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Serving Sri Lanka

This web log is a news and views blog. The primary aim is to provide an avenue for the expression and collection of ideas on sustainable, fair, and just, grassroot level development. Some of the topics that the blog will specifically address are: poverty reduction, rural development, educational issues, social empowerment, post-Tsunami relief and reconstruction, livelihood development, environmental conservation and bio-diversity. 

Thursday, December 29, 2005

J.R.D. Tata and lessons for Sri Lanka

Daily Mirror: 22/12/2005" “The Thought Leadership Forum” By Ranel Wijesinha

During the course of an assignment in Shillong, Meghalaya-one of 8 states of the North Eastern Region of India, which border China, Bhutan, Myanmar and Bangladesh- I often stayed at the Taj Mahal at Mansing Road in New Delhi.

Many Sri-Lankans who have stayed there would agree with me that it is an indigenous Indian hotel that provides world-class service on a consistent basis, which perhaps prompts even other hotels to talk about it! No wonder then that political leaders, business leaders and celebrities of all types stay there.

JRD Tata
This of course is not the only achievement; the House of Tatas is famous for. Apart from diverse business interests, the Tata Group had great Thought Leaders. Presidents and Prime Ministers of India interacted closely with them. Political Leaders of India respected these business leaders for their objectivity, honesty and integrity and, above all, their leadership in thinking and doing. Reading Indian newspapers, whether editorials or news items or magazines of Indian origin, is always an intellectually stimulating experience for me.

On one such occasion a few months ago, I read an interview JRD Tata had given the Times of India in July 1981, which the Taj magazine- the magazine of Taj Hotels, Resorts and Palaces - had reproduced with these opening words from Fatma R Zakaria, now its Editor – “Twenty Four years later the issues discussed and the views of JRD Tata, are as relevant as they were in 1981. We therefore publish the long and comprehensive dialogue so as to initiate a debate on the subject once again.”

Given the X’mas season and many being on holiday, I will discuss in lighter vein today, JRD’s wonderful thoughts, and reconnect with the complexities of Privatisation Case Studies in early January.

Poverty Alleviation? -Free the economy and see the difference-

In response to a question as to what the private sectors’ contribution to tackling poverty would have been if the private sector was allowed to play its legitimate role during the preceding 30 years and the Government had a more flexible policy towards it, JRD’s view was as follows:-

India, after it became independent, practiced what was then termed a Mixed Economy – where private enterprise would play an important and continuing role, and the private and public sectors would be looked upon not as separate entities but as parts of a single dynamic organism. From the mid 50’s to the 60’s the mixed economy concept was good. Industrial production rose at an annual rate of 8 to 9 per cent.

Subsequently “due to an ideological opposition to private enterprise and misconceived interpretation of socialism, drastic policy measures and controls crippled the economy. For the misdeeds of a few, the business community as a whole was blamed and anti-private sector propaganda gathered momentum. The nationalization of major industries; government monopoly over finance; an absurd obsession about the dangers of concentration of economic power in private hands, etc., restricted initiative, investment and growth.”

“With a flexible and pragmatic approach, the economic scene would have been different.” In particular, he says, “Investment in industry would have been much greater; employment would have grown more quickly in all sectors; production would have increased considerably and shortages removed; Government revenue would have materially increased, which, in turn, could have been used in development programmes. And these conditions could have gone a long way in alleviating poverty. In short I say free the economy and see the difference.”

Rapid employment generation requires massive programmes of Public Works

When asked whether, in order to generate rapid employment, a Government has to protect the small sector-the cottage sector JRD had this to say-“I hold the view that the quickest way to provide extensive fresh employment in India is for Government to undertake massive programmes of public works - Roads, water projects, afforestation, and building works. The forests of this country are being devastated; afforestation is a prime need all over the country. Housing- buildings of various kinds, schools and hospitals, all would require largely unskilled work. Generating massive and rapid employment by creating industries in every village is not a practical solution. Any industry however small, needs skills. You have to first train and develop people. Develop them as fast as you can but it will still take years”

The Role of Foreign Capital & Technology in accelerating Economic Growth

India needs to open it doors more widely to foreign investment he had said. “Unfortunately successive Governments have been reluctant to do so. The economic scenario for the next 50 years, will call for massive investment but not all of it could be financed by domestic savings, which at 22% is already high for a developing country. Government has to liberalize its approach to attracting foreign direct investment if India is to grow as fast as it can.”

