Some of the new economic initiatives announced by the Sri Lankan government about integrating the economy
with the wider world, initially acquiring land to create special
economic zones where large scale investment projects from India and
China are to be invited to locate, are a refreshing departure from an
economically dysfunctional post-independence mindset of nationalist
pre-conception of the national interest as a zero sum game with the
world beyond: their gain is our loss and our gain is their loss. Sri
Lanka at the time of independence boasted an economy more prosperous, a
population that was better educated and a society which was largely free
of the worst dysfunctional aspects of religion which characterize the
neighbouring countries of the sub-continent. Yet the country became
ensnared by angst over identity and suspicious of opening up the economy
to the world at a time when development was fueled by trade. The
changed mindset informing recent economic initiatives holds out
prospects for greater prosperity.
There is danger of a reversal in the political climate unless the
problem of the distribution of economic gains from globalization are
addressed. The result of the recent British referendum on continuing
membership of the European Union is a warning sign that even those that
benefit from an economic policy may vote against their own economic
interest by rejecting that policy. They do so if they perceive their
benefit to be an unfair share of the total benefit accruing to society.
This is what experiments on what psychologists call ultimatum games
demonstrate. Unfortunately, a valid disquiet amongst the electorate
about unfair distribution of gains from globalization can be exploited
by the purveyors of simplistic solutions invoking the false narrative of
an imaginary glorious past.
Britain has become more prosperous since the start of the collapse of
the empire. The economic opportunities for the masses in Britain were
held back during the heyday of the empire, but glorified in the
narrative of English nationalism. The retarding impact of the
nationalism of the past on economic prosperity for the masses in Europe
began to be realized during the second half of the 20th century, but the
post-war trend is unfortunately in danger of being derailed by the
failure to take adequate account by governments of the distributive
consequences of globalization.
It is in the context of an analysis of this development that I wish
to comment on the new direction of Sri Lankan economic policy. If I
sound critical on occasion, it is not because the policies are not
laudable. It is to warn against complacency about fairness in the
distribution of gains in the details of the design of policy. Analyses
of the Brexit
vote suggest that many of those who voted to leave the European Union
lived in poorer areas of the country, and would suffer from their chosen
outcome of the referendum as economic growth slows down due to
uncertainty about the future direction of the economy. The burden of
economic decline falls disproportionately on the poor. Notwithstanding
headlines in the press suggesting immigration as the issue, some of
these Brexit voters live in communities where the percentage of
foreign-born people is considerably below the national average. People
living in these communities have been left behind as others have
prospered. Unfortunately, their plight cannot be addressed by pining for
a glorious past that never was when the British public were alleged to
be in control of their destiny.
The average growth rate of per capita income (GDP per person) in
Britain from 1870 to the start of World War 1 in 1914 was a meagre 0.9
per cent per annum. With the start of the dissolution of the empire
after the second world war, growth rate of per capita income accelerated
to 2.4 per cent per annum between 1950-1973. The quadrupling of oil
prices in 1973 dealt a sudden shock to the industrial sector,
contributing to a sharp deterioration in the balance of payments. A
period of industrial strife ensued as the economy tried to adjust. Yet
the growth rate remained well above that which was achieved in the days
of the empire. Per capita annual increase in GDP between 1950 to 1979
was 2.2 per cent, much healthier in comparison with the anaemic record
of the imperial past. Post war prosperity was accompanied by increasing
trade with neighbours, discarding dependence on colonies. Even in 2014,
when the Eurozone economies went through a grim period, around 45 per
cent of British exports went to the EU. Half of British exports go to
the European Economic Area, which is slightly greater than the European
Union. Share of imports from these neighbouring countries account for
more than half of the imports into the UK.
Pre-war nationalism, to borrow from the US political scientist Karl
Deutsch, was characterised by groups of people with a false memory of
their shared past coming together with a common hatred of their
neighbours. After the second world war, the age-old obsession with
nationalism in Europe began to give way to a desire for economic
cooperation with erstwhile enemies to the greater prosperity for all.
The British social philosopher Isiah Berlin hoped that perhaps “the
phenomenon of nationalism would … be destroyed by the irresistible
advance of enlightenment, whether conceived in moral or technological
terms – the victory of reason or of material progress or both –
identified with changes in the forces and relations of production, or
with the struggle for social equality…”. Yet, as the benefits of global
cooperation has become egregiously unequally distributed, especially
since the late 1970s, the struggle for greater equality has given way to
a resurgent nationalism, culminating in the politics of identity
overtaking the politics of prosperity in the Brexit referendum.
The bold economic experiments in Sri Lanka may deliver great
prosperity in the long term if they are not derailed mid-course by the
emergence of xenophobia stoked by a backward looking nostalgia of past
failures disguised as great successes. Rise of the Brexit movement in
the UK and the success of Donald Trump in poisoning the political
discourse in America, feeding on resentments of large swathes of the
population dealt an unfair hand by globalization, is a warning that the
government in Sri Lanka must heed. Government cannot not rely entirely
on the markets for ensuring fairness in the distribution of national
prosperity because the weak could be marginalized in unfettered
operations of market forces. A sense of fairness has to prevail for the
exciting experiments initiated by Sri Lanka to succeed.
For example, companies, whether they are from China or India or from
the island itself, that set up shop in the designated economic zones
must be made to pay their share of the cost of running the public space
in which they thrive. Industry will come to Sri Lanka to avail of an
appropriately educated labour force, a credible quality of the physical
infra-structure, and a stable legal system of property rights. The
taxation system, whilst being kept transparent and simple so as not to
discourage investment, must not be seen to be transferring resources
from the countryside to new industry. To begin with, emulating the
Chinese model of appropriating agricultural land to offer to domestic
and foreign companies to set up manufacturing facilities is not
advisable in a democratic country. The policy of land acquisition in a
democratic country must be seen as manifestly fair by those that had
cultivated the land in the past, even if productivity was low in their
hands, so that their consent can be sought without coercion. A
high-handed approach was attempted in 2008 by the government in the
Indian state of West Bengal when they tried to secure a contiguous
parcel of land of about 1000 acres to be handed over to Tata Motors and
ancillary manufacturing units. Farmers were going to be compensated and
much of the land was acquired without difficulty. There were problems in
reaching the desired target of 1000 acres. The government attempted to
reach the target using powers vested in it by colonial era legislation
passed in 1894. Resort to coercion hijacked rational discourse about the
fairness in the terms of compensation, rendered non-transparent due to
the poor quality of land records, into one of romantic views of
agriculture and social identity. As a result, the prospect for
re-industrialisation of the state was set back for decades by ushering
in a government led by a mercurial and authoritarian populist in the
election that followed. (S. P. Chakravarty)
*S. P. Chakravarty – Emeritus Professor of Economics, the University, Bangor, Wales
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