Dhananath Fernando 00:19 Hello, hello, everybody! You are joining with our podcast with Dr. Sarath Rajapatiranra. As you know, he authored the book Policy Challenges of Globalisation in Sri Lanka, and we discussed so far about six chapters. And today we are going to discuss the seventh chapter. Dr. Rajapatira, thank you very much for joining our conversation as usual. Dr. Sarath Rajapatirana 00:39 Great to join you. Dhananath Fernando 00:41 And today conversation is about industrial policy. If you follow Sri Lanka's case, we always wanted to be sort of an industrial powerhouse. We all wanted to do some industries, this that, and in this chapter of Rajapatira, basically comparing two interesting phrases, industrial policy versus policy towards industry debate, and you are trying to bring the Sri Lankan case, Dr. Ajmetanar. For someone who really do not have an economics background, like industrial policy and policy towards industry looks the same because both speaks about the industry, at least in the wording. What is the difference? Dr. Sarath Rajapatirana 01:26 They may look the same, but they are not. Okay. The difference is that to make it very simple, right? Industrial policy is done by basically people who want to intervene too much into into the economy, And the other one, the virtual industry allows the private sector and people to inter not to intervene the particular way that industrial policy wants. Dhananath Fernando 01:56 Yeah, because sometimes when you say you are developing an industry, it looks sometimes attractive because you think that industry should do well and all that because it's probably with your personal bias. But by making that choice, you know, as a government or as a ruler, probably you may also miss out a lot of other industries who may have may have had the potential to thrive better, so Dr. Mathur, I think you have given sort of a proper definition where industrial policies that government intervenes for a as a percentage of GDP for a particular selected industry, but when it comes to policy towards industry, you keep the policy neutral, and where all the other industries can compete, contest because ultimately all industries are competing for the same resource pool when it comes to land, labour, capital, and entrepreneurship. Could you kindly weigh in here, Dr. Ajay Patranana, this Sri Lankan case? Like, how did we progress? We were we on the industrial policy side, or whether we were on the policy towards industry side, or whether we have been interchanging with your segmentation of the time periods. Dr. Sarath Rajapatirana 03:14 Yeah, actually, that is what is happening. Very simple idea, you know, because we have now the nomenclature. I mean, the way to put it be be goes to the policy towards industry is very clearly what we have been using globalisation friendly, Dhananath Fernando 03:33 right? Dr. Sarath Rajapatirana 03:34 And as the easiest way, the other is the industrial policy is globalisation unfriendly. Yeah. So globalisation friendly, unfriendly allows us to do a lot of things. Dhananath Fernando 03:46 Exactly. Dr. Sarath Rajapatirana 03:46 That's the that's the reason. That's the only thing, yeah. Dhananath Fernando 03:49 For someone who again really haven't have the background, why the industrial policy is globalisation unfriendly? Is it because of the intervention? Dr. Sarath Rajapatirana 04:03 Intervention precisely because of the intervention. Dhananath Fernando 04:07 Okay. Yeah. And Dr. Ajay, so on the Sri Lankan case, so you have about you have segregated the time periods. Yeah. For about like five time periods in the Sri Lankan history. So, where do you see we pivoted to industrial policy, and where we try to at least bring the policy neutrality? Dr. Sarath Rajapatirana 04:32 Yeah, Dhananath Fernando 04:33 where any industries can grow. I mean, also, do you want to bring some examples? There, I mean, as an industry on top of the mind. What we have is pretty much apparels, and we have tea, coconut rubber, but that's coming from Brits. But otherwise, we really haven't had like an industry. Industry. There was some IT tech boom at one point. But how do you, if you could, give us some. Examples like whether this April boom came because of industrial policy or policy towards industry, or whether what happened with some examples, I think that would be useful for our viewers. Dr. Sarath Rajapatirana 05:10 I agree. Yeah, that's yeah. Basically, policy towards industry is more wide actually. Dhananath