In addition he had said technological progress is a worldwide process and interchange of which between nations is wholly desirable. Foreign collaboration was important in avoiding having to “re-invent the wheel” and in transferring evolving technology.

Many local entrepreneurs prefer to have a competition free protected market

“Many of our entrepreneurs bask happily in a protected market,” he had said. He had gone on to say, “There would be little risk and much to gain in allowing foreign capital to contribute to this great endeavour of ours. All the assets and jobs created would be Indian. The improved technologies brought by foreigners would automatically advance our own, and would release a large proportion of our own resources for employment intensive development, particularly in agriculture and agro-based activities, essential to the rapid development of our rural areas.”

A growth rate of 6% annually for 50 years is quite possible

As far back as 1981, JRD had apparently recommended, a 6 % annual growth rate for the next 50 years. When asked whether in the light of the fact that the annual growth rate in the last 30 years was only 3.5%, this target was feasible his view was that India had stagnated at 3.5%. If this was what was achieved despite faulty planning; poor implementation; neglect of rural India; excessive priority given to heavy industry; restrictive economic policies often based on ideology rather than on pragmatic considerations; restrictions on the growth of the private sector through all –

embracing controls and licensing; the poor performance of the public sector; frequent breakdowns in infrastructure, then achieving 6% was quite feasible.

In contrast, he had said that South Korea, Israel, Mexico, Brazil, Spain, Singapore Taiwan and Hong Kong, had in the last 30 years achieved a growth rate of between 6 and 9 per cent. Japan during this time had a 10% growth.

He had gone on to say that, all these countries had relied on private enterprise and that Governments in these countries were geared to encourage and support private enterprise.

Improving the performance of the public sector

On the topic of improving the quality of the public sector, his view was that one of the biggest handicaps of public sector enterprise was that they were run largely by the ministries and were constantly interfered with. There is no continuity of management.

Poor performance in the public sector is partly due to the manner in which they are treated and controlled by the Government.

It creates in them a sense of insecurity and fear. This kills initiative and no one wants to take a decision. He goes on to say that (perhaps at that time) in France, Germany and Italy Governments treat public sector enterprises as private sector and leave them alone. If management does not produce results then they sack them.

A recent Sri-Lankan Example
All this is very relevant to Sri-Lanka even today. A case in point is the apparently unceremonious removal of a Chairman of a major Public Sector institution, only 2-3 weeks ago. This sent shock waves across the Foreign Direct Investment community, local entrepreneurs and even several members of the Cabinet of Ministers. The damage to the global and local reputation of this overseas trained and educated professional; the image of political interference the country sends out to the world from whom it labours to attract FDI; the negative effect it has on the morale of internal staff who were engaged in a successfully running UNDP assisted re-structuring initiative; as well as the dampening effect it has on efforts to “Re-attract Sri-Lanakan Experts working overseas” to return and lead similar Public Sector organizations- are all serious issues that civil society should not remain passive about if it wishes to contribute to the kind of change JRD Tata envisaged 24 years ago.

In addition to all this and much more, civil society must also help remedy the other side of the equation as it were. For, the professional who then assumed the position of the new Chairman of this very institution, and who benefited from and perhaps catalyzed this situation, has sadly set a bad example not only for all Sri-Lankans here and overseas, but all professionals everywhere.

Ranel Wijesinha., FCA (Sri-Lanka), MBA (USA), is a Chartered Accountant and Management Consultant with specialist experience in consulting in the areas of Privatizations, Valuations, Acquisitions and Divestments, Strategic Review, Redirection and Restrucuring assignments. He has made a major contribution to National Economic Policy and Strategy over the years. The “Thought Leadership Forum” which appears every Wednesday, is an “Awareness Enhancement Initiative” launched by him in the Financial Times, on November 16th, 2005.

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