By Dinesh Weerakkody
Recently a top IMF economist speaking at a forum suggested that Sri Lanka should look to promote exports as some East Asian tigers have done so well to ensure sustained economic growth. The success of many of the economies in East Asia in achieving rapid and equitable growth have occupied many of our political leaders since the study of developing economies began in earnest, in the hope of identifying a development model for Sri Lanka that would reflect the East Asian development experience. However, the examples shown by South Korea and Japan, where at every level of society people have been prepared to accept pay cuts and make sacrifices in order to help their countries to get back on track, demonstrates that the most important point of development are the inner qualities and resilience of a society and its citizens.
The economies in East Asia that grew rapidly in the 80s and early 90s used the same policy instruments as other developing economies, but with a greater success. East Asia’s extraordinary growth was due to superior accumulation of physical and human capital and that these economies were also better able than most to allocate physical and human resources to highly productive investment. In this sense there was nothing miraculous about these East Asian economies, each have performed the essential functions of growth better than most other economies. This indicates that sound economic policies and well ordered markets help, but much more is also required. Singapores boom was identified with just one person Lee Kuan Yew, in his farewell speech to his party just before he relinquished office said: “your generation has to grapple with the problems of relative success, with a future no longer primarily concerned with overcoming poverty, ignorance, disease, unemployment. That the baton has been passed on to a vigorous group with high ideals and principles is the most important single achievement in the last 10 years.
Therefore the difference between “success” and “failure” lies in the basic philosophy. If the basic philosophy is wrong, however strong, determined, and able party leaders and members can be, the end result will still be defeat and disaster, as has happened in the communist countries. Then, is socialism as flawed as communism? The reality is, communists often call themselves socialists and confuse everyone. So whether socialism is flawed depends on how we define socialism. If by socialism we mean state control of all the factors of production then socialism will no doubt fail like communism. But if by socialism we mean a philosophy, which tries to equalize opportunities in each generation, after inequalities have resulted because of different endowments and efforts in a previous generation, that of their parents then such socialism need not fail. However, if in the name of socialism, redistribution of wealth goes too far it will stifle the motivation to compete and do one’s best. Then socialism will cause economic failures.
The living standard of people can be raised by increasing the equality of opportunities this should be done by making health, education, housing and jobs more easily accessible to all. By attempting a policy like equality of rewards many countries have failed. This must mean minimal effort by everyone and low productivity all around resulting in poverty. In Singapore whilst income and bonuses have increased and taxes have been reduced, the government at the same time increased medical charges, university fees, road fares, fines and foreign mail levies. The government explanation has been that, with each year’s wage increase, pension costs increases. So,health services, university fees and cost of services go up in cost. The government has two options; increase taxes and pay for these increased labour costs. But by increasing taxes to pay for increased subsidies – the end result would slow down the economy and become uncompetitive in the world market. So the best way to get money’s worth for goods or services is to give the consumer the money and let them choose whether, what and where to buy it. In fact, in the 80s the absence of subsidies made Hong Kongs economy more efficient than Singapore. As Lee Kuan Yew observed, “whenever we can, we give money to people either in reduced taxes, or through vouchers like the education vouchers for independent schools, let people choose where to spend.” The schools in Singapore have to compete for students by offering the best education, for that education voucher. It is obvious that the balance the government and people must strike is a practical one and is a question of judgment. Furthermore, the ideal balance will vary from time to time, and from situation to situation. As Lee Kuan Yew suggests “countries must do enough to improve social cohesion and national unity; winners must be well rewarded but non-winners must also share in the gains, though not to the same extent. It is very much like a tennis or swimming tournament. If a few top winners take it all and there are a few consolation prizes for the other participants. Then those who are unlikely to win the top prizes will automatically give up coming to the tournament to participate. This illustration pinpoints the need to maintain a balance between competition and co-operation. Singapore would not have achieved the best her people are capable of without co-operation, Singapore would have lacked the social cohesion and national unity without which the society would have been vulnerable and ineffective as a nation. The reality is, there is a price for every policy option. For example, those who recommend that countries reduce the stress in the education by reducing the importance of examinations to accommodate more and more forget that whilst a stress free education system leads to a relaxed society, it also leads to a low achieving society. Societies that have stress free schools and universities have intractable economic problems simple because their workers are not skilled and not productive. As Lee Kuan Yew suggests: ‘It is up to you to decide whether you want to stay on track in pursuit of excellence, or to go for a more relaxed system, which means accepting lower standards of achievement and less rewards.”
( The writer was an advisor to the Prime Minister from 2002- 2004)