Economic Development | Speeches

Managing globalization to effectively deal with challenges and opportunities for enhancing trade and investment, and Sri Lanka's experience

Commonwealth Business Forum

London, England

October 22, 1997

The Chairman

Distinguished Participants

Excellencies, Ladies & Gentlemen

I welcome this opportunity of sharing my thoughts with you on the “Impact of Globalisation: the challenges and the opportunities for enhancing trade and investment”.

‘Globalisation’ is generally used to refer to the process of increasing economic activity across national boundaries, thereby creating increasing economic integration and interdependence. It connotes the actual process of development of national economics within a free-market framework and integrated into the world economy through free trade and the remarkable advances of communications and information technology.

Globalisation and the breaking down of national boundaries economically, politically and socially, open up vast new vistas of hitherto unimaginable human action for the betterment of human kind. The process of globalisation renders possible equal opportunities for all and the guarantee of a level playing field for all nations through the marvels of modern science and technology, especially information technology and the knowledge industry. In order that the full benefit of liberalisation of the world economic order be obtained by all, we must aim both at taking advantage of the vast opportunities that it offers, and at avoiding or correcting its dangers and shortcomings.

I shall strive to enumerate some issues that deserve serious consideration, in this regard:-

1) There is a dominant school of thought which advocates that the best way to achieve development is to enhance the role of the market whilst diminishing that of the State, confining the letter’s role to creating a suitable environment for private enterprise to flourish and competitive markets to function.

In support of liberalisation and globalisation, the advocates of market ascendancy over state intervention cite some examples for instance. The highly successful east Asian economies, including post 1945 Japan and post-Maco China. However, we know that the actual record of their experience points to Japan, South Korea and now China, for instance having during their periods of rapid industrialisation and fast economic growth, implemented wide-spread import controls, and vigorously directed industrial policy through state intervention. It has been further demonstrated, that these countries only integrated to the extent and in the direction in which it was felt beneficial for them to do so. The industrialised countries including the big economic powers opened up their economies to free trade and liberalisation in the last several decades. In those countries, before this phenomenon, one witnessed capital controls and control of the labour markets, as well as highly protected regulatory regimes, designed to cushion their economies from disadvantageous fall outs during the transition period.

2) Another consequence of rapid globalisation-mass unemployment, with its attendant problems of social disintegration and violence, characteristic of the industrialised countries of the west and now of the liberalised economies to come to terms with some of the consequences of accelerated economic and technological development. The liberalisation process is seen as a major cause of the aggravation of inequalities within countries, both developed and developing, resulting in internal tension and problems such as crime, drug abuse, environmental damage and urban squalor.

The factors I have discussed, aptly demonstrate to us, the need for the state to continue for sometime, to play a guiding role in those area where the private sector fails to manage the fall out from the process of transformation of state-controlled and closed economies or even semi-protected economies, towards liberalised ones. In our part of the world, South Korea, China and Malaysia are some of the examples of economies heavily guided by the state, while moving towards a free market economy.

3) In the sphere of industrial co-operation, it is stated that the gains of the Uruguay Round and subsequent negotiations have demonstrably accrued largely to industrialised countries. Trade security and other essential guarantees for developing nations are not therefore ensured. Moreover, the World Trade organisation (WTO) now sees new demands advanced by industrialised countries to fashion new rules which may seriously impinge on the autonomy of countries to order their economic development as they wish. This would obviously mean the weaker, poorer countries would be at a disadvantage. The unevenness of the impact of globalisation has resulted in the uneven distribution of the benefits of a accelerated trade and capital flows. It is true that some developing countries are among the beneficiaries but their number is small. One hears of the marginalisation of large parts of the developing world, by-passed by the globalisation process. Indeed, there are some who say that polarisation rather than progressive globalisation is what is in store for the future, unless corrective actions are taken in time.

Here we must focus our attention also on some issues of a political nature raised by the concept and functioning of modern information technology cannot function for long and effectively unless all the players, on the world’s stage, in other words all nations, have access to equal opportunities to reach up that stage. If the level of the playing field is kept at a height to which developing countries cannot climb on, all we shall experience of the wonders of the global village would be the sound of meaningless hosannas sung in praise of it. On the other hand, those who are marginalized in the process would continue to give birth to more and more movements of protest, whose destructive violence will resound not only within national boundaries, but surely spread in concentric ripples to the most unexpected areas of the globe.

Secondly, I need hardly state that the inevitable process of globalization entails the effective functioning of elective democracy, for, how could principles of the free market which imply the free flow of people, of ideas, of goods and information operate effectively, without the existence of basic democratic freedoms. Every nation in the modern world would therefore have to take stock of their political structures in order to build strong, healthy and dynamic democracies. It is then, that especially the weaker and poorer countries could stand as equals in the process of dialogue within the frame work of international for a, in order that they do not get submerged by the prevailing conditions. This together with the development of modern education and skills development systems and also, the acquisition of information technology together with national scientific and technological advances and of course, should economic management would be the path that developing nations such as mine, need to follow in the present age.

Sri Lankan Experience

In the context of prevailing conditions in the international area, small developing countries like Sri Lanka must consider globalisation from the point of view of its impact on the comprehensive development of our Nations. We believe that each country must first build its own economy strongly in order to meet its own needs, as well as to meet the daunting challenges of globalisation. We cannot any longer blame others for our failures to put our houses in order. But of course we must ensure that global conditions will be favourable to the needs of developing countries and not only to those of the developed. If I may speak to you of our efforts at home-

In Sri Lanka, my Government is forging ahead with an economic policy of stabilising an economy that is open and conducive to free trade. We see the private sector as the main engine of growth, with the playing the active role of facilitator and of guiding the economy along a clearly chosen path. The state comes into those sectors, where the free market forces fail and also to protect those sectors of the economy and the people who may not be strong enough to reap the benefits of the new system, while encouraging them to gradually move into the framework of this system.

