Page 1
- Volune 1
G. V. S. di
G. K. Hell
Nimal San
ess es
NEXT ISSU
9 Blai
not necessa
hê officiali viewpointi:S O Ap.
 
 
 
 

Nunaber 1 April 1975
e Silva 22
einer 25
deratne 29
CONTENTS
FEATURES
On Economists and Economizers
Standing up to the World: The New Mood in the less Developed Countries
Perspectives on Land Reform
COVER STORY
3 THE ECONOMIC CRISIS
COLUMNS
2 Diary of Events
The Economy
2 Industry
13 Agriculture
14 Technology
15 Management
16 Banking & Finance
18 Foreign News Review
20 Commodities
2. Statistics
Ε
ck Gold : The growth of the oil crisis and its ramifications
men's Year Feature. The exploitation of women in Sri
anka
propriate Technology - Development and Under
)evelopment
孪

Page 2
t
February 28
March 2
3-7
4-12
DARY O.
A five-year trade and aid agreement between the EEC and 46 countries of Africa, the Caribbean and the Pacific (ACP) signed in Lome, Togo.
Indonesia, Malaysia and Thailand, three of the world's largest natural rubber producing countries, met in Kuala Lampur to work out the details of setting up an international rubber buffer stock.
The Swiss National Bank reduced its bank rate to 5% from 5%. The Lombard rate remains unchanged at 6%.
Argentine peso devaluedagainst the dollar from 5 new pesos to 10 and the financial rate to 15.05 and 15.10.
Representatives of Latin American and Caribbean financial establishments met in Mexico City to prepare joint negotiations with foreign creditors for a larger flow of long-interest loans to the area.
The U.S.A. and Iran announced the signing of an agreement on a 15 billion dollar deal in nonoil trade, described as the biggest ever economic agreement between any two countries.
First summit conference Cf OPEC Heads of State was held in Algiers. A declaration issued at the conference stated that oil prices should be linked with inflation and the cost of manufactured goods and technology.
Commonwealth Conference on Food Production and Agricultural Development held in London.
Conference of International Energy Agency opened in Paris.
Bank rates cut by three EEC countries - West Germany, Holland and Italy. West Ger

F EVENTS
many reduced its bank rate from 5 %-5%, and the Lombard rate from 7% to 6%, the Dutch Central Bank announced a one percent reduction from 7% to 6% and Italy reduced its prime rate by one point to 17.25%.
6 ESCAP adopted a resolution at its annual session in New Delhi calling for the setting up in India of an Asian Centre for transfer of technology.
7 The Federal Reserve Board announced a reduction in the American bank rate from 63% to 6% effective on March 10.
10-14 U.N. Food and Agricultural Organization Council met in Rome.
10-21 6th Session of the UNCTAD's Trade & Development Board was held in Geneva.
14 An IMF report stated that in 1974 the oil producing countries recorded a trade surplus of $97,000 million against the previous year's figure of $22,000 million.
17 U.N. Law of the Sea Conference was reconvened to draft a comprehensive convention for the use and exploitation of the world's oceans.
18 GATT announced in Geneva that World Trade in 1974 registered its lowest growth since World War II - it fell from an increase of 15 per cent during 1973 to less than 5 per cent in 1974- and the prospects for 1975 are even gloomier,
18-21. The Joint Committee for Economic Co-operation between Sri Lanka and Yugoslavia held its first meeting in Colombo.
ECONOMIC REVIEW, APRIL 1975

Page 3
126
12本
122
16
A precipitous drop in America's industrial production from
Fig. 1974 to Jan. 1973.
The fall had recorded its lowest
monthly drop in 37 years in January, 1975. (1967 = 100)
THE E C O IN OM
- The opening weeks of March witnessed a lowering of the bank rates in both the U.S. and Britain in still another bid to breathe new life into their ailing economies. In early April, the American public has been let in on the grim facts that its unemployment rate had reached an all-time high of 8.7% while industrial production had dropped a further 3.6% in January, to record its biggest fall in 35 years. A few weeks earlier, President Ford had revealed in his budget for 1975 that U.S. consumer prices would reach a new high, rising upto 11.3% while the real G. N. P. would record its steepest fall of minus 3.3%. This recession that has plagued the American economy over the last 18 months has hit the economies of all industrialised countries almost as hard. These were but a few of the more recent signs that the world economy was going through its most difficult phase since World War II.
Galloping inflation, acute imbalance in the international payments system following a collapse of the old monetary order, near stagnation in the real output of many major
ECONOMIC REVIEW, APRIL 1975
nations, along with unemployment hav create a situation uncertainty for thos developing countrie economies.
After the end of especially since the Europe and the 6 Western governmen tly learnt how to av mic recessions. U economics they lear
Trend in the consumer p
Belgium
Netherlands
France
German Fed. Rep.
Italy
United Kingdom
United States
 

Recession hits the stomach. Unemployed Americans
1 IC
soaring levels of e continued to of danger and se developed and s having market
World War II
50's in Western O's in America, its had apparentoid deep econofinder Keynesian int how to relax
queue up for free food.
CRISIS
credit and stimulate demand by either cutting taxes or by increased Government spending or both. The post World War II period saw an increased prosperity in the Western World and a feeling existed that business cycles and depressions were basically a thing of the past. The consumer society and the new affluence was evident everywhere. The period also saw the increased pauperisation of the Third World as terms of trade continued to turn
ices index (percentage rise on the basis of annual average)
1968 1969 1970 1971 1972 1973 1974
2.70 3.75 3.91 4.34 5.45 7. 12.7
3.72 7.42 4.57 7.48 7.80 8. 9.6
4.64 6.05 5.66 5.2 6.06 7.4 13.6
1.65 2.59 3.83 5.3 5.76 7. 7.
1.28 2.66 4.97 4.78 5.75 10.8 9.4
4.70 5.45 6.37 944 7.07 9.2 16.
4.20 5.37 5.92 3.40. 3.30 6.2 1.1
Source : Kredietbank
3

Page 4
against raw material producers, whilst products of the industrialised
nations continued to rise in price.
This resulted in a virtual subsidising of the Western World economies by the Third World during the post war period.
As the economic crisis deepens in 1975 the conventional Keynesian economics is found to be increasingly inapplicable whilst the Third World continues to make increasing demands for a larger share of the world's wealth.
DIMENS ONS OF THE PROBLEM
A quick glance at the major
indicators of the leading market economies of the world reveal the depth of the problem.
The United States
“The indicators of business conditions have switched from Yellow to Red' is how the U.S. magazine Business Week described the change from stagnation to recession in the U.S. at the end of last year. The automobile industry, a key branch of the U. S. economy has been severely jolted by one of its worst sales collapses in history. These storm signals are repeated in other branches of production too. For the first time since the War, the G. N. P. in the U. S. dropped by 2.2% in 1974 compared with a growth rate of 5.9% in 1973. Inflation too increased, for 1974 prices rose 10.2% compared with 5.6% in 1973.
The stock prices index in the United States, the main barometer of the economy, sank nearly 50% by December 1974 compared with its peak in January 1974, a loss in value of 500,000 million dollars. It has been having a minor rally recently which observers feel will probably be temporary because of the poor structural situation of the economy. Inventories of unsold stocks have greatly increased and business failures have taken a sharp upward turn, with even major firms in trouble. (Iran had to rescue the
American flag carrier Pan Am a few
Weeks ago.)
The decline in industrial production is widespread and accelerating and now touches the whole range of manufacturing - consumer durables,
4
steel, chemicals, rapidly accelerat. ral, while the a is further down th turing is conseq ing at only 70% { as a whole.
The result of turn has been a recession as firm unsold stocks of is cut because of are then laid ( consequently rise further and proc further and so o In the U.S. the d in previous reces short of catastro have managed, t tion before cons money to buy th If the dramatical ployment were purchasing powe further, the pre: result in the down its full course, lea collapse.
After a slight trial production British economy again in a state of
25%
20%
ܓ݁ܶܘ > 15% - Վ5
. ミ 10% |- ミ ミ S ཕྱི་ 5% sensa s S + A.
0%
5% -

textiles are all in a ng downward spiutomobile industry escale. Manufaclently mow operat'apacity in the U.S.
he dramatic down ext book inventory cut back on their goods. Production low sales, workers off, unemployment s, sales then shrink luction is cut still n, down the spiral.
ownward spiral has
sions been checked phe because firms o increase producumers ran out of
e goods produced.
ly increased unemto continue and r were to decline sent decline could ward spiral running ding to a near total
increase in indusduring 1973 the found itself once chronic stagnation
last year. Prices on the London stock market reached the lowest point in the twenty years in 1974. Britain's balance of payments deficits ($9,000 million annually) exceed even Italy's ($6,000 million). The most recent London Business School (LBS) economic forecast confirms the seriousness of the medium term economic situation. Over the next three years as a whole the LBS sees
total output as virtually stagnant,
with no sustaining rise in any of the major components of economic demand. In output terms, the LBS sees the depth of the recession occurring in the first half of 1976.
In Italy balance of payments is in the red to a tune of $ 5,500 million; 1.2 million are unemployed and consumer prices have gone up by 25% in the last few months. Industrial growth has slowed down. Fiat production is down by 40% and nearly 1/3 of Fiat’s 200,000 work force have been on a three day week since October. At the end of January 16 million Italian workers launched a national strike demanding retention of their jobs and opposing fascism. With the undercurrents of neo-fascism strong in Italy fascism is increasingly feared as the economic
JAPAN - End of the Miracle. Growth Goes Negative
1968 1969
1970
1971 1972 1973 1974
Economic REVIEW, APRIL 1975

Page 5
situation nears that of the 1930's which gave rise to fascism in the first place.
In West Germany, the strongest European economy, the GNP is down and industrial production is slowing down, car production is reduced by a quarter. The West Germans however have faced only a 7% inflation rate, which is much lower than anywhere else in Europe. Unemployment in West Germany is around the 1 million mark and has been increasing for several months. Now West Germany has stopped importing migrant workers whilst it has been offering large sums of money to induce those already there to leave, In France, production was falling as 1974 ended and there was considerable scepticism that the Government's 1975 goal of a 4%, increase would be reached. Slowdown in production had left France with a jobless level of about 700,000 at the end of the year.
As for Japan - 1974 saw the end of the “Japanese Miracle'. In mid March the net decline on the country's GNP in 1974 was 1.89. Reflecting the sharp increase in consumer prices, labour won a wage increase of 32.9% in a labour wage offensive last year. This increase rate was the highest in Japan's history and signals perhaps the collapse of Japanese feudalistic industrial relations. Those industries caught in a slump, including the textile and electric machinery industries, laid off many workers and called for voluntary retirement.
Japan's official forecast for fiscal year 1975 calls for the economy to hit rock bottom before mid-year and then begin a modest recovery.
Developing Countries
While inflation forged ahead among the industrialized marketeconomies of the West, the more successful of market-economies of Asia punged in the past 8 months to levels of inflation prevailing some years ago. in several of these countries fecession has already caught up while in others it is rapidly approaching.
In Asia the recession axe has fallen
very hard on the export oriented countries. In Hongkong over 3,000
ECONOMIC REVIEW, APRIL 1975
businesses had clo end of 1974. Th export boom has
gear. Singapore
image of develop facing Serious ecc Rollei of Singapo Sack 3,000 worke has already laid ol
The South Asi has had a very bal the economic cris relegated, in Some category called th In India 1974 was and 1975 promis Factories which ar capacity are expec further drops in recession pipes. U been leap frogging registered in 1973 1974 and 8.3 mil] 975. These of include the unknc do not register. prices have risen 30% last year and have increased by The oil crisis is shortages of pov for agriculture. La ment imported 6 grain at a cost of and imports this between S 6 and 7 of commodity now falling as a r back in the indus due to the recessi an increase of nea exports. Special made of Sugar. L its highest “aid Western countrie million in credits.
Pakistan had a Its economy de since it was dism Bangladesh, the fo of Pakistan, is f economic problem described as horr
Possibilities Of tion are limited with the situation badly. Inflation i tries is a somewha menon than in the in most of Asia around 50' of W mer price indexe,

Sed down by the le South Korean gone into reverse advertised as the ment in Asia is )nomic problems. re has plans to rs and Fairchild † 2,000 workers.
an Sub continent d year because of is and has been
circles, to a new e Fourth World. a very bad year
es to be Worse,
e running at 60% ted to eXperience production as the Jnemployment has from 6.5 million to 7.6 million in tion projected for course, do not own millions who Overall consumer on the average of some food items as much as 100%. having its toll on wer and fertilizer st year the governmillion tons of 2 million dollars year are projected million. The rise orices (which are esponse to a cut trialised countries on) contributed to rly 50% in India's mention has been ast year India got quota - from the S giving $ 1.4
bad year last year. :clined markedly embered in 1971. rmer eastern wing acing very severe ns that have been endous.
domestic re-inflain these countries deteriorating so in advanced counut different phenodeveloping world. food accounts for eighting in consuls, which explains
why inflation rates were above world averages in several of these countries.
Unlike the industrialized world the developing countries are being Squeezed from two directions. They must meet the increased cost of oil, yet the falling demand in the industrialized World is cutting deeply into their export earnings thus making borrowing increasingly difficult.
The recessionary trends in the World economy have also had their effects on commodity prices and hit many of the developing countries of the world. For these countries. World recession is certainly something more than belt-tightening. It has been observed that the developed world would not escape this backlash. Some developing countries, have borrowed heavily on the Eurodollar market on the strength of their
earnings from high commodity prices.
Should these prices fall there could be major defaults among some big banks. and repercussions on the world's financial markets could be serious.
The growing balance of trade deficits of the developing countries as a group could be traced to the recessionary tendencies in industrialized market economies. The deficits for the developing countries as a whole (apart of course from the oil producing countries) is expected to reach $ 30 billion this year, according to IMF estimates. Last year it was in the region of $ 22 to S 23 billion, which was already a very serious problem. There is grave concern in all quarters on how to finance this gap.
The Socialist Countries
The crisis has affected the socialist countries only marginally and this at points where their economies interact with the capitalist West. Taken as a whole, however, their economies have remained far more stable. The integrated approach to economic development within their systems has left them relatively unaffected. China, for instance, finds itself in a unique economic position. Because of its size, resources and economic isolation from the world market economy, China has been almost immune to the energy crisis, soaring inflation and Wild currency fluctuations that have swamped its neighbours.

