Ideas on Economic Development
Posted on July 29th, 2012

By Garvin Karunaratne, Ph.D. (Michigan State University) former G.A. Matara,

 The aim of this paper is to highlight certain areas of action to enable Sri Lanka  to make headway in economic development.

 Minister Sarath Amunugama in his opening words at the recent Economic Summit  has said some words of wisdom. Both Foreign Investment as well as the Private Sector have not contributed as expected. Sri Lanka has offered perhaps the maximum possible concessions for foreign investors. The Private Sector has had a heyday since 1977. Suffice it to state that the taxes on the rich levied in Sri Lanka are even below the taxes  paid by the rich in the USA and UK. 

 Both Foreign Investment and the Private Sector have failed in the task  of national development  because of inherent factors.

 Foreign Investment depends on the activities of foreign investors whose main idea is to invest and take way profits. If they find that other countries offer more attractive terms they will take flight. As did happen in East Asia in the 1998 East Asian Financial Crisis if foreign investors decamp the country faces a downfall which it cannot face. There the investors took away $ 230 billion within a few weeks. In my own words, “Countries come to depend on the free flow of capital. That is called investment by the countries because they like to use this incoming foreign money to meet their commitments. The investors have different intentions- theirs is to make a quick profit. They move the money from market to market to where they can get a better return” The economies of the countries were ruined and the IMF had to bail them out. This ended  with the countries becoming more indebted, a fall in living standards for the people and austerity for the people.

Austerity means poor people foregoing a meal while to the rich it means a small dip in a fat bank balance.  The only country that avoided becoming indebted was Malaysia that stood firm and controlled the use of its foreign exchange. Sri Lanka gave up controlling its hard earned foreign exchange in 1977. It is even today being controlled by the foreign banks and the Private sector! That is the IMF policy. The earlier we realize this the better. The IMF came up with the concept of Free Float. In other words the country ceded the control of its own foreign exchange! In the words of our Central Bank: “in a free floating regime, the market forces determine the exchange rate. The Central Bank does not intervene in the process. The Central Bank has control over the domestic money supply”(The Island17/2/2001). To this picture has to be added the fact that the banks do control the foreign exchange they collect and bid the price upwards whe n there is a demand. That amounts to manipulating. This did happen when the State banks had to pay a big oil bill and went begging of the foreign banks for dollars.  This happened on 25 th January 2001 and is yet happening unknown to the Central Bank that can only work on the peripheries, toying with local Rupees.(Full details at page 95 of my book:How the IMF Ruined Sri Lanka, Godages).  Once Mahatir Muhammed the Prime Minister of Malaysia even commented that any Government that does not handle and control its foreign exchange is not fit to rule. It is actually difficult for our present Government to get to grips with the economy due to the fact that the UNP of 1977-1995, in following the IMF policies, left an indebted country where unless we get further loans we cannot repay our debts. The UNP also abandoned the development infrastructure we had to bring about development as we shall see later.

 The Private Sector  has as its motto making profit and  serving the goals of national development is of secondary concern. The Private Sector  is very willing to go for short term gain like opening supermarkets where a return can be expected in a few months.  The entire world has allowed the Private Sector to handle development from the Seventies and the IMF’s  ruling that the Private Sector is the engine of growth is now reaping its “benefits”: in terms of high unemployment, inflation, increased poverty in all countries. In the  USA, the show piece for luxury living, even mighty cities like San Bernadino and Stockton have just declared bankruptcy. The economy of Greece has exploded and many other countries will face the executioner. Most Third World countries have economies that have floundered all by following the Structural Adjustment Policy of the IMF.

 It is time that Sri Lanka understands the failings of both and make a fresh start at arriving at a new paradigm for development before things get into a situation from which there is absolutely no light at the end of the tunnel.

 While Foreign Investment which is in the interests of the country has to be courted  and similarly the Private Sector should be urged to step in, it is also necessary for the Government to step in to enable development- in terms of production and the creation of employment. That is perhaps the new policy that has to be followed to enable development in terms of increasing the incomes of the people, increasing production leading to reduction of imports and paving the way for the economic development of the country.

 It is heartening to note a few recent developments. Once I served in Nuwara Eliya and was privileged to have a government bungalow with around two acres of land. I got a good crop of flowers and a ready income. I never tended on that crop with fertilizer. I failed to understand why we were importing flowers. Recently I visited a cousin of mine in Padukka, Mr Pathmaperuma  a grower of orchids and flowers and came to know that the Government has stopped imports.  . I also gather that in Gampaha under the Economic Development Ministry Programme, many flower growers are enjoying high incomes. Thanks to the Ministry for Economic Development. That to me is the way ahead

 Another development is that of Elephant House purchasing vanilla pods from vanilla growers in Kandy and using it for making ice cream. This is a great development where our private sector has made a great contribution.

