From The Cave Into A Greener Economy

by Wimalanath Weerarathne

An historic turn of events took place last 14 December when Prime Minister Ranil Wickremesinghe made a special statement:

“I use my powers not for any personal gain but to build this country. If I cannot develop this country using my powers, I am prepared to step down. I will not take only popular decisions in order to stay in power.”

Wickremesinghe showing tenets of true leadership once again proved that there can still be realistic politicians and genuine statesmen in the country. Another aspect which he emphasizes in his speech was that if its leaders are unable to comprehend the real burning issues of the country, it would ultimately sound death knell for the whole nation. Sadly, Rajapaksa regime did not understand or bother to understand the burning issues that the people were faced with. This ultimately led to the downfall of the once-mighty Mahinda Rajapaksa.

 

Workers’ struggles

One important budget proposal withdrawn was the merging of the EPF (Employees’ Provident Fund) and the ETF (Employers’ Trust Fund). Leaders do not merely come out of caves. What led to Prime Ministers special speech were the unwavering stance of the trade unions and their struggles. The merging of EPF and ETF was nipped in the bud due to undaunted efforts and the indomitable spirit of the workers.

The government announced that it would continue to manage the funds as two separate funds under the auspices of the Central Bank. Wickremesinghe boldly stated that his government would have a scientific approach when recruiting public servants. No government employee would be recruited if the State was not in a position to pay his or her pension. This shows that he has foresight and farsightedness even with the impending pension crisis the country would face in the light of its ageing population.

 

Crux of the problem

According to the Prime Minister’s rationale, although the private sector pension funds – the EPF and the ETF – are accrued funds whereas pension for public servants is a liability rather than an asset for the country. As such, a colossal sum of money has to be set apart for the payment of pensions.

Although one can say that there is a move to ‘exploit’ the pension funds, I would rather see this as a genuine effort to address an impending crisis. What the Prime Minister could have done was not to bring this to the table at a crucial juncture as this. But knowing very well that it would not be a popular move, he nevertheless had guts to bring this to the table. This is because that he knew it is better to resolve it now rather than later.

 

Ageing population

In 1963, Sri Lanka’s elderly population (60 and above) was 5.4 per cent of the total population. This is slated to rise to 17.8 per cent in 2031 and will skyrocket to a staggering 27 per cent in 2050. In addition, life expectancy too which was roughly around 60 years rose to 75 in 2011 and is slated to further rise to 80 in 2050. What Wickremesinghe pointed to was that funding the pension requirement of future governments would pose a crucial challenge for our future generations. He further added that there was no scientific approach to assess the pension requirement when Rajapaksa increased the number of public sector cadre to a staggering 1.3 million by January 8.

A public servant retired in 1960s would have to be cared for by the government for roughly between 5-10 years. A State employee retiring now is likely to have a remaining life expectancy of 10-15 years. On one hand, filling vacancies in the public service as soon as time permits is crucial whilst on the other hand, evaluating whether the government can fulfill its pension requirements is also a must.

 

Welfare State

Sri Lanka has been a Welfare State since the times of the British Raj and this is something very difficult to be changed. All persons from crib to grave are entitled for universal free education and free healthcare. In addition, the government spends colossal sums of money on transport, social welfare (Samurdhi etc), agriculture, water supply, and on many other services, and of course on pensions.

Even in a welfare State what rulers must understand is that there is no free lunch. Every rupee paid has to be earned and accounted for. As such, many economists believe that Sri Lanka should switch back to a manufacturing economy from service economy or at least improve the mix. Despite lack of proper long-term revenue avenues, our policymakers resort to imposing or increasing tax in order to give a concession. For instance, emission test charge was unreasonably jacked up to Rs. 5000. In the face of opposition, the government had no choice but to amend it to Rs. 1500. The fertilizer subsidy too, instead of being curtailed, had to be increased from 1 hectare to 2 hectares and was extended to minor crops. What we emphasize here is that the government should not resort to targets without any basis.

 

Simple lifestyle

In a country that does not have a high-earning economy, its’ inhabitants should resort to a simple lifestyle. Rajapaksa regime was famous for super luxury lifestyles and extremely high spending. Money borrowed on commercial terms and hard earned dollars, on one hand were pumped to boost the rupee and the Rajapaksas’ faltering image, on the other hand. It maintained a jumbo Cabinet and misused billions of rupees of public funds. Merely looking at the billions spent on the upkeep of the Executive Presidency, one can gain a good measure of knowledge of the direction of the Rajapaksa regime.

Although President Mahinda Rajapaksa spent a colossal Rs. 4.4 billion in 2014, in contrast, only 1.7 billion had been expended by the incumbent President Maithripala Sirisena in 2015. Although, in 2014, a 62 per cent of government expenditure was allocated to ministries, portfolios, subjects and institutions under the Rajapaksa clan, a mere 12 per cent were proposed to be allocated for entities under President Sirisena for 2016.

Though all these changes are very positive and laudable, the National Unity government too is not 100 per cent clean. It increased its Cabinet along with perks and facilities for ministers and MPs. No one must forget that these are all public funds. As such, it is not prudent to expect the public servants too manage money properly and to tighten their belts. Ministers and MPs too should tighten their belts and resort to a simple lifestyle like President Sirisena.

 

Rs 4T pension bill by 2020

According to statistics presented by Prime Minister Ranil Wickremesinghe in parliament, the pension bill in 1961 amounted to a mere Rs. 823 million. In 2011, this has skyrocketed to Rs. 100 billion and is projected to rise to Rs. 4 trillion by 2015. As such it is apparent that this cannot be reduced but in fact should reflect the government’s policy of ensuring the security of the public service.

