One one things

I got into Islamabad mid-morning and slept through most of the day after watching a bit of the test match. I remembered the first time I was in Islamabad - pater had a conference so the family tagged along. We got into the City late in the night and went straight to sleep - the next morning when the hotel room curtains were opened the most spectacular mountains emerged from the mist. I also remember the food, tasty and exotic (lamb brain soup was not one of the things I dared to try as a 10 year old) and of course the cricketers. Zimbabwe was touring Pakistan at the time and both teams were staying at our hotel. I remember being in the same lift as Heath Streak and big Inzi. For our luck Ranjan Madugalle was the referee for that game and being pater’s classmate, he got us some tickets to the neighbouring Rawalpindi test match. I recall two things about the cricket - Stephen Peel (off spinner?) practicing in front of us and whacking a lofted drive that thudded into the seat below mine, and the news item the next day that read “Madugalle raps Inzi over wrist band” - I pictured Ranjan hitting Inzi’s wrist with a ruler the way school teachers did back home.

Back to the present - the presentation the next day was not one of my favourites. The audience was again full of NGO types who didn’t understand economics - I really need to start being more selective in the conferences I accept. Once that was over and done with there was an amusing administrative matter to be dealt with. The invitation letter had instructed me to bring along 4 passport size photos for registration purposes. Now most conference registration things require a signature and a phone number - but 4 photos? there was no way I was going to humour them. And then I’m told that the photos are for police registration. wtp? Apparently all citizens of SL, India, Bangladesh and Nepal must get registered with the cops if they visit Pakistan (or was it just Islamabad). I also found out that Indians get a visa only for the state that they visit, not for the entire country - so the Indian chaps had visas for Islamabad. There’s some pretty serious animosity and paranoia in this region.

Anyway, I couldn’t dodge the photo op so I was piled into a tiny van resembling half a loaf of bread and shuttled off with one of the admin guys to the nearest photo studio. We drove into town in the dark and stopped at a place called Apara market. It’s a large street market with shops arranged around a square. We walked into the studio and the admin guy, Shahbhaz, exclaims at the cost of passport photos. Nonetheless I’m taken upstairs. The studio looks like something from the 80s, huge cameras on tripods and elaborate backgrounds including what resembled a forest scene. I was shown a mirror and asked to do my hair - I laughed and shook my head, Shahbhaz shrugged and grinned back. “Your photo shoot” he said. A couple of clicks and we’re done - 15 mins we’re told. Shahbhaz had been unimpressed by my failure to bring the pictures, but now he relaxed since the matter was all but sorted out. We stepped into the makeshift kitchen next door and he asked me if I would like something to eat; “Chaat, burger, samoosa, soup?” It was cold so a soup sounded suspiciously like a plan. “Egg or plain?” I said i’ll have what he’s having and two egg soups were called for. Just then it occurred to me that eggs from a street vendor may not be a great idea - but if Shahbhaz was having it it can’t be all bad. We sat down and he helped himself to a large glass of water straight from a thoroughly sketchy looking jug that had been placed at the two foot tall table we sat at - maybe the eggs weren’t such a great idea. But the soup tasted great, thick and peppery - perfect in the cold.

We still had about 10 mins to go so we walked around the market a bit. They were selling everything from refrigerators and flat screen TVs to second hand shoes and toy guns. I loved the little food stalls with chaat (assorted nuts and similar looking things), roasted flesh, kebabs and more vats of soup. Despite it being close to closing time there were ppl scuttling around the place making last minute bargains, children crying that they were denied that fetching toy and girls with pretty eyes that followed their fast moving feet in a bid to hide away from a cruel world. Everyone was wrapped up, friends chatted over beedis in urdu, smoke wafted here and there and the smells of street food were everywhere. I loved the atmosphere. Shahbhaz said that the market was frequented by middle class ppl and govt. servants - I think the definition of middle class is very different to what we use over here. We got chatting and and he started talking about the political economy in Pakistan.

“Inflation over here is too high - nobody can afford to shop the way they used to”
“Really? about how high is inflation now?”
“Hmm..about 100% maybe”
“oh.”

