Government Policy

Is the Government responsible for graduates’ jobs?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dilshani N. Ranawaka

“We want jobs!” is the latest addition to the long list of to-dos that Sri Lankans think the Government is responsible for. The Government positively responded to the protesters and appointed 16,800 graduates as trainee development officers and positioned them across the country. What is so preposterous about this incident? Is it graduates demanding jobs or the Government handing out jobs on a silver platter?

To put this into context, these fresh graduates demanding jobs are the smallest proportion of the student population who were privileged enough to get free education for nearly 20 years while the others were limited to just 13 years. The Government bears the cost of their education in addition to the scholarships offered as financial assistance for undergraduates in need. After 23-24 years of education, they are groomed to be graduates equipped with knowledge and the knowhow to enter the world or work. But, why are they demanding jobs?

This particular problem needs to be explored through the larger lens of unemployment in the country. At the end of the first quarter in 2019, the unemployment rate rose up to 4.7%, an increase of 0.3% from last year. Unfortunately, the contribution by the unemployed graduates to the national unemployment rate is nearly 10%. Reasons for such unemployment rates can be explained through two dimensions; from the perspectives of labour supply and demand.

Labour demand theories indicate that unemployment rates persist for two reasons; demand deficiencies and structural mismatches. Demand deficiencies occur when the economy does not produce sufficient employment opportunities and structural mismatches occur when the skills of the labour force do not meet the requirements of labour demand. In Sri Lanka, studies indicate that structural mismatches are the main contribution to unemployment. But how does it explain today’s prevailing conditions of the labour market?

Entering the world of work is challenging for any graduate. The problem arises when your hard-earned bachelor’s knowledge is impractical and is rarely helpful in the related work you are hoping to do. This is the problem of mismatches of skills in the labour market. In cases where technical knowledge is not important, employees would actually prefer interns for two reasons. Graduates demand more money because of their educational qualifications and interns could be trained to suit the institution’s needs at a lower cost.

In some cases, labour without a degree could have more experience in the field even though they might not have academics. In most cases, experience in a particular field is attractive to any employer.

Now, this takes us back to the main problem. Do these graduates have the right to demand for jobs from the Government?

As a fresh graduate myself, I believe we “do” have the right to work, but the State is not necessarily bound to provide graduates with jobs. These protestors who were provided free education for nearly 20 years should be the drivers of the economy. Unfortunately, such expectations are reversed in the context of Sri Lanka. What should the State’s stance be on such occasions to prevent this from happening in the future?

The present Government responded by offering positions of development officers and teachers funded by the State. This particular stance of the Government is problematic for two reasons.

This sets a bad precedent for younger generations, giving the impression that it is the Government’s responsibility to provide jobs for them. This removes any incentive for future unemployed state graduates to be creative, think outside the box, and achieve the potential they are capable of. Instead, they would be forever dependent on the State, demanding more of everything.

Increasing job opportunities expands the public sector. Larger states would result in higher expenditures and these expenditures are financed mainly through taxes and loans. When these protesters are given jobs, the Government needs to finance these expenses through the imposition of taxes; increasing the cost of living for everyone.

Given these positions, what should the State’s role be in addressing the problem? And what should the graduates expect from the State?

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Handing out jobs has so far been the strategy of governments. However, one could question if such quick fixes are effective even in the short term. A more productive approach would be to identify and implement strategies which address the question of “why” unemployment among graduates is common.
The European Union (EU) had identified two approaches to address structural mismatches within a labour market.

Addressing skills mismatch among unemployed

“Springboard” is an instrument implemented by Ireland which focuses on empowering the unemployed with skills. After offering the unemployed graduates six months of training, direct links with the labour market increases their chances of employment. A few of the key features of this instrument is that this mechanism is monitored by an “expert group on future skills needs”, a board that comprises employers, and focuses on training skills which are customised to suit the skills required for Ireland labour market dynamics and sectors such as ICT, finance, trade, and manufacturing.

Addressing skills mismatch to prevent unemployment

The “curriculum teams” initiated in Luxembourg acts as the bridge between labour market requirements and education institutions. Their role is to shape the national education curriculum in a manner to suit future labour market trends. The key takeaway from these policy instruments is the focus on addressing the core of the unemployment problem – “skills mismatch”.

This particular incident is one demonstration of a deep-rooted issue within the country; the free-rider mindset within each and every one of us. Moving from “it’s the government’s responsibility to do so” to “it’s up to the individual” is going to be extremely difficult as expectations of welfare from the government have been deep-rooted within our system. Which option would really empower an individual? Providing jobs or providing skills to strengthen and expand their capabilities?

Can Sri Lanka afford to feed 225 mouths?

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In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dilshani N. Ranawaka

According to a recent news headline, the costs of parliamentary meals add up to Rs. 120 million annually. In addition, the total amount spent on electricity, telephone facilities, and drinking water is approximately Rs. 103 million per year. This brings the total to Rs. 220 million just to keep the Parliament functioning for a year, a place where poor policies and proper decorum are not taken seriously. However, there’s more to this story.

The story of meals

The parliament has 12 food and beverages outlets including five exclusive restaurants and VVIP dining suites. The resultant cost associated with this is Rs. 10 million per month. To put the cost in context, the aggregate amount is also equivalent to nearly one-fifth of the CESS revenue [1] (Rs. 542 million) collected through tea exports in 2018. Running a parliament is obviously vital, and given its size and functions, there are bound to be high costs associated with it. These costs however should be reasonable and justifiable.

The Parliament convenes only eight days a month

Parliament convenes on the first and the third week of the month on Tuesdays, Wednesdays, Thursdays, and Fridays. The only exception for this is when the Appropriation Bill is considered. However, even the process for the Appropriation Bill is restricted to a maximum of 26 days.

The official poverty line (OPL) is Rs. 4,856 [2]

The OPL calculated by the Department of Census and Statistics is the minimum amount a person requires for basic needs per month. Costs of Rs. 120 million annually just for food is comparatively a large amount. By looking at these numbers, it is evident that food expenditure can be reduced drastically. Has the present Government taken any measures to act on this?

Poor attendance

While expenditure on food is high, attendance in Parliament is low. The attendance at the last session held at the Parliament for this month was nearly 41%. There are numerous days where the Parliament does not convene because the quorum of 20 MPs is not met.

It is now evident that parliamentarians lead a highly luxurious life at the expense of the general public. Who is affected? Everyone except for these parliamentarians. Isn’t it obvious why people spend so much on election campaigns to secure their seat in the next election?

In their defence, the Finance Department of the Parliament claims 75% of this cost is incurred because of the parliament staff. However, the Budget allocates around Rs. 10,000 just for eight meals per parliamentarian. This fact is even more unacceptable because of the lack of commitment we see in them in solving issues of the country and standing for the people and for democracy.

The missing seats

It is known that MPs boycott the Parliament when there’s a crucial debate at hand. Statistics collated from reveal that nearly 20% of the MPs were not seated for four out of eight sessions in the last three months (April, May, June). At the final session of this month, 92 MPs were absent. When representing their electorate, MPs are representing people. They are essentially the mouthpiece of their electorate in Parliament, and have committed to this role. It is important that the MPs know their significance in shaping governance and policies. Such absence in the Parliament is recorded even though they receive an allowance of Rs. 2,500 for each parliamentary sitting. If such positive incentives do not work, would a deduction for absence be a more useful nudge? In general, out of a 20-day monthly-cycle, an individual would try their best to report to work because of their responsibilities and piling-up of assigned workload. With all these facilities given to them to do a better job, are all these excessive expenses borne through tax money fairly treated by the MPs? The amount of wastage of resources created by Sri Lanka’s Parliament is unthinkable.

This further delves us to an important question that we further need to think on. The allocated amount for recurrent expenditure for the Parliament for 2019 is around Rs. 2.8 billion. Even though costs are indispensable in any process, it is evident that the Government spends an excessive amount of limited financial resources in this scenario. It is also evident that the Government does have the capacity to reduce such excessive costs which are indirectly borne by taxpayers. Even in spite of such privileges given to MPs, they have a low tendency to attend to the needs of people. The question to think about is are their services worth the money we spend on them? Don’t they have a responsibility to handle hard-earned public money responsibly? We are the financiers and they are our voice. The question is, do they do their job properly for us to bear all this cost? Is it worth it?

Edit: The previous version of this article stated that cost per parliamentarian on meals were Rs. 45000 per month. This number has now been corrected.

Axe-ing local carpenters

Originally appeared in the Daily Ft and Daily Mirror

By Dhananath Fernando

On 6 June, for World Environment Day, the President stated that he will ban carpentry sheds, and will ban the import of machinery used to cut down trees. Since that statement, there has been considerable policy confusion. It is unclear whether the Gazette notification was amended to ban carpentry sheds and these saws, or whether given public outcry, the ban was not implemented (Update: the ban was approved).

The policy decision to ban carpentry shops will have a similar situation. The ripple impact across livelihoods, industries, and supply chains is difficult to quantify.

However, this is still a matter worth discussing. Even if the Gazette is not amended, a precedent has been set for people in positions of power to take misguided decisions, which could affect the livelihoods of thousands of people. In this instance, the intent of this decision is to address problems of deforestation - the question is, will it achieve this goal?

In Grade 8, we were taught the negative impacts of disturbing the equilibrium in a system or an ecosystem. That should be the first lesson for all leaders in Sri Lanka, before they even think of the word “policy”. To date, I recall the story of my Science teacher. In a forest where deer and lions coexisted, the then-ruler realised that deer were the prey for lions - a situation the king felt was unfair. As a result, the king made a royal decree that all lions in the forest should be killed, in order to protect the deer. For a few years, this appeared to be a wonderful decision. However, a few years later, the absence of a predator resulted in a sharp increase in the deer population. As a result, the food sources in the forest were not adequate to sustain this unprecedented boom in population, and the deer had to resort to eating the barks of trees. Overtime, the damage to tree barks affected the overall health of the forest, as trees began to wither and die. The increased scarcity of food meant that the deer population did not have enough sustenance to survive. In simple words, the good intention of protecting the deer population ended up in the collapse of an entire ecosystem. 

Undoubtedly, the policy decision to ban carpentry shops will have a similar situation. The ripple impact across livelihoods, industries, and supply chains is difficult to quantify. However, there are a few consequences we can predict. 

Carpentry Problem

Furniture prices are likely to increase 

The banning of carpentry sheds will reduce the furniture supply in the market, pushing prices of wooden furniture up. The hike in prices will mean that sales drop, pushing carpenters out of the industry. As the President has halted approvals for new carpentry shops, the industry is effectively condemned to an early death, with no ability for new players to enter, and no incentives for current players to expand in the industry. 

 Incentivising deforestation, bribery and corruption

With the prices of wooden furniture skyrocketing, the President has created a situation where any industrious, entrepreneurial minded individual would want to enter this industry. However, as permits for new carpentry shops have been halted, there is no legal path for people to enter the industry. The incentives are then for these people to enter the industry illegally, using bribery as their entry ticket. The consequences of illegal logging and unregistered chainsaws are much larger than those of allowing this industry to function within a regulatory system. The Government will not be able to monitor or regulate the levels of deforestation in the country, and we are likely to witness an increase in loss of forest cover. 

Lack of innovation and unemployment across sectors

These new restrictions placed on the carpentry industry provide no incentives for people to innovate within the industry. New, affordable and effective ideas which would aid environmental protection are unlikely to come about. Other countries have experimented with private forests, industrial timber cultivation and development of equipment to minimise wastage and enhances productivity. This will not be the case in Sri Lanka. The impact will not be limited to carpenters. No industry exists in a bubble, it is supported by a myriad of ancillary industries which will all be affected. Transportation, painting, polishing, varnishing, wood carving, cushioning, housing, construction are just a few examples of industries which will be affected by rising costs of furniture. 

Possible solutions 

At present the import tax on furniture is 88%, pricing imported furniture out of reach of the majority of the population. With no alternative, people turn to locally produced furniture. It is unlikely that the carpentry industry is the driving force behind all deforestation problems in the country - but even if it were - a more effective policy reform would be to lower these taxes. If imported furniture was more affordable, consumers would change their preferences and demand for locally produced furniture and the logging behind this industry would fall. 

The current tax of 88% on furniture imports is difficult to justify. If the Government is concerned about the environment, it should be able to put aside its protectionist agenda for a decrease in the rates of deforestation. That no steps have been taken in this direction indicates that their motives may not be as clear as we thought. 

