Addressing the gap between the haves and have-nots
Saturday, 8 February 2020President addressing the nation
President Gotabaya Rajapaksa speaking at the 72nd Independence Day ceremony at Independence Square said: “The public will only achieve true freedom when social and economic inequalities are minimised.” Even today, he said, “There is a large gap between the haves and have-nots in our society.”
To emphasise this point the President said the facilities that are available in our urban centres are lacking in rural areas and that the education facilities and healthcare facilities are not equal in most areas. Further he pointed out that job opportunities have not spread to all regions and these inequalities are not due to racial or religious reasons, these are common problems that the country faces.
However, he noted that to strengthen the ability for people to live freely, we must first address the economic problems that affect the public. That is why he asserted that the eradication of poverty is a top priority of the Government. However as a country to get to the next phase of development to address these issues we need to first get out of the middle income trap.
According to IMF and other data Sri Lanka in the last 10 years has added $ 37 billion to GDP, while Vietnam added $ 158 billion and Bangladesh $ 217 billion. Taiwan with a similar population like Sri Lanka added $ 107 billion.
One of the main reason Sri Lanka has got caught up in the middle income trap (the middle-income trap is the situation in which a country’s growth slows after reaching middle income levels) is because we are not investing sufficiently in early childhood development and skilling its workforce properly. If this segment is helped with targeted education loans or given other support they will get the skills that they want. This has been a critical element of other countries that have broken out of the middle income trap.
Also the current poverty alleviation programs need to be resourced creatively because they provided too few funds to make a genuine impact on the lives of recipients.
Global experience
Most countries around the world struggle to implement good policies and only a few have succeeded in reaching high-income status and sustaining that growth. Take Turkey, which was growing towards high-income status but then experienced a huge slowdown, or Argentina, which reached high-income status but fell again to middle-income status because of policy and political uncertainty.
In countries like Poland and Taiwan that moved through the middle income trap swiftly, their economic growth was inclusive, jobs and salaries increased, inequality across income groups and provinces reduced, education levels increased and poverty declined drastically.
Recipe for success
For a start it is important to get the public institutions right —economic but also political—and guide reform with a shared vision. Also countries like Poland sustained high growth with a performing democracy—one that supported a socially-responsible market economy. Such a vision facilitated remarkable policy continuity spanning 18 governments since democratisation. Therefore the creation and strengthening the structures of the basic democratic institutions at local and national levels is critical.
The support structures help to create a political consensus for deeper economic institutional change and sustainable public finances. Then ensuring macroeconomic stability is key to keep inflation and public debt under control. Integrating local markets into global markets helps increase national competitiveness.
We need Foreign Direct Investment to enable our domestic firms to participate in international value chains and exposed them to the international markets, which will provide access to better inputs, capital goods, and technological transfers, good reforms and solid investments in human capital, which can result in large gains in educational attainment and ensure broad-based access to quality education across all income groups and regions to pull people out of the poverty trap.
Creating competitive and open markets is required to provide business opportunities for firms and jobs to increase business growth and also earnings. Their prosperity will generate demand for goods and services. Opening up to global capital intelligently will give the economy a massive boost. The country needs to shift resources from low to high productivity sectors for exports to make the transformation.
Fresh spurt
As the President rightly pointed out on Independence Day, the Sri Lankan economy needs a fresh spurt and needs to rise as a whole, not in parts only. Achieving and sustaining growth requires the mass mobilisation of financial as well as human capital. If not, large sections of the population will not see their lives improve and will be left behind. Therefore the quality of healthcare, education, affordable housing and skill development for the deprived masses is a must. In the interim, policymakers must not use the trap story as an excuse for poor short -term economic growth.
The country should do all it can for a much-needed upsurge in economic activity. Failure at this stage could leave Sri Lanka stagnant in a lower middle-income bracket, even as Asia strives to catch up with the West and overtake them. If this is to be an “Asian century”, despite all the challenges of poverty, trade barriers and disease, we must surely stay in the reckoning.