It’s actually about 7.5% - but if expectations have anything to do with real inflation, they might be in for some trouble. A quick aside. I was in Delhi last week and had an opportunity to listen to Prof. Ajit Singh of Cambridge speaking on the global economy. During question time I asked him something that has puzzled me for a while - we live in an age of massive commodity price hikes - oil, food (wheat, milk, sugar) leading the way, unprecedented demand from the emerging economies of China and India, but yet global inflation has hardly murmured. His answer was pretty much what I expected but I wanted confirmation from an eminent voice. He replied in the context of India - saying that the business community and the public in general have confidence in the management of the economy (which he said was run by 3 ppl - Manmohan Singh, Chidambaram and Reddy (head of the RBI - I think) and therefore despite running high budget deficits, economic agents are confident that things will not go out of control. India’s inflation is around 4.5%. So expectations seem to have a hell of a lot more to do with modern global inflation than in the past. A lot of this possibly has to do with the independence of Central Banks. Which is why I feel the key to reducing inflation in SL is institutional reform at the Central Bank - as long as the governor is perceived to be politically malleable, economic agents will always expect inflation to be a problem - there needs to be credible independence of the Central Bank from the government - till that happens we’ll always suffer from high inflation - and chaps will blame it on things like oil prices and imported food prices - which is rubbish, really.

15 mins were up and we picked up my photos - not too shabby. I had a little stub as well for a souvenir. We dropped by Shahbhaz’s office on the way back and we ran into a colleague of his who, like every other Pakistani I’ve met, spoke to me in urdu - refusing to believe I was a foreigner. Eventually he gave in when I said I’m from Sri Lanka for the 4th time. “Ohh Sri Lanka! Are you Sinhalese or Tamil? Always fighting fighting fighting, yeah? There’s a war in the North and Eastern parts - and there’s a town called Jaffna there - lot of fighting, am I right?” I was impressed - yes he was right. He said that his English is weak and I said that my urdu is weak and he laughed again - hugely energetic despite it being 8 in the night. Shahbhaz grabs the man by his shoulders and punches him in a friendly manner, “He is a good guy you know - but he is a Pashtun” he announces and the Pashtun grins and goes into mock boxing mode, “Like Sinhalese and Tamils, we are also fighting here and there” More laughter - despite the inaccuracy of the statement - Sinhalese and Tamils aren’t fighting. Enough of that. The friendly Pashtun (I’ve forgotten his name) offers to give me a ride around Islamabad on his motorbike the next day but unfortunately my flight was leaving before that would be possible. I got back to the hotel - apologized to Shahbhaz and thanked him for his assistance. There was an evening of Ghazaals to supplement the dinner that night - both were excellent. The food was fantastic all along - great sindhi buriyani (the big bite stuff is pretty much on the mark in terms of authenticity - specially at the Rajagiriya branch - yum), lamb dishes and grilled chicken - wonderfully spiced and despite the fair share of ghee, extremely palatable.

I flew back the next day after enduring a couple of hours at the airport with easily the most annoying person I have ever had to deal with. This Nepalese brother refused to stop talking - even when I elaborately whipped out my book and began to read. He also insisted that we take a vehicle to the airport a whole hour before we were scheduled to leave in the hotel vehicle. What a muppet. The security guy took my passport and, surprise surprise, spoke in urdu. I said for the nth time that I’m from Sri Lanka and he says with a surprised grin, “No! really? Sri Lankan - Pakistani same, same, no?” I smiled and said “Same, same - but different.” He grinned even more and waved me off. There was thankfully no long Karachi transit this time - and I took my seat on the SLkan airlines flight back to SL, happy to hear voices from home and familiar phrases.

I was next to a fascinating chap who was flying to Malaysia - I’m sure he was a Mullah of sorts based on his attire and beard length. He introduced himself as “Mohammad Yousuf - not the cricketer” The first thing he asked me after my name was my “qualifications.” I was surprised - maybe he was trying to hire me. I gave my qualifications and asked him his in turn. He started counting fingers, “Masters in Islamic Studies, Masters in Urdu, Masters in Arabic and Masters in Islamic History” Followed up by a rich grin. I liked Mohammad Yousuf - but I drifted off to sleep sooner rather than later - dreaming of more buriyani. When I stepped off the plane at Katunayake and went to get my luggage I was thrilled to see 4 large vats, in which they traditionally cook buriyani, meandering along the conveyor belt. It looks like the boys at Big Bite maybe opening another branch - Inshallah.