Bringing down taxes on semi-products and finished furniture products is vital to improving consumer choice and competition in the furniture market. This would encourage new entrants to the industry, and the increase in competition would mean that there are more incentives for people to develop environmentally friendly business models. 

Should you say no to that government pension?

Originally appeared in the Daily Mirror

By Aneetha Warusavitarana

From a purely individualistic point of view, working in government can seem as a great choice. Government jobs come with perks; allowances of all natures and a guarantee that even if you underperform, the worst that can happen to you is a transfer – you will not lose your job. 

Once you hit 55, the deal is sweetened. At the point of retirement, you are provided with a pension package that beats ones offered by OECD countries, hands down. The best part of the pension package? You don’t contribute a single rupee towards it.

Why? Because the Sri Lankan government currently runs a non-contributory pensions scheme. Simply put, the government provides a monthly pension payment from the point of retirement to the point of demise. The World Bank places this monthly payment between 83 percent – 88 percent of the employee’s final salary, to which the employee does not contribute. In contrast, the private sector is covered by two provident funds, namely the Employers Provident Fund (EPF) and the Employers Trust Fund (ETF). In the case of the EPF, employers contribute 12 percent and employees contribute 8 percent. Employers contribute 3 percent to the ETF. When looking at the public sector pension scheme from a purely welfare perspective, it is difficult to find fault – a benevolent state is providing its retired government servants with a generous pension plan.

Why should citizens be wary of such benevolence?
According to the World Bank Development Update 2019, the current cost of pension payments amounts to 1.4 percent of GDP, and it is set to increase in the coming years. This is a considerable financial obligation that the government has made – and it is clear that there is worry about how financially sustainable a scheme like this is.

The government has made it clear that reform in public sector pensions is needed, and has taken an initial step to stem the outflow. All government employees hired after the 1st of January 2016 are not included in the present pensions scheme. The government has stated that a new pension scheme will be introduced for all employees hired after this date, making it evident that they wish to phase out the existing scheme.

Apart from the unaffordability of this public sector scheme, the consequences of it are far reaching - it affects productivity in the government service and labour markets in general.

 All the wrong incentives
Complaining about government inefficiency is a fond past time for many Sri Lankans. Some would say that nothing goes as well with a strong cup of tea than a good rant about the government. 

Let’s put the cup of tea down for a minute (just a minute), and ask why the government is so inefficient? There is a general understanding that if you want efficiency, you should look towards the private sector, and not the public sector. 

But why? Surely the government could hire the same sort of people and thereby achieve similar levels of efficiency. Part of the issue lies in the perverse incentives created by a culture of status, consistent increments which are not dependent on performance, and a guaranteed retirement. 

It seems a bit cold blooded to say that guaranteeing someone a decent retirement is a bad thing – but the argument runs deeper than that. Providing employees with retirement plans is not inherently bad. However, these plans need to be structured in a way which incentivizes your employees to work productively and efficiently, while ensuring that the employee (the government in this case) is not crippled by the financial obligation. 

Right now, in the government sector, part of the problem lies in the non-contributory pension scheme. Receiving a pension; receiving a good pension that you did not contribute towards creates a sense of entitlement.

A pension is now a right and not a benefit that is worked towards. After all, people are self-interested, and require the right incentives to be productive and efficient. The public service overall does not provide these incentives, and the pension scheme is only one contributor to this problem.

Labour markets 
Pensions also affect the flexibility and mobility of a country’s labour force. The long vesting period (requiring a worker to stay in that firm or that sector for a defined period of time to be eligible to receive a pension) of the government sector’s pension scheme affects labour mobility as workers are less likely to move between jobs and sectors. While one outcome would be that skills and knowledge would not be transferred across sectors, a more economically damaging outcome would be the perverse incentive for people to join a sector simply for the pension benefit, reducing labour productivity and competition.

This can be seen in Sri Lanka where many university students only want to work in the government sector. There are routine protests against the government for their not being provided cushy government jobs, and in response the government provides 10,000 students around election time. 

How does this impact labour markets? There is a continuous surplus of unemployed graduates, waiting for government jobs – and not considering other options.

Additionally, there is a significant opportunity cost that takes place - people join the government under the assumption that this is the best job available - the option of a job in the private sector is completely disregarded, even though opportunities for job progression, creating an impact, and better wages are all a possibility. 

Prudent financial management could mean that one retires with greater stability than a government pension provides. It is only a shift in mindset that is required. 

Sri Lanka pensions

Nevertheless, the budget speech 2019 stated that a national pension plan would be introduced, implying that this plan would extend beyond the public sector to include private sector and informal sector workers. However, the greatest reform need lies with the current government sector scheme. A few small reforms could be implemented to ease the financial burden that the government currently has to bear for all government employees hired before Jan 1st, 2016. 

The first would be increasing the age of retirement and changing the pension calculation to one that is based on the average wage over the best five years of employment instead of final salary. In order to make this reform more palatable, it is possible that these changes are introduced for the younger cohorts of employees and not those who will reach retirement age in the next five years. In conclusion, before acting on the promise of a national pension plan, the current one should be better managed and made 
financially sustainable. 

Sri Lanka’s political system: A Failure of Governance

Originally appeared on Groundviews

By Ravi Ratnasabapathy

This essay examines failures of governance in Sri Lanka. Although discussed within the context of State Owned Enterprises (SOE), they affect many other aspects of public life.

The weaknesses in the governance of SOEs stem from those embedded within the larger political system. These problems can be assessed by an examination of the political system, understanding the incentives of actors and the effectiveness of institutions in directing these towards the public good.

Some examples of general weaknesses in the political system

  1. The power of interest groups

  2. Campaign finance

  3. Weak parliament and committees

  4. Citizens as shareholders

The power of interest groups

People may commonly assume that political actors are mainly concerned with public interest and that the state exists to carry out the wishes of the public.

Unfortunately, the State is made up of people and the dominant motive in people’s actions in the marketplace – whether they are employers, employees, or consumers – is self-interest.

When individuals become politicians they do not suddenly abandon their personal interests and turn into public-spirited individuals who make morally correct decisions in the ‘public interest’.

While most people will base some of their actions on charitable instincts only in rare cases are these likely to be primary motives. Politicians are no different, acting to please interest groups that support them, pushing policies that lead to re-election and pursuing other personal agendas.

 Politicians take collective decisions. They are made by politicians on behalf of the public, and not by the public themselves. All decisions involve a trade-off in costs and benefits but when an individual makes an economic choice, they experience both the costs and the benefits. Thus, they will only act if it is in their interest.

In collective decisions, whether they involve giving jobs to graduates or building a road, the beneficiaries (e.g. graduates, road users) are not always the people who bear the costs (taxpayers or homeowners whose property is lost). Further, in a market transaction both sides have to agree, if either disagrees, they can walk away. In political decisions those who disagree cannot walk away, they are bound to accept the decision and bear whatever costs the collective choice demands.

Therefore collective decisions, unlike individual ones, carry wide implications. Good politicians should weigh overall costs and benefits on our behalf to determine if ‘social welfare’ might be increased by the right choices. The question is do Sri Lankan politicians have the motive; or even the capacity, to do so?

When political decisions are made how do we determine what is ‘best’ for ‘the people’? Society is complex, made up of different groups with different interests. The young may be interested in education and jobs, but pensioners may be more concerned with old age security and health care. An ageing population may vote for increased pensions, but if this is achieved at the cost of lower spending on education the young may lose. Different decisions involve different stakeholders with varied interests, making it difficult to identify a single ‘public interest’.

When collective decisions are taken a choice will be made between many competing sets of interests: but only one set of interests can win. Politicians face conflicting pressures from lobbyists, businesses, family and friends. Those with the greatest leverage will win. This is not the same as saying that policies that bring the greatest social benefit will win.

Small, homogeneous groups (trade unions like the GMOA or businesses) find it relatively easy to organise and have a great deal to gain or lose when collective decisions go for or against them. The opposite is true with large groups, such as consumers or taxpayers.

With large groups the impact of collective decisions on a single member is small so they have little incentive to lobby. Being so diverse, they are also difficult to organise.

The result is that concentrated interest groups have a powerful incentive to organise and campaign for policies that will specifically benefit them. By contrast, the general public, with very diverse interests, have little motivation to put effort into public debate.

The protective tax (roughly Rs.10) on a loaf of bread may not amount to much to a consumer but to the flour millers this represents a gain of around Rs.20 billion a year.

When particular groups manipulate policy to win preferential tax or legal privileges this results in a substantial transfer of wealth from the public to privileged groups. In Sri Lanka the practice is widespread; witness the plethora of special tax concessions (about 200 according to the Finance Minister) exclusive import licenses, permits and protective tariffs.

Campaign finance creates incentives for corruption and poor governance

Limits on campaign spending and the need to disclose sources were removed in the 1978 constitution, opening the floodgates. This excludes the majority of citizens, including the educated, from politics.

There are no accurate estimates of the cost of an election campaign but a former Secretary General of Parliament recently stated that this was in the region of Rs. 60-70 million. Conversations with other commentators produced estimates between Rs. 50-100 million, rising to Rs 150 million for those fighting for preferential votes.

The proportional representation system has increased constituency size (campaign costs are proportional to constituency size) while the preferential voting system intensifies political competition (not only must candidates battle other parties, they must also fight within the party). The combination has sparked an arms race in campaign spending.

While costs are lower outstation they are still substantial and far beyond the lawful earnings of an MP who earns a monthly salary of Rs. 54,285/- plus other allowances of around Rs160,000/-.

Politicians turn to wealthy backers, some connected to the underworld, to fund campaigns and provide labour-in return for political protection or rewards. The result is that a group selected on the basis of access to cash and a workforce – not intellect or ability – enters Parliament. Moreover, the need to recover campaign spending means they come into office under obligation to their sponsors, carrying an inbuilt incentive to corruption.

This has undermined the technical capacity of the state; how can proper policy be formulated if the politicians and bureaucrats are ill-qualified to perform the necessary analysis? The bureaucracy has an important role in policymaking, providing objective assessment of policy options, drawing on experience and practical considerations. Unfortunately, decades of nepotism have sapped its capacity. The concept of independent policy analysis does not exist in Sri Lanka, leaving a vacuum vulnerable to capture by special interest groups.

Weak Parliament and committees

Political actors will pursue their own interests, but functional governance systems can check the worst of these impulses. The most important is parliament, which works through questioning government ministers, debating and the investigative work of committees, principally the Committee on Public Expenditure (COPE) and Committee on Public Accounts (COPA) which scrutinise expenditure.

Unfortunately, serious deficiencies exist. Engineering crossovers in return for political office reduces Parliament to a rubber stamp. Thus there is little incentive for MPs to take Parliament seriously. Many don’t even attend.

An analysis showed that less than half the MPs attended at least 75% of the sessions. Even those who attend remain in the house only for the first hour. Attending funerals or weddings is the priority; they recently voted themselves a new monthly allowance of Rs.100,000 for gifts at functions. Once elected, the goal is Cabinet appointment, as this presents opportunities for gain or furthering political careers. Once ensconced, the incentive is to enjoy office, not to risk the privileges by questioning authority. The multiplication of the Cabinet is driven more by the need to lure opposition MPs to maintain a rubber-stamp majority than strictly functional requirements.

The committee system is also weak. Until recently they were ‘Consultative Committees’ chaired by a Minister and structured to aid the executive than hold it to account. With the major overhaul of the system [1] by the Yahapalanaya government – a significant if little known reform in the last three years – these are now known as ‘Oversight Committees’ and their function is now much better geared to scrutiny and accountability-but much more needs to be done.

COPA/COPE are under-resourced; their reports complain of a lack staff (particularly audit) and proper IT systems. Further, the government is not required to act on the recommendations of these committees (although ministers must now respond to findings) within any stipulated period of time, leaving the accountability loop open.

Despite many limitations, these committees have uncovered multiple grave malpractices that point to fundamental control weaknesses. The fact that only a minority of institutions seem able to furnish an unqualified audit report suggests much more lurks undetected.

Citizens as shareholders

If politicians do not hold SOEs to account can citizens, the ultimate “owners” exert any meaningful oversight? Unfortunately not because:

  • They have no legal standing as owners;

  • The fragmented nature of the “ownership” creates a collective action problem: no one citizen, even ones who are seriously interested, has an incentive to bear the costs required to monitor the managers.

Oversight is costly, and time and effort must be spent on monitoring performance if malpractice is to be detected. This task is made more difficult as citizens lack ready access to information. As no direct rewards accrue to a diligent citizen from such action there is little incentive to expend the effort to do so; citizens depend on politicians to do this. As discussed previously, the politician has no clear incentive, especially since they are not held accountable for poor performance.

