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by D. I. Obeysekere

Viewed historically the economics of Sri Lanka and most other countries were agriculture based, with largely rural populations. In our case, subsistence agriculture was widely prevalent with low living standards. Rapid advances in living standards of the developed countries were made possible by the industrial revolution originating in Europe. European trading companies started to reach out eastward and colonisation took place. Swords and spears were no match for muskets and cannon. The main purpose of colonisation was to serve the interest of the colonial master.

It gave a captive market for goods exported and a captive base for investment of surplus funds using cheap labour and land available. Tea provided a golden opportunity for earning high profits and it became Sri Lanka's principal export. The revenue derived enabled the development of the country's infrastructure, including roads, railways, schools and hospitals. With the arrival of independence in 1948, the country was set free to chart its own course after years of colonisation. It had to transform itself from being the appendage of a large colonial power to one that principally served the needs of its own citizenry. The country now had to make use of its own indigenous skills and resources. It was not alone, as other regional countries faced the same situation. Some were more successful than others. It is useful to investigate why given their natural endowments.

In brief, an essential pre-requisite for raising a developing country's living standard is to increase its labour productivity and value, by moving upmarket through agricultural mechanisation, manufacturing and services. The challenge, therefore, is for the country to maximise this value using both the local and international marketplace. In practice, higher value production may require machinery, know-how and markets to absorb it.

Higher value services require higher levels of training and a continuing demand.

Interestingly the two competing economic and political philosophies propounded by Adam Smith and Karl Marx had polarised the world. The newly independent countries had to make a choice and to evolve their own hybrid philosophies. Sri Lanka was no exception.

Adam Smith recognised the self-centred nature of man, where it would be necessary to create conditions that would motivate him to maximise his effort on his own behalf.

This meant rewarding entre preneurial effort and allowing private ownership. In contrast, Karl Marx advocated shared, or state ownership of the means of production, where man's love of the state and the feelings of equality generated would become the main motivator. As experience showed, man's self-centred nature could not easily be overcome. To illustrate, the output of collective farms were considerably increased when their division and individual ownership was allowed. During this great debate the compromise 'mixed' economy evolved and the state maintained ownership of key 'strategic' areas for society's benefit, or so it was hoped. A relevant question that may be asked is how effective can the bureaucratised employees of the state be in managing the required areas, as against the private entrep reneur, or firm.

Getting back to improving a country's living standards in an interlinked and changing world, there has to be a continuing search for new investment that would allow its workers to provide higher value goods and services and to utilise the country's competitive advantages. What is then needed is a large scale and wide-ranging entrepreneurial effort to identify suitable areas, make investments and to provide the jobs required. Who then can be expected to make this effort, the state, or the private entrepreneur. Sri Lanka has tried both and the results are clear. It is not fair to expect entrepreneurial success using the state bureaucracy, they are, in most cases, not geared for providing it.Multi-ethnic and natural resource poor Singapore, that was economically behind Sri Lanka, provides a good example of what can be achieved with ultra-competent governance. Its leaders try to look years ahead to see what the world economy will likely be and to try to determine areas where Singapore may have a competitive advantage.

Action is taken now to prepare the country for the future and for its citizens continued prosperity. The public and private sectors have close co-operation in developing the country. Persons employed in key positions in the public sector are carefully selected and are often as competent as any in the private sector. A key to their success was attracting foreign investment from advanced countries in the latest technologies, after building up an efficient infrastructure, providing a disciplined workforce and offering the right incentives, in a stable environment.

Unlike Singapore, Sri Lanka has not systematically mobilised and channelled sufficient resources to do its own economic homework and its long term planning. It has no well funded 'think tank' to gather information and weigh the options for the country's long term strategy.

There are no formalised or informal fora for leaders of the public and private sectors, assisted by specialists in their fields, to discuss, debate and develop a coherent long-term strategy. Part of the problem may lie with the competitive political structures that have evolved after independence, with their short term horizons. The other is the choices given to the electorate and their understanding and consciousness of issues that govern the country's long term well-being. In the Philippines, much publicity was given to the embezzlement of public funds by the dictator's wife. The electorate rewarded her by electing her a senator. These are some of the problems facing developing countries and until political standards can be raised, economic standards may well remain in the doldrums.

In Sri Lanka, savings are necessary to be channelled into productive investment.

Unfortunately, the living standards are such that saving is difficult to mobilise, and consumption has to be increasingly subsidised. Competitive politics revolves around the granting of subsidies on consumption and the overstaffing of the public sector to create jobs. There, of course, is a way out of this trap, used by China, that is, if your own savings is insufficient to grow fast enough - attract some from the developed countries by way of direct foreign investment. This also brings with it technology transfer as a bonus.

To successfully do so, it is also necessary to tone down any anti-capitalist rhetoric, however attractive it may sound to the needy citizenry. It may get votes, but takes the economy nowhere. As China does, the investment coming in has to be carefully screened to ensure that the country and the investors both stand to benefit. This has all got to be a part of Sri Lanka's overall plan for sustainable development, which could benefit all its people.

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