Page 1


Page 2
冒 Social Democratic asasa (party in power)
Third World Sociais
匪 Mixed Economy
Capitalis.
G Per capita GNP
Physical Ouality - O Uffe lladexx
THE WORLD's ECONOMIG.SYSTEMS
euAsh ALA O OSO Og
ON DURAS 6ago
s
EL SALVAPC 64ao
Beas
The question as to how far Social services affect development was ansWered through a map of "The World's Economic Systems' published in the TIME Magazine recently. If development COinSiStS Of much more than an increase in per capita income or a high Gross National Product, if it consists rather of a satisfaction of the basic needs of a country's people and a steady all round improvement in their living standards then Sri Lanka's experience could be regarded as remarkable for a developing country.
Sri Lanka's rating on the Physical Quality of Life Index, as this map ShoWS, does Stand Out. And this reasonably high PQLI ratio for Sri Lanka could be regarded as a result of the consistent allocation of funds by government in the fields of health, education and nutrition and the emphasis laid on developing public invest
Sri Lanka Ronks High on Physical Ouality of Life
mentS based On Wj Social benefits an tion.
The PQLI (Phy Index) is COnSider meaSure Of the le achieved by a cou cated by the tra economic progre National Product). ectly an index, de the Overseas De (ODC), a Washin to measure the Services. Alongsid Seen in the above accepted baromet Product per capi based On 1976 Wo. PQILI Were takel as an index of de ranks high amon the Asian region
Reprinted by per
 
 
 
 
 
 
 
 
 
 

COSTA ReA 7@@ is 040
ees
Index
ider considerations of di income redistribU
CAF GREP
Venezuel A $2676 கு?9
GUYANA 鲨54o O 32
SURNAba s37o O82
3窓AZlし S 40
67
URUGuay S390 o97
59.
ARGENTIMA
t: 55o © sg
ysical Quality of Life ed as a more reliable avels of development Lintry than that indiditional measure of SS the GNP (Gross . The PQLI is indir2veloped recently by velopment Council gton Study Centre, affectiveness of SOcial e this measure (as map) is the widely er Of GroSS National ita in US dollars rld Bank data. If the n into consideration velopment Sri Lanka g the country's of and the Developing
mission from TIME,
World as a Whole. Sri Lanka's rating is as high as 82 as compared with Nepal 26, Bangladesh 35, Pakistan 38, India, 43, Indonesia, 48, Burma 51, Malaysia. 62, Thailand 68 and Philippines 71. The GNP indicator, however, rates Sri Lanka at only $ 200 per capita as against Indonesia’s $ 240 per capita, Thailand's S 318 per capita, Philippines” $ 410 per capita and Malaysia’s $ 860 per capita. The comparison with Singapore too is interesting. With a PQLI of 83 Singapore is about the same as Sri Lanka. On this index; while, on the GNP per capita measure Singapore is $ 2,700 as compared with Only $ 200 for Sri Lanka. A further extreme is the case of Kuwait, Whose GNP stood at
the Weekly Newsmagazine, Copyright 1978.
ーで

Page 3
ONOMG REVIEW
Published by the People's Bank Research Department.
Head office. Sir Chittampalam A. Gardinar Mawat ha Colombo 2.
Sri Lanka.
THE Economic REVIEW is intended to
LLL LLEG zLLGLLGELLLL GL tCLL LLLttYY0LLLLS LL LLtttLL 00L0H HHLLHG LLLL LLLL LLGLLLLSS S LLSLLSLLLLLLLL LLLL tt L process by a nati y sided presentation of views & reportage, acts and debate THE ECONOMIC RE WEW is a community service protect of the People is Ban LLD C CHGG GLLLL L LL SS LLLLLL LL Le LL0YYSS L0 S LLLL S0SJLL0t St edito a consider at ons only and do MOL nocessarily ra : oct Bank polices of the officia viewpoint Signed feature HH G LL LLLLL LLLL LL L00SL LLLLLLLLS LLLLLLL LL ELttH authors and do not represent the
institutions to which they are attached Si nun iar contributions es vel as Cornments and viewpoints are welcome HE ECONOMIC REVEW is published non hy and is available born on Subscription and on direct sate.
volume 3
B. S. Wije
Amilcar O
NEXT Issue
COVER
The SO by phot
 
 
 
 

Number 12 March 1978
C O N T ENTS
COLUMNS
2 Diary of Events
16 The Economy
18 Foreign News Review
19 Fisheries
20 Commodities
21 Trade
SPECIAL REPORT
3 Social Services, Welfare
and Development
FEATURES
ጊUፀé?‛OL 24. A. Colonial Administrative
System in Transition: SOme reflections on the proposed appointment of District Ministers
. Heፕገ‛erd 26 Catastrophe or New Society?
A Latin American World
Model.
IMF ChangeS? The Second Amendiment.
Basic service delivery in under-developed country conditions - the Bangladesh experience.
Employment patterns interpreted through vacancies advertised in the press.
District Credit Planning.
cial Services Question - connected issues; depicted Ographer Palitha Kannangara.

