Economic Development of
After World War 2, many of the less developed states attempted to develop ( so as to meet with the developed states in footings of life criterions ) by agencies of spread outing their fabrication sectors. Critique this scheme concentrating on one of the less developed states and the successes and failures of its industrialisation undertaking.
World War 2 gave rise to a figure of conditions that posed jobs for the underdeveloped universe, whose components, mostly freshly independent states, were faced with tough determinations refering the promotion of their development policies. Industrialization was frequently considered the Panacea for their quandary, with many states implementing schemes that focused on spread outing fabrication capablenesss. This paper will review this attack with specific mention to the instance of Sri Lanka through an geographic expedition of the assorted successes and failures of its alone industrialisation undertaking. The general premiss is that of the trouble of successfully finding an industrialisation scheme that will accommodate the development ends of a state, particularly when the scheme relies on several undetermined factors.
Before shiping on any kind of rating of scheme, it is prudent to admit the dynamic economic context of Sri Lanka since WW2. Post-independence, 1948, Sri Lanka ( known as Ceylon until 1972 ) was preponderantly an agricultural, export-led, unfastened economic system ( Agalewatte, 2004: 60 ) , with its agricultural green goods being the principal stimulation of its economic system – accounting for about 50 % of the state ‘s GDP ( Balakrishnan & A ; Gunasekara, 1977: 260 ) . 90 % of export net incomes were derived from the three chief hard currency harvests ; tea, gum elastic and coconut, while half the state ‘s workers were employed in the agricultural sector ( Encyclopaedia of the Nations, 2009 ) . In contrast, the fabrication sector was peculiarly little, consisting merely 5 % of GDP, using less than 10 % of the work force and giving a mere 1 % of export net incomes ( Central Bank of Sri Lanka, 2000 ) . The steadily turning services sector made up the staying 45 % of GDP. However, today Sri Lanka stands at a really different economic place as a consequence of its assorted industrialisation schemes since the mid 1950s. As of 2007, statistics reflect an about mirrored image of Sri Lanka as it stood in the decennary following independency. Agriculture now accounts for merely 11.7 % of GDP and fabricating 29.9 % , while the services sector dominates at 58.4 % ( The Economist, 2009 ) . This transmutation represents Sri Lanka ‘s attempt to meet with the developed universe and is evident in a figure of other instances, all which sought to spread out their fabrication sectors as the agency to this end.
The old economic order involved an international division of labor such that industrialised, developed states produced manufactured goods while non-industrialized, developing states produced primary merchandises, the synergistic agent being trade. Naturally, states specialized in the production of their comparative trade goods in this manner and therefore enjoyed a comparative advantage in their industry. This order persisted in the shadow of colonialism and was arguably good to both the developed and developing universes. However, World War 2 and the first moving ridge of decolonization urged a alteration in the cardinal operation of this system. Industrialized states shifted fabricating attempts towards bring forthing military supplies to fuel the war, which led to a decrease in the production of manufactured consumer goods. This was debatable for many developing states which were to a great extent dependent on imports of foreign consumer goods to fulfill their basic demands. For case, in the 1950s 75 % of Sri Lanka ‘s nutrient demands were derived from imports ( Encyclopaedia of Nations, 2009 ) . In add-on, a bead in the existent monetary values of primary trade goods post World War 2 meant that developing states earned less for their green goods while confronting increased import costs as the monetary values of manufactured goods rose. This impairment in footings of trade for less developed states was normally referred to as the Singer-Prebisch thesis ( Prebisch, 1950 ; Singer, 1950 ) which as a theoretical account recommended primary bring forthing developing states to diversify their economic systems through industrialisation. Consequently, many developing states pursued economic reform in an attempt to industrialise.