The main mechanisms to address these two layers of agency costs are corporate laws and political and legal institutions. The weaknesses of the political institutions have been discussed above and corporate law are rarely enforced on SOEs.

To take a few simple examples; of the 55 large SOEs only ten had published an annual report for 2016, as per the 2017 report of the department of Public Enterprises. (The law requires publication within six months of the year’s end. Timely disclosure is essential in a robust corporate governance framework as it provide the basis for scrutiny for stakeholders.) Thirty were two or more years in arrears.

Sri Lankan Airlines has suffered a Serious Loss of Capital [2], but the legal procedures that must follow have been ignored. Even the labour laws are not enforced-the JEDB has unpaid EPF liabilities of Rs.323m but earns no sanction.

Therefore, the performance of SOEs suffers from both political costs (i.e. the costs associated with control of firms by politicians who have political goals that differ from economic efficiency) and agency costs (i.e. the costs resulting from managerial pursuit of private benefits at the expense of the firm), leading to chronic inefficiency and underperformance.

Conclusion: a dysfunctional state that serves political interests

The political process incentivises corruption. A weak governance regime means little accountability and few checks on government spending. In addition, limited technical capacity means policy is open to “capture” by special interests. The combination is deeply dysfunctional: a parasitic system that transfers wealth to the politically connected through corruption and rent-seeking.

The weaknesses in the political system are discussed here in order to place the context within which the agency and political costs of SOEs are experienced. Poor oversight magnifies these costs. In combination with the perverse incentives of politicians it gives rise to the blatant breaches of fiduciary responsibility that occur, repeatedly in the COPE reports.

All political systems need to mediate the relationship between private wealth and public power. Those that fail have dysfunctional governments, captured by wealthy interests.

The ramifications of this are far-reaching. Although a full discussion is out of place here, structural weaknesses could explain why a massive expansion in state activity has yielded minimal visible benefits to citizens. Between 2005-15 total government spending quadrupled (from Rs.584 billion to Rs.2,290 billion) with little noticeable improvement in essential services; transport, health, education or waste disposal.

The money is swallowed up in a massive administrative machine. There is endless duplication in the 32 cabinet ministries, 3 non-cabinet ministries, 107 departments, and 24 spending units, 452 SOEs just at the centre. Most developed countries make do with about 20 ministries.

The problem with endemic corruption is that public officials, both bureaucrats and politicians, may redesign programmes and propose projects with few public benefits and many opportunities for private profit.

In Sri Lanka, patronage wins elections which may be why we have 166,588 peons and 25,645 drivers in public service (but only 19,612 medical officers and 32,399 nurses). The public sector workforce ballooned from 850,267 to 1.35m between 2005 and 2016.Salaries and pensions consume almost half of all tax revenue. Much other government expenditure has been funded by debt: but it is only now; when debt is repaid-and taxes rise, that the true cost becomes apparent to the public.

Structural problems require structural solutions; changing the identities of the people who hold public office will not suffice.

A concerted effort to improving oversight is needed, to overcome the resistance from within (as it is not in their interest). The National Audit Bill to strengthen the Auditor General’s role to increase accountability was only passed in July 2018, after being held up since 2003. Requests to open the COPE/COPA hearings to the public by the Committees’ themselves have gone unheeded.

Improving accountability and governance within State Owned Enterprises is important because of the large leakages that take place, but this will address only the subset of a larger problem.

Sri Lankan intellectuals have long placed great faith in government but given the quality of governance the role that the state should play in public life should be reassessed. The governance mechanisms are what ensure that state activity delivers benefits to citizens. A state that exhibits high levels of governance may be trusted to play a larger role, whereas one with weaker governance should only play a smaller role.

Keynes stated the function of government: it should do only what the people could not do at all, not what it could do better than the people. Our objective should be a state that performs a limited and well-defined number of tasks to which it is suited and has the requisite capacity.

[1]. Ministers are now required to submit responses to committee findings (previously they could be ignored), COPE follows the convention of being chaired by an opposition MP and non-COPE members of Parliament may now observe its proceedings

[2]. As per Section 220, if it appears to a Director of a Company, that the ‘net assets’ of the Company are less than 50% its ‘Stated Capital’, then the Board, within 20 working days of such fact becoming known to the Director, shall call an Extra-ordinary General Meeting of the Shareholders to be held, not later than 40 working days from the date of calling of such Meeting. Sri Lankan Airlines has lost the entirety of its capital and now has a negative capital.

Sri Lanka has a total of 527 State Owned Enterprises out of which regular information is available for only 55. The inefficiencies and mismanagement which riddle our SOEs are explored in the Advocata Institute's new report  “State of State Enterprises in Sri Lanka- 2019"

To read more on SOEs and download full report visit

Yahapalanaya: A tale of confusion and ineffectuality?

Originally appeared on Echelon

By Ravi Ratnasabapathy

“Whenever we send papers for approval, authorities first look at how to stop it. The only way to activate it is to give something and because we don’t, we have to budget 12-18 months – wait 12-18 months where they (authorities) find different excuses not to give approval.”

Many businessmen are disgusted by the state of the government: rules are uncertain and nothing ever seems to get done. Many also claim that things have got more difficult under the Yahapalanaya regime.

Is this true?

The government has two components, elected representatives (politicians) and non-elected bureaucrats. Policies are normally the result of both political and bureaucratic intervention. There is no question that Sri Lanka’s bureaucracy has been decaying for decades, but it now seems to have almost ground to a halt. It is difficult to judge if the bureaucracy has become a lot worse in the past few years – there have been few obvious changes to the system that prevailed before.

What’s changed are politicians, and particularly, a change in the structure of power. What typically used to happen in the past was that when businesses encountered obstacles in the bureaucracy, they would simply approach a politician. Under the previous regime, power was centralised and resided in a few positions.

If a businessman complained to the right channel, a quick response and a firm decision could be expected. These decisions simply cut through all red tape and regulations, which meant the bureaucracy was simply bypassed. The inefficiencies of the bureaucracy thus remained hidden from view.

Under Yahapalanaya, power is diffused and split among warring factions, contributing to an uncertain policy framework. Lacking an overarching vision, few have a clear idea of policy and even fewer are willing to take bold decisions that cut through the bureaucracy. When businesses approach politicians for solutions, they are directed into the maze of the bureaucracy where they experience the grim decline of decades.

This may explain the dilemma, but what is the solution?

Investors shy away from countries where rules are unclear or are constantly changing, and where approvals are dependent on ad-hoc decisions. What is needed are simple, clear rules and standardised processes that deliver predictable outcomes. If X paperwork is submitted, an approval should be received within Y time with no further intervention.

The solution is not to allow politicians to bypass laws, but to fix the processes

The solution is not to allow politicians to bypass laws and regulations, but to fix the processes. This will not just help investors and businesses, it helps the public and small businesses who must get approval for many things from cutting a tree to digging a well or obtaining an electricity connection. Migrant women have to submit a myriad of documents beyond those specified in the Circular and make multiple visits to the DS office in order to obtain the Family Background Report.

Small businesses struggle with taxes. The Inland Revenue refuses to issue VAT registration to a new business unless they can show that they have reached the threshold (Rs3 million per quarter), forcing them to incur the additional cost of VAT. Once registered, even if the business later falls below the threshold, they are harassed for payment, even though they are technically no longer liable.

Small businesses and individuals lacking access to politicians have been dealing with these issues all the time. Fixing the processes should be a priority, but this is an enormous task. It can only be approached by multiple taskforces working together.

At the top, there needs to be a central “Administrative Simplification Agency” – promoting administrative simplification “across the board” for businesses, citizens, and the public sector. The central bureau must be supported by smaller teams working in all the departments to cut and simplify paperwork. Outside taskforces, perhaps supported by external consultants, can help with co-ordination and keeping up the pace of reforms. Relevant partners and affected parties can be involved in the administrative simplification reforms, which will contribute to gaining constituency.

The agency must have the highest level of political backing. The approach is to re-engineer processes, cutting redundant regulations, approvals or documents.

The challenge is to balance the use of administrative processes to implement public policies, minimising the interferences of these requirements in terms of the resources needed to comply with them.

All this is back office work that is dull, dreary, difficult and lacks political visibility. No politician will back such a venture as they will get no political mileage from this.

Transparency is needed in the cutting of red tape, which brings public support, builds political capital and sustain reform.

There is a useful model in Peru that set up a tribunal to gather and evaluate proposals from citizens for deregulation, and to check up on how various bureaucracies were responding to the law. To encourage public participation, bright yellow boxes were placed in the agency, government offices, and at all the radio, television and newspaper outlets to make it as convenient as possible for people to deposit their grievances. The media were encouraged to review the grievances they received, and when they saw an astonishing or outrageous story, they took up the cause, creating the kind of public pressure that politicians found impossible to ignore.

The agency must have the highest level of political backing. The approach is to re-engineer processes

The tribunal did not cut the red tape. What it did was bring the problems to public view, and involved the public in the process. The body that cut the red tape worked after the tribunal but in Sri Lanka, the mechanism to cut the red tape must be set up beforehand. This must be done without much fanfare, otherwise the public will once again witness the delays in setting up such a body. Ideally, some preliminary analysis should be done beforehand and several solutions must be kept ready for immediate implementation once the publicity campaign is launched. People should experience real results.

The process must also include evaluation and measurement of changes so further improvements can be done. The principle is to first organise and once this is done, as far as possible, to securely digitise. (Current government efforts to digitise are rickety and intrusive, requiring registration via social media accounts, and are prone to failure).

In Peru, over the years the Tribunal was in operation —with the President, by law, in attendance—more than 200 bureaucratic knots were untied. The time previously required to fulfill hundreds of different kinds of official procedures, including obtaining a passport, applying to university and getting a marriage license, was cut across the board by at least 75 percent.

At the end of President Garcia’s term in July 1990, 79% of the population (and 84% of the poorest among them) rated the Law of Administrative Simplification as the best law enacted during the 1985-1990 legislative period.

If the government is willing to take this approach, it can result in a win-win situation for politicians and the country.

Ceiling price to floor bottled water industry

Originally appeared on Daily FT

By Joshua Karpinski

The recently instilled price control on bottled water seems like a positive for all consumers. How can a lower priced good hurt society? A recent report by the Advocata Institute “Price Controls in Sri Lanka” finds that price controls are of limited value in reducing costs. The report claims that price controls can cause significant welfare losses, deterioration in product quality, reduction in investment and, in the long run, higher prices. Hence, one must approach production and economic fundamentals to observe a price controls’ potentially detrimental outcomes.

As per the extraordinary gazette notification released by the government on the 5th of October 2018, the maximum retail prices of bottled water are as follows:

Gazette Table.PNG

As shown (table), the new ceiling prices shave off a fair chunk of the bottled water seller’s margin (for instance, the cheapest common 500ml brand retailed at Rs. 45.00). This falling margin trickles down from the retailer/wholesaler to the distributor and eventually the producer (bottler). As with any economic activity, the goal is to generate profit. This aim remains with the producer to the retailer, and a ceiling price disrupts economic activity. We must observe how this industry operates.

The common water bottler sources his PET (polyethylene terephthalate) bottles from local plastic producers or importers. These bottles are a product of the petrochemical industry, a sector of rising cost due to increasing petroleum prices, internationally. Additionally, the ailing Sri Lankan Rupee has done no favours to importers.

The water is sourced from dug wells to springs and deep wells, and various brands treat the water using different techniques (like pricey reverse osmosis or cheaper chemical treatment). The water and the PET bottles need to abide by a predetermined SLS criteria and Health Ministry specifications. Additionally, they undergo licensing (with periodic renewals), site inspections, water and product testing and random checks (by the Consumer Affairs Authority).

The finished water bottles then make their way to wholesalers or retailers, to be purchased in large quantities (for events or corporates) or shelved at boutiques and supermarkets. This is done with the help of distributors, who range from large corporate in-house logistics departments, to the DIMO Batta owners outstation. This price control lowers the distributor’s margin, potentially removing the smaller distributors altogether.

The larger sellers, like Keells with “K Choice” water or Cargills’ “KIST Knuckles”, vertically integrate the entire process. It will no longer be in the interest of these supermarket oligopolies, to use up shelf space for rival brands (this is already apparent in some Keells outlets) and eventually the consumer suffers with few to no brand alternative. The price ceiling acts as a barrier to entry for new producers, as now they do not have the freedom to charge prices in line with economic forces. Existing producers may be forced out of the market or absorbed by larger entities. In economic terms, consumer choice falls.

