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Proceed with caution: Is Sri Lanka’s Approach to Import Substitution Sensible?

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A Pathfinder Perspective

In the immediate aftermath of the onset of the Covid19 pandemic and the unprecedented health and economic crises it unleashed, there was a widespread backlash in sentiment against globalization and open economic policies. The greatly increased human mobility associated with these phenomena were blamed for the rapid spread of the virus to all parts of the globe. The supply-side shocks, related even to basic goods, such as food and medicines, as well as demand pressures emanating from a rise in protectionism, were seen as being the result of the complex supply chains that underpinned the web of cross-border production networks that constitute a major part of the global economy on the one hand and the destruction of employment and incomes in an integrated world economy on the other.

However, as time passed, there has been a shift in sentiment. The focus has shifted to seeking ways and means of maintaining the substantial gains of globalization, while reducing the risks that were exposed and amplified by the pandemic. On the health front, the extraordinary achievement of scientists in developing highly efficacious vaccines, in record time, has created the very real prospect of opening up global mobility again. This has been supplemented by the exponential acceleration of remote working and living. On the economic front, the focus has been shifted from efficiency to resilience in maintaining global supply chains. There has been diversification as well as shortening of supply chains. On the demand side, the unprecedented policy actions of Treasuries and Central Banks around the world has propped up businesses and livelihoods to an extent where a relatively strong recovery, though multi-speed, is being seen in the world economy. These trends explain why there has been a shift in sentiment, as mentioned above.

While protectionist pressures are still present, the case for an open and rules-based international trading system is being reinforced, led by China. The Biden administration has also taken measures to revive the World Trade Organization, including through the appointment of a former Finance Minister of Nigeria, and Managing Director of the World Bank, as the first female head of the institution. The dispute resolution panel of the WTO is also being reconstituted. Protectionist sentiments and a shift to autarkic (national economic self-sufficiency) policies were also ascendant in Sri Lanka. The world seems to have realized that it is not advisable to “throw the baby out with the bath water.” It is important that Sri Lanka absorbs this lesson as well.

It would be useful to trace the evolution of the thinking on import substitution and to examine briefly some of its sub-optimal practical outcomes. A paper by Douglas A Irwin, titled “The Rise and Fall of Import Substitution,” (Working Paper, Peterson Institute for International Economics; July 2020) traces the evolution of the thinking on import-substitution. Import substitution policies initially came to the fore in the early 1950s. It is probably no coincidence that they gained salience at a time when decolonization was gathering momentum. The ex-colonies sought to augment their political freedom with policies that reduced their dependence on the metropolitan centres. Many developing countries came to the conclusion that import substitution was the best trade strategy to promote industrialization and economic growth within a global economic system based on colonial structures that was geared very much against them through exploitative trading relations. Raoul Prebisch, based at the UN Economic Commission for Latin America, is widely recognized as the father of the import-substitution industrialization (ISI) strategy. However, he and other leading contemporary figures in development economics, in the 1950s, identified fairly quickly some of the weaknesses of import substitution policies in practice.

Import controls, particularly on manufactured goods, did not necessarily conserve foreign exchange as intended; rates of tariff protection were high, resulting in a misallocation of resources and higher priced and poor quality products for consumers; small and inefficient firms were created that served only domestic markets, and taken together, these policies became an obstacle to promoting exports. These shortcomings are relevant even today. Prebisch’s own views changed by the 1970s. It can be argued that the intellectual demise of import substitution had taken place by the 1970s.

The Pathfinder Foundation believes that there is considerable evidence that openness to trade increases the growth, employment and incomes trajectories of economies. It is noteworthy that the unleashing of the potential of Asian economies (particularly in East and Southeast Asia) was greatly facilitated by two of the key pillars of globalization: liberalization of trade and capital flows. This enhanced the capacity of countries to take advantage of the opportunities created by rising external demand. The successful countries of Asia were able to attract FDI, with its capital, market access and know-how, to drive export expansion and take advantage of this increasing external demand brought about by globalization.

In practice, countries as large as China or as small as Singapore have been able to transform their economies through this combination of increased FDI and rising exports. In this context, it is noteworthy that the coastal regions of China, which were significantly more integrated with the world economy, have experienced far more dynamic growth and development than the hinterland, which is significantly less integrated, and more backward. The experience in China vividly illustrates within one country the tangible benefits of policies which are open to greater integration with the global economy.

It is also important to learn lessons from historical experience closer to home. The inward-looking policies adopted by Sri Lanka in the 1970s resulted in a low-investment, low growth and high unemployment syndrome. Long queues for even essential goods were emblematic of this period. The benefits of liberalizing the economy in 1977-78 have been curtailed by the three- decade-long civil conflict and the partial nature of reforms due to a lack of political consensus around policies that attract FDI and promote exports. Weak implementation has also amplified poor overall performance. The time has come to have a concerted and holistic approach to transforming the Sri Lankan economy.