Page 6
in the Soviet Union with its recent concern for increased imports of Western machinery and equipment the downturn in the West could possibly affect these imports which have included West German power plants, French engineering units, American foundries, Italian automobile works and hundreds of other smaller items including advanced computers.
The surge in the price of raw materials has however helped to turn the Soviet trade balance from 0.8 million roubles deficit at the Six month point of 1973 to a 1.3 billion roubles surplus in June 1974. The resulting trade surplus is giving the Soviets the ability to import increasing quantities of Western products.
Summing up
It is apparent that the economic crisis is biting hard all round the non-socialist world (except of course the oil rich countries, yet even here inflation has been high) and that its effects are going to increase further. The present crisis is unique in that, unlike all the post war downturns in capitalist economies, it has gripped the economies of practically all developed capitalist countries at the same time. In the past, for example, when output in Britain and France was going down production in Germany and Italy would be rising and provide a boost, through bigger imports, to the economies of the slump ridden nations. But just as all the Western countries were booming together in 1972 and 1973 now nearly all are in recession and helping to pull each other down.
The Roots of the Crisis
An impression has been created that it was the quadrupling of oil prices that brought on the economic crisis. It is clear, however, that a turning point in the World market economies had been reached much before the boycott organised by the Oil Producing and Exporting Countries (OPEC) in 1973. The contribution of the revised prices of oil to world inflation is small; according to Iran's estimate, only 1.7% in 1974, against an overall inflation of 14%. A world inflation, acute since 1971, long antedated the increases in oil prices. The progressive inflation plaguing the world, which dealt the final blow to the monetary system and has brought several countries
6
to the brink of plains the roots The oil crisis has an already grave
Although 19 witnessing a cr. proportions, its its major sympt 5 to 7 years or gloom have beer from economists, the like in many tries over the Henry C. Wallic mic commentato. week in 1966 sa feeling, when so is ahead and no about it, but tha the economy face manoeuvered ou where unless the celerates, only tw inflation or reces, bad luck, we We cannot even tion will stop if t and the farther allowed to travel, the ultimate cras elements which in 1966 seem in been crucial and experiencing toda the ultimate cras)
STRAINS ON TI
The major step the present crisi affects the leadin the U.S., could the mid sixties wi entered a period the international was coupled with the economies o France and Jap lagging badly. Th for the leading c the U.S. was b temporary a phen was thought woul late sixties. But Following the intervention in V sixties the dollar into a dollar glu expenditures far U.S. earnings in f massive amounts up in the credito at that time the cr ed off by the wi pean Central Ba

pankruptcy, fully exof the present crisis. of course worsened è situation.
74 and 1975 are isis of near tragic roots and some of toms stretch back more. The cries of persistently heard Social Scientists and industrialized counlast several years. h, the U.S. econor writing in Newsaid "It is a peculiar mething unpleasant thing can be done ut is precisely what S. We seem to have rselves\into a box, Vietnam war acO choices are leftSion. With a little might have both. be sure that inflahere is a recession, the inflation is the nastier will be sh”. Some of the Wallich identified hindsight to have what the world is ly seems very near h, he predicted.
THE SYSTEMIS?
}s in the growth of is especially as it g market economy, be traced back to hen the world had of dollar surplus in economy. This a high growth in f Germany, Italy, an with the U.S. Lese signs of trouble :apitalist economy, frushed aside as a omenon which it di right itself in the this was not to be. massive American ietnam in the late Surplus turned out it. These military in excess of the oreign trade caused of dollars to pile r countries. Even isis was partly stavtlingness of Euronks to hold and
IMPACT ON
Sri Lankas economy still continues to be a largely dependent import - export economy. The world recession that has intensified in recent months has placed our economy in a very critical situation. All efforts towards self reliance and even modest structural changes are being frustrated
by these external forces, giving
the country little alternative but to fall back on the external 'debt trap. The extreme deterioration in terms of trade, in recent years, has placed Sri Lanka among that group of countries which has come to be recognised as "most seriously affected by the world commodity price
inflation. ܐ ܢ
Rise in import prices
The table below relating to volume and prices of our imports shows clearly the effects of the deteriorating terms of trade over the last few years.
Year Volume Price Index Μηdeχ.
1969 108 34 1970 O2 140 1971 90 50 1972 88 158 1973 79 209
Between 1969 and 1973, imports went down by approximately 29 per cent. While average prices rose by approximately 56 per cent. 1974 showed a further reduction in the volume of imports accompanied by a Substantially higher upward movement in prices. The 1975 import programme allows for an increase in imports other than food, petroleum and fertilizer. But, as this increase is likely to be more than absorbed by price increases the volume of imports of investment and intermediate goods and raw materials, is therefore on present official forecasts likely to decline during 1975.
The recent sharp increases in import prices, particularly of rice, flour, sugar, petroleum and fertilizer (see page 1 l) have created serious problems for the country
ECONOMIC REVIEW, APR 975

Page 7
SRI LANKA
by driving up the amount spent on food and increasing costs in all sectors of the economy. This has also resulted in the country having to make certain food purchases at unfavourable terms. Thus, the Food Commissioner's foreign borrowings which were chiefly short-term credits in the past had become, last year, mostly supplier's credit with 15 and 18 months' maturity.
Industry has been also severely hit by the rising prices of imported raw materials. The share of manufacturing in the country's Gross Domestic Product is reported to have declined since 1971, while the increase in industrial employment has been slight. In the private sector, for instance several of the 2000 industrial units registered with the Ministry of Industries were said to be operating far below capacity and some of them have laid of workers as a result. According to official data the level of capacity utilisation is estimatsed to be as low as 35 per cent, Unlike in a resource rich country like the U. S. which is working at 70% capacity because of the breakdown of economic relations, the industrial sector of Sri Lanka is operating at low capacity, not because of low demand but mainly because of lack of raw materials and other resources. The falling output in the manufacturing sector, specially of conSumer goods, has added to the inflationary pressures created by the demand for these goods in the economy.
A directly felt effect of the international monetary instability is the import of inflation into this country. The rapid changes in both import and export prices has had its resultant impact on domestic prices at all levels. This has left the country chasing the mutually contradictory goals; of on the one hand having to curb mounting inflationary presSures: and on the other hand to compensate for the fall in real wages of fixed income earners.
56' was
Exports
Whilst the effect prices of imports adverse effect on as industry the count same time found . take full advantage world commodity p of the difficulties creasing the volume our traditional com though price incre corded for both te the low level of pro the advantages of In rubber, howevel continued on a do' in 1975 and the incre of rubber exports to offset falling there are spectact ments for these co the current year. T virtually the same products - earning pected to go much 1974, according to c
The real growth traditional industri: tor slowed down in of the rapid incre;
prices of the im
components of thes ducts. The main contributing to the ening of the cou manufactured ex
market has no
been the world rece
Because of the in
ed outlay on es:
imports Governme. ings have also beer paratively negligibi heavier public co the result is that diture on develo projects in 1974 been, and in 1975 most probably ha be financed largel borrowing. In borrowing is esti to have risen to RS. 1500 million, 42 per cent abov 1973 figures. O
b o r r domestically and
balance 44% abro
ECONOMIC REVIEW, APRIL 1975

of the rise in has had an riculture and y has at the t difficult to of the rise in rices because faced in inof exports of modities. Al
aSeS. Were rea and rubber duction offset price gains. ', prices have wnward trend ase in Volume may not help prices unless ular developDmmodities in he position is for coconut S are not eXabove that of urrent trends.
of the nonal export sec| 1974 because
On these trends the 1975
borrowing forecast could be at least the 1974 figure of Rs. 1,500 million if not more of which almost half would have to be borrowings from abroad. One aspect of such a situation that is causing concern is the increasing costs of loan repayments, especially as many of the foreign loans have been relatively shortte 'n OneS.
In 1973 and 1974 the country experienced a sharp increase in prices and it was particularly sensitive to world Wide inflation because of its dependent position. Attempts to place less reliance on imports is being nullified by its adverse terms of trade. The instability in the internationa monetary order has only hastened this process. The impact of imported inflation is seen in the falling real living standards of the country, except in the rural sector, since 1969, accompanied by the steep rise in the cost of living. (See accompanying diagram).
ase in 2GO borted E9 e pTO- 19o factor weak- 180, Intry's p o r t doubt 170, Ssion.
160, CreaSsential so ht SaV–
COIe with ''. StS — — xpen- 130, pment ჯolkers
have 120, ད་རིགས་ ula పిరై, f from 1 10,
1974. Workers in mated ''
ᎤᏙeᎥ" about 90. e the f this o w e di 1969 1 1971 1972 1973 1974 the Cost of Living and Real Wage Rates ጎ} } Srå ad. Lanka (1952 = 100) compared eith Japan.
(inset ) for the Sanne period.
Source: Central Bank of Ceylon and Bank of Tokyo.

Page 8
accumulate paper dollars and not encash them in the U.S.
In 1971, however, a crucial turning point was reached when for the first time, in the 20th century the U.S. had a deficit on its foreign trade account and the overall deficit on its capital account in the third quarter reached the formidable figures of $ 12 billion. The European Central Banks found themselves virtually drowned with paper dollars and wanted no more of them. Pressure on the dollar rose dramatically and on August 15, 1971 the U.S. officially abandoned the convertibility of dollars to gold. The European Central Banks ceased to Support the scheme of international exchange rates and major currencies were now allowed to float. This meant the collapse of the international monetary system that had grown up since World War II.
The Western money markets outside the U.S. now hold more than 100 billion Euro dollars which has often been the subject of much speculatory activity. Many multinationals based mostly in the U. S. have often switched money from country to country to gain on the continuing differences in exchange rates. This has only further heightened the general instability in the monetary system and prompted German Chancellor Herr Schmidt to state sometime ago that the 'wobbly international monetary market might totally collapse tomorrow'. With this uncertainty has come the rush for gold which sold in recent weeks at more than 4 times the official U.S. convertible figure of $ 42.2
The New Third World Militancy
The new militancy in the Third World specially its determination to reverse the trends since the Second World War, (which saw its terms of trade continually worsening) has added to the instability. The “economic miracles of the West during the post-war period and the growth of the consumer society in these countries were but a necessary adjunct to the pauperization of the Third World.
The new mood in the Third World as it demands an increased share of the world's wealth was most dramatically reflected in the “oil crisis'.
8
The massive abol trade between til Third World thi seeing itin its histic first major separat tion of capital frc European stock S. the world econon century. This cat led to major she system.
Professor Kind mia analysing the ] capitalist depressi for the world econ ed there has to be ing a single cou countries dominat world. With the Third World deny ing” roles for rici world, we are in period of “instal major sign of thi oil price hike, has that the oil pro balance of payr $ 60 to 80 billio means that the res run an equal ba deficit, leading to the economic syst
N
20
18
16
14.
12
NU 6
- United Kingdon Fram ce inited States A
2
Italy
O

t-turn in terms of le West and the S brought about, rical context, is the ion of the associam people of West nce the growth of y in the sixteenth aclysmic event has cks in the world
eberger of Califorroots of the earlier on has stated that omy to be stabiliza stabilizer, meanntry or a set of ing the rest of the new mood of the ing such 'stabilizn countries of the
for a continued bility'. Thus the S new mood, the resulted in the fact ducers will run a ments surplus of n this year. This st of the world will lance of payment
further strain on e
RESPONSE
The responses to the crisis by the market economies have depended on their ability to control the main economic forces. It is the major countries, principally the U.S., that has been exporting the recession. Countries dependent on the economic well being of the metropolitan countries (like Singapore, Hongkong etc.) have the least control of the situation.
Yet unlike in the immediate postwar period any individual country's dominance over its own economy is no longer complete. One factor has been the growth of large monopolistic multi-national corporations whose operations and interests now transcend national boundaries. (in fact the action of multi-nationals in switching their assets from country to country in search of better exchange rates was one contributing factor to the present crisis). Secondly major changes in the positions of the dominated and dominant are occurring as the Third World increasingly flexes its muscles, as the oil situation has indicated. Kindleberger who analysed the causes of the last depression argued strongly for a
TREND IN THE CONSUMER PRICES SOME LEADING WESTERN COUNTRIES
stay
United Kingd
France
United Statés
/
N
German fed. Rep.
/イ
>
ー/
ܢܓ
༄།z
1968. 1969 1970
1971
1972 1973 1974
ECONOMIC REVIEW, APRIL 1975

Page 9
邸
COLLAPSE OF EXPL
The 1930's are remembered for the collapse of existing economies and the consequent growth of fascism as well as new forms of Government control over the economy. It is also remembered for an entire new breed of social sciences that grew up to explain
the new social realities which the
depression brought in its wake. The economic crisis resulted in the collapse of the conventional explanations of economics, sociology and other social sciences in explaining the calamitous collapse of the system. Both valid explanations as well as new remedial actions and suggestions were not forthcoming from the traditional sciences. With this background entire new approaches in the social sciences arose to explain the new social reality. What are today the standard explanatory systems in Western social sciences, Keynsianism in economics, Parsonian sociology and structural anthropology were results of the crisis and attempts to give new explanatory systems.
The current crisis has resulted in a similar collapse of explanatory systems as was evident in the 1930's. With both stagnation and inflation together with high unemployment being characteristic of many present day western economies the antidotes which Keynes provided in the 1930's are being found to be increasingly unworkable. The quandry in the industrialized market economies was clearly expressed by the Washington Post. "The trouble
now is that we are not dealing
simply with 1951's inflation or 1958's recession, but with both of them together and the cure for each aggravates the other', or by Japan's Current Affairs Analysis "To curb inflation is to create depression; to avoid depression is to increase commodity prices. Thus the current Japanese economy is in a state of self contradiction and dilemma'.
Because of til the explanatory jargon has arise apparent unique today's economi according to 1 Wisdom both ecc and inflation s. together, but it has given rise t “stagilation'. Si combination of inflation exists word “slumpfia created. Unem posed to slow i not doing much and so yet an  ́unempflation”.
With the col tory systems an running around ing for new sc have risen for “n
Thus the infl economist John had served in a to many U.S. G poses this in Economics and t, In this book h existing econor policy to “a mu ties’ and would new theories a The sun, he says whole structure ciated with the trines of the W establishment a number of yo are in revolt. economic theor functional and problems of mot barely mentione
Geoffrey Barı tinguished Briti COmmentator a that with both r. and high uner characteristic of Western econom
ECONOMC REVIEW, APRIL 1975

ANATORY SYSTEMIS ?
Le breakdown of system, a new n to describe the
contradictions of
c malaise. Thus he conventional nomic stagnation hould not occur now does; and Ο concept of milarly a perverse a slump and oday and a new tion' has been ployment is supinflation but it is in this direction other new term
apse of explanad with statesmen in circles searchlutions demands ew explanations'.
uential American Galbraith, who dvisory functions overnments prohis latest book he Public Purpose. Le has consigned mic theory and Iseum of antiquireplace them with nd new policies. has set in on the of thought assotext-book docfestern economic nd a very large ung economists His view is that y is today nonthat the major lern economy are li in this literature.
aclough the dissh historian and gain points out 2cession, inflation hployment being many present day ies the antidotes
which Keynes gave in the 1930's has now collapsed. "The current economic theory has no answer to this problem at all he states. With the present collapse of the explanatory systems he suggests “what we need is a new Keynesian revolution to get neo-capitalism out of its mess’.
in the other social sciences Gouldner in his widely read book The Coming Crisis in Western Sociology points out that western sociology arose in the 1930's and 1940's as a response to the economic crisis. Under his analysis the dominant form of western sociology grew out of a circle of conservatives at Harvard University who began to stress the importance of moral integration of society at a time when this basis of order in society was being questioned as a result of the deep crisis of the depression. The resulting body of thought was a kind of 'sociological Keynesianism' arising out of the same crisis from which Keynesianism gained acceptance. The new economic crisis has seen a fresh breakdown of the 'moral integration of western societies and social 'unrest' is increasingly prevalent.
As the economic crisis deepens and as both statesmen and academics grope blindly around to explain and control what is happening new explanatory systems are bound to occur. As a response to this one sees another echo to the 1930's namely a remarkable revival of marxist thought in centres of Western academia. These include the persons whom Galbraith refers to 'as the economists in revolt'' and what Gouldner indirectly uses as a reference point in his book. One sees also a new growth of ideologies of the far right especially from persons like Friedmann and Greenspan of the U.S., a cry back to the growth of fascist ideologies in the 1930's,

