The State of Economic Freedom in Sri Lanka by Fred McMahon
Anushka Wijesinha on Economic Freedom in Sri Lanka
Eran Wickramaratne on Economic Freedom and Policy in Sri Lanka
Panel Discussion - Is Sri Lanka ready to embrace Economic Freedom?
The State of Economic Freedom in Sri Lanka by Fred McMahon
Anushka Wijesinha on Economic Freedom in Sri Lanka
Eran Wickramaratne on Economic Freedom and Policy in Sri Lanka
Panel Discussion - Is Sri Lanka ready to embrace Economic Freedom?
Published on Colombo Telegraph
Good Morning ladies and gentleman, honourable State Minister Eran Wickramaratne, a lot of other familiar faces in the room, and of course the dynamic team at Advocata who have really taken this think tank from a start up to really making waves in the Sri Lankan think tank circuit.
It’s a real pleasure to be with you this morning and deliver a keynote at the Advocata and Fraser institute Economic Freedom Summit.
In my remarks to you today I’ll highlight some aspects of Economic freedom from my own perspective. They don’t neatly tie into the economic freedom index necessarily-my comments are a little broader- but you’ll realize through some of the running threads that they link up quite a bit with some of the elements of the Economic Freedom Index.
Much of these remarks will be from my own perspective, my own personal viewpoint. And some of they may find some resonance with you and try to provide food for thought for further discussion whether it’s for today’s proceedings, or for institutes like Advocata to take forward later on. It’s of course by no means an exhaustive discussion about economic freedom in Sri Lanka. I’m sure you’ll find many things you wish I had said, and you’ll find fault with me for that, but I’ll try and keep it to some perspectives for you to ponder on.
My keynote will be on three parts: part one is on policy orientations and the role of the state-might be an unusual point to start on given that this is a largely a free market discussion but I think it’s an important discussion to have on policy orientations and the role of the state, in part two I flag a few examples of contradictions or tensions in our economic debate where I think the lens of economic freedom needs to come in very strongly and very quickly that will enrich the debate here in Sri Lanka, and in part three my comments will be about how we can create and shape a popular narrative around economic freedom in our country.
Lets dive right into part one with a few thoughts on policy orientations and the role of the state. I must state upfront that I’m not a believer of absolutes, either blindly following that market forces can solve everything and we should just leave it to that, or that the state must overbearingly do everything because there are too many market failures. I think to be absolute in this debate will be missing the opportunity to make real change and really influence policy, but might be disconnected to the growing acknowledgement globally that there is a need for both the market and the state so long as we get the balance right. But hey, I guess that’s the big elephant in the room-getting that balance right- and we seem to have not gotten that balance right lately.
I recall a conversation that I had with the chief of UNIDO (United Nations International Development Organization) a year or so back. We were driving to the SLINTEC Nano tech facility in Homagama and we had a chance to chat. I asked him having seen so many policy orientations across the world with his work, what would his one piece of advice be to Sri Lanka. And he answered choose pragmatism over dogma. And he recalled, once again you might find it odd that in an economic freedom discussion we are referring to China- but this is just his remarks, he recalled Deng Xiaoping’s famous remarks — “It doesn’t matter whether the cat is black or white as long as it catches mice”.
So he went onto argue that for too long academics have been preoccupied with trying to classify development paradigms to neat, discrete categories. But given the complexity of our world today, the impatience of societies to prosper, and the pragmatism required of politicians, clinging on to particular ideologies may not help. Instead he argued whatever policies that can get the job done. In this case, gets the job done of expanding prosperity to more Sri Lankans is where the focus should be. So we need to be pragmatic about our policy mix but it certainly doesn’t mean that we shouldn’t focus on economic freedom — that should be our anchor.
But really what I’m saying is that we need to figure out what’s the best part to advocate for it in order to make the change. So focusing on economic policies that affect the prosperity of our people and the success of our firms would be a good way to go about it, and I think that it’s exactly what this summit tries to do today.
A useful way to anchor a policy debate on the role of the state is in my mind is about the government knowing when it should help create the way and knowing when it should entirely get out of the way.
So on the first part of that- on getting out of the way. You and I would both agree that we would love less government in our lives to deal with. An important part of this agenda is improving business regulations. The good news on this is that we are seeing a lot of attention on this and some progress. There are now eight ease of doing business task forces under the Ministry of development strategies and international trade with a roadmap of reforms for 8 areas on the World Bank’s ease of doing business index ranging from the speed of starting a business, the speed of obtaining construction permits, to the speed of settling commercial disputes.
