Policy strategies for sustainable economic development planning– Part 1: | Daily News


Policy strategies for sustainable economic development planning– Part 1:

COVID-19 has severely affected the economy
COVID-19 has severely affected the economy

Sustainable development has become one of the most debatable policy issues in the recent economic development literature in Sri Lanka. In the context of COVID-19, government policy makers, civil society, and other stakeholders have given considerable attention on sustainable development in preparing economic development policies and projects in both developed and developing countries.

In the presence of COVID-19, globalization and liberalization have become myths as development strategies. According to the writer’s opinion, in the presence of COVID-19, Sri Lanka has been experiencing an economic crisis, which is similar to the Great Depression that occurred during the 1920’s in the United Kingdom.

This adverse socio-economic phenomenon indicates the importance of shifting away from Neo-liberal economic policies to Keynesian economic policies. Therefore, currently, the Sri Lankan government provides various fiscal stimulation packages for both producers and consumers as a strategy of recovering economy in the presence of COVID-19. In addition, there is an interesting discussion among policy makers, academics, and other stakeholders on building a strong national economy, which is based on domestic resources. Hence, it is very important to conduct a critical review of past and current economic development policies in the world with special reference to Sri Lanka. The writer thinks that such a review will provide valuable policy insight for preparing a national macro-economic economic policy framework for the era of COVID-19 in Sri Lanka. Particularly, such an economic analysis will provide a sound theoretical and empirical foundation for building a sustainable economic development policy framework, which integrates economic efficiency, social equity, and ecological sustainability.

In 1950’s, economists identified that an increase in real per-capita income over time in a country as economic development. However, after two decades later, they realized that an increase in real per-capita income is an insufficient condition to achieve economic development. Real world economic development experiences during the 1950’s and 1960’s revealed that despite the rapid economic growth, many developing countries including Sri Lanka suffered from unemployment, poverty, and unequal distribution of income. This unpleasant experience in economic growth led economists to redefine the meaning of economic development including the qualitative aspects of human well-being such as literacy rate, life expectancy, human capital generation, and food insecurity etc.

As a result, in 1969, the well-known economist Dudley Seers showed that to achieve economic development, there should be a reduction in poverty, unequal income distribution, and unemployment with increasing economic growth. However, during the mid 1970’s, international organisations such as the World Bank and the IMF advocated developing countries to follow Neo-liberal economic policies as a cure for their acute socio-economic problems such as slow economic growth, unemployment, and poverty etc. However, world economic experiences during the 1980’s showed that market based Neo-liberal economic policies failed to gain expected benefits for developing countries.

Many developing countries in Asia, Africa and Latin America faced high level of poverty, unequal income distribution, unemployment, and natural resource degradation in late 1980’s. Stabilization policies and structural adjustment policies implemented in developing countries including Sri Lanka were not able to find solutions for acute budget deficits, widening trade deficits, declining foreign reserves, and foreign debt crisis in those countries. In addition to those macro-economic problems, since 1990’s, developing countries including Sri Lanka has been facing deforestation, water shortages, air pollution, food insecurity, and serious adverse impacts of climate change. As a response to the negative impacts of Neo-liberal market policies on both economy and environment, during the 1990’s, some economists proposed the concept of sustainable development for economic development planning in both developed and developing countries. In sustainable development planning, development policies and programmes should focus not only economic growth but also social equity and ecological sustainability. In other words, to maintain sustainable development over time, a country should not scarify the welfare of future generation for improving the welfare of the current generation.

The Sri Lankan development experience during era of the so-called political independence is neither consistent with the economic efficiency nor the environmental sustainability and social equity. As a result, currently, Sri Lanka is facing a severe economic crisis which, characterises with slow economic growth, high income inequality, huge unemployment, food insecurity, and serious natural/environmental resource degradation. Therefore, policy makers should consider not only short-term financial gains of development projects but also long-term social and environmental impacts of such development activities on human well-being in Sri Lanka.

During the era of post-liberalization (i.e. after 1977), Sri Lankan policy makers did not consider the structural characteristics and political economic context in Sri Lanka in implementing macro-economic development policies and programmes, which was based on a Neo-liberal economic ideology. Hence, their role model was either a Western country or Singapore which is significantly different from the socio-economic, historical, and cultural context in Sri Lanka. This is one of the main failures associated with development projects and policies during the post liberalization period. In addition, these so-called Neo-liberal economic theories are based on so many assumptions which are not compatible with the socio-economic, historical, and political context in Sri Lanka. Neo-liberal economic ideology was born in the United Kingdom and provided a theoretical foundation for the capitalistic development under industrial revolution during the period from 1760-1830. Development process in Western countries including the United Kingdom was internally driven and was concentrated on heavy industries, which was based on the comparative advantage. Particularly, surplus generation in agriculture in the United Kingdom highly contributed to such economic growth.

The Sri Lankan development process was externally driven by colonial needs and was concentrated on producing primary commodities like tea, rubber, and coconut etc. As result, currently, Sri Lanka is facing a serious socio-economic crisis which cannot be solved without a structural transformation of existing socio-economic and political structure. Western countries such as United Kingdom, United States, Australia and New Zealand have well developed market economies and their socio-economic, historical, and political structures are significantly different from Sri Lankan economy. In these countries, social attitudes towards development, living pattern, social norms, business culture and responsibilities of decision makers are not comparable with Sri Lankan socio-economic and political contexts.

If an economic decision maker like a Governor of the Central Bank engages in bond scam in those countries, he/she would be in the jail within 24 hours. This is the way of rule of the law functioning in well-developed market economies. Neo-liberal economic policies do not work without establishing rule of the law in a country. However, the Sri Lankan government failed to apply the rule of the law against those who misappropriated the public money. Not only that, the previous ruling party appointed a foreign citizen as a Governor of the Central Bank. This is one of the serious mistakes done by the previous government.

As a result, currently, innocent Sri Lankan citizens compensate for the loss that occurred due to the bond scam through paying increased taxes, high interest rates and high commodity prices. As an economist, I would argue that the loss occurred from the bond scam was infinite because the impact of this monetary phenomenon has multiplier effects and such effects spread throughout all the sectors of the economy over infinite time horizon. Thousands of educated people in Sri Lanka including Sri Lankans who live abroad voted for the President with the expectation of taking legal actions against those robbers. Thus, the new Government has an ethical responsibility of taking necessary actions against those white collar robbers who misappropriated the public funds.

Policy makers in both public and private sector in Sri Lanka rely on the old fashioned Neo-liberal economic model, which does not fit with the structural characteristics of Sri Lankan economy. Some of the high level foreign trained economic decision makers attached to the government decision making bodies know nothing about the ground level economic reality in Sri Lanka. They had no formal training on the evolution of comparative economic development history in Sri Lanka. In short, they do not know the Sri Lankan history, culture, and the political economic context, where those policies and projects are implemented. As a result, they are always dependent on Neo-liberal economic ideology which is not consistent with socio-economic structure in Sri Lanka. The Sri Lankan tertiary education sector has been based on the colonial and neo-colonial needs throughout the last few decades. As a result, the Sri Lankan university system failed to produce independent and critical thinkers who have visions for changing the colonial socio-economic and political structure in Sri Lanka. Hence, the absence of independent policy makers acts as a main constraint for identifying an accurate and appropriate economic development path for Sri Lanka.

(To be continued)

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