uh later i'm going to talk
04:49 to you about that such measures have
been done
04:52 by our people and some people from
outside the country that gives us some
04:56 idea
where we should be
04:59 focusing in order to raise water
practical productivity i might say these
05:04 things before we go further without
raising total factor productivity
05:09 we cannot raise gdp growth rate
so if you see a country
05:14 that has grown very fast
most of the time because that is because
05:19 they increase their productivity they
became more efficient
05:23 so now china case
uh growing by 10
05:27 did have increase in productivity they
opened the
05:30 up the economy a lot of people came from
the rest of the world and it became the
05:36 the uh factors for the world
everything that you see either in sri
05:41 lanka united states
united kingdom you see made in china
05:46 made in china then they opened the
economy they had a vast
05:51 demand for products a lot of people
located their companies in china because
05:56 labor was very clever efficient
well-trained
05:59 uh hardly ever went on strike
and so this demonstrated
06:05 that by uh by adopting good policies
which they did particularly after the
06:11 uh reforms
in the
06:15 mid mid 80s
they did very well and certain other
06:19 countries all began to do this what are
called east asian countries even earlier
06:24 they started opening the economies
particularly after 1965 the four
06:29 countries that i mentioned
which in
06:32 usual parlance economy they call it the
four tigers
06:36 uh
singapore hong kong
06:40 south korea
and taiwan
06:43 but when they started
increasing their output through
06:49 productivity growth some economics
famous figurine nobel prize winner now
06:53 paul krugman and one of his co-authors
young they
06:57 found out this could not be sustained
why because their growth hasn't been not
07:03 basically based on
two of productivity increase
07:07 by but by
investing
07:10 more capital
uh more labor
07:14 and more uh traditional
uh inputs
07:18 so such a situation cannot continue
because let's take what you see so if
07:22 you can increase that they did they are
output by or eight percent nine percent
07:27 even at ten percent
in order to maintain that rate they had
07:32 to continue
investing large and large amounts of
07:36 money
from savings
07:39 to raise its increase
now another way economists know that
07:43 once you start increasing saving some
you have to suspect
07:47 suppress consumption somewhere so you
cannot really sustain such a system if
07:52 you are going to invest money by
letting people starve or have lower
07:57 levels of
08:00 living because standards are living
so this so this issue of looking at
08:06 productive became even more important
because they said the so-called miracle
08:11 of the east asian countries was not a
miracle because they started
08:18 investing money and needed to invest
more money they had to get
08:25 save it to save it your reduced
consumption so nowadays we know that is
08:30 a mixture of two things you need the
so-called
08:34 factor augmentation increasing capital
and labor at the same time also
08:39 improving your productivity with
if you don't increase productivity you
08:43 can't sustain it number one number two
is that if you don't have increased
08:47 productivity then you can achieve higher
rates of economic growth so that much we
08:52 know now let's talk about sri lankan
case sri lankan case you know our total
08:57 factual party has not been very
impressive
09:04 so our average growth rate has been
around uh
09:09 four point
one to four point three percent over
09:12 fifty year period that's not a very bad
record
09:16 particularly because very fortunately
for us our population rate has been
09:21 quite steady you know low compared to
our neighbors
09:25 certainly compared to other countries
at our same level of income
09:31 so actually we are outlier that way in
other words
09:34 compared to our lower income
we should have had a higher birth rate
09:39 they take it back low breathe both rate
so even at low levels of income we have
09:44 low
birth rate
09:46 for for reasons that are
peculiar or
09:51 confined to sri lanka which is a good
thing so per capita income
09:56 is actually output growth gdp growth
minus the population increase population
10:01 increase last so many 10 15 years have
been one person now below one person so
10:06 that's just saved us
we don't have more mouths to feed than
10:10 like some other countries who are
struggling because of a population high
10:15 population growth
so
10:19 so but the
interesting point is that our growth
10:22 rate
has been fluctuating as
10:26 growth rates do in countries but
productivity is particularly
10:31 sporadic so we had a jump in
productivity after the reforms of
10:36 1978 to 94.