Many professional leave lucrative positions in private sector and join the public service because of this future security. As such, Sri Lanka should switch to a model where the pension is earned and not thought to be entitled to as it is now. The EPF and ETF are good examples that our workers do not want this to be touched due to prior bad experience. There are reasons for this attitude. The main reason is that the people do not have true confidence in the leaders of their country. Although Prime Minister Wickremesinghe should be lauded for readying himself to swallow this bitter pill, it will take a longer term to change the attitude and to restore confidence of the people.

 

2001 UNF administration

The Rajapaksa regime enhanced the public sector in order to gain popularity. But the real situation is that it has completely forgotten about making pension allocations for anyone recruited after 2005. As this problem will erupt in around 30 years during a future government, the Rajapaksas would have conveniently thought why do we even bother?

As such, it is important to look at this in a futuristic manner. When the present Prime Minister Ranil Wickremesinghe came in to power in 2001, he said he would not give one State job and stuck to his pledge. Unemployed graduates commenced protests in every nook and corner of the country. At a protest held in Matara, Ranil’s government attacked several protestors. Wickremesinghe should have ideally negotiated with graduates and explained the situation.

Adding insult to injury, Wickremesinghe abolished pensions for many public sector employees and gave the golden handshake to thousands of others. Ranil’s loss was Rajapaksa’s gain. The 2001 government declined in popularity making room for the United People’s Freedom Alliance sweep to power and for Rajapaksa’s entry. Over 40,000 graduates were given government jobs. Present Prime Minister should accept his role in making way for Rajapaksa and take part of the blame.

What we must learn from here is that although how suitable your policies are in the long-run, you must understand when to apply or not to apply those policies.

 

Long-term solution

What the Budget 2016 proposed is to create a new pension scheme for those who joined the public service from 2016 onwards. One cannot predict what its exact module could be. He emphasized that under no circumstances would the pension system be abolished or any change be effected on the present structure without consulting the trade unions.

Although there is no time to experiment the pension problem, it is a crucial and burning issue. In order to formulate this new pension scheme, the setting up of a top-level committee comprising trade unions representatives must be commended. National Salaries Commission would be re-established and a comprehensive report would be obtained within six months.

However, if Sri Lanka wishes to uplift its people to an advanced nation, a paradigm shift needs to take place and transform from welfare-reliant people into a suitable homegrown, workfare model.

 

Nordic welfare V Singaporean workfare model

The Nordic Welfare Model (practised in Denmark, Finland, Norway, Iceland, and Sweden) can be distinguished from other types of Welfare States by its emphasis on maximizing labour force participation, promoting gender equality, egalitarian and extensive benefit levels, the large magnitude of income redistribution, and liberal use of expansionary fiscal policy. While there are differences among different Nordic countries, they all share a broad commitment to social cohesion, a universal nature of welfare provision in order to safeguard individualism by providing protection for vulnerable individuals and groups in society, and maximizing public participation in social decision-making.

It is characterized by flexibility and openness to innovation in the provision of welfare. The Nordic welfare systems are mainly funded through taxation. Despite the common values, the Nordic countries take different approaches to the practical administration of the welfare State. Denmark features a high degree of private sector provision of public services and welfare, alongside an assimilation immigration policy. Iceland’s welfare model is based on a ‘welfare-to-work’ model, while part of Finland’s welfare State includes the voluntary sector playing a significant role in providing care for the elderly. Norway relies most extensively on public provision of welfare.

On the other hand, the Workfare Model of Singapore is an alternative to conventional social welfare systems. Traditional welfare benefits systems are usually awarded based on certain conditions, such as searching for work, or based on meeting criteria that would position the recipient as unavailable to seek employment or be employed. Under workfare, recipients have to meet certain participation requirements to continue to receive their welfare benefits. These requirements are often a combination of activities that are intended to improve the recipient’s job prospects (such as training, rehabilitation, and work experience) and those designated as contributing to society (such as unpaid or low-paid work). These programmes are now common in Australia, Canada, and the United Kingdom.

Notably, Sri Lanka’s closest neighbour, India through its innovative National Rural Employment Guarantee Act (NREGA) offers 100 days’ paid employment per year for those eligible, rather than offering unemployment benefits on the Western model.

 

New economic model

Sri Lanka should go beyond conventional economics into a new economic pathway. In addition to an eight-hour shif, we may need to experiment with a second shift.

Economists and ICT experts all over the world are talking about a ‘Second Economy’. According to them, digitization is creating a second economy that’s vast, automatic, and invisible thereby bringing the biggest change since the Industrial Revolution, with some skeptics warning that over 100 million jobs would be wiped out by this ‘revolution’.

Author C. A. Chandraprema in his controversial 1997 book Kolapata Samajaya (Green society) recommends an alternative second ‘night economy’ based on entertainment and pleasure. He proposed further liberalizing ‘industries’ such as night clubs, gambling etc., and even legalizing prostitution in Sri Lanka claiming ‘the need to recognize an existing reality and to regulate entry into the profession and the rights of those engaging in it’. Although the writer shows it in a more sociological and in a less economic context, Sri Lanka would indeed benefit a lot by thinking about an alternative, greener, more out-of-the-box innovative economy that goes beyond conventional mindset.

On the other hand, green and innovation-based economy is what we need. The recently-concluded Paris Climate Summit called upon businesses, governments, the United Nations, NGOs, and civil societies to create an unparalleled opportunity to bolster business innovation and bring scale to the emerging green economy.