Page 4
DIARY C
FEBRUARY
i
10
3
Sri Lanka will receive substantially gre amounts of aid from the International MOne Fund in the next three years, in appreciatior the Government's policy of shifting from Sumption expediture to investment for econd development, the IMF's Managing Director Joh nes Wittaveen told a press conference in Colon
China and the Philippines has signed an ag ment under which China will supply the Ph. pines with 1 million tons of crude oil this y according to a Reuter Report.
The Government has decided to go ahead v the Rs. 2,200 million urea fertilizer project Sapugaskanda, Kelaniya, according to a p announcement. This decision follows recomin dations made by four-member Committee app ted by the Minister of Industries and Scient Affairs.
The Japanese Government has agreed to pro Commoditv Aid on a grant basis amounting Rs. 80 million for purchase of fertilizer, trac and agro-chemicals; and was also conside the grant of Rs. 80 million as "Emergency. As tance' to Sri Lanka. This was in addition to 292 million as Commodity Aid already m available by the Japanese Government this ye Rs. 129 million as a Project Loan for the t communication project; and Rs. 73 million as outright grant for the teaching hospital at P. deniya, according to a Finance Ministry anno cement.
India has signed its biggest agreement for supply of Soviet crude oil valued at Rs. 1 million (about US $ 142 million) according to Delhi sources, reported the London Times.
Toray Industries and Mitsui of Japan said t had jointly won a $ 25 million order from Soviet Union for Setting up a polyester plant Minsk capable of turning out 500,000 tons yarn, reported the London Times.
Representatives of private sector trade cham who met the President to discuss new emp ment opportunities in the private sector agr to initiate action to increase their exist work-force by 10 per cent.
A Vietnamese mission arrived in Kuala Lum to discuss with Malaysian officials assista they should get to rehabilitate Vietnam's rub industry, stated a Reiter report.
The National Housing Department announ that it would give housing loans upto Rs. 40 each to persons who do not own houses.
The Regional Commonwealth Conference leaders from Asia and the Pacific began ti political and economic dialogue in Sydney the tense atmosphere of a bomb explosion.
 

15 Cuba's National Bank Governor signed a Yen 10
3ᎿᎿᎾᎥ" billion syndicated loan contract with a consoralry tium of 24 Japanese banks. The loan will help of finance Cuban industrial development projects, ŽOIl- Stated a Reuter report. Ω1ο 16 Leaders of 12 Commonwealth, Asian and Pacific ူ nations at the end of their Summit Session in OO. Sydney announced they would combine their ree- political and economic resources in an attempt lip- to bolster living standards and expectations of ea, their 750 million peoples and to launch a drive to reduce hunger, increase trade, exploit fresh energy resources and fight international terro# rism and drug-trafficking in the region. reSS 9 The Government of the Federal Republic of GerEIl- many has agreed to double its aid to Sri Lanka Din- both in the form of loans and outright grants ific up to a total of Rs. 570 million (DM 78 million) this year for agriculture, industrial, transporta- tion and telecommunication development, an 7ide official delegation from the F.R.G. announced in
to Colombo. tors sing 20 Construction work was started on the Rs. 400 Sis- million Canyon Power Project under Stage III of RS. the Maskeliya Oya Scheme. ade 23 The National Savings Bank (Amendment) Bill, eal; which enables an employee of the Bank to be a ele. member of the board of directors was passed in
2. the National State Assembly.
era
un- 24 Announcing a change in the pattern of subsidies to the coconut industry the Minister of Plantation Industry said that in future the subsidy
the would be on the basis of production (the num150 ber of coconuts) and not on the acreage as calcuNeW lated in the past.
27 A master plan to develop Sri Lanka's tea, indushey try is being formulated with Canadian assistance the as a 15 year programme, the Ministry of Planta
in tation Industry announced. of Senior officials of Western industrial nations met
in Paris in a bid to break an apparent deadlock over ways to secure adequate world economic
蠶 recovery, according to a French Press Agency 驚 report. They were meeting in the economic policy žing Committee of the OECD, against the background of continued controversy between leading economic powers over the sharing out of the pur burden of the measures needed.
28 India's Finance Minister cast his net to muster ber a massive additional tax revenue of Rs. 524.5 crores in a bid to bridge the yawning gap of RS. ced 1,396 crores in the Janata Party's Budget for ,000 1978-79, presented in the Indian Parliament.
A US contribution of $ 4,750 million to the Inof ternational Monetary Fund's “Witterveen Facileir lity", to help balance of payments dericit nations, in was approved by the US House of Representa
tives.
ECONOMIC REVIEW, MARCH 1978

Page 5
The lowest 40 per cent
Sri Lanka's position
Sri Lanka, is one of those developing capitalist countries in which the incomes of the lowest 40 per cent as a whole is estimated to have grown faster than the joint income growth of all groups within the country. An international study on "InCOImeS, Redistribution a. In di Growth' carried out jointly by the Institute of Development Studies at Sussex University and the Development Research Centre of the World Bank has illustrated this point through the diagram at right. This figure plots the estirnated annual growth rate of income of the lowest 40 per cent against the rate of growth of GENEP for 18 COUntries . . . . COUntries above the 45 degree line are countries in which the income share of the lowest 40 per cent increased over the period so that the estimated rate of growth of income for this group was higher than for the economy as a whole. Countries below the 45 degree line are countries in which the relative income shares of the lowest 40 per cent declined.
The scatter suggests considerable diversity of country experience in terms of changes in relative equality .... Both Peru and Sri Lanka, for example, experienced the same rate of GNP growth over the respective periods reported, but income of the lowest 40 per cent grew over 8 per cent per annum in Sri Lanka - compared to only 3 per cent in Peru - because of improvements in relative income shares.
The study analyses and ex
plains the variations come share of the t cent, the middle 40 p. the lowest 40 per cer that there is an abs marked relationship come growth and ch come shares and litt basis for the view
SOCIAL SERVICE, W AND DEVELOPMENT
Sri Lanka has often been cited as an OutStanding case in the developing World, where the level of Social progress achieved appears to be much higher than that Of many other countries with higher per capita incomes. In effect, the social development of this country (measured in terms of standard
EconoMIC REVIEw, MARCH 1978
Welfare indicators Sl education and nutrit parable to that of r cally mOre advanced
It has been pos tain a quality Of life matched by few ot) countries, due to th high allocation of f
 