A widely implemented industrialisation scheme was that of import permutation. Michael Todaro ( 1994: 681 ) defines import permutation as “a deliberate attempt to replace major consumer imports by advancing the outgrowth and enlargement of domestic industries, ” which verifies it [ in theoretical footings at least ] as being a way to industrialisation embodied by an attempt to achieve economic independency. As the deteriorating footings of trade began to take consequence in Sri Lanka, its agriculturally based export sector bit by bit failed to excite the economic system ( Karunaratne, 2000: 172 ) and by 1956, the combination of a freshly elected authorities, high unemployment degrees, and increased costs of imported consumer goods led to drastic economic reforms inclined towards inward-orientation, efficaciously confirming the terminal of Sri Lanka ‘s classical export economic system ( Agalewatte, 2004: 62 ) . The end point Ten Year Plan of 1958 placed import responsibilities ( sometimes up to 100 % ) on luxury consumer goods, while cut downing responsibility charges on selected capital goods, such as natural stuffs and equipment, in an attempt to protect domestic industries ( Snodgrass, 1966: 216 ) . Mounting balance of payments jobs during the early sixtiess led to even stricter province controls, including terrible quantitative limitations on imports and prohibitions on such imported consumer merchandises as autos, tickers, redstem storksbills and wirelesss ( Balakrishnan & A ; Gunasekara, 1977: 42 ) . Infant fabrication industries produced transcribed fruits, jams and pickles, aromas, toilet articless, razor blades, cocoas and detergents ( Agalewatte, 2004:64 ) which were sustained mostly through foreign adoption ( e.g. IMF loan of 1962 ) . A policy of nutrient autonomy was attempted ; buttressed by internal limitations on the transit and distribution of nutrient materials, which accordingly led to the creative activity of parallel black markets ( Gunawardana & A ; Somaratne, 2000: 188 ) . The fabrication industry grew at an mean rate of 5.4 % per twelvemonth between 1958 and 1963, while the economic system grew at a similar rate of 4.2 % ( Ponnambalam, 1980: 202 ) .
However, despite the turning domestic industry, unemployment rates about doubled between 1963 and 1970 [ from 8 % to 14 % ] ( Colombo Department of Census and Statistics, 1970 ) . The universe oil, nutrient and fertiliser crises of the early 1970s, low export net incomes and a debt service ratio of about 25 % dashed the authorities ‘s at hand programs for liberalisation and conversely resulted in an addition in province controls and intercession at an unprecedented rate. The authorities took control of the plantation industry and legitimized coup d’etat of all private concerns with more than 100 employees by agencies of the Business Undertaking ( Acquisition ) Act 1970, while a figure of public corporations were established in about every country of economic activity. Agalewatte ( 2004: 68 ) provinces that at this clip “the authorities became the largest industrial enterpriser in the economy.” Indeed, high duties, import licensing and quantitative limitations persisted, yet the ineluctable fact was that most of Sri Lanka ‘s domestic fabrication industries were excessively extremely dependent on imports – a dependance that was basically restricted as a effect of the prevalent closed economic system strategy of the 1970s ( Athukorale & A ; Rajapatirana, 1980: 543 ) . As such, import permutation failed to work out Sri Lanka ‘s economic jobs as it did non accomplish industrialisation. Unemployment rose even higher up to 24 % in 1973 ( Colombo Department of Census and Statistics, 1973 ) ; rising prices rose at an norm of 6 % per annum between 1968 and 1973 ( Colombo Consumer Price Index, 1973 ) ; domestically produced consumer goods were overpriced, of a hapless quality and hence in little demand ; rewards were low ; and under use of capacities in industries [ due to imported goods deficits ] was clearly apparent ( Agalewatte, 2004: 70 ) . Import permutation industrialisation therefore visibly failed to carry through Sri Lanka ‘s development aims and caused serious debt jobs, taking to a self-contradictory dependance on external beginnings for capital. Clearly more planning was needed before the drastic shuting up of the economic system, particularly with respect to resource capablenesss and employment creative activity. The landslide triumph of the resistance party in the parliamentary elections of 1977 affirmed public dissatisfaction with life criterions, proposing that the permutation of foreign consumer goods with domestic merchandises was non a successful scheme and that a new economic way was required.
Export-oriented industrialisation is frequently described as a contrary attack to industrialisation as that of the import permutation scheme ( see Bruton, 1998 ; Silva, 2007 ) . Bina and Yaghmaian ( 1989: 234 ) argue nevertheless, that import permutation and export-oriented industrialisation are “two stages in the same dynamic procedure, ” proposing a rhythmic, even cyclical patterned advance. Similarly, Chang ( 1993: 133 ) provinces that authorities controlled import permutation serves the overall intent of protecting domestic fabrication industries until they are economically robust plenty to vie in a planetary market, at which phase export-oriented free market policy is pursued. Export-oriented industrialisation normally entails trade liberalisation through the gap of domestic markets to foreign competition, the riddance of trade barriers and the natation of exchange rates. It is considered the dominant industrialisation scheme mostly due to its successes, although in the face of the current planetary fiscal crisis its orthodoxies have been questioned, and revisionist motions are seemingly organizing ( Bruton, 1998: 904 ) . Sri Lanka was the first South East Asiatic state to follow an export-oriented scheme ; in 1977, after the failures of its import permutation scheme as already critiqued. It is besides one of merely four states outside East Asia to hold registered a distinguishable policy displacement from import permutation to export-oriented industrialisation ( alongside Chile, Argentina and Uruguay ) . Indeed, Bina and Yaghmaian ‘s ( 1989 ) and Chang ‘s ( 1993 ) point of views resonate in the instance of Sri Lanka, as industrialisation was realized in a two-step, synergistic procedure.
