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| Sunday, 11 July 2004 |
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Features |  |
| News Business Features Editorial
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Economic growth must benefit the poor
Economic growth has been a hot topic for the last two to three decades. Our leaders and intellectuals representing them have tried to convince us that our development is on an upward trend. Statistics showing an increasing GDP growth rate, low budget deficit, stability of the currency etc. during the past two years and mainly the changes in share market indices have been flaunted to substantiate this. We talked more about the unemployment rate and less about the suffering individual or group of people unemployed or sacked from jobs. We talked more about the inflation rates and less about those in starvation. During the period of nearly three decades when pure open economic policies were adopted, we used to think that the only player in our economy is the private sector. We used to think that government jobs are inferior to those in the private sector. Our state university degrees became inferior to those of private institutions with foreign connections. Our schools became inferior to international schools. Everything indigenous became inferior to the foreign. Everything of the state sector became inferior to the private sector. Therefore we were forced to believe or still believe that the only thing that we have to do is sell off all state institutions to achieve economic growth. Stop recruitment to the state sector and kick out the existing staff. The mentality of the people was conditioned to accept that the handing over of all the sectors of the economy from farming, manufacturing and state services such as tax collection to the private sector was the only way left to us to achieve economic growth. In order to achieve this we were asked to sacrifice more and more. Unemployed graduates were asked to sacrifice. Farmers were asked to face competition of their well protected and developed international counterparts and so on. Common phenomena However, these are not common phenomena to Sri Lanka. These policies and beliefs are all over the third world specially during the last two decades. These are not our own policies. These are the remedies prescribed by the IMF and World Bank commonly from Latin America to Africa and beyond for poverty alleviation and achieving economic growth. However, these policies and development models are questioned and resisted all over the world including by pressure groups in developed countries. After the financial crisis in East Asia, Russia, Mexico and specially after the Argentine and Latin American crises, people as well as leaders of these countries started to think differently. This has started a new wave of changes in economic policies as well as politics. Although changes in small countries like Sri Lanka did not get world attention, the political and economic policy changes in India and economic policy adjustments in China attracted world attention. Santosh Mehrotra, an Indian born economist and one of the chief authors of UNDP's annual human development report, has emphasised this view recently. After the change of the Indian government last month, Mehrotra analysed the election results and expressed this idea. Mehrotra emphasised that if India were to achieve the kind of high and long-term growth that China has enjoyed, the benefits must spread to the 650 million Indians living in the impoverished countryside. India needs a new economic strategy. Although the country as a whole has notched economic growth at 6.2 per cent annually since 1990, the nature of the growth presents a problem. The gap between the rich and the poor has grown in both rural and urban areas and among different States. Although 65 per cent of Indians depend on agriculture, that sector has grown only at an annual 2 per cent rate during the past two decades. The manufacturing industry offers few jobs because its highly capital-intensive investments mostly produce durables such as cars and washing machines. There are 223 million Indians in near starvation consuming less than 1960 calories a day. Three hundred and seventy million Indians live on one dollar or less a day. India has the largest number of illiterates in the world today. Mehrotra says it is larger than the total Indian population in 1997. He also pointed out the lower budgetary allocation for education and health, grabbing of farm subsidies by large-scale producers and lack of irrigation as reasons for this. But those are the essential things that we have to safeguard to maintain a low budget deficit. Election results The past BJP government boasted of a high economic growth of over 10 per cent and development in the IT sector. Despite the higher contribution of the IT industry to Indian economic growth, it employed just 800,000 people when 35 million of the workforce are unemployed. Election results of the Indian States also show how people were impervious to this economic growth. Chief Ministers of Andra Pradesh and Karnataka were handed the worst political defeats at the election. Hyderabad and Bangalore were the shining showcases of IT industry, business parks, Internet cafes and call centres. According to analysts, the reasons for the defeats of the two chief ministers did not have anything to do with party politics. It is true that some people enjoyed the fruits of this type of growth. TIMES magazine reported that according to a survey, software technicians and back office workers were consuming 12 per cent more every year, eating out, buying latest TVs, hanging out in Bangalore's bars etc. But at the same time, thousands of poverty stricken farmers had committed suicide. In Andra Pradesh's market town of Andrapure alone, more than 2000 farmers have committed suicide since 1997. The interesting thing is that these are the results of a process followed to alleviate poverty. In China the case is different. China followed its own policies to achieve high growth and alleviation of poverty and achieved success. She adopted some of the policies that were proposed by the IMF and World Bank. During this phase of development, China was able to redeem 220 million people out of poverty and achieve higher economic growth. But at the same time, Chinese leaders recognised the imbalance of growth and took corrective measures. Last month, China officially announced that the country is entering a new stage of development where widening economic gaps and social tensions must be tackled before they stymie further economic expansion and the party's hold on power. As a corrective measure, it has cut its GDP growth target to seven per cent from last year's 9.1 per cent. Dangerous gaps According to State statistics, gaps between the rich and poor, city and country and inland and coastal regions have reached dangerous levels. The average per capita urban income is now triple the rural incomes in China. Half of the country's bank deposits are owned by the richest five per cent of its 1.3 billion people. Now instead of just quantity, the government has realised that it must meet demands for quality, public safety and sustainable development. Now Chinese leaders are re-thinking priorities and widening the focus on development to include those left behind. Tsinghua University economist Hu Angang who has counselled the leadership for years about the danger of uneven growth in China says that development did not produce enough jobs and warned that corruption was sapping GDP. Over the past year scholars, lawyers and journalists have taken the lead in calling attention to social inequality and official negligence in China. Although the Sri Lankan economic situation is not identical to these foreign country experiences, there are similarities and therefore lessons that we have to learn. The defeat of the 'Regaining Sri Lanka' programme and the victory of the 'Rata Perata' policies can be compared in the light of these experiences in India and China. Finally it is true that any kind of uplift of the conditions of the poor cannot be done without positive development in key economic indicators. But it does not mean such positive trends in economic indicators alone show sustainable economic development. - Vigilante |
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