 On my last visit to Sri Lanka I have seen many an item that can easily be made in Sri Lanka. For instance Heinz Tomatoe Sauce and Tomato Juice was sold in every Supermarket. Meantime the tomatoes growers in Hanguranketa  were building pandals of tomatoes to get publicity to their plight of not being able to sell. If that happened Commissioner of Marketing,  BLW Fernando would have blasted the Assistant Commissioner in Kandy.  In charge of the Triploi Market(in 1957), I would have sent a fleet of lorries to purchase the entire stock. We would have done that task in less than ten hours. That was possible because the Marketing Department had a Canning Factory and Cold Rooms.   The Marketing Department offered a guaranteed price for Red Pumpkin and Ash Pumpkin and turned them into Golden Melon Jam and Silver Melon Jam. The UNP Government sold off the Canning Factory and closed down the Marketing Department. In the Fifties most Assistant Commissioners worked from temporary sheds, but we did work very fast. It will be wise for our Government to consider re establishing the Marketing Department with its Canning Factory and thereafter stop all imports. It was the Marketing Department’s Vegetable & Fruit Marketing Scheme that unofficially controlled the prices of vegetables and fruits and kept inflation of consumer prices in check.


In nostalgia I also recall my activities in Matara District under the Divisional Development Programme in 1971 to 1973. This was the flagship programme of the Sirimavo Government and it hoped to bring tens of thousands of youths into employment. It was directed by no less a person than Professor HAdeSGunasekera, Professor of Economics at Peradeniya who was the Secretary to the Ministry of Plan Implemntation. For implementation the services of the Government Agents was enlisted and they picked the best officers they had in the District.

 We established a number of farms where our youth produced vegetables, yams, ginger etc which brought them good incomes.  Of special mention is the Crayon factory, “Coop Crayon” which was established by the Morawaka Cooperative Union at Deniyaya in 1971. At that time an import tariff was levied on crayons. There were only two manufacturers and Coop Crayon stepped in and from 1972 to 1977 produced high quality crayons for around a tenth of the requirements of the country. At its height it employed over fifty youths in production and sales. It was the showpiece  import substitution industry of the 1970-1977 Sirimavo Government. 

 That to me is the way ahead to develop our economy. Till 1977 we had a production oriented economy. After 1977 we have developed an import and sell economy. It is these imports that incur a massive amount of foreign exchange, all to satisfy the palates of the rich as the prices are beyond the reach of the majority of people.   .

 The way ahead is simply to step up production in both the Private Sector as well as the Public Sector. For this to be a reality the Government has to take the initiative to establish the necessary infrastructure. Till 1977 we had this infrastructure intact run by Government officers and after 1977 under Free Market Economics the infrastructure was closed down, sold out to the private sector or abandoned by the UNP. 

 Creating production is an art in itself. It needs a great deal of planning and national planning was given up in 1977. To start with we have to bring back planning. We have a nucleus of Planning Officers in every District but today they do not know what to do other than to write documents. These Planning officers must be activized.

 Let me detail how Coop Crayon came about as this process may help. As the Government Agent I had to establish development projects to bring about employment, increase the incomes of people by  creating production, aimed also at obviating imports- saving foreign exchange. The Morawaka Divisional Development Council under my direction asked for approval to establish an industry to make paint boxes and paint blocks. At that time these were imported.. The Industrial Development Board was requested to make a feasible report and finalise the process of manufacture.  This they did in a few months and before feeding the Report to me fed the report to the Private sector!. However the Ministry of Plan Implementation vetoed  this. I fought tooth and nail but was told to shut up and to continue  to develop

