Government pushing private sector out of growth equation?

5 August 2013 03:17 am Views - 3420

The growth in the Sri Lankan economy happens without the expansion of the private sector and the country does not see the private sector participation in the economy, according to a leading economist in the country.

Dr. Anila Dias Bandaranaike partly attributed this phenomenon to government led armed forces carrying out business ventures, which could have a crowding out effect on the private sector.

“There is an enormous conflict and inconsistency between what the government says and the messages they deliver. If you speak to a few businessmen, you would understand they would not enter into some of the business sectors because the government is carrying out businesses through the army and navy,” she said.

It was only last month, the outgoing Army Commander and the now Chief of Defence Staff, Jagath Jayasuriya told Daily Mirror that the army was awaiting Cabinet approval to form an entity which could venture into profit-making business. This will also enable them to bid for government projects for a profit.

The former Central Banker, Dr. Bandaranaike further said that there was no trust and credibility between the public and the private sector.

“Trust and credibility are lacking today. On the one hand, we have a very silent private sector and on the other hand, we have a very defensive government,” she remarked.

According to economists, armed forces entering into business will distort the free market system because they will have the privilege of undercutting prices, which other market participants do not enjoy, ultimately resulting in putting others out of business.

As they pointed out, this is because the armed forces backed by the government can manipulate the costs, which are not apparently born by them but the people.

“So, in the short term, the armed forces/government will see their ventures very lucrative because they become myopic and do not see many others going out of business failing to compete with their prices. There will be an artificial profit for the government.”

“But in the medium to long term, the unhidden social costs will come into the picture with increased unemployment and narrowed private sector, which ultimately will have to be borne by the public in terms of higher taxes,” an economist Mirror Business talked to said on condition of anonymity.

Dr. Bandaranaike, who is also a statistician, said that she did not see a link between the corporate performances reflected in the pure numbers and the expansion in the economy.

“When you read the business pages we see companies have recorded growths in their revenues and profits. Now, how does that rupee number translate into expansion of manufacturing, creation of jobs, demand growth and finding of new export markets, etc.? So, these financials are unrelated to what the government expects from the private sector. I don’t see a link there,” she opined.

In that backdrop, Dr. Bandaranaike said unless the private sector engages in a continuous dialogue with the government and exerts pressure through collective bargaining power the country would not see the envisaged level of private sector growth.