Sri Lankans should fight for economic freedom and not for economic independence

 It is the economic interdependence and not economic independence that matters

Sri Lankans’ fight for economic independence is futile since modern economies are interdependent. But they should aspire to win economic freedom since it helps them to become creative and win over those who are moving forward fast in the globe. That will necessarily require them to worship brain over belly

Quasi-political independence

Sri Lanka as a matter of routine habit celebrated the anniversary of independence from Britain on 4 February. This relates to the political independence in which Sri Lankans are empowered to elect their own rulers. The exercise of this power has happened on numerous occasions in the past 76 years. As such, Sri Lanka has been branded as one of the longest surviving democracies in South Asia, next only to India which has done so for 77 years. 

To the credit of both countries, there had not been episodes of direct military rule in either country. Yet, critics have blamed that democratically elected rulers in both countries had acted from time to time undemocratically violating democratic norms and resorting to authoritarian practices. However, there had been a good part as well as a bad part to these undemocratic practices. 

The good part had been that such rules had been short-lived because people had punished them for their crimes by routing them at the subsequent elections. The bad part had been that even those who had been elected to power on the promise of preserving people’s democratic rights had continued to follow those rulers voted out of power with no feeling of guilt at all. The people had been able to punish them only at elections if they are held, later. Till such time, those rulers too had been enjoying fully the authoritarian powers acquired by them. Hence, it had been a quasi-political independence which people have been afforded to in the two longest surviving democracies in South Asia.

Futile fight for economic independence

Amidst this popular contention about quasi-political independence, another perennial issue has been raised by many Sri Lankans. That has been whether Sri Lanka had got economic independence for its people since the departure of the colonial masters from the country. The argument runs as follows: During the times of ancient Sri Lankan kings, the nation was prosperous and was exporting rice – the country’s staple food which goes into shortages from time to time – even to the foreign lands. This self-sufficient and prosperous economy was destroyed by the colonial masters, it is claimed by the critics, for their own gain. After independence, this position got worsened. 

Today, Sri Lanka is dependent on foreign countries for a simple paper clip at the low end to combat jets at the high end. But the supply of these products, including the prices, are being controlled by Western nations which are bent on imposing a new type of colonialism on Sri Lanka. That colonialism has been called neocolonialism. Hence, according to them, with this quasi-political independence, Sri Lanka has not got political as well as economic independence. 

Suppression of economic freedom

At this stage, it is useful to distinguish between economic independence and economic freedom. Economic independence, according to critics, denotes self-sufficiency in almost everything which a nation needs without having to depend on others. Hence, the nation is free from being manipulated by others who have a vested interest in doing so. Accordingly, economic independence is concerned with a nation’s relationship with other nations. Economic freedom, in contrast, is a part of human liberty about which political thinkers have been debating for centuries. It is concerned with the freedom of choice of people and therefore, a subject matter coming within a nation. 

On economic matters, freedom of choice is the ability of people to make the best or optimal choice for themselves, without being dictated by an outside party like the Government or the powerful corporate bodies. This choice has multiple aspects. One is the freedom to engage in an occupation which a person views as the best or optimal for him. Another is the freedom to choose a country for living so that he could optimise his occupation. A third is the freedom to choose the basket of goods and services that enables him to optimise his satisfaction. A fourth is the freedom to choose the method of spending his hard-earned moneys. 

These freedoms are taken away from citizens by governments which claim that they do so in national interest. What this means is that a person living in a society should suppress his choice in favour of the bigger advantage of the people living within the territorial boundaries of his country. Governments do so by making public policies, imposing regulations on people, and getting their bureaucratic bodies to do the choice on behalf of the citizens. 

The corporate bodies interfere with the citizens’ choices by arousing emotions – fears as well as biases – by bombarding them with commercials that promote their products. So, governments take citizens’ freedom of choice by coercion, while corporations do it by offering forced voluntary exchanges.

