Driving a Balanced Economy: the issues

W.C. Dheerasekera

ECONOMY: Balanced Economy is a buzzword in our public debates nowadays. Since there is no standard definition, so many interpretations are there for this word. Some describe it from the spatial-economic geographical point of view and indicate that there is imbalance in the economic development between the Western Province and other provinces in the country.

Sectoral specialists on the other hand maintain that balanced economic development is not achieved due to an undiversified production base and advocate development of new industries, widening and deepening of the existing industrial base.

These interpretations hardly distinguish the roles played by the driving forces of the economy and present what is to be done to remove the unbalanced features of the economy, but how we should do it and who should get involved in it are not vividly explained.

Besides private and the public sectors, Professor Mintzberg has described the contribution made by two other important sectors for the development of economies namely the cooperatively owned enterprise sector and the not-for-profit enterprises often referred to as nongovernmental organizations (NGOs) sector. Accordingly, the roles of the following four sectors are equally important for a balanced economy:

* Private sector

* Public sector

* Cooperative sector

* Not-for-Profit (NGOs) sector

It is observed that in the first half of the last century Public/Private/Cooperative/NGOs-the four types of drivers of economy were making their contributions in different ways to develop our country. The role of development was not assigned to a particular sector and the resources of the country were not discriminately diverted to a single sector.

However, the growth of the Cooperative sector and the NGOs sector was truncated in the second half of the last century due to the orientation of public policy on public sector or private sector perspective.

In fact, a misconception prevailed in this period treating the Cooperative sector as an extension of the public sector and the NGOs as a component of the private sector. The main cause for these misconceptions was the dichotomy referred to by Professor Mintzberg.

In this context, the following comments made by the Presidential Commission of Inquiry on the Cooperative Movement of Sri Lanka-2000 (PCCM) are noteworthy:-

"It was only during the first three decades of the movement (1910, 1920 and 1930) that attention was paid to the promotion of the ideological aspect of the cooperation simultaneously with its enterprise aspect. Since 1940s emphasis has been more on the enterprise aspect and the ideological aspect has been completely neglected.

"After mid 1950s co-operatives have been used increasingly by governments and politicians to achieve their political objectives. The trend has been for more and more government intervention through the Department of Cooperative Development in the affairs of the co-operatives." (Page 54-PCCM)

The formation of Multi-Purpose Cooperative Societies (MPCS) in 1957 was the turning point of the generic cooperative sector in Sri Lanka. "The need for forming this type of co-operatives was pointed out in relation to two main problems referred to by the Minister of Agriculture and Food at the time.

One was that the approach followed in the practice of co-operation was still the same old one that the pioneers of the movement followed in the 19th century when social and economic affairs were left to the people themselves to manage on their own without government interference. This approach in the practice of co-operation was consistent with the laissez-faire policy that the states at that time followed.

"The minister felt that it was no longer suitable to meet the needs of the developing nations in the second half of the 20th century when the thinking was in terms of more and more government intervention for implementing development policies. Hence, it was thought to be necessary for the government to involve co-operatives for this purpose without leaving them to be concerned only with their parochial pursuits. (Page 44-PCCM)

This thinking on cooperatives represents the views of the Socialist Co-operative School. This school advocates the use of co-operative form of organization to promote the ideals of socialism. Accordingly, more centralized management of cooperative societies was preferred and granting more freedom to conduct the business activities of cooperative societies was not encouraged.

MPCS were formed in this way to centralize the management of cooperatives and rationalize the trading activities of a closed economy. MPCS hardly faced competition and exercised monopolistic powers in most of the trading activities undertaken by them.

After reorganization of MPCS in 1971, the government intervention in the cooperative sector intensified and the politicians of the successive governments began to assert more authority in the management of cooperatives.

In fact, they gained control of cooperatives by prevailing upon the Commissioner of Cooperative Development to appoint their favourite members to the Boards of Management of MPCS by taking cover under section 46(1) of the Cooperative Act.

Meanwhile the institutions established for the development of cooperative sector, eventually became public enterprises and neglected the needs of the cooperative movement. The case in point is the People's Bank. Instead of a Cooperative Development Bank, the People's Bank was established in 1961 to provide facilities for rural banking, agricultural credit and financial services to the cooperative societies.

Only during the first three decades of its operations, the People's Bank provided the required development assistance to the cooperative sector. Thereafter the scope of the People's Bank's activities expanded to other areas with the emphasis on commercial banking and the focus on the development of cooperatives gradually shifted away.

The Cooperative Wholesale Establishment (CWE) was constituted as autonomous body in 1950 by a Statute and separated it from the Cooperative Department. The main objective of CWE was to supply the goods and services required by cooperative societies islandwide for both wholesale and retail trade.

CWE was given almost all the concessions such as exemption from profit and income tax, stamp duty given to cooperative societies by the government with the understanding that CWE will function as the Apex Trading Agency- the nodal point in the network of cooperative societies.