Fernando 05:18 Right. Dr. Sarath Rajapatirana 05:19 Industry policies we want to do this and this of Sri Lanka was doing because of politics and ideology with the changes. Dhananath Fernando 05:28 Right. Dr. Sarath Rajapatirana 05:28 So you can say the earlier people like people who like the Jaya Jayavanas were participated in the Shivers. Dhananath Fernando 05:42 right? Dr. Sarath Rajapatirana 05:43 Whereas the typical left-wing people were globalisation unfriendly and therefore industrial policy, Dhananath Fernando 05:53 right? Dr. Sarath Rajapatirana 05:54 Yeah. Dhananath Fernando 05:54 So also that interventionist mindset comes from not trusting the market process, Doctor Ajay. Yeah, Dr. Sarath Rajapatirana 06:04 to some extent, that is very good observation. Yeah, they don't believe in the market process. That's the problem. Dhananath Fernando 06:11 Because you are worried that if you love, if you keep the policy neutral, that you you are not, you don't have enough confidence or trust that that environment will create or emerge the right industries based on the ability to get the resources. So you try to move towards industrial policy rather than keeping a policy towards industry. So interesting. Now moving on, Dr. Ajbatti. Now every time when we speak about industrial policy and policy towards industry. There are few countries that always being discussed as examples, and some of the countries you have worked in Canada, and you have greater level of details. And one is basically it's coming from the East Asian countries, high economy. Yes, could you shed some light on whether actually they had because generally the image that being portrayed is that they embrace globalisation, but also it claims that they had a industrial policy sort of a narrative is what the other side claims. Could you kindly you know provide your thought process or like bring the facts. How actually this East Asian economy is basically how they structure their reforms or the economy, whether it's industrial policy or policy towards industry. Dr. Sarath Rajapatirana 07:36 The economy that are successful following policy towards industry, policyholders industry. The term was created by some of us, to show that there is a better alternative to industrial policy. Industrial policy is a very interventionist, and also it doesn't restrict industrial policy; it restricts. But pottery industry is open. Anybody can go and and use his or her knowledge and ability to bring something into production that was not there before, Dhananath Fernando 08:22 got it. Dr. Sarath Rajapatirana 08:23 Gives freedom. Dhananath Fernando 08:24 Yeah, yeah. Because in terms of Vietnam and South Korea, probably the other Thai economies, how do you? I mean, was it? How can we prove or like? Is there any examples you that you would like to bring in? Proof is Dr. Sarath Rajapatirana 08:38 proof is like the pudding in the eating, right? Yeah, proof is that. Dhananath Fernando 08:43 Proof is that. Dr. Sarath Rajapatirana 08:44 Yeah, actually, we use this East Asian country as an example because they are very good example. You start with the case of North Korea and South Korea. If you go in a plane, you can see the difference. You can see something in darkness that is North Korea. Something is like Christmas Christmas tree that is South Korea. Very simple. Dhananath Fernando 09:13 And Dr. Ajpatan, whether because there are some arguments that, for an example, the automobiles that is coming from South Korea, or like the the technology boom that they had in their I think you call the Chonoballs, right? That the that their family companies that the government supported. So there is a narrative that that is more industrial policy rather than policy towards industry. But what you mention in this book is their growth is because of the solid macroeconomic fundamentals that they adhered, which is the policy towards industry actually, which helped their their for the unprecedented growth. Dr. Sarath Rajapatirana 09:52 Yeah. Also, they are they were not very shy of learning from each other. So when. South Korea did so well. All the people around followed them. No problem. Dhananath Fernando 10:06 Got it. And also, Dr. Ajay, coming back to the case of industrial policy, and I think you have given some renowned economists who have basically provided some thought process into this, including your good friend Max Gordon and Kruger, and I think Deepak Lal. Dr. Sarath Rajapatirana 10:33 Yeah. Dhananath Fernando 10:33 So there