then the next time we had a jump in a
10:42 productivity after the war
so now we can't start a war to have
10:47 productivity go up again
the the logical thing is to
10:53 change our
10:57 policies in order to give
philip give encouragement to increase
11:03 productivity it's called incentives so
half of it economists are even more than
11:08 happy it's about incentives
how do people react to the incentives
11:14 farmers
manufacturers industrialists what who
11:19 people who produce goods and services
they need some inducement it's
11:24 inducement in terms of profit
instead of reducing uh better
11:29 opportunities for them to
operate their
11:32 uh
little shops or large factories
11:37 so when we found that when we get there
gave them that inducement in 1978 to 94
11:43 period we responded but we didn't
sustain it that is the problem
11:48 and the argument why it cannot be
sustained is that because in order to
11:52 sustain
uh output growth of the order of that
11:56 type you have to have productivity role
with the productivity word is going to
12:00 face a lot
that's another reason though why we our
12:04 output does not maintain politics
political economy
12:08 in the sense that
we have what my old professor induration
12:12 used to call the tomorrow system that is
some people come to power they produce
12:18 they follow one one set of policies the
other people come and and they
12:24 completely reverse it and go another
part of thing so we are not no
12:27 consistent policy
12:35 so our
total fact about activity
12:39 has not been very impressive
uh some have been hardly two percent
12:45 the study that i
i can refer now to believe it or not
12:49 done by the federal reserve bank of
saint louis on sri lanka showed that we
12:54 hardly
was able to get to one point five
12:58 percent one person wiping for 20 year
period that is very low
13:03 if you compare countries like us at our
same level of resources they were doing
13:10 much better two three percent so just
see because our productivity is low
13:15 there's opportunity to do more than a
country that is already three four
13:19 percent so in other words there's a
potential there one i think i want to
13:23 say go back to little bit what we said
before
13:26 the what
why our policy change from
13:30 one administrator otherwise we are a
democracy you know we enjoy the fruits
13:35 of our democracy that's very important
so one of the other sides of the story
13:39 is that while our productivity also was
sporadic that is because our politics
13:45 was poetic that is the outcome of our
democracy so i don't think we can
13:49 complain against that
that is one reason why we went from one
13:53 side to the other our economic literacy
of our general population to be very
13:57 frankly not very good it is the fault of
the economies this profession
14:02 that not explaining
to the people what it means to have
14:07 productivity growth whatever the gdp
growth method product how are we doing
14:12 compared to our neighbors
what should we do in order to raise a
14:16 growth rate to raise our income level to
address issues of poverty to give give
14:21 greater
employment to younger generations that's
14:25 coming on stream you know it is at a
lower rate than other countries because
14:29 of low population
but we have to keep on growing
14:33 and to enjoy the benefits of that growth
through employment and have
14:39 more goods and services to enjoy
and so we need to look at it that way we
14:45 our
uh
14:48 general population
should
14:50 be better educated through
my profession and your professor
14:56 we have not done a very good job so
maybe that we can go back to go and look
15:02 at curriculum
of what we are teaching
15:05 and introduce very simple ideas
what do day-to-day economics mean for
15:10 people
what do we mean by saving investment
15:15 how have the other countries done
starting from lower level than viva for
15:20 example singapore had a lower level of
income compared to us in the 1950s and
15:28 look where
she is now or here it is and
15:33 we are
we sort of
15:36 lost some opportunities
but they were consistently
15:41 following godika policies the other
thing is that when one of the
15:45 enterprises did not do well but
supported the government they just said
15:49 that's it
they close it down
15:53 in our case we did not do that we
continue to
15:56 finance the the
deficits low productivity
16:01 low
16:04 low
income
16:06 high loss enterprises for a long time
so so did korea they did some very
16:13 important things they maintained
macroeconomic stability meaning they
16:18 didn't allow inflation rate to write
rice they didn't allow with their
16:23 balance of pains to be difficult to have
large current account deficits so they
16:27 created the stable economic environment
and they removed various barriers to the