So I think that’s definitely steady progress and I think the jury’s still out on how soon we will see results on but I certainly think that’s a lot of progress. But there are also regulatory issues beyond these often sighted ones. An important process that uncovered these business regulations beyond the ones we hear in these indices was the National Export strategy that we are now finalizing and the private sector has very much been a part of this process. During this, which took a sector by sector approach, there were several bottlenecks identified in particular sectors and across export sectors. For example in the IT sector (the honourable State minister has heard this at a recent meeting with us) for an IT company to bring in from overseas, a specialized person with a specialized skill set that’s not available here and can help take that company to the next level, the company has to make a request from the Department of Immigration for visas, but, that request has to then be forwarded to the relevant line ministry relevant to that company, so in this case, the Ministry of Digital infrastructure and telecommunication, who in turn refers that to a competent line institution, in this case, the ICT agency, who in turn takes a call on whether that company actually requires that particular person and that particular person’s skill set or not and then gives approval and then finally the visa is issued. This is an example of these kinds of regulation but thanks to the process we are having now and the support from the ministry of finance I believe, this is to be soon, streamlined.
Another example that I would like to cite. There’s a really cool manufacturer of wooden framed sunglasses. And he has to get a permit from the ministry of forestry for every batch of “Sunnies” that he exports. And that permit only lasts for a few weeks, and even if hundred sunglass frames are made from one tree and he has got the permit evidence that this has been sustainably forested and so on, he has to get a permit for every single shipment. And he wanted to go down the ecommerce route, and in ecommerce you don’t ship a hundred units in one go. Right, so you would order one from Canada, one from India and another person orders it from Belgium, so all of these would go in individual units so imagine having to go and get a permit for every single occasion.
But you can’t blame these institutions because for many years, they’ve been wired to think about protecting, so now the challenge is to rewire them to think about facilitating. There’s an economic problem here apart from just economic freedom and regulatory processes, because it makes the difference between him being able to capture value in Sri Lanka, retail value, versus capturing wholesale value which is what he has to do now. And these are just some examples at the national level.
We often talk about the Doing Business Index. But by its very design, the DBI only measures the business climate in a country’s largest commercial city – so in this case, Colombo. Having done a lot of work on SMEs I can tell you that the sub national business climate is very different, and I think we’ll all agree that these have important links back to economic freedom.
One thing I must confess here is that in the agenda of advocating where the state should get out of the way and reforming regulatory and procedural issues, I found that our private sector has also disappointed us.
At the Ceylon Chamber, whenever regulatory issues arise and companies tell us about it, we always say tell us what the specific regulation or act you are having trouble with, send in something in writing, help us make the case for it so that we can take it up quickly with the government. Often, the complaints come, but the follow up documents rarely ever do. Or we get very generic one liners like reform labour regulations or we get lengthy complained essays without anything specific. Now this makes it so much harder for us to advocate for regulatory changes and business and trade associations really know best what is pinching them. Folks are quick to complain but when it really comes to specifying what the issue is, either they don’t know or haven’t thought about it, or they just can’t be bothered putting pen to paper and would prefer to keep blaming the government for it. So many of these issues get unresolved because we just don’t find the bandwidth or interest even in government for them to take this on and dig in deeper. So here’s where I feel that we must do more.
Now the reason I bring this up is not to make one party look good and the other look bad, but if we are really keen about regulatory reforms we have got to be a part of it. And we have got to be proactive- it’s not going to happen with the click of a finger like magic.
Anyway this was all about the government getting out of the way. How about creating the way- does the government have a role there?
Now here is where I think it gets a bit contentious. Beyond the usual provision of public goods, health, education and so on I believe there is one area in which I think it’s a no brainer and that is supporting R&D and innovation. A lot of innovation activities globally, including in the countries that are the most economically free –so there isn’t mutual exclusivity there- are supported in some way by the government. Sri Lanka has a few examples of how good partnership with the state can catalyze innovation. The Sri Lankan Nano technology centre, for example, and the Science Park there, trace expert city. One of my favourite examples is the Gamma irradiation facility where private rubber gloves manufacturers can use this facility as a shared technology resource to make their gloves into surgical rubber gloves, which requires it go through this gamma radiation. And they’re able to capture more lucrative export markets.
I believe that the government will be launching soon an innovation and entrepreneurship initiative that provides exporters with support to develop new products, test and prototype, upgrade their technology and also an additional programme to support very early stage start ups. Now these are all examples of where the state can create the way whilst it gets out of the way in other areas.
Moving on to part two, I will highlight a few contradictions or tensions that I see, just a couple of examples in our debate on economic issues. Things that bug me and it might be bugging you too.
The first relates to trade and investment policies. We often here about the desire to promote exports as an important strategy of attaining faster growth and achieving greater prosperity. Yet we often hear about the desire to curb imports- exports good, imports bad. This really links back to our trade policy and the kind of protectionism we have.
