INDUSTRIALIZE AND PROSPER PART I
Posted on February 28th, 2023
Sugath Kulatunga
No country in the world has been able to move from low- to middle- and high-income status without undergoing the process of industrialization. STIGLITZ. (Nobel Laureate & former chief economist of the World Bank)
At independence Sri Lanka (Ceylon) had a stable democracy, a sound economy, and an efficient public service. Our external assets were equal to 100 percent of annual import value. Ceylon was second only to Japan in almost all social indicators and above South Korea at as late as the mid-sixties. Per capita income of Singapore was just a little bit higher than that of Sri Lanka at the time. It is now over USD 64,000 whereas ours is only USD 3845. The oft repeated question is why Sri Lanka with better physical resources failed to advance like Singapore or the Far Eastern economic miracle states.
At that time Ceylon was a dualistic economy with a well-organized and profitable plantation sector and a rural sector dependent on subsistence agriculture. The plantation sector consisting mainly of the three commodities of tea, rubber and coconut provided the bulk of gainful employment and export earnings. Rice which was the main produce of the subsistence sector was not adequate to meet the requirements of the island and large quantities of rice had to be imported. In this background there was pressure for both expansion of rice production to achieve food self-sufficiency and industrialization to provide employment.
Industrialization could have transformed the economy to be more productive and generated more skilled employment and stimulated economic growth. It could have also engendered technological advances and innovation. Overall industrialization would have vastly improved living standards.
Through innovation, specialization, and wealth creation industrialization would have shifted population from farms and villages to manufacturing centers. This would have developed more urban centers with better living facilities and services like education and health. Industrialization could have resulted in value addition to agricultural products and helped in the diversification of agriculture.
The neglect of industrialization by our policy makers despite having the experience of a number of basic industries like ceramics, paper, plywood, leather and glass established during the days of World War II was inexcusable. This was due to the politicization of economic decisions which continued for the last seventy-five years of independence. The curse of the original sin continues to plague the development of the country. A land with a potential economic miracle and a paradise has been made into a miserable failed nation. Leaders who achieved political independence of the county also made the county economically dependent in continuity.
POLITICS OF INDUSTRIALIZATION
The State Council of Ceylon resolved in1944 to launch a State Project of Industrialization in Ceylon. In the same year there was the – Industrial Corporation Bill. The concept of socialist industrialization was keenly advocated by the Marxist parties which believed that full employment could be achieved only through industrialization. In the same year J.R. Jayawardene (JR) moved a motion in the State Council for the preparation of a complete plan for industrialization. There was a firm bipartisan consensus on industrialization with a different emphasis on ownership. D.S. Senanayake (DS) was a prime mover of the plan for industrialization. This was also the time that the social activist Anagarika Dharmapala was exhorting the nation to industrialize.
At the general election of 1947 the UNP fell short of a majority and had to form a government in coalition with the All Ceylon Tamil Congress. The success of the left parties at the 1947 election alarmed DS who was an astute politician. He was aware that the Left could build a mass base with industrialization. DS had a staunch commitment to the development of agriculture through colonization. He also had the motive to create a pool of peasant farmers who would be a strong base for the UNP. The project had both a nationalistic and political flavor and was vigorously pursued in the face of criticism from the left parties. But for the political bias, DS could have steered a two-pronged strategy for the development of the country leading to food security and full employment through industrialization. We had the funds*, physical and human resources, and the infrastructure to venture into manufacture. But politics prevailed and we missed the most important opportunity for an early start of a manufacture-based economy with export orientation. *IBRD report 1951 (In its dollar accounts Ceylon has showm a consistent surplus over the past decadee. During 1940-1949 the accumulated net dollar trade earnings amounted to more than $250 millionf the greater part of w4hich represented a net conatribution to the central dollar reserves of the Sterling Area. In 1950 the current dollar surplus was in the order of $60 million)
DS denied SWRD Bandaranayake (SWRD), who was at the time the leader of the House, his due place, and maneuvered to get his son Dudley Senanyake to succeed him as Prime Minister. This resulted in SWRD creating a new party resulting in both positive and negative consequences. The split created divisive politics based on ideology and ethnicity. This was the dawn of the era of chauvinistic and emotional politics.