16:33 private enterprise first of all
to invest
16:37 and to
learn from the rest of the world
16:41 they sent many people to study in the
united states for example and britain
16:46 and
and increase the
16:49 stock of tertiary educated
koreans
16:54 and then they follow this policy of when
some group wants to
16:60 enter a interval to a system industry
they encouraged and helped them
17:05 they did not say this is where you
should invest they allow that
17:11 choice to made by
the people who really are risking their
17:15 capital now that's a very important
point here those people
17:19 outside of if they have sort of
so-called non-public goods
17:24 they are talking about goods that are
commercial goods that people make of
17:27 profit out of it then choices made by
people to skim their money will always
17:33 be better than choices made by
bureaucrat in the seventh floor of a
17:37 building right
so because there's a penalty to the
17:41 wrong decision
whereas if the
17:44 chap who is on the seventh floor working
for a public government department make
17:49 those choices
then there's no penalty to him so they
17:53 go on doing this over and over and more
like these story of most of our public
17:59 enterprises so
if you want to really have a high
18:03 productivity growth then we have to have
some discipline
18:07 and say we are not prepared to
keep on
18:11 covering your losses you have to get out
of business i mean there are very famous
18:16 enterprises that we have iphone
mentioned them everybody knows
18:21 that
i'm making loss year after year in here
18:24 after we keep them
so for enterprise person
18:31 a party that is
in the business to make profits and
18:35 develop it their own
company or firm
18:40 be very careful about choosing
where the risks of the situation and
18:45 undertake
investment that will give them higher
18:48 return
the other thing you can do is that we
18:50 can learn from country we can invite
people
18:53 to come here and invest call for
indirect investment
18:56 i mean
the countries like that are having very
18:59 large foreign direct investment
china
19:04 vietnam
cambodia
19:07 they have large
foreign
19:10 investors
they are not xenophobic like
19:14 many countries sometimes including our
country
19:18 we are worried about foreigners coming
investing but actually
19:24 maybe a
few centuries ago
19:27 we had people who came and invested in
sri lanka that's why we were able to now
19:32 enjoy the fruits of tea rubber and
coconuts and mostly tea and rubber
19:37 so that type of uh opening is open
is therefore for us also
19:44 look at it our
19:48 fdi
in our country
19:50 the last five six years is very low less
than two percent
19:54 is rising rapidly
in india
19:58 vietnam i mentioned other countries that
are entering now the pakistani prime
20:03 minister going around the world inviting
people to come and invest in pakistan
20:09 and so
it is mutual benefit they get profit
20:13 that they can take out that we get
benefit from bigger party part of the
20:17 profit and it's under our
regulatory system
20:21 it is no longer alien i mean they had to
operate within our system as
20:27 so in all these countries that the
people who invest in china have to
20:31 follow chinese rules and chinese rules
are made in such a way that foreigners
20:36 is attracted to foreigners so it's not a
big deal i mean we could do that too so
20:41 sri lanka would do
i will come to this later sri lanka do
20:45 very well to invite people who have the
knowledge and the ability
20:50 to go and come and
get a younger proper
20:54 population also involved
to start good enterprises look at where
20:59 there is increased demand or increasing
demand
21:02 and set up
21:06 enterprises
depending on the type of location
21:11 the type of concession they will get
not too much concessions that we had
21:16 done in the past but
that gives them a return that is worth
21:20 their while and not because also there's
competition all our countries are we are
21:25 competing uh for foreign investment
and so that is how it is going to be so
21:31 if you
provide a more favorable climate climate
21:36 then
they will come and invest in this
21:38 country now i talked about private
enterprise
21:42 with respect to
private
21:45 area there are public area that the
government will have to do like for
21:49 example law and order
21:54 preliminary
investment in education and health we
21:58 have these very good things about our
health and our education system although
22:03 the quality of the education system is
him people say have been going down
22:07 particularly at the tertiary level and
we have uh
22:12 we our language skills are we
our english speakers are much less
22:18 than in the universities in the past so
we can address those things and there
22:23 are countries that
are teaching their stuff for example i