craft projects and tiles and bricks.  Import substitution projects where we had to take the initiative and do something worthwhile for the country were taboo. Perhaps the Ministry did not want to take a risk.  The District was full of officers that were keen to burn the mid night oil for the sake of development. The Planning Officer Vetus Fernando was a graduate in chemistry and was very keen. I had a grounding  in small industry as I directed a score of industry inspectors to approve small industries.  I  had done inspections of all sorts of small industries.  I knew the ingredients that went in to the manufacture of crayons, knew little of the process, less of the proportion of ingredients. I fed what I knew to the Planning Officer. Initial experiments were done at my residence till a equipped laboratory was found necessary. I approached the late Mr Ariyawamsa, the Principal of Rahula College and obtained the science laboratory for experiments. On a daily basis we took over the science lab in the evenings and worked till late in the night. We were helped by the science teachers of the school. At times the task defied us as we did not have the sophisticated machinery held in University labs. I dispatched Vetus to his alma mater, the University of Colombo to get help. He spent days going behind, begging of his lecturers to get help only to be told that they were too busy in lecturing and correcting tutorials. Our Universities yet work in ivory towers! However, in about two months  after a myriad of experiments we finalized the art of making crayons.  The Member of Parliament for Deniyaya, Sumanapala Dahanayake who lived in Matara came to inquire about the nocturnal activities at the school and he too got involved. It all ended up by our establishing coop crayon as a unit of the Morawaka Cooperative Union. Twenty youths worked on this cooperative. We worked fast, day and night,  and filled a large room with crayons in four weeks. Sumanapala and I presented a packet of coop crayons  to The Minister of Industries, Mr T.B.Subasinghe and he readily agreed to come for the sales opening.   When we contacted The Minister of Trade, Mr Illangaratne to get his approval to divert funds meant for importing crayons to import dyes required for the industry,  he readily agreed. He was so taken up with the crayons and wanted us to establish a factory at Kolonnawa. The coop Crayon was managed by Sumanapala Dahanayake the Member of Parliament for Deniyaya in his capacity as the President of the Morawaka Cooperative Union and  by 1977 Coop Crayon was producing a tenth of Sri Lanka’s  requirements. When President Jayawardena took over the country in 1977 every industry that brought credit to the outgoing Government had to be closed and so died coop crayon as well as other industries island wide.

 I have detailed how Coop Crayon was done to show that Sri Lankan administrators, science graduates, graduate assistants, science teachers   and engineers do have the ability to make many an item that is being imported today. In fact the batik and sewing industry at Morawaka was set up and guided by a science teacher from Rahula College. She volunteered at 24 hours’ notice when the instructor that had promised backed out just before the project was to be opened by Minister Dr N.M.Perera.

 Schools with all facilities like science laboratories should get activated. For instance food processing should be taught to help school leavers to master the art of making mango jam and juice in mango growing areas. The Dry Zone and Matale Districts form our mango area. Peradeniya- Gampola is an avacado belt and today avacadoes go waste. Instead of having our own mango and avacado juice we spend our foreign exchange in importing fruit juice. In many countries like the UK and the USA locally produced jam, made in homes is offered for sale and fetches incomes for rural folk..

 It is necessary to make the schools centers of production and this will pave the way for education to get oriented to the world of work. With the spadework done in schools cooperatives run by the students can emerge.

 For this process of development to be a reality, a unit of the Industrial Development Board should be established in every district. working with local government officials to develop local produce and when this is done, imports have to be stopped.

 It is necessary for a massive programme of employment creation to be unleashed involving every item that can be manufactured locally.  It should also involve every Government Department.

 To get to small industry in detail, I can recall a youth from Elpitiya who came with Mr Kariyawasam, the Member of Parliament asking for a permit to import mirrors for his car mirror industry. He had no factory and carried his implements in a bag. His mobile factory sprang into action at night when he could borrow the jack of a lorry from the Cooperative Union. He would cut a piece of metal use the lorry jack to bend it into shape, file its sides and produce car mirrors which he sold to motorists.

 Agricultural produce is important an area for the creation of employment, but unfortunately the infrastructure in this case the Department for Development of Agricultural Marketing was privatized and abolished by the UNP Government of 1977.

 I tried hard to get approval for a cheese and butter making creamery in Deniyaya and failed. The experts had it that small scale creameries were uneconomical. It was decades later that I worked in Bangladesh where a small scale creamery is functioning economically sound.  Switzerland is dotted with small creameries. I have visited them. Concurrently we can develop livestock production We have to get down to providing training to village folk- to rural youths, which we do not do even now. There has to be a few training colleges in livestock and agriculture in every District.

 New ideas have to be sought. We train today thousands in an array of vocations “”…” carpentry, metal work,  etc and at the end they are mostly unemployed. Once in 1982, I was faced with finding employment for trained youth in Bangladesh. It was the Ministry of Youth  Development and I was the Commonwealth Fund Advisor to the Ministry, We trained 30,000 youths a year and gave them a certificate from the hands of no less a person than the Hon Minister for Youth at a special function, where they were hosted and dealt with pomp and pageantry.  The trained youth went in search of paid employment and found none. A new Minister was appointed by the Military Administration that had forebodings of youth work and wanted to scrap the Ministry and all its training. I was ordered to offer new ideas. I  stated that there was no point in training unless the trained were fed into employment and they should be guided till they became successful entrepreneurs. I was grilled for hours by Ministry Secretaries. The Hon Minister kept listening and at the end of two hours stopped our arguments. He immediately ordered my establishing a Youth Self Employment Programme.  We got down to work , my speaking to Bangladeshi trainee youth  in my broken Bangla and guiding youth officers on how to conduct feasibility studies in industries, agriculture and livestock. Youth Workers became experts in guiding youths to become successful entrepreneurs. No subsidies were offered but the Youth Workers  and Training Instructors of Agriculture, Livestock and Industries carried on the mantle of guiding the youths that ventured to start employment projects. By 2011 this Programme had guided two million to become self employed.  This Programme today guides 160,000 youths  a year in self employment. Today there are no unemployed drop outs in Bangladesh. They have been taken away by Youth Workers for self employment training. With the success in self employment by the Ministry of Youth Developmnt many NGOs have also commenced action and the country is full of attempts to bring about self employment. A full detailed account of this programme is available in my book: Success in Development(Godages)