O SRI LANKA (6370)
COLOMBIA (6470) o
CANADA (61-65) OM
OBRAZL (6070) OEL SALVADOR (61-69) Philippines (61.71
oyuGosLAV INDIA (54–64).
VENE.
OPERU
in the inOp 20 per er cent, and lit. It states ence Of any between inanges in inEle empirical that higher
rowth and the lowest 40 per cent
RAN (60-68).O.
A 63-68).
6171
rates of growth inevitably generate greater inequality. Other results of the analysis were that income inequality first increases and then decreases with development . . . . ; and education is positively related to equality in terms of income shares of the lowest and middle groups . . . .
ELFARE
lch as health, iOn) is commany ecOn Olmi
countries. Sible to mainin Sri Lanka, ner developing e continuously unds by Gov
ernment in the fields of health, educatiOn and foOd and the emphasis laid on developing public investmentS baSed On the Wider cOnsiderations of Social benefits and income redistribution. Thus, over the years Sri Lanka has been able to improve her income distribution pattern towards both lower income classes and from the urban to the rural Sectors. Despite these significant Social achievements the country's capacity to maintain these
3

Page 6
living standards has been seriously strained by the comparatively slower growth of the economy. Further, the problem of unemployment has become more aggravated over the past two decades. The debate on whether chanelling of a sizeable amount of the government's annual resource allocations for Social Welfare is inimical to economic growth and employment generation has now taken. On a greater degree of urgency.
A country constrained by apparent Scarcity of resources is always faced with the dilemma. Of accelerating its capital formation activities with Out, drastically reducing the already low consumption capacity Of its masses. For Social Services and Welfare have to be given
an important place in any develop
ment programme if Such a prOgramme is to be implemented meaningfully. Although they are generally regarded as consumer services, they are often so essential that every society must provide them to SOme extent even though
this may ag diversion of tion of capita ent sloWing ecOnOmic devo the question really means, improvement of purely velopment W. ing if the pe denied their
It S im these Social are SOmethin goods - the though indi helping to in example, edu be a valuable by improving technologies, cial in StitutiC favourably fo
Again, help:S tO raiS While housin healthy COnd
TABLE 1 - ALLOCATION OF GROSS DOMESTIC
FORM
OOIn Gross DoYear Amount mestic Ex- Total
penditure
RS. min. 9,294 7,917 1967 Percent 100 85.2
R. S. Min. 11,035 9,336 1968 EPercent 100 84。6
R.S. min. 12,422 10,189 1969 EPerCent 100 8.9
R.S. nnn. 13,060 10,505 1970 Percent 100 80。4
RS. min. 12,888 10,639 1971 Percent 100 82.5
R.S. nnn. 18,81Ꮞ 11,697 1972 Percent 100 84。鹫
R.S. nnn. 1Ꮾ,87Ꮾ 14,246 1973 Percent 100 84.4
RS. 1mln. 22,Ꮾ10 19,470 1974 Percent 100 86.1
R.S. n. 25,266 21,358 1975 Percent 100 84。5
RS. m. 26,802 22,608 1976 Percent 100 8量。4
RS. m. 30,352 25,158 197? Percent 100 82.9
 
 

parently mean Some 'esources from producl goods and a consequdown in the rate of elopment. This raises of what 'development
Not necessarily the of G.N.P. This type growth-oriented' deould have little meanpple working for it are eSSential needs.
portant to realise that and Welfare Services g more than COinSumer y are Substantially, rectly, capital goods crease production. For cation has proved to instrument of growth general Skills and and also modifying sonS and attitudes more Ir development.
investment in health
2 levels of production,
g helps to maintain itions and inadequate
or poor housing affects the health, efficiency and morale of people and undermines production. Furthermore, investment in services such as housing and education could contribute substantially to employment productivity and stimulation of other industries.
However, conventional wisdom of the neo-classical kind maintains that rapidity of economic growth
would depend on the rate of in
crease in investment While investment in turn. Would depend On the capacity to save. If savings are to be enhanced consumption needs to be curtailed. Yet, there are not only economic but also Sociopolitical factors making this task quite difficult. Thus, the objective of achieving the “optimum balance' between consumption expenditure and capital formation activities has been a problem confronting many developing nations, including Sri Lanka.
It is evident, from table I, that the average annual ratio Of COn
EXPENDITURE BETWEEN CONSUMPTION & CAPITAL
ATION
Sumption Capital Formation
Private Gov能。 Govt. & Govt.
sector sector Total Public en- Corpora- Private
terprises tions Sector
6,677 1,240 1,377 446 232 699 71.8 13.4 直4.8 4.8 2.5 了.5
ܣܛܢ 7,928 1,408 1,ᏮᏭᏭ 531 322 846 71.8 12.8 15。4 4.8 2.9 7.7
8,698 1,471 2.253 050 399 1,349 700 11.9 8. 4.1 3.2 10.8
3,856 1,649 2,554 785 514 1,255 67.8 12.6 19.6 6.0 4.0 9.6
8,849 1,790 2,249 588 435 1,226 68.7 13.9 1.5 4.6 3.4 9.5
9,773 1,924 2,118 342 363 1,413 70.8 13.9 15.3 2.5 2.6 10.2
12,203 2,043 2,630 677 489 1,464 72.3 12.1 15.6 4.0 2.9 8.7
16,700 2,770 3,140 872 284 1,884 73.9 12.2 13.9 3.9 1.7 8.3
18,850 2,508 3,908 1,308 466 2,135 74.6 9.9 15.5 5.2 1.8 8.5
19,558 3,050 4,194 1,496 493 2,205 79.0 其其.4 15.6 5.6 1.8 8.2
22,009 3,149 5,194 1,971 772 2,451. 72.5 10.4 1.1 6.5 2.5 8.
ECONOMIC REVIEW, MARCH 1978