However, since there was no institutional linkage legislatively built between CWE and the Cooperative Societies, CWE began to operate as another public enterprise with its own business plan and not restricting its activities to serve the cooperative societies as envisaged.

Incidentally, role played by NGOs in the economic development field has also expanded during the last three decades.

Many NGOs through poverty alleviation programs engaged in a wide range of development projects in developing countries pertaining to health, education, agriculture, rural development, community-based income generating activities, etc.

Dr. Michael Williams observing this trend has stated that "NGOs today form part of the 'development machine', a vast institutional and disciplinary nexus of official agencies, practitioners, consultants, scholars and other miscellaneous experts producing and consuming knowledge about the 'developing world'".

NGOs as a development partner can facilitate the development process in three ways. By participating in the designing of development projects NGOs can enhance the quality of the projects. The service delivery mechanisms of NGOs can be harnessed to implement development projects efficiently. Through cost sharing measures with NGOs, expenditure on development projects can be minimized.

Initial attempts made through RDSs- the home grown NGO to deliver development services had a limited success. According to A.B. Talagune, the Rural Development Officers appointed by the Government steered the activities RDSs as typical government bureaucrats and made use of RDSs to implement projects passed down to them by higher authorities. "Rural Development Officers without getting rural community involved in designing of development projects prefer to implement projects from outsiders who are not familiar with rural socio-economic environment."

Thus, the officials of the Rural Development frustrated the social entrepreneurs who identified social needs of the rural community and presented rural development initiatives in the similar way the officials of the Cooperative Department killed the initiatives of the cooperative entrepreneurs.

A.T. Ariyaratne the founder of the Sarvodaya-Shramadana Movement (SSM) as a dynamic social entrepreneur identified this lacuna and without depending on governmental assistance for rural development through RDSs launched his own institutional mechanism to address the social needs of rural communities.

Based on his experience in the remote village called Kanatholuwa Mr. Ariyaratne mobilized public donations for rural development. Thus, SSM is the pathfinder NGO in development activities in Sri Lanka and it was a role model for social entrepreneurs and an alternative mechanism for RDSs in the delivery of rural development services.

In fact, the lesson we learned from SSM, Seva Lanka and other NGOs operating in Sri Lanka is that responding effectively to the social, cultural, political and economic realities of the communities is very essential and successful NGOs have been flexible and creative. Moreover, NGOs over the last few decades have proven the fact that they can play a supplementary/complimentary role in the development efforts of the government or local governmental agencies.

Hence, an atmosphere congenial to the self-promotion of NGOs has to be created through a comprehensive public policy on NGOs.

Though there are a few NGOs which misappropriated public donations they received for tsunami relief work, a skeptical review of this nature will undermine the genuine efforts of well-established NGOs that have required resources at their disposal and possessed global experience in handling similar type of disasters.

Hence, it is necessary to establish a suitable national policy and legal framework to create an enabling environment for NGOs with good record of accomplishment and deter irregular activities of erring NGOs.

The national policy on NGOs must be developed in consultation and collaboration with NGOs and their stakeholders. The consultation process must be transparent and it has to be conducted in an environment of equal power and status.

The policymakers have to ensure that national policy on NGOs must reflect mutual concerns of both Government and NGOs through clear understanding of each other's role and institutional limitations.

The policy framework must confirm that NGOs cannot be created and managed by governments as those are by definition 'non-governmental entities'. NGOs have to be recognized through the national policy as legal persons with same rights, powers, privileges and immunities applicable to legal persons.

In dealing with NGOs sector, the Government must respect the pluralism of a democratic society and display tolerance for diversity and disagreement.

The national policy on NGOs must specifically address the issue of the sustainability of NGOs. As not-for-profit organizations NGOs cannot make profits to induce investors to make more investment for future operations.

By adopting best practices of other countries we can introduce some more principles towards developing a national policy on NGOs.

A substantial amount of work is already done at international and country levels to develop standards, principles, code of conduct and best practices with regard to the international operations of NGOs. We may get a set of comprehensive guidelines for the formulation of the national policy on NGOs from the NGO Global Network also.

As regards the legal framework on NGOs, without making provisions under the current legislations for registration and regulation of NGOs, a new act may be introduced to provide for the establishment and registration of NGOs. Provisions can be made in the new act to regulate the operations of NGOs with a view to create transparency and accountability whilst ensuring adherence to the minimum standards by NGOs.

In this context, it is advisable to set up a new commission - National Commission on NGOs to deal with the activities of NGOs with a development orientation. Because the congenial environment created for NGOs through the coherent national policy framework requires an independent, professional and transparent regulatory commission.

The commission will be responsible for regulating and monitoring the development of the NGO sector. The registration of NGOs can be assigned to a Govt. Department.

Provision of technical and financial assistance is a prerequisite for the advancement of the NGOs sector.

A National Trust Fund for NGOs can be created for this purpose. The management of this fund can be entrusted to the National Commission on NGOs as managing the use of scarce domestic and foreign resources among the competing NGOs needs high level of competency.