Page 10
"stabilizer' or dominant country. Recent attempts in Western economies to move out of the depression are largely to be seen in this light.
American Reaction
Within the U.S. itself economic policies have been very unsuccessful at checking the situation and both the Congress and people are increasingly getting dissatisfied with the Ford regime, as a consequence. The London Economist said a few weeks
ago that Ford's presidency was such
that management of the economy during his seven months of office have “for practical purposes been wasted and that economic management bids fair to be the decisive presidential campaign issue in 1976'. in last October, Ford proposed that inflation was the main enemy and brought in income tax surcharges combined with cuts in Federal spending. He urged the people to tighten their belts and promised that the U.S. government wouldequally do so.
However, recently Ford has taken 2 right about turn and has started stimulating the economy and has proposed tax cuts. Yet his attempts to spur the economy have failed and although interest rates have been cut the demand for money far from picking up has dropped dramatically. In New York alone, bank loans to business have fallen $ 2.9 billion since the start of the year. Apparently attempts to tempt industry to get moving again by an easy money policy are not proving a success.
Ford's many advisors, especially Greenspan and Arthur Burns, the latter Chairman of the Federal ဗိုးဝှိ Board, have been increasingly criticised in the last few weeks for their policies. These criticisms have tome from right wing economists like Friedman, as well as liberals like Samuelson, labour leaders, the Congress and editorial writers.
In Europe standard Keynesian
policies have been followed to no avail specially as its recession arose from ripple effects of the U.S. tecession. As inflation rises and eal incomes are cut, demands by ់ workers have been increasing. General strikes have occurred in France, West Germany and Japan. Virtually all European countries
10
have attempted s comes policy an restraint to hold wages. These ha
The International
At the internatic and other Westen been making rei re-establish their 'stabilization cc brought about. P. gyrations and h payments deficits oil bills and world ages have thrown t Europeans togeth January there wal among the Comm tries who decided interim committee Governor's to con the 'oil facility” f for shelter, the Nii United States hav billion petro-dollar I. M. F. as well a the $ 25 billion pushed by Henry
Fear that a deep the capitalist co might lead to econ the fear of the r militancy might
reversals of Weste macy are what
united the develop tries at the momei factor has been t the money game OPEC countries'
long-term investm stricken Western appears that hop capitals is that the “single bank' wil to conduct the dia producers from a mum strength or
ger’s phrase, ‘the stabilizing domina
Observers have the worsening c. increase of gové and other semi-'s being adopted as out of the crisis. on Banking and we have pointed tendencies). Butt cannot be manag two countries' act

Ome form of ind indirect wage down workers lve largely failed.
Context
inal level the U.S. in countries have newed efforts to hegemony so that ould again be ice rises, currency eavy balance of caused by higher commodity shorthe Americans and her again. In s feverish activity on Market counwith the I. M. F.'s ; of its Board of tinue and enlarge or 1975. Running ne (ECM) and the fe agreed to a 6 money box at the S in principle, to "solidarity' fund Kissinger.
crisis gripping all untries at once tomic disaster and rew Third World lead to further ern economic prihave apparently led Western counnt. An additional he desire “to win '' by using the oil earnings for Lent in the crisisecnomies. It e in the Western establishment of a ! make it possible logue with the oil position of maxito use Kindleberre-emergence of a int country'.
pointed out that isis will see an rnment planning ocialist’ measures means of getting (See our section Finance where put some of these he crisis of today 2d by just one or on alone as in the
Thirties. Even the United States does not have control over its multinationals which are a major part of the problem.
Further, as the Western countries again seem to draw together (one result of which is apparently the recent drop in oil consumption) and attempt to re-establish a new hegemony on their terms, the Third World is not standing idle. Emboldened by the success of the oil exporting countries, Third World countries have been making increasing demands for a new economic order. Various resolutions have been moved in many decisive bodies from the U.N. to the Law of the Sea Conference, all having the
common theme of a more equitable
distribution of the world's wealth.
As the crisis deepens in the months and years to come Western nations have a crucial choice to make. Either they could attempt to reestablish world hegemony by militarist and other means (recent hints by Kissinger and Ford have indicated that this colonialist course has not been ruled out) with all the danger that it entails. Or the Western economies could offer a New Deal to the Third World and help all afflicted economies get out of the crisis.
The New Deal of the Thirties helpedget the U.S. out of the crisis by giving purchasing power and work to the unemployed and the poor of the U.S. In the mid-1970's the world is too deeply integrated for any within its borders alone to get it out of its mess although such actions too are necessary. The integrated world economy can only get out of the present situation by giving purchasing power to the poor and unemployed of the world economy that are today in the Third World. In concrete terms this would mean an
accommodation of the new demands
of the Third World and reversal of thepost-war trends in the terms of trade of the Third World which has
led to the latter's pauperization and
growth of unemployment.
Such a dramatic change seems to be the most plausible way.gut of
the crisis. But such moves will, only
be adopted by the West only at the resort. Centuries of colonial habits dié hard. !
EconoMic Review, APR: '975

Page 11
rue econov
Soaring import costs widen Sri Lanka
The country's adverse balance of trade reached an all time high of Rs. 1,107.1 million in 1974. The previous highest deficit in our terms of trade was recorded in 1967 when excess of import values over export earnings was Rs. 627 million.
According to Customs data, the value of our exports went up from Rs. 2,617.1 million in 1973 to Rs. 3,471.9 million in 1974, while the value of imports has risen from Rs. 2,714.7 million in 1973 to Rs. 4,554.3 million in 1974. A feature of interest here is that while the country had to pay Rs. 829.6 million more for its imports last year its export earnings went up by Rs. 854.8 million more than in the previous year. Comparing the increases in import values and export earnings of last year with that of the 1973 figures it could be observed that export earnings were Rs. 25.2 million more than the increased - import values (Rs. 854.8m. versus
Rs. 829.6m).
Import payments - Rice trebled, Flour doubled, Sugar halved
The main reason for the steep rise in the country's import bill was the very much higher price we had to pay for purchases of rice, flour, sugar, cotton, fertilizer, petroleum and base metal items. These items account for nearly 80 per cent of Sri Lanka's import bill. Imports of rice, flour and sugar alone cost the country almost Rs. 1,800 million in 1974
The value of rice imports almost trebled, despite the fact that less rice was imported last year. In 1973 approximately 310 tons at a value of Rs. 260 million were imported, whereas in 1974 approximately 295 tons were imported at a value of nearly Rs. 740 million.
In the case of flour import values more than doubled, going up from approx. Rs. 420 million to Rs. 920 million. The value of sugar imports, however, was more than halved coming down from Rs. 300 million in 1973 to Rs. 125 million in 1974,
Economic Review, APR 97s
Two other majc for the almost 8t in the country's petroleum produ and chemical pro of imports of p rose from Rs. 3( to Rs. 910 milli imports of clicini ducts, including country only Rs. . as compared wit in 1974.
Much less mach cal appliances were imported la of machinery and cost Rs. 226 mil reduced to Rs. 17.
TOURISMA
The tourist in been growing at rate of 24% from ed a dramatic 30o in 1973 to 9%, i. present year prom with the indust from where the 1 arrivals originate worst year of th check on growth when infra-struct the industry has accommodation from 770 rooms rooms in 1974crease. The slow causing growing tourist trade anc January 1975 the the authorities to lopment of the tou
However, the Ceylon Tourist I although the inter crisis had its imp. our performance better than the re; South Asia. He at fact that Sri Lanka in world travel t improved and expa because competiti vail in Sri Lankawi The other reason success, he said, v publicity drive abr

s trade gap
r items responsible
} per cent increase
import bill were cts and fertilizer ducts. The value
atroleum products 10 million in 1973 Dn in 1974; while pal and allied profertilizer cost the 276 million in 1973 h Rs. 532 million
inery and mechani(in value terms) st year. Imports | equipment which lion in 1973 were 7 million in 1974.
dustry which had an average annual 1969-1973 record% drop from 39% in 1974. And the ises to be no better rialised countries, majority of tourist , going into the e recession. This nas come at a time ure investment in been rising with expanding rapidly in 1967 to 2756 a near 400% inng down has been concern in the i by the end of trade was urging stay further deveurist programme.
Chairman of the Board stated that national economic act on Sri Lanka,
has been much st of the world or tributed this to the 1 was better known Trade because of anded facilities and ve prices still preth FEECs at 65%.
for this modest was the successful oad.
The decrease in tourist traffic attributed to a worsening internatio nal economic crisis, was not confined to Sri Lanka. Established tourist resorts have had to take their share of losses too. Spain, for instance, found that not only had their hotel bookings dropped by 25% in 1974 compared to the previous year, but also that the occupancy rates of most of the hotels had decreased by 25%. For a country which crowded its picturesque coastline with hotels for holiday makers on package tours, the future outlook is definitely gloomy. O.E.C.D's Tourism Commit. tee report which has been just published states that after the slower rate of expansion of international tourist traffic in 1973 there was a sharp decline in the first half of 1974 and this together with the uncer; tainty caused by the rising rate of inflation, the energy crisis, the slower rate of economic growth and thệ deterioration in countries' balance of payments are creating a new
situation for tourism. −
The Committee comments that in the present situation the govern ments (of O.E.C.D. countries) should review their tourism forecasts takin into account all factors making up domestic and international demand as well as increased competition that will develop on the international tourism market. Further development of accommodation and othet tourist facilities may now need to be on a more selective basis to ensure maximum profitability. * ,
The Ceylon Tourist Board has in the meantime announced an expansion programme aimed at a further increase of room capacity by 60%, . :
CRA — Only half utilised
A total of Rs. 80.7 million had been credited to Convertible Rupee Accounts up to the end of June last year, according to latest available Central Bank figures. Of the Rs. 80.7 million only Rs. 43.5 million had been utilized as at June 30, 1974.
Gem exporters had to their credit Rs. 60.3 million, just over threefourths of the entire C.R.A. held. Of the Rs. 43.5 million debited for payment-Rs. 36 million was used for imports; Rs. 6.6 million for travel and Rs. 760,000 for local expenses.

Page 12
Paper Production
The country's second paper mill being set up at Embilipitiya will be further expanded following the gesture on behalf of his government by the West German Deputy Minister, Mr. Alwin Brueck who visited Sri Lanka recently. Mr. Brueck visited the site at Embilipitiya where this mill is being set up with West German assistance. During his visit he announced that the West German Government had agreed to provide an additional DM 12 million for the expansion of this project.
The Embilipitiya mill will be the country's second pulp and paper project and has a rated annual capacity of 15,000 tons of low basis weight writing and printing paper. It is based on 80% usage of indigenous raw materials such as paddy straw, kenaf and other woody materials. The estimated cost of the project is Rs. 300 million with a foreign exchange component of Rs. 136 million. An Agreement between Kreditantsaltfur Wiederaufbau (KFW) of the Federal Republic of Germany and the Government of Sri Lanka for a loan of DM 37.5 million to finance the foreign exchange component of the project was concluded in March, 1973. The DM 12 million now offered will help to further finance the foreign exchange component of this project.
The Eastern Paper Mills Corporation has plans also to set up a third paper mill. Rajangana has been selected tentatively as a suitable site for this mill which would produce "Industrial' types of paper such as newsprint and kraft paper. In view of the widespread inflation and consequentescalationin planticosts, this project is being re-evaluated with a view to deciding on the scale of the project.
Small-scale projects
Meanwhile, nearly 20 small-scale projects for the manufacture of paper-board, with paddy straw as the basic raw material, are being set up in various paddy growing areas of the country.
Two projects have been set up by the Industrial Development Board at Kotmale and Piliyandala; two
12
others by the Sri Company (a subsi at Mahiyangana a others are to be sit Tissamaharama, B pitiya, Devinuw Polonnaruwa, Att gala, Laggala, K Kottawa, most oft ed by District Deve A small-scale factc visaged for each of produce upto hal board a day on an
Another crisis on t
Plans for the r of the local paper i the more relevant UNDP specialists commodity crisis, as food and fuel ( and paper crisis A recent FAO/U
STRA VIV
BOARD
Demonstrating the sem mechanised process paper board татија ture at the nost recen ly opened straz boa factory at Bemmull Attanagalla.
Reconstitution Science Counc
A new bill to se ed National Sci been gazetted. It more viable Cou on specific functi help to enlarge Council and is ir more scientists ar its functioning ar central forum in d ment policy in thi
 

Lanka Industrial diary of the IDB) ind Gampaha and ed at Divulapitiya, eliatta, Kamburu'ara, Kekirawa, anagalla, Kuruneatugampola and hem to be operatlopment Councils. ory of the type enthese areas could f a ton of straweight-hour shift.
he way
apid development Industry become all when FAO and See another major as overwhelming prises, in the pulp that lies ahead. NDP study has
of National i
t up a re-constitut2nce Council has
aims to set up a cil with emphasis ons. This bill will the scope of the tended to involve d technologists in d to make it the eveloping Governfield. The size of
called for a concerted drive to promote paper and pulp industries in the developing countries, if current shortages are not to assume crisis proportions by the end of the 1970's. The Study reports that by 1978 the world will be faced with a paper and paperboard deficit of some 16.1 million metric tons, more than ten times 1974 's deficit.
The hardest to be hit in the supply and demand squeeze will be the developing countries which are already finding it difficult to obtain newsprint even at two or three times the prices prevalent two years ago. Already, in many developing countries, newsprint shortages have led to thinner newspapers and shorter school terms.
Dr. R. L. Bhargava, an Indian paper industrialist who conducted the study for UNDP, sees no immediate improvement in the situation for either the industrialized or the developing world.
the main Council will be reduced from 21 members to 12. The Minister of Industries & Scientific Affairs, however, will be empowered to appoint 7 to 8 "expert' working groups comprising specialists in the various fields of science. They will advise on policy and promotion and development of science and technology. These groups will cover fields such as Physical Sciences, Agriculture and Forestry, Medicine and Veterinary Science, Natural Sciences and Social Sciences.
ECONOMIC REVIEW, APRIL 1975
ܝܢܠ

