Monday Sep 23, 2024
Monday Sep 23, 2024
Friday, 29 May 2020 00:00 - - {{hitsCtrl.values.hits}}
By Dr. Nimal A. Fernando
Sri Lanka’s economy was already in bad shape before the COVID-19 pandemic began to play hell with it. The pandemic compounded its socio-economic problems.
To revive the economy, the Presidential Task Force on Economic Revival and Poverty Eradication has been busy formulating a strategy to “create a production economy through the formulation of a unique economic structure based on novel initiatives”.
The President himself has stressed repeatedly the need for a new economic model. In this context, it may be useful at least to broadly discuss some critical aspects of a broad framework for a development strategy for Sri Lanka.
Diverse policies
Since independence, with few exceptions, successive governments have attempted to develop the country based on their own ideological beliefs and political agenda. Many approaches have been tried and policies been pursued.
The diversity of the policy approaches to date has been remarkable. But broadly the approaches have one way the other focused on increasing Gross Domestic Product (GDP). In some this has been clearly articulated while in some others it has been subsumed.
Efforts to replicate the West
The overarching objective of increasing GDP has driven successive governments to rely on the Western model of development. The national leaders of Sri Lanka, like those of most other developing countries, worked on the assumption that the Western so-called “developed nations” have constructed a highway to higher-level of growth and it only remained for them to follow those nations down the road to achieve what those countries have achieved.
In public, some have rejected the Western model explicitly or implicitly. But what they put into implementation in essence reflected the Western model.
A US development guru, Professor Henry Bruton once noted: “With only limited exceptions in both the literature and in practice, development in the modern less developed country has come to mean a replication of the West. Even in those countries avowedly socialistic and unambiguously authoritarian and ‘anti-West’ the underlying theme of development has been to imitate the West as quickly as possible in terms of the form and content of their economic performance.”
This fits well with Sri Lanka’s past development efforts.
The choice is rooted partially in the economics discipline
This choice to rely on the Western model was reinforced by a number of factors. Economics as a discipline has been developed primarily to suit the now developed Western countries. Development economics, which is an outgrowth of neo-classical economics, viewed development in a narrow sense of replacing what is considered “traditional” with “modern”. Thus poverty of development economics itself was persuading the developing country policymakers and planners to replicate the Western model.
However, it is high time for Sri Lanka to discard this model and recognise that the experience of the West is largely irrelevant for us.
First, many Western countries developed their economies in part through exploitation of the resources and people of less developed countries.
Second, their development models have left behind millions of people in poverty while millions more remain deprived of basic human needs. A large proportion are vulnerable to vagaries of markets.
We saw this in the US in the aftermath of the Great Recession of 2008-2009 and now with the COVID-19 pandemic-led slump. Even before the COVID-19 hit the US economy, in 2018 the number of poor was 38.1 million, according to official US data. Third, those countries achieved their development in a markedly different and favourable global context.
Clearly-stated objectives and instruments
Thus there are good reasons to move away from the efforts to replicate the Western model of development. But this is not to suggest that we should forget about the economic growth objective. What is needed is to move away from the narrow focus on GDP to many different facets of growth plus other broader development objectives: quality of growth matters a lot.
We need growth that is sustainable, productive job-creating (remember job-less growth in India during 2004-2009!), environmentally friendly and above all growth that enables the masses to improve their quality of life and well-being. And we need growth that significantly reduce, not exacerbate, poverty and income disparities.
Moreover, it is vitally important to ensure participation of the wider society in the development process that will be set in motion by the development strategy. Cross-country experience has shown that if there is a broadly shared commitment to the objectives of a strategy, then the strategy is likely to function much more effectively than without it. This is one major reason why objectives of a strategy needs to be clearly articulated and should go far beyond the narrow focus on GDP growth, which is in any case not a good measure of well-being.
The broad objectives may include promoting education and health, development of social capital, knowledge creation; protecting environment, ensuring opportunities for the youth and the masses to benefit from the development process, for example.
What these objectives should be specifically depends largely on the current conditions of the country, the vision of the future and the value system. It is important to bear in mind that some of the objectives may be essential instruments that can be used to achieve other objectives. However, the Team needs to explicitly recognise that they have value in their own right.
Priorities
Given the resource and institutional capacity constraints under which the strategy has to be implemented, setting priorities constitute an integral part of the strategy development process.
A strategy generally includes a hierarchy of priorities: sector; target groups; barriers to be addressed; policies to address identified barriers; and activities within selected sectors or policy areas, for example. A related issue to prioritisation is sequencing: what tasks have to be done before other tasks to achieve the desired results more efficiently.
Robustness of the strategy
One needs tons of data and information to formulate a country development strategy. You may actually have a trove of data at your command. Still you are most likely to suffer from lack of data, information and knowledge about some critical aspects such as the structure of the economy, its various sub-component, their interrelationships and many relevant parameters.
These problems are compounded by the limitations on what institutions can expect to deliver. It is for this reason that robustness – ability to withstand or overcome adverse conditions and perform well under a wide range of circumstances – is an essential characteristic, and is crucial for the success, of a development strategy.
Roles of government, markets and the community
A well-functioning economy requires a mix of government, markets and the community, what Raghuram Rajan (former Governor of the Reserve Bank of India) calls “the third pillar”. A development strategy must deal with this issue. Experts point out that “the balance, structure and functioning of that mix is at the heart of a development strategy”.
The most daunting challenge that the team has to face is determining this optimum mix and making recommendations to the political leadership on how to assign the responsibilities between the three. The current thinking is that for most areas, including health and education, innovative partnerships between the parties may be more appropriate rather than striving for a precise allocation.
In general most economists would argue that production and allocation of most goods and services be left to the markets (private sector) while government should be primarily responsible for providing an institutional infrastructure in which markets can function efficiently and effectively. However, in some areas markets cannot be put on an automatic gear. Markets on their own often fail to produce socially desirable outcomes due to failures in their “allocative” and/or “creative” functions.
The Government must facilitate both functions in addition to addressing the issue of non-existence or segmentation of particular markets which is another type of market failure. Beyond these, it is crucial to recognise that Government interventions are essential in many areas to achieve broader development objectives.
Implementation of the strategy
A strategy is only as good as its implementation. A strategy that does not take account of implementation issues cannot be a good one. The quality of implementation is determined by a host of factors. Implementation needs to be taken into explicit consideration during the formulation stage.
For example, if the substantive agenda of the strategy is sound, consistent, coherent and realistic, and the coordination mechanisms proposed for implementation are strong to address potential implementation issues effectively, the probability of success tends to be high. The robustness of the strategy is another determinant of implementation success.
Conclusion
Economic development entails structural transformation of the economy, not replication of what has been achieved somewhere else. In this context, the Government’s decision to formulate an economic revival strategy through an indigenous process is sound and laudable.
The search for an indigenous new economic model, however, is a tedious, time consuming task. To deliver what the President demands and ensure “high quality of the strategy at entry”, the team engaged in the strategy development process need to ensure they work within a sound and coherent overall framework.
[Note: This essay does not deal with such areas as target-setting, coordination, communication, ownership and consensus-building which are other critical elements of a development strategy].
[The writer is a development economist with over 40 years’ experience in the field. During 2009-2018, in his capacity as an Associate of the Kuala Lumpur-based global organisation, Alliance for Financial Inclusion, he provided advisory and training services to many central banks in Asia, Africa and the Middle East and North Africa regions on development of financial inclusion strategies. In 2000, he led a team of over 30 professionals at the Asian Development Bank (ADB) to formulate ADB’s Microfinance Development Strategy. He can be reached at [email protected].]
