“But it is also time to step back and examine the practice of scenario analysis and invest in addressing its weaknesses. We need to bolster its scientific credibility by adding
rigour to its procedures”
– Joseph Alcamo
By Laksiri Fernando
A scenario analysis undoubtedly can be used effectively to visualise the future under different possible conditions and make recommendations for policy decisions. In that sense, it is a planning tool.
One of the main exponents of this method, Peter Schwartz, called it ‘The Art of the Long View’ (1991). However, the scientific or the objective aspects of such an exercise also should not be denied. The practice shows that this method is more effective in planning business or other organisations, than in overall economic planning of a country.
Application of this method for countries, unless in selected sectors (i.e. energy, environment, roads, education, housing, etc.) is problematic as many variables, both national and international, must be carefully taken into account. Otherwise, the use of the method may appear superficial.
One of the Sri Lankan pioneers who used this method, to my knowledge, is Kumar Rupesinghe, for conflict analysis and peace studies. My acquaintance was in late 1980s. There are others who have used the method lately in their studies of rural electrification (N. Wijesinghe), cyclone hazards (Janaka Wijetunga) and renewable energy (Withanarachchi, Nanayakkara and Phushpakumara). There may be others. While the former was in the field of ‘social sciences,’ the latter efforts were in natural sciences and management.
A questionable purpose
In the above context, it is in a way appreciated that Dr. Razeen Sally has used it to visualise possible future scenarios for economic development in Sri Lanka (Daily FT, 17 March). The full title is ‘Sri Lanka: Three scenarios for the future’. However, his application of the method might be controversial among other matters.
Perhaps it is only introductory or done only to arouse interest in the method. His article is based on a lecture he has delivered in December (2016) at the Advocate Institute in Colombo. Advocate Institute or simply Advocata is a new Colombo based ‘think-tank’ promoting free market, questioning the efficacy of State-Owned Enterprises (SOEs), and promoting privatisation. Therefore, as an affiliate of that Advocata, it is not surprising the views expressed by Razeen Sally under the rubric of ‘scenario analysis.
Sally has used only three scenarios for the exercise and that may be sufficient. It is normally best not to take too many scenarios. They are the ‘drift,’ ‘take-off’ and ‘relapse’. What is questionable however is while the first two scenarios are economic, the last one appears to be overwhelmingly political. It might be true that economics cannot easily be separated from politics. A ‘political economy’ approach is one good example or excuse but it is not normally associated with the free market approach. Therefore, when a political ideology seeps in with a ‘free market’ approach that leads to quite a number of questions.
Sally begins with the “drift.” He has extrapolated the past two years for the future in this effort. I have no much issue with him when he questions “how is Sri Lanka now?” and answers “better than it was under the Rajapaksas, but not much,” except from purely an academic point of view, it appears quite political from the beginning. True, most of the improvements are in the political sphere, although far from being a Yahapalanaya (good governance). Again true “the chief debit is the economy.” The low rate of growth (5%) is a worry.
Then he comes to the diagnosis. The initial observations are ambivalent saying “The present Government continued its predecessor’s fiscal and monetary profligacy, eroding the tax base, and expanding expenditure entitlements and public debt – until an IMF bailout prevented a full-blown crisis. But this has not led to fundamental reforms of taxation or expenditure.” However, he expresses his initial grumble against ‘expansion of public expenditure’ without being specific.
After little digression on other matters, he comes to his ideology as follows:
“There have been no serious reforms to liberalise the economy – to remove domestic restrictions on doing business and to open up international trade and investment. So, predictably, domestic private investment has not increased, exports languish, and foreign investment has nosedived from an already low base.”
If we take all his so far identified problems of ‘erosion of tax base, expanding expenditure, increasing public debt and restrictions on doing business’ what the country has been lacking is an Economic Plan to further identify, project and resolve these existing problems. There should be no hesitation in ‘removing domestic restrictions on doing business and opening the country for international trade and investment, as necessary, in such a, say Five-Year Economic Plan.
One ‘trick’ or weakness of scenario method, when it is abused, is to make catastrophic picture of other scenarios, to propagate one’s preferred scenario. Sally’s analysis is not free from this defect. He says, “Sri Lanka has deteriorated to 110th position in the World Bank’s Doing Business Index.” But from what? He doesn’t reveal it. It is only from the 109th position in 2015. When you go through the Doing Business report, the World Bank has many good things to say about Sri Lanka.
Again, if we go by this index alone, pre-2015 era was much better where the country was ranked as 98 (2010), 89 (2011), 83 (2012), 85 (2013); only deteriorating in 2014 (113). Sri Lanka is also very much better than India (130th position), Pakistan (114th) and Bangladesh (176th). These indexes should be taken with a ‘pinch of salt’ whether on economy, society, democracy or human rights. Not because, these are fraud, but there can be weaknesses, inaccuracies or even biases.
What it says is that Sally’s analysis is not evidence based. What might be crucially required in Sri Lanka is evidence based economic planning for the country; not wishful or doomsday thinking.