Page 13
Vegetables-High Price for the Consum
Price for the Producer
Urban consumers of vegetables in cities such as Colombo, Matara and Puttalam pay as much as eight times for their vegetables as what the producer is paid in vegetable growing areas such as Welimada. This has been revealed in a survey carried out by “ Economic Review in the principal vegetable marketing town of Weimada.
The prices at which the producer sells at Weimada on one random date (January 21st, 1975) for common vegetables such as Beans, Cabbage and Knolkhol are as follows. The consumers' prices for the same period in Colombo, Matara and Puttalam are also shown.
disposal at the does not obtain the traders, he ha as vegetables ar transporting it unthinkable. T plaint made by checked by our found to be true derhand devices traders. Often pr to the disadvantag also the produce loss of up to 15 in transporting Colombo althou transport losses do not amount pounds. The tra riably operate in cially help to put
Producer's Price Consumer' Colombo Matara
Cabbage cts. 12-16 50-80 85 - 1.30 BeanS cts. 30-45 80-95 1.00- 1.25 Knolkhol cts. 10-20 40-55 60 - 85
Both the producer and consumer
get a very raw deal out of the situation. In the case of the vegetable grower low prices unfairly fixed by middlemen are only one aspect of the vegetable grower's pains. Over the last two years his cost of fertilizer has gone up four fold from Rs. 12.50 to RS. 50/-, while his transport charges have also trebled over the last two years.
It is possible for a cultivator in the Welimada region to raise nearly 15,000 pounds of cabbage from an acre, but under prevailing prices of inputs unless he gets 20 cents on a pound, his efforts are not worthwhile, as with even this price he will get a net income of only Rs. 400for the entire quantity. The prices at which the produce was sold this season was often below this figure of 20 cents.
The Survey also reveals that one important factor in the low pricing is the low bargaining position of the cultivator with respect to the middleman. Often the cultivator lives in a remote village and he has to bring his vegetable over difficult terrain for
ECCROM CREVIEW, APRIL 1975
The Marketing Co-operatives hav agents in the are: are often lower traders and furt provide institutic assistance provide The table below g by the Co-operati private traders p were taken.
Cabbage Beans Knoikhol Raddish
Another interes relationship of th exploits both the consumer is that the prices to the heavily, though the fluctuations SO great.
The survey is ni in Colombo and isolate the exac which the expl carried out.
 

er–Low
air. Even if he fair price from s to dispose of it, perishable and back would be ne constant cQmhe cultivator and investigators and
was various unadopted by the Dduce was weighed ge of the producer; is charged for a pounds of weight the produce to gh in actuality tue to dehydration
to more than 3 ders almost invaa ring and artifithe prices down.
S. Price
Puttalama
1.00- 1.25 1.10 - 1.35 75 - 90
Department and te their purchasing a, but their prices than the private her they do not inal and personal 2d by the traders. ives the prices paid ves on the day the rices quoted above
12 cts. 40 ctS. 25 ctS. 10 ctS.
ting feature of the e middleman who
producer and the at times of a glut producer go down for the consumer in prices are not
ow being continued
other regions to mechanisms by Ditation is being
The “Ideal Farm Allotment
The maximum allotment of land to a farmer in the Dry Zone of Sri Lanka should be between 2 to 3 acres, if this land is to be utilized to the best advantage. This is the conclusion that has been reached following experiments carried out by the Mahaweli Development Board.
In its experimentation programme the Board decided that each farmer should have either a block of paddy land or a block of well drained land. Two pilot projects each on a 100acre block were begun at Maha Illuppalama and at Pelvehera. In the Maha illuppalama farma farmer was allotted a 5-acre block of land. while a farmer at Pelvehera was given a 2-acre block. Each farmer was given sufficient money to build a house for himself or he was provided with one. This experiment which was conducted to determine income levels, showed that farmers at Maha Illuppalama were unable to make optimum use of their 5-acre block of land, whereas the Pelvehera farmer was able to earn substantial profits from their 2-acre block. When the size of the blocks at Maha Illuppalama was reduced the far mers were able to increase their earnings.
This experiment also revealeg that a farmer could earn, depending on his efforts, a monthly income
ranging between Rs. 300/- and Rs... 1000|- t
The Mahaweli Development
Board has therefore decided that under Stage II of the Mahaweli Ganga Development Project each farmer would be given three acres of land, which could support paddy, while well drained land would be given to farmers in two-acre blocks.
Stage II of this project involves the agricultural development of about 70,000 acres of new land, with the settlement of about 25,000 farmer families on the new lands. The total cost of this stage of development of the project is estimat
eed to be about Rs. 650 million. .
13

Page 14
Protein for the Millions
Scientists who have been experimenting with obtaining food from unconventional sources may have found one solution to the problem of protein deficiency in developing Countries in Leaf Protein Concentrate“ (LPC). These results could well be used in the rural areas in Sri Lanka, Specially by such organisations as the District Development Councils.
Experiments have revealed that green leaves, which are found in abundance in most parts of the world, could be processed to provide this highly nutritious human food. Any leaves of leguminous plants such as alfalfa, clover, peas, groundinuts, beans etc., cereals like sorghum, maize, millet, grasses or vegetables, aquatic weeds and other agricultural waste products could be used to obtain Leaf Protein Concentrate.
The process of protein extraction is a simple one and lends itself ideally to cottage industry. Machines for this purpose have been developed in Britain, U.S.A. and Hungary and Nigerians have adopted the “Posho' mill (see illustration) used in villages for grinding corn and beans. It has been found that the hammer mill and press gives the maximum protein from leaves. Experiments have revealed that green leaves processed mechanically with small scale technology is capable of producing a yield of over 2000 lbs of crude protein per acre. This compares with 700 lbs for soya beans and 175 lbs for rice.
To extract the protein, the leaves are first pulped to disintegrate the tissues (the more cell walls are ruptured the greater the protein yield) and then pressed for juice using some kind of press. This juice contains most of the protein. The extracted leaf juice is then heated at a temperature of 70-75°C or the pH factor is adjusted to about 40 to coagulate the protein. This is then separated and dried to give Leaf Protein Concentrate. To obtain the maximum protein content the residue is repulped and processed again. To make Leaf Protein Concentrate more appetising the coagulation is
4.
washed and presse of the non-protein to a green powder
In addition to Leaf Protein Cor more lysine than 1 corn, more methi bean and an am similar to that of tein. It also has 3B-carotene, vitami and iron.
Leaf Protein C effective treatment and experiments h could be cured by LPC for 5 weeks. that used as a supplemented food to everyone.
Another Com
It has been rer thane technology plastic tyres are co natural rubber an tyres retain their c
The plastic t high elasticity and ordinary tyre and Large scale produc in costs as well.
Because of its motor accidents an tion of plastic tyre rubber.
Improving Mud
A method of r and daub houses duced in the Kwan; in Africa. This in dered suitable for a areas of Africa, So Asia. It is designe ing mud houses se areas where the p poor transport faci more expensive met ble. Whereas the ; mud house is only first houses on whi was used are still years. The method thening the base of
 

di to remove some Solids, and dried
a high N content centrate contains he best grades of online than soyaino acid pattern high quality pro3% fatty acids and in B, xanthophyll
t
oncentrate is an for Kwashiorkor ave proved that it the regular use of Tests have shown condiment LPC s were acceptable
the “Posho' mill as used in villages
for grinding corn and beans.
petitor for Natural Rubber
borted that an Austrian Company specialising in polyurehas been successful in making plastic tyres. These onsidered to be longer lasting than the tyres made of d the producers claim that even when deflated the original shape. -
yres which are produced using polyurethane having a a high tensile strength, weighs about 2/3 that of an
its cohesive quality reduces possibilities of skidding.
:tion is capable of achieving a considerable reduction
longer lasting qualities, lightness, and tendency to reduce ld low costs it is expected that the large scale producs will pose a threat to rubber tyres as well as to natural
Houses
einforcing wattle has been introgo area of Zaire nethod is considapting in similar uth America and d to make existmi-permanent in rice of cement, lities etc. make hods impracticaaverage life of a five years, the ich this method standing after 17 | involves strengthe outer walls
(which is the first thing to deteriorate in the wattle and daub houses) and adding a coat of plaster to the walls. It takes about three weeks for an average house 8m x 5m to be built.
Manioc Biscuits
Biscuits made from Cassava (Manioc) flour are being marketed by a manufacturer in Mauritius. These biscuits are available in four flavours - milk, butter, coconut and chocolate. They are reported to have been manufactured since 1870 by a family concern using homegrown cassava and are now sold under the name Biscuits de Manioc, Mauritius.
ECONOMIC Review, APR 975
أكسيد

Page 15
New Management trends in Corporati
Hitherto management know-how for Sri Lanka corporations has been transferred from largely Western countries by means of pre-packaged management courses and seminars. As these packages had grown up in a social milieu different from that of Sri Lanka very often the "advanced management know-how’ transmitted could not be used or properly utilised. Within the last few months the National Institute of Management has been involved in
new activities which perhaps uncon
sciously promise new forms of organisation arising from the Sri Lanka context itself. It is also interesting that some of the results that have occurred as a consequence of these experiments are reminiscent of much of the avantgarde work being done in other countries.
One such experiment referred to occurred in the Thulhiriya Textile Plant where approximately 80 persons-mostly highly educated workers with G.C.E. (Ordinary Level) and above, plus a few executives were chosen as a part of the exercise. They were given duty leave for the entire period of the experiment which has now lasted several weeks. In addition to lectures on society and economy given by University personnel to this target group, they were exposed to a session where the entire managerial function was thrown to the group as a whole. The group was requested to sub-divide itself into subgroups according to any problems that they wished pursued. Some of the points raised by the large 80member group, like changes in organisational personnel Were considered to be yet outside the purview of self-management.
There were six sub-groups which chose their individual problems to be tackled. One group wanted to put up a housing scheme, a second wished to increase the living conditions of employees by a new salary structure. A third group wanted to use scrap material. A fourth group wanted to run the canteen. A fifth to make doffin boxes and a sixth to run the
ECONOMC REVIEW, APRIL 3975
pre-spinning sectio self-managed basis
Self Management
Each sub-group on some preliminal the housing group a housing Scheme conditions group tailed salary struct boxes group produ a doffin box at Rs. to the contractors' The most interestin from the self-ma which wanted to the resources for materials, machii tenance, whilst th took to do the management funct suggested that t away with clocking as leave chits etc. ' group was that fle, allowed in these ma group itself wou members who we comers or absentee
Another feature the working of the the democratically (they chose their the need for speci which was not p group. Thus the group soon realisec indepth civil enging as well as that of s tifically and econo) the housing scheme that the group now technical personnel Corporation like accountants as res
The doffin boxes confusion on the ment, produced boxes and the scr: the mountain of sc The self managem ever disintegrated scheme of flexibleh cards and leave chi too strong a depal ment. Also when
 

OS
in on an entirely
decided initially ry schemes. Thus wanted to put up : and the living introduced a deEure. The doffin ced plans to make 17.50 as opposed price of Rs. 75/-. g suggestion Was inagement group be given only production like nes and mainle group underir total labour ion. They also they would do of times, as well The feeling of the xibility was to be atters and that the ld control any ore habitual late :S.
that arose from : groups was that structured groups own leaders) saw alised knowledge lossessed by the housing scheme i the need for an 2ering knowledge, urveying to scienmically construct 2. The result was began to use the available in the engineers and source personnel.
group after some part of managecheaper doffin ap group cleared rap in the region. lent group howbecause their ours without time ts was considered ture by managethe question of
what to do with absentees, discipline and hours of work in concrete terms arose, this group could not come to a very definitive decision.
The Thul hiriya experiment, although it has given mixed results because of the un preparedness of both Workers and management to some of the problems of self-management has inadvertently given rise to two important results which are path breaking even in the interiational management field. For instance, the housing group's decision to use technical personnel as resource material is very similar to the new thinking in the Western world on organisation that has come under the loose heading of “Post Industrial Management. These recent techniques have emphasised that the earlier hierarchical organisation is not functional in times of change and innovation and have recommended so-called open systern designs where there is direct interaction of the average employee on the problems of the organisation.
These systems also have similarities to organisations in China where cadres and specially the three-inone committees (cadres, technicians and ordinary workers) since the Cultural Revolution interact directly with the environment and use technical know-how as resource material.
The Kaiya
The Thulhiriya self-management group's request for flexible hours of time also finds an echo in the flextime concept which has been increasingly adopted within the last three years or so in the Western countries. It has also echoes to our traditional forms of collective organisation, for instance the Kaiya, where a tightly structured time system did not exist, but the time as well as other productive factors were controlled by the members of the Kaiya collectively.
The results of the experiment at Thulhiriya are at the moment still mixed but its great significance lies in that an attempt has been made firstly to trust workers and secondly to evolve new forms of organisational control suited for the country.
15

Page 16
Banking
International
In 1974 the international banking community suffered several shocks, and it is only now that bankers are gradually recovering from them. The most serious were the bank failures in U. S. A. and Germany, and of these, the failure of Herstatt Banka privately-owned bank in West Germany-was the most spectacular. These failures, and particularly the inability of Herstatt to meet its commitments even on some "spot foreign exchange transactions, came as a great Surprise to international bankers. Until then they had been used to the idea that only banks in countries having balance-of-payments deficits or unsettled political conditions were potential defaulters in their commitments. Established banks in economically and financially strong countries were considered safe risks, even in transactions involving very large sums and fairly long periods. The Herstatt experience calls for a revision of this view.
It is now generally agreed that the root cause of these failures was the unprecedented "floating of exchange rates of almost all the internationally traded currencies. Fixed exchange rates had for long been considered to be an essential pre-requisite for stability in international transactions, but one after another, leading currencies were forced to abandon fixed parities and adopt floatingrates. The U. S. dollar held out for some time longer than others, and its capitulation in March 1973 Signalled the end of an era in the international monetary field.
This general adoption of floating exchange rates created an extremely fluid situation in international currency markets. It also provided great opportunities to speculators and presented equally great risks to banks and other legitimate operators in these markets. Buying and selling foreign currencies under high pressüre has always been a specialised and risky business, and in the banks this was the preserve of exchange dealers who were acknowledged experts in their field. With 'floating exchange rates, the risks attendant on "dealing vastly increased, calling
16
for even sharper At the same tim large speculative creased, and 1974 including two la banks, come to g their dealers bein, the temptation to way. While the sin the shock fatal, the banks were strong stand it by absorb
Even so, these shook the inter system, and for nervously looked will fall next. F ways in banking quickly learnt, a community with Governments was gether various dev tackle the new pro
The basic cause lay in the freedom nal bankers traditi operations. Th guaranteed by the trine that equilibr nal transactions ca by allowing mark free play. The di 1973/74 have cause the dangers of t without openly re tral Banks and C proceeded to syst this freedom.
Fortunately i foi loping world, we too poor, partic exchange resource afford the luxury action so cherishe businessmen in thi control is a perm with us, and thi scope for speculati exchange has bee This has spared us from the risks to countries have recent years. Th potential of ban countries may har exaggerated, after
Sri Lanka Fina
For some time been suggestions

Finance
Ba
skills than before. 2 the prospect of profits also insaw several banks. Lrge international rief as a result of g unable to resist Speculate in a big haller banks found 2 two international : enough to withing the losses.
spectacular events national banking
a time bankers around to see who ortunately, as al, the lesson was and the banking the assistance of able to put toices to successfully oblems.
of these upheavals which internatioonally had in their is freedom was : laissez-faire docium in internatioun best be achieved et forces to have Sastrous events of 2d a recognition of his doctrine, and pudiating it, Cengovernments have tematically curtail
us, in the deve
have always been ularly in foreign 2s, to be able to of the freedom of 'd by bankers and e West. Exchange anent fact of life s meant that the ive deals in foreign 'n totally absent. ; here in Sri Lanka which the Western been exposed in us, the defaulting ks in developing ve been somewhat
all.
ince Companies ; now there have that some action
must be taken by Government to regulate the activities of our Finance Companies. The point has been well made that they are an aberration in a planned economy tending to disturb, and to some extent neutralise, the Government’s efforts at directing the development of the economy towards pre-determined objectives. The discussion on this subject increased in the period of the run-up to the last Budget, and it was expected that the Budget proposals would contain some measures to bring the Finance Companies within the ambit of the Government's regulatory powers. In the event, the Budget proposals were disappointing in that they contained only a withholding tax on interest paid by Finance Companies.
The implications of this measure were quite naturally exaggerated as part of the build-up against the socalled expropriatory character of the Budget proposals. In fact, however, it was no more than an advance collection of income Tax
very similar to the long-standing
deduction at source of tax on dividend income.
Some meaningful and effective
regulation of the activities of Finance Companies is urgently needed in the interests of an effective control over national economic activity. In the first place, the uncontrolled operations of Finance Companies have a distinctly inflationary impact on the economy. While the Central Bank imposes credit restrictions on the commercial banks with a view to containing inflationary pressures and directing resources to priority areas, the Finance Companies carry on their lending unabated, most of the time financing precisely those areas which the Central Bank wants to be starved of credit.
Another consequence of these
activities is the disturbance of in
terest rate structures. Being unable to attract deposits as easily as the banks, they have to offer very high interest rates in order to get deposits. By this means they attract money that might otherwise have gone into the banking system, and also compel the less liquid banks to offer high
ECONOMIC REVIEW, APRIL. 975.

