Competitiveness and development
Last week it was announced that Sri Lanka has made an impressive jump
of 10 places to 52nd from 62nd in the rankings of the latest Global
Competitiveness Report (2011-2012) issued by the World Economic Forum
(WEF).
The Institute of Policy Studies (IPS), the local partner of the WEF
and the body responsible for the Sri Lanka section of Global
Competitiveness Report, which made this revelation, also said that the
country had steadily improved its ranking, from 79th in 2009-2010 and
62nd last year (2010-2011).
Business people
The country's overall index went up from 4.0 in 2009-2010 to 4.2 last
year and 4.33 this year. If this trend continues, Sri Lanka could reach
the level of competitiveness of, say Canada within ten years.
However, before becoming too complaisant, it would behove us to
consider what this all really means.
The GEF defines 'Global Competitiveness' as 'the set of institutions,
policies, and factors that determine the level of productivity of a
country'.
This seems very reasonable, but unfortunately the methods by which
these factors are measured may be found wanting.
The indicators on which the GEF defines its indices are based partly
of figures and partly on the opinions of business people. Granted that
it is the opinions of investors which determine how much investment goes
where, this is nevertheless too subjective to be considered a realistic
measure.
Education index
Sri Lanka tends to score higher in the areas in which solid figures
are available, lower when the indicator is based more on opinion.
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For example, the education index is partly measured by enrolment
rates, partly on opinions of quality. In the former, measurable field,
Sri Lanka consistently outperforms India while in the latter, subjective
area, India is streets ahead.
Another example is credit rating - an 'expert assessment of the
probability of sovereign debt default'. Sri Lanka, which has an
excellent credit history, comes out at 101 - below wobbly Ireland (51st)
and Greece (75th) and failed Iceland (80th).
This is despite the fact that Sri Lanka has a lower government debt
than these failed economies, has better budget balancing, has a higher
savings rate, and so on.
On the other hand, business people have an excellent opinion of
themselves.
On corporate governance by investors and boards of directors, they
rated Sri Lanka at 4.9, on par with the Chinese special autonomous
region of Hong Kong and above the Chinese province of Taiwan.
Labour management
On labour management relations, again there is a divergence. Sri
Lanka is 50th on rigidity of employment, but opinion rates Sri Lanka at
111th on ease of hiring and firing employees - just above Italy, where
it is well nigh impossible to sack anyone.
However, it is in the field of technology and innovation that the
widest convergence of the subjective view from measurable reality seems
to occur.
In availability of the latest technologies, Sri Lanka was ranked at
63rd, above Italy - a major generator of new technologies - Thailand and
China, whence come much of Sri Lanka's 'latest technology'.
The bias towards the private sector was again observable. For
technology absorption at the level of the firm, Sri Lanka ranked 42nd,
ahead of technology-driving economies such as Hungary, Slovakia and
Slovenia.
Again, the production process was deemed to be more sophisticated in
Sri Lanka than in Slovenia, Poland and Hungary. Sri Lankan companies'
spending on Research and Development was ranked on par with Hong Kong,
New Zealand and Slovenia.
Meanwhile, the measurable technological index, that of international
patents granted, ranked Sri Lanka in 77th place, compared to Hong Kong's
22nd, New Zealand's 24th, Italy's 25th, Slovenia's 26th, Hungary's 29th,
Slovakia's 38th, China's 46th and Poland's 56th.
Private sector
What the GEF's calculation of Sri Lanka's competitiveness index
really means is that Sri Lanka has got most of its act together, but the
perceptions of business people need some adjusting.
Obviously, the private sector needs to improve its personnel
management capabilities. Management does not do enough to exploit the
potential productivity of employees. Productivity actually appears to
have declined over the past three decades.
Neither does the private sector take advantage of the innovative
capacity of the people, not even of its own employees. The students of
the technical universities and colleges come up with innovative projects
in their final years. Hardly any of these are taken up by the private
sector.
To put things in perspective, Deshan de Mel of the IPS has mentioned
two recent examples of innovation by Sri Lanka's private sector: a Tamil
language Short Message Service (SMS) adaptation and mid-range lingerie
specially designed for South Asian women. These are notable achievements
and the organizations concerned are to be commended. Nevertheless, the
level of innovation remains very much lower than in the 1960s and 1970s.
We have nothing now on the scale of Colombo Commercial Company's
fluidised bed tea drier, or the Ceylon Transport Board's foolproof
ticket machines.
The Kantha Kavaya (Women's Circle) in the 1970s proposed to Ministry
of Trade the creation of a new Sri Lanka range of sizes to take into
account the difference of South Asian woman's body shape from the
prevalent European size ranges.
It has taken over three decades for this to be acted on - for which
MAS holdings, the lingerie innovator, really stands out from the rest of
the pack.
Sri Lanka is probably more competitive than is indicated by the GEF's
index.
However, the key areas of labour-management relations and
technological and scientific innovation need improvement.
The state needs to be more active in promoting competitiveness. This
does not necessarily mean the relaxation of regulations.
It means guiding both the public and private sectors to better
management practices and to better innovation.
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