22:26 give you a simple number
china invites about
22:32 7500 american students every year to
come and teach in their school during
22:37 summer
so they go they get paid very well they
22:40 enjoy the experience to go to a
fascinating country like china and they
22:45 spend three months there during the
summer university vacation come back
22:50 both sides benefit
and so then also they the people who
22:55 work in even
factories and like
22:59 in these enterprises also can attend to
those classes and
23:03 even outside the formal education edge
system so
23:07 knowledge is a very important thing
about productivity
23:11 and so if you can get that thing and
knowledge going
23:15 that's not
that's the one of the surest way of
23:19 doing it
23:25 you will have to continue to be raising
savings which means you are
23:30 keeping consumption down and in a
country like ours we can't keep
23:33 consumption down people are hoping to
have more goods and services the ability
23:38 to you know dress well eat well
you know play well
23:43 so
the government will have to respond by
23:47 uh creating the condition that will
raise productivity so leads to the
23:51 question what are these things that they
can do but we already referred in the in
23:55 the in the last few
minutes about foreign direct investment
24:01 we can be very welcoming to foreign
direct investment
24:05 not not convincing giving a large
tax holiday in fact that is
24:10 counterproductive reasonable competitive
rate of uh foreign direct investment
24:15 like our peer countries are also
offering but india is offering the
24:19 pakistan buffering which thailand is
offering has offered impact the huge
24:25 complex of toyota factory
in thailand and they say that in the
24:30 next decade
the india is going to be the largest
24:33 producer of motor cars in the world
right
24:37 and there are also is particularly the
maddox area
24:40 they have a facility to the language
they can read
24:45 instructions
highly technologically very built
24:52 educated technology group of
technical people
24:57 already there and they they can be
themselves entrepreneurs working with
25:02 others who are financiers like they what
happened in
25:06 california the money makers get into
getting together with the people who
25:12 have ideas to produce things like apple
you know so
25:16 so that can happen that is now going to
be universally happening before we
25:20 combine to one place it everybody will
be better off because of that we get
25:24 better income
better jobs
25:27 uh
high level of
25:31 living standard
all these will come from greater
25:34 specialization and being open to the
rest of the world so fdi is one keep the
25:39 economy open that anybody who
can buy and sell with us without great
25:45 barriers at all
being put in place so that is why what
25:49 happened in 78 suddenly they we had a
very difficult system of control some
25:55 people said it was like the soviet union
our level of control nearly hundred
25:60 percent of our imports are controlled
okay i know because i was in sri lanka
26:05 at that time
uh the
26:08 central bank guy
in charge of the foreign exchange
26:13 controller foreign exchange used to go
every morning with a file
26:18 under his choosing to see the means of
finance to show him what people are
26:23 applying to get cast and how they should
be given those other people should not
26:28 be given all men of things that are
really wasteful
26:33 for
to do the minutia for a man who should
26:37 minister who could have done
you know large policy very smart people
26:43 they were caught up in this control
system
26:46 and they abandoned it when they
abandoned it like people went on a real
26:50 binge and invested there and we got a
real
26:55 jump up in our growth rate people are
doing well you know you didn't have to
27:00 earlier
you had to people could not get married
27:04 because they had to go to somebody and
get a permit to buy a new sari
27:10 and a suit right
and so the
27:14 children's
baby food were
27:17 russian
any family was given
27:20 one thing of baby food
uh
27:23 actually i have been in the queues for
that thing and and then they get a new
27:29 tin
uh
27:30 it was called infamil
before they sell it you bang it on the
27:34 floor
because you can't resell it
27:37 you know it was so ridiculous thing that
happened
27:40 and so
we didn't have to do that we wasted a
27:43 lot of time so we have a little time we
can't be doing that again we have to
27:48 learn from it unfortunately people who
are in this generation live today don't
27:53 know their story
uh that's that's not well known
27:58 the world is open to us because
particularly because our productivity is
28:02 low they have opportunity to go forward
and produce more
28:06 there's a famous story about a company
they sent two people to africa one guy