have been some process, and there have been, and you have also, I mean, elaborated on the argument of the infant industry argument, where some some industries, when they first enter, generally they sometimes ask for some level of assistance from the government for so many reasons. Now, how do you we look at on a globalisation point of view on the infant industries. If you could share some of the thoughts that we share in the book, Dr. Sarath Rajapatirana 11:05 yeah, the trouble in actual observation in countries that wanted infant industry protection, you can use the word protection. Yeah, infant protection were not as successful as the countries that didn't ask for it. Said, just get out our way. We'll do it. And I have I had the South Koreans tell me, we they got out of we got out of their way. We did what we wanted, and we allowed the freedom to do Dhananath Fernando 11:39 it, Dr. Sarath Rajapatirana 11:39 and therefore we did it, yeah. Dhananath Fernando 11:41 Got it. And also, with this industrial policy, I have. It's not basically. I didn't see it in your book, but it with that also comes sometimes the industrial policy. They call it the import substitution industrial policy, and then also it's the same Dr. Sarath Rajapatirana 11:59 thing. It's the Dhananath Fernando 12:00 same thing. It's the same thing, and then at the same time, while you coin it as the import substitution, they also say it's the more export-oriented industrial policy as well. Of course, we have been discussing that how imports and exports are two sides of the same coin. Yeah, but I would like to also get your thoughts on when it comes to import substitution. Is there a reason why you pretty much haven't touched it under industrial policy in this chapter, or are we looking at it at a different, I mean, different chapter, or whether you had a different view on that? Dr. Sarath Rajapatirana 12:40 Actually, there are two different things. Dhananath Fernando 12:42 Right. Dr. Sarath Rajapatirana 12:43 So, if you say infant industry are people that who will not start without the help from the government, then there are such cases. We don't disagree on that point. But the point, if you look at success and failure, success come from countries in which people were allowed to make their own decisions as to what they want to produce and what they want to also do with the resources that they have in the country. Dhananath Fernando 13:12 Got it. Dr. Sarath Rajapatirana 13:13 Yeah. Dhananath Fernando 13:14 And in your, I mean, third section of this chapter, you basically speaks about the East Asian countries' experiences and their relevance for the industrial policy in Sri Lanka. Could you share, Dr. Rajapatila, very briefly, like how do we how since this is a book about Sri Lanka, how we should think about it when it comes to because I think we also have some aspirations to develop some industries, but whether it's which industry or which service, it will be determined by the markets. Dr. Sarath Rajapatirana 13:46 Yeah, exactly. That's the difference. That's exactly different. Yeah. Dhananath Fernando 13:50 So, what what are the learnings for for us countries like Sri Lanka, and how should we think about it, Dr. Prajbar? For Dr. Sarath Rajapatirana 13:56 Sri Lanka, we have these faces. No, we have phrases that they they became globalisation friendly and therefore was doing well, and others remain globalisation unfriendly and were not doing so well. So that is there in case of Sri Lanka. It has changed over, for example, after 1977, it became globalisation friendly. Before that, it was not. Dhananath Fernando 14:21 Finally, Doctor Ajava. Any any final thoughts that you would like to highlight under this chapter that we have to that to make our viewers interested about the industrial policy, industry policy towards industry? Did we miss out anything or anything that you would like to highlight? Dr. Sarath Rajapatirana 14:37 Policy towards industry bits of unusual use. Dhananath Fernando 14:40 Right. We Dr. Sarath Rajapatirana 14:40 deliberately put it that way. All these people mention their names, and Jagdish and all Bhagavati and my my friend Dhananath Fernando 14:56 Ann Kruger. Dr. Sarath Rajapatirana 14:57 Yeah, Ann Krueger. All the people who were very successful, and they they had no problem with this characterization, calling them polluter industry. Yeah. Dhananath Fernando 15:13 Now I think what you basically it's very important that to understand what you are because you are