Whether it’s in the public sector or in the private sector, I’ve heard few people explore the virtues of imports. Their idea of economic freedom is that we must export as much as we can but prevent imports as much as we can too. This thinking was particularly relevant under the economic management of the previous administration, but remnants of it still remain in both the public and private sector today. We must recognize that exports and imports are two sides of the same coin and it’s especially important considering contemporary trade patterns which are dominated by what economists call global production networks, where importing parts, components and raw materials at sensible prices are integral for a firm’s ability to be successful as exporters. Curbing imports while trying to boost exports is somewhat oxymoronic.
Another aspect is FDI. I’ve received many a letter from our members at the Chamber who want me to advocate for tighter controls on foreign investments, from companies that are pretty successful in overseas markets. They have benefited from open, investor friendly policies overseas, but are adamant that Sri Lanka should curb the freedoms of foreign investors here at home.
The second aspect in my contradictions and tensions theme relates to issues in the labour market. At meetings this week on finalizing the national export strategy, several industries complained of a shortage of workers. Not only shortage of skills necessarily, but a shortage of absolute numbers, particularly in manufacturing. They are just unable to attract young people into manufacturing.
All of them seem to have this one fantastic solution for it, and are adamant that it is the solution. “We must stop them all from becoming three wheel drivers”- and I’m sure you’ve heard these similar sentiments. The issue is that young people’s aspirations are changing; their mindsets and attitudes towards certain occupations are changing. Many are placing a premium on flexibility than a steady job; many are discounting future earnings and are taking an unorthodox approach.
Many are also having, what economists call a high reservation wage, where they would rather work as a three wheeler driver at that level of income than going for a manufacturing job. The challenge is that whilst this is a problem, too many folks I know think that the solution is to ban them from becoming three wheel drivers, or worse, curb the three wheel population as a whole.
I think this is a classic economic freedom issue that is being highlighted here.
I’ll be the first person to admit that there are many three wheel drivers who drive like crazy people in the city, and I’m sure you’ve had your fair share of close shaves due to their bad driving but the problem with making rather binary policy decisions is that we fail to realize the economic freedom element in this.
During the course of my work, I visited a number of tea estates and rural areas, and the amount of utility they gain from having a three wheeler is immense. For inhabitants of rural estates, the three wheeler is their last mile connectivity. It is their de facto public transport. It is that three wheeler that gets a mother from the estate line room to the estate clinic in time. That gets a child to a tuition class. That enables a grandmother to bring her shopping from the weekly pola. By introducing the high LTV (loan to value) ratios on three wheeler purchases, to stop young people from going into it, or to reduce the number of three-wheelers in the city, I think we’ve just vilified the three-wheeler as a whole and the reason I spent a little bit of time on this seemingly small example is because I thought it captures the case in point being the need to reshape the debate around economic freedom.
I’ll give you another example before moving on to the next part. There was a meeting once again hosted by the ministry of finance a couple of weeks ago with tech companies to discuss what needs to be done to boost the tech sector. Many folks, like I said, discussed about the need to reform payment regulations, making it easier to attract global talent and during the conversation, a point about Sri Lanka’s limited skill pool, a couple of individuals suggested that we must find a way to limit the migration of Sri Lankan IT graduates- there is too much brain drain.
I think a lot of us were rather alarmed to hear this from the industry. Now intuitively at first glance, it may sound sensible at first glance. Sri Lanka’s IT sector is growing, has great potential, IT sector is constrained by the limited skill pool, a lot of IT people getting educated here and leaving, so this must be stopped. But I think the economic freedom implications of this are rather serious.
These areas I think are areas of tensions or contradictions in economic thinking where I think an economic freedom lens needs to come in quite strongly and Advocata can help to shape that debate.
Next to part three, on creating a popular narrative around economic freedom. And for this I argue that we should take budgets and government spending as our starting point. I share with you two perspectives on that. The first is how Sri Lanka, rather ironically, taxes enterprises to support enterprises. Confused? Let me elaborate.
Sri Lanka has dozens of institutions from national level to local level that have been set up to either promote enterprise development, or industrial development. They are present in every district, in every province. They are well staffed at HQ, and on the ground. But many of these are not working the way they should anymore. They have outsized budgets compared to the services they deliver and they have rarely been questioned on the efficacy of their programmes. But they run on the taxes of entrepreneurs and workers. Imagine this, we are taxing entrepreneurs who are already operating in a rather unsupportive business climate at the local level to then fund state institutions across the country that are supposedly supporting enterprise development but really aren’t very useful or effective. I can understand the tax money going to fund roads, bridges, police, schools and hospitals-no entrepreneur is going to argue with that- but, to take tax money to fund these institutions to me seems so wrong. And to add insult to injury, it is these institutions that have been used to provide unemployed university graduates with jobs as so called development officers.
So it’s a double whammy for a tax paying entrepreneur; not only did your tax money pay for someone’s undergraduate education, but it’s also going to pay the wages of that undergraduate to work at these institutions that have been set up to support enterprise development.