“Bernard : Humphrey doesn’t understand economics sir, you see he got a degree in Classics.
Hacker : Oh I see, what about Sir Frank (foreseeing the financial crisis)?, he is the head of the treasury.
Bernard : well, I am afraid he is in even a greater disadvantage in understanding economics. He is an economist.”

- A real Partnership, Yes Prime Minister.

Whilst this is amusing, it is unfortunately not true. Of late I have been continually frustrated by ppl attempting to argue on economic issues without the mildest understanding of economics. I just commented on a blog where some chap (not the author) was arguing that reducing imports saves money for the country. The scary thing is, i’m willing to bet that 90% of ppl will probably agree with that sentiment at first glance. There is this odd perception that a country is like a business, exports are sales, imports are costs, and the difference is the loss or profit. America has a massive massive Balance of payments (exports - imports, to be very simplistic) deficit, but they seem to be doing OK, yes? I’ve tried to provide a skeletal argument against this in that comment which I am not going to reproduce here.

I was at a couple of conferences last month where similar arguments were put forward, but this time by respected individuals who were presenting ideas in international public forums. One of the discussions was on the WTO and the status of the Doha round and its developmental impacts. After much discourse on the detrimental impacts of the agreement on agriculture, sweeping statements were made along the lines of “the liberalisation of agriculture has no developmental benefit to asia”. Participants clapped and thumped their tables tables in approval, the presenter looked smug. There were two WTO guys present, and they looked at one another and shrugged, I guess they must be used to this. I pointed out that the gradual liberalisation of agriculture, if done evenly and properly, provide massive potential benefits to consumers. With cheaper alternative imports of food stuff consumers stand to gain a lot, and specially the poorest consumers, the subset of the population who spend the largest share of their income on food. If food becomes cheaper their real income shoots up, development? yes. The speaker countered by arguing that producers are consumers as well, and if they lose their jobs, who’s going to consume? (more approval from the audience). Surely that is not an argument against liberalisation, bc liberalisation does not necessarily entail loss of jobs in the long run. It does entail a movement of resources away from the production of inefficient goods to more efficient ones. The speed of this movement depends on flexibility of factor markets, information and availability of credit. It is true that in developing countries most of these conditions do not hold, but that is not an argument that we should sit on our haunches and say we’re not ready. Sort it out. Reform education so that ppl can shift between jobs more easily, reform labour markets, access to information, that’s what needs to be done.

These guys were just saying we need to protect our farmers, well true, but for how long? Agriculture in Sri Lanka has without doubt been the slowest growing sector of the economy with the least scope for improvement in income. And why do ppl still work in agriculture? Part of the reason is bc the govt creates incentives to keep ppl in agriculture without encouraging them to move to more productive sources of employment. Even within agriculture there are sectors where a lot of money can be made, cinnamon sells for about a pound a stick in england, that is 220 bucks for 1 stick of cinnamon. But if you’re protected by the state there is no incentive to shift from your inefficient product, there is no competition bc you’re protected by walls of tariffs. That just keeps ppl in poverty. I don’t mind protection if it is only until some domestic capabilities are in place to be ready for liberalisation, but in almost all cases of protection there is no such improvement taking place, it’s just protection ad infinitum. That is bad for consumers, it’s bad for producers.

Ok so the agriculture argument was at least interesting bc the WTO negotiations have really gone nowhere meaningful. The only useful thing that came out of Hong Kong was that export subsidies will be eliminated by 2013, but the EU will remove export subsidies before that anyway as part of the CAP refomrs, and I don’t think the US has major export subsidies anyway. So yeah, bugger all it is. This failure just undermines the negotiating skills of governments, it does not undermine the benefits of liberalisation of markets. But what took the cake was this guy who started talking about the developmental impacts of NAMA (Non-Agricultural Market Access - ie. negotiations on the reduction of tariffs on non-agricultural exports). He started going on at length about how removal of tariffs in industrial products will bring ruin to Bangladesh, specially the garment industry. And then to my infinite amusement he said that NAMA will cause the downfall of the Sri Lankan garment industry (!!). I almost choked on my coffee when I heard that. He started rattling off figures on job losses, export market loss and other doomsday predictions. Now I had no idea where he was cooking this stuff up from, I mean Sri Lanka would love it if the EU and US bring down tariffs on garments, and our garments are produced for export markets and if we bring down our own tariffs it will have hardly any impact on garment production. So I was genuinely confused, what was he smoking? He finished up and I could see the protectionists salivating at the figures he had gifted them. So I pointed out that SL and all developing countries stand to gain from developed countries bringing down their tariffs on industrial products and explained why SL reducing their own tariffs would not “bring ruin to the garment industry”, I think i got under his skin when i questioned the credibility of his figures. He started quoting the sources, GoSL, Ceylon Chambers of Commerce etc. etc. and then he made a direct quote; “The reduction of tariffs in the EU will undermine SL’s access to these markets since there will be increased competition from other garment exporters who do not enjoy the GSP scheme..”