We have dismantled trade and foreign exchange controls, reduced import tariffs dramatically, developed the stock exchange considerably, removing all taxes on foreign capital inflows. Seventy five per cent of our exports are manufactured goods. We have taken giant strides in the development of our infrastructure facilities. The telecommunications sector has been partially privatised to bring in the world’s largest telecom company Nippon Telephone & Telegraph (NTT) of Japan, the Port of Colombo is in the process of being developed as one of the finest in Asia, whilst the transport and energy sectors are to be developed with private sector participation in the near future. In the fields of social infrastructure education, health and human resources and skill development, we have an enviable record of investing on free education and medical care. During nearly half a century our literacy rates, nutrition and health indicators have reached levels of more developed countries. We are developing our country to be a financial Trans-shipment and services hub of Asia, whilst directing our industrial sector towards highly skilled, high technology and labour intensive fields. For this, we are drawing on our valuable resources of high levels of education and skills training of our youth. Development plans for agriculture, target highly productive selected crops, whilst promoting value addition in agricultural production.

Our efforts at strengthening the economy is giving satisfactory results. In the last 3 years, budget deficits have reduced from over 10% to 7% inflation from an average annual rate of over 14% to 7% lending rates from over 23% to 15%. The stock market is bouncing back to life with a constant growth of activity. The economy is growing at an annual rate from 6% of GDP. My Government has ensured a strong and stable economic growth, whilst waging a successful, though difficult, battle against corruption. Transparency in governance is the rule of the day. We have also re-established democracy and the rule of law and respect of human rights. Post-independent Sri Lanka could boast of a healthy and dynamic parliamentary democracy for about 65 years, excepting a period of about one and a half decades of serious deviations from all democratic practice, before my Government took office. All this we have achieved, whilst the State is engaged in a military conflict in one part of the country against a separatist terrorist group claiming to represent the tamil minority.

My Government has offered a set of political proposals as a solution to the problem of the Tamil people, which for the first time since the problem commenced nearly 5 decades ago, has received the approbation of a clear majority of Sri Lankans of all communities. Only some extremists on both sides refuse to accept the proposed devolution of powers and other constitutional amendments.

The LTTE, alias Tamil Tigers, wreaks continuing havoc in its path- from the forcible conscription of Tamil girls and boys of 11, 12 years to the destruction of the normal lives of the Tamil people in the North & east of the country, and the devastation caused by the bomb explosions in Colombo, the LTTE has left a trial of destruction for their own people, they say they are attempting to liberate, as well as for all other Sri Lankans. The recent bomb explosion in Colombo is one other such attempt by the LTTE. The military conflict is drawing to a close with the Sri Lankan Government now in control of about 80 per cent of the populated areas of the North. The implementation of the Constitutional amendments and the political proposals would marginalise all proponents of violent solutions to the ethnic problem of Sri Lanka.

The economy and the people of Sri Lanka have been sufficiently strong and resilient to handle these situations and bounce back to normalcy. We are today stronger because of our confidence that effective solutions have been found to the ethnic question and shall be implemented.

International Development Co-operation

Now we come to the question of “International development Co-operation”. International development co-operation in the past focussed on many issues needed to give strength to the development process. These included the need for resource flows on confessional terms, for market access on preferential terms, for debt relief, for frameworks for the transfer of technology, and other issues. There is a tendency today to put away these issues, or if at all, to see them as being relevant only to the poorest and weakest of countries. The rest are asked to fend for themselves by looking to the market for the satisfaction of their needs. In consequence, the earlier dialogue on international development co-operation has virtually ceased to exist. I do not consider this a satisfactory state of affairs.

The best and the most liberal of domestic policies can be undermined by shortcomings in the external economic environment. I feel, therefore, that there is a need to maintain the dialogue between the developed and developing countries and for continuing intergovernmental attention to developmental issues. It is true that issues have changed and that new agendas are possibly called for.

The Role of the Commonwealth
I come now to the question of what role the Commonwealth can play in all this. We are a unique microcosm of the contemporary international community. We reflect the widest possible range of political and economic state power, from permanent membership of the UN Security Council and of G7 to the ranks of the least developed countries and small island states. We encompass a geographical spread from the Caribbean to the South pacific. Whilst we recognise and pursue various regional affiliations for economic and even political purposes, we continue to maintain our Commonwealth links. We can freely and frankly share views reflecting wide differences of perception concerning world issues, but always endeavour to synthesise and consensualise them to the greatest extent possible. Commonwealth co-operation in the economic field is as long as our association in old. This has featured some mutual trade and investment flows, but we must admit, not sufficiently. The state of the world economy, barriers to trade of various kinds, constraints on capital flows, on technology transfers, communications facilities as well as other aspects of the global scene would have inescapably dampened the effective organisation of Intra-Commonwealth economic relations. Hence, undoubtedly, the felt need reflected in the convening of this Forum is to identify and help build on the new opportunities before us. Networking, business contracts, financing facilities, investment projects, the harmonisation, as far as possible, of laws, regulations and procedures, North-South economic ties within the Commonwealth, all these and a host of other possibilities attain a new relevance in the changed global context of our time. The challenge and the opportunity this offers is for the Commonwealth as a group to grasp and address.

Mr. Chairman, Distinguished participants, Excellencies, Ladies and Gentlemen:

Thank you.