Page 7
sumption in Sri Lanka during the past decade has been over 83 per cent of Gross Domestic PrOduction. In other vords, the Gross Domestic Capital Formation has been at about 17 per cent On the average. It can also be seen that there has not been a significant increase in the capacity to save over time, as the ratio of capital formation in the GroSS DOmestic Product has been relatively stable during the period 1967-1977. It is also noteworthy, that there has not been a marked shift in the composition of consumption and capital formation activities by the Government and private sectors, as the relative shares of these two sectors have remained virtually constant Over the years.
One significant Socio-economic and pOlitical factor associated with resource allocation in Sri Lanka is that due to various constraints it has not been possible to favourably raise the country's savings ratio Or conversely to reduce its consumption ratio. As such, the growth performance in the economy had to be confined to a very moderate or low level. For example, during the period 1960-1977 the annual rate of (real) growth was less than 4 per cent On the average. When allowance is made for the growth in population (which averaged about 2.2 per cent during the Same period) the per capita income is estimated to have grown by less than 2 per cent.
The commitment to maintain, at .
least, the existing level of consumption, particularly in view of rapidly growing population, caused problems for the government budget as well. Since, and even before, the country gained political independence Sri Lanka has been quite liberal in extending welfare Services
to the maSSeS. Subsidized food, “free' education and “free' health services formed the main
elements of this welfare policy. The grant of universal adult suffrage in 1931, the outbreak of the Second World War and the Depression in the 1930S contributed heavily towards the launching of such wellfare programmes. Since independence the rapid rate of population growth accompanied by a “bottomheavy" age structure, and an increased political consciousness of the maSSes and the competitive political party system generated further impetus in expanding the social Welfare expenditure of the government.
ECONOMIC REVIEW, MARCH 1978
TABLE 2. GOVER
Period
1947/48-1951/52
1952/53-1956/52
(annual average)
1957/58-1961/62
(annual average)
1962/63-1966/67 (annual average)
1967/68
1968/69
1969/70
1970/71
1971/72
1973
1974
1975
1976
1977
There has beel crease in the gover ture since independ in tabole 2. H(OWev in rupee terms is pa inflationary tendenc nomy, and if discOl tion the real values less. Yet, the mori pect to note, in thi growth in current the government 3屏 growth in the total VeImԱe.
In the early ye account Of the gi revenue minus curre did generate saving tial magnitude, and tal projects could such savingS. For ing the five year pt 1951/52 the current averaged nearly 20 total revenue; and Sequent five year 53 to 1956/57 this ra than 27 per cent. of such positive bala rent account is th ment COuld then di resources for invest reveals that from the current expendi ernment increased than the revenue : account recorded trend (With the ex 69) continued till that even the curre Of the government ( With the revenue g

NMENT REVENUE AND EXPENDTURE 1947/48 - 1977
(RS. Million)
Total
Revenue Current Capital
Expenditure Current Account
Balance. As a %
of Revenue
1,131
1,430
1,791 2,156 2,497 2,736 2,815 3,282 4,034 4,787 5,084 5,739 6,686
in a steady innment expendience, aS ShOWn er, the increase artly due to the ies in the ecOlinted for inflaWould be much e important asS table, is the
expenditure of S against the gOγe IInIYnent Ye
ars, the current Overnment (i.e. nt expenditure) s of a Substanso most capibe financed by instance, dur3riod 1947/48 to account balance per cent Of the during the subperiod, 1952/ tiO rOSe tO mOre The importance nces in the curat the governVert mOre Of itS ment. Table 2 the mid sixties Eure of the govat a faster rate ind the current deficitS. This eption of 1968/ 1973 indicating nt commitments Ould nOt be met 2nerated by the
580 254 + 140 -- 19.42
811 367 -- 320 -- 27.32
1,365 507 -65 十,4.55
1,796 57.1 - 5 - 0.29 2,157 849 - - 0.05 2,433 1,112 -- 64 - 2.56 2,860 1,026 - 124 一、4.53 3,089 1,054 - 274 - 9.73 3,440 1,207 - 158 - 4.81. 3,916 1,543 + 118 -- 2.93 4,545 1,841 -- 242 -- 5.06 5,226 2,556 - 142 - 2.79 5,866 3,448 - 128 - 2.23 6,498 3,210 -- 188 -- 2.81.
budget between the period 1962/63 and 1971/72.
Although the situation improved slightly since 1973 it had not been stable enough to sustain positive balances of a high order. Similarly the mere ability to generate a small surplus in the current account could not be considered an improvement in the Overall budgetary position as the Surpluses thus achieved reflected a very small proportion (between 2 and 5 per cent) of the total revenue. In other Words, the ability to Save a Substantial portion of the government revenue to finance the capital Outlays was no longer possible. Therefore
the government had to resort to
both domestic and foreign borrowing and inflationary financing for capital investment.
Of the total government budget, about 21 per cent Of the current expenditure and about 13 per cent of the total capital expenditure during the past decade have been chanelled into social Services such as education and health. In the pre-1970 period these ratios were even higher as the Social services accounted for nearly 25 per cent of the current expenditure and 15 per cent of the capital outlays of the government.
In table 3 statistical information is given of the various social Services provided by the Government. The data reflects both current and capital expenditure incurred by the government On * account of education, health, housing and Other Social and community