Oh my God. He was talking about preference erosion. He was using preference erosion to argue that NAMA is against the interest of developing countries. I honestly could not believe it. In a nutshell - Sri Lanka enjoys preferential access to the EU and US markets bc of good labour standards and so on. To take an arbitrary example, if the rest of the world has to pay a 10% tariff on an export into the EU, SL would pay say 5%. This learned gentleman was arguing that with NAMA, the rest of the world (including most developing countries) will pay say 7%, and thereby making it more difficult for SL to sell into the EU, and from that it supposedly follows that NAMA is detrimental to development interests in general. The thing is, when i explained to him about preference erosion, he clearly had no idea what this was. He just saw the figures on job losses, got a bit randy, and tried to use it against trade liberalisation and the multilateral system. I mean this is the problem. There are flaws in the system, there are genuine concerns about liberalisation, about the pace and extent at which it should be carried out. But proper rational argument and discussion on these issues is masked when you have supposedly intelligent individuals talking through their hat using baseless and flawed argument simply to sensationalise the issue. Civil society has long wanted to have a seat at the WTO negotiations, but if this is what civil society can produce, please, stay away (ok i know that’s a generalisation, but i’ve seen enough of it to say this).

To state another example, I was at a conference where we were discussing international aid relations, and the discussion moved to neo-liberal economics and its dominance of present economic discourse. A couple of Latin American Chavez lovers were going on about the failure of economic liberalisation and neo-liberal reforms to bring about development in their countries. They quoted figures on poverty, unemployment and industrial change. Well, the fact of the matter is, you can’t just liberalise markets and sit on your ass expecting wealth at your doorstep, a lot of work needs to be done. Look at Sri Lanka, 30 years of liberal economics and look at the state of Sabaragamuva, Uva, NCP. Poverty rates at around 40%, each contributing around 3.5-4.5% of national GDP. Surely the reforms have failed, yes? I’m afraid not. Look at the Western Province, where education levels are RELATIVELY good, infrastructure is relatively good and access to information is good - 49% of GDP, poverty levels of less than 10%, per capita income more than double the national average. So why have the other provinces been left behind? They do not have access to markets. Road connectivity is rubbish, infrastructure - communications, electricity etc. rubbish, education levels - not a patch on the WP. How can ppl take advantage of the benefits of liberalisation when this is the reality? Unfortunately when ppl see the achievements of the provinces other than the WP they think liberalisation has failed us, it’s time to move on to a new system. That’s what the Latino guys were saying, “we need a new paradigm”. But that’s nonsense, when something is faulty you don’t throw it away and find something new. You look for the problems and you fix it. Out of interest, the new paradigm they were referring to was a kind of regional solution to get away from US economic, social and political hegemony. Led by Chavez’ Venezuela’s oil reserves, they wanted South America to form its own bloc of natural resources, financial pools and export markets. It’s the 60’s dependency theory all over again! Good luck enjoying the Venezuelan hegemony. I smell sulpher. Yeah.