28:11 came and said they are not wearing shoes
there is no market
28:16 the guy said
they are not wearing shoes we can
28:18 introduce shoes to them
and then make a big difference actually
28:22 i have met mr bhattai he was invited for
a bang conference and
28:26 to the uh
28:30 he he introduced himself i am fw but i'm
a shoe salesman he said this
28:35 multi-millionaire he is a company is in
canada
28:39 so i mean they the opportunities are
there and we have clear people who can
28:43 do those things
i have no doubt about that well you know
28:47 there are other opportunities
28:52 reorder the education system the people
get trained
28:59 for jobs that for job opportunities you
know there are countries like germany
29:03 and in japan where they
in the university itself they train
29:08 people
they
29:10 financed by the big companies
they will say we need
29:15 we need
400 engineers by that okay go to the
29:19 faculty of engineering and say look we
are going to offer you a student to come
29:23 here and do engineering degree out by
three years we are going to pay their
29:28 fees but more at the end of it we hire
them
29:31 so both sides benefit from it right so
as i said earlier now the kobe time
29:37 people can learn
english for example or mathematics with
29:43 the best people in the country to go and
teach those courses they don't have to
29:47 be confined to a school room anymore you
can
29:50 you can
be imparting this knowledge openly open
29:55 source
make it available to everybody then
29:58 there are other things you know
30:01 learning from others same people
to be trained
30:06 open your opportunities to come and say
if you want to come and work our way now
30:12 to industry learn everything let's let's
talk about it we cannot be hiding and
30:16 say no we are keeping the technology
ourselves now our technique for example
30:21 in textiles is unbelievably good
you know people don't talk about it they
30:25 say we are only to know they they have
completely changed the way
30:30 technology the
technology of producing garment
30:33 producing
items that are used in garments
30:37 from elastics to various other
things that are part of a
30:43 garment
for government and so there are
30:46 opportunities why didn't we get it
because there are a lot of restrictions
30:50 in the system
and so we if we look at this carefully
30:54 and say there are certain we can remove
these restrictions because they are not
30:59 helping us actually they are sort of
blocking the system from working to our
31:03 advantage
and you know people who like look
31:07 would like to come and work in a country
like this now we have port city
31:12 anybody can come and invest we have
uh
31:19 their opportunities actually their
agreements allow for anybody to come and
31:22 invest in this country without any any
approach any uh restraint
31:27 as we had in the 19th
um after the latter part of 1970 so i
31:33 believe there are opportunities for
for us to reduce increased total factor
31:39 productivity by being open that actually
the work that are done i should mention
31:44 this
by uh uh professor jayathilaka bhandara
31:49 and uh dr tilak lyanna rashi
they did a very good study on total
31:54 vector but the mostly recent one
and they they have they have done very
32:01 rigorous work
they are
32:03 technical work which i they are not
i don't want to give an equation
32:09 and then
like
32:12 lose the audience
we can see that the fdi is there
32:19 opening to this if the trade is there
32:24 a good stable microeconomic situation is
there
32:29 giving
better opportunities or good training
32:34 for people to fit into the
to the
32:37 industrial
sector
32:41 are there those things will help and
like even in one of the variables that
32:45 they run
that improve productivity is to also to
32:49 reduce corruption
so that is also there so there are so
32:54 many things that we can work on and if
that is you know so when we consider
32:59 looking the next
five years
33:02 these things can be put in place but as
i said
33:06 uh you know one government comes and
does one something the other government
33:10 does something else so there's no policy
consistency
33:19 so a country for example big country
challenges said for the check of
33:23 argument in germany wants to venture a
new venture to produce some product to
33:29 look around and say where are they going
to get the
33:34 raw material imports at the cheapest in
the world now
33:38 from now from now because of the way
that our transport system has become
33:42 so efficient in terms of transport and
because we have technology that we can
33:49 shadow and follow what other countries
are doing and they can sit at a
33:54 computer and buy and sell
all these opportunities
33:59 so there's a very close connection
uh among countries
34:03 production
that is joined from rest of the world