providing also an alternative when other side says we have to have an industrial policy. In your chapter, you are bringing out a solution. You are saying industrial policy is quite globalisation unfriendly, but policy towards industry is the kind of the solution. You keep the policies which is open for any industry, and then they can they can prosper. When it comes to Sri Lanka's case, Dr. Ajay Patrina. Do you want to relate it to like probably after the war, 2008, nine? Like which direction? I mean, are we thinking about policy towards industry, or do you feel like that we are now pivoting back to industrial policy? Because if you look at a lot of, I mean, manifestos and all that, it's more sometimes targeting certain segments of the economy, more on the side of industrial policy, in my view. But I don't. I just wanted to check whether do you have a different reading or whether you know we don't have any policy at all to begin with. Dr. Sarath Rajapatirana 16:19 Well, if you don't have any policy at all? It is policy. It's also policy. Oh, so the thing is, there is certain bias in the use of these words. Industry, good thing, compared to say agriculture or some something else, but that is not the case. In this industry. is a situation or arrangement in which you get your resources together and you have the freedom to apply it to any case that you want to develop, right? And so there's freedom to do it. Industrial policy in industrial policy itself is also called very internationalist. Give us some people who are saying, give us an infant industry. The infant industry case is a there is a case for infant industry. No doubt about that. But the point is that if you use it too much, you know they don't stop there, and they these infants become very old people. Then, and what happens to old people happens to them. Dhananath Fernando 17:34 I think most of the time people ignore the political economy behind. Yeah, they give some protection. Yeah, one thing is others also may need the protection. Yeah, if Dr. Sarath Rajapatirana 17:42 you give protection, you really can't move away from it. Dhananath Fernando 17:45 Exactly, you cannot move away because every time they want to extend it, an infant become an adult and adult become retiree. But still, that protection is required. Dr. Sarath Rajapatirana 17:55 Yeah. Dhananath Fernando 17:55 Out of my curiosity, since you have worked in Japan, because generally the countries who have some significance about certain industries, like Japan, for example, for automobile and technology, South Korea to an technology, people think it was basically with the support of the government that those industries came about. I would like to know about Japan because people think it's the Japanese government who basically brought the automobile industry and all that. Dr. Sarath Rajapatirana 18:25 Japanese government, I can tell you this the truth. Just the Japanese government asked Japanese people, entrepreneurs, not to produce cars. They didn't have comparative advantage in it. Dhananath Fernando 18:39 That's what the government say. Dr. Sarath Rajapatirana 18:41 Ignore it. This ignored it. Now we have Toyota, Dhananath Fernando 18:45 yeah, the Dr. Sarath Rajapatirana 18:46 most successful Monte Carlo product producer in the world by far. Dhananath Fernando 18:52 And that's how mr. Toyota, Dr. Toyota, who took the challenge. Dr. Sarath Rajapatirana 18:58 Yeah, Dhananath Fernando 18:59 and and basically produced a guy. I think it was GT, right? Japanese industrial some institute that was said that not. There are the guys Dr. Sarath Rajapatirana 19:11 who I I met them. Dhananath Fernando 19:12 Right. Dr. Sarath Rajapatirana 19:13 I I have met them. Nice people, but they they got it wrong. And and is somebody who says, "Well, you know, you guys, you are going through going the wrong way. Of course, there are a lot of things about Japan that people don't know. They took a long time to develop because they were very well ordered, and and they had a natural ability because of over more than two centuries or so they were developing, including industry. So so so Japan is in that way special. Case, Dhananath Fernando 20:01 right? Dr. Sarath Rajapatirana 20:01 But they were very successful, no question about it. Except they didn't listen to the motor car people who said we have no year, we have no computer advantage in producing motor cars. Then comes Toyota. Dhananath Fernando 20:15 Excellent. So thank you very much, Dr. Rajapati. I think