So I was replying to drac’s comment on my last post when being the clumsy monkey that I am, I managed to delete a good 3 paras by one stray backspace press. So I thought i’ll make a post of it, now that I woke up before the alarm on avurudu morning. Drac and I were discussing the pitfalls of donor conditionality and whether it isn’t such a bad idea to “go it alone”, as was brought up in the previous post. Drac argued that donor conditions were not always politically feasible to implement (very true) and sometimes undesirable. This is the relevant part of drac’s comment;

“Do you really think that a government is in a position to say no to terms and conditions put forward by banks? I’m pretty sure it’s not as simple as saying no. Benin is one example, Indonesia is another. A frequently recurring theme with both ADB and WB development aid and loans is the requirement for liberalization of markets. Some industries in SL are less ready to take this step than others

The problem with blaming donor conditions and making unpopular decisions is that the opposition usually takes the chance to promise an overturn and a return to the status quo. As superficial as it sounds, people do buy that line and vote accordingly. It happens to the UNP more than most Speaking of specifics, the organizations have long been on the government’s case to reduce subsidies and welfare spending… I’m sure I’m uninformed but I remember that being a long running string attached to further aid.”

A couple of interesting points come up here. The first is that loan conditionality has evolved over the last decade or so. In the 80’s and 90’s the World Bank and the IMF notoriously imposed loan conditionalities that have been at loggerheads with the interests of developing countries. I think their main fault was to assume that market imperfections in developing countries are much the same as those which affect developed countries. But there seems to have been a shift, which culminated in the Paris Declaration a couple of years ago. From the Sri Lankan experience, there certainly has been a change since the turn of the century.

In 2001, following the worst year for the economy in my memory, SL took a structural adjustment loan from the IMF. Part of the conditionality of this loan was to temper the tampering with the exchange rate. We had a balance of payments crisis bc we created excess domestic demand without letting the exchange rate adjust, resulting in a crashing BoP. (I’m going to have some fun here so ignore this if you have a decent understanding of macroeconomics; excess govt. spending results in increased demand without a parallel increase in supply to meet this demand, so ppl spend more than what the country produces, therefore requiring imports. With increased imports there will be downward pressure on the balance of payments. Now if the exchange rate is allowed to float, it will depreciate in reflection of the increased imports, making imports more expensive. This would reduce demand for imports and the BoP would be OK. But if the exchange rate is articifically held high by govt buying Rs, imports will remain relatively cheap and demand for imports will not fall, putting more and more pressure on the BoP until crisis hits.) So I think that type of conditionality is a sensible thing. It would be like spending loads of money on treating cancer with panadol if not. (It was amusing hearing chief justice Sarath Silva referring to the latest CBSL growth figures as unbelievable (literally) and that the economy is like a cancer which also grows but that growth is not necessarily a good thing in this context. Please sir, stick to your day job).

The type of macro conditionality that I think drac was referring to was more a thing of the 80s and 90s. The latest episode of SLkan borrowing which was associated with market oriented reforms was in the ‘02-’04 PRSP (also known as Regaining Sri Lanka) process under the then UNP govt. The RSL received budgetary support funding from the Bank and the Fund in the form of PRSC and PRGF. The RSL was not imposed by the donors. It was highly market oriented and economically right wing, but this was a reflection, I think, of the political economy ideology of the UNP. Now it could be argued that the UNP tailored the RSL so that it would receive funding from the donors, and that’s why it was so market oriented, but then you can’t really say it was imposed. It wasn’t like in 2001 when we took a loan out of desperation, this was more a choice. If the govt did not want to be under such conditions it just didn’t need to go for a PRSP.

The present govt for instance is not going for a PRSP process. The loans they have been taking are what are called project based loans, where a donor will support a particular project, rather than supporting the budget in general. In these kinds of loans there is no macro-conditionality involved. You can ask the ERD, you can even ask the JVP and they will have to admit this amidst a violent volley of rhetoric. Conditionality in this case is a matter of project specific conditionality. For instance an energy sector project will have CEB reforms attached to it. The ADB funding for an energy project fell through bc CEB reforms did not take place, one of the best things that has happened to our country imo. I would argue that a clever govt will use donor conditions to tie their hands into tough but needed reforms, but drac is right to suggest that this would be political suicide in Sri Lanka’s recent history of coalition governments. If a donor tells the govt that it won’t fund a project unless agricultural subsidies are removed or land reform takes place, the govt can just give them the finger and go get money from the ADB (which traditionally does not impose macro conditionality), Japan, China or Iran (yay). More importantly, the donors’ agenda is to keep lending, and given the increase access to external finance in SL (emergence of China, India as lenders), the multilateral donors have less power in the negotiating bargain. This situation changes when desperation sets in, like in 2001. In such an instance the government must get cash at low rates from a specialised institute like the IMF. In such a case there is far more power in the hands of the donors. So I do think there’s a hell of a lot of choice involved here, and evil donor imposed conditions are hardly a valid argument any more.