A shift to aggressively cut costs could lead to lower quality plastic, (albeit still in line with health standards) being used and recycled. Furthermore, cheaper alternatives to water purification like chemical treatment will become the standard, despite poorer taste and lower healthy mineral content. A fall in research and development investment will lower innovation into current and future water products and services and this too will be at cost to the consumer.

Lower priced bottled water leads to higher demand and consumption. This does not bode well for the environment, owing to more plastic use and waste. Sri Lanka annually imports 9,600 tonnes of raw virgin plastic (PET) to manufacture bottles, packaging and for other requirements. 70% of this is processed and consumed as an end product in Sri Lanka and the used plastic waste creates monstrous environmental issues. Although recyclers are trying to address this issue, the price control in question could severely contribute to even greater plastic waste.

Tap water is the cheapest water option available. It usually goes through a process of basic filtration techniques like flocculation, which adds chemicals to the water to get particles to coagulate and float, so that they can be removed; sand filtration, which filters out large pieces of debris; or chlorination, which adds chlorine to kill bacteria and microorganisms. Despite tap water being considered drinkable (to some, purely out of convenience), it can lead to numerous problems. Chlorine is not ideal for human consumption (while our bodies can technically handle it, chlorine can lead to a variety of health complications and is potentially carcinogenic). The presence of microbes and impurities from pipes add health issues too. These risks have not gone unnoticed as we observe tourist forums and foreign travel bloggers strongly urging future visitors to avoid Sri Lankan tap water and to always opt for sealed bottled water. This leads on to the variety of bottled water available to consumers.

  • Artesian Water: Water from a well that taps a confined aquifer (a water-bearing underground layer of rock or sand) in which the water level stands at some height above the top of the aquifer.

  • Spring Water: Water derived from an underground formation from which water flows naturally to the surface of the earth.

  • Purified Water: Water that has been produced by distillation, deionization, reverse osmosis, or other suitable processes.

  • Distilled Water: Water that has been vaporized into steam, then cooled to re-condense it back into water. The water's minerals are left behind, leaving only pure tasting steam-distilled water.

  • Mineral Water: Water that contains no less than 250 parts per million (ppm) total dissolved solids (TDS).

It is evident that a variety of water sources can be tapped and different purification methods can be employed to produce consumable water. This “clean, drinkable water” is then bottled and intensely marketed across a spectrum of brands, along with their source and unique purification methodology.

Below, tabulated, is a collection of some local branded water. (Source: bottle label/bottler website)

Collation of bottled water prices.jpg

These bottles contain drinking water that was sourced differently. It was then processed (filtered/purified) differently. The plastic it is contained in is not standardized (it just has to fulfil a minimum health and quality requirement). These aspects of a seemingly simple good exposes variety with differentiability, and this may sway demand for one brand over the other. This should influence price and create a variation of prices for different brands, at the stimulus of consumer choice.

However, in essence, this price control has homogenized a differentiable good. The consumer now pays one price across a range of bottled water.

The price ceiling, although seemingly to help us buy cheaper bottled water, could cycle back to hinder the bottled water industry from giving the end consumer the best possible product. Water is not a scarce good (yet) in Sri Lanka and there are plenty of existing alternatives to bottled water. Has the government truly taken this into consideration? How have the new prices been calculated? What research has been carried out? Has a cost benefit analysis been performed? If so, where is it? Where is the data? Despite multiple attempts to communicate with senior employees at the CAA, we failed to gather any meaningful answers, useful information nor a compliant contact. Why does the CAA pass the buck to its ministry who in turn has no one willing to answer these queries? Does society truly benefit from this seemingly positive, yet irrational gazette? Who really stands to benefit from this decision in the long run?

Price Control Outcome.jpg

Consumers rear-ended by reer depreciation?

Originally appeared on Echelon

By Ravi Ratnasabapathy

What really is driving the currency weakness? The Central Bank must consider both fundamentals and monetary factors.

Sri Lanka’s currency has fallen rapidly over the last two months, raising fears of yet another crisis. Sri Lanka’s Rupee depreciation over the past six months against the US Dollar is at a much higher rate than the historic annual average of around 10% over the last couple of decades. A stable exchange rate reduces transaction costs and uncertainty in international trade, thereby stimulating trade. It is one of the most important macroeconomic variables in the economy; it affects inflation, exports, imports and economic activity. Budget deficits are the source of much instability. The painful tax increases that addressed this issue were expected to result in stabilisation of interest rates, exchange rates and inflation. The recent depreciation of the currency is therefore puzzling and worrying.

The problem seems to be in the new inflation targeting regime based on the Real Effective Exchange Rate. What this means is that Sri Lanka will target an inflation-adjusted exchange rate index relative to competitors to keep the Rupee competitive. It appears that the depreciation of other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy?

Export growth is correctly identified as critical for development, and the Central Bank objective seems to be to keep the exchange rate competitive; but is this necessary? Previously, competitive exchange rates were seen to be crucial for exports, but a recent paper published by the World Bank in 2015 (Depreciation without Exports? Global Value Chains and the Exchange Rate Elasticity of Exports) suggests this is changing (although the view is not universal; other studies seem to contradict this).

The paper finds that the emergence of global value chains (GVCs) has resulted in a decline in the effect of real exchange rates on export performance. This has been linked with the emergence of GVCs through the following three mechanisms:
1. Firms need to import to be able to export; therefore, their exports contain not just domestic but also foreign inputs.
2. Stable supplier-buyer links are valuable, so the cost of switching suppliers in case of a real exchange rate change in a given partner’s country becomes non-negligible.
3. Large leading firms account for an increasingly larger portion of world trade, and these firms may find it easier to hedge against real exchange rate changes along their production network.

The study finds that when firms’ share of imported intermediates is greater than 30 percent, the effect of real exchange rates on export participation fades. Thus, as countries become more integrated in global production processes, currency depreciation only improves the competitiveness of a fraction of the value of final goods exports. The objective of Sri Lanka’s new export strategy is to integrate to GVC. If this paper is correct, the currency may not play a significant role in improving our entry into GVCs.

As yet, Sri Lanka is not well integrated into global value chains; so does the currency depreciation help existing exports? This does not appear to be the case.

It appears that the depreciation of the other currencies has led the Central Bank to loosen monetary policy, causing the currency to fall. What are the implications of such a policy?

A Central Bank staff research paper by U P Alawattage in 2005 titled Exchange Rate, Competitiveness and Balance of Payment Performance examined the effectiveness of the exchange rate policy in Sri Lanka in achieving external competitiveness since the liberalisation of the economy in 1977. It analyses quarterly data covering the period of 1978:1 to 2000:4 and finds that the Real Effective Exchange Rate (REER) does not have a significant impact on improving the trade balance, particularly in the short term.

The other major concern is the impact of the currency on domestic prices and confidence. For small economies, changes in the exchange rate can have an important influence on prices. It not only affects prices of imports but also import-competing goods, and local goods that are tradeable internationally. When the currency depreciates, local prices of these goods and services tend to rise quite quickly, and by a similar amount as the depreciation of the exchange rate.

When import prices rise, demand is driven towards domestically produced goods and services. In the absence of offsetting factors, this results in more pressure on local production capacity and a bidding up of prices. This leads to increased demand for labour and capital pushing wages and interest rates.

The direct effect of the currency depreciation will generally contribute to an overall price level increase in proportion to the share of tradeable goods and services in GDP. Published as a Central Bank study in 2017, a paper by S M Wimalasuriya titled Exchange Rate Pass-Through: To what extent do prices change in Sri Lanka? suggests that the exchange rate pass-through into import prices is around 50%; that is, import prices increase by about 0.5% (and those of other consumer prices by 0.3%) as a result of a 1% depreciation of the Nominal Effective Exchange Rate.

Therefore, the overall cost of living will rise further. Tax increases – VAT from 11% to 15%, PAL from 5% to 7.5% – and the currency depreciation over the last couple of years has already added significant costs to household budgets. Add to this increases in fuel, gas – all necessary due to increases in global prices – and the combined burden is huge. To add even further inflation through currency depreciation will impoverish many and increase popular discontent. Pursuing unpopular policies is sometimes necessary but the combination of depreciation amid fiscal tightening looks dangerous and perhaps even unnecessary.

Exchange rates can move for a range of reasons, which can be simplified into two categories: “real” factors, or in other words, changes in relative fundamentals; and “monetary” factors. “Fundamentals” would, for example, include changes in the terms of trade and productivity, while “Monetary” factors are changes in the money supply.

In practice, policymakers may find it difficult to distinguish how much of a movement in the exchange rate is due to changes in the fundamentals and how much may be inflationary (or deflationary), although in the current situation, monetary factors seem to be the cause.

Thus, in Sri Lanka, where inflation expectations are not well anchored, the prudent monetary policy response would be to tighten rates, at least until there are grounds for being more confident that it was the fundamentals that had changed. The immediate political considerations suggest the same action.

A currency’s exchange rate contains important information about the country’s monetary position and the credibility of domestic monetary policy. The popular perception of the current stance is that it is either weak or out of control. For businesses, it is creating a new level of uncertainty, which is not being helped by ad hoc administrative measures (increasing LC margins on cars for example) to arrest some of the effects. For consumers, it fuels inflation, adding to the woes of fiscal tightening.

The Central Bank should revisit its inflation-targeting regime and tighten rates to stabilize the currency.

අර්බුදයේ ගැඹුර

චන්ද්‍රා ජයරත්න

පරිවර්තනය- Advocata Institute

හැම රජයක්ම  පසුගිය කාලයේ උත්සහ  කළේ උපයන ප්‍රමාණයට වඩා පරිභෝජනයට රටත් මිනිස්සුන්වත් පුරුදු කරපු එක. ආර්ථිකය දියුණු කිරීමට කල් පවතින ප්‍රතිපත්ති ගෙන ඒම වෙනුවට පැවතුනු හැම ආණ්ඩුවක්ම කළේ තමන්ගේ සමීපතම ගජ මිතුරන්ට වාසි සැලසෙන (Crony capitalism) ආරක්ෂණවදී ප්‍රතිපත්ති ඉදිරිපත් කිරීම සහ එම ගජ මිතුරු නිළධාරීවාදය එක්ක දේශපාලන සමීපතමයන්ට වැඩිපුර සල්ලි හම්බකරන්න පුලුවන්  විදියට නීති වෙනස් කරපු (Rent seeking) එක විතරයි.

මේ ව්‍යයසනකාරී ප්‍රතිපත්තියේ ප්‍රතිඵලය අද අපිට ලැබිල තියනවා. අපි රටක් විදියට අද ජීවත් වෙන්නෙ අපිට ජීවත් වෙන්න පුලුවන් ධාරිතාවයෙන් ගව ගණනාවක්  ඔබ්බට ගිහිල්ල. [“living beyond our means”]

අපේ ආනයන අපනයන වගේ දෙගුණයක්. එම පරතරය පියවන්නේ සංචාරක කර්මාන්තයෙන්, විදේශ ශ්‍රමිකයන් එවන පිටරන මුදල් වලින් සහ දිනපතා වැඩිවෙන මහා ණය කන්දරාවකින්.

ණය මුදල් වාරික සහ පොළී මුදල් ගෙවීම දිගටම ඉහළ යමින් පවතිනවා. රුපියල අවප්‍රමාණ වෙමින් වියදම එන්න එන්නම වැඩි වෙද්දි සාමාන්‍ය ජනතාව කබලෙන් ලිපට වැටෙමින්  දුක් කන්දරාවක් විඳවනවා. ණය ගෙවන්න යන මුදල් ප්‍රමාණය වැඩි වෙන නිසාත් ආර්ථික ප්‍රතිලාභ ලැබෙන ආයෝජන අඩු කරන්න වෙලා තියන නිසා දැන් ආර්ථික වර්ධනය එන්න එන්නම අඩු වෙනවා. අපි විදේශ විනිමය/ මුදල් උපයන වේගයට සහ ප්‍රමාණයට වඩා වැඩි වේගයකින් විදේශ මුදල් ණයට ගැනීම නිසා අර්බුදයේ සංකීර්ණම අවස්ථාවට දැන් අපි පැමිණ තිබෙනවා. එම සංකීර්ණ අර්බුදයේ සංකේත ආර්ථිකයේ දැනටම දැකිය හැකියි. [සටහන 1]

රටේ ආර්ථිකයේ [ සාර්ව ආර්ථිකයේ] පෙනෙන අර්බුදයට වඩා ගැඹුරු අර්බුදයක් සාමාන්‍ය මිනිසුන්ගේ නිවාස වල ආර්ථිකයේ ජනිත වෙමින් පවතිනවා. ආර්ථික වර්ධනය අඩුවීම, රුපියල අවප්‍රමාණ වීම, රැකියා අඩු වීම, අදායම අඩු වීම නිසා සෑම නිවාස කුටුම්බයක්ම ණය අර්බුදයක හිර වී තිබෙනවා [සටහන 2]

මේ මොහොත වනවිට රටේ ආර්ථිකයේ අර්බුදයත් ගෙදර ආර්ථිකයේ අර්බුදයත් එකිනෙකට එක් වෙමින් දේශපාලන අර්බුදය සමඟ එක්ව ඉතා තීව්‍ර ආර්ථික කැළඹීමක් ඇතිකර අවසානයි  

මේ අර්බුදයට විසඳුම කුමක්ද?