34:08 so as i gave the example of ford motor
company uh buying goods and raw
34:14 materials from 46 countries today to be
i will be subtitled it should be three
34:18 times that
so even the smallest country can
34:21 participate so they don't have to wait
till they grow up and you know they can
34:25 participate i give the example of
that sri lanka has parts produced by the
34:30 bmw and people you know get very excited
outside this country
34:35 i said we produced the
the rubber part of the
34:39 the
viper
34:43 and that is good enough
i mean if you produce enough we can make
34:46 a lot of money out of this instead of
trying to produce
34:50 bmw every disaster for us
but we come there you know we learn
34:55 stage by stage
so in other there are opportunities
34:59 there even when you peel the shoe now
there are various way
35:04 ways of producing shoes they have a
story that you can use textile to
35:08 produce use
these days so there are opportunities
35:12 right there by tapping into a production
network the first thing to be able to
35:16 tap to the production network is to be
open
35:20 so people can invest here so we can buy
goods and services so we can offer to
35:25 others so we see some countries
advertising to buy
35:29 some important input
and then we can say you know we can
35:34 match up price
we are able to give you so many uh
35:39 units of this within this time
at this price and so this competition is
35:44 going to help us
very much because in a way
35:49 every country has some comparative
advantage
35:52 you know that's if somebody there
somebody in a in a meeting the i was
35:56 came and said no they have no
competitors i said no that is all wrong
36:06 we we have to find
the value of the good sense
36:11 the value of the inputs we are using
like how much we are paying for capital
36:15 to to borrow from the markets how much
is wage rates uh
36:21 for labor how much we are paying for
land rents or how much we are getting
36:26 the electricity connection how much we
are paying for water all these things
36:30 then the the common denominators you
have to add them together i mean you
36:35 have to have it in terms of value terms
either you can't add
36:39 uh
that's the only way to add that that's
36:43 okay so yeah output
uh
36:47 and this is the ratio again like in a
pump the ratio of
36:51 output to inputs okay so now the best
way most people follow what is called
36:57 cop douglas production function now this
is a fancy word for relationship we can
37:03 write it in symbols but it's just
relationship people then applied the
37:08 work
that professor robert solo did in 1956
37:12 he wrote a little paper which said
a contribution of theory of economic
37:17 growth which later gave him a nobel
prize for this he applied neoclassical
37:22 model in order to
see how why countries grow what are the
37:27 ingredients that are needed to grow and
how they are put together so objective
37:31 production function can be estimated
that's what ah
37:35 professor uh
bandar and lianaraki did they have very
37:41 nice
nicely done that
37:45 but we should not be i mean
there are always error terms in this as
37:50 you know if you run a regression and you
use economic model there's always the
37:54 error term
so
37:57 i think that you you control for it you
reduce the error and they're done a good
38:02 very good
econometric method being used so
38:06 actually it gives us a in the regression
equation tells you what are the
38:10 important variables in it so when i talk
about fdi it is there in the equation
38:16 when i take an openness it's their in
their equation so these are well known
38:20 now four of five things that are
important to increase factor to factor
38:24 productivity you can linearize it you
can convert into logs and make the
38:31 in the ui is easier i mean standard fare
for
38:36 today in uh
including sri lanka
38:39 to do a master's degree or advanced
undergraduate degree in economics in
38:45 order to learn this technology how to
put these numbers together on the
38:50 regression and get the result
38:57 you can't eliminate it because there's
uncertainty in the world the word that
39:01 we are dealing with uncertain
uncertain futures in it so
39:06 uh
if you get a good idea
39:10 about the way how to value the labor
that you get the capital just check take
39:16 two factor capital
and labor
39:19 there are different types of capital
they are depreciated at different rates
39:24 they are employed at a different rate
for example
39:27 they are not work the war throughout the
week
39:32 you have to take into account the how
many times they are being used in a comp
39:36 company in the case of the economy
what is the use of capital what is the
39:42 capital output ratio for different type
of activities
39:46 and then you have to
estimate the equation on the input side