In today’s world of ever-increasing climate and other risks, there is a case for attaching high priority to food security. Well-targeted import substitution policies in agriculture can be justified on these grounds. However, the overarching focus should be on increasing productivity to avoid imposing high prices and poor quality on the consumers. The paddy sector reveals what should not be done. Sri Lanka has now reached self-sufficiency in rice production in most years. However, the outcome has been a long tale of low productivity, low income farmers whose subsistence has to be secured by inefficient and costly subsidies as well as guaranteed prices. Lessons need to be learned from past experience to avoid the same mistakes in the present and future.

In conclusion, the Pathfinder Foundation believes that it is encouraging that the most senior policy-makers have been stressing the need to develop “a production economy” driven by FDI and exports, along with a high-productivity agricultural sector. These goals should not be derailed by vested interests which focus on rent-seeking activity based on import restrictions. History, in Sri Lanka and elsewhere, teaches us that the outcomes will inevitably be bad.

The Pathfinder article is available at www.pathfinderfoundation.org for online reading. reading

 

 



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Save the Last Dance for me

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By Capt Elmo Jayawardena

elmojay1@gmail.com

A few months ago, I was in Hong Kong, visiting a well-known charity organisation called Crossroads. It was to seek assistance for a project in Sri Lanka. Crossroads has an enormous warehouse filled to the brim with anything and everything; ready to be sent to places where people in need plead.

The store surroundings looked familiar. Then I realised I was standing where the old Kai Tak airport was, now pastured and replaced by the glamour of the new Hong Kong International Airport.

Yes, I have been here before, many a time at that, bringing jet aeroplanes into land on runway 13, turning at the famous Chequered Board at 600 feet and pointing at the short runway besieged by the sea. The final turn and approach was made between sky-scrapers that stood on either side, like sentinels, and one could spot the flat residents’ laundry hanging outside their windows.

The Chequered Board was fixed to the mountainside, big board with orange and yellow squares, clearly to say “Turn now, beyond this is damnation”.

That was Kai Tak, surrounded by hills, minimum length to stop, and the weather gods playing their fancy games so often that we, mere mortals who flew the machines were nothing but puppets on a string.

But we managed; day in and day out to put our aeroplanes down and brake like crazy to make sure we didn’t overrun and tip into the water.

When the skies were friendly, it was a thrill to land at Kai Tak. The runway usually was direction 130 (runway 13) and the wind rolled from the East, nice and steady and we came past Green Island and saw the Chequered Board in front to tell us we have to change direction lest we too got pasted like the Chequered Board on the same mountain. Then came the turn, low and precise to make the final approach, the laundry run, to fly between the buildings and place the wheels precisely at the touch down point to avoid going swimming.

Every time a pilot landed in Hong Kong in the olden days, there was that gleam in the eye. I’ve seen it a hundred times in my co-pilots and I’ve felt the same whenever I made the approach; the accomplishment of doing something right where the demand was high, which sent the adrenalin into overdrive.

The typhoon time was another story. The winds sheared, gusted, backed and veered and the rain swept across the field, diminishing visibility. Dark grey clouds hung low, covering the mountains and the Chequered Board was hardly visible. We went in by the leading lights, which were very powerful strobes that throbbed, giving us a path to follow to take us to the laundry lane. All this was with the wind playing wild symphony and the rain pattering down like machinegun fire. Most times, lining up on the runway for the short final run was almost impossible and that is where the pilot’s skill mattered, kicking rudders and wagging wings like a mad man playing drums just so that the aeroplane landed and stopped all within that little wet and slippery runway with the sea awaiting with open jaws for a luckless pilot’s mistake.

I remember my last flight to Kai Tak, in June 1998. I left home determined to do the landing. Most days, I would let the co-pilot fly, I’ve seen a lot of this airfield and the younger pilots were always grateful for a swing at Hong Kong. But this was my final flight to Kai Tak and I saved the last dance for me, just like the The Drifters sang.

The co-pilot was young and he mentioned he had never landed in Hong Kong. It was a hard call on me. I could not let this young man go and run through a flying career having never landed in Kai Tak. Maybe, years later his first-officer would ask about the infamous Kai Tak approach and my friend would have to answer that he had never done it.

All in all. the deck was stacked against me, there is something called professional courtesy and out went my last dance, “Son, you take it to Hong Kong”.

The weather was bad, the winds were howling, and we went in. The young man turned at 600 feet and the aircraft was bucking and jumping and he hung in there like a rodeo kid but that wasn’t enough.