You know, I’m really surprised there hasn’t been a revolt by provincial enterprises. Now the radical solution would be to shut them all down and shove off part of the tax burden from enterprises, but I doubt this will happen in the short term. So I think we should at least agitate to get more value for money. I had a very interesting discussion with UK’s former head of the Small Business agency, David Irwin. He came from the private sector and this was his first public sector job. And so he was determined to get real value from his state agency that was meant to support small businesses. And one of the first things he did was to get his officers to go out and meet enterprises to understand their needs. This is something our institutions can do too, in the short term. Get all of these officers to go out, be foot soldiers, meet enterprises, understand what they need, resolve their issues or connect them to someone who can.
So this is just one example of why we need a strong and popular narrative around the size of government, value for money for public spending, and overall economic freedom.
The second perspective relating to this is about SOE losses. I need to say upfront of how proud I am to see Advocata take this issue head on and in their first public document last year, it was totally dedicated to the issue of state owned enterprises and kick started debate on SOEs that had been lost for many years. Taxation, SOEs, budgets have never really been sexy topics for anyone but I think we need to make them sexy.
We need to help people relate to these issues, help them understand how they matter to people’s lives. Few years ago I remember publishing a short blog post about SOEs where I made a small attempt to make them relatable. I put forward about nine alarming facts about SOE losses-this was around 2014- the two that got the most attention were relating to the two airlines at the time (2014). One- the projected losses of the two state owned airlines in the next three years will be ten times what Sri Lanka spends each year on education related welfare, like textbooks, uniforms and school meals. This was from the ministry of finance report back in 2014.
The second one that animated people – The losses of Mihin Lanka Pvt Ltd in 2013 is equal to the entire amount the government spent that year on crucial welfare programmes like Triposha, poshana malla and fresh milk for preschool children. Mihin had just three aircrafts, and these programmes served over one million people. Suddenly you take this from an economic reform debate, or an SOE reform debate, a public finance debate, a fiscal prudence debate into a debate around value for money and spending priorities for people.
I think that if we are to succeed in holding the public sector accountable the money collected from current and future taxpayers- we need to get better at creating a more interesting narrative that gets more people animated. One of my favourite approaches is how the New Delhi based, Centre for Budget Governance and Accountability (a private think tank) uses cartoons published in a leading Hindi Weekly newspaper highlighting budget issues, highlighting contradictions, highlighting irony, in a crafty and attractive way and its really gained ground.
Maybe we need to go a bit further; we need a few gimmicks and public spectacles Green Peace style. Here are a few radical ideas I would like put to Advocata to think about pursuing. Ahead of the budget next month, take a Mercedes Benz S class to the entrance of the University of Colombo, park it there and advertise that by cutting one luxury car from the cabinet of ministers we can fund a state of the art computer lab with 150 computers. For vesak next year, have a massive butter cake dansala in the centre of Kurunegala and as you begin to cut up this massive butter cake, for distribution tell people about your research on food taxes and how much of their cake goes on tax. Stand outside the Sri Lankan airlines office with bags of Triposha and flag how many more school meals estate children could have been provided- and by the way, child malnutrition in estates is the highest in the country.
As the final bit to this part I would like to put forward two key areas for further thought- these both relate to part three’s main theme on how do we create a popular narrative among people and also among policy makers. The first really is about aligning ideas of economic freedom to other ideas of economic thought that maybe more familiar to policy makers here and abroad.
And in this, I submit that the conceptual framework of inclusive growth is probably the most compelling piece of mainstream economic thinking that matches economic freedom. The problem so far has been that we tend to conflate the idea of inclusive growth with redistribution, or just welfare. Actually, inclusive growth is more about economic freedom than we realize. Inclusive growth is not just about more people benefiting from growth, but it’s equally about more people being part of creating that growth, whilst redistribution simply means growth happens in a few sectors, in a few regions in the country, you take those surpluses and then you provide welfare. That model is what we followed during the colonial plantation economy, but inclusive growth is about enabling more sectors, more people, more regions of the country to play an active and productive role in generating that growth- not just in Colombo, but everywhere. And I think this is where the entrepreneurship climate comes in, this is where opportunity and freedom comes in, this is where fair play and better government performance comes in. Inclusive growth is really about creating a climate where more people in society, where more entrepreneurs have the opportunity to thrive. And not be held back by bad procedures, and an unfair, or uneven playing field or a lack of investment in people’s health and education. So that’s one aspect of economic freedom to consider- linking economic freedom to the inclusive growth discussion. The other final aspect is how do we measure the outcomes of economic freedom in a way that matters to people.
I think Fred highlighted some metrics, particularly around the usual GDP per capita income measures, and I think the most important contribution of economic freedom Index, is that it gives us a good sense of the input factors – what are the pillars or elements that tell us the degree of economic freedom in the country. We now need to look at how we can capture something beyond that; how can we capture the degree of economic freedom felt by economic agents in an economy. I think there’s more work to be done on that, especially from a Sri Lankan perspective. If we are to create a popular narrative around economic freedom, institutions like Advocata and others would need to work on how to relate economic freedom to policy outcomes that governments seek, how to relate it to the lives of citizens and entrepreneurs, and to be able to answer a key question- what does economic freedom mean to you.