This maneuver also kept JR, the best brain in the party, out in the cold. If JR succeeded DS, he who believed in planned industrialization could have introduced industries with modern technology with the help of the Japanese who were under obligation to him for his open support to Japan, at the war reparation conference at San Francisco in 1951,where he rejected reparations and quoted the Buddhist precept Nahi verena verani.”
With the Korean Boom in 1949 Sri Lanka had a trade surplus and the plantation sector was strong and bringing in sufficient foreign exchange. This background may have made the policy makers of the time complacent on the performance of the economy and other than a few import substitution industries, industrialization on a larger scale was not contemplated
Dudley S (1952) who inherited the leadership was a perfect gentleman but a weak leader. He followed the policies of DS giving priority to agriculture. He resigned in the face of a civil disobedience campaign (Hartal) organized by left parties. With his resignation, Sir John the strong man in the UNP became the Prime Minister. Sir John took over the leadership at a moment of history in politics in Sri Lanka when there was a tempest of opposition to the policies of the UNP. It also coincided with a socio-cultural groundswell spurred by the Buddhist Commission Report. The flamboyant style of Sir John was not helpful in resisting the forces against the UNP.
The MEP led by SWRD swept into power in 1956 on a wave of religious and cultural renaissance. But SWRD also believed in planning and development based on nationalism and state ownership. He established a Planning Secretariat which formulated a 10 year plan in consultation with renowned development economists such as Gunnar Myrdal, Joan Robinson, Kenneth Galbraith and Nicholas Kaldor. It is reported that Myrdal recommended the invitation of foreign investors on a Build Operate and Transfer basis. The period of foreign operation was to be limited to 20 years. (The Prima investment during the time of JR was on this basis). The ascent of SWRD was supported by the Pancha Bala Vegaya led by leading Buddhist clergy some of whom acted as kingmakers. The assassination of SWRD by the same kingmakers terminated the planned development in the country. The proposals and the 10-year plan of SWRD were not implemented by subsequent governments. If we had FDI on a BOT basis we would have had access to both markets and technology which would have had a spread effect. In1957 Industrial Corporation Act No 40 was enacted. The industries established under this Act were for import substitution which to some extent relieved the pressure on the trade balance.
On the assassination of SWRD, Philp Gunawardhane, the most dynamic and experienced minister in the MEP government was denied the Prime Minister’s position. That prevented the continuation of the 10-year plan.
During the regime of Mrs. Sirimavo Bandaranayake between 1960 to 1965 she followed in the footsteps of her husband SWRD. She reveled in international relations and supported the Non-Aligned Movement. Mrs Bandaranaike became a founding member of the Movement along with great world leaders like Nehru, Tito, Sukarno, Nasser and Nkrumah.
During this time certain industries were confined to the State sector which hampered private sector led industrialization. Sri Lanka introduced a dual rate of foreign currency was introduced in order to reflect the real value of LKR.
As the Central Bank annual report of 1964 reveals the focus was to ”continue and even intensify efforts to step up the production of her staple exports.” CBSL considered that in the long run Ceylon could also add to her export earnings through the sale abroad of industrial products. Indeed, the establishment of export capacity in the industrial sector is, in view of domestic market limitations, a necessary condition for both large scale industrialisation in Ceylon and for a long-term solution of her external payments problem.” However, CBSL envisaged constraints such as Industrial exports on a large scale might also be dependent on arrangements for regional co-operation in Asia which would help to improve access to regional markets. Moreover, the successful establishment of large scale industrial capacity in Ceylon would itself involve increased imports of machinery, equipment and raw materials.”
It is noted that as far back as 1964 there was the realization that SL should resort to industrial exports to generate foreign exchange to increase imports, but the approach was lukewarm and there was no policy at political level to implement an export-oriented industrialization program.
