A right of reply to the ludicrous: NPP needs to get serious about industrialisation to avoid another crisis
The Prince of Kandy
If the establishment media’s longstanding coverage of Anura Kumara Dissanayake (AKD) hasn’t already revealed his alignment with establishment interests, the analysis of his proposed budget should make it obvious. I will critique both the laughable aspects of this budget analysis and the “industrialize or perish” argument being heavily promoted, which comes at a significant cost to society. While we can debate—an argument the Original Poster (OP) might support—that industrialization must take a highly specific form for development, I argue that this is not the solution to our problems. Instead, focusing on reserve targets and their net position would yield better outcomes.
Additionally, while domestic manufacturers contributed to mitigating or preventing certain aspects of the crisis, a sharper focus on the government’s net reserve position would have been far more effective. Furthermore, as advocated by groups like the Yukthi movement, I support the idea that Sri Lanka should not shy away from defaulting again if debt servicing becomes too burdensome—a scenario that seems highly probable.
Context
The notion of industrialization as a pathway to development originated during the late 18th and early 19th centuries, particularly with the advent of the Industrial Revolution in the United Kingdom. During this period, the UK leveraged its colonial empire to actively deindustrialize its colonies while building up its own industrial base. For example, the thriving textile industry in India was systematically dismantled through policies that promoted raw material exports to Britain and the import of finished textiles from British mills (Kumari, Sharma, & Khanday, 2022). This created a dependency structure that enabled Britain to amass immense wealth (Clingingsmith & Williamson, 2008).
This policy was particularly effective under the gold standard, where the accumulation of net exports translated more directly into wealth accumulation. Under this system, trade surpluses increased a nation’s gold reserves, which were the foundation of monetary stability and economic power (Harnetty, 1991).
The concept of Dutch Disease explains another dimension of this focus on industrial exports. Dutch Disease occurs when a country’s resource wealth (such as oil or minerals) leads to an overvalued currency, undermining other sectors like manufacturing by making exports uncompetitive and imports cheaper. To counter this, industrial exports provided broad-based productivity gains, ensuring that wealth was more equitably distributed and industrial capacity was strengthened (Parthasarathi, 2013) delinking resource wealth from economic wealth.
However, the global economic paradigm shifted significantly after the collapse of the gold standard in the early 1970s. With the USD emerging as the global reserve currency (formalized by agreements like the Bretton Woods system in 1944 and later changes in the 1970s), the dynamics of wealth and trade changed. The United States became a net importer of goods and services, with its trade deficit offset by the profits of American multinational corporations (MNCs) abroad. As Noam Chomsky argues, this arrangement ensures the stability of the U.S. dollar by maintaining a global demand for American goods, services, and financial instruments (Hippie, 1990). Countries seeking trade relations with the U.S. often remain open to U.S. MNCs, creating a dependency on American consumer demand and financial systems (Bagchi, 2010).
This historical context reveals the fallacy of the “industrialize at all costs or perish” argument. Such an approach enforces a reliance on export markets, which are often politically sensitive, not particularly profitable, and impose substantial costs on the domestic population during the initial stages of industrialization. The model benefits a few global powers at the expense of widespread economic autonomy and equitable development.
In simple terms, what is the benefit to India of manufacturing its own smartphones in a world where even once-dominant companies like Nokia, Sony, and Motorola have struggled to survive or maintain relevance, with many smartphone manufacturers rarely lasting more than 10 years? Even the unjust persecution of Huawei is not around it’s manufacturing capacity but rather it’s intellectual property. The extreme profitability of the iPhone aren’t in the subcontracting Foxconn whose workers have been subject to slave like conditions but rather in the intellectual and platform property it controls.
Localized Context
To further refine our analysis within a localized framework, it’s evident that many protected industries have not yet evolved into the export giants anticipated. These sectors are now highly consolidated, excessively profitable, and have consistently failed to reinvest in themselves. This pattern is clear from the public financial records of companies like the listed tile manufacturers, where the high cost of tiles funds substantial dividends for shareholders rather than research and development in the industry.
Looking at the apparel sector, historically a foundational industry for industrialization—as seen in England’s industrial rise—this sector has increasingly been outsourced to developing countries by global superpowers. Bangladesh, despite its governance challenges, is being encouraged to cultivate a textile industry. However, if this arrangement were truly beneficial, why then is the nation itself, along with its government, facing instability? This isn’t due to a sudden generosity from superpowers, but rather because maintaining such industries no longer benefits the host nations as much. In the textile industry, the real profitability now lies not within production but within retail chains and brand names.