 Another area of concern is a trained staff.  Today administrators are not trained. In my days we were trained and experts in various fields. I was trained as an expert on Community Development at the University of Manchester. In the Marketing and Agrarian Services Department  a few Assistant Commissioners were experts in rice milling. We would get summoned to the Ministry impromptu  and called upon to comment on problems and be grilled by the Secretary and the Hon Minister. It would augur well for officers of the Administrative Service to be experts. Recently our President has said that our Foreign Diplomats should have a good knowledge of  the country. Perhaps a period of service in the Administrative Service will enable officers with a good knowledge of the country to be recruited.  Then we can also weed out those who cannot speak out impromptu.

  We are fortunate to have a President who delivered us from the jaws of death at the hands of monster Prabhakaran. It is only a personage of that calibre that can deliver the country out of the economic stagnation of  today. May these rambling thoughts of mine help  that process of development.

28 th July 2012

4 Responses to “Ideas on Economic Development”

  1. Susantha Wijesinghe Says:

    Dear Garvin,

    I read all your articles with great delight, and I note the experience that you have gained in Sri Lanka and Internationally. Todays article is an eye opener, but the thick skull heads will not assimilate it, simply because it is not coming from them. The Government continues to import food items that can be grown in Sri Lanka,like Potatoes and Big Onions. Everything revolves around how much commissions one can pocket. I still like to know why Minister Johnny threw 20,000 Coconuts into the SEA. None got washed ashore EH ? THE MEDIA IS BLOODY SCARED TO TALK ABOUT IT. WHY ?

    It is my point of view that when you come to Sri Lanka next, get an interview with His Excellency, The President, and with other Legislators that matter, and make these suggestions. Have everything you are going to discuss in print. These are very valuable ideas which must be implemented, for Sri Lanka to be self sufficient.

    I wish you Blessings of the Noble Triple Gem in all your endeavours. Susantha USA

  2. AnuD Says:

    Very good article.

    I read in the news that very recently, IMF had asked the SL govt to release control over Foreign exchange.

    My view is that even withall the effort, USA could maintain good development only for one generation. that is the baby boomers who were born after the WW – II. The new generations and the previous generations did not have much of a good life. So, it will be the same for Sri Lanka. Even though only generation i nthe USA had a good life understand the destruction they did during that period. Besides the environmental damage, their families are destroyed, the new young generation is just clue less.

    In the case of Sri Lanka, Sri Lanka is not interested in research and development when it is possible. Even the few resources (Kakirawa – phosphate, Pulmodei – ilmanite) that Sri Lankan had Sri Lanka had given to foreigners to extract the raw materials and Sri Lanka won’t learn any technological – knowledge out of that and no value added products are produced. All other things that we have Tea, Rubber, coconut can be developed to produce many other value added products. But, sri Lanka is not interested. Those products do not need much research as those things have been developed and are in operation else where.

    I heard, even the deep – seas fisheries are sold to China. That is at least temporarily good as the european developed nations were poaching on it.

    Otherwise, as both India and China have one billion each, investors like those countries.

    Sri Lankan company assemble vehicles. But, the govt likes to import vehicles from overseas. Generally, Govt should promote local industry in order to increase the quality standards of those companies. But, nothing happens.

  3. Geeth Says:

    Dear Susantha,
    You already have said what I wanted to tell Dr. Garvin Karunaratne.

    When I saw his article, I did not want to open it because I wouldn’t be able to bare the sorrow that it will leave in me. Garvin has written so many articles of this sort, but none of them opened the eyes of the rulers, or they never cared about them. So I ignored this article for several times.

    Then again at point I thought to write a comment telling Garvin not to waste his energy and time because current regime might consider him as an enemy for holding a different economic policy. It seems maintaining on-going rampant corruption is the only interest of politics of the day.

    But now I think Garvin must write. And he must write continuously, because he is not writing for the politicians, but for future. He also must publish his writing in the form of books and must publish them in Sri Lanka. If Sri Lankans are lucky enough to find the right rulers with brains in future, then those writings will supply valuable and creative ideas for them. Until then, Dr. Garvin, please write. I wish you a happy ending for your pursuit and definitely a long life.

  4. nandimitra Says:

    All these wise thoughts are useless in a country that has no accountability where corruption rules. Sycophancy does not pay it falsely implies that you agree with the status co.

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