Page 8
Services. It is evident here that Social Services form more than 17 per cent Of the entire government expenditure. There has been a gradual decrease in the Share of government funds allocated for social Services as the ratio has fallen from nearly 22 per cent in the first half of the past decade, 1968/1977, to about 17 per cent in recent years. This may have been due to a Shift in the allocation of resources from “consumption' to “investment' as was envisaged in the last Five Year Plan (1972-76).
In terms of the GroSS National Product also the percentage representing social Services has dropped slightly from over 7 per cent in the pre-1970s to about 6 per cent by 1977. The per capita expenditure (in rupee terms) on Social expenditure has almost doubled from Rs. 58 to Rs. 111 over the period 1968-1977. This, however, does not mean that there has been a two fold increase in Social Welfare activities. For despite the growth of population higher rupe e figures partly reflect the higher costs of producing the social services, with inflationary tendencies ShOWing their impact. Yet, allowing for even a 10 per cent inflation, the country has been able to at least maintain a constant level of real per capita expenditure on Social services in spite of a growing populati On.
Of the different social Services, education accounts for the largest share of government expenditure. In general, about 60 per cent of the total social expenditure has been absorbed by the education sector. About One half of that for education or a little over 30 per cent of the total social services expenditure has been spent on health Services, Housing, Special welfare services
and communit for the remain. is important to indicated patte government the Social Servij mOre Or le SS Sta decade Or SO.
In di ScuSSic expenditures b is a general te: transfer payme presenting in households and Such payments ture. If this p a number of transfer payme included in Sri fare expenditu
TABLE 4. GOVE
Foo
oth
sub
1968 61 1969 67 1970. 62 1971 66 1972 62 1973 75 1974 1,04 1975 1,36 1976 1,09 1977 1,16
e Current tra
data. On these transfer payme While it is payments such producer Subs public debt, pe similarity, in a in that no prO' provided by th yet, from a w
TABLE 3. GOVERNMENT EXPENDITURE ON SO
Education a Health
1968 410 221 1969 442 248 1970 512 274 1971 527 266 1972 569 280 1973 602 298 1974 625 329 1975 708 411. 1976 911. 499 1977 900 473
Housing Specia
Welfar
Service 32 15 37 16 36 17 16 18 35 23 45 18 31 21. 45 29 51 28 74 45
* Includes both current and capital expenditure.
 

y services account ing 10 per cent. It.
note that the above rn Of allocation of expenditure, within CeS SectOr, has been able during the past
Dns. On SOcial Welfare y government there ndency tO COnsider 2ntS as an item reCOme transfer to therefore to treat
as welfare expendibrocedure is followed different types of ints will have to be
Lanka's Social Wellre. Table 4 provides
it is difficult to treat all such payments, particularly interest On public debt, as constituting a mone
tary grant to the households. Therefore, it may be more realistic to consider only the
subsidies (consisting of mainly food Subsidies) as Welfare expenditure. Of the total transfer payments food and other subsidies account for about 40 per cent at present. This ratio was as high as 55-60 per cent in the pre-1970s.
As total transfer payments form a significant proportion (50 per cent) in the current account of the government, the category that makes up nearly One half of such payments (i.e. the subsidies) appear as another significant item in the
ERNMENT EXPENDITURE ON TRANSFER PAYMENTS:
(Rs. Million)
bd: & Interest Local
er Om Public Pensions House- Antho- Tota sidies Debt. holds rities Others
O 166 155 44 53 34 1.063 '4. 206 161. 40 62 63 1,206 2 253 183 63 59 76 1,257 5 337 225 5. 60 85 1,422 1,830 58 61 52 254 413 7ן 514 270 66 65 224 1,896 580 292 71. 70 231 2,901 2 699 331 100 73 199 2,765 1. 840 378 279 86 168 2,842 9. 1,013 414 197 9. 202 3,085
.nsfer payments Only.
different types of RtS.
true that transfer as consumer and sidies, interest on 1nsions etc., have a Ln accounting Sense, ductive Services were e recipients directly; alfare point of view
CAL SERVICES *
(R.S. Million).
1 Commu- Total
e nity
es Services
13 69. 13 756 イ 14 853 23 850 25 932 26 989 28 1,034 28 1,221 37 1,526 37 1,529
current expenditure of the governent. Taken together current social expenditure and subsidies account for 42 per cent of the total current account expenditure.
In table 5 total government expenditure (i.e. both current and capital) on Social services and the subsidies are indicated and are compareri with the total govern
ment expenditure and the GroSS National Product of Sri Lanka. Per capita expenditure on these
two Welfare items are also reported in this table.
The proportion of total government expenditure spent on Social services and subsidies has dropped from 41 per cent in 1968 to 30 per cent by 1977. AS Stated in an eallier context, this reflects a gradual shift in enlphasis in the allocation Of government expenditure towards production Oriented programmeS. The low level Of economic growth rates in the past decade which arrested a satisfactory
ECONOMIC REVIEW, MARCH 1978