Page 17
Cing
Finance
interest rates (by bank standards) in order to retain at least some of their deposits.
The high cost at which Finance Companies get their funds lead them to charge a high price for the funds they lend out, and it is not unusual for the effective rate to the borrower to be between 25 and 30 per cent. Naturally, this high cost of funds in turn increases the production costs of the borrowing entrepreneur, who in turn adds it to the market price of his product. By this means the inflationary pressures in the economy are further aggravated.
There is, of course, no doubt that by and large Finance Companies play a useful role So long as there is a place for private enterprise in the economy. Their borrowers are mostly sub-standard, and are willing to pay the high price because they have no alternative source of funds.
FOREIGN AID
In mid March at a panel discussion organised by the Sri Lanka Association for the Advancement of Science, a Professor of Engineering of the University of Sri Lanka made what must be one of the most patriotic and constructive solutions to the problems of the brain drain. His simplistic and naive suggestion was that the education system of Sri Lanka should be geared to the requirements of the Western countries so that those trained at considerable expense to the country would find steady jobs abroad.
On a more serious and reasoned level, a study published by UNCTAD the same week shows the full dimensions of the brain drain problem. According to this study which has quantified the inflow of trained personnel of the Third World into the U.S., the full extent of Third World aid flows into the U.S. is revealed in the clearest possible terms.
In 1970, according to this study, 11,236 skilled people left the developing countries and settled in the U.S. Asia accounted for over 75% of the emigrants, over 3,000 going from
Economic Review, APRIL 1975
It is, therefore, eliminate this sou to be done is to re.
This can be done within the purviev Bank’s authority amendment to th Act. They could to maintain certair Central Bank an subject to the Cer latory and supe including the scrut of their lending can then be brough of the credit restr ively prevented f distortions into the
The Central E authority will also the much needed Finance Companie they take balance turn will help to
India alone. Rot number were en, mately one sixth c ral scientists, res
If one takes the an indicator for the doctors top the expected to earn $646,000 each duri nal life in the compared with respective home neers, natural and are judged to ea between $ 253,000 For engineers and this still amount times the sum th earn at home. W gain for the indivi the society.
In 1970 alone
transferred to th brain drain amou dollars. En contr cial development consisting in rea the U. S. to dev amounted to only
In this context Ir

Banking
not desirable to rce. What needs gulate it.
by bringing them y of the Central by a suitable e Monetary Law then be required l reserves with the would also be tral Bank's regurvisory authority iny and direction portfolios. They it within the ambit ictions and effectrom introducing 2 economy.
Bank's regulatory help to provide stability to the !s by ensuring that di risks. This in protect depositors.
圈
墨霞、 ighly half of the gineers, approxiloctors and natuDectively.
income earned as ir value to society, list. They are
an average of ng their professioJnited States, as $44,000 in their countries. Engisocial scientists urn sizeably less, ) and $ 230,000. ! social scientists, s to about ten ey can expect to What represents a dual is a loss for
the total income e U. S. by this inted to 3.7 billion ast the total offissistance (largely lity of loans) by eloping countries 3.1 billion dollars. dia was one of
in U. K. and elsewhere in the West 'secondary-banks' which are the counterparts of our Finance Companies, have been causing considerable concern. The central banks and commercial banks have realised that the failure of any of the "secondary-banks' may result in loss of confidence in banks proper, and have taken concerted action to help those in difficulty. From that they have moved on to a position of control to ensure that the 'secondary-banks' adopt safe business practices which will prevent them from getting into difficulties.
Here in Sri Lanka, where the Government wants the economy to develop in a particular direction, there is a very strong case for regulating the activities of our own" secondary-banks', and amendment to the Monetary Law Act providing such regulations is therefore an urgent need. ܗ
the biggest aid donors and U. S. one of the biggest recipient coun
tries. Development aid of this
form to the U. S. is seen in strong
er light when compared with other relevant magnitudes. For example,
it amounted to nearly 14% of total
U. S. expenditure on research and development and about 38% of U. S. current expenditure on higher
education. In 1970 alone it was roughly one eighth of the total U.S.
assistance to post war Europe in
the form of the Marshall Plan Aid. Lastly, the figure was equivalent
to over 0.3% of the U. S. gross domestic product.
It is interesting to point out that this study indicating reverse aid flows to the West is in keeping with studies on the Latin American context on capital inflows. These have shown that instead of there being net capital inflows from the U. S. into Latin American countries as proponents of allowing "free capital movement would believe, there is on the contrary, a net outflow of Capital from these countriesto the U. S. forevery quantum of capital received.
17

Page 18
FOREIGN NEWS REVIEW
INDIAN OCEAN REGION
There have been signs of a possible thaw in the conflict between the two giants in the region, China and India. Observers predict that the visit of the Chinese table tennis team to Calcutta might be the beginning of moves to normalise relations.
The visit of President Bhutto to Washington, produced the lifting of the embargo on arms Supply to Pakistan. The embargo was placed during the Bangladesh war in 1971. U. S. and Chinese arms since that date to Pakistan have totalled $225 million, and Soviet sales to India of advanced weaponry amount to $1200 million. U.S. supply of arms to Pakistan raised protests in India where Foreign Minister Chavan cancelled a visit to Washington. Observers feel that the U. S. will balance the situation by increasing food aid to India.
The heightening armaments race is increasing the instability in the region, while the precarious situation in Bangladesh is no help.
Pakistan's move to obtain arms has been hastened by the increasing strength of India in consolidating power in Kashmir through the return of Sheik Abdullah, the "Lion of Kashmir' as Chief Minister. The increasing influence of the Soviet Union in Afghanistan is also apparently adding to Pakistan's insecurity in the light of the close Indo-Soviet relationships.
Further South, in Singapore, Foreign Minister Rajaratnam is visiting China and it is possible that diplomatic arrangements for recoginition would be the result. This would leave Indonesia as the only country in the entire region to avoid a closer relationship with China.
Closer home, in the Maldives, Prime Minister Zaki has been deposed. He was known to be very keen on developing relationships between his country and Sri Lanka.
18
lt seems clear, hic historical and ling the two nations wil less of the change
The Maldives cc on the western side Madagascar. Col zato who took ove! nation of Colone is known to be establishment of fo region. At least th a respite to the W situation developin and Southern par Ocean. All these reç in the region make Garcia is perhaps The demand for Ocean remains mor before.
CAMBODA
The siege of Phi forces of the Ro of the National bodia has brought the American im Marshal Lon Nol army led by Khi succeeded in isolat and cutting off th supply line from The result has beer of ammunition a besieged capital b D. C. 8 and C. 130 ferrying 45 tons a tion to Pochentnoy within the reach ( the Samphan/Siha It is estimated tha lift is not enough Nol regime goin foreign nationals h to leave the capital hope to hold out ti which begins in J Mekong floods ma possible to open the South Vietnam. leading members government, incl himself, his Prim Boret and his bro leaving Phnom Pen ably under Am

wever, that the
istic ties between
continue regardin regime.
lup was matched by the changes in o nel Andriamanafter the assassi
Ratsimandrara, opposed to the reign bases in the is should provide orsening military g in the Eastern is of the Indian 'ent developments it clear that Diego only a beginning. a neutral Indian e urgent than ever
nom Penh, by the yalı Government Union of Camdefeat closer to posed regime of The people's au Samphan has ing Phnom Penh e Mekong River South Vietnam. a massive airlift nd food to the y U. S. aircraft. aircraft have been time of ammuniairport which is of the rockets of nouk led forces. t the present airto keep the Lon ; for long and ave been advised , The Lonnolites 1 the rainy season une, so that the ke it once again water route from In the meantime of the Lon Nol ding Lon Nol : Minister Long her Lon Non are 1. They, presumrican pressure,
are desperately trying to find a way out of their deteriorating situation.
The strategy of the Samphan attack seems to be not to take the capital by military manoeuvres but rather to use political slogans and appeals to the people of the city. It is a continuation of Giap's theory of People's War, "confronted by an aggressor enemy with powerful armed forces we could not rely on our armed forces to defeat him but rather have to rely on the forces of all the people'.
Meanwhile, President Ford has asked the U. S. Congress for a $300 million to Thieu in South Vietnam. Congress has so far not approved these votes, but it is likely that a compromise figure will be reached. At the same time Norodom Sihanouk has offered to negotiate with the U. S. A. Though the Americans have not responded to this offer the fall of Phnom Penh,Western observers feel, is only a matter of time. The fall of Phnom Penh will result in Cambodia coming under the control of the patriotic forces and further . weakening of the Thieu regime in South Vietnam.
AFRICA
The Lome Convention signed in Togo on February 28th between the EEC, African, Caribbean and South Pacific countries grants access to the latter's industrial goods on a duty free basis, to the EEC. Similarly 96% of duties on farm products are waived. The agreement also creates a stabilisation fund to compensate the exporting countries from a fall in market prices. The agreement reflects the keen and sustained efforts by the EEC to retain and expand its economic relationship with Africa against the increasing competition from the U. S. A. and U. S. S. R. The European countries have the initial advantage of the historical colonial connections in the regions and apparently plan ဂျိုဇွိုဇုံ the linguistic and artificial
ltural connections to their maxi
ECONOMIC REVIEW, APRIt 975

Page 19
mum economic benefit. The attempt by the African countries to retain some equity in their trade balances has been so far unsuccessful. For instance, Gabon has attempted to maintain minimum prices for its timber without avail. Similarly Cameroon's attempt to maintain cocoa prices has also failed despite the 1972 International Cocoa Agreement, since the U. S. A. has refused to sign the agreement. Despite massive increase in the production and export of commodities like cocoa the total export revenue has been failing, stretching the unequal exchange to unbearable limits.
The Lome Convention, though coming within the ambit of the usual neocolonial agreements to some extent reflects the minor advantages gained by the combined bargaining position of the AfroCaribbean countries and the new mood of militancy in the Third World.
ETHIOPHA
The Military Dergue in Ethiopia which overthrew Haile Selassie, King of Kings and Lion of Judah announced last month that it was nationalising 101 foreign companies. This follows its declaration of introducing land reforms through a policy of “land to the tiller'. The regime, however, is faced with two major problems. The province of Eritrea which has resisted the central government and is controlled by the Eritrean Liberation Front has stepped up its separatist activities. The coup that led to the overthrow of Selassie was led by an Eritrean, Col. Andom who was assassinated soon afterwards. Last month 20,000 Government troops faced 6,000 ELF fighters in the province's capital Asmara. The continuous bombardment of Asmara by Ethiopian aircraft has resulted in nearly 2,000 deaths. The ELF has retaliated by blowing up bridges and destroying Ethiopian army columns in combat. The ELF is backed by a group of Arab States in the Gulf and also the Soviet Union. The predominantly Muslim province has demanded negotiation but the Ethiopian Government refused discussions and opened the attack. American aid
ECONOMIC REVEW, APRIL 1975
to the Ethiopian G tinues as before. Th Somali invasion fri Eritrean forces co fashion. But the refusing autonomy
gives Ethiopia its of Sea. This is complic that the U. S. A. at the ELF, since the pro Arab regime C Coast. The soluti blem is delayed d Power interests in th
The young regim with the problem of hit the country on situation in the Oga considered serious solve this problem further difficulties which is attempting feudal country.
LATN AMERICA
The new U. S. Tr by the U. S. Preside has aroused the ange: of many Latin Ame Mexico, Venezuela, Colombia and Co voiced their protes Permanent Council tion of American S stops preferential tra countries belonging countries who have f primary producing c{ to improve raw matc countries which ha U. S. property. Th affects Latin Americ has ever since the M been developed as : American enterprise, trial sectors in Lat still controlled by U. direct U. S. investn alone totals $ 20.00 very unequal nat America-Western relationship has ri gentina's President accusing U. S. G. West Germany's Si dulent practices, wł Government cancel latter's contracts million.