Thank you very much.
The following is transcribed version of the remarks delivered by Hon. State Minister of Finance at the Advocata Economic Freedom Summit on 12 October 2017. Minister spoke about the challenges in policy implementation with regards to economic liberalization.
Thank you. I want to thank Advocata for inviting me to be here this morning and I read with interest what Advocata is doing and also about the Fraser Institute and its work, particularly work relating to economic freedom.
I am going to make some general comments and maybe also, quickly take up some of the issues that [previous speaker] Anushka raised so that we could think about it a little bit more deeply, I guess as your day progresses.
As you know, in Sri Lanka our issue is that the government’s stake in the economy is very big-it’s much bigger than we think. Just to illustrate it, the advocates of the right to information and me being one, very vociferously talking about it while in the opposition, and supporting the present speaker even when he brought a private members bell to parliament to get the right to information, now sitting on the other side and trying to implement the right to information, still strongly believes in the principle of the right to information, but I also realize some of the practical issues that have also arisen.
For example, I was having a discussion with some friends the other day and I was telling them you know you don’t realize when you ask some information, that I’d rather not give it you because if it is commercially sensitive information unlike in other countries in which you are monitoring, in Sri Lanka the state is so big in the economy that if I give you that information it will affect the state institutions’ competitiveness, vis-à-vis, those in the private sector that are competing. Now something that we have never really thought about. So we have the state which has commercial entities, maybe around 250 commercial entities in the economy.
So our fiscal dynamics don’t really support this as we move more and more towards eliminating, or minimizing the fiscal deficit. so the government is trying to create an environment in which, because of its low savings in the economy of inviting investment and foreign investment, looking at ways and means of sharing the risk and also having structures like the PPP structures and models to optimize the return on state assets.
Unfortunately, a few years ago we had this situation where there was enabling legislation to expropriate some assets. I must say that this was a very negative signal and detrimental to the economy. The present government does not agree with what happened and steps will be taken to repeal such legislation.
On the area of property rights, and private property rights I would say, that these must be exercised with responsibility, particularly to the environment and to negative externalities and pollution and so forth. I also happen to be the United National Party Organizer for an electorate south of Colombo. One of the frequent complaints I have, and I’ll probably receive that complaint this morning because I chair the district development council at 10 o’clock this morning in the south of Colombo, is that the private companies are polluting the Bolgoda, the Kalu Ganga and all the waterways around there, so I think we have lots of issues regarding the security of property rights and we want to basically secure property rights, but secure property rights in a responsible way. In terms of monetary policy, our government has upheld the principle that the Central Bank must have its independence and can act independently. And we have recently made sure that the Central Bank has that right. I recently was in a pre budget discussion and some of the younger, if I can call them, business entrepreneurs, one of the things they told me was the Central Bank has made some comment about real estate and that it is dampening the real estate market. I quickly leaped to the Central Bank’s defence, and what I said was that the Central Bank has every right it make that statement independently of the government because we don’t certainly want to have an Asian crisis - like a Malaysia and Singapore situation - where the Central Bank was subsequently accused of really not acting in time. So we have a central bank which is free to act independently.
Exports have come down as you all know, drastically as a percentage of GDP over the last 15 years. Our government’s twin strategy is while attracting foreign investment is also to encourage trade, and particularly exports. A national export strategy has been formulated and much work has been done, and we are certainly looking at implementing some of those suggestions.
In terms of revenue that comes to government, most of our revenues are collected at the border. Whether it is the taxes on duty or other taxes in terms of efficiency of collection, are collected at the border, so more that 50% of revenue is collected at the border. About 80% of all our revenue comes to three state institutions- the customs, the excise department, and the Inland Revenue department.
So we must liberalize trade, but we have to do this in a measured way. We must bring in anti- dumping law to ensure fair trade practices. We will have to have a trade adjustment package as we adjust particularly while these domestic industries and entities, some of which will get hurt, in our move to liberalize further. We are under no illusion, and I think in Anushka’s remarks this morning he made it clear too about the imperfections of the market, ranging from information asymmetry, weaknesses in competition and also externalities. We want to have regulation, but hopefully, smart and unobtrusive legislation- institutional reform and a change in the mindset.
I would like to conclude my brief remarks by actually taking the four issues that were raised and also to show the complexity when we deal with these issues.