Page 9
growth in per capita, income in the country might have compelled the government to limit the expansion of social programmes and concentrate more On the developmenta! activities. The need to absorb the growing labour force into productive sectors and solve the aggravating problem of unemployment would also have necessitated Such a shift away from welfare expenditure, to other sectors.
It can be seen from table 5 that the per capita expenditure on social Welfare (including social Services and Subsidies) amounted to about Rs. 200 in 1977 compared With R.S. 108 in 1968. The increase in rupee terms also indicates the price changes in the economy. HOWever, taking the per capita Social Welfare expenditure as a ratio of the per capita, GNP (at factor cost prices) of respective years, it can be observed that the ratio has varied between 13 per cent and 10 per cent. In other Words, if equally distributed, the social services and subsidies provided by the government should have contributed about Rs. 200 to the per capita, income (in current terms) or about 10 per cent of the grOSS per capita, income in 1977.
In terms of the Gross National Product Social welfare expenditures reflect Over 10 per cent in 1977 compared to over 13 per cent a decade earlier. Despite these observable declining trends in the relative share of social welfare expenditures the amounts spent in the recent years on these programmes
TABLE 5.
1968 1. Total Social Expenditure by the
GOvernment 69. 756
2. Food and other
Subsidies 610 674.
1,430
3. Total of 1 & 2 1,301
Social Expenditure and Subsidies as a % of Govt. Expenditure
5. Social Expenditure and Subsidies as a % of the GNP
6. Per capita
expenditure on Social Services
41.26
13.17
& Subsidies (Rs) 108 117
EconoMIC REVIEw, MARCH 1978
39.97
13.33
still appear relative leSS developed natio]
From the forego can be concluded t has been committed of Social Welfare ex independence and ments Were reluctal drastic reduction in penditure program the recent years ha gradual shifting aW ture from such I favour of Specific p. ted activities.
Importance of H
Traditionally, ex social services and
been VieWed aS me
Outlays but, in rece has been a tenden such expenditures in human capital. expenditures On edil housing and food now being treated a COintribute tO enhan( Of human reSOUrces. On economic grOWith ed the importance C tal aS a SOUrce Of
However, the grc in Sri Lanka during des does not indic expenditure directly high level of product be because investme capital is not a Suff for economic growt a necessary condit Words, in a developir as Sri Lanka, invest]
IMPORTANCE OF SOCIAL
1969
1970 1971
853 850
622 665
1,475 1,515
37.68 38.2
12.76 12.85
18 119
 

bly high for a
l.
bing analysis it that Sri Lanka, to a high level penditure Since the governat to effect a its Welfare exmeS. HOW e Ver We Witnessed a ay in expendiprogrammes in *Oduction Orien
uman Capital
penditUreS OI Subsidies have re consumption nt years, there ty tO reCOgni Ze as investments In other words, lication, health, Subsidies 2e S factors which cing the quality Recent studies have highlightDf human capi
growth.
)wth experience
the past decaate that this COntributed to a tivity. This may int in human iCient COnditiOn h though it is ion. In other ng country such ment in human
WELFARE EXPENDTURE
1972 1973
932 989
627 757
,559 1,746
28.85 34.65
2.36 11.51
120 133
resources, to be economically productive, would have to be complemented by investments in physical resources as well.
The problem is one of organising the human and physical resources in a proper manner so that, for example, the 1.2 million unemployed become not only consumers but also producers. The problem is not With 'Social Services' alone but in the total System.
It was observed earlier that the economic growth rates during the past decade have not been very high, particularly when compared With the population growth rates. The data in table 6 illustrates this clearly.
It is now generally accepted, however, that the GNP indicator does not reflect accurately the growth rate, Social standards and general developmental progress of every section of the population. But, the OW levels Of in Crea. Se in the average per capita income of the country, as shown in the table 6, (overleaf) gives the impression that during the past decade a Substantial improvement in the living standards of the people does not Seem to have taken place, though the Physical Quality of Life indicators lead to different conclusions. The impact of social expenditure in improving the production capacity of the country and the affects on human resources cannot be clearly identified, through the GNP indicator, in Sri Lanka's case.
(RS. Million)
1974 1975 1976 1977
10.34 1,221 1,526 1,529
10,46 1,362 1,091 1,169 2,080 2,583 2,617 2698
35.73 35.94 30.24 30.80
10.56 11.78 10.86 9.26
156 191 191 193