Vernment con: Dergue fears a im the East if ntinue in this asic reason for is that Eritrea ly access to the ated by the fact d Israel oppose y fear another n the Red Sea on to the proue to the Big e region.
e is also faced famine that has ce again. The den Province is and failure to will result in for the regime to modernise a
'ade Act ratified nt on January 3 rand opposition :rican countries. Brazil, Panama, sta Rica have zt through the pf the Organisa
tates. The Act de treatment for ; to OPEC,
ormed cartels of puntries in order rial prices and we nationalised le Act specially :a which region onroe Doctrine back-yard for Many indusin America are S. interests and ent in the area ) million. The ure of Latin multi-nationals sulted in ArIsable Peron overnment and mens of frauich resulted in ation of the totalling $ 240
Despite the failure of the Allende administration to withstand U. S. interference the general tendency among Latin American countries to nationalise oil, minerals, electricity and other basic industries is gaining momentum in countries like Peru, Venezuela and Ecuador. The attempts by Latin American countries to gain a measure of control over their natural resources is also focussed round the 200 mile economic zone demanded by littoral states. This would preserve the living and mineral resources of the sea and seabed for the poorer countries. The measure, however, is opposed by both the U. S. A. and the U. S. S. R. The failure to receive support from the superpowers resulted in the failure to resolve this issue at the Law of the Sea Conference held in Caracas, Venezuela last year.
ALGERLA
At the first Summit Conference of the OPEC Heads of State held last month, the OPEC countries came up with proposals to help Third World needs for fertilizer. The OPEC leaders agreed in Algiers to contribute 300 million dollars to build between 5 to 10 plants producing nitrogenous fertilizer. The total annual output aimed at is 1.5 m. tons which is equivalent to 10%, of all fertilizer imports of the Third World from the West.
This output will constitute a Fertilizer Fund from which OPEC countries will sell to needy nations at prices covering only raw material and operating costs. At this conference, the Algerians suggested that the oil producers should also pay for delivery costs. This seemed unlikely.
During the last three years fertilizer prices have quadrupled and consequently have hit countries like Sri Lanka very badly. At the ECAFE Conference held in Sri Lanka last year there was a call by Sri Lanka for a World Fertilizer Fund. The proposed OPEC facility seems to be very much like this demand come true.
19

Page 20
T E A
Bid for Floor Prices
One of the main considerations at the meeting of the F. A. O. working party of tea exporters being held in Rome early in April will be a proposal for minimum export price for tea. This working party will work out a general strategy for implementing a floor price scheme which will be presented at the 8th Annual Session of the F.A.O.'s exporter/buyer committee on tea to be held from June 24th to July 3rd either in Colombo or Rome. A report from Calcutta states "producing countries may agree in priciple to press for a minimum price for export tea. Whether they will be able to implement this decision will be anybody's guess.
Since tea sold below the minimum price will not be exported, the quantity of tea exports of the producing countries will be affected. The minimum price would have to be a higher price so that inferior quality teas are not exported.
As for inferior quality tea there are bound to be differences among producing countries. It has to be defined. But since the definition of “quality' itself is not foolproof, it will be a hard job at Rome for the producing countries to arrive at satisfactory definition of the term,
inferio, tea.
Tea Estates Nationalisation in India
The Indian Government has decided to take over the management of 25 tea estates having severe economic difficulties. These would be offered to state Sector organisations, co-operatives and private firms to run. These estates are reported to have had liabilities of Rs. 60 million ( about £ 3,250,000).
Meanwhile, India's Commerce Minister, Professor D. P. Chattopadhayaa has told Parliament in February that the Indian Government
20
did not believe was the answer the tea industry have studied thes and we felt tha not the answer ti problems at thi according to a Delhi.
R U E
Synthetic Rubber
Synthetic rub are finding it d without substa prices of their p. recent case is a synthetic manul Zeon Co. which end of February to raise its domes synthetic rubber, butadiene rubb rubber by 15 to this April.
Japanese synth have been holdir price hikes since they raised the p1 under the admi of the Trade and
Nippon Zeon rise of materia naphtha prices ( because of a fall
car tyre manufa
News of the to 20% rise in Synthetic rubbe with reports of in synthetic p1 country had the of bringing over to the rubber m
Rubber Producer Stock and Ratio
Rubber exper producing coun Malaysia and the beginning of
 

hat nationalisation to the problems of at this stage. “We 2 problems in depth nationalisation is the tea industry's s stage he said,
report from New
| B E R
Prices Rise
ber manufacturers ificult to operate ntial increases in roducts. The most leading Japanese acturer Nippon announced at the that it was planning stic selling price of , including stylene 2r and butadiene | 20 per cent from
etic rubber makers ng off new product last October, when rices by 15 per cent, nistrative guidance | Industry Ministry.
said the continued 1 costs including 'ould not be offset in the needs from CturerS.
prospective 15% Japanese domestic r prices together a sizeable cut back oduction in that immediate impact steady conditions arket of the World.
s agree on Buffer halisation Scheme
S from the major tries, Indonesia, Thailand agreed at
March on an inter
national Buffer Stock Scheme to achieve natural rubber price stability. The meeting also agreed that floor and ceiling prices for natural rubber should be introduced. The Rationalisation Scheme is expected to be introduced to back up the Buffer Stock Scheme intended to introduce certain measures in producing countries such as a cut back in tapping, if the buffer stock fails to produce the desired results of stabilising prices.
со со A
UNCTAD is urging cocoa producing countries to process more of the cocoa output locally instead of exporting raw beans. A study by the UNCTAD Secretariat has Suggested that consumer countries should consider introducing regulations to prevent products from being sold as chocolate if they contain more than a specified percentage of cocoa butter Substitutes.
The UNCTAD study also Suggested that more direct transactions should be arranged between the relatively few large enterprises in the producing and consuming countries.
As far as marketing within producing countries is concerned the report also suggested that :-
1. Governments should ensure that prices received by cocoa. producers, usually peasant farmers, are kept stable within a given season.
2. Producing countries should
consider extending their stock holding capacity, particularly in the main
consuming countries.
3. The flow of daily information, on cocoa market trends to the selling agencies inlp oducing countries, should be improved.
4. Producing countries should review their internal marketing arrangements to cut COStS.
ECONOMic REVIEW, APRIL 1975

Page 21
STATISTICS
Tea Prices - Colombo (Rs. per Kilo)
3.50
3.00
2.50 High
2.00
1.50
.00
O.50
0.00
9.50
Medịfi
9.00 LovAY
8.50
3.00
dan. 25 Feb. Feb. 8 Feb. 5 Feb. 22.
Rubber Prices - Colombo - Singapore - London (Rs. per Kilo)
翼愛 拳。5敦
德.25 -
一つ
400
37
Singagere
مگاصیت
プ中=
3.5@
3.5
3.0
爱。烹5
. Coțofmb 50 二
O w
an 25 Fe'3, 8 Feb. 8 e Fဇင်္5, 22 . . Aar í
ECONOMC REVIEW, APRIL. 975
2.
 
 

Trends in Commodity Prices for period of 6 weeks January 25 - March
1975
Tea Prices - London (Rs. per Kilo)
.00
0.50 thigh
OOO
Medi rim 9.50
9.00 Low
8.50
8.00
Jan. 25 Feb. Feb. 8 Feb. 15 Feb. 22. Matri, li
Copra Prices - Colombo - Manila - London (Rs. per long ton) Rs.
馨。鲇
Maria
ମୁଁ ଖୁଁ
Lorder
.N
및
? N
S.O.
4.懿 ਭ Cat.3
Jan. 25 Feb. Feb. 8 Feb. 5 Feb. 22 Mar.
2.

Page 22
FEATURES
On Economists
G. V. S. de Silva
G. V. S. de Silva is one of the most thou, economists, of Sri Lanka. He has taught eco University of Ceylon and was one of the chief the first Land Reform Act - the Paddy Lands His "Some Heretical Thoughts on Economic published in 1973 evoked wide comment. He p a seminar held at Bangkok earlier this year re pathways in economic thinking. In the foll Mr. Silva makes a fundamental reassessment of of Economics as a Science. Readers familiar discussions in the field of psychology will fin G. V. S. de Silva's devastating critique in Thom
critique on psychiatric medicine.
What a terrible confusion the English language is responsible for. Ever since Professor Lionel Robbins succumbed to this linguistic ambiguity and defined economics as the science of economizing, generations of his followers have faithfully echoed this definition which equates economics with good house-keeping, until it has now become enshrined as one of the dogmas of our age.
This limitlessly wide definitional umbrella encompasses and shelters a motley crowd of people who in their different fields of activity are confronted with the universal problem of economizing scarce resources, and who therefore have come to believe that in every rational and calculated choice they make they are behaving like economists. From the simple housewife struggling to make the ends of her budget meet to the sophisticated macro-economic programmer engaged in the allocation of national resources and the determination of investment priorities, lies one continuous chain of 'economists' the tinks of which include industrial
22
economists, agri fishery economis omists, marketing economists, final even engineering all these diverse posed to have in are all engaged i resources andma ing something o physics was thou of physique, and bat and weight 1 imagining himsel specialist physici little connection
and economizing physics and phys purely linguistic
aberrations of th
Pòlitical Econom
The older cla probably had a possible terminc and they chose t not economicsbu To them, politica of the social scier marily concernet

and Economizers
"ht provoking omics at the forces behind Act of 1958. Development articipated in lating to new Dwing article the position
with recent d echoes of as S. Szasz's
cultural economists, sts, transport econgeconomists, project lcial economists and
economists What individuals are supcommon is that they
1 husbanding scarce
ximizing or optimizother. It is as if ght to be the science
2very gymnast, acro
ifter strutted about to be some kind of St. For, there is as between economics as there is between que, other than the affinity due to the e English language.
f
ssical economists n inkling of this logical confusion, ) call their science Political Economy. economy was one ces which were priwith society and
social relations. Its special field of inquiry was the relations that exist between men in the sphere of production (i.e. the production relations in Society), and the cause and direction of changes in these relations over time. The more discerning of them saw these production relations as the basis of all other social relations, and therefore regarded the science of political economy as the foundation of all the other social sciences. They
unravelled the essential differences in
the production relations in difier sint forms of society, the cause of changes in these relations, and on the basis of such a profound understanding of social forces were able to indicate the possible direction of social and economic development. What a far cry it is from that wide canvas on which the political economists set out to depict in bold strokes the very basis of the social fabric, to the petty little maximizing and optimizing calculations of today's economizers.
The economizers have not only transformed economics from a science of society to a science of scarcity, but they have even gone further and drained out every atom of social content from that science which not so long ago was regarded as the Queen of the social sciences. For according to them, the problem of scarcity is a universal and perennial one that has confronted all societies in all ages. Hence in studying this problem it is necessary to abstract and ignore the specific types of social formation, in order to arrive at conclusions which are universally valid not only for all societies but even for isolated individuals like Robinson Crusoe who though alone on his desert island would, according to Lionel Robbins, still have had to contend with the 'economic problem of dividing his time between work and leisure. Thus has a living social science been mutilated beyond recognition and conver
Economic Review April 1975

Page 23
ted into an empty shell of dead universal formulae.
Rationality and Irrationality
The irrationalities of everyday life are a constant source of irritation to rational men. The economizers too who take great pride in their rationality are no exception. They are frequently annoyed with the economic reality around them, and their one endeavour is to squeeze it into their logical mould. Having conceptually removed the problem of economic development from the turbulent and volatile arena of social conflict and placed it in the placid and air-conditioned environment of rational choice and efficient management, they have become infatuated with the super-rationality embodied in a variety of sophisticated techniques (in themselves quite fascinating and instructive exercises) that have been designed to bring some order into this disorderly world of ours. They view national economic problems through the narrow prisms of the market place and the petty parochial world of the individual business enterprise, and make the most pedestrain pronouncements about the solutions to these problems. When these solutions naturally fail, they look for a scapegoat and conveniently find one in the poor politician whom they regard as the source of all irrationality in economic life. He is the man who puts the spanner in the works. If only he would keep his meddlesome hands off, or shed his political clothes and join together with other similarly declothed politicians to look at problems from a rational and not a political view point, then we would have the precondition for the economic development of a country. All that remains to be done is for such an a-political cabinet of able men to be surrounded, supported and sometimes even submerged by a brains trust of systems analysts, project evaluators, progress controllers, financial consultants, management accountants, technocrats and such other supermen who would provide rational solutions to all economic problems.
Economic REVIEyy, APRIL. 975
Surface Phenomera
The trouble with is that they only se are only equipped to calities and irratio) surface of phenome contradictions that roots. They are soi old classical physicis chaos and anarc found that an electro ted, not only stra straight and narrow tonian mechanics h for it but did not e finite trajectory. quantum physicists discovered a deeper ly complex rational behaviour. They electron (and in fac a contradictory entit particle and wave. sic duality inherent of all phenomena til fests itself externally which seem thoroug terms of formal log economizer who til: mills of surface in economist must pro understand the essen at the heart of econc in order to be able contradictions it giv is true economic r the conceptual and ratus so laboriousl, the economizers is n here.
Mystification
Let us illustrate question of marketi of how an economi be mystified and m looking only at the tions between thing ing the underlying tions between peopl izers are justifiab the primitive inte arrangements in ou cularly in respect of ties. Surely, they beyond the ingenuit to devise a moder tem. So they org seminars, summon ants and plan grandi

he economizers e (in fact they see) the illogihalities on the na and not the ie at their very newhat like the ts who shouted hy ” when theỳ n, when diffracyed from the path that Newad chalked out ven have a deBut then the came along and and an incredibity in electron found that the it all matter) is y which is both
It is this intrin
in the essence hat often manias irrationalities ghly illogical in gic. Unlike the ts at the windrationality, the be deeper and tial duality lying mic phenomena to resolve the es rise to. This ationalism, and
technical appa
y assembled by ot of much help
by taking the ng as an example 2 problem could isunderstood by superficial relas and not probeconomic rela2. Our economly appalled by rnal marketing country, partirural commodixclaim, it is not " of rational men marketing sysanize marketing foreign consultse super markets
in foreign countries.
modelled on what they have seen But the probe lem is elsewhere, and lies in the basic conflict between production. capital and commercial capital. It appears to be superficially contradictory but is yet essentially true, that, the organized development of come, merce requires the subordination of commercial capital to production: capital. For, so long as commercial capital is the dominant element in this conflict, the producers' interest in organized marketing is made subservient to the big traders' interest in speculative and disorderly marketing which is the source of windfall profits to them. It is instructive to recall from history that the decline. of the commercial supremacy of Holland and the rise of England as the ruling trading nation of the world was inseparably linked with the victory of industrial capital over commercial capital in the course of the early development of capitalism in England. The development of: marketing, then, is not a system and management problem to be solved by training managers and building supermarkets, but the rather complex social problem of subordinating trade to production and the trader to the producer. This can only be resolved through a process of social conflict, and it is only then that the entire superstructure of a modern marketing system can and will come into existence. .. ';
. It is indeed a pity that even socialist economic thinking has beeh! considerably blunted by the deadening influence of the economizers, Many socialist economists have been deluded by the claims to universal validity made by the economizers for their concepts and techniques, and have come to believe that they could carry this intellectual baggage along with them into a socialist environment. Their emphasis, accordingly, is more on the techniques for the rational allocation and eff. cient management of resources in a socialist economy than on the contradictions in production and social relations, which they assume to be basically resolved with the nationalisation of the means of production.
23

Page 24
Contradictions and Conflicts
The problems of socialist economics unfortunately are infinitely more complex than this. There are numerous economic contradictions and tremendous social conflicts in a pre-socialist society which are not resolved by the nationalisation of the means of production. At the core of many of these conflicts lies the division of labour which the economizers regard as the wellspring of economic efficiency. It is this division of labour that has generated and perpetuated the conflicts between the town and the countryside, manual and mental activity, managers and the managed, workers and peasants. It is the prime cause of the social subordination of women, the domination of living labour by dead labour (of man by machine), the suppression of the creativity of millions of ordinary people and of bureaucracy, technocracy and all other types of elitism in society. It is inconceivable that the destruction of this perverse and pernicious division of labour is not as essential for socialist society as the 'smashing of the bourgeois state apparatus,' even though the economizers may shout a thousand protests that it would lead to inefficiency and chaos and would undermine the very foundations of the mighty edifice of modern urban industrialism - (the Trojan horse bequeathed by Capitalism?).
Economism versus Development
There are many fundamental issues of this nature that economists must
2.
give their mind. inhibited or it narrow econor the economizers marily concern
strategy of eco. and social evolu the developing world. The en crises have expo row and unstabl alluring superstri ous consumptio the so-called di of the West. I for the developi to emulate this m which, far from resources, has b the most wantor tion of natural world has ever developing cour of development
providing for th lated multiplicit few, but of s: needs and impro life of the man direction, howev accomplish. It problem of ecc development in
peded and frust by the existing p To attempt to a direction by me any egalitarian
tion on the existi tion would be se it would only le of production an available for dis tions of product

s to without being timidated by the mism preached by These issues - prithe direction and nomic development tion, particularly in countries of the crgy and economic sed the fragile, nare base on which an ucture of conspicu1 has been built by leveloped countries would be foolish ng countries to try odel of development economizing scarce een responsible for 1 waste and destrucresources that the known. For the tries the objective is no longer one of e artificially stimuy of wants of the atisfying the basic oving the quality of y. This change of ver, is not easy to is in fact the central onomic and social our age. It is imrated at every turn production relations. achieve this shift of rely superimposing system of distribuing mode of produc:lf defeating, in that :ad to a curtailment d hence to less being tribution. The relation and the system
of distribution constitute an inseparable unity which cannot be artificially severed. To change the latter it is necessary to change the former.
Necessary Pre-conditions
The direction of economic development is not an arbitrary one to be chosen at the will and caprice of economizers, but of necessity lies along the path that will successfully resolve the economic contradictions and social conflicts that impede the growth of the productive forces of society. The economic, social and institutional changes that will resolve these conflicts are the necessary pre-condition for development, and they must be carried through to the end even though the economizers may howl that such measures are uneconomic and contrary to what they ideally consider to be the most rational allocation and efficient management of resources. The detailed study of production relations, their contradictions, the social conflicts they generate and the manner of their resolution is therefore the special field of inquiry of the economist. If the science of economics were to free itself from the barren and debilitating embrace of the economizers and become reinvigorated along these lines in keeping with the best traditions of the old political economy, then only would it once again have something useful and sensible to contribute towards the understanding, if not the solution, of social and economic problems.
ECONOMIC REVIEW, APRIL 973.