For example, Anushka said that in a recent exchange at the Ministry of finance that the industry pointed out that there was a lack of skills and if they were to try to get those skills from overseas, the immigration department would refer that to a line ministry and then it would be months before a response comes, and once the response comes and the process is completed, you may or may not have the requirement for the skill you were actually seeking. So that’s a very practical problem and I asked them then and there, what do you think is the solution. And they immediately suggested a solution- they said can’t you give the discretion to the controller of immigration and emigration to make that decision. This was just about two weeks ago. I had a discussion with the controller of immigration and emigration and I told him that he will be soon getting the power to make that decision. Yesterday I followed it up, and it might require a cabinet approval and the suggestion that came from the industry was very simple: just annually decide what are the skill sets you need, give him a list of the skill sets and then let him make the decision on the spot, review the list from time to time depending on the needs of the economy.
Now the reason I highlighted this was, as Anushka said, our issue often is not very large disagreements on what needs to be done, but is actually an inability to implement. I think if I were to pick one thing as a priority that needs to be done it is to focus on implementation.
Often, not often, every day almost every hour, I get phone calls saying that can we have a meeting, can we discuss something and I’ve got to the point that I just do not have time in my calendar time for meetings. This is my first meeting at 8.30 in the morning and my final meeting concludes at 12.30 tonight. And therefore we all need to do some sleeping.
So I tell people please send us a note, just a very short note with what the problem is but also include in your notes, what you think the solution is going to be. Because if I could just pick it out and send it to the relevant point of implementation, that will greatly help them and assist them and then we can monitor or get some feedback as to why it can or can’t be actually done. So implementation is actually the key. So we are open, send us a note, remember that change does not always come from the top, change often comes from the bottom because that’s where people are under pressure to change.
He also referred to the three wheelers and I really liked that, because there is this very middle class idea that “my heavens this is a menace. Can we in some way limit it or get rid of it”. Three wheelers are here to stay. They are a very important part of our economy; they are a very important part of our community. But we all understand that they need to be regulated in some way because of the undesirable aspects of that industry, too.
We are doing it in an interesting way. If a man falls from a coconut tree and gets injured, the three-wheeler was his ambulance. If there is a road accident, the three-wheeler is the ambulance. Until very recently, the districts of Hambantota, Matara, Galle, Colombo, Gampaha and Kalutara, until very recently there was no ambulance service that anybody could call. Unless you had private insurance and called your private hospital, you have virtually no ambulance. Today, we have a very modern ambulance service operating in all these cities; 93% of all telephone calls are answered within the first minute. And I’ve had a personal experience addressing a meeting like this, where somebody suddenly fell ill and I timed it, and it took 8 minutes for the ambulance to get that person from off the premises, on the road and to the hospital. When are rolling this out country wide, but before that it was the three-wheeler that was the ambulance. He talked about the three-wheeler being the last mile connectivity and I agree with it; I think it will always be the last mile connectivity. But the problem today is that it is not the last mile, it is the long mile. That’s the problem we are facing and that needs a change in government policy from getting off the highways and into public transport. Who cares about the high way? It is the politician that Anushka referred to, in his very expensive car. Or it is maybe some of you, who drive on the highway. I’ve asked audiences on places I go, and ask them how many have actually driven in the highway - sometimes I get only 2 or 3 hands in an audience of 100 people. That’s the economic benefit that people have received in terms of transport.
Of course, there are other benefits that come from a highway in terms of industry and the economy. So we need to improve our public transport and this something we need to persuade the government to do.
We have a lack of capital in the system: small savings and a lack of capital, often wondering how this could actually be handled. The government comes up with all kinds of schemes with some being elaborated on, but how do we actually overcome this problem? We are, if I could generalize, I know these generalizations are always dangerous, we are somewhat risk averse.
China is China, but China certainly does not have a risk-averse entrepreneurial culture. We are somewhat risk averse, whether it is the micro financing industry. They went with all good intentions to the North and the East and today the things they have to hear about their microfinance loans. I can understand both sides of the argument. On one side, that’s all they have- all they have, what they have is loan money and not capital. On the other hand, people that took the loans, but they actually needed some equity in their businesses even if they were female headed households but there was a lack of equity and we’ve gotten into a bind where loans have turned into equity without really intending them to turn into equity. The same is happening in small industries because of a lack of capital.
He mentioned Sri Lankan airlines in the few comments he made on state owned enterprises. Clearly there is a problem with Sri Lankan airlines. I would like to ask the question, what should we do with it? What should we do with it? It doesn’t matter who is in charge. It doesn’t matter what the management team is. Fundamentally, is there a proposition for Sri Lankan airlines? Is there a business and economic proposition for Sri Lankan airlines in the current economic context of the airline industry? My own personal view is that there isn’t an economic and financial proposition. We need to be honest with ourselves. We need to then ask ourselves the question- how much are we willing to pay, if it brings some kind of national pride to fly the flag in the air? That’s the question we need to ask ourselves. That’s a political question, that’s not an economic and financial question. A political question needs a political answer and sometimes we have to make political decisions. But I would like to say this about Sri Lankan airlines. Sri Lankan airlines was sold eight A350 900 aircrafts-long flying, broad bodied aircrafts which didn’t fit its strategy. I think the sellers also have a responsibility, Airbus industries in France also has a responsibility. They should have taken note whether a small country like ours, with a small GDP, a small airline competing internationally should have actually been sold these aircrafts. Sellers and buyers both have responsibilities in an economy. And that is unfortunate that we have had to already pay nearly 100 million dollars, in basically terminating 4 aircrafts- still 4 aircrafts on our books today.
