International Trade and Development Strategies Minister Malik Samarawickrama told Parliament this week that the Government would introduce Trade Adjustment Packages (TAP) to cover new machinery and skills retraining for workers of companies that would be affected by liberalisation of the Sri Lankan economy.
TAP, or Trade Adjustment Packages as they are called in some parts of the world, are popular policy solutions for Governments that target opening up their economy to link with global value chains. But they come with a number of challenges and require careful and responsible handling as it deals with public funds.
Ideally TAP should be about re-skilling workers who will lose their jobs to trade liberalisation and the policy should not be reduced to putting large amounts of public money directly into the pockets of companies. Other countries that have taken similar routes have found TAP implementation incredibly complex, have struggled to maintain them long term and had mixed results.
Since 1962 America has earmarked funding to help people adjust to trade-related shocks, titled Trade-Adjustment Assistance (TAA) the Government program offers people money for retraining and income while they do so. Workers over 50 can get their wages topped up by 50% of the difference between their new and old wages. The money should help cushion the financial blow, and tempt them towards on-the-job training, in theory.
In practice the situation has been quite different. Case studies on TAA have shown that workers often have to spend long amounts of time waiting to get selected for TAA and even after gaining new qualifications have not found jobs that pay as much as their previous employment. In some cases even the new jobs have become redundant, leaving workers with no options. In the case of large-scale worker layoffs large groups of workers are retrained in the same type of jobs, which mean that supply outweighs demand. Proponents of TAA argue that its reach should be expanded and companies who are laying off staff should make it mandatory for workers to sign on to improve its effectiveness.
TAA, which was expanded under the Obama administration, even offered to pay people to move out of towns and find alternative employment elsewhere but just the loss of jobs can result in massive social and political upheaval. Sri Lanka already has a weak vocational training system and as a country with an ageing population retraining older workers in technology fields would be more challenging. Ideally TAP should also have an entrepreneurship arm that would match potential beneficiaries with jobs so that uncertainty is reduced. TAP would also have to be linked with insurance, retirement benefits including pensions and provident funds to ease the danger of unemployment.
Policies such as TAP also need to run for decades but in Sri Lanka’s fragmented political structure measures by one Government may not be continued by a new one, which would put workers in unbearable ambiguity. Residents of America’s famous “rustbelt” or former manufacturing cities that have seen their jobs dwindle due to liberalisation and trade deals were one of the main reasons behind the election of US President Donald Trump and his vicious attack on free trade and globalisation.
There are tough political and social lessons here that also need to be taken into consideration as the Sri Lankan Government embarks on an essential but difficult liberalisation path.