Page 25
Standing up to the W New Mood in the less
G. K. Helleiner
Relations between the Western and Third Work have depended upon a tacit acceptance of a depende the Third World. This schema has been increasingly in the light of limited results and the climate of growing instability. It is in this context that we reproduce here Professor G. K. Helleiner read at a conference last year on the new changes in the international order and World. G. K. Helleiner is Professor of Econom Department of Political Economy, University of Canada. He has written and edited many books and international trade and development and related issue
Relationships between rich nations and poor have entered a distinctly new phase during the 1970's. For all but the poorest of the poor countries, the era in which "foreign aid was perceived as the fulcrum for these North-South relationships has ended. Aid never did deserve the relative emphasis it received. The effects upon the less developed countries of the North's activities in the fields of trade, investment, technology and monetary affairs have always been slighted by the donor nations, for whom it was simpler to focus upon the soft option.' But the recent stagnation and even decline in the real value of official development assistance and the very limited results achieved in the international community through humanitarian appeals, together with the growing experience, sophistication and expertise of Third World planners and policy-makers have generated a new mood in the less developed countries-aconsensus that further gains can and must be extracted from international economic relationships through the use of new instruments. The OPEC experience has not been without influence-less in terms of the potential for similar action in other commodity markets than as a de
ECONOMIC REVIEW, APRIL 1975
monstration that determined use of I ments and levers. made to work.
There has been
of “traditional” dem developed worldfor primary produ access for manuf introduction of th for the many othe) micks which hav over the years. No rhetoric on the s national economici all, as the United session in April 1 made quite clear. emerged a new de fully to analyse ; Third World obje ties and to bargair tion and skill in the than continuing to cate on the basis it be nice if . . .” new self-reliant and in the less develop
to have emerged di
considerable econc the developed world countries seem to
developments with xiety than they othe

orld: The
Developed Countries
a cоитtries nt role by questioned g economic a paper by in Sweden
the Third ics at the " u vronto, articles on
S.
the shrewd and new policy instruof power can be
no abandonment ands from the less for better prices acts and market actures, for the e aid-SDR link, C reformist “ gim2 been suggested or has the general subject of internjustice abated at
Nations special 974 should have Rather, there has termination careand agree upon :tives and prioriwith sophisticabir purSuit, rather
plead and advoof a 'Wouldn't
mentality. This pragmatic mood 2d world happens uring a period of Dmic disarray in l. The developed be viewing these
rather more anrwise might have,
in the light of their general nervousness about monetary order, the prospect of a severe recession and the possible breakdown of the post-war consensus on international economic organisation and behaviour.
A "new mood can be no more than a beginning, for there are never easy answers to complex questions even when there are new reserves in the form of determination and stiffened backbone upon which to draw. In the belief, however, that the emergence of this new mood constitutes a watershed in the development of economic and political relationships between the world's North and South, and that it creates both new opportunities and new risks, the Seminar participants met to discuss them. In a series of discussions on commodity markets and cartels, transnational enterprises, international financial markets, debt relief and international institutions, they sought to analyse-in the words of one participant-imaginative visions of alternative possibilities” for the transfer of resources from the world's rich to the world's poor with close and precise attention to detail. Political complexities, interdependencies and the absence of detailed information limit all such efforts to agree on more productive strategy and tactics for the Third World as a whole.
Some of my own views on certain of the issues discussed are outlined below. ' '
Trade traitiatives
Great hopes have been aroused in the Third World by the experience of the petroleum-producing countries, which seem successfully to have extracted larger revenues from the rich consuming nations. Cannot the OPEC model be duplicated, it is asked, in other commodity markets? On closer examina
25

Page 26
tion, demand conditions, the nature of the established oil cartel and other factors do seem to make the petroleum case a very special one. Producer government attempts to manage supplies more rationally, independently of agreements with consuming countries, will nevertheless undoubtedly continue and probably
be intensified in such commodities
as bauxite (which many rate as the most likely to succeed), copper, tin, iron ore, bananas, coffee, tea and cocoa. Joint action by governments in producing nations may instead take the form of unification of fiscal and other policies, where supply management is not pursued. Some developed countries like Australia and Canada may well co-operate as producers in some of these arrangements. Success in raising and maintaining the less developed countries
take from these commodities is most likely in those cases where demand prospects are buoyant and where there are reasons for believing that the intergovernmental cartel or other agreement can hold together. Unfortunately, it is difficult to be very precise about the factors that influence the latter prospect which, in any event, can be expected to vary from case to case.
In the longer run, there are risks that transnational enterprises facing increasingly hardnosed and co-ordi nated suppliers in the less developed countries will respond by developing alternative Sources, not the least important of which is, in some cases, the sea-bed (the importance to the Third World of which is therefore greater than might at first be apparent). There may also be retaliatory or countervailing measures taken or pressures exerted by the relevant firms or countries. All things considered, and the scares about world resources scarcity notwithstanding, the medium-term prospects for the terms of trade of nearly all the primary-exporting less developed countries are generally assumed to look quite bleak.
The distribution, as among less developed countries, of the extra income from successes in the field of commodity policy is self-evidently not very equitable. (The catastrophic effect of petroleum and related price increases upon the poorest countries are a lesson not to be
26
forgotten.) Wheth within the gainin down to the poc question and depi of other countryces. Such intern are necessary bu effectively tran from rich to poo
An important explored area of in which the less might be able to is in wresting co more equitable sl
processing, mark
tion from the har enterprises. A Third World p1
ports is actually
which the prod between estab though in differ controlled by the enterprise. This problems for fisc ply management. of local processi marketing chann taken at the nati such measures v still more effectiv with other prod
Existing fina freight rates and biased against and favour expar North-South line scope for Third and exchange of more appropria cularly if deman argue that the e. South productior the imposition North-South tra evident that such necessarily gene effects and they some undesirab general agreeme and should be do ing biases in the pert trade and trade among t countries themsel
Bargaining with
Enterprises
Just as one m in which Northwere seen prima

ter the extra income g countries trickles r is also an open 2nds upon a variety specific circumstanational Successes t not sufficient for sferring resources T.
and relatively uncommodity policy developed countries act more effectively introl or at least a hare of earnings in eting and distribunds of transnational sery high share of imary-product exintra-firm trade in uce is transferred lishments which, ent countries, are same transnational creates obvious al control and supThe development ng and alternative els can be underonal level, but any vill presumably be e if pursued jointly lucing countries.
ncial institutions, infrastructure are South-South trade ision of trade along 2s. There is great World production less luxurious and te ' products, partid expands. Some (pansion of Southand trade requires of restrictions on de but it is not restrictions would rate the desired might well produce le ones. There is nt that much can ine to remove existservices which Supto Stimulate more he less developed ves.
Transnational
ly say that the era
South relationships ily in terms of aid
had ended, one can say that the era in which the activities of transnational enterprises in the less developed countries are seen primarily in terms. of direct investment is drawing to a close. The old debates as to the benefits and costs of direct foreign investment are being rendered obsolete by the less developed countries“ increasing insistence upon decomposing its package of capital, various types of technology, management and marketing into constituent components that can then become the object of independent purchasing decisions and be obtained from a variety of Sources. Direct investment, like aid, will continue to flow but only when its advantages. have been compared by the recipient country with the available alternative sources of the inputs thereby acquired. More strenuous Third World bargaining with each supplier can certainly safely be predicted.
The less developed countries capacity to shop around in world input markets depends upon their development of relevant skills, the acquisition of the necessary information and the regularization of channels for the acquisition of recurrent requirements. Their greatly increased resort to borrowing on Eurocurrency markets (see below) in the past few years indicates that one major alternative source of the capital component has effectively been developed. The purchase of technology and management skills frequently involves greater difficulties, however, since the Sellers of these inputs typically are monopolists or oligopolists. Access to restricted foreign markets is also likely to be a matter of especially difficult bargaining. Most less developed countries do now seen to recognise, however, that bargaining power is of the essence in relationships of whatever type with transnational enterprises. Exchanges of information and unified policies among host countries, such as are practised by the members of the Andean Pact, clearly raise their bargaining strength and therefore are likely to improve the terms of whatever deals are struck with foreign enterprises. The experiences of the Andean Pact can and should be transmitted to other parts of the less developed world both through
ECONOMIC REVIEW, APRIL 1975

Page 27
direct exchanges and through the further elaboration of codes of conduct for foreign investors and technology Suppliers which, though based on one region's problems, can be applied, at least for preliminary purposes, in another.
It is easy to make mistakes or to be misled by superficial appearances in this area of policy. Nationalisation of foreign enterprises for the sake of acquiring greater national learnings and control can leave the nationalizer with neither, if his expertise and bargaining power are insuffiscient to prevent the granting of major concessions on management and technology contracts. Bargaining with foreign enterprises is extremely complex and difficult, and one must be totally clear as to one's true objectives. For example, the acquisition of 51 per cent of a firm's equity makes very little economic sense if the object is to secure control of its activities. One can normally gain the necessary information for effective control at considerably smaller cost. On the other hand, if there are cogent economic grounds for nationalization-usually in resource-exporting sectors or on the commanding heights - it may well make more sense to acquire 100 per cent ownership in the relevant firms.
Similarly, requirements for local private participation in the ownership of foreign enterprises may actually increase the long-run strength of the transnational enterprises in the relevant country vis-a- vis the government and the entire society by creating a powerful set of allies or, more broadly, a dependent rentier class. Real national bargaining power may thus be reduced by measures undertaken under the banner of economic nationalism. Less dramatic and lower-profile measures which are implemented on an ongoing daily basis may be more effective in regulating the activities of the transnational enterprises.
More from the International FinazR
cial System
The less developed countries have expressed themselves vigorously and in a unified fashion on the subject of international monetary reform since they formed themselves into
ECONOMIC REVIEW, APRIL 1975
the Group of bankers from eac continents). The an SDR aid link ti an altered distrib verning future SD
for fixed exchange Currencies of the Soundly based. ferences may not
flected in the even IMF they are cei ployed as bargai the continuing del developed countrie SeSS enough votes
Veto against an
IMF reform. If
new SDR can bep up as the basic ré international mone will be significant a Third World in te serve management pressure to join t of one of the majo hardly be added th which the newly balances could be at subsidised intere of enormous signifi oil-producing pool
In the meantin data are by no m sive, it is clear that countries are relyin dented extent, up Eurocurrency mar national capital má ly in Europe, conta restrictions which for borrowing by countries, the unre rency markets havi important source capital, either con complementary to transnational enter development agenc tive interest rates fo ed country borrow high on these mark tive source of cap degrees of freedor great many poor shop for capital an
For the poorest for whom Euroc rates are prohibi assistance is really able means of ac capital from abro;

4 (eight central h of the relevant r preferences for aking the form of tion formula goR allocations, and rates among the major powers, are While these prebe obviously reual reform of the tainly being emning counters in pates, for the less S as a group posto exert a formal * unsatisfactory ? the status of the reserved and built iserve asset in the tary system, there dvantages for the rms of easier reand relief from he currency area r powers. It need at any means by acquired Arab onlent, preferably Strates, could be cance to the non
countries.
le, although the
eans comprehen
the less developed g, to an un preceon borrowing on kets. Whereas turkets, particularain all manner of imit the potential less developed gulated Eurocur2 emerged as an of commercial petitive with or suppliers' credits, prises and official tes. While effecrtheless developters are still very ets, this alternaital increases the n available to a :ountries as they d other inputs.
countries-those urrency interest lively high-grant the only reasonuiring adequate ld, as it should
have been from the beginning of the aid era. For the majority, however, provided that capacity to service the debt rises at an adequate rate, there is no reason not to continue to expand foreign borrowing even in cases where the accumulated debt already appears quite heavy. The rapid inflation of recent years has provided less developed borrowers with a significant windfall gain by reducing the real burden of their international debt.
There remains, however, a considerable debt mess left over from the mistakes of the past two decades, which overhangs the internationai financial scene. It would be in the general international interest, as well as that of the relevant debtor countries, if a way could be found for writing this ' bad debt off and beginning again. Now that portfolio capital is again flowing in large amounts into the less developed countries, a rash of unilateral defaults could be very harmful in their effects for future borrowing potential. It might be possible, however, to construct a set of principles or a * code * outlining the circumstances in which default could * honourably be undertaken without fear of penalty, just as bankruptcy can, in some circumstances, be declared in the private sector. Such a code would involve the international lenders' participation in developing risks for the first time. There exists an obvious rationale, for example, for writing off loans which should have been grants and were clearly for consumption purposes-food and disaster relief loans that were offered for projects which subsequently turned sour and that portion of loans' principal which was absorbed in what is now universally recognized as having been the excess costs of tying. Those less developed countries for whom debt relief would be most important might well devote some energies to the development of a ' default code for collective introduction. In putting forward these proposals for debt relief (rather than rescheduling, which merely postpones the day of judgement), one must bear in mind the likelihood that any resulting gains to debtor countries will take the form of better-quality resource flows rather than increased
27

Page 28
quantity since debt relief will be subfracted from unchanged total development assistance budgets.
New institutions
in virtually every field one examines it is clear that the less developed countries stand to gain through close co-operation and joint bargaining. It is difficult to generalize about what it is that enables groups of countries to stand together for different occasions. How, for instance, did the African and Caribbean associates and associables manage, against all odds, to present such a coherent and coordinated position to the divided EEC? What is it that provided that extra
element of co-ope and the Andean Pa
On the other han that, other things b World joint initia successful when th narrowly focussed. no doubt have rol the elaboration of and politics of the the provision of general discussion : port, but they are to in membership an very effective action under discussion. instruments of real likely to be functi phically restricted
緩
GNP per capita in U. S. dol
THE GAPs 1950
نی)
BETWEEN United States 2,300
France 750
RCH West Germany 600
400 Soviet Union ܙ ܐ -
ది:
AAND 용 China 50
A Thailand 85
POOR a Pakistan 70
India 70
Estimates of the World Bank for Sri GNP per capita in 1969 is S 1
শুরু క్షిg: : ー。 پهعنبیه 雯
一一厂厂
57.2
Rich Countries
于。
జిజి జే
8.5 售4.器
Poor Countries
s
1967/68 1971/72
ཁལ་ཁག་དང་། །ལས་འཕགས་ལམ་ལ་བཀྱ་མཚོ། །ལན་ཚ་བ་ཡོད།
ཁལ་ཁ་རག་ས་མ་ཡོད་ལས་ཡོད། །ཁ་གསུམ་
బ్లాఇజ్తో క్షాల్లో
16.3
1972/73
Fertilizer consumption (in million tons per year)
28
 
