Developing Sri Lanka into a Highly Competitive Social Market Economy by 2025

Developing Sri Lanka into a highly competitive Social Market Economy by 2025

Summer ‘16

Mr. Hasitha Wijesundara

Rehan Perera

1777

Contents

Introduction        

Characteristics of economies        

Socialist Economies        

Advantages and disadvantages of a socialist economy        

Market driven economies        

Advantages and disadvantages of a market driven economy        

Competitive markets        

Developing Sri Lanka into a competitive economy        

References        

Introduction

Looking at Sri Lanka through an economic perspective, it is vital to observe characteristics both past and present. By definition, The Democratic Socialist Republic of Sri Lanka follows a free market economy system, implementing privatization, deregulation and the promotion of private enterprise.

According to the World Bank, Sri Lanka is categorized as a lower middle income economy, a significant change from being a low income economy. With a population of 20.8 million people, Sri Lanka now experiences a per capita income of USD $3912 (2015). 2009 proved to be a year of change, with the cessation of a 30 year long civil war, Sri Lanka’s economy rapidly accelerated at an average of 6.4% between the years 2010-2015, predominantly from the peace dividend and purposeful policy thrust towards reconstruction and prosperity. Sri Lanka’s economy was essentially a rural, agriculture based economy which transitioned into a more urbanized economy, driven by services. Data gathered by the World Bank shows that in the year 2015, the service sector estimated to be 62% of the Gross Domestic Product or GDP, followed by manufacturing (28.9%) and agriculture (8.7%). 2014’s rankings put Sri Lanka in 73rd in the Human Development Index which is a composite statistic for life expectancy, education, and income per capita, also surpassing the Millennium Development Goals for 2015.

Characteristics of economies

Firstly, an economy could be identified as the ‘wealth and resources for a region in terms of the production and consumption of goods and services. Economies have been further identified and categorized to formal and informal economies. Formal economies are economies that are driven or are under the control of the government. Informal economies exist without formalized policies or regulations.

The most widely institutionalized forms of economic functions could be identified as Capitalism and Socialism.  Capitalism allows economic freedom, consumer choice and economic growth whereas Socialism allows the government to control the economy while being planned by powers of the Central Planning Authority

Socialist Economies

Socialism could be defined or referred to the ‘government ownership of the means of production, planning undertaken by the government and income distribution’. Whilst in a more detailed aspect, socialism, is basically when the government regulates the economy and its function to provide equal opportunity to everyone in a society. Founded by Karl Marx in his book, “The Communist Manifesto”, socialism means ‘all things to all men’. A socialist economy would display attributes such as

1. Collective ownership

Where all production is owned by the government or community, where an individual hold private property up to a certain limit. This attribute allows the government to utilize resources to the maximum benefit of social welfare

1. Economic, Social and political equality

Ideally socialism allows the rich and poor, to enjoy equality where there is no class struggle.

1. Economic planning

The government utilizes the power of planned economics. Every decision regarding central or important issues pertaining to the economy, are taken in the economy plans. The Central Planning Authority in most cases, plans for the whole of the economy.

1. Absence or competition

Unlike capitalist economies, socialist economies do not support the emergence of competition. The state acts as the sole entrepreneur.

1. Positive role of government

In the socialist model, the government plays the major role when it comes to decision making

Advantages and disadvantages of a socialist economy

• The great efficiency allowed for a socialist system means that production decisions are controlled and regulated by the government or a central planning authority towards a specific goal where the relevant authorities do extensive researches and studies and utilizes the resources in the most efficient manner.
• A certain amount of freedom resulting from the absence of monopolistic practices found predominantly in capitalist economies. Ideally instead of private monopoly, there is state monopoly over the production system operated for the welfare of the people,.
• A socialist economy could be viewed as superior or capitalist economy which is relatively free form business fluctuations. This would be a result of the planned economy, which coordinates the actions of various producing unit, also prevents discrimination between savings and investments and make full use of available resources. Ability to control over production and would avoid general deflationary trends.
• A socialist economy is a planned economy where every factor is determined by the government, where forces of demand and supply do not apply which is a disadvantage where in the long run the economy would be too controlled which would be more of a bad thing than good.
• In a socialist economy, a consumer does not have the autonomy a consumer from a capitalist economy would have. This would be because the choices of goods and services would be able to maximize their total satisfaction.

Market driven economies
A market driven economy could be defined as an economic system in where economic decisions  such as the pricing of goods and services are a direct result of aggregate interactions of the citizens of a country and also the business where there is less government interaction, intervention or planning. This economic system contrasts to planned economic systems such as socialism for an example, in which the government decisions drive the country’s economic procedures.

Market driven economies, work under the presumption that market forces such as supply and demand are the finest indicators of what is right for a nation’s prosperity. This form of economy hardly commission forms of government interventions such as price fixing, import and export quotas and industry subsidizations. Most developed nations in the modern day could be expressed as having mixed economies such as, by allowing market forces to drive most activities and employing government involvement only to the extent that it is exercised to administer stability. Although the market driven economy is the first pick in today’s global market, there is meaningful debate regarding to the amount and extent of government involvement that is most favorable for profitable economic operations.