Page 10
On the other hand, the growth in unemployment over the past decade indicates the inability of the
there is one p people and the per hOSpital be
TABLE 6. GROWTH PERFORMAN
GNP at Constant Prices Population
Rs... mm. Growth Million Growth Year rate rate
1968 8,901 8.4 11.9 2.5 1969 9,301 4.5 12.25 2.2 1970 9,686 4.1 12.51 2.1 1971. 9,725 1.5 .12.70 0.4 مح۔ 1972 10,038 8.2 12.95 2.0 1973 10,419 1.1 13.09 3.8 ܢ 1974 10,815 3.8 13.28 1.5 1975 11,115 2.8 13.51 1.7 1976 11,443 3.0 13.73 1.6 1977 11,952 4.4 13.9 1.7
economy to absorb the growing are clear indica
labour force in view of OW levels of capital formation and non availability of productive capacities. Recent studies on unemployment in Sri Lanka have shown that the problem is more acute in the case of youth; particularly among the youth with relatively higher educational qualifications. As the probability of finding a job tended to diminish. With the achievement Of higher educational status, the argument that the expenditure on education was not contributing to enhance the country's productivity came to be strengthened. When the investments in human resourCes are n'Ot deSigned tO Suit the man-power requirementS Of the country such maladjustment in the demand for and supply of human capital can cause structural unemployment as has happened in Sri Lanka's case.
However, due to the pursual of a liberal policy on Social Welfare for over three decades Sri Lanka could claim to at least have prevented a serious deterioration in the average living conditions, despite the continuous growth in the population. The country has achieved a remarkably low death rate of less than 8 per thousand compared to 20 per thousand prior to political independence in 1948. Furthermore, mortality has fallen from 141 per thousand live births to 41 per thousand over the same period; while maternal mortality is even less than 2 per thousand. The expectation of life at birth has increased from 42 in 1946 to nearly 68. The calories intake as a percentage of the prescribed requirements is very close to one hundred;
ment in health
In terms O adult literacy r high as 78 per School enrolme 86 per cent. Te pupils per teach pTOVement COI teacher ratio a in 1968. Similar graduate teache ing staff Of the a two fold incre in 1968 to 16 been a conside the number education too.
IncOmie di St recent years all indicatOr Of SOC. greSS. It need that the high fare expenditur in Strument Of butiOn, pOlicy pl governments. have contribute indirectly towal Of a greater eql tribution patte] ance Surveys Central Bank i ing trendS With duction Of in C Over time.
The Gini I concentration C
TABLE
Gini Ratio
(of Spendin
Income share highest twe
Income shar lowest forty
 

hysician per 6,100 ratio of population *d is 330. All these
CE 1968-77
GNP Per Capita
Rupees Growth
rate
742 5.7 7.59 2.3 774. 2.0 766 -10 775 1.2 796 2.7 814 2.3 822 1.0 833 1.3 855 2.6
tors of the improve
C26.
f education, the ate is placed at aS cent, while, primary ht comes close to bday there are 22 her Which iS an im– hsidering the pupil, decade ago; l:28 ly the proportion of rs in the total teachcountry has shown èase from 8 per cent by 1977. There has rable increase in Seeking University
ribution trends in e another positive ial welfare and prOs to be emphasised level Of SOCial Weles has been a majOr an income redistriJursued by Successive These expenditures d both directly and ds the achievement 1ality in in COIme di SonS. C'OnSumer Finconducted by the indicate the followrespect to the reOlle concentration
'atio, reflecting the f income, has dec
lined from 0.46 in 1953 to 0.35 by 1973. Meanwhile the lowest forty percent in the income groups have gained a higher share of the total income as they have received 19 per cent in 1973 compared to 14 per cent in 1953. Correspondingly the share of the top income bracket (the highest twenty percent) has dropped from 53 percent in 1953 to 43 percent by 1973. These trends indicate the gradual improvement in the income distribution pattern of the COuntry.
One significant factor that emerges, however, from Sri Lanka's experience with respect to social welfare policies is the importance of combining welfare Oriented government policy with production oriented strategies. There is always a problem of balancing resource allocations for different purposes; but the more crucial problem lies in identifying the priorities at a given
point of time and switching the priorities when the proper time comes. In this context, Sri Lanka
has tO be very cautious in developing strategies for rapid economic growth at the expense of its basic Social needs policy and egalitanian tendencies that are so vital for not only economic growth but more SO for Socio-political reasons.
It is clear therefore, that the path of development pursued in Sri Lanka has helped to alleviate a part of the problems of the large majority of poor households but at the same time resulted in a different set of problems. The unusually positive character of performance in the social sector appears to have been accompanied by negative developments in the economic field. These developments include a relatively slow rate of growth incapable of matching the expectations generated through social change, together with a steady increase in unemployment levels and a deterioration in the country's balance of payments situation. The emergence Of these problems need not necessarily be attributed to the diversion of Substantial resources to social welfare, but lagging effOrtS On the eCOn Omic front COin
7. MovEMENT OF IN COME CONCENTRATION 1953-1973
g unitS) of the inty percent e of the
percent
1953 1963 193
0.46 0.45 0.35
53.8 52.3 42.9
14.5 13.7 19.3
EconoMIC REVIEW, MARCH 1978

Page 11
THE MEANING OF DEVELOPMENT
Dudley Seers
From a presidential address to the 11th World Conference of the Society for IntermatiOmall |Depeloртеті, held in Nelly Delhi ir November 1969, which is still
very relevant.
While it is very slipshod for us to confuse development With economic development and economic development with economic growth, it is nevertheless very understan. dable. We can after all fall back on the Supposition that increaSeS in nati Onal in COnne, if they are faster than the population growth, sooner or later lead to the Solution of social and political problems.
But the experience of the past decade makes this belief look rather naive. Social problems and political upheaValS hawe emerged in COUntries at all stages of development. MOreOVer, We Can See that these afflict countries with rapidly rising per capita incomes as Well as those With stagnant economies. In fact, it looks as if economic growth may not merely fail to solve social and political difficulties; certain types of growth can actually cause then.
Now that the complexity of development problems is becoming increasingly obvious, this continued addiction to the uSe Of a single aggregative yardstick in the face of the evidence takes On a rather different appearance. It begins to look like a preference for avoiding the real problems of development.
The starting point in discussing the challenges we now face is to brush a Side the Web of fantasy We have WOven around “development' and decide more precisely what we mean by it. “Development' is inevitably a normative term and We must ask Ourselves What are the neceSsary conditions for a universally acceptable aim-the realization of the potential of human personality.
EconoMIC REVIEW, MARCH 1978
If We ask abSolute neceSSi
Olle anSWe enough food. levels Of - nutri lacks not merely gy and good he interest in much He cannot rise above an anin. Recent studies s dernOUriShment, leads tO perma ment Of both o and their mental Since to be food is a matt the criteria can im terms Of inCOI enables it to also Of certain Ull requirem Will never Spe. mOney and ene however, pOOr til be enOUgh tOi fe income has also needs of cloth and Shelter, bUlt money clearly di ly aS, the Se nee fied. .
AnOther baSi the SenSe Of SOI out which persc develop, is a jo not just mean it can include S king on a far keeping house. nOne Of the Se ac i.e., to be chrol ployed, depender person's produc even for food ble With Self-re:S ly fOr SOImebO: been spending y perhaps at, univ ing for an activ It is true O both poverty a ment are aSSOcia WayS , With per c. If per capita, inc ing, absolute hardly be reduc can unemployme the very Short rii tional circumst certainly incre: capita income enough, as the the petroleum