Imagining a dialogue about reserves
It’s clear that an earlier default on debt by the government could have prevented the severe shortage of essential medicines during Sri Lanka’s crisis. This perspective is widely acknowledged among policy thinkers and should be emphasized as we approach future crises.
Regarding foreign-funded projects, adopting a cash flow-based evaluation rather than abstract valuations would have led to better outcomes. Reflecting on Ranil Wickremesinghe’s remarks about the Hambantota Port, if such projects were truly beneficial for the people of Sri Lanka, why weren’t the financing agreements aligned with the project’s expected cash flows?
This point is particularly relevant given the government’s ideological preference to handle projects independently rather than engaging in foreign cooperation. From a reserves perspective, this approach leads to a preference for debt over foreign co-investment, which significantly impacts risk. When debt is the sole mechanism, the counterparty’s primary concern is repayment. However, if foreign entities are allowed to participate as equity partners—or even as contingent equity partners, as China has expressed willingness to assume more equity risk in Sri Lanka—they become more invested in the project’s quality and implementation.
Interested parties should investigate OP’s perspective, which often attributes everything to foreign conspiracies. The decision to develop Mattala instead of expanding Bandaranaike International Airport stems from our own misjudgements rather than external influences. It’s noteworthy that Heathrow is currently owned by a Canadian pension fund, it is not about who gets the returns but the existence of critical infrastructure that is important.
Imagining a dialogue about market access
While I acknowledge the need for greater transparency in our nation’s dealings with Adani and recognize the potential for this entity to lose favor with future Indian administrations, we must still support this venture. The prevailing notion among the current government’s unions—that the Ports Authority could benefit by acquiring two adjacent ports for breaking down shipments from large vessels to smaller ones for further shipment into India’s smaller ports—is flawed. To date, the East Container Terminal remains non-operational, and during the period of this debate, we have seen no progress. Meanwhile, India has enhanced its port capabilities without facing any competition from us.
Engaging with Adani could have provided us with critical market access into India’s port sector and the financial means to invest in the East Container Terminal, rather than diverting resources to the West Container Terminal. Without a broader economic hinterland to serve, infrastructure alone is insufficient.
The transportation sector has been a key factor in maintaining John Keells Holdings’ (JKH) high profitability recently. Indian tourists and businesses are expected to be the primary consumers of services at Cinnamon Life. To capitalize on these opportunities, we must remain open to India inclusive of their industrial exports, which are significantly more cost-effective than what we could achieve domestically. This approach will allow us to maximize the substantial value we derive from tourism and transportation sectors involving India.
Although some keen observers might point out that Sri Lanka-India relations remain robust despite the high tariffs mentioned earlier, this issue is set to be a central topic in the forthcoming discussions on the Economic and Technology Cooperation Agreement (ETCA). We should not overlook India’s significant role in helping us navigate our recent crisis. Similarly, China’s support during the civil conflict was invaluable. Looking ahead, it’s clear that our future economic growth is closely linked with the BRIC countries. We shouldn’t throw this away on some misguided dream of industrializing by way of tariff protection or excessive government subsidy.
The future is de-industrialized
Industrial agriculture has had devastating effects on the health of the American population, leading to chronic illnesses and reduced life expectancies compared to other industrialized nations. In addressing the contrasting perspectives on the issue of industrialization we can take flour, we face several choices: should we ban wheat flour in favor of developing rice-based alternatives, support companies like Prima in mass-producing bread, or encourage domestic alternatives to processed flour products?
I would advocate for a move towards de-industrialization concerning this food source. Encouraging smaller bakeries to produce fewer preservatives and healthier products could significantly enhance our health and well-being. Regarding economic reserves, I am not overly concerned since flour isn’t especially valuable.
True modern wealth is not reflected in the industrial production of cheap, widely available bread but in the more expensive and less readily available products from artisanal bakeries.
This issue of flour is still seriously being considered in our economic discourse from recent reports of rice being imported for rice flour to the usage of rice in the production of beer. As with OP’s world view this is an outdated and fruitless conversation we are having. Industrialization isn’t a panacea.
Sources for Citations:
- Kumari, R., Sharma, P., & Khanday, Q. A. (2022). Industrial Revolution and Deindustrialization of Indian History – An Overview.
- Clingingsmith, D., & Williamson, J. (2008). Deindustrialization in 18th and 19th century India.
- Harnetty, P. (1991). ‘Deindustrialization’ Revisited: The Handloom Weavers of the Central Provinces of India.
- Parthasarathi, P. (2013). Historical Issues of Deindustrialization in Nineteenth-Century South India.
- Hippie, F. S. (1990). Multinational companies and the growth of the U.S. trade deficit.
- Bagchi, A. K. (2010). Colonialism and Indian Economy.