ONE: A NOTE from Mevan Pieris in Colombo, 1 July 2021[i]
The underlining in bold Black is HSM Pieris’s work; that in red has been imposed by the Editor, Thuppahi….. and so, too, any red underlining in Vinod Moonesinghe’s intervention. Both sets of Comments were sent by Email in response to my invitation to a cluster of personnel.
Thanks Michael. Read with interest Premachandra Atukorala’s paper…. [viz. https://thuppahis.com/2021/07/01/an-appraisal-of-sri-lankas-industrialization-strategy/#more-52644%5D
The platform JR Jayawardene Government laid starting in 1977 for an industrial revolution supported by availability of adequate hydroelectric power, was dashed on the ground by the LTTE war with Indian interference, which was beyond even for JRJ to manage in his second term of office. Thereafter the assassinations of strong political successors to JRJ too diluted the leadership of our country. An industrial revolution can only be sustained by a continuity of strong leadership; but with the assassination of Lalith Athulathmudali and Gamini Dissanayake we lost all of it. Leave alone policy making, not even the Central Bank could be protected. So why waste time trying to figure out what went wrong in industrial policy.
The root causes may be in not offering equal opportunities to the minorities and in the foreign policies followed. Unless there is political stability and international goodwill no industrial policy will work. Federalism could well be the way forward in a united Sri Lanka. If it is good to have a United Kingdom why not a United Sri Lanka, for after all until the Portuguese came here in the 16th century there had been an independent Tamil Kingdom in Jaffnapatam for three centuries. SWRD Bandaranaike the father of the Sinhala Only policy was the first to advocate Federalism, but the weak leader he was, did an about turn under pressure, and finally paid with his life.
Thanks to Mahinda Rajapakse’s former Government the LTTE has been eliminated, and when the platform for another industrial revolution could be built with better networks of highways and required infrastructure, etc, the COVID pandemic has indeed put the clock back. Only God knows what other viruses (viri) are hanging around to shake hands with us all. The problem at hand is a highly complex one. Industrial growth must go hand in hand with political stability and the goodwill of all powerful nations. We need strong political leadership as much as right industrial policies, and all people of this country must feel safe and happy.
TWO: A NOTE from Vinod Moonesinghe in Colombo, 1 July 2021
[Despite the author’s academic credentials we have been presented with arrant and erring nonsense! ] His nonsense hides the fact that in 1955, manufacturing (and most of it tea and rubber factories) accounted for only 5% of the economy, but rose to 23% by 1977. The actual impact of liberalisation was to destroy indigenous industry. Manufacturing fell from 23% of GDP in 1977 to 14% in 1983. Critical modern sectors, for example the burgeoning electronic and electrical manufacturing and machinery and plant sectors, collapsed. The Tea and Rubber Machinery sector, which had grown from small beginnings during the coffee era, with Clerihew’s and Brown’s inventions, and which had carved out a small but significant overseas market by being at the cutting edge of technology, disappeared within 10 years of JR’s election to office. These capital-intensive industries were replaced by the labour-intensive garment industry, which only survived and grew because of MFA quotas.
The figures for “Industry” quoted here includes construction, while the figures for GDP post-1977 ignore the massive black economy, which DEW Gunasekera estimated in 2013 at half the economy. The garment industry, which under-invoices exports and over-invoices imports, accounts for a huge proportion of the outflow of foreign exchange.
The liberalised economy gave no incentives for manufacturing (quotas should be seen as state regulation of the market!). As a result of liberalisation, extremely powerful importer cartels prevent local industries from taking off. As a former manufacturer of motor vehicle parts, I can attest that the entire system is rigged in favour of importers. Manufacturing (and production generally) requires much longer lead times than importing and selling. Investment in stock makes much more sense than investment in plant and machinery and work in progress, especially with such high interest rates.
The development which HAS taken place, particularly in the banking sector, and penetration of market relations into the villages, did so, not because of the liberalisation of the economy, but because of the huge amount of remittances coming from workers overseas, about half of which comes through the Undiyal system, allowing outflow of black money in the opposite direction. These remittances make their way back to the villages, giving rise to new avenues for commerce and for growth of the finance sector. They have also contributed to raising wage levels. Unfortunately, the liberalised economy offers no incentive for this money to go as investment into production, only into peripheral areas such as beauty parlours, motor vehicles and property.
We have a large agricultural sector, highly dependent on imports of inputs, including what machinery there is. In 1955, when Ray Wijewardene developed his two-wheel tractor, he could not find the local facilities to manufacture it, so it was farmed out to the Field Master company. By 1977, Sri Lanka had started making two wheel tractors. Today, we are back to importing them again. Meanwhile, India has become home to two of the three largest tractor manufacturers in the world: TAFE (which owns Massey Ferguson and IMT) and Mahindra (which owns Jiangling). This encapsulates the utter failure of economic liberalisation, and explains why Sri Lanka needs to keep taking loans to pay for its imports.
[i] The underlining in bold black is HSM Pieris’s work; that in red or blue has been imposed by the Editor, Thuppahi….. and so, too, any red or blue underlining in Vinod Moonesinghe’s intervention. Both sets of Comments were sent by Email in response to my invitation to a cluster of personnel. The decision to present them as a separate iem in the Thuppahi web site has been mine and mine alone — a means of emphasizing the importance of the debate and its reviews. Hopefully, more reasoned appraisals will follow …and draw a response from Premachandra Athukorale.