Ideas for building up our economy
Posted on November 18th, 2012

By Garvin Karunaratne, Ph.D. former Government Agent, Matara District

 Limitations of Foreign Investment and the Private Sector

Senior Minister Sarath Amunugama has  recently said that both Foreign Investment as well as the Private Sector have not contributed as expected for our development. This is true 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 are likely to take flight, as did happen in Malaysia and Thailand in the 1998 East Asian Financial Crisis. The Private Sector  has as its motto making profit and serving 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.  National development requires long term plans which is anathema to both foreign investors as well as the Private Sector.

 While Foreign investment which is in the interests of the country has to be courted  and similarly the private sector should be spurred into action, it is also necessary for the Government to step in to enable development- in terms of production, the creation of employment and also saving foreign exchange incurred for imports.

 Spurring the Public Sector

The economies of all Third World countries is today in disarray because the Public Sector development activity was closed down from the Seventies by the IMF. The IMF forced down the closure of the commercial infrastructure established by Governments to enable farmers and the people to produce and thereby increase their incomes. People who had become dormant during colonial domination had to be awakened for national development and Governments took action to help them to become active contributors. This was negated by the IMF’s  privatization of State undertakings. Without the development infrastructure in place development programmes died a natural death. The IMF held that the Private Sector was the engine of growth, an aim that has now been shattered after two and a half decades of experimentation. This was the Structural Adjustment Programme in action.  This fact has to be realized and deserves immediate action.

 A new policy has to be initiated 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. The famous trickle down theory of allowing the rich to enjoy the lowest tax levels in the world, the rich to get fantastic salaries and for them to plough their wealth into the country has not worked. The rich take their wealth away and spend it  in London, Singapore and in foreign lands and thereby  create work for people in those countries.

 As President Rajapaksa often remarks a new paradigm for world development has to be sought, but no researchers are at that task. The highly qualified dons are yet teaching traditional economics and instead of research and teaching have mastered the art of making street protests. They were all in deep slumber when the IMF imposed their ignominious Structural Adjustment Programme . There is not a single institute in the entire world that researches this subject and gropes to find a new paradigm for development.  It is time that our Ministry of Higher Education does address this subject. Any University that attempts this  task will immediately gain world acclaim.

 Development goals face sabotage everywhere. Today the Divineguma Bill has been stopped at birth, because of the 13 th Amendment provisions.  It is the 13 th Amendment- India’s imposition to our economy that has to be thrown out. Not the Divineguma Bill.  We need many forays like the Divineguma Bill into our economy if we are to conquer poverty and build up a stable self sustaining  self “”…”reliant economy.

 The Public Sector that was dismantled at the Instance of the IMF includes the Ceylon Transport Board, which at its heyday made a few thousand buses a year, bringing thousands of carpenters and welders to work. Today we provide employment to thousands of workers in China from where we buy buses.  It also includes the Department for Development of Agricultural marketing which ran a vegetable and fruit purchasing and sales scheme aimed at providing a fair price to the producers as well as a fair retail price to the consumer. This it did by keeping a narrow margin of less than 15 % as cost of transport, handling and wastage as against the 100% shared by the traders today. If the necessity is to reduce tackle the cost of living, this is an essential, a well tried mechanism which  has not yet seen the light of day perhaps because we dare not displease the IMF.

In order to step up industries it is necessary to build up the Small Industries Department with its Inspectors and Research Unit(Velona).

 In addition. the Industrial Development Board should have branches in every district to research and draft projects at import substitution with the triple aim of using local resources, creating employment and also obviating use of foreign exchange for imports.

 We are today running round in circles to reduce our deficit budget. Ask the IMF as to who allowed deficit budgeting? In Sri Lanka deficit budgeting commenced with the IMF in 1978. Before that year we somehow managed our economies by strictly controlling our foreign exchange and using it in the national interest.  The IMF imposed the bogeyman of the open economy and allowed us foreign loans to meet the additional expenses. In that process the IMF made our countries indebted and brought us under their control. No less a person than Jeffery Sachs stated in 2006 that “the IMF and the World Bank virtually ran the economic policies of the debt ridden continent(Africa) recommending regimens of budgetary belt tightening known technically as the Structural Adjustment Program”(From:End of Poverty:2005) What has happened to Sri Lanka today is a moot question,

 2 Our Past Experience

It is heartening to note a few developments. Once I served in Nuwara Eliya and was priviledged to have a government bungalow with around two acres of land. I got a good crop of flowers and a ready income more than my salary from vegetables. I failed to understand why we were importing flowers. Recently I visited a nephew of mine in Padukka, Mr Pathmaperuma  a grower of orchids and flowers and came to know that the Government has stopped imports.  That to me is the way ahead. I also gather that in Gampaha under the Economic Development Ministry Programme, many flower growers are enjoying high incomes.