Assault on the public sector
One of Sally’s major grumbles is about the public sector. He says, “The public sector remains as bloated as ever, employing 1.5 million people in a workforce of about eight million.” It may be true that if we take the productivity in the public sector, it is comparatively low than the private sector. This must be corrected through retraining, reorganisation and motivation. However, it cannot be considered ‘bloated as ever.’ For a country of 20.8 million population (2016), it is not at all high and quite comparable to Australia. The public-sector employment in Australia is 1.9 million for a population of 24.4 million (2017). There has been an expansion of the public-sector employment in recent times with particularly the Provincial Council system in the country which is rather an imperative.
There are good points as well in his diagnosis, although one might question his language, when he says, “There is little competition in the economy: one or a handful of companies dominate most sectors, protected from foreign and domestic competitors; their bosses bankroll senior politicians and finance their election campaigns. New entrepreneurs are deterred and consumers screwed.” The prohibition of ‘bankrolling’ of politicians or political donations to political parties undoubtedly should come as part of political reforms in the country.
What is more conspicuous in his ‘scenario analysis’ is his China bashing. The main predicament of ‘drifting’ he identifies as the following:
“Finally, foreign policy has drifted back to China’s warm embrace. Chinese projects are back on track, most recently with a debt-for-equity swap that gives majority ownership and management of Hambantota Port to a Chinese State-owned operator. This would not be a problem if Chinese state-backed investment were counterbalanced with more productive private-sector investment from India, the West and elsewhere. But Chinese investment is the only big foreign-investment game in town. That is worrying, on economic and national-security grounds.”
This bashing is repeated several times.
It is possible that Sally has got some misgivings with the government. As far as I know, his relations with the top brass of the government, particularly in the economic front, was more than cordial before. Having had late misgivings perhaps, he has opted to castigate the whole country, ‘culturally,’ which is unbecoming of a scenario analyst. He says, after questioning ‘why Sri Lanka keep squandering opportunities,’ “There is an underlying cultural reason: Sri Lanka’s eternal, accursed complacency.” As I have pointed out in a previous article, he attributes this cultural trait to a particular community (Sinhalese) in the following manner.
“Too many Sri Lankans, and certainly their governing elite, expect coconuts to keep falling into their laps. The realisation has never dawned that the world does not owe Sri Lanka a living. A culture of working hard, planning for the future and earning one’s success has never taken root. It has among the minorities – hardy Tamils used to eking out a living in the barren north and east, Muslim traders, Colombo’s tiny Indian trading castes, even Christians – but not really among Sinhala Buddhists. “
These are unfounded claims or utter prejudices, not worth of a reputed academic whether of Sri Lankan origin or otherwise.
Sally has given scant attention to a developmental scenario, as if Sri Lanka would never take-off. The words run very quickly without any analysis or solid evidence when he analyses a possible “take-off.” He may be correct to an extent when he says: “Finally, the post-Rajapaksa [sic] record convinces me that nothing will change fundamentally unless a new generation breaks through in politics and public institutions.” The calling for a new generation to take control and emphasising such a role in politics or economic development are common prescriptions. But he concludes “all this is a long way off. It will not happen without radical change. The odds are it will not happen.”
However, if Sally has been convinced that the ‘bloated’ public sector is a major liability for economic development, he should have compared the two scenarios: one with a minimum public sector and the other with ‘bloated’ proportions, to drive his point in an objective manner. The whole misgiving instead seems to be that his ideological prescriptions are probably not heeded by the government or policy makers. It is interesting to note what they are: (1) fiscal and monetary stabilisation (2) domestic deregulation (3) trade-and-foreign-investment liberalisation (4) downsizing the public sector (5) deregulating land and labour markets (6) upgrading education and skills and (7) liberalising agriculture.
The above prescriptions are very much similar to the famous 10 points of Washington Consensus (IMF, World Bank, US, etc.) as initially explained by John Williamson (1989). One exception is ‘upgrading education and skills’ which is commendable. The others are usually called ‘market fundamentalism’ or simply ‘neo-liberalism.’ In these equations, he has not at all taken into consideration the changed international context after Brexit (June 2016) or Donald Trump’s victory in Washington (November 2016).
At last Razeen Sally has expressed some sentiments for his country of origin. He ends his article or scenarios with the following sentimental feelings:
“Above all, I hope it does not come to this. Even if it does, Sri Lanka will still have its achingly lovely landscapes and warm, welcoming, party-loving people. It will still have individuals – journalists, professionals, businesspeople, citizen-activists and humanitarians – who will fight the good fight for the disadvantaged and suffering.”
That is commendable.
In summary, Razeen Sally’s three scenarios should not be taken as a model for scenario analysis at all, whatever the good points or significant defects that he has identified in the economy. I request all serious students of public policy in Sri Lanka to go through it carefully and critique it to learn how not to do a scenario analysis in a macro or a micro context. Apart from referring to Peter Schwartz, it is also important to heed to Joseph Alcamo (Environmental Futures: The Practice of Environmental Scenario Analysis, 2009).
Even if Razeen Sally is correct in some of his diagnosis of serious ailments in Sri Lanka’s economy or the political system, haphazard application of Washington Consensus, ‘market fundamentalism’ or simply said ‘neo-liberalism’ are not the way to go about it. The public sector in Sri Lanka is important. The repetitive statements, the language and advocacy that he has unleashed are reasons to doubt about the ideology behind his scenario analysis. What might highlight all of these is the need to have an evidence based Five-Year Economic Plan for the country. It is important as a new Constitution is necessary.