Duringthe time of the return of the UNP government under Dudley from 1965 to 1970 there was again an emphasis on Agriculture. This too was on paddy farming where the green revolution of the introduction of hybrid varieties of rice like H4 increased paddy yields significantly. But not much impact was made in areas like horticulture and floriculture where countries like Thailand have made them high foreign exchange earners.
The coalition government of 1970-1977 had high expectations of development with the participation of the intellectuals of the left. But it was plagued with serious constraints such as the JVP insurgency of 1971, a marked decline in the terms of trade, increase of the price of oil from an index of 147 in 1972 to 826 in 1975 (1969=100), a global financial crisis and a severe drought affecting food production. Above all these there was the ideological difference between the two coalition partners which finally led to the breakup of the coalition. 1970 -77 government was more firefighting than concentrating on long term development.
The 1977 JR regime opened the economy and established new institutions like GCEC and EDB for investment and export development (which had their origins in the previous regime) but went too far in introduceing a wide-ranging package of neoliberal policies. The government removed all import controls and opened the floodgates to imports. These free-market policies destroyed many nascent domestic and import substituting industries and also had a severe adverse effect on domestic agriculture. The import liberalization diverted most of human and financial resources into import related activities. Although the government was keen to encourage exports the sector was starved of finance which went to meet the incessant demand for import and construction activities that carried minimal risk. The Banks were more than happy to finance these activities which involved lower risk. Import finance was recoverable in a short time. Finance for investments exports and investments in export projects carried interest rates as high as 25 percent. The 1977-regime went into a frenzy of unwarranted and unplanned privatization of state enterprises. This was contrary to the successful development model of Singapore, which adhered to the basic principles of a free market economy, but never shied away from state planning or state ownership where deemed important. The worst damage made by the open economy of 1977 was to introduce consumerism to an import dependent society. JR regime is responsible for serious blunders in both domestic and foreign policies.
The JR regime did not focus on economic restructuring other than dismantling existing institutions like the Marketing Department and the Paddy Marketing Board which were the connecting links between the producers and consumers of food products. The adverse impact of this policy is felt even today. Unlike Sri Lanka, in 1979, the Singapore Government started a program of economic restructuring. This was achieved by modifying education policies, expanding technology and computer education, offering financial incentives to industrial enterprises and launching a productivity campaign‚. Sri Lanka Government had no innovative policies. Even today the education system in SL is not producing the 19manpower to fit the needs of skills and knowledge for now and the future.
The American Business-Higher Education Forum said in 2005 about USA that Increased global competition, lackluster performance in mathematics and science education, and a lack of national focus on renewing its science and technology infrastructure have created a new economic and technological vulnerability as serious as any military or terrorist threat.” This is more relevant to Sri Lanka which depended on production and export of commodities. A comparison of price movement of Sri Lanka’s main commodity export and major imports demonstrates the sad plight of commodity producers.
” In 1963 the price of crude oil was $ 1.63 per barrel and tea was $ 0.93 per kg. By 2022 price of crude oil was $ 90 per barrel and that of tea was $ 3.99.” Thus, crude oil prices have increased 55-fold and tea less than 5-fold. The only salvation for Sri Lanka is to escape this perverse situation was industrialization. *https://thedocs.worldbank.org/en/doc/386771467756369668-0050022016/render/CMOHistoricalDataMonthly.pdf
During the regime of President Premadasa (1978-1989) the stress was on poverty alleviation and housing and rural employment. With a view to provide rural employment he compelled garment manufacturers to open 200 new factories in rural areas. The Project had been conceived without the identification of the real needs of the sector. An urgent requirement was for the industry to go up market which required investment in modern equipment and technology. The factories that were able to do that have survived and prospered. From the point of grasping opportunities, the energy and the funds directed at the 200 garment factories could have been used far better in encouraging and supporting a few business leaders and entrepreneurs to venture into high technology industries. Most of the big garment factories were owned by large business houses which could have been given this option. This was the successful strategy adopted by Asian Tigers like South Korea where the  Chaebols were supported by the government to go into high-tech industries. A note on this project is at:
Under the government of Prime Minister Ranil Wickremesinghe (2001), his magnum opus was Regaining Sri Lanka” with emphasis on poverty alleviation. The challenge of the adverse balance of trade and export led development was not even mentioned under the Regaining project.