As mentioned earlier, the Paris Declaration addresses most of the concerns of recipient countries in terms of donor powers. But the problem is that Sri Lanka as a negotiating government makes little or no use of the PD in aid negotiations. Given the fact that donors want to lend, and there is a document around called the Paris Declaration and there are alternate sources of capital, there really should be a massive amount of recipient voice in aid arrangements. The fact that we don’t always get the bargain we want is more our fault than anyone else’s.

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.

So the other day I heard that there would be a play based on the Wizard of Oz sometime soon. This is one of the many famous kids stories that I never really read or heard. When I was a kid i didn’t read much, I’d be more at home playing street cricket, stealing the neighbour’s fish and taunting the neighbour’s daughters. Even my bedtime stories were not out of books, they mainly consisted of my grandfather’s own childhood adventures. Stories of how Simon trapped the fox who came from the mangroves to eat the chickens, the story of the rampaging Bullock cart, the one about the rabid dog who terrorized the village and so on. I’d find these far more entertaining than reading about some little girl in England who went to visit her grandmother in the forest. So I’ve missed out on a lot of the famous children’s literature, and this is a bit of a shame as well. On a hot day in Trinity term ‘03, we decided to move to the garden in christchurch for our classical econ tute. And in passing, the tutor said that it was in this garden that Carrol was inspired to write Alice in Wonderland, and that if you look over the wall, there’s still a little shop called Alice’s shop which was apparently the original shop to which Alice would go in the story. He then went on to spend 15 mins explaining the double meanings and allegories in the story and all kinds of fascinating things, none of which I can now remember. But that day I thought i really must catch up on what i missed out on as a kid, so i went to waterstones and picked up a copy of Alice in Wonderland. I still haven’t read it fully bc it never really captured my imagination, but I will give it a shot later.

So anyway, the Wizard of Oz was another one of those stories that I wanted to get to know after I learnt something pretty interesting about it, again, from economics. I remember bugger all about this story, I just remember some tin man (who i often mix up with the scarecrow, I tend to picture a scarecrow made of tin), and I remember that big lion who I mix up with the lion from the Neverending story. To finally get away from the digressions, I was reading something about inflation after I spoke to a central banker, and it transpires that the Wizard of Oz is actually based on the political economy of inflation. So here’s the story. In late 19th Century USA there was a massive deflation in prices which was associated with the monetary policy of maintaining the Gold Standard (where money is only in the form of coined gold, so that money supply can’t increase massively and therefore keeping inflation under control). Problem with this is that the amounts of gold available aren’t flexible, and therefore can’t keep pace with the rate of economic growth, hence the deflation in the late 19th C, where there was far more economic output than money in the system. (The opposite is true in SL today, with far more money in the system than goods and services, driving up the prices of goods). Anyway, this deflation was bad news for debtors and good news for creditors, and in this case the debtors were rural farmers and creditors being big bad bankers. A suggested solution to the problem was a shift to the Bimetallic standard where silver can also be used for coins, thereby allowing greater flexibility in money supply and an inflation in prices, which would be good for debtors. In the presidential election of 1896, this was the leading issue, and the republicans wanted to preserve the GS (surprise surprise) and the democrats wanted the bimetallic standard to help the farmers. Bloody softies.

The Wizard of Oz, is about this issue. Dorothy, the little girl who is lost far away from home, finds three friends. The Tin-man (industrial working class), the scarecrow (farmers), and a lion who’s bark (roar) is worse than its bite (bite), (the democratic candidate). So these four go along the yellow brick road (representing the gold standard) amidst much difficulty, to look for the wizard (the republican cadidate). They finally arrive in Oz (DC), where everyone sees the world through green glasses ($$$s). The Wizard, who tries to please everybody, turns out to be a fraud, and Dorothy finally solves her problem by discovering the powers of her silver slippers. (Though the movie showed the girl’s slippers as being made of ruby rather than silver).

So I thought to myself hmm, now’s as good a chance as any to finally see the full story. But it turns out I’ll be out of town that weekend. Damn shame. The boys are getting buggered at the SSC, so I got myself a free Saturday morning. Maybe I’ll start on Alice in Wonderland then.