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. Vanilla growing should be stepped up in the Central and Sabaragamuva Provinces and we can stave off imports of vanilla.  We can even hope for exports. 

 In nostalgia I also recall my activities in Matara District under the Divisional Development Programme in 1971 to 1973. We established a number of farms where our youth produced vegetables, yams, ginger etc which brought them good incomes. Today we have failed to produce. Instead our supermarkets are full of many items processed abroad. Tomatoe Sauce from the USA, Jam from Australia, Ginger Preserve and many food preparation from Singapore. The IMF sold us the policies that made our entrepreneurs close down (Mainly through a high interest policy which we follow even today!) to enable imports to take its place. It was to help this process that the IMF gave loans making our countries more and more indebted.

 During our mango season, we even fail to harvest the crop. In many countries in Europe and in the USA making jam is a home preparation.

There should be schools of Agriculture like at Kundasale in every fruit producing district aimed at building up  home production  of jam and other food preparation. Tamarind is a money making asset in many countries while in Sri Lanka tamarind pods go waste. The Marketing Department that fell under the IMF/UNP axe had a first class cannery that made Sri Lanka self sufficient in jam and fruit juice. Now we import fruit juice from as far as Cyprus and the USA!.

 Under the Divisional Development Programme of 1970-1977, we got down to establish many industries.  Of special mention is the Crayon factory, Coop Crayon which was established by the Morawaka Cooperative Union at Deniyaya in 1971. At that time there was an import tariff was levied on all imports.  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.  

 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  and the government will save millions of dollars which they use to finance our imports by forging ahead in a production campaign..

 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 private sector or abandoned.  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 used and given the chance to become active.

 Let me detail how Coop Crayon came about as this process may help any official who is interested. As the Government Agent I had to establish employment creation projects to bring about employment and to create production. 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.. In fact 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!(perhaps sold). However the Ministry of Plan Implementation vetoed  this. I fought tooth and nail but was told to shut up and to continue  to make craft projects and tiles and bricks.  Import substitution projects where we had to take the initiative and do something new were taboo. Perhaps the Ministry did not want to take a risk.  Our District had 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 and had done inspections of all sort of small industries.  I knew the ingredients that went in to the manufacture of crayons, knew little of the process and the proportion of ingredients. I fed what I knew to the Planning Officer. Initial experiments were done at my residence till an equipped laboratory was found necessary. I approached 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. In about two months we finalized the art of making crayons.  Sumanapala Dahanayake the Member of Parliament  who lived in Matara became inquisitive about the nocturnal happenings at the school and he 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 and filled a large room with crayons in four weeks. We showed a pack of crayons to The Minister of Industries, Mr T.B.Subasinghe and he opened sales.  When we contacted The Minister of Trade, Mr Illangaratne 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.

 I have details how Coop Crayon was done to show that Sri Lankan administrators, science graduates, graduate assistants  and engineers do have the ability to make many an item that is being imported today.

 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 industries and when this is done, imports have to be stopped.

 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 jam. I am told that the science lab at Anuradhapura Central School is far more equipped than the lab at Rahula where we found the art of making crayons. Science teachers at Anuradhapura Central and the students can play a major role in processing fruit and this is an income that can be created within a single year. Sathosa can take charge of the sales.This will also pave the way for education to get oriented to the world of work.

 It is necessary for a massive programme of employment creation to be unleashed involving every item that can be manufactured locally. I can recall a youth from Elpitiya who came with 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 and produce car mirrors which he sold to motorists.  I gave him an allocation of foreign exchange to import mirrors and his industry saved foreign exchange.

 Last Sunday afternoon, the key of my rental car broke into two pieces. I took the two pieces to Mr Mint at Nugegoda and they said that it cannot be welded. Nor can they make a new key. They were interested in pulling the lock to pieces. It was a Sunday when Kings Rent a Car at Battaramulla was closed. Being  a Sunday and I thought that I will not have a car till perhaps Monday afternoon.  One telephone call to the gatekeeper at Kings Rent a Car moved them into action. The owner Titus was woken up from his afternoon siesta, a car came shortly afterwards and picked me up, dropped me at my place and took away the two pieces of the key. In two hours my car was brought back to me  with a brand new key. It was a great feat done by the staff at Kings Rent A Car on a non working day. 