President Chandrika Bandaranayake (1994) claimed that her economic strategy was market driven but geared to achieve human development and prosperity at the grass roots level. Her policy was to channel development efforts and resources to domestic capacity builders at the village level who are the pillars of the national economy. Her Government’s stated policy was free market economy with a human face”designed to give access to the benefits of development to all sections of the population.This again was a populist policy evading the real problem of the widening trade gap and mounting of debt. There was no policy on industrialization, only privatization of existing SOEs some of which were making substantial profits. Her surrender of the BOT based Prima project back to Singapore has impaired the food security of the country.
The next regime of Mahinda Rajapaksa (2005) came out with an elaborate and ambitious pollical manifesto called the Mahinda Chinthanaya with the objective to transform Sri Lanka into a strategically important economic centre of Asia. The thrust was to develop the country as a Naval, Aviation, Commercial, Energy and Knowledge hub. Closing the trade gap and industrialization did not come into the picture. MR concentrated on developing the infrastructure. The supreme contribution of MR was the ending of the separatist war which is estimated to have cost the country 200 billion dollars and throttled the development of the country for 30 long years.
The Yahapalanaya government of Maithripala and Ranil were bent on penalizing leaders of previous regimes. The Maithripala political manifesto promised to achieve for the country ten times the development that occurred during the past six years only by preventing mega corruption that existed in the country. There was no serious attention on industrialization and on long term issues like the trade balance and debt. Attention was on amending the Constitution to transfer powers from the President to the Prime Minister. That government was involved in major scams like the Central Bank bond issue. In the latter stages the rivalry between the President led to divert focus from serious economic issues. Finally, the Easter bomb blast put back the country by many years.
The government of President Gotabaya Rajapaksa presented a comprehensive manifesto titled Vistas of Prosperity and Splendour” which included focus for the first time on development of technology and physical resources.
Gotabhaya (GR) government started with an abundance of good will and expectations. Within a few months of the new government the Corvid 19 pandemic battered the country and the full attention of the government had to be diverted to the management of the pandemic. When the country was coming out of the health crisis the President on the hair-brained advice of dubious experts made a serious blunder in rushing an overnight conversion of agriculture into organic cultivation and banning chemical fertilizer which generated intense reaction from the farmer community. The financial wizards of the Central Bank and the Treasury totally mismanaged the foreign exchange scarcity and the President was ill advised on the financial crisis and did not take timely action at least to soften the impact.
In early March this year the government resorted to devaluation which has not helped in the solution to the problem and resulted in price escalation, high rates of interest and galloping inflation in essential commodities and their scarcity. Cost of living has become unbearable to the vast majority of the people who finally has said enough is enough.
One of the grave mistakes of all governments was the neglect of the chronic problem of the trade gap and not increasing industrial exports. Export oriented industrialization would also have generated productive employment. Educated employment was a recurring problem for which all governments had the facile solution of absorbing them to already over staffed public service and SOEs which made the public service a burden on the government. Over staffing of public enterprises made them loss making white elephants.
While political leadership was blind to the critical problem of the adverse balance of trade they made poor decisions which affected the development of the economy. A turning point was the decision taken by the first Prime minister DS to focus on paddy cultivation in the dry zone to the exclusion of industrial development. This was in spite of DS ardently supporting In the State Council in 1944 to launch a State Project of Industrialization in Ceylon and the Industrial Corporation Bill.
Whereas in South Korea President Park directed the leading business houses to venture into high tech industries, president Premadasa forced leading business houses in Sri Lanka to invest in low tech garments industry in rural areas to generate employment. While South Korea through industrialization developed into a leading high tech industrial powerhouse in the world, Sri Lanka continues to excel as a superior tailoring shop.
