Wednesday, March 20, 2013

Airports, infrastructure and development

The new airport in Mattala opened this week, to a fairly lukewarm response (if I'm any judge of sentiment) by the public. There are a few obvious issues with the airport that I will write about later, but first lets try to get the broader picture right. What makes infrastructure work and how should a Government go about prioritising its investment?

Infrastructure: roads, rail and transport systems, power, telecommunications, ports and airports are all important and investment should take place where it is needed; but how should we decide on need?

1. Clearing bottlenecks in existing infrastructure would be the obvious first step.
2. Forecasting future bottlenecks, based on a realistic study of demand patterns would be another step.  

There needs to be demand for services, which means that it should be sited where there are people. If not many people live in a location and few people visit then there seems to be little point in building anything. So far, so obvious.

How about the argument that "if we build it, people will come", which seems to be the basis of the Mattala airport and the adjoining port? For example, since we have an airport and port close by, why not start some export industry there? Garments or something sexy like silicon chips? Port and airport at hand, there should be land, voila, the perfect place to create jobs.

Things are not quite so easy, there are some fundamental policies that are more important than the infrastructure and which we need to get right first; before people will even look at investing. In a word, a favourable investment climate. What should this comprise?

1. A simple, clear and above all, workable legal and tax system. The spectacle of having a CJ ejected through a dubious process on the whims of the Government, expropriation of land, abrupt changes on the status of foreign ownership of land and a tax code that changes overnight do not contribute towards this.

2. Availability of basic infrastructure - power, water, waste disposal/sewage, telecommunications, etc. Some basics have just been built but are the telecommunications, water and waste disposal available? I don't know, but fixing these should not be a huge issue.

3.  Some competitive advantage in the location: cheap labour, raw, materials, proximity to supplies or markets. Favourable tax treaties, free trade agreements, highly skilled labour or preferred access to markets (via concessions like GSP+) would count towards a competitive advantage. This is the trickiest question and most of these are not location specific to Hambantota. If investment is already pouring in then we know that we have some advantage to offer; it is then merely a question of tilting the attraction towards Hambantota.  Is this happening? 

4. Availability of labour and ancillary support services, as required (depending on industry).

5. A general perception, formed in part through consistent policy, that the Government is interested in encouraging investment. When the "cost of doing business" includes corruption to a level that makes most businesses unviable, the perception will be negative.

In truth, there is a lot that needs to go right in policy, before infrastructure will work; except in cases where is it eases existing bottlenecks. An interesting essay on third world development notes the biggest obstacle was the "dirigiste dogma". Ghana is a good example.

When it became independent in 1957, Ghana was the richest country in the region, with the best-educated population. Kwame Nkrumah, the country's leader at independence, was a spokesman for the newly independent Africa. He said the region needed to develop its own style of government, suited to its special circumstances. According to this analysis, the problem started with the philosophy

A major legacy and burden of tribal and feudalistic societies is the notion that leaders have the power to solve problems and bring justice. The village chieftain takes resources from the villagers and to the powerless villagers the chieftain seems like a potential foundation of wealth and luxury.
To those who aspire to be chieftain it seems that if only they could achieve that status they could not have a pleasant living but could do good for the villagers. In the American idiom they could be fairy godmothers, solving all problems with the waive of a magic wand. So the possibility of becoming a fairy godmother is a powerful motivation for those who seek leadership. On the other hand, for the powerless who have no hope of becoming a leader the notion of there being fairy godmothers who can solve all problems is likewise a powerful influence.
But of course there are no fairy godmothers and can be no fairy godmothers. The resources that the village chieftain dispenses come only from the productive efforts of the people themselves. If the people neglect their own productive efforts in seeking benefits from the chieftain then soon even the chieftain has no resources.
The romance of Third World leaders with socialism is just an attempt to create the status of the village chieftain on a larger scale. Socialism's main function ideologically is to provide a rationale for having all power concentrated in the hands of the central government.
 Following this line of thinking:
He spent vast sums on megaprojects. As economic troubles mounted, he nationalized companies and followed with capital repression. Under his regime capital flew abroad, and people with skills and money did the same. The kleptocrats (government officials who steal large amounts) ran the country into the ground.  

Does all of this sound rather familiar? We are just setting off on the journey that Ghana embarked on in the 1960's, we may dream of miracles but all we chase is a mirage.


Anonymous said...

shall i post ur thoughts on elakiri forum? :)

Jack Point said...

No problem, please do, Anon.

sbarrkum said...

The same arguments could be made for Nehru. India was far ahead of China in 1949.

But then Mao Zedong also had grandiose visions and projects. However,he did not have to deal with democracy, capital flight (except for Chiang Kai-Shek's gold to Taiwan).

Jack Point said...

Quite right about Nehru but the rise of China is post Mao, from 1978/9 due to Deng Xiaoping. Up to that point China was sliding into anarchy, what with the Great Leap Forward, the Cultural Revolution etc.

I think capital flight and even more importantly, the flight of the entrepreneurs who went with their capital was a key strength for Taiwan and a big loss to China.

sbarrkum said...

Mao set the stage with his Great Leap Forward and "Supporters praise him for modernizing China and building it into a world power, through promoting the status of women, improving education and health care, providing universal housing and raising life expectancy". I cant speak for the multitude (thousands, millions ?, we in SL know how numbers can be distorted) who died.
The Kuomingtang were helped by the US (Think Batista (Chiang Kai-shek) and Fidel Castro (Mao), Miami (Taiwan) and Cuba (China)). . To quote "US aid was also important to stabilize post-war Taiwan, and it constituted more than 30% of domestic investment from 1951 to 1962".
Similarly Thailand's economy gained by the Vietnam War because it was the safest base station and the place for R&R (Rest and Recreation).

Bottom line: The only Asian countries that pulled itself by their bootstraps
a) Japan before World War I & II (after WWII debatable)
b) China: Basket case because of Opium sales etc
(See here for Tata's and Sassoons (e.g. Vidal): From opium to outsourcing