 Making locks was an art that was based at Peliyagoda and a few other places. We do have the necessary expertise to get that going. In the Sixties I knew a smithy in Siyambalape who repaired and even made pistols. The Police haunted him to find out if anyone had got their pistols repaired or altered if there was a murder in that area. This industry fell with Chinese imports and deserves to be nurtured back. At that time we even made padlocks with double locks- something unheard of in today’s padlocks.

 I can also recall the mechanic under the mango tree a mile from  Kahatagasdilliya towards Anuradhapura, who two years ago welded my leaking radiator with superglue mixed with cement. I was actually wondering where to stay the night till a radiator could be brought from Anuradhapura! In half an hour I was on the road and it lasted another 3000 miles till I returned the car. He is a great workman around whom a motor car parts making industry can be established.

We have the core of experienced workmen, gather them and activate them with some small scale machinery and we can easily make all our cycles, three wheelers and even automobiles. Two years ago I read that a school in Gampaha had students making old motor bikes. That is the way ahead in small industry.

 Another industry where we were truly sabotaged is in making Paper. The Valachena Factory brought incomes for farmers from as far as Hingurakgoda as their straw was the base for making paper.  The LTTE ruined the Valachena industry. Then we had Embilipitiya also making Paper out of straw. The Kumaranatunge Government abolished the 10% tariff we had on imported paper and Embilipitiya Paper died. Once speaking to some workmen I gathered that the Unions agitated about the dust in handling straw and said that that was why the industry was closed. In the Fifties the Ambalantota Rice Mill was under my supervision and many a day I have spent a full day with a handkerchief tied over my nose. The answer to dust is extractor fans. I sense sabotage by the paper making  giants who want to retain paper making within themselves. 

Today we are exporting 8000 tons of wastepaper and cardboard to India every month. All over Colombo cardboard is collected, bailed and exported to India- as much as 8000 tons every month. Thereafter we buy cardboard and paper from India. Under the Divisional Development Councils Programme the Assistant Government Agent commenced  making paper at Kotmale. It was then a successful industry. It would augur well for our Government to find that AGA and get his services to perform the hat trick of getting the Paper industry back on its feet. Then our farmers will get paid for straw( which is now burnt). We will also find employment and also save foreign exchange.

 Our industrial development entirely depends on finding the “ƒ”¹…”Harischandras’ weaving vocational training into it and getting down to production, a task for our Divineguma in case it can suffer the present onslaught.

Vocational Training

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. Some of them gain employment overseas. Once in 1971, 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 accorded 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 that there was no point in training unless the trained were fed into employment and they were helped till they became successful entrepreneurs. I was grilled for hours because in the earlier three years an ILO project that tried to create self employment at Tangail in Bangladesh had miserably failed. I continued undeterred quoting my successful forays in employment creation in Sri Lanka.  It was a grim duel that ended with the Minister approved my establishing a Youth Self Employment Programme.  We got down to work on the very next day, 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. We compelled all Training institutes to help any trainee that wishes to commence an enterprise, translate what he is taught into an action process. In two years time 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.

 Once In Jamalpur, Bangladesh the brother of a  youth who was trained in livestock and poultry by the Department turned up at the office of the Deputy Director of Youth and threatened to burn his office down. He was adamant and had even brought incendiary petrol to teach the Department a lesson. His charge was that his brother who went through the training had returned home and had become  a nuisance to the family. Instead of reporting the threat to the Police, and getting him locked up, the Deputy Director pacified him and sent him away. The Deputy Director next sought out the trainee and brought him for one of our training sessions that happened on the very next day.   The brother also came,  yet full of threats but was also inquisitive as to what we were going to do to his younger brother and was hanging about the office where we held the training sessions. The sessions took hours with me speaking in my broken Bangla creating outbursts of laughter at times, ably assisted by Bangladeshi officials.  Yousuf Ali was a convert and his brother, who was threatening to burn the office down, who overheared our sessions bought his brother a cow and a few chicks to rear. In one years’ time Yousuf Ali’s net earnings topped that of a clerical officer in the Public Service. Similar instances are many which all enabled us to proceed apace. My task was to design and establish the programme and train the officers to continue it after my two year assignment was over.