Even in the 1977 regime the GCEC was more keen to fill up the Zone rather than attracting technology. The result was GCEC became a haven for apparel quota seekers.
In 1983 the Black July resulted in Sri Lanka losing high tech investment of Motorola which went to Indonesia. When Samsung showed interest in investing in Sri Lanka authorities did no show much interest and perhaps solicited outrageous kickbacks. Samsung went to Vietnam and now their investment in Vietnam has exceeded 17 billion US dollars mainly in high-tech industries. Samsung Electronics launched a $220 million research and development center in Hanoi in 2022 planning to make Vietnam the company’s key global strategic base. In 2022 Samsung was the new crown holder with a massive 6,248 patents while IBM came in second with 4,389 with Apple and Intel trailing.
There was another huge, missed opportunity when a 65 strong investment team from Japan visited Sri Lanka in July 83 and saw first-hand the mayhem of the Black July and went back never to return.
Rather than export led industrial development and aim at a healthy balance of trade and payments and provide productive employment, all governments resorted to devaluation and prolific borrowing as the remedy. The outcome of many devaluations and IMF prescriptions has been negative as far as the trade balance is concerned. The LKR which was 8.83 in 1976 declined 15.56 to a US dollar after the 1977 devaluation and slumped to 100 per $ in 2005 and was 135 to a $ in 2015 and today it is frozen at 365 per one USD. We continue to chase the dollar without focusing on the real problem of balance of trade and balance of payments mainly due to our lack of a range of competitive industrial exports.
At independence Sri Lanka (Ceylon) had a stable democracy, a sound economy, and an efficient public service. Our external assets were equal to 100 percent of annual import value. Ceylon was second only to Japan in almost all social indicators and above South Korea at as late as the mid-sixties. Per capita income of Singapore was just a little bit higher than that of Sri Lanka at the time. It is now over USD 64,000 whereas ours is only USD 3845. The oft repeated question is why Sri Lanka with better physical resources failed to advance like Singapore. The explanation is that we failed to industrialize. Even in the preferred activity of agriculture we concentrated on high-cost low value paddy cultivation and still not self-sufficient in food. We do not have the land for extensive cultivation to reduce costs and employ technology. Sri Lanka neglected horticulture and integrated farming for value addition. The result is we have not moved away very much from subsistence agriculture dependent on subsidized inputs.
Industrialization does not fall from heaven. There are many prerequisites which have to be satisfied. There is a strong need for state intervention to move out of handicrafts and cottage industries and venture into more productive and technologically advanced industries. The foremost condition is a radical change in the education system. In Sri Lanka in spite of the far-reaching Kannangara reforms the system has not progressed very far at modernization. In fact, the government has even ignored the stress on English medium an vocational education which were key elements of the Kannangara proposal. The net result is that the present system continues to produce students who are bereft of knowledge and skills required for the present and future needs of national development. One of the first initiatives of the high performing economies of East Asia was a change in their traditional schemes of education to a system to serve the needs of skills and knowledge of an industrial society.
Taiwan is a good example to follow the extent of such change. Taiwan is an Island smaller than Sri Lanka with a similar population. In the past It was a predominantly an agricultural economy like that of Sri Lanka. Today it is a high tech powerhouse leading the world in a number of high tech industries. The Taiwan Semiconductor Manufacturing Co which is the largest chip manufacturing company in the world had a revenue of US$ 57 billion in 2021. Taiwan has a per capita income of 36, 000 dollars. At the beginning of the 1980s, Taiwan increased the ratio for senior vocational schools and general high school to 7:3. By 2012 there were 155 senior vocational schools, 14 junior colleges, and 77 universities/colleges of science & technology, totaling 246. It is the change in the education system that catered to the skills in the labor force that drove the economy of this small island. Taiwan was able to attract FDI in high technology because of this skilled labor force. It is the high priority given to STEM education in Taiwan the Far East which made it idustrialize and modernize. The same changes in their education systems were adopted by the other high performing economies of the Far East.