 
 

ration in OPEC |ct?
d, it is also clear eing equal, Third tives are most ey are relatively The UN agencies es to perform in the psychology new mood, and opportunities for and research SupDo comprehensive d aspiration for of the type now The institutional change are more onally or geogra, and therefore
lars
1975 estimate
3,550 1,750 2,900 1,625
190
135
75
85
Lanka 90
much smaller, less given to rhetoric and posturing, and much better at giving close and precise attention to detail. Whether the new mood can be translated into significant new power for Third World countries will depend, above all, upon the Successes of these newer and smaller multinational institutions. Upon them, and more accurately, upon their member governments, will rest the major responsibility for ensuring that the new mood results in such more than a mere renegotiation in the terms of their peoples’ poverty and dependence.
(By Courtesy of Dag Haminarskjold
Centre's Development Dialogue)
Different Nations' share of the World’s GNP in 1975 (estimated)
二 。
United States 33 Soviet Union 18 盐 West Germany ݂ ݂ 7 ہسع
s China 7
Thailand 0.2%, , Chile 0.2 %, ། التي エ *
(Source: Russet añadi Alker)
'sశ్లేd 2,529
1970.
Rich Countries
Poor Countries
1985
1990
Estimated difference in average wealth in dollars.
ECONOMIC REVIEW, APRIL 975

Page 29
Perspectives
On La
Nimal Sanderatne
Dr. Ninal Sanderatne is a Senior Economist at th Bank of Ceylon and his specialised field of study has political economy of Asian agrarian reform. He has tributed several articles to journals such as the 'Soul Review, Indian Journal of Agricultural Economics', 'I Agricultural Economics of Malaysia and Developmen
Land reform is an essential prerequisite to the economic development of an agriculturally underdeveloped country. The historical experiences of several countries have demonstrated that a land reform has preceded their economic development. Land reform is a fundamental change in the land tenure Structure of a country necessitating the redistribution in the ownership and possession of lands ; changes in the methods of farm management and exploitation under different systems of farming, and changes in farm size structure.
Land Reform and Agrarian Reform
Early discussion of land reform tended to view it as different to agrarian reform but the experience of land reforms in many countries has brought out the importance of supporting services such as credit, the provision of extension facilities, channels for marketing produce, and the availability of agricultural inputs. To be of significance to the socio-economic development of a country land reform must therefore be viewed as the broader process of agrarian reform. Land redistribution alone is inadequate. Agrarian reform must be viewed within the socio-economic context of particular countries ; and also as fundamental changes in the
ECONOMIC REVIEW, APRIL i975
methods of owning land so as to prom requirements of development.
However, a basic agrarian structure achieve owing to s Land is the predomi resource in a pre-in Land ownership is source of economic a source of social sta power. When one all else is added unto land one is deprive many opportunities ment. Therefore, rights to the posse trol of land have revolutionary, and ir ing on the relative s different classes and society. Land reforr generally resisted by economic wealth and For this reason lan often been enacted a after a drastic change structure or by exte
What are the obje reform? The objec reform could vary This is especially so a is often a response to sures and could have tives such as penalisi

nd Reform
e Central been the also conth Asian Review of t Digest.
and cultivating ote the overall socio-economic
change in the is difficult to several reasons. nant or strategic dustrial society. not merely a wealth but also tus and political possesses land, him. Without 'd of access to for improvechanges in the Ssion and cona fundamental, 'reversible bearstrengths of the d groups of a nS are therefore y those having political power. d reforms have nd implemented : in the political 2rnal pressures.
ctives of a land tives of a land considerably. S a land reform D political prespolitical objecng a particular
class or group of persons ; legitimizing a new regime ; or dampening a revolutionary or insurgent potential. The social and economic goals of a reform are those of increasing agricultural production, improving wealth and income distribution and increasing employment opportunities on the land.
Production
Increased agricultural production is a pre-requisite to economic development of agriculture based economies. It is therefore essential to view land reform as a measure to increase agricultural productivity. It is, however, true that a land reform has often led to a drop in agricultural productivity owing to several reasons. The existing land tenure structure has servicing systems to meet input needs such as the provision of credit and fertilizer and their own processing and marketing channels. The landed interests, who continue to wield considerable economic and political power, attempt to discredit the reform by withholding resources. Where the existing servicing structures are the chief available means such withholding is a significant deprivation to the reformed structures. Until new supporting services are developed, the land reform lands tend to be denied very necessary services. Often the reformed tenure structures are themselves experimental and have internal problems of management. A period of lower agricultural production is, therefore, a common experience in countries which have undergone a land reform. This again underscores the need for developing supporting services ; as such a drop in agricultural production cannot be borne by countries with low levels of living and low agricultural productivity levels.
29

Page 30
Equity in Distribution
Since land is the most important
economic resource, the pattern of
its ownership and the conditions on
which the land is cultivated have an important bearing on income distribution. If, however, a land reform merely redistributes land more equitably and all other conditions remain the same, there is a redistribution only to the extent that the ownership structure of the basic income generating resource has been altered. Such a change is at best merely, a redistribution of existing incomes and the importance of land reforms as a measure of income redistribution is limited. If, on the other hand, the new incentives coupled with adequate supporting services leads to increased productivity then a more cumulative impact on income redistribution can be attained. Part of this cumulative income redistribution would arise from the increased income of lower income groups leading to a change in consumption patterns in favour of basic needs produced at the local level or at least within the country. These
increased demands could lead to an
expansion of village level industries which utilise local materials and are more labour intensive.
Employment and Intensive Land
Use
The question then arises as to the means by which such goals should be attained. Increased agricultural production per se could be attained by various means. But the strategies used must be consistent with the resource endowments of the country as well as the other goals that must
be attained. In a labour surplus
and a land and capital scarce economy such as ours an intensified use of land and capital and techniques
which are highly labour absorptive
should be adopted. In other words the tenure structure must be changed
so as to provide an alternate struc
ture which increases agricultural production by a more intensive use of land. Such intensification must
be attained by a greater use of labour
on the land. This in turn would result in the mitigation of the unemployment problem.
30
One of the maj reform arises whe not hitherto been ploited is redistri tural workers. Ir land owners with cultivation of the appear worth the considering the r come they derive taxes. They, thei tain such land rather than as se The cultivation o provide employm agricultural outp However, one m note that all uncul necessarily cultiva these lands may h cultivated precisel of cultivating such
Table
Ty
Jungle Patna &
abandoned tea
Tea
Coconut
Rubber
Paddy
Other Crops ...
Total
Another way ir could contribute t agricultural produc
and incomes is b.
lands under a sing rall others. This 1 been feasible befo to the reasons add

or gains in a land reland which has
agriculturally exbuted to agriculthe case of large high income levels, se lands may not e effort especially het disposable in
after payment of efore, tend to reas capital assets Durces of income. f such land could ent and increase ut and incomes. ust be careful to tivated land is not ble and some of lave remained uny due to problems
lands.
vating lands as well as due to the
unfeasibility of such cultivation under large scale management. Small scale cultivation could lend itself more easily to intensive exploitation with several crops. Apart from scale considerations, a land reform could plan such agricultural development by redistributing land With the understanding that these lands are exploited in this manner.
SRI LANKA’S LAND REFORM
The Land Reform Law of 1972 was the first attempt to alter the land tenure structure of the country by the redistribution of a significant extent of privately owned agricultural land. The law placed a 50 acre ceiling on the individual ownership of agricultural land, except in the case of paddy land, where the ceiling was 25 acres. Agricultural
- Land Expropriated by Type of Land Use
Area in Percent of pe of land Use Acres Expropriated
land
uncultivated and
& rubber 183,958 33
135,760 24
115,350 21
82.944 15
16,270 3
25,095 4.
559,377 100
which a reform owards increasing :tion, employment y inter-cultivating le crop with sevetoo may not have re a reform owing uced for not culti
lands owned by public companies were exempted.
Expropriation
With this ceiling a total extent of 559,377 acres were expropriated. The breakdown of these lands by type of land use is given in Table 1.
ECONOMIC REVIEW, APRIL 1975

Page 31
About one third of the land area expropriated is uncultivated. A significant amount of increases in agricultural production and employment is likely to result from the exploitation of these hitherto uncultivated land. No doubt some of these lands are not cultivable and would have to remain so. Yet to the extent that the 184,000 acres are cultivated this should result in a net gain in production and employment.
In the case of tea lands the attainment of the objectives of increased
employment and productivity are .
limited on well maintained lands as these absorb about 1.1 workers per acre and maintain a higher productivity per acre. However, a high proportion of tea lands that have
been expropriated productive and a cultivation of the increase employm duction.
Coconut lands p. highest potential agricultural produc ment. This possib the fact that severa interplanted with dairy cattle estab lands.
Management Forms
Apart from the of the pre-reform 1 of post-reform man lands have an impo
TABLE 2
Lands Alienated by Institutions & Manage
Institutions or Management Method Aಣ್ಣ Acre
Divisional Land Reform Authorities 177,7)
Land Commissioner 1113,
USAWASAMA (Udarata Samupakara
Wathu Sanwardhana Mandalaya) 87.2:
Multi-Purpose Co-operative Societies 48,14
Cooperative Settlements (Samupakara
Janawasas) - - - - - 38,7(
State Plantations Corporation ... 31,7s
Special Cooperative Organisations 19,7:
Government Boards and Institutes 8,3
Individual Villagers . . . 13,83
Others 22.5
Total 559,3
ECONOMIC REVIEW, APRIL 1975

are likely not as more systematic se lands could ent and pro
robably have the for increasing ion and employlity arises out of l crops could be coconut and lished on these
type of land use ands, the nature agement of these rtant bearing on
heat
Percent of S Total
9 32
75 20
35 16
43 9
)4 7
) 6
50 3
O 1.
33 2
7 4.
100 7ז
the attainment of the reform objeetives. The method of alienation of lands by organisational method is given in Table 2. However, this classification is inadequate for a discussion of the new forms of tenure as these farm lands could be transferred to other forms and the form of tenure of a substantial proportion of the lands cannot be gauged from this classification. These uncertainties apply particularly to lands alienated to the Divisional Land Reform Authorities and those under the Land Commissioner. Although these categories account for over half of the total lands expropriated a high proportion of these lands are likely to be hitherto uncultivated lands.
Estate land taken over by the State Plantations Corporation and (USAWASAMA) and any estates continued to be maintained as large units and operated on the same basis as privately owned estates, are likely to change their productivity only to the extent that the new management is more or less efficient than the previous management. Such transference of ownership without a change in organisational forms is likely to change its productivity owing to differences in the management capacities. A sizeable extent of the tea and rubber lands previously held in estates is likely to fall into this category. A determination as to whether the transfer of ownership and management from the private sector to the public sector can be made only after a lapse of a few years and the production statistics of the estates are examined over several years under both forms of ownership.
State
The experience of the
Plantations Corporation in managing
estates is likely to be of use in operating the new estates. The State Plantations Corporation has however, obtained only 31,791 acres. The other management organizations entrusted with estates may not necessarily possess the abilities to handle the estates. The discontinuance of former management personnel with planting experience on estates could compound the problem. The State Plantations Corporation itself may be overstretching its capacities. While
31

Page 32
from the point of view of maintaining productivity the estate form of
management may be suited, the
continuation of the estate system implies a lack of reform in land tenure conditions. Considerable amount of re-thinking will be necessary to devise a new system of organization which democratises the ownership and management of these lands while maintaining high productivity levels,
Collectives
New forms of tenure and agricultural organization are being developed under the reform. This is particularly so with respect to the development of cooperative or collective farms. About 38,000 acres have so far been alienated for Samupakara Janawasas. Some other cooperative organizations are also being established. Most such lands are developed lands. - -
Cooperative farms have the advantage of a greater rationalization of labour resources and the economies of scale in certain farming operations. These advantages are likely to be particularly relevant for several new crops requiring standardised practices. Such organization may also be more suited for developing intensive farming units with agro-based industries. But cooperative farms pose several problems as well. A major need is a cooperative spirit or collective consciousness which is generally induced by ideological commitments or economic conditions necessitating continued operation on a group basis. by skilful managerial principles which ensure that rewards are commensurate with labour inputs. A cooperative farming enterprise runs the risk of conflicts among the partners if rewards are not related
This requires to be reinforced
to their input of flicts affect the of the farm.
Family Farms
The alienation sized holdings h ages. Once the of extension, crec the availability of the individual relied upon to tak expend energies to tion. There wou police farming would be to the farmer himself to efficiently. In a operation labour be intensified as it of the farm fami labour on an brings in a posit like in the case where the return must be more Wages. It is fo1 the smaller padc labour intensive tices like weeding more than the la
For these re: strong case for in small family twin consideratic the size of the ho area cultivable v supplemented at communal farmir the possibility adequate income But it must be st farm system is only where the are adequately clearly demonstr Zation schemes, V tenure condition ensure a high y On the other ha
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abour. Such conroductive capacity
of land on family as several advantupporting services it, marketing, and inputs are assured, armers could be e the decisions and maximise producld be no need to operations as it advantage of the allocate resources family farming utilization would is to the advantage ty to expend extra operation which Ve net return, un
: of wage labour
from the output than the cost of this reason that ly holdings adopt
cultivation pracand transplanting Irger holdings.
asons there is a alienation of land sized units. The ons in determining lding should be an with family labour peak periods with ng operations, and of obtaining an : for the family. ressed that a family
likely to succeed supporting services provided. This is
ated in the coloni
where a satisfactory alone has failed to ielding agriculture. nd the special pro
previous private ownership ;
jects inaugurated on some colonization areas in 1967 have displayed impressive results. . . . . . . . .
Conclusion
The Land Reform Law of 1972 although unprecedented as a measure to curb private holdings of land, is limited in its impact as a basic and radical change in the tenure structure of the country. The exclusion of the large estates under company ownership and the maintenance of other extents taken over in the same estate type of organization, are mainly responsible for the limited impact. The reform also hardly affects the tenancy problem on paddy lands. However, it provides the country with an opportunity to evolve new types of tenure suited to different types of farming. It is also likely that this reform will release further pressures for a more radical change in the tenure structure encompassing the estate sector. .
The smaller sized holdings on some lands, the larger number of persons likely to be employed on cooperative settlements than under the inter-cropping on coconut lands ; and the cultivation of hitherto uncultivated lands ; are all likely to increase the intensity of land use and increase employment and incomes from land. The development of suitable organizational forms to manage the new tenure forms and institutional structures to service agriculture and provide the necessary inputs will be an important determinant of the success of the reform. However, agricultural production is likely to have been adversely affected by the reform owing to the uncertainty in tenure of the statutorily declared lands and the neglect by previous owners and the disruption of existing farm organization.
ted or reproduced with due acknowledgement. ... - - - - - -
ittampalam A. Gardiner Mawatha, Colombo 2.