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| Sunday, 24 July 2005 |
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Conscious economic philosophy for development Dr. N. M. Perera memorial lecture this year was delivered by Prof. Amit Bhaduri of Jawaharlal Nehru University, New Delhi, India, in Colombo. Continued from last week For a country of a large size like China, India or Brazil, it would be easier to rely more on the internal market. For a smaller country, like Sri Lanka, Singapore or Cuba, even in the absence of fruitful regional cooperation, opportunities for this would exist, but they have to be explored from different points of view. The development of the internal market has to be relied on through pro-active government policies, but with the external market firmly kept in sight. I would try to broadly outline what even a small country can do unilaterally to strengthen this mutually beneficial synergetic relationship between the market and the state. It is certainly not the import substitution industrial policies of a protectionist regime that I have in mind. There are usually a few areas in each country marked by the advantage of a natural monopoly. In the case of Sri Lanka it might be areas like tourism, fisheries or tropical fruits and vegetable based food processing. Since a natural monopoly of this sort attributes a certain degree of comparative advantage, it might be wiser to start in those areas, and proceed by strengthen the vertically integrated process of productions within the country with active government policy. The main idea is to keep as much of the value added as possible inside the country by reducing on the one hand the import content of the final product, and on the other by getting a better deal in the international distribution network for these products. The fact that the country has some advantage of natural monopoly should help in bargaining also. With this exploitation of traditional comparative advantage, also some high-tech area has to be tried simultaneously. This is necessary, so that the country is not permanently locked in producing only some traditional products. In this respect Sri Lanka has an edge over most developing countries, due to a wide-spread level of minimum education. However, like in the case of most developing countries, it will also mean significant upgrading of infrastructure which the government has to undertake with little dependence on foreign finance or investment. And this is here that the government particularly needs to break out of the false doctrine that a low budget deficit is desirable at any cost, even if it is detrimental to employment generation and long term development of the economy. The problem is not the extent of budget deficit, but whether it is being spent productively. Productive spending does not simply mean that the composition of budgetary expenditures should be reoriented to suit those purposes. It means an increased accountability of the government. And the first step in this direction is to realise that only periodic accountability through elections, or parliamentary debates are not good enough. What is needed is continuous accountability as the budgetary provisions are spent, and this can be achieved at least partly so that all information in this respect become freely accessible to the people. The right to information about government spending. This free access to information must be complemented by the other principle of making infrastructure based public work as much decentralised as feasible. This will not only reduce bureaucratization, but more importantly, would help to create a stronger link between those who work on the local projects and those who benefit most directly from those projects. It is institutional innovations of these types which is central to any sustainable programme of development, and both the market and the state have to reoriented towards them. If the government then succeeds in improving the required infrastructure, it would have the advantage of creating employment in this process, and expanding the size of the internal market in the short run to help achieve the synergy between the market economy and the state. In the long run, the creation of an updated infrastructure will genuinely increase the competitive strength of the economy, and also improve the climate for investment, domestic and foreign. Let it be noted, this policy has a fair chance of success only with tighter control of the capital account of the balance of payments than Sri Lanka has at the moment, without going against a liberal regime of trade in goods and services. In short, developing the internal market requires both expansionary as well as regulatory policies by a more transparent and accountable government, because, this is the only genuine way the government can hope to really help the long term development of the market economy. And, it does not happen simply by surrendering to the international market forces, or by giving the government non-accountable power. In this context, if we look back at the history of the more successful cases of the market economy, one crucial aspect stands out. It was not an either or choice between the market and the state. One of the shrewdest commentators on the subject, Karl Polyani, surveying this historical process of transformation emphasised its essence. The great transformation of the market economy was a complex "double movement" between the market and the state. At times the market got the upper hand, exploited labour, took irresponsible advantage of existing public goods and ran them down. Then the reaction came in the form of state regulations, until the state too became unnecessarily regulative, so that again a reaction for freeing the market forces occurred. It was indeed a tortous and long drawn-out double movement between the state and the market. Development in our part of the world need not repeat that history. But if we do not care at all to remember the lessons from this historical process, not only we may be compelled to repeat all the past follies, worse still, a successful market economy may continue to elude us, as we do not have two centuries to play out this great game between the state and the market. Therefore, it looks eminently sensible, without being taken in by economic slogans either of the Right or the Left, to follow a conscious economic philosophy that tries to attain this balance between the state and the market. |
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