Goal of attaining self-sufficiency 

The self-sufficiency goal attuned to the principle of economic independence is being cherished by many because of the convenience and the sense of power it grants to them. 

Convenience is that a nation which is self-sufficient can manage its affairs without being subject to intimidatory actions of other nations. The geopolitics in the world today is such that a powerful nation or a group of nations can impose sanctions on another nation if the latter does not act according to the wishes and dictates of the former. If foods or other essential items are denied to that nation through sanctions, it still can survive if those items are internally available. 

The sense of power is that the nation in question could command recognition and respect of other nations when global issues are being debated. A powerful nation always has a powerful voice in global affairs. Hence, self-sufficiency is a cherished goal amongst citizens of almost all the nations.

Economic interdependence 

However, economies throughout history have brought in prosperity and wealth to people by being interdependent and not by being independent. That is because the goal of attaining self-sufficiency in everything which a nation needs is impracticable. There are limitations of resources, production techniques, and manpower needed for attempting to produce everything at home. In such a situation, it is always advantageous for a nation to produce what it can produce best at home and exchange the surplus with other nations which need them for goods which it needs. It is a win-win situation for all.

How will economic freedom help a country to join the global production sharing networks and thereby gain for the people of the nation? Economic freedom relates to the freedom of choice in learning, skills acquisition, choosing a profession, and consuming desired goods and services. It, therefore, denotes and connotes human wisdom. Wisdom comes from human thinking power. If thinking power is stunted, there is no economic freedom too

Consider a case at an individual level. If I try to produce everything by myself, say, teledramas, songs, medicines, healthcare, etc., it is practically impossible for me to do so within the limited time and expertise available. If I want to treat myself my illnesses, I will have to learn medicine as a profession and produce the drugs by myself. If I want to teach my children, I will have to learn the subjects of teaching myself and the art of teaching. There is a limitation to this. Hence, I may engage in one profession and engage the other professionals to have my needs satisfied. This amounts to producing a surplus by myself and exchanging the same with others for my other needs. It is trading in the crudest way. 

At national levels, a nation too could benefit from the same strategy. During the Polonnaruwa period which is considered the golden era of Sri Lanka’s history, King Parakramabahu the Great is said to have established a special export processing zone called the Antharanga Dhura and exported the country’s products to earn money, possibly gold coins, to buy weapons to fight with other Lords and unify the country. This is trading and interdependence with other nations.

Production sharing networks 

Today’s production system is such that no nation can produce a product alone. It should get the support of many other nations to do so. 

In economics, following a terminology developed by the Sri Lanka born economist Premachandra Athukorala, this is called building production sharing networks. This is different from the commonly known supply chain networks which are only one-way exchanges of components of goods for final assembly in another country. Production sharing networks are two-way exchanges in which technology, training, and quality standards coming from the whole globe and the value of the product is shared by all the nations involved. 

An example is iPhone which is manufactured by nine companies located in Japan, South Korea, Germany, USA, and China for which other components are supplied by many other countries (see: https://icrier.org/pdf/Prema_chandra_G20.pdf). In this production system, all the nations in the world get together and share the value of a product that is produced by them. In 2010-11, as documented by Athukorala, about 51% of the total global manufacturing exports have been produced by using production sharing networks. The biggest users of this strategy have been the Developing East Asia (63%), China (57%), Taiwan (66%), South Korea (69%), and ASEAN members together (69%). 

Of the ASEAN members, the Philippines (88%) and Malaysia (79%) have been super performers. South Asia’s manufacturing exports had used 12%, while India had done so up to 14%. As such, it is a new opportunity for countries in South Asia, specially, Sri Lanka, to adopt this strategy for wealth creation for its people. Hence, today as well as in future production models, it is the economic interdependence and not economic independence that matters. 