I would not take more time responding to some of the issues that came out of Anushka’s speech but I would like to say this. I think your conference is a very important conference. I’m particularly glad about the discussion topics that you have chosen. Exchange control liberalization, property rights, improving the bureaucracy, free movement of people and then labour market reforms. Certainly, I would look forward to the deliberations and the conclusions that you reach but please send us a note on implementation and not a report. Thank you.
The winners were announced for the Advocata Think Economics Essay Competition on 13th October 2017 at an event held at The LightHouse auditorium at the Lakshman Kadirgamar Institute.
The event which was part of the Economic Freedom Summit organized by Advocata saw the participation of Hon Dr Sarath Amunugama, the minister of special assignments and Hon. Ajith P Perera, Deputy Minister of special assignments.
The event was in partnership with the Friedrich Nauman Foundation for Freedom.
Vishmi Omalka Randeniya was awarded the first place with a cash prize worth Rs.100,000 LKR from the university category whilst Thuwan Mohamed Khalid of St. Silverster’s College won the first prize in the Schools Category.
Vishmi Omalka Randeniya - Asia Pacific Institute of Information Technology (APIIT)
Anjana Waidyarathna - University of Sri Jayawardenepura
Haritha Jayasinghe - University of Moratuwa
Pirinavan Ratnasingham - University of Colombo
Isadi Dilinka - Univerrsity of Ruhuna
Thuvan Mohamed Khalid - St. Sylvester's College
Manuja Jayawardana - Colombo International School (CIS)
Oshadi Senarath Yapa - Vishaka Vidyala
Advocata: Sri Lanka’s poor stand to gain major benefits if more economic freedoms are given while businesses and foreign investors will also be encouraged, the participants of an economic freedom summit staged by the Advocata Institute, a free market think tank, said.
To understand what economic freedom really means, one has to consider what happens when such liberties are taken away through controls and restrictions, said Rohan Samarajiva, head of LirneAsia, a regional policy research body.
The 1970s closed economy era was a classic example, he said.
“During that time the Government decided what we ate,” Samarajiva told the Economic Freedom Summit organised by the Advocata Institute and Fraser Institute of Canada, which compiles a global index of economic freedom.
“We went to the co-operative shop and if they had harlmasso (dried sprats) we ate harlmasso. If they had karawala (dried fish) that week we had karawala for our meal,” Samarajiva said, speaking in Sinhalese. “If for the New Year the Government allowed sardine (tinned fish) into the country, we had sardines.”
If some rice was taken in a car or other vehicle against the rules set by the State, it was considered a crime and was confiscated by police at a roadblock called harl pol-ler (rice barrier). If chillie was transported it was caught at a miris pol-ler (chillie barrier). Malnutrition and unemployed rose during the period.
Sirimal Abeyratne, professor of economics at Colombo University, said there was little understanding in Sri Lanka about economic freedoms or its effects with many people being taught to think that controls were good.
“People know a lot about political freedoms, but not about economic freedoms,” Abeyratne said.”Economic freedom affects all of us in our daily lives. Many of the controls from the 1970s still exist despite several rounds of liberalisations.”
“There are people who still think that Sri Lanka would be like Singapore if the controls of the 1970s still existed.”
He said there was time when some people marched on the streets saying they were prepared to have tea without sugar. Abeyratne said all laws should apply equally to everyone, like a red light applies to all on the road regardless of the person.
Then economic freedoms will bring benefits and the number of scams will be reduced, he said.
If property was not protected investors will also not come, he said.
There was a misconception that economic freedoms were only good for investors or foreigners, a seminar participant said.
The seminar, conducted in Sinhalese, was the final event of the three-day Economic Freedom Summit.
The event began with a plenary session and closed-door discussions with industrialists and academia as well as policymakers to develop steps to improve economic freedom and create greater prosperity.
Investors and jobs
Minister of Special Assignments, SarathAmunugama, who graced the seminar as the Chief Guest, said around the time of independence there was a belief that a country would make the best use of resources and develop fast if there was central planning by the State.
Some development happened, especially in heavy industries, but later problems emerged.
China was one of the first countries to recognise the problem and under then Prime Minister Zhou Enlai, and later Deng Xiaoping, relaxed many controls.
“They realised that the domestic resources were not enough to take the country forward,” Amunugama said. “Investors are not charities. Immense freedoms have been given to foreign businesses to invest, to hire workers and also the freedom to take away profits to their home countries.”