මුලින්ම අපි දැවෙන ආර්ථික අර්බුදයක සිටින බවත් එම අර්බුදයෙන් ගොඩ ඒමට පහසු මාර්ගයක් නොමැති බවත් පිළිගන්න අවශ්‍යයයි. මෙම අර්බුදයෙන් ගොඩ එන්න පුලුවන් එකම ක්‍රමය මහන්සි වී වැඩ කිරීමත් අපගේ පරිභෝජනය පිලිබඳ සිතා බැලීමත් පමණයි.

දෙවනුව සියලුම පක්ෂ ජාතික මට්ටමේ එකඟතාවයක් ඇති කරගත යුතුයි. සියලුම මට්ටම් වල සමාජ නායකයන් සහ ආගමික නායකයන් මහන්සි වී වැඩ කිරීම පිලිබඳව, තම තරඟකාරීත්ය්වයෙන් තොරව ව්‍යාපාර වලට වාසි ලැබෙන නීති රීතිවලට එරෙහිව (Rent seeking) , සේවයකින් ලබා දීමෙන් තොරව/ වටිනා කමක් එකතු කිරීමෙන් තොරව මුදල් උපයන රැකියා වලට එරෙහිව සමාජය දැනුවත් කලයුතු සේම සමාජ මතයක් ගොඩ නැගිය යුතුයි.

තෙවනුව , දූෂණය, නාස්තිය සහ සුපෝගභෝගී පාරිභෝජන රටාව නැවැත්විය යුතුයි.

සිව්වෙනුව යටිතල පහසුකම් දියුණු කිරීමේ ප්‍රමුඛතාව කෙටිකාලීන අවශ්‍යතා වලින් තොරව දිගු සහ මධ්‍යකාලීන ඉලක්ක කරා යොමුවිය යුතුයි. උදා: අධිවේගී මාර්ග වෙනුවට රේල් පාරවල්, විශාළ වාරි කර්මාන්ත ව්‍යාපෘති වෙනුවට කුඩා වැව් සහ වාරි කර්මාන්ත

සටහන 1

2011 වසරේ විදේශ ණය වාරික සඳහා ගෙවීම ඇමරිකන් ඩොලර් බිලියන 1. එය වසර 7ක් තුල දෙගුණයක් කරමින් 2017 වසරේදී විදෙශ ණය වාරික ගෙවීම් සඳහා ඇමරිකන් ඩොලර් බිලියන 2ක් ගෙවිය යුතුයි. වසර දෙකකදි ණය වාරික දෙගුණ වෙමින් 2019 වසරේදී ඇමරිකන් ඩොලර් බිලියන 4 ක් ගෙවිය යුතුයි. අවුරුදු 5 ඩොලර් බැඳුම්කර සඳහා පොළී අනුපාතිකය 2016 දී පැවති 4% පොළී අනුපාතිකය දැන් 9% දක්වා ඉහළගොස් තිබෙනවා. විදෙස් ශ්‍රමිකයන් ශ්‍රී ලංකාවට එවන මුදල් ප්‍රමානය අවම වන අතර අපනයන, ආනයන වලට සාපෙක්ෂව වර්ධනය වන්නේ ඉතාම සෙමින්. සැබවින්ම භයංකාර අර්බුදයක්.  

සටහන 2

2016 දී ජන සහ සංඛ්‍යා ලේඛණ දෙපාර්තමේන්තුවේ ගෘහස්ත ආදායම් වියදම් සමීක්ෂණයට [House hold income and expenditure survey - HIES] අනුව නිවසක සාමාන්‍ය ආදායම රු. 62,227ක් වන අතර ගෘහස්ත මාසික වියදම රු. 54,999. සියලුම නිවාස වලින් 60% ක් පමණ රු. මිලියන 1.4ක ණය ප්‍රමාණයකට [ එක් නිවාස ඒකකයක් ] යටත් වී තිබෙනවා. ඒ අනුව රු. 7,238 ක ඉතුරු මුදලින් ණය මුදල පමණක් පියවීම සඳහා අවම වශයෙන් මාස 193ක [අවුරුදු 16ක් ] කාලයක් ගතවනවා. ආර්ථික වර්ධනය අවම වුවහොත් මෙම කාලය තවත් දීර්ඝ වනු ඇති.

සටහන 3

වාණිජ බැංකු ණය මුදල් ආපසු අය කරගැනීමේදී  ලක්ව ඇති අභියෝගය තහවුරු වන්නේ නිසි පරිදි නොගෙවන ණය ප්‍රමාණ වලින් [Non performing loans - NPL]. ස්වාධීන Moody’s ආයතනයට අනුව 2018 මාර්තු මාසයේදී නිසි පරිදි නොගෙවන ණය වල වාටිනාකම වත්කම් වල ප්‍රතිශතයක් [Non performing loan as a percentage of assets] ලෙස 2.7% සිට 3.0% දක්වා ඉහල ගියා.

Constitutionality of Sri Lanka's politics turmoil

By Suri Ratnapala

This opinion addresses the following questions presented by Upul Jayasuriya, Attorney-at-Law. 

1. Is the purported dismissal Ranil Wickremesinghe from the office of Prime Minister by the President constitutionally valid? 
2. Is the purported appointment of Mahinda Rajapaksa as Prime Minister constitutionally valid? 
3. Is the Presidential proclamation of 9 November 2018 purporting to dissolve the Parliament constitutionally valid? 

For the reasons herein stated, the answer to each question is negative.   

Purported dismissal of the PM and the appointment of another person as PM 

The President has no power to dismiss Wickremesinghe as Prime Minister. The argument that the power to appoint the PM carries an inherent power to remove the PM is incorrect. There is no such power under Westminster convention or the provisions of the Sri Lanka Constitution. 

This argument is founded on a misapprehension that the PM serves at the pleasure of the President. Even an employer at common law cannot lawfully dismiss an employee except in accordance with the terms of the contract and applicable legislation.   

The Prime Minister’s tenure in office is defined by Art 46(2) which provides: 

(2) The Prime Minister shall continue to hold office throughout the period during which the Cabinet of Ministers continues to function under the provisions of the Constitution unless he– 
(a) resigns his office by a writing under his hand addressed to the President; or 
(b) ceases to be a Member of Parliament. 

Wickremesinghe has not resigned his office. He has not ceased to be a Member of Parliament. (As stated in this Opinion, the purported dissolution of Parliament is null and void.) He has not vacated his office by death. The question then is whether the Cabinet of Ministers continues or has ceased to function. This matter is governed by Art 48 (1) and (2) which provides: 

48. (1) On the Prime Minister ceasing to hold office by death, resignation or otherwise, except during the period intervening between the dissolution of Parliament and the conclusion of the General Election, the Cabinet of Ministers shall, unless the President has in the exercise of his powers under Article 70, dissolved Parliament, stand dissolved … 

(2) If Parliament rejects the Statement of Government Policy or the Appropriation Bill or passes a vote of no-confidence in the Government, the Cabinet of Ministers shall stand dissolved … 

Wickremesinghe, to reiterate, has not ceased to hold office as PM by death or resignation or by ceasing to be a Member of Parliament. Therefore, the Cabinet of Ministers will stand dissolved during the life of the Parliament only if Parliament: 
(a) rejects the Statement of Government Policy,  
(b) rejects the Appropriation Bill, or  
(c)  passes a vote of no-confidence in the Government. 

None of these events has occurred. Since no event that could constitutionally terminate the office of Wickremesinghe has occurred, he remains the Prime Minister and there is no vacancy of the office of Prime Minister.  

It should be noted that even if there was a valid dissolution of the current Parliament, Wickremesinghe and the Cabinet would have remained as the Caretaker Government until the General Election by virtue of Art 47(1). Therefore, the President has no constitutional authority to appoint Rajapaksa as the Prime Minister.   

The Sinhala text of the Constitution leads to the same result 

The President has claimed the authority to dismiss Wickremesinghe from the office of PM based on the Sinhala text of Art 48(1) of the Constitution. This claim is unwarranted. The relevant Sinhala words are ‘dhoorayen ivath karanu labeemen ho illaa as veemen ho anyaakaarayakin’. These words in English translation means ‘removal from office, resignation or otherwise’. 

The words ‘removal from office’ refers to the circumstance of being removed from office according to the Constitution. Under the Constitution the power of removing the PM is vested solely in Parliament which could do so only by rejecting the Statement of Government Policy or the Appropriation Bill or by passing a vote of no-confidence in the Government.   

Therefore, the claimed power based on the Sinhala text of the Constitution has no merit.  

The purported dissolution of the current Parliament  

The President, by proclamation of 9 November 2018, has purported to dissolve the current Parliament. On 13 November 2018, the Supreme Court in response to several petitions, made interim orders suspending the effect of the Proclamation until 7 December 2018. The Court is scheduled to hear arguments on 4, 5 and 6 December.  

The Proclamation has been made in clear and direct violation of Article 70(1) which provides as follows. 

(1)The President may by Proclamation, summon, prorogue and dissolve Parliament: 

Provided that the President shall not dissolve Parliament until the expiration of a period of not less than four years and six months from the date appointed for its first meeting, unless Parliament requests the President to do so by a resolution passed by not less than two-thirds of the whole number of Members (including those not present), voting in its favour. 

Parliament has not made a request for its dissolution.  

The President is the sole authority under the Constitution with power to ‘summon, prorogue and dissolve Parliament’. (Art 33(2)) However this power is not absolute but must be exercised according to the Constitution. Therefore, it must be exercised in accordance with Art 70(1) as amended by the Nineteenth Amendment of the Constitution. Two important presumptions of statutory interpretation are relevant to this question.

First is the presumption that the general provision does not detract from the specific provision. (Generalia specialibus non derogant.) In other words, the general provision is qualified by the special provision on the same subject. The proviso of Art 70(1) qualifies and limits the power granted by Art 33(2) and Art 70.  

Second is the presumption that the later enactment prevails over the earlier contrary enactment. (Leges posteriores priores contrarias abrogant.) Art 70(1) as introduced by the Nineteenth Amendment is the later enactment that was clearly intended and has effect of qualifying and limiting the power of the President to dissolve Parliament.  

The Attorney-General’s argument has no merit 

The Attorney-General is reported to have made the following argument before the Supreme Court at the hearing on 13 November 2018.  

‘No provision of the 19th Amendment was called for a referendum and pruning of President’s powers must have been done via referendum. The 19th Amendment did not require a referendum because executive power was intact as it stood before the referendum. Executive powers cannot be eroded. It can be approved by people exercising the franchise. 

‘The Article 70(1) cannot be read in isolation when all provisions of the 19th Amendment taken together did not require a referendum because it did not erode the powers of the President’. (The Daily Mirror 13 November 2018) 

This argument is without merit.  

The Supreme Court considered and delivered its judgment on the Nineteenth Amendment Bill in S.D. Nos. 4-19/2015 heard on 1, 2 and 6 April 2015. Since the Bill was described in its Long Title as being for the amendment of provisions of the Constitution, the only question which the Supreme Court could determine was whether the Bill required approval by the People at a Referendum by virtue of the provisions of Article 83. (Art 120 proviso (a)) It determined that the Bill did not require referendum approval.  

The petitioners in that proceeding made precisely the same argument that the Attorney-General now makes, namely that the President’s executive power could not be restricted without the approval of the People at a Referendum. The argument was considered and rejected by the Supreme Court. 

