Reforms are beneficial only if accepted by public through clear understanding

Reforms are beneficial only if accepted by the public through clear understanding and if approached in the right way, asserts Prof. Garry Banks, a Professorial Fellow at the Melbourne Institute of Economic and Social Research and Chair of the OECD Regulatory Policy Committee. 

Prof. Banks, who is in Sri Lanka on a brief visit and delivered a public lecture on ‘Securing Successful Reform: The Role of Institutions’ at the Central Bank on Tuesday, in an interview with Daily FT emphasised on the fact that trade is a major source of productivity in the long term. 

Prof. Banks oversaw many key economic reforms in Australia and has presided on public inquiries in a range of policy areas. He was invited to Sri Lanka by the Australian High Commission as part of its ongoing contribution to providing a two-way exchange with the local government.

In this interview, he shares the story of what Australia has been doing in terms of the country’s economy and what Sri Lanka can learn and gain through his experiences. 

Following are excerpts:

By Shannon Jayawardena

Q: As a developing country, how important are reforms for Sri Lanka?

A: I think every country has a need for reforms because every country over time develops policies that are no longer perhaps ideal for the circumstance that they find themselves in. I come from Australia which has been through a major period of reforms which began in the 1980s and I guess the message coming from Australia is that reforms can be tough, they can be unpopular but if they are approached in the right way and explained properly to the public, they can be successful. 

Then the benefits that come from reforms in a sense reinforces the work of going through a reform process. So for a country like Sri Lanka, working out what reforms will be best for the people and explaining to the people what’s going on and why these reforms will be beneficial is an important part of the success of achieving reforms. That really is the message from Australia.

Q: What reforms should be prioritised?

A: I can’t really comment on the detail of what reforms would be most suitable for Sri Lanka. The experience in Australia is that privatisation is less important than competition. So it’s possible to have a competitive environment in which there is an incentive to be productive, efficient and keep prices low for consumers, be it a public organisation or a public organisation.

Now in Australia we have also privatised public utilities in areas like energy and telecommunications. I think the area where there is not so much debate is that competition seems to be efficient and is the key more than ownership or such.

Q: How can the Government win support of political parties, trade unions and the general public with regard to market reforms?

A: Probably the most fundamental thing for successful reform is to get an agreement that there is a problem. So to have a solution without agreement that there is a problem is quite hard. So when you say market reforms, these will only make sense to people if it is seen as a solution to a problem and the problem generally that market reforms are a solution to is a problem of lack of competition, of lack of incentive to be productive and efficient but those problems have to be agreed really before you get an agreement about the solution because obviously change is disruptive to people and no one likes to see change to their circumstances. 

So there has to be a strong case that change is worthwhile and the disruption it causes is worthwhile because in the long term there will be more growth, more income, higher tax revenue, more ability to provide services, health and education and other services to people, and in a way, in an economy, everything is connected to everything else. So a more efficient and productive economy often means that you can have a more socially-progressive government that can provide more benefits to more disadvantaged people and so on. Every country has its own particular challenges but there are some things in common about good process, public discussion and preparing the way forward.

Q: How in your opinion can Sri Lanka maintain a steady economic expansion while maintaining macroeconomic stability?

A: I think the challenge is to have institutions and processors that enable good regulations and good spending decisions to continue. So a lot of countries go through a period where they make reforms and then they get reversed later, then they make reforms again and it’s a little bit like one step forward and half a step back. So the challenge for any country I think is to find a way of reforming and maintaining the ongoing reforms that don’t get reversed just when there is a change in government and for that to happen there have to be reforms that have brought public acceptance and that have been seen as reforms that will benefit the citizens.

Q: Your visit here in Sri Lanka was to meet with several stakeholders from the economic sector. Could you share some highlights and the main purpose of your visit?

A: Well, this is a very brief visit and this is a lovely country. I’m just here for a couple of days to tell the story of what Australia has been doing because Australia has very strong bilateral relations with Sri Lanka and one of my best friends when I was at school was a Sri Lankan boy and we have a lot of Sri Lankans who are coming to Australian universities. So I’m here just to exchange views about how we do things in Australia, how things are done in Sri Lanka. 

I have been talking to some Government people, some think tanks and some business organisations as part of a general discussion. I’ve been brought here by the Australian High Commission as part of its ongoing contribution to providing a two-way exchange with the Sri Lankan Government.

Q: Trade is significant for a country’s economy. What are your thoughts on this?

A: Yes, trade is very important because trade is what connects the country to the world markets and trade is also what makes a country know that it is producing the right things, because if it is not, in the end trade will be ensuring that people are buying things from other countries. So it is a very important discipline on efficiency for an economy to be open to trade.

Now that means that some parts of the economy will be facing more competitive challenges but the experience in Australia has been greatly outweighed by the dynamism that occurs in other parts and the export growth. So when Australia began its trade reforms in the 1980s, the trade share of GDP was only about 20% and by the time it finished its trade reforms, the trade share of the economy was about 45%. Productivity had gone up and income levels had gone up. So from being an economy in Australia outranking the capital GDP terms globally had gone from about 5 to 15 and after 10 to 15 years of reforms our rankings were back up at 5 or 6. 

Trade is a very important way of a country becoming wealthier by concentrating on the things it does best and concentrating on the job of trade to benefit from the other countries that do well. So I am pro-trade. I think trade is a good thing and although it can cause some disruption in the short-term, in the long-term it is a major source of prosperity. 

Q: What lessons can Sri Lanka learn from Australia?

A: I think, probably the Australian experience is that reform is beneficial but it has to be accepted by the public to make sure that it is going to be enduring and if reform is approached in the right way, it will be beneficial to the country and it will stay in place. So the reforms that Australia conducted in the 1980s in trade, in infrastructure and in Government services are all reforms that have stayed in place and in Australia they have all been accepted now as they have been very beneficial for Australian citizens. My message is reform is good but it has to be approached in the right way through public understanding of the benefits.