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Wealth creation and sovereignty

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Wealth creation and sovereignty
What Economic development involves
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The country must be justifiably proud of the building of the Hambantota harbor. It is a noteworthy achievement. The President has asked the country to take pride in it. But the pride would have been more justifiable if the project was built by Sri Lankan engineers and Sri Lankan labor. Economic development ultimately rests on the work of the people and building the capacity of the people is the way to promote development.

I don’t know whether readers will agree with me that since 1956, instead of building the capacities of the people our journey to the past has produced a nation of human beings whose capacity has hardly improved if not worsened. Are our engineers, scientists, economists, administrators produced by our Universities today better than those we produced in the 1950s and 1960s? The situation has arisen because we neglected modernization and sought to revive our ancient culture and religion rather than move forward towards modernization. So we feel threatened by the International community. If we had the type of diplomats and Foreign Service officers of the past – men like the late Vernon Mendis, would we have got into this situation? Israel, despite many violations of human rights, manages to escape censure. U.S. backing is not the whole story; there is also clever diplomacy.

Now we invoke our sovereignty against the UN, not realizing that the 19th century concept of sovereignty is not what it was after the UN Declaration of 1948. When we discuss the economic benefits of the CEPA we have again to fall back on sovereignty. But talk of economic independence, of indigenous economy, national economy etc. are cries which are no longer appropriate in a globalized world. If we do not hitch ourselves to a fast growing regional bloc like India we will have to depend on our small market for the development of our industry and services which means no real development of our manufacturing industry.

Our existing industries have grown in an environment of high inflation and protection and are not sustainable in a globalized environment. Adam Smith pointed out that the division of labor is limited by the extent of the market. Our market is too small for manufacturing industry to grow. India is one of the fast growing areas of the world and hitching our economy to hers will promote faster growth.

Sovereignty and Free Trade

It happens that there are some people who do not understand or do not want to understand — which is the same thing — what sovereignty is. They are frightened or a pretend to be frightened when our country wants to sign the CEPA agreement. They are willing to accept lines of credit provided by India but not a free trade agreement. They don’t seem to mind when the country borrows from foreign countries. The present government is borrowing from foreigners hand over fist through the issue of bonds and bills, through bilateral loans etc. Does this affect our sovereignty? It affects more than free trade agreements for sure.

Countries which defaulted on foreign debt know how the debtor countries infringed their sovereignty after debt default.  They have even invaded the debtor countries as history has recorded. Haven’t we signed dozens of commercial agreements with foreign countries? Have we lost our sovereignty? Why then this bogey about CEPA. It is a deep psychological fear based on the historical invasions of the country from South India. But those have to be understood in the historical context as Romila Thapar has pointed out. Plundering neighboring countries is not to be interpreted in terms of nationalist categories. It is often our own kings who solicited South Indian mercenary armies in their struggle to obtain the crown.

Development requires foregoing current consumption for future benefits

Sacrifice is the name of the game- forego present consumption for future gains. Joan Robinsons said that Sri Lankans want to eat the fruit before planting the tree. Economists say that to create capital goods the people must forego consumption- give up present consumption for future benefits through investment. Robinson Crusoe had to give up fishing for a day or so and forego his consumption to spend time in making a fishing rod to catch more fish in the future. Indians had to use the Ambassador car instead of imported luxury cars. We boast about our high living standards but we hardly produce any of these goods be they cars, airconditioners, refrigerators, TV sets or computers. We cannot engage in manufactures by merely producing for the local market.

That is why we need CEPA to attract direct foreign investment whether from India or the West or East Asia. We missed the great movement of industry from the West to the cheap labor abundant countries like Thailand, Malaysia and China. That time and opportunity has gone. History doesn’t wait for us to solve our problems and get ready to receive foreign investment. Opportunities never come twice. We have passed up many opportunities in the past and risk losing another opportunity provided by India. India may be motivated by foreign policy considerations in establishing closer economic relations with Sri Lanka, but foregoing such an opportunity means losing a chance for faster economic development.

Looking ahead, we need to focus on narrowing social and economic inequalities by correcting the gap created between economy and society. In a broader view, raising the standard of living and salaries of low-income earners will contribute to the economy and society. This can be done only through industrialization. Why are hundreds of thousands of our women going to the Middle East to work as slaves? It is because there are no economic opportunities for advancement here. Why are thousands of our educated youth (really educated in a modern sense not the products of our degree factories)? leaving the country and refusing to come back? It is because there is no future for them here. Maintaining significant growth of our economy is critical to our peoples’ future.  One of the most important tasks in narrowing gaps in the long-term is investment in "human capital." The problem is becoming more severe among children and youth who represent the future labor force and therefore more investment is needed in vocational and technical education and entrepreneurial education for this group.


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