It is not only in the Far Eastern economies that vocational training has played a key role in productive employment creation and industrialization. In Germany, the consummate model in the West of high technology and efficiency, has adopted a dual system of vocational and general system of education. The dual system of Germany offers qualifications in a broad spectrum of professions and flexibly adapts to the changing needs of the labour market. The dual system integrates work-based and school-based learning to prepare apprentices for a successful transition to full-time employment.
Far back as in 1944, the Kannangara education reforms proposed practical schools (vocational) but this aspect of reform has not been implemented seriously. Our education system must be revamped if we are to progress in technology and expand into high valued exports and create productive employment. In our higher education we adopted the Oxbridge model propelled by Ivor Jennings while India opted for Institutes of Technology model (IIT) driven by the Indian Leaders. IIT model is MIT and not that of Harvard. We have to break away from a model which was suitable for an already industrialized modern society. Higher Education is not a subject that could be left alone to academics nor to the University Grants Commission.
R&D
Countries which have succeeded in rapid industrialization with high technology have invested heavily on R&D. Here again the small island of Taiwan initiated and supported its R&D which was instrumental in ‘jump-starting the nation’s rise as a technological powerhouse by conducting research, aiding the private sector with R&D and exploring new technologies.’ The contribution of only one of the R&D institutes, the Industrial Technology Research Institute is demonstrated in the fact it has won a total of 44 highly prestigious R&D 100 Awards over the past 13 years and received seven Edison Awards since 2017, in addition to being named a Clarivate Top 100 Global Innovator.
We also have had a number of research institutes from product wise research on major commodities like on tea, rubber, rice and coconut and subject wise research like in agriculture, fisheries for many years. There is also a well-established research institute, which was earlier known as CISIR. These institutes have carried out basic research. Our research on rice has contributed immensely to the success of our rice cultivation. But in the area of industrial research and Fundamental Research we do not have any great success stories of international recognition or of groundbreaking commercial application. The most recent institution of Nano Technology has been an exceptional success in research but lacked state or venture capital support in commercializing their innovations. Due to that we lost the Nano Urea technology to India. It must be mentioned that there have been exceptional contributions from a few individual entrepreneurs on singular innovations. But they do not add up to change the technological milieu of a nation.
Both Taiwan and South Korea spend more than most countries in the World on R&D as a percentage of their GDP. South Korea doubled its R&D expenditure from little over 2% in 1996 to 4% of the GDP whereas Japan increased it from 2.5 % to only 3% during the same period. But the R&D expenditure of Germany and USA stagnated at around 2% to less than 3% of their GDP during the same period.
Another evidence of innovation is the number of new patents submitted by a country. In the number of Patent applications in 2023 South Korea with 206,780 applications features after China, USA and Japan. It is noteworthy that the average ownership of invention patents in China reached 7.5 per 10,000 people. The average number of patent applications in Sri Lanka during 1980 to 12020 wasod was 121 patent applications with a maximum of 356 patent applications in 2019. The latest value from 2020 is 353 patent applications.
We have not created the climate conducive to innovation but spends most of its resources on welfare.
SYSTEMS AND INCENTIVES
South Korea up to well into the 1960s represented a backward, desolate economy based on subsistence agriculture with all the difficulties facing a typical developing country today. It had a per capita income of less than that of Ceylon. But with the rapid development effort launched by President Park Chung-hee in 1961 the country has achieved a miracle of achieving by 2021 of a per capita income of 42500 USD whereas Sri Lanka has vacillated around 4000 USD. And then came Gen. Park Chung-hee, became the president in 1961 through a military coup. While serving in the Japanese army he had imbibed the spirit of Bushido and wanted his country to become a developed country. Park coaxed, wheedled, intimidated, manipulated and outright threatened the companies for cooperation. But the president also offered incentives — government and foreign loans, relaxed regulations and tax cuts.
https://www.cnet.com/tech/tech-industry/the-chaebols-the-rise-of-south-koreas-mighty-conglomerates/
Though political agencies in the early Park regime were dominated by the military, economic agencies generally were not. Rather, under Park the status of economics experts in the Korean government rose considerably. One of Park’s first acts was to elevate the status of economic planning in Korea, placing civilian experts in charge of it. In 1961 he created the Economic Planning Board (EPB), whose head was made deputy prime minister. In spite of the political title and high level of this position, Park insisted that it be filled by a person with superb technical qualifications rather than a political figure or a high-ranking member of the military.