The limitation of the President’s discretion by the establishment of the Constitutional Council was previously considered by the Supreme Court in its Judgement on the Seventeenth Amendment Bill. The Court held that the fetter on the Presidential discretion to make appointments to high offices was consistent with the sovereignty of the people established by Articles 3 and 4.  In the Judgment on the Nineteenth Amendment Their Lordships emphasised the President’s responsibility to Parliament established by Art 42 and concluded: 

Because the Constitution must be read as a whole, Article 4(b) must also be read in the light of Article 42. Clearly, the Constitution did not intend the President to function as an unfettered repository of executive power unconstrained by other organs of governance. (Emphasis added)  

The power to dissolve Parliament derives from the old Royal prerogative which was restrained in the past only by convention. It is not in the nature of strict executive power. In the UK, Australia, New Zealand and Canada it is considered part of the reserve power of the monarch. The limitation of the Presidential power to dissolve Parliament and its location in Parliament itself enhances the sovereignty of the people.  


For the reasons stated above: 

(a) The purported dismissal of Wickremesinghe from the office of Prime Minister is unconstitutional. 
(b) The purported appointment of Rajapaksa as Prime Minister is unconstitutional. 
(c) The purported dissolution of the current Parliament by the Proclamation of 9 November 2018 is unconstitutional.  

Prof. Suri Ratnapala is an Attorney-at-Law and Emeritus Professor of Law, the University of Queensland. He is also an advisor to the Advocata Institute and his views are his own.

Constitutionalism or Feudalism?

By Rohan Samarajiva

The events of the past few months (and indeed the past few years) in Sri Lanka have puzzled me. The President and his coterie are flagrantly violating the Constitution and laws. That is shocking, but what is more shocking is the casual acceptance of this behavior by all concerned. What is surprising is not that the President violates the law and disregards explicit directions from lawful authority, but that the citizenry seem to accept it. Not that the President tries to impress university teachers by inviting them to dinner at Temple Trees, but that most of them go, and some even kiss the hands of their host.

After much reflection, I have had to conclude that we are witnessing a head-on collision between Constitutionalism and Feudalism. Constitutionalism is respect for words on paper that say what power holders can and cannot do; it is basically about the widespread respect for law:

Constitutionalism as a theory and in practice stands for the principle that there are—in a properly governed state—limitations upon those who exercise the powers of government, and that these limitations are spelled out in a body of higher law which is enforceable in a variety of ways, political and judicial. This is by no means a modern idea, for the concept of a higher law which spells out the basic norms of a political society is as old as Western civilization. That there are standards of rightness which transcend and control public officials, even current popular majorities, represents a critically significant element of man's endless quest for the good life. (Fellman,1973-74: 491-92).

This basic idea of constraints on power may not really be Western, as evidenced by the story of the cow seeking and receiving justice from King Elara 2000 years ago. But perhaps, that story was told because it was so exceptional. In any case, the story is from the Anuradhapura era, the highest manifestation of Sinhala-Tamil civilization in this country (King Elara was Tamil). Our proximate connection is to the Mahanuwara era, the lowest form of Sinhala-Tamil civilization in this island, where the kings exercised absolute power, constrained not by abstract notions of justice, but only by the concurrence of the Sangha and the fealty of the Kandyan feudal lords (the British conquered Kandy when Sri Vikrama Rajasinha/Kannasamy and his feudal lords fell out).

One may differ from Fellman’s claim that Constitutionalism is a “Western” or Judeo-Christian construct. The Hammurabi Code, the oldest known body of law, is often used as an illustration of fundamental laws that even the king cannot change, and the acceptance of which constitutes Constitutionalism. This is not the place for an extensive historical digression, but one may hypothesize that complex urban civilizations with extensive divisions of labor require Constitutionalism, while the more primitive forms based on subsistence agriculture or hunting and gathering do not. This hypothesis suggests that the Anuradhapura and Polonnaruwa civilizations included forms of adherence to Constitutionalism, while the lower forms of the Kandyan period did not.

We were introduced to Constitutionalism by the colonial powers, especially the British. Through experiences such as the Bracegirdle incident of 1937, where the colonial Supreme Court overruled the colonial Governor, the local elites came to appreciate the practice of Constitutionalism and lived by its tenets for several decades after Independence. Election promises could be, and were, broken, but laws were respected and obeyed.

When the 1945 Soulbury Constitution, especially the entrenched Article 29(2) ("the Parliament of Ceylon shall not make any law rendering persons of any community or religion liable to disabilities or restrictions to which persons of other communities are not made liable, ...") and the provisions ensuring an independent civil service, proved too constraining, the politicians of the day did not simply disregard it as they do now; they carried out a Constitutional Revolution and got themselves a new, less-constraining fundamental law. Despite the revolution carried out by an unlikely coalition of Kandyan feudals (Mrs Bandaranaike was a direct descendant of a signatory of the Kandyan Convention) and assorted Marxists (some with first-hand memories of the Bracegirdle victory), the basic idea of Constitutionalism was still alive. Otherwise why did they go to all that trouble?

The 1972 Constitution was an abomination: it stripped the safeguards for minorities and broke the back of the administrative service; its adoption without the participation of the Tamil parties created the conditions for civil war. It was replaced by the 1978 Constitution fully within the amendatory provisions of its predecessor. Even the removal of Supreme Court judges was done within the letter, if not the spirit, of the law. JR Jayewardene kept fiddling with the 1978 Constitution, amending it over and over again and ruining its integrity. He was autocratic, but within the bounds of Constitutionalism; just like his friend Lee Kuan Yew of Singapore, who used the law to subjugate his opponents.

It took the next generation of Kandyan feudals to start eating away at Constitutionalism. The attack began with the appointment of a controversial Chief Justice under instructions to mangle the 1978 Constitution by interpreting it to permit cross-overs of MPs. Still the façade of Constitutionalism was preserved; just that an unprincipled Chief Justice was interpreting it in ways that served short-term interests of the then President. But by corrupting the highest court, that descendent of the Ratwatte Disave, commenced the insidious final assault on the last bulwark of Constitutionalism and prepared the ground for the restoration of feudalism as the political framework of Sri Lanka.

The cruder violations of the principle of Constitutionalism came with the 17th Amendment, ironically intended to be the ultimate constraint on the abuse of Presidential power. Now the façade of Constitutionalism was torn off. The President (not the current one) simply ignored the parts she did not like, a practice continued by her successor but in cruder form. The Supreme Court, then in the thrall of a lawless Chief Justice, proved no constraint. There is not enough evidence to assess the nature of the current Supreme Court, but given the grievous assaults the institution has suffered and the servility of the legal profession and the Bar Association, there is little cause for optimism. But, of course, there is always hope. Remember Pakistan.

So it appears that the political elite’s dalliance with Constitutionalism has about run its course, sixty years after Independence. We are reverting to our native Feudalism: not just the ruling family but large swaths of the populace, including opinion leaders and intellectuals. For example, Ven Maduluwave Sobitha Thero, an erudite and eloquent senior monk, was quoted some time back in the Lankadeepa, saying that the legislature was superfluous; all we needed was a President who would be elected periodically and a judicial system. In the past, our kings used to appoint whoever they wished as Ministers, so should our Presidents. There is no need to go through the complications of electing Ministers or having them be accountable to Parliament. Not pure feudalism, where the king can do anything, but close enough. And no suggestion that the Presidency can pass from father to son, though of course there is no prohibition against the son running for office (the only one available in this truly home-grown form of government).

It appears that Constitutionalism of the classic kind has been found wanting. At the end of five decades of Independence, we were still poor, still beholden to external powers, and still incapable of regaining sovereign control of the national territory. We had to shut down the city even to celebrate the fiftieth anniversary of Independence. This was not seen as a result of bad economic policy (which it was), but of Constitutionalism. When leaders with feudal mindsets gained power, there were no institutional brakes to stall their multifarious assaults on Constitutionalism, as there were in India, when Indira Gandhi tried it. The Left coalitions broke the back of the administrative machinery in the 1960s and completed the job with the 1972 Constitution, and the judiciary was corrupted in the 1990s. The assault on the media that began in the 1960s reached its apogee in 2009. The private sector could not get out of its “deal” mentality and professionals, with a few honorable exceptions, lacked spine.

Now, Sri Lanka is reverting to its Kandyan state: an all powerful king and royal family; assorted feudal lords who serve at the pleasure of the king, but have limited power of their own. In the old days, the regional feudals gave the king revenue and troops, in exchange for the right to extract rents from the peasants. Today, the regional feudals deliver votes to the king at the periodic elections, in return for the right to extract rents from the private sector. As in the old days, the Sangha are consulted and placated by the king with Benz cars and assorted gifts (a practice not started by the present President) and serve as a weak check on his power.

This is the larger context that explains the kissing of the President’s hands by university academics; the conversion of artistes to vandibhattayas; and the blurring of the lines between the king, the government and the state. When the President uses state resources to win elections or prints his visage on currency notes, he does not see that he is doing anything wrong, because he is no longer functioning within the “western” frame of Constitutionalism. When the President appoints his kith and kin and court favorites to positions of power and nominates them to run for political office, such actions are accepted by the more deserving party workers on the ground because they too interpret events from within the feudal frame. When I question the handing over of scarce broadcasting frequencies to political favorites without any form of transparent process, journalists question my motives, because I am the one outside the dominant feudal frame that allows the king to reward courtiers. Sri Lanka is no longer a country governed by law, but is a kingdom, with a thin veneer of Constitutionalism for external consumption. Dissonance exists only for a few like me, still unable to shed the western baggage of the Magna Carta and Montesquieu.

The real question is, therefore, not about which individual wins the Presidential Election, but about whether we can (or should) get back to Constitutionalism. All successful presidential candidates since 1994 have promised to abolish the executive presidency; all have broken their promises. Constitutionalism is not words on paper, but broad acceptance across society that certain kinds of words on paper have binding authority and must be respected. It is what will give meaning to the word of a candidate. Even if the executive presidency is abolished or the Constitution is amended, nothing has any meaning unless Constitutionalism is restored. What use are words on paper, when none respect them?

The larger question is the governing framework. Do university teachers rush to kiss the ring and vice chancellors prostrate themselves before Presidents in modern societies? Can we have a modern economy when the largest companies in the country obey patently illegal directions from regulators? Is it normal to name a government-owned, money-losing airline for the head of state and paint the tail of the leased aircraft with his campaign livery? These are symptoms of a transition from a Constitutional State to a feudal one.

It may be argued that today’s complex, globally-connected national economy cannot be effectively managed by a bunch of Presidential cronies and that the procedures of representative democracy and checks and balances are essential, and that therefore, there is no alternative to Constitutionalism. It may also be argued that every country has a Constitution and that over time, as the economy develops and matures, as was the case in South Korea and Taiwan, Constitutionalism also takes root. But if these were true, why is it that Sri Lanka is sliding back into feudalism, just as it is becoming a middle-income country? Myanmar is governed feudally, but can a feudal system handle a complex economy like Sri Lanka’s?

As a colleague who read the first draft stated:

“A society embracing feudalism in whatever guise can no longer expect, at the same time, certain other cherished ideals including, but not limited to:

  • meritocracy: the best performing persons assured to get best public/academic appointments

  • fairness: everyone treated as equals, irrespective of wealth or family connections

  • due process: transparent, consultative policy making and policy implementation in the public interest

  • equality before the law, affording protection to everyone irrespective of social status or political affiliation

Feudalism, on the other hand, is inherently and fundamentally incompatible with all the above and other values. In fact, there can be no public interest whatsoever in a feudal society; only vested interests. Mervin Silvas, Sakvithis, Potta Naufers and their ill will be the norm, not exception. There won't be a chance in hell for any bright, hard working, honest young man or woman with no family or political connections to rise in society professionally, intellectually, artistically or entrepreneurially -- unless they sell their soul to the ruling oligarchy/family.”

Are there autochthonous (why do I use this word? Because the sonorous radio broadcasts of the Minister of Constitutional Affairs in the 1970 government, Dr Colvin R. de Silva, imprinted it in my brain; it means “home grown”) checks and balances?

Devo vassathu kalena

Sassasampattihetu ca

Phito bhavatu loko ca

Raja bhavatu dhammiko (from the 1978 Constitution)

Is the mismanagement of the economy resulting in factory closures and job losses or the destruction of the value of the Employee Provident Fund the modern-day equivalents of the rains not falling in time, thus resulting in famine and pestilence throughout the land? As the kings then were seen as responsible for delayed rains because they failed to rule according to Dharma, will our modern kings also lose legitimacy, when and if the economy heads South? Is this it?

