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.
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TWO: A NOTE from Vinod Moonesinghe in Colombo, 1 July 2021
Aiyo Sirisena!
[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.
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END NOTES
[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.
I appreciate Mr Vinod Moonesinghe’s interest in my paper. But,, I must say that he has not read (or failed to understand the key message of the paper. I have addressed all of his concerns with facts in the paper.
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That anyone should strive to defend the economic incompetence of the SLFP-led governments of the 1956-1977 period – considering the national misery they caused – is extraordinary. It is true that Mr Moonesinghe has a close family connexion to those governments, but even so, the mind boggles. Then again, he appears to have statistics on his side…
Or does he?
‘[Premachandra Atukorala’s] 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.’
Between 1955 and 1975, the plantation industries, which were largely foreign-owned, suffered continual harassment and exploitation at the hands of these nominally Socialist SLFP-led governments. Finally, in 1972 and 1975, these industries were expropriated by the government. Mr Moonesinghe’s Red comrades, meanwhile, had been doing their best to cripple the plantations and ancillary facilities such as shipping and warehousing by strike after strike, with notable success. The result of these causes was a long and ultimately near-catastrophic decline in the output of and earnings of the plantation industries. Rural employment also plummeted, reaching 20% by 1977.
Although it is true (as Prof. Atukorala clearly states) that certain Lankan industries did decline or expire entirely with the coming of the open economy, this is because their products were, for the most part, unable to compete on price or quality with foreign imports. He gives the near-total collapse of the handlooms industry as an example. It is notable that at least one handloom manufacturer (a very well-known brand with a strong local as well as foreign customer base) did not succumb with the rest; unlike them, it was competitive in terms of product quality and competently managed as well, so it held its own and throve after the economy opened up.
Mr Moonesinghe is attempting to defend a pre-open-economy ‘industrial base’ that was infamous for shoddy, ill-functioning products that tended to fall apart when you breathed on them. Anyone remember those products? The shoes that split at the seams a month after you bought them, the textiles that stank of paraffin and made your skin itch, the matches that wouldn’t light, the batteries that went phut after an hour in your flashlight, the bicycles with pedals that fell to pieces under your feet and brake levers that broke off in your hand when you needed them most? Well, I do, and I resent anyone attempting to whitewash the incompetent, blustering Leftist governments that reduced us poor Lankans to those starveling conditions.
But never mind all that. What of Mr Moonesigne’s statistics? Local manufacturing grew as a share of national output from 5% to 28% during the Starveling Years? Wonderful! But – wait – was that because manufacturing was booming in absolute terms during 1956-77, or because commercial agriculture was almost on its deathbed from state strangulation, government corruption and, finally, expropriation and mismanagement – coupled with those endless strikes that had nothing to do with the problems of actual workers but were called in support of the Leftist political and economic agenda, and often to put pressure on the Left’s own coalition partners? Was it that manufacturing did so well in the ‘Socialist’ era, or that commercial agriculture was driven into the ground?
Before we can assess Mr Moonasinghe’s comment in a realistic way, we need to see some statistics on tea, rubber and coconut output and earnings for the period, say, 1960-77. I used to have them but, sadly, I don’t any more. Is anyone able to provide them? Perhaps Mr Moonesinghe could supply them himself?
PLEASE NOTE = Richard SIMON is the author of an excellent review of a book on the TEA INDUSTRY ….. SEE …………………………. ………….. https://thuppahis.com/2017/07/18/ceylon-tea-and-its-surrounds-richard-simons-tour-de-force/