In 1962, the EPB introduced the first of what was to become a series of five-year plans for Korea’s development. State-owned banks were created to help implement the government’s development plans, and laws were passed to force private banks effectively also to become agents of their implementation. Over the next years, the Korean government became, in the words of former EPB member and Deputy Prime Minister SaKong Il, an entrepreneur-manager” (SaKong 1993, 27). During the first and second five-year plans, the government itself was involved in industrial undertakings.
In the 1960s, more than one-third of government expenditures were for investment, and public investment accounted for close to a third of all fixed capital formation. Thus, between 1963 and 1977, public enterprises in Korea grew at an annual rate of 10 percent and the share of these enterprises in GDP grew from slightly over 6 percent in 1963 to more than 9 percent in 1980. https://www.piie.com/publications/chapters_preview/341/2iie3373.pdf
The present government appear to depend on political authorities in the form of a National Council to develop national plans whereas President Park adopted systems change in elevating the status of economic planning in Korea and placing civilian experts in charge of it. He also he created the the Economic Planning Board (EPB) and made its head the deputy prime minister. Park insisted that it be filled by a person with superb technical qualifications
rather than a political figure or a high-ranking member of the military. While he created new state banks to support development, we privatized the only bank the NDB which had been established specifically for this purpose. While most of our governments resorted to privatize existing SOEs South Korea invested in public enterprises which were valued at more than 9% of the GDP in 1980.
FINANCE
In South Korea special state banks were established to finance industries and the export firms were given financial incentives on their performance. They were also given import permits to import their raw materials as well as items not allowed to be imported. Sri Lanka state had established the National Development Bank for the purpose of promotion of industrial, agricultural, commercial and other development of the economy of Sri Lanka having regard inter alia to the development of the rural sector. One of the objectives of the NDB was to undertake development projects, including pilot projects, in order to achieve the purposes of the Bank. Unfortunately, the NDB acted like any other commercial bank and was finally privatized by CBK who was on a selling spree. It is no more national but continues to call itself national. The country needs a special venture capital facility backed by the state.
The EDB had a venture capital facility where the EDB could participate in the equity of private sector projects of pioneering nature. This service was curtailed due to the cess money due to the EDB was retained illegally by the Treasury. The facility was abandoned in a change of policy by a new Chairman.
The most important factor supporting the astounding success of the export oriented industrial development effort of the countries in the Far East, particularly in South Korea and Taiwan was the unwavering political commitment of the highest political levels of the country and a truly national endeavor of the state and the private sector to achieve the desired objectives. Sri Lanka too had from 1979 an institutional arrangement in the Export Development Council of Ministers chaired by the President of the country and and the Export Development Board consisting of highest levels of State authorities and the private secrtor concerned with the subject. Unfortunately, the sad tradition in the country of radical changes in policies with change of governments and even with Ministers resulted in not invoking the Council of Ministers for 25 years and the EDB becoming a haven for retired state and private sector personnel who were short of vision and commitment. A good example of this is the creation of an Apex body at Cabinet level for supervising the National Export Strategy of the Yahapalana government when there was a legally established Export Development Council of Ministers. There were also Ministers in charge of the subject who were more liberal than neo liberal who discontinued performance incentives to exporters eve before the cutoff date prescribed by WTO. One should learn from the incentive schemes introduced by India for Champion’ industries. We refuse to learn.
It is a game of playing politics with economics which has been the bane of the country.
Sugath Kulatunga