Zimbabwe and North Korea show that economic mismanagement by itself does not dethrone kings. A national conversation on Constitutionalism versus Feudalism seems a safer course. I am currently convinced that Constitutionalism, the rule of laws, not men, is what is most conducive to the happiness of our people. But I am open to persuasion that what is appropriate for the Sri Lankan climate is something else.


Constitution of the Democratic Socialist Republic of Sri Lanka. 1978, as amended.

Fellman, David (1973-74). Constitutionalism, in Philip P. Wiener, ed., Dictionary of the History of Ideas: Studies of Selected Pivotal Ideas, vol. 1, pp. 485-92.

Questions of freedom: problems in Sri Lanka’s constitution, laws and institutions

Originally appeared on Groundviews

By Ravi Ratnasabapathy

““commander in chief of the army, navy and militia, with the power of making treaties and of granting pardons, and to be vested with an authority to put a negative upon all laws,... is in reality to be a KING” (An Old Whig,1787)

Citizens of Sri Lanka should heed this warning to the framers of the US constitution.

The Sri Lankan Presidency was, until recently, a fixed executive, not dependent or answerable to parliament and not removable except for limited reasons. Head of the State, the Head of the Executive and of the Government, and the Commander-in-Chief of the Armed Forces. With the power to appoint higher officials, Supreme Court judges, the Police Commissioner, Elections Commissioner it was, essentially an elected monarch.

Did Sri Lanka throw off the British crown only to replace it with local one barely half a century later? In theory at least, the colonial administrators of Ceylon were answerable to a British Parliament. For all practical purposes, Sri Lanka’s presidency answered to no one.

The 19th amendment restored some independence to institutions but mere independence is insufficient. Their proper functioning is dependent on the attitudes and competencies of their members, a question that must be addressed. The 19A is also incomplete, to erase the legacy of decades of authoritarian rule and secure rights further reforms beyond the constitution are needed.

The problem is best understood if viewed from the perspective of what matters to citizens: individual freedom.

If we call ourselves “free”, how must individual freedoms to be protected and advanced?

The basic political question

The fundamental problem in political theory is two-fold: on one hand there is a need for an “enforcing agent” which will protect the individual from violations of his/her liberty; on the other hand is the problem of how to ensure that any “enforcing agent” does not in its turn become a violator of the very same liberty it was originally set up to protect.

The Roman poet Juvenal expressed it as “Quis Custodiet Ipsos Custodes?” [who will guard us from these guardians?].

The solution that eventually emerged is government which was :

  1. accountable to the people,

  2. strictly limited in its powers, and

  3. a rule of law based upon notions of individual liberty and private property; both terms carrying specific meaning

Individual liberty

Individual liberty, simply defined is freedom from coercion.

“Coercion occurs when one man's actions are made to serve another man's will, not for his own but for the other's purpose.” (Hayek) [1].

Coercion of a citizen: aggression, threats etc may arise from individuals, organisations (such as religious bodies) or the state.

"Free society has met this problem by conferring the monopoly of coercion on the state and by attempting to limit this power of the state to instances where it is required to prevent coercion by private persons”(Hayek) [2].

This means the state is given the sole right to exercise coercion, but it must do so only to protect citizens from the coercion of others.

“Freedom is achieved by limiting some kinds of actions – coercive ones – in order to encourage other kinds of actions – non-coercive ones. The result is the increase of voluntary exchanges within the parameters of the law”(Lehto) [3].


Property is the difference between what is mine and what is yours.

In the classical liberal sense, it is the creation of a protected private sphere surrounded by limits that cannot be crossed without ethical transgression (Lehto) [4]. It is a person’s entire private domain, Locke considered property rights to consist of “life, liberty, and estate”.

Thus, you may not enter my house without my permission. Thus, you may not borrow my car without my permission. Thus, you may not violate my body (Lehto) [5].

Property marks the limits of permitted action in a liberal society, the personal domain which should not be intruded into under any circumstances.

“We may well detest other people’s religion, reject their political views, abhor their lifestyle, despise their manner and  loath their habits. We may be shocked by their ideas and opinions. We may even worry that they are damaging their own health with drugs or their own prospects with their anti-social behaviour. But none of these are valid reasons for using force to try to make them act differently.”(Butler) [6]

A regime of legally protected property rights, in the wide sense used here is a prerequisite for liberty: “the end of the law is, not to abolish or restrain, but to preserve and enlarge freedom (Lehto).

Limiting coercion by state

States exercise power through the machinery of state: bureaucracies, the bodies of state and local government, legislatures, judiciaries police and armed forces.

To prevent abuse, this machinery must be controlled. Power must be limited in how it may be used. This requires:

  • Setting rules that circumscribe its use. It cannot be exercised arbitrarily by those in authority but only in defined circumstances and must follow set procedures. These are laid down by laws. Laws must be universal, applying equally to all including the government itself, no one is above the law(the rule of law).

  • Distributing authority so no single organ of government has the practical ability to exercise power unchecked (separation of powers).

As the law is the principal check on power it is essential that the process of law-making itself be subject to checks.    

These are the principles that must be ingrained in the constitution and the organisation of government.  

How true is our system to these principles?

How true is our system to these principles?

1. Elections and accountability to the public

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The president and parliamentarians are elected which creates accountability to the public. The weakness is that once elected, voters have absolutely no control over their representatives, except to remove them at the next election. Requiring candidates to submit to regular and periodic elections is important but other checks that restrain power on a day-to-day basis are critical.  

2. Separation of powers: Parliament as a check on Government.

At the apex, parliament must be a check on government. The two are not synonymous.

The political party that wins the most seats takes charge of government, until the next election. The Government is responsible for running the country.

Parliament is made up of MP’s elected by voters and is there to represent citizens interests and make sure they are taken into account by the Government. They are not a part of government. Government ministers may have seats in Parliament but most of their work is done in Government departments.

Parliament must scrutinise the activities of government- examining expenditure, administration and policy in detail, requiring the government of the day to explain itself to parliamentarians as representatives of the citizen. This happens through:

  1. debate;

  2. questions;

  3. investigation.

Parliamentary Debates may be about legislation, government activity (policy or implementation), or issues of public concern.

“For government the purpose of debate is often to showcase the political argument or philosophy behind a particular policy or approach to an issue, or to test opinion on it. For the Opposition and backbenchers it provides an opportunity to demand an explanation of why a particular policy has been pursued, to identify weaknesses in the evidence base or formulation of a policy, or to provide new evidence or analysis.”(White, 2009)[7]

Parliamentary questions (in the UK tradition) allow MP’s to seek information or to press for action. They oblige Ministers to explain and defend the work, policy decisions and actions of their Departments.  

Investigation-drilling deep into issues, is carried out by Committees.

The ultimate form of parliamentary control is that it can force individual ministers, or even the entire Government, to resign in votes of no-confidence.

For these processes to work, MP’s must be independent. It requires opposition MP’s and backbenchers in government who will question their own policies but in Sri Lanka this is absent.

  • MP’s not independent

According to the prevailing version of proportional representative system, the constituency votes for the party first and the individual later. The party hierarchy is empowered to expel any of its members who vote against the party and replace him/her with another member of the party. An expelled MP automatically loses his/her seat.

As MP’s who dare defy their leaders may be ejected independence is lost. Instead of representing the citizens interests, they represent the party leaders interests.

  • Power of government strengthened in the legislature

MP’s cannot defy party diktat but a supreme court ruling allows them to cross-over without losing their seat. This enables the government to lure MP’s by offering them positions, securing a permanent voting majority. 

As MP’s fear to question, parliament becomes a rubber stamp, not a check. Laws are what limit power, but if parliament cannot check government bad laws may be passed.

Under bad laws, power is legitimately exercised but oppresses citizens, a situation of rule by law as opposed to the rule of law. The Emergency laws or the Prevention of Terrorism Act are examples.  

  • Committees are weak

Debates and questions allow issues to be discussed but committees are concerned with fact-based investigation. They go into issues in-depth in a way that Parliament, as a whole, has no time for,  collecting and examine evidence to develop an understanding of what the government is (or is not) doing under its democratic mandate.

They can examine what the outcomes of activity (or inactivity) have been, including by requiring explanation from government. They can summon experts, stakeholders, demand answers from ministries, send for papers, and documents. In the UK, there is a strong emphasis on committee reports being based on evidence, primarily that collected by the committee. The Government is required to respond to reports.

Committees provide the greatest scrutiny but until the 19th amendment, Sri Lanka had only ceremonial “consultative” committees. Instead of opposition members chairing committees (as in the UK) Sri Lanka’s were chaired by a minister of government. The government was not required to respond to any reports, effectively rendering them useless.

The 19th amendment has charged committees with oversight and they are now chaired by an opposition MP which is big improvement but the reforms still fall short.


  • Upper House of Parliament

A single chamber legislature, if unchecked, could become dictatorial. Creating an upper house of parliament that checks and challenges government is one safeguard to bad laws. The Soulbury constitution had an upper house- the Senate consisting of 30 members; 15 elected by the lower chamber and the rest appointed by the Governor-General.

  • Strengthening committees

Although the 19th has provided the framework of independence, creating a culture of scrutiny is harder. A generation of MP’s who hitherto toed the official line must learn to ask questions. This requires:

  1. Specialised training - MP’s (and their staff), particularly those in committees would benefit from specialised training. Even established democracies (UK, Australia, Canada etc) have induction programmes for new MP’s.  At a minimum Sri Lankan MP’s must be made more familiar with their constitutional responsibilities, rules of procedure, human rights, gender equality and public finance.

  2. Open committee hearings to the public - One way to improve scrutiny is to open the hearings to the public. The presence of media and interested citizens will have a salutary effect on the participants and allow greater public discussion on relevant issues.

  3. Government must be required to respond to committee recommendations.

  • Creating a committee on the Constitution

Sweden has a Constitution Committee that is tasked with ensuring that the Swedish government ministers follows the rules for the government—namely, the Swedish Constitution and Swedish law.

The committee consists of forty-four members representing all parties of and has the power to hold hearings, conduct investigations, and request classified materials from Mps. The Committee can act on its own initiative or in response to complaints from MPs (not citizens) and can initiate the prosecution of crimes committed by MPs in their capacity as MPs (decided by the Supreme Court).

  • A Constitution committee of the upper house

The House of Lords Constitution Committee’s role is to examine all bills for constitutional implications (a check against legislation that infringes basic rights) and, even more importantly, keep under review the operation of the constitution. This prevents the constitution itself from being undermined by ensuring that changes are not made “without a full and open debate and full awareness of the consequences”.

It fulfils the second limb of its remit by carrying out investigative inquiries into constitutional issues, engaging a specialist advisers (external experts) and taking written and oral submissions.

Examples of constitutional implications include:

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  1. any substantial alteration to civil liberties, including the right to habeas corpus and trial by jury;

  2. alteration to the powers of the courts or measures that would place the exercise of power beyond the purview of the courts, or which would affect the independence of the judiciary;

  3. alteration to the balance of power between Parliament and government, including the conferment of unduly broad or ill-defined powers to legislate by order.

3. Separation of Powers – Judiciary not a check on power

Given the importance of laws in curbing power even two chambers is not a sufficient safeguard. Therefore citizens should have the right to challenge laws in the courts. The following must be dispensed with:

  • Article 80(3) prevents the people from challenging provisions in laws that have been enacted by the legislature.

  • Article 35(1) – (3) of the Constitution of Sri Lanka conferring immunity upon the President from civil or criminal proceedings.

  • Power of the president to pardon any offender (Article 34) undermining the judiciary. In effect, associates of the president able call on his/her goodwill may be above the law. Article 89 disqualifies criminals from standing for office, but the President may overrule this under article 34.

Until the 19A all supreme court judges were appointed by the president, making the courts beholden to that office. The 19A restored this power to an independent commission. Steps to strengthen independent commissions are discussed in more detail below and the general remarks also apply to the judiciary.

Recommendations to strengthen the Judicial Services Commission

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  1. Clear criteria for selection of judges and a rigorous recruitment process based on competitive exams.

  2. Standard criteria for promotion of judges based on merit and seniority.

  3. Disciplinary procedures and standard criteria for removal of judges.

  4. Initial and on-going training on new methods, laws, and related areas of knowledge including mandatory training in international human rights law.

4. Limiting coercion and delivering justice: controlling the police and attorney general

Rights are granted by laws but their enforcement depends on the system of justice. It must protect the rights of citizens against infringement by others, including the government and the powerful.

The police maintain the law, protecting people and their property, preventing crime. Courts provide redress for wrongs. The Attorney General prosecutes crime.