With 300 feet to go we were pointing at mountains and the field was almost below us and then I took over and went around to the safety of the sky.

One thing I never did in an aeroplane is if I ever took over from a co-pilot, I never gave it back. I flew it and landed it – that was the golden rule, the safe approach.

The rodeo kid and I were now loitering in the sky to await our turn to make the next run. Then it hit me like a thunderbolt, same co-pilot, years later would be a Captain and when his co-pilot asked him about Kai Tak and how it was to fly in he would have to say “I got one chance and I blew it, couldn’t make the field and the Captain had to take over.”

There was no way I could crucify this young man’s soul, make him poor as gutter water in a field where professional prestige mattered most.

‘Son you take it in, go and land this aeroplane.”

That’s precisely what he did. He waltzed with the wind and came through the clouds and turned at the Chequered Board and flew down the laundry lane and lined up the big 747 on the short runway to land as smooth as Mr. Neil did on the moon.

Then I saw the glitter in his eye – Last dance or no dance, I wouldn’t have traded anything for that look. That’s what flying was all about.

It is possible that my rodeo-kid friend would read what I write and remember. It was all between him and me and the old Kai Tak Airport.

He, I am sure by now, is a Captain. I like to think that he too would at times give away his turn to dance just to see the gleam in a fledgling’s eyes. That should be the legacy.

If not, what would we be worth as professional pilots?

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MICHELANGELO OF ITALY and BARANA OF SRI LANKA

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BY Sampath Fernando

“Every block of stone has a statue inside and it is the task of the sculptor to discover it.” –

Michelangelo (AD 1475-1564). And he discovered THE DAVID inside a rock of marble around AD 1501-1504.

Barana, the Sri Lankan sculptor, performed a similar act in the 5th Century AD. He was supposed to have accomplished this around 455-477 AD during the reign of King Dhatusena. Avukana is a standing statue of the Buddha near Kekirawa in the North Central province of Sri Lanka. The statue, which has a height of more than 40 feet (12 m), was carved out of a large granite rock face.

 

BARANA, THE SCULPTOR

There are enough historical records about Michelangelo and his paintings and sculpture. Barana was virtually unknown. My speculation is that he was employed by the king, not for his artistry but merely for his skills to get a Buddha statue sculptured. In ancient Sri Lanka, kings were well known for creating Buddha statues and Stupas (dome shaped buildings to preserve relics).

Whatever the reason both Barana and Michelangelo deserve great honour from us. Why? It is amazing the genius of both of them, how they produced such wonderful work of art without the aid of modern cameras and computers, electromechanical drills etc. Also, how did the Romans carve their tall fluted columns which are perfectly proportioned. The magnificence of ancient Egyptian pyramids goes without saying.

 

SPIRITUAL ASPECTS

Michelangelo later in life developed a belief in Spiritualism, for which he was condemned by Pope Paul IV. The fundamental tenet of Spiritualism is that the path to God can be found not exclusively through the Church, but through direct communication with God. I speculate than Barana was a devout Buddhist. Buddhism being the only organised religion at the time. As mentioned earlier the kings spent lot of wealth and employed skilled artists to honour the Buddha.

 

THE PERFECT BUDDHA STATUE

Carved out of the living rock with supreme assurance, Avukana Buddha is a magnificent image. His expression is serene and from his curled hair sprouts the flame called siraspata signifying the power of supreme enlightenment. Although the statue is large and stands straight up with feet firmly planted on the lotus stone pedestal, the body retains a graceful quality enhanced by beautifully flowing drapery clinging to the body.

 

THE TALLEST BUDDHA STATUE IN THE WORLD

The magnificent free-standing (still attached to the original massive rock) statue carved out of a single rock is the tallest Buddha statue in existence today. Following the destruction of similar but much larger statues at Bamiyan in Afghanistan, the Avukana Buddha has gained even greater significance in the Buddhist World.

 

MY PERSONAL EXPERIENCE

My parents were devout Buddhists and school holidays were combined with a family pilgrimage. So, I was taken to Avukana statue with my two brothers and the two sisters to worship the Buddha. I was only about 10 years old. As I reached my adulthood I began to look up to Buddha for his philosophy.

As an octogenarian, I visited the site on 7 December 2019 and venerated Barana for giving us such a marvellous image of art. A combination of philosophy and art!

“I am still learning” said Michelangelo at the age of 87. I can say the same thing now, seven years ahead.

 

(The writer taught Applied Physics at The University of Arts London (UAL) and retired as a professor.)