 By 2011 this Programme had guided two million youths to become self employed. It is today the premier programme of employment creation  in the world. This  Youth Self Employement Programme  also spurred Non Governmental Organizations to action. They too formed self employment programmes of their own  and rural Bangladesh has seen a hive of activity in self employment. In Bangladesh Non Governmental Organizations  work for the development of the country. They are not tolerated to feign development and to actually be non productive like in Sri Lanka.

 It may be worthwhile for anyone interested in creating self employment to visit Bangladesh to find out how so many youth were made entrepreneurs. In Bangladesh there are no drop outs in the villages. They have all been taken away for self employment guidance. Guidance to become self employed would be an ideal addition to the thousands that get vocational training in Sri Lanka. A full detailed account of this programme is available in my book: “Success in Development”(Godages) and in “How the IMF Ruined Sri Lanka”, (Godages).

Garvin Karunaratne,

former GA Matara

18/11/2012 

7 Responses to “Ideas for building up our economy”

  1. herman Says:

    Yes, Entrepreneurs is the way to go since most can weather good government or not and some will survive into SME’s but eventually the bigger and better performers will be taken over by the big MNC’s, this is the sad reality in the economic world!

  2. Dilrook Says:

    The right economic model for Sri Lanka is the Singaporean model. Westerners call it “crony capitalism”. Its main feature is state-run commercially managed business entities. They account for more than 60% of Singapore’s GDP. Per capita of GDP wise Singapore is ahead of USA which proves the success of the model.

    Sri Lankan Government should invest in retail trade, wholesale trade and imports for a start. These are certain money spinners. Manufacturing can be added later. Business centres should be set up throughout the country with post office, book shops, CWE, printing/copying/telecommunication sales facilities.

    Import industries dominated by minority groups that finance separatists should be replaced by state owned business entities. Expanding self employment can happen in parallel.

  3. dhane Says:

    Any model either Singaporean or China will be okay for Sri Lanka as long as no Political or Family interference.

  4. Melbourne Patriot Says:

    Singapore model is not the one for Sri Lanka which is an agricultural country. Garwin is right, up to 1977 Sri Lanka produced things now we import everything

  5. Dilrook Says:

    Dhane:

    That is the reason why I want the Singapore model which is based on family rule. It is unfortunate but it is a reality in Asia except for Japan and South Korea. However, it has worked very well.

    The Singapore economic model works well with agriculture too. What is needed is state owned business entities dealing in agriculture. Interestingly there were plenty before they were plundered by wrong economic moves to satisfy IBRD, IMF and influential voters.

  6. Fran Diaz Says:

    We thank Dr Karunaratne for his relentless efforts to bring Sri Lankans to Self Sufficieny. Self Sufficiency is the key word here. Being indebted to international “Mudalalis” will NOT give us a sense of freedom or a sense of security, independence, and self respect.

    If a young man or woman feels empowered to produce at least a part of the food needed for their homes and sell the rest to sustain their families, then half the battle toward Self Sufficiency is won. Teach our rural folk to do it right by growing ORGANIC food, whether it be plant or animal, and their good health too will be assured in addition to some money. The environment will also benefit.

    Co-operatives at village level will serve a good purpose re collection of food produced and sale of it. The CWE, which was the “Co-operative for the whole country” which Ranil W. dissolved, should be brought back.

    At all levels of society, the Sinhala people especially should learn much more about Entrepreneurship. There ought to be more emphasis on Sci&Tech with research done using local materials (and using local researchers) wherever possible.

    Last but not least, we wish President Mahinda Rajapakse MANY HAPPY RETURNS OF THE DAY. We thank him from our Hearts for the good work done for the country and for removing the worst terrorist group in the world, the ltte.

  7. Fran Diaz Says:

    Here is another piece of recent information on Development & the Economy :

    U.N. Says Access to Birth Control is Universal Human Right
    Religion TodayWednesday, November 14, 2012

    The United Nations says access to contraception is a universal human right that could dramatically improve the lives of women and children in poor countries, CNSNews.com reports. It is the first time the U.N. Population Fund’s annual report has explicitly described birth control as a human right, effectively declaring that legal, cultural and financial barriers to accessing contraception and other family planning measures are an infringement of women’s rights. The U.N. also stated that increasing funding for family planning by a further $4.1 billion could save $11.3 billion annually for health bills for mothers and newborns in poor countries.

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