39:53 and run it and see
what type of a result you are getting
39:57 does it
make sense does it give numbers that are
40:01 believable
are the signs of those numbers
40:05 consistent with the economics that we
have learned
40:08 and so
so doing this with a lot of people
40:11 who have been doing those estimates
and to me the important point is not the
40:17 decimal place here and there
but the fact that
40:21 in the large
you can see what are the important
40:24 things that determine total effective
water in sri lanka
40:28 so it's good for economies to worry
about and write papers about the policy
40:34 makers to us
to use these ideas in with the fashion
40:38 policy
so why should we liberalize econ well
40:41 look at that equation it tell you that
it has a positive coefficient
40:46 uh and why is it that
why is it that if you reduce the
40:51 depend uh
openness of the economy by putting
40:55 export and import import most import
controls that is the cost there so if
40:60 they say buy your input domestically
that will be so many times more
41:04 expensive
and so it won't work then you can no
41:08 longer be part of the global production
network if you are not able to produce
41:12 inputs at a low cost to sell to the rest
of the world and the whole world has
41:17 gone that way i mean look after the
fallen soviet union so many people
41:22 realize that this is the thing that they
should be doing
41:26 open the economies
uh
41:29 invite foreign investment everybody
benefits it's a positive sum game
41:34 internal trade is a positive both sides
can benefit it's not a zero sum game
41:39 everybody benefits and these are very
simple
41:43 but true and correct ideas that we can
benefit from
41:53 yeah i mean if you look at the easter
east european
41:56 east asian countries
eastern another another story
42:02 east asian countries
they
42:05 they realize in the mid 60s there is no
possible way of growing fast
42:12 economic growing past without
increase in to
42:17 total factor productivity you can't do
it number one
42:21 number two is that you can't sustain it
as you are saying
42:24 because you have to keep on investing
large and large amounts and you you have
42:28 to cut down investment because you have
to get the savings in order to do the
42:32 investment
and so it is the case that most of the
42:37 countries
i am going to risk it and say if i if
42:42 somebody give me a set of numbers for
say 10 countries in the world that give
42:47 very fast in the last 30 years i am
going to bet my bottom rupee
42:52 to say i will say that their
productivity growth has been
42:57 high because without the predatory
record you can't get to that level of
43:01 output growth simply because
simple language we use in our everyday
43:07 they are more efficient
they can compete better
43:10 they can increase their size of the
market
43:13 so that is the value of total
productivity what first second thing is
43:18 that
not only sustainability
43:22 that efficiency spreads
so for example if you are able to offer
43:27 people see you look at the the
opportunity that you see in other
43:32 countries
somebody producing
43:35 some item that you have in excess
even some type of rock uh you can say i
43:41 can deliver you
five tons every
43:45 uh six months
and you start the business like that way
43:49 so they are open
and technology grows very rapidly same
43:53 way that because of communications and
people
43:58 people we have we have we have
extreme ability now
44:03 to in a couple of seconds to get to
something i mean
44:07 if we knew didn't know something we can
only go to
44:10 google google it google it that's you
know
44:14 when
when i went to graduate school the
44:18 calculator was
advertising the new york times
44:24 first
thousand seven hundred dollars this
44:26 calculate electronic calculate
that calculator now is being sold
44:32 at less than five rupees in five dollars
in taiwan japan in all the developed
44:38 countries five dollars
so can you imagine and i teach in the
44:42 class i would say can you apply
the rate of
44:46 decline in
prices of these items
44:50 to mercedes-benz i asked them to do it
we did something so mercedes benz
44:56 started with something 1968
69 1970 model
45:03 we apply
to the mercedes-benz the same rate of
45:07 decline of price cost
to microchips
45:12 doubling every
ah most events that is 15
45:18 corrected the price will be something
like
45:21 two thousand dollars because it won't
happen
45:24 but you apply the rate at which
technology has gone forward
45:29 reflected in the
cost and
45:33 and it is open to all the countries in
the world you know
45:36 and look at the countries in africa that
are growing rapidly botswana
45:42 you know
45:44 very rapid growth not so too much of
technology but using new methods of
45:49 communication they are one of the most