In response to the defects of inward-orientation, the freshly elected authorities in 1977 implemented an extended turnaround scheme based on an export-led theoretical account of industrialisation. Most important among broad policy reforms was the constitution of the Greater Colombo Economic Commission ( GCEC ) which looked to turn to Sri Lanka ‘s foreign investing policy jobs by puting up export processing zones ( EPZs ; besides referred to as Free Trade Zones: FTZs ) . The GCEC fuelled farther liberalisation, as complete foreign ownership of investing undertakings in EPZs was permitted with the extra inducement of revenue enhancement vacations for up to ten old ages. Exemptions on import responsibilities, subsidies on industrial service charges and limitless entree to foreign currency recognition were some other inducements offered to foreign entities to put in the Sri Lankan economic system ( Athukorale & A ; Rajapatirana, 1980: 550 ) . Quantitative limitations on imports were replaced by duties, the exchange rate was placed on a managed float, monetary value controls on nutrients were removed, labour market ordinances were eased, and public ownership of legion commercial sectors was relinquished and later privatized, efficaciously puting the foundations for a entirely new economic way ( Athukorale, 1995: 545 ) . The Export Development Board ( EDB ) was set up in 1980 to help export ventures through comprehensive authorities support in countries of merchandise development, monitoring, selling and coordination, while the Sri Lanka Export Credit Insurance Corporation ( SELCIC ) provided wide-ranging commercial insurance and warrants ( Agalewatte, 2004: 74 ) . The fabrication sector grew at a rapid mean rate of 8.25 % per twelvemonth during the 1977-1997 period ( Central Bank of Sri Lanka, 1977-1997 ) and production was diversified to include garments, fabrics, ceramics, fertilisers, veggie oils, cement and crude oil merchandises. Yet while the phase was successfully set in this manner for industrialisation and was this clip supported by foreign direct investing and the free handiness of capital goods ; full capacity use in industries was stifled by the civil struggle of the eightiess. Therefore, even though Sri Lanka stood as one of the most unfastened economic systems in the underdeveloped universe at this clip and executed its industrialisation scheme good ( Athukorale & A ; Bandara, 1989: 899 ) ; socio-political factors ( i.e. the war ) disallowed fully-fledged industrialisation and the attendant convergence with the developed universe as was the outlook of its export-oriented scheme. Defence outgo soared from 1.61 % of GDP in 1985 to an about conscienceless rate of 17 % of GDP in 2008 ( The Economist, 2009 ) , later consigning industrialisation behind the war in footings of importance. As such, the prospective benefits of export-oriented industrialisation have non yet been to the full reaped in Sri Lanka. Its economic system has however been sustained through the turning garment and tea ( export ) industries and significantly of late through migratory worker remittals, which accounted for about 8 % of entire GDP in 2005 ( World Bank, 2005 ) . However, export-oriented industrialisation registered higher growing rates than that which import-substitution yielded despite the restraints of the war – GDP mean growing per annum between 1950 and 1977 was 3.7 % compared to 5.3 % between 1977 and 1997 ( Central Bank of Sri Lanka, 1950-1997 ) . In amount, Sri Lanka ‘s export-led theoretical account has been good to its economic system and could hold reached a higher possible but for the war.
This paper has concentrated on the instance of Sri Lanka and its double efforts at industrialisation following World War 2. Having adopted both import-substitution and export-orientation as industrialisation schemes, Sri Lanka has experienced assorted consequences refering consequent development, as on both occasions assorted factors have hindered this end. The state-led import-substitution government finally failed to accomplish industrialisation, as it fell abruptly of one of its primary aims of exciting economic independency ; and in the procedure of spread outing fabrication capablenesss, caused debt jobs and hapless life criterions. Export-oriented industrialisation, on the other manus, was significantly more successful, ensuing in higher growing rates than that which import-substitution yielded, despite the restrictions imposed by a civil war. Thus it will be interesting to detect the effects of Sri Lanka ‘s export-oriented theoretical account in the post-civil war period.
It is discernible however that Sri Lanka pursued industrialisation as an instrument for accomplishing development. A review of the schemes it implemented to run into this end provides an penetration into the complexness of this mission. The instance of Sri Lanka shows that the successes or failures of development schemes can non be randomly determined ( as is apparent in the varied public presentation of states that adopted similar schemes ) , but depend on legion factors such as country-specific state of affairss, the function of authorities and the external environment. This consequently makes development an progressively hard end to accomplish.
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