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Identity issues continuing to fuel Mid-East conflict

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On the face of it, the decades-long Middle-East conflict is all about who controls which plot of land in the chronically conflict-ridden region. For example, the powder keg city of East Jerusalem is claimed by both the Israelis and the Palestinians. On and off, the city erupts in violence on account of its disputed nature and we are just witnessing a new round of such blood-letting. Ownership of real estate seems to be at the heart of the conflict. But there is more than meets the eye in the conflict and land ownership is just one vital aspect of it.

As important as land and issues relating to material well being that grow out of it is religious identity and connected cultural markers that are seen by the Israelis and Palestinians as defining them as ‘nations’. This accounts for the centrality of East Jerusalem to the complex problem which is the Middle East.

In the latter city are places of worship which are seen as being of the utmost sacredness by the groups concerned. For example, the Al-Aqsa Mosque, which is sacred to Islam and therefore the Palestinians, and which came under attack in the current round of violence, is located in East Jerusalem. Likewise, numerous are the sites in East Jerusalem which are sacred to the Jews. The Temple Mount is one such structure which is revered by the Jews. But many of these places of religious worship are revered by almost the entirety of the communities of the region, although some groups proclaim exclusive ownership over them.

It is for the above reasons that pronouncements to the effect that ‘Jerusalem is the undivided capital of Israel’ could be anathema in the ears of a considerable number of Palestinians and many of those of the Islamic faith. Recognizing this statement as true and factual could be tantamount to conceding that all Islamic sacred sites in East Jerusalem should come under the complete control and jurisdiction of the Israelis.

To very many sections professing the Islamic faith in the region, conceding East Jerusalem to Israel would be unthinkable because East Jerusalem is integral to their identity as a people or as a ‘nation’. This is the reason why they would see themselves as fully justified in taking up arms to defend their perceived ownership of East Jerusalem. And ‘native’ places and locations are almost sacred to most communities and ethnic groups because those are the sites where they could practise their religions and cultures. The same line of reasoning holds good for traditional Jews. Since East Jerusalem is home to numerous sites that are sacred to them they would see themselves as justified in possessing the city by even the force of arms.

It is in view of the foregoing that former US President Donald Trump could be said to have destroyed peace prospects in the Middle East to a considerable measure by fully endorsing the position that ‘Jerusalem is the undivided capital of Israel’. By doing so, the former US President legitimised Israel’s complete hold over the city. But the truth is that ownership of the city is bloodily contested and this has been so for decades.

The question could be asked as to why one group should consider it unthinkable and revolting that the other group should exercise controlling power over religious sites that are claimed by it as well. In short, why are these group antagonisms so deep-rooted? We go to the heart of the Middle East conflict with this question.

In fact, the ‘enmity’ could be centuries long. Its roots could lie in the ‘myths of origin’ churned out by hard line sections in both communities. Both Judaism and Islam revere Abraham, seen as the originator of most theistic religions of the Middle East. Abraham is believed to have had two sons of different natures. At the popular level, each of the adversarial groups in the Middle East sees itself as deriving from the ‘better-natured’ of the sons. Like most popular myths, these notions die hard among the more impressionable sections.

However, there is no denying that land and territorial disputes have been keeping the flames of conflict and war ablaze in the Middle East. This is true of today as it was at the turn of the last century, when the British were seen as implanting the Jews in the land of Palestine at the expense of those who were already inhabiting it. That is, the Palestinians of today. The Jews were seen as growing in number in Palestine and they very soon laid claim to a state of their own in Palestine. Thus were sown the early seeds of the conflict which has bedevilled the region to date.

As matters stand, Israel controls to a considerable degree all contested areas in the conflict except the Gaza strip where the militant group Hamas exercises extensive governing control, backed by some staunchly pro-Islamic extra-regional states. At present, the religious unrest in East Jerusalem has invited the military involvement of Hamas, which development has, in turn, triggered off a spiral of violence between the Israeli security forces and Hamas. At the time of writing, the violence has claimed more than 30 lives.

It is highly regrettable that the violence is occurring in the holy month of Ramadan. It is hoped that the international community would intervene to end the violence and make a fresh effort to work out a political solution to the conflict.

A scrutinizing look at Middle East developments over the decades would indicate a close link between land issues and identity questions. These factors could be said to have been mutually-reinforcing. To the extent to which the Palestinians see themselves as being deprived of land and other means of livelihood, to the same degree are they seeing themselves as suffering on account of their religious identity. This trend aggravates religious tensions. Economic issues deriving from land questions trigger a sense of being victimized on account of religious and cultural markers.

Accordingly, US President Joe Biden has his work cut out. If he is serious about bringing peace to the Middle East, he will launch a fresh bid towards evolving the two-state solution. Under this formula there is a possibility of resolving land issues equitably.

 

 

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