Since the late 1970s, Sri Lanka has been liberalizing its economy. The fact that the wealthiest province, the Western Province, grew rapidly while the rest of the country stagnated, and Sri Lanka now has the highest inequality in South Asia, confirms the worst suspicions of the anti-globalizers: economic liberalization causes the rich to get richer, and the poor poorer.
In fact, the opposite is true. The reason the Western Province grew so fast is that it benefited the most from economic reforms. Trade liberalization and industrial de-regulation led to a boom in manufactured exports such as garments and electronics. These factories were concentrated in the Western Province, which halved its poverty rate.
Meanwhile, the rest of the country is heavily dependent on agriculture, which has seen very little growth. The reason is that there has been very little reform in agriculture. Owing to land regulations, farmers in Sri Lanka are forced to grow paddy, even though they can earn much more from growing fruits and vegetables. Fertilizer and other subsidies are also geared towards paddy farmers. Attempts to reform land regulations, or transform subsidies to across-the-board support for any crop, have been unsuccessful.
In short, Sri Lanka is a textbook case of how globalization works. Where there is liberalization, the economy booms; where there is no reform, the economy stagnates.
Mariam Claeson
Fri, 09/21/2007 - 03:53
The point of antiglobalization si that you have winners and loosers, and loosers are usually poor people, then, inequality grows. If you claim the two regions are different cases, we should check whether inequality increases in the rich region instead of the average of that region.
But even if we disagree about my previous point, we should at least agree liberalization, when badly introduced, makes poorer people poor and richer people rich. Then, instead of promoting liberalization at any cost and waiting for the free market magic to work out the rest, we can make sure poor regions have the rigth incentives (WHICH IS NOT THE SAME THAN OPENING THE ECONOMY, as you aknowledged).
Wed, 09/19/2007 - 21:44 "Where there is liberalization, the economy booms; where there is no reform, the economy stagnates." Are these little homilies all you have to offer? Does the fact that there was a regulatory change in the Western Province and there wasn't in the rest of the country count as evidence that lack of regulation causes growth? Perhaps the other provinces had a comparative advantage in agriculture which isn't growing not because they are growing rice instead of cash crops, but rather because American and European subsidies to their farmers stunts export growth in agriculture. Where is the analysis? Is this person really a World Bank Chief Economist?
Thu, 09/20/2007 - 08:48
The analysis is in the paper linked to the post (click anywhere on the phrase in blue "benefited the most from economic reforms") or simply download the file here. We show that the differential performance between the Western Province and other provinces cannot be explained by differences in educational attainment or in infrastructure. We also show that agricultural performance has been poor (2 percent growth per year), and rice production exceptionally poor (zero or negative growth).
Wed, 09/19/2007 - 19:50 I am little bit skeptical of the notion that globalisation is the only factor acting in reducing poverty in Sri Lanka. The assertion has been made just from one angle that factories alone bring economic well being. The author also proposes that farmers are being forced to grow paddy, which (I assume) is the basic food crop for the population. What about the consequences when all paddy growers start growing fruits and one of the year due to international market and outbreak of disease the nation cannot export the fruits. What will the farmers eat at that time? Can the farmers again cultivate paddy after the transformation? I am not advocating globalisation is totally bad, but when only one aspect of it is adapted ignoring behind the wall reactions the policy fails. I find similar approach applied in most of the cases sidelining the socio-economic and cultura dynamics of the society by enforcing such paradigm. As a result of such approach many of the programs fail. I believe scholars of decentralisation are not ready to agree that decentralisation is working in developing nations. Before making a public note we need to rethink. Thank you