One one things

My TV watching has reduced quite dramatically since returning to SL. Watching the World cup on Eye has made me spend more time watching tele and as a result i’ve noticed an interesting trend amongst some of the advertising. Several ads, three of which come to mind immediately, are based on a nationalist theme. The ads i’m referring to are the Lanka Bell ads, the Cargills advert with the salesman claiming to buy stuff directly from farmers and thereby supporting the farmers and finally the mihin air ads, the sky is ours. Of these the Lanka Bell ad is quite disturbing, they refer to the company being noble bc money doesn’t leave the country, it is a pretty obvious stab at dialog. The cargills advert is pretty harmless and the mihin air one is again a stab at SLkan airlines and its partial foreign ownership, I think.

The Lanka Bell advert is symbolic of the ideas of a lot of ppl i’ve interacted with in Sri Lanka. The idea is that foreign investment is all good but the profits leave the country, so we must stop that. People forget that profits make up just one part of economic activity. Employment generation, knowledge transfer, and services provided are several fold more important to the country than the profits that are repatriated. The telecom sector is easily the standout success story in terms of privatisation and liberalisation, it has its faults, but you can’t argue with the tremendous improvements in service provision in this sector and the benefits enjoyed by the consumer. The idea that ownership of the company needs to be Sri Lankan is an unfortunate misunderstanding of the macro impacts of investment. I personally care more that i receive quality telecom services than whether the company is owned by a Malaysian or a Sri Lankan. Even if profits “remain in the country” into whose pockets does it go? certainly not to the rural poor, so really the average Sri Lankan should not care whether profits go to Malaysia or to a few people in Colombo. Sure there is bad foreign investment, with little knowledge transfer and local employment creation only in low skill categories, but this is something that the BoI needs to look after. Taking a xenophobic view with regard to foreign investment is counter-productive, specially in a country where capital remains scarce.

The whole “deshiya” stuff is I think a gimic. I don’t think cargills will buy stuff from local farmers if they can import the same good for cheaper, nobody would unless they’re altruistic and not profit oriented. This nationalist image is pretty similar to the stance being taken by the govt at the moment. We hear the president, the ST and other key officials running around saying we don’t need donors, we can manage on our own, we have aid from India, China and Iran (wtp) and we don’t need help from the WB, IMF, ADB and what not. This whole image of being a self sufficient, sovreign nation is being portrayed everywhere. In fact I heard the head of the national resources department in a radio interview say that SL didn’t need foreign assistance to build the Parakrama Samudraya, so why do we need help now. But all this is just noise. The borrowing from the international financial institutions (bar IMF) have not changed. But there is increased borrowing from countries like China, and also projects funded through commercial borrowing, which are of dubious quality and have limited transparency. (WB, ADB borrowing require competitive bidding, these criteria are no longer required when the govt. funds a project using commercially borrowed (or printed) money, and from donors like China).

It can be argued that the emphasis on being an independent, sovreign state thing is, at least partly, an excuse to spend money in an irresponsible manner. Mihin air. Would any donor in their right minds fund such a project? I think not. The noise makes projects like this easier to achieve. And this kind of nationalistic mindset lulls ppl into believing that we can and we do need to develop on our own and will support the govt in such ventures. But clearly some of these projects have very limited benefits for the majority of the population. The funding for Mihin air was drawn from “emergency” credit through the treasury, i really don’t see the emergency requirement for a budget airline wholly owned by the state (surely a first), specially for a country with public debt around 100% of GDP.

I am firmly of the belief that the state has a role to play in economic development in developing nations like ours where market imperfections (specially information) are completely different to those which are prevalent in developed nations, and those which neo-classical economic theory is modelled upon. So there certainly is a role for the state, but there is again a huge difference between good state intervention and bad state intervention. I’m afraid at present in SL the former is being championed but the latter is the reality. I think the one exception is in the long overdue infrastructure projects, the Southern highway and the power plants. But that again is interspersed by poor infrastructure investments such as the airport in the South. The geographic concentration of the infrastrucure development (Hambantota port, highway, airport) is also a bit too much of a coincidence.

It’s important that people do not buy the gimics about nationalism and domestic ownership. We are a small island nation in a global economy, we don’t have the domestic markets which would allow us to be self sufficient and happily closed to the rest of the world. The sooner we understand this reality and learn how to deal with whatever pitfalls open economics brings, the sooner we’ll make any real progress.