Brain over belly

How will economic freedom help a country to join the global production sharing networks and thereby gain for the people of the nation? Economic freedom relates to the freedom of choice in learning, skills acquisition, choosing a profession, and consuming desired goods and services. It, therefore, denotes and connotes human wisdom. Wisdom comes from human thinking power. If thinking power is stunted, there is no economic freedom too. The Chinese philosopher of the 6th century BCE – Lao Tzu – said about this in his treatise, The Tao Te Ching, as follows: “The king and his officials will fill the bellies of people and take out the thinking power from their brains so that they will be totally pliable”. 

Hence, economic freedom is concerned with people who think beyond their bellies. It is necessary to fill the bellies. But it is essential to retain the thinking power in heads so that a nation will have creative people. These creative people will have the capacity to play the game of global production sharing on par with other nations. It eliminates the possibility for the exploitation of one nation by another, an important requirement for a nation to maintain economic interdependence. Hence, thinking beyond the bellies, building a creative nation, enjoying economic freedom, and finally, economic interdependence are all interconnected. If one is broken, the nation will necessarily have to sacrifice the others. 

Value of economic freedom

In a recent public discussion, the CEO of the non-state sector think tank – Advocata Institute –Dhananath Fernando summarised the global experience through history the relationship between economic freedom and overall development of nations (visit: https://www.youtube.com/watch?v=GXRyx-IhO-Q&t=4672s). Using his exposition of humour, Dhananath said that wealth is inbuilt to the national anthem of Sri Lanka, but the country has failed to live up to that expectation. People in Sri Lanka are notorious for treading paths to quick richness. But they do not seem to be mindful of the necessity for fighting for economic freedom, a sure way to become a rich person. Accordingly, the poorest people in ‘most free’ countries earn on average 14 times more income than their counterparts in ‘least free’ countries. 

Economies throughout history have brought in prosperity and wealth to people by being interdependent and not by being independent. That is because the goal of attaining self-sufficiency in everything which a nation needs is impracticable. There are limitations of resources, production techniques, and manpower needed for attempting to produce everything at home. In such a situation, it is always advantageous for a nation to produce what it can produce best at home and exchange the surplus with other nations which need them for goods which it needs. It is a win-win situation for all  

The life expectancy at birth of people in most free countries is 80.4 years compared to 65 years in least free countries. In a similar vein, the mortality rate of children per 1,000 live births is 4.2 in most free countries, while that in least free countries is 39. Poverty is also significantly lower in most free countries than in least free countries. If one goes by $ 6.85 a day earning level, in most free countries, it is 5.5% of the population, while in least free countries, it is 71%. The happiness of people as measured by the UN Happiness Index is high at 6.76 in most free countries compared with 4.61 in least free countries. Hence, Dhananath opined that to generate wealth, one should have a market with economic freedom.

Sri Lanka’s low economic freedom  

In the Economic Freedom Index compiled by the US based Heritage Foundation for 2023, Sri Lanka scoring 52.2 out of 100 is ranked at 136 out of 176 countries as a ‘mostly unfree’ country (visit: https://www.heritage.org/index/ranking). It has lost 1.1 points in 2023 compared to 2022 losing its rank also by one notch. It is on the sub-components of the index Sri Lanka has fared very poorly. Sri Lanka has been a very bad observer of the Rule of Law. Its protection of property rights and judicial effectiveness are at midway at 51.6 and 49.7, respectively. Its Government’s integrity is much more to be desired scoring only 39.5. Because of the low tax revenue as a percent of GDP, Sri Lanka has done better regarding the size of the Government. But it is a very low performer regarding the market freedom: trade freedom at 67, while investment freedom and financial freedom are at very low 30. Except labour freedom, regulatory efficiency is at a better level. 

Fight for economic freedom

Sri Lankans’ fight for economic independence is futile since modern economies are interdependent. But they should aspire to win economic freedom since it helps them to become creative and win over those who are moving forward fast in the globe. That will necessarily require them to worship brain over belly. 

(The writer, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)