advanced telephone
45:53 money trans system in the world now
so people who work in
45:59 nairobi is able to send the money to
their families within a couple of few
46:04 minutes
i mean i know the case where we
46:07 supported some students in vietnam
because we used to go and teach there we
46:10 found a bright student we would
send some money to buy some books and
46:15 all that and you can go to a place which
they call the
46:20 little vietnam in virginia united states
uh
46:26 we should joke and the ho chi minh troye
you go there
46:30 your money hundred dollars are
transferred within
46:35 10 minutes
of
46:38 by
they send
46:41 email you know email will take about
1.3 seconds to go right
46:48 and
then somebody
46:50 the corresponding
company like mostly a small shop
46:55 will take that money
and send in a bicycle to be delivered to
46:60 the house
so you're going to go anywhere deliver
47:02 to the house and it is 100 sure
because if they fall in one nobody will
47:07 come to them again
so it's very accurate very efficient now
47:12 if you go to bankers to a bank in the
u.s if i want to send
47:16 fifty dollars to somebody here hey i
have to spend something like fifteen
47:21 twenty dollars to send fifty dollars of
course how many i can send if i had the
47:26 money ten thousand dollars the ratio
will be
47:29 cost would be lower but you know see how
efficient the whole place has become
47:35 so in that it might say that in the work
that uh
47:40 prohibits
and the nrc have done they have broken
47:45 it into two parts
total factor product is high
47:50 in countries what they call
globalization friendly
47:53 and low in countries which are not
globalization and i'll explain what that
47:57 is
gopal family is what we discuss all this
47:60 time without putting that term in
uh open economies
48:05 open to fdi
uh
48:08 ability to learn quickly from the others
sending people for you know being open
48:13 to globalism friendly
there's no no barriers to trade nobody
48:18 has to invest in nobody else to
communication there and go based on
48:23 unfriendly is that what we have banning
this item
48:27 uh
there's a bias against exports
48:33 it takes
days and weeks to get something from the
48:36 customs
uh you know so many barriers like that
48:41 so it's very clear these countries that
are open to the global system
48:46 globalization friendly
48:51 have higher
total productivity
48:59 so the key conclusion to key technology
are simple actually that is what we have
49:05 been talking about
importance of tfp growth for sustained
49:10 gdp growth
there's a very close correlation between
49:14 the two
you can have one with you cannot have
49:17 tfp you cannot have high gdp growth
without tfe growth
49:22 significant connection between the two
right
49:26 and uh
49:29 as we said
49:33 towards flexibility high when your
economy is open
49:36 to business in the rest of the world
when it's globalization friendly that
49:41 means it is not globalization we call it
globalization unfriendly
49:46 restrictions on trade research on
investment
49:50 less communication with the rest of the
world
49:52 so these are sort of proven over and
over again
49:56 and they are not very complicated in a
way you know
49:60 people are not proud to risk these
things perhaps they may be too
50:03 conservative and got used to the old
ways but the the takeaway is that
50:09 you can do these things we have done it
also our problem is that not that we
50:14 have not done it we have not sustained
it and we have two reasons why we didn't
50:18 sustain it one is the fact that um
we didn't sustain policy reform
50:25 we people went to sleep after
after some time after getting the bank
50:31 big
bang for buck in the late 78-90 period
50:37 we didn't do
last two governments also did not do
50:43 they didn't do reform we still have high
tariffs we
50:47 we still have
a non-competitive economy
50:52 uh it's very difficult to establish
companies too costly we should reduce
50:57 the
cost of doing business
51:01 in sri lanka as a way to improve total
factory productivity
51:05 and
we have to keep a stable economy in the
51:09 sense
we have to have competitive exchange
51:12 rate we cannot play with the exchange we
are done in the 2008 to 2012 period we
51:18 have we are very low on results we owe
the world a lot of money we have to grow
51:25 far higher grow fast in order to repay
it i mean to have high rates of economic
51:30 growth you're not repaid
and so those are the takeaways these are
51:35 very these are very practical
important
51:40 things that we see when we look at the
thing and it it applies to us
51:45 almost every day we can look at it and
say
51:48 these things are important and
if we have the result to do it
51:54 we can have higher photovoltaic growth
because we have a low we start from a
51:58 very low base
52:04 you