“Now if you go to Shanghai across the river, you will see massive neon signs. They all advertise multinational brands.”
Vietnam, another socialist country, had achieved major gains by moving away from central planning and controls, he said.
Vietnam started liberalising through its Chính sách Đi Mi (Renewal policy) in 1984, though economic analysts say it took many years for investors to be convinced.
Amunugama said the concept of economic freedom was relative and it did not mean that there was no role for the State or regulation.
Fred McMahon, who manages the Fraser Institute Economic Freedom project, said the freedom of one person should be exercised without stepping on the freedoms of others.
“Individuals have economic freedom when the property they acquire without the use of force, fraud, or theft is protected from physical invasions by others,” he said.”They are free to use, exchange or give their property as long as their actions do not violate the identical rights of others.”
In the Fraser Institute Economic Freedom Index, rule of law is a key aspect. Rule of law, which treats everyone equally, will protect the weak from the strong and powerful.
Philosophers have pointed out that those who take away the freedoms of others are usually those who are armed, which is the armed state and gangsters of all kind who may steal and use arms.
Meanwhile, McMahon said Sri Lanka had improved its position on the Economic Freedom of the World Index to 94 out of 159 countries but more benefits will come to the people if controls were relaxed.
Sri Lanka’s legal system had a rank of 73, but on sound money (how good the central bank is in providing low inflation money) it was 135. In free trade also Sri Lanka scored badly at 135 out 159.
“Sri Lanka cannot be a success story by trading with 20 Million people. But Sri Lanka can with few billion people, McMohan said. “
Our performance at 135th out of 159 nations on Trade is not at all satisfactory. Especially for a small island like Sri Lanka.
There was a direct co-relation with economic freedom and prosperity he said.
The average income of the poorest 10 percent of the population of the quarter of countries with the most economic freedom was about 10,000 US dollars a year, he said. But in the countries were least free the bottom 10 percent of people earned about 1,000 US dollars a year.
Countries like Malaysia and Korea scored very high on economic freedom also had high living standards, compared to India and Sri Lanka.
The Advocata Economic Freedom Summit held from 11th to 13th October received mainstream press and TV coverage. Below are a selection of the articles,
LANKA BUSINESS ONLINE:
Fred McMahon who’s in Sri Lanka for Advocata’s Economic Freedom Summit spoke to newsfirst on the economic freedom of the world index by the Fraser Institute and how Sri Lanka ranks on the index.
Advocata Institute is excited to announce the Economic Freedom Summit, a three day event on economic freedom. Based on Fraser Institute's Economic Freedom of the World Report, the event will look at areas where Sri Lanka can improve the levels of economic freedom in the The event is in partnership with Canada's Fraser Institute, the publishers of the report and Atlas network, an international network of free-market think tanks.
The Advocata Economic Freedom Summit summit is a series of events commencing on the 11th of October, centered around a conference: a series of roundtable discussions to bring together people from industry, academia and think tanks to identify areas to reform Sri Lanka’s economy.
The event summit kicks off on the 11th with a discussion on the topic of whether Sri Lanka’s open economy has worked for Sri Lankans, followed the main event on the 12th of October that includes the roundtable discussion and Sri Lanka release of the Economic Freedom of the World report.
Sri Lanka ranked 94th according to the Fraser Institute’s annual Economic Freedom of the World Report an improvement from last year’s ranking of 101 the previous year. This year the report is based on 2015 data collected in 159 countries and territories across the world.
Hong Kong and Singapore again top the index, continuing their streak as 1st and 2nd respectively. New Zealand, Switzerland, Ireland, the United Kingdom, Mauritius, Georgia, Australia and Estonia round out the top 10.
“Where people are free to pursue their own opportunities and make their own choices, they lead more prosperous, happier and healthier lives,” said Fred McMahon, Dr. Michael A. Walker Research Chair in Economic Freedom with the Fraser Institute. Mr McMahon will deliver the opening address on Advocata’s Economic Freedom Summit on the state of economic freedom in Sri Lanka.
The summit includes keynote address by Economist Anushka Wijesinha with State Minister of Finance Eran Wickramaratne also set to address a gathering on the 12th of October. The summit will come to a close on the 13th October with an event in Sinhala titled “Economic Freedom us” where Prof Rohan Samarajiva is set to deliver the keynote address.
The conference presents an opportunity to reverse this trend by identifying the barriers to development and to kick-start the reform process. The Fraser Index identifies weaknesses in the legal system and property rights, trade restrictions, tariffs, cumbersome regulation and controls over foreign investment as the principal contributors to Sri Lanka’s low ranking.
The Advocata Institute, which is hosting the event in collaboration with the Fraser Institute will present the final report to the Government.
More information about the summit is on the summit website - www.efsummit.advocata.org