Sri Lanka system falls woefully short, according to the ICJ “efforts to seek justice are frustrated by investigative, prosecutorial and judicial lack of independence, impartiality and capacity, all of which continue to contribute to a pervasive culture of impunity within the system”[8].

I. Police

To provide security and maintain the rule of law the police are given special powers: to arrest and detain and the power to use force. This monopoly on the use of force place the police in a unique and sensitive position within the democratic State. Adequate control mechanisms are required to ensure that these powers are consistently used in the public interest. Risk of misuse include: police brutality, deaths in custody, torture and ill-treatment, extrajudicial killings, enforced disappearances and excessive use of force, including in cases of demonstrations.

Controls include:

  • Laws specifying functions and powers of the police (in line with international human rights laws).

  • Operational procedures/instructions that reflect the spirit and letter of the law.

  • Complaints mechanisms, both to police leadership and external bodies.

  • Procedures on dealing with misconduct, disciplinary and criminal, overseen by an independent body.

  • Proper training, basic and on-going

  • For example the UK police are subject to the Police and Criminal Evidence Act 1984, which set the powers of police on matters of stop and search; entry, search and seizure; arrest, detention and the questioning of suspects. Failure to follow these rules can result in failures to secure convictions because the courts render inadmissible any evidence which has not been fairly obtained. Codes of Practice created under the Act govern cautioning procedures, identification parades and a range of other responsibilities. Breach of the codes is admissible in evidence in criminal or civil proceedings against the police.

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Separately the UK has a Human Rights Act, requiring all public bodies to respect human rights. They may be taken to court for failure.


  1. Sri Lanka’s police ordnance of 1865 needs to replaced  by something on the UK lines along with standard codes of practice. 

  2.  Sri Lanka needs proper legal protection for human rights. Currently human rights have weak protection under the (circumscribed) fundamental rights chapter, the ICCPR Act, No. 56 of 2007 and the Human Rights Commission .

  • Article 15 of the constitution restricts fundamental rights in for a variety of reasons including parliamentary privilege, contempt of court, defamation.  Article 16 allows any pre-existing laws to prevail notwithstanding inconsistency with fundamental rights, effectively limiting its application.

  • The Sri Lankan ICCPR Act makes a mockery of the International Convention on Civil and Political Rights. It contains only four main substantive rights-conferring provisions (compared to the 20+ in the international act) and these too in abridged form.

  • “The Sri Lankan bill of rights is incomplete and structurally incoherent.”(Welikala &Edrisinha)[9].

  • Therefore, repeal articles 15 and 16 of the constitution, amend the ICCPR act in line with international practice and consider a new human rights act.

ii. Attorney General’s office (AGO)

The Attorney General’s Office’s (AGO’s) must be willing to pursue prosecutions independently, even against other state actors and courts must ensure fair and timely trial.

In Sri Lanka, the Attorney General is the Chief Legal Advisor to the Government and appears on behalf of the Government or its agents in any Court or Tribunal. It is also the chief prosecutor, which creates a conflict of interest where the state or its agents are involved. The ICJ notes “a lack of will to prosecute State actors in human rights cases, particularly those relating to the conflict”. 

The practice of drawing judges from the AGO creates a further conflict: “the judiciary has an entrenched institutional loyalty in favor of the executive”[10].


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  1. Create an independent Director of Public Prosecution (DPP) to handle all prosecution. The police should no longer prosecute but confine themselves to investigation. The AGO should be limited to acting as advisor to the government.

  2. The UK Royal Commission on Criminal Procedure, looking at the role of the police as prosecutors, the Commission found that a police officer who carries out an investigation, inevitably, and properly, forms a view as to the guilt of the suspect. They felt, however, that without any improper motive the officer may then be inclined to shut his mind to other evidence which undermines that view or overestimate the strength of the evidence gathered. In the absence of effective oversight, there was also greater opportunity for police corruption.

  3.  The DPP must be governed by a code of practice that sets out principles on which to prosecute. One of the most important tasks is to review the evidence in the file in order to decide whether it justifies the charge laid by the police, applying criteria set out in the Code of practice. They must determine if evidence is sufficient, reliable, credible and if prosecution is in the public interest.

  4. The practice of drawing the judiciary from the ranks of the AGO or the DPP should cease.

5. Limiting coercion by the bureaucracy

The administrative machinery is, for many citizens, the only ‘face’ of the state that they experience. As it is responsible for the delivery of basic services it wields real power over the lives of ordinary people.

Lack of information-on regulations, compliance procedures; insistence on meaningless procedures, unjustified fines or burdensome inspections that violate an agency’s own protocols are examples of bureaucratic oppression-actions that impose unnecessary and harmful burdens on citizens. These stem from poor organisational practices and the attitudes of officials. Although all citizens suffer, minorities and the poor are more frequent victims.

More sinisterly, political opponents may be persecuted using particular provisions.

For example, the Inland Revenue Department is known to have ‘raided’ opposition politicians during the election in 2010[11]. Instead of impartial tax administration, the powers of the department were being abused, turning it into a tool for harassment. Similarly, the immigration department has revoked visas of journalists and aid workers without warning.[12]

The administrative machinery needs to be neutral, delivering services without discrimination. Politicians are inevitably subject to short term and selfish pressures so the administration must be insulated from political pressure. The careers of the staff should not be dependent on politicians but vested with independent commissions, which must control recruitment (on merit, based on competitive exams) promotions and transfers. Politicians should not be able to appoint cronies, punish or reward officials. Independent mechanisms should handle complaints. 

The 1978 Constitution originally vested in the President the power of appointing several “independent” commissions including the Public Service Commission, the Judicial Service Commission, the Bribery Commission, the National Police Commission and the Human Rights Commission.

The 19A removed that executive power. The President still appoints people to these and other independent commissions but only those recommended by the Constitutional Council. In establishing the Constitutional Council, the President is entitled to appoint five members, but is required to accept the nominations of the Prime Minister and the Leader of the Opposition. 

The problem is independence will not change the staff or practices of the bureaucracy overnight. Some staff will be political appointees only familiar with executing political directives and may continue to do so out of habit or loyalty.  A set of general recommendations follow.

Recommendations (for all institutions)

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  1. Independent complaints mechanisms to check malpractice.

  2. Develop Standard codes of practice and staff training to ensure work is carried out fairly and impartially.

  3.  Regular reviews of procedures, simplifying and standardising rules, increasing the use of electronic and web-based platforms.

  4. An overarching civil service code which sets out the standards of behaviour expected of bureaucrats.

  5. Parliamentary  Ombudsmen tasked with ensuring that the administration acts impartially and respects citizens’ constitutional freedoms. Acts on the basis of complaints from the public on central government agencies , municipal agencies, and other public institutions

  6. Adequate resources including access to external specialists

  7. Committees must have proper resources- their reports claim they are hampered by lack specialist skills (legal, accounting etc), equipment and research capacity. Addressing these shortcomings is a must.


The substance of democracy lies in systems of checks and balances; the division of power and processes to hold those in power accountable. Although not comprehensive, the foregoing highlights some serious shortcomings in Sri Lanka. Citizens should press political leaders to address these issues, the ongoing political crisis underlines urgency for further reform.

[1]. The Constitution of Liberty, F. A. Hayek

[2]. Ibid

[3]. Otto Ilmari Lehto. 2015. THE THREE PRINCIPLES OF CLASSICAL LIBERALISM ( FROM JOHN LOCKE TO JOHN TOMASI ) : A Consequentialist Defence of the Limited Welfare State. [ONLINE] Available at: [Accessed 11 September 2018].

[4]. Ibid

[5]. Ibid

[6]. Classical Liberalism, A Primer E. Butler, 2015

[7]. Dr Hannah White, Institute for Government. 2009. Parliamentary Scrutiny of Government. [ONLINE] Available at: [Accessed 29 October 2018].

 [8]. International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: [Accessed 15 October 2018]


[10] International Commission of Jurists. 2012. Authority without accountability: The crisis of impunity in Sri Lanka. [ONLINE] Available at: [Accessed 15 October 2018]

[11] The Sunday Times, Sri Lanka. 21 March 2010. Tax sleuths go after opposition candidates. [ONLINE] Available at: [Accessed 15 October 2018].

[12]. The Guardian, UK. 2010. Why the media silence on Sri Lanka's descent into dictatorship?. [ONLINE] Available at: [Accessed 15 October 2018].

Game of charades: The lackadaisical implementation of price controls on basic foods

Originally appeared on Daily News

By Ravi Ratnasabapathy

The Government has imposed price controls on a number of basic foods in order to control the cost of living. For the purpose of study, we wanted to ascertain the products subject to controls, as well as the prices at which they were supposed to be sold.

A list of price controlled items is a straightforward piece of information that should be readily available to any consumer.

Unfortunately, this does not appear to be available anywhere. The website of the Consumer Affairs Authority (CAA) lists a few items; gas, cement, milk powder, chicken, rice, and pharmaceuticals. The other items were not listed.

The information on the CAA website is outdated (eg. A controlled price from 2014 is listed for chicken although chicken was removed from the list of controlled items in April 2017). On inquiring from the CAA over telephone, we were asked to refer to the website. A list was eventually compiled after a field visit to the CAA by extracting the relevant information from copies of the gazettes.

How are price controls to be enforced if a list of items subject to control is not readily available?

The proper approach would be to ensure that list of controlled prices is displayed at every outlet, so customers know if they are being overcharged and can then make their purchasing decisions accordingly.

Having compiled a list, we compared the controlled prices with the weekly market prices published by the Department of Census and Statistics in its survey of the main markets in the Colombo district in the period September 1, 2017 to June 30, 2018.

It is evident from the table we have collated that the controlled prices are not being followed in most instances.

The surveys of traders by Breakthrough indicate that 67% of retailers and 46% of wholesalers react to raids by the CAA by temporarily adjusting prices. They later revert to business as usual. Trying to enforce retail level price control across the informal trade and public markets is a practical impossibility. The CAA annual report (2014) states that 22,402 raids were carried out that year and 25,287 in 2013. This is small fraction of 205,573 retail outlets (general as well as those specialised in food, beverages and tobacco) in the country.

In any case if the controlled prices were strictly enforced, then the usual distortions such as shortages and queues would become obvious with unpalatable political consequences.

The CAA is successful in enforcing prices on items supplied by large businesses or corporates such as in cement or milk powder. Whether this actually keeps prices low is questionable.

Large businesses are relatively easy to monitor and they are open to pressure to supply even at a loss; on the implicit understanding that they will be allowed to recoup this at some point, as noted in the articles included in the appendices to this report. It is very clear that the only item consistently being sold at the controlled price is milk powder produced by a multinational. Wheat flour, which is also produced by large corporates tends to track the controlled price closely. The majority of the other items were being traded at prices above the controlled price.

During the period under survey, price controls were imposed on Nadu rice (December 26, 2017) coconuts (December 6) and revised on dhal and kata (December 6) with minimal impact on prices.

The impact of taxes on prices is particularly interesting. When some taxes were reduced in November 2017 (dhal, potatoes, Big onions), prices declined on these items over period of weeks, sometimes falling below the controlled price. When taxes were later raised (potatoes to Rs.30/kg on February 24, B onions to Rs.40 on May 2) prices rose again eventually breaching the controlled price. In the case of dhal prices eventually fell below the original controlled price (159/kg) following the reduction in tax – but prices did not respond significantly when the controlled prices was reduced to Rs.130 (December 6, 2017).

This underlines the case for reducing specific food taxes if there is any serious intention to control prices.

It is also worth noting the difference in prices between imported and local items, potatoes, and big onions. Locally produced items are not subject to tax or price control, but when available, these retail at prices higher than the controlled price and are sometimes higher than the (taxed) imported items.

Instead of attempting to protect agriculture through taxes (which raises prices for consumers) the government should facilitate the modernisation of the sector, supporting investments that improve productivity (eg. mechanisation, drip irrigation, greenhouses, quality seeds etc).

Using controls to reduce prices does not appear to work.

Addressing the inefficiencies within local agricultural is the sustainable way to lower prices: increased productivity raises farmer incomes and lower consumer prices in the long term.

The scheme itself is ill-conceived and there seems little intent or capacity to enforce. Reducing taxes, increasing competition and productivity in local agriculture is a surer path to lower consumer prices.

Updated Price List

“Price Controls in Sri Lanka: Political Theatre”, a new report by the Advocata Institute finds that consumer price controls lead to unintended outcomes including lower quality.

To read more on Price Controls and download full report:

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