today the summary is if you are looking at a more, I mean, if you're looking at more growth, more prosperity, it has to be globalisation friendly, and globalisation friendly policies comes with more policy towards industry, Dr. Sarath Rajapatirana 20:30 industry Dhananath Fernando 20:31 because an industrial Dr. Sarath Rajapatirana 20:32 policy, yeah. Dhananath Fernando 20:33 Yes, and but if you are considering picking up winners, Dr. Sarath Rajapatirana 20:36 yeah, Dhananath Fernando 20:37 and cherry picking certain winners and providing some assistance to selected industries, probably by selecting it, you may be doing larger harm for the industries actually which really has the potential to capture the global markets. And by picking it, you are trying to intervene in the markets. And by picking up industries, the success story may not be as successful while keeping it for the policy towards industry, and that will become ultimately more globalisation unfriendly. Dr. Sarath Rajapatirana 21:12 But Sri Lanka's story is really we were going for industrial policy Dhananath Fernando 21:19 for a long time. When Dr. Sarath Rajapatirana 21:20 governments came, leftist government. They want industrial policy. They want to control everything, including whatever you what what we are going to produce. And so that is my huge emphasis on industrial policy, which we are now saying is not very helpful. Dhananath Fernando 21:38 Yeah, and you can see in any industrial policy, like they everyone wanted to have agriculture, they wanted to have automobile, they want to produce pretty much everything under the sun. Yeah, without no comparative advantage because there's someone who seated behind is going to pick the industries with some level of interest. Yeah, and that's where the problem comes in. Yeah, and that's why I think we generally inclining more towards the policy towards industry rather than some bureaucrats picking up certain. They have no, Dr. Sarath Rajapatirana 22:12 they have no background. Exactly. And I think I Dhananath Fernando 22:15 don't think anyone has the background. I mean, unless the entrepreneur takes the risk and try out, understanding the comparative advantage, no one is knowledgeable enough to say that this will work, this won't work, because you only get to know by listening and following the market sentiments. So that's the story. So thank you very much, Dr. Rajapatira, for joining. You have any? Yeah, the Dr. Sarath Rajapatirana 22:39 ideology part. Okay, is very important. Lot of people who talked about this, what we didn't bring ideology in, they were scared. Dhananath Fernando 22:47 Right. Yeah, absolutely. Dr. Sarath Rajapatirana 22:48 Yeah, but ideology has a very important part. For example, when Jaya Jadhan said he is going for free market type of thing, he was his ideology, complete ideology case. Dhananath Fernando 23:02 Yeah, yeah. We discuss about we discuss a separate chapter about ideology. Yeah, in the previous episodes, and so this is chapter seven, industrial policy versus policy towards industry. And in next episode, we are going to discuss chapter eight, which is also quite a critical topic that is avoiding inflation in Sri Lanka in order to benefit from globalisation, yeah. So that's another. That would be another interesting conversation. But before we leave, if you haven't subscribed us, please subscribe in English as Advocata Institute, and you can find us in Tamil as Advocata Kural and Advocata Plus is our single platform, and at the same time, you can find us on any social media platform: LinkedIn, Instagram, Facebook, WhatsApp, TikTok, any platform. You should be able to find us. At the same time, if you are not an Advocata insider, maybe this is the time to consider about it because we are bringing we are bringing the conversation on economic literacy and especially trying to bring a resource pool at the same time a community who are standing for economic reforms. If we are serious about bringing Sri Lanka to the next stage, so it's 12,000 rupees per annum and 1000 rupees per month. So you can get unique content, exclusive content when you are Advocata insider. So consider to become an insider at the same time. Subscribe all our social media platforms. Dr. Ajay Madrega, thank you very much. Looking forward to seeing you with another conversation on chapter eight. Dr. Sarath Rajapatirana 24:37 Yeah, thank you also from my side. Yeah, Dhananath Fernando 24:40 thank you very much. Transcribed by https://otter.ai