Real cost of schooling is what we fail to fix

By Dhananath Fernando

Originally appeared on the Morning

The GCE Advanced Level Examination results were released last week, and – as expected – social and mainstream media have been flooded with advertisements by tuition masters claiming credit for the top-performing students. While the spotlight remains firmly on the winners, a critical conversation is missing: the economics of education in Sri Lanka.

Sri Lanka’s A/Level education system has become fiercely competitive, but this competitiveness masks a deeper structural issue: our current education model is financially unsustainable.

Government school teachers are underpaid, and the State lacks the resources to attract and retain high-quality educators. As a result, many teachers rely on private tuition to supplement their incomes. Consequently, students prioritise tuition classes over regular school, often attending school merely to fulfil attendance requirements.

When results are announced, both schools and tuition providers share in the credit, but in truth, the system is fundamentally broken. While we congratulate the students who achieved excellent results, we must also acknowledge that many equally talented individuals may have been left behind due to systemic shortcomings.

This issue is not confined to A/Level education. Similar inefficiencies exist in both primary education and the university system. The extreme competitiveness of the A/Levels is driven largely by the limited number of seats available at State universities, especially in Science, Technology, Engineering, and Mathematics (STEM) fields where education is offered free of charge.

Yet the broader educational ecosystem is underperforming. At the school level, funds raised by school development associations and through Grade 1 admissions are often invested in infrastructure. However, these facilities are grossly underutilised. Schools remain closed for around three months annually and on all weekends. Even on regular school days, the maximum operating time is about eight hours. As a result, school infrastructure lies idle for more than half the time.

This is not to say that schools must operate 24/7, but there is enormous potential to repurpose existing resources. Facilities could be used for after-school childcare programmes or vocational training – services that not only meet real societal needs but also generate revenue for reinvestment in education. For example, improved after-school childcare could help increase female labour force participation, allowing more mothers to remain in the workforce.

The same logic applies to universities. While underfunded, Sri Lankan universities face immense demand – demand that forces many families to sell assets or incur debt to send children abroad, often to Australia. If public universities were allowed to accept fee-paying private students under a fair loan scheme, it would expand access without compromising free education. Moreover, opening up to foreign students could bring in much-needed revenue and foster academic and cultural exchange.

The presence of a university already creates a micro-economy – boarding houses, food vendors, photocopy services, and transport providers all thrive around campuses. Imagine the added economic benefits of attracting international students: increased demand for lodging, travel, tourism, and services, creating a ripple effect across sectors.

According to the Central Bank of Sri Lanka’s (CBSL) Annual Economic Review for 2024, Sri Lankan students spent approximately $ 194 million on education abroad. This figure highlights the untapped potential to build a robust local education market that not only retains students but also attracts others from the region, particularly from countries like India and the Maldives.

Ultimately, the economics of education must move beyond celebrating exam toppers. It must consider the majority who struggle in a system that offers limited choices. Expanding those choices will lead to greater economic activity and long-term growth.

Education is one of the most powerful tools for upskilling our labour force and accelerating national development. Yet, under our current model, we are allowing human capital to slip away, along with the economic opportunities it could bring, simply because we fail to make better use of what we already have.

The power of know-how over industry selection

By Dhananath Fernando

Originally appeared on the Morning

In most of our export strategies, the starting point has been the Government deciding which industries should drive exports – some of these decisions are data-driven. 

Accordingly, we examine current export figures and sometimes focus on expanding existing product segments. Secondly, we target additional industries with the expectation that exports can be boosted. While both approaches seem logical at first glance, we need to understand the broader framework of how to grow exports effectively.

Most of the time, we perceive exports as industry-specific, but in reality, exports are about know-how. Know-how becomes a product, and know-how makes a product competitive. However, know-how is not just knowledge – it is sometimes tangible, existing in tools, but more often, it is intangible. 

It is akin to Lasith Malinga’s bowling action and his ability to deliver pinpoint yorkers. We can analyse Malinga’s technique, attempt to replicate his action, and even learn from his strategies through interviews or YouTube videos. Yet, even with all this information, it is extremely difficult to replicate his unique skill set. 

Malinga possesses tangible components such as his slinging action, run-up, and release style, which can be considered tools. He also has knowledge that he shares through various platforms. However, his true know-how – what makes him exceptional – remains elusive, even to himself. 

This difficulty in transferring know-how is likely why the Mumbai Indians recruited Malinga both as a player and later as a coach in the Indian Premier League. If we consider Malinga as a product, he is export-competitive and his value lies in a combination of factors, primarily his unique know-how.

When a country seeks to expand exports, the know-how ecosystem is what determines success or failure. Our apparel manufacturers, for example, possess specialised knowledge that enables them to produce garments at the lowest cost while maintaining high quality. 

Initially, their products were relatively simple, but over time, they evolved in complexity. The industry experimented with various approaches – ethical garment production, lean manufacturing, and women’s empowerment – learning from both successes and failures to refine a sustainable model.

Today, Sri Lanka’s apparel exports are not merely about physical products but also the know-how that allows us to compete globally. Know-how thrives within an ecosystem that supports industries. 

For this to develop, the Government must provide entrepreneurs and businesses with the freedom to access and test resources – what economists refer to as factor markets. Land, labour, and capital must be available with minimal restrictions on a level playing field. 

This is why licensing requirements can be detrimental to exports; they obstruct access to essential resources, thereby stalling know-how development. For instance, if land acquisition is difficult, apparel firms may struggle to operate or innovate. Similarly, excessive labour regulations can increase operational costs, making products uncompetitive and disrupting the know-how ecosystem. Such obstacles discourage exports.

Another common discussion on boosting exports revolves around diversifying the export basket. To understand how diversification occurs, we can refer to Harvard’s Center for International Development, where Prof. Ricardo Hausmann uses the analogy of monkeys and trees in a forest.

In a forest, monkeys do not leap from one end to the other; they move from branch to branch. Similarly, export diversification does not occur in giant leaps but through adjacent product categories. Existing exporters and individuals within the know-how ecosystem expand into related fields. 

For instance, if we excel in gemstone exports, an adjacent category would be jewellery. This is why Government intervention in selecting export industries with large targets is often ineffective – diversification and expansion naturally occur within adjacent categories.

In making more complex products for export, Prof. Hausmann employs an economic theory likening diversification to a Scrabble board. If we have only three letters, our word combinations are limited. However, with four letters, the number of possible words increases exponentially. 

Therefore, minimising restrictions on factor markets – such as land and labour – enables more access to ‘letters,’ allowing for greater diversification.

Additionally, some ‘letters’ contribute significantly to forming words, like the letter ‘A,’ which is more versatile than a letter like ‘Z’. Similarly, removing barriers to factor markets increases the potential for new export combinations.

In Sri Lanka, our export strategy has traditionally relied on the Government selecting industries for growth. While this approach may work to some extent, if we seek rapid export expansion – like Vietnam – we must focus on the framework rather than forcefully pushing selected industries.

In today’s global economy, no country manufactures all its products on its own. Most nations produce parts, components, and assemblies, relying on international trade to complete final products. If we fail to open our economy to trade, our export ambitions will remain unfulfilled. Trade enhances competitiveness and provides access to multiple ‘letters’ at optimal costs.

Foreign Direct Investments (FDIs) are another crucial element in this equation. FDIs bring in individuals with specialised know-how, much like acquiring a player of Malinga’s calibre. They also introduce advanced technology, enabling the creation of more ‘letters’ and exponentially increasing the potential for new products over time.

If Sri Lanka is serious about exports, we need to focus on the process and the journey. We hope that the upcoming Budget will establish key milestones to guide us in the right direction.