What is an ty for this, is ObviousBelow certain tiOn, a man r bOdilly eneralth but even n besides fOOd. significantly lal existence. hOW that UnOf children anent impairtheir physical
capacities. able to buy 2r Of income, be expressed me levels. This take account Other minients. People nd all their rgy on food, hey are. To ed a man, hiS tO COV er baSiC ing, fOOtWear the utility of eclines Sharpeds are Satis
c necessity, in mething with)nality cannot b. This does employment; studying, WOrnily farm or But to play cepted rolesnically unemnt. On another tive capacity, is incompatipect, especialdy who has ears at School, ersity, preparre role. If COUrSe that. nd unemployited in various apita, incOmies. OmeS are fallpoverty can ed much, nor ent (eXcept in un and eXcep5anceS). But ases in per are far from
experience of eCOnOmiieS
shows, to achieve either of these objectives. In fact, a rise in per capita income, sa we Well Well WnOW, can be accompanied by can even cause,
growing unemployment.
Thus in Tinidad the growth in per capita, income averaged more than 5 per cent a year during the Whole period 1953 to 1968, while overt unemployment showed a steady increase to more than 10 per cent Of the labour force.
The direct link between per i capita income and the
numbers living in poverty is
in COme di StributiOn. It i Sa. truism that poverty Will be eliminated much more rapidly if any given rate of economic growth is accompanied by a declining concentration. Of incomes. Equality should however be considered an objective in its own right, the third element in development. Inequalities to be found now in the world, especially (but not Only) Outside the industrial countries, are objectionable by any religious Or ethical standardS. The SOcial1 barrierS and inhibitions of an unequal Society distort the personalities of those with high inCOIme S nO le SS than Of thOSe who are poor. Trivial differences of accent, language, dre SS, customs, etc, acquire an absurd importance and cortempt is engendered for those WhO lack Social graces, espeCially COUntry d'WellerS. Perhaps even more important, since race is usually highly correlated. With income, ecoin Omic inequality lies at the heart of racial tensions.
The questions to ask about a country's development are therefore: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality? If all three of these have declined from high levels, then beyond dollbt this has been a period of development for the country concerned. If one or two of these central problems have been growing worse, especially if all three have, it would be strange to call the result “development', even lif per capita incOme doubled.

Page 12
stantly raise the question as to Whether Social Welfare and redistributi On meaSures could not be geared to yield more positive reSults.
The foregoing discussion of the social welfare development policies and programmes Over the years indicates that Wide Sections of the mass Of the population are protected from the worst effects of poverty as a result of the efforts of sucCessive governments to concentrate On a broad base of SOcial Security. The nain ingredients of Such a programme have included free health services, a minimum ration Of free food, free education and Several other Subsidised facilities. This programme has been supported by further anti-pOverty Sures such as the distribution of land am Ong the landleSS, an agriCultural package Scheme to inCreaSe production levelS Of the less priviledged peasant cultivators and also various forms of Support to those sectors such as fisheries, handlOOmS, handicraftS and COittage industries, where incOme is Uncertain and often paltry. It is in this regard that Sri Lanka's experience in social welfare development i S SON mewhat exceptional for a developing country.
SOCIAL SECURITY
In additiOn tO the SOCial Wellfare measures Which are meant to protect the large numbers of poor households against the deprivation Of their baSiC reeds there are al SO a Wide range of Social security measures. These benefits are largely concentrated in the formal organised sector Where unionisation and collective bargaining provides Secure conditions of employment, while On the other hand an Employees Provident Fund, workmen's compensation, medical leave privileges and other fringe benefits provide a sigInificant protection against loss of income due to illness, accidents and Old age. In this context 'Social Security' is normally associated with public measures which are essential and are an essential concept of wage labour and labour relations in an organised market in the modern Capitalist SectOr.
The subject of “Social Security' is gaining increasingly in importance in most developing countries today, and the ILO has taken the initiative to encourage is members countries to work out comprehensive social security programmes to cover their entire populations. In
10
Υnea
the ILO’S Wie:W covers “the p
Society to its Categories Of series of pub the ecOnOmic Wise would Stoppage Or tion of earn sickness, mat injury, unen. Old age, and medical care the populatio Sidising fami: number Of ch
Through lo: Corne to be rec Security is a Mient Of SOCial right of the w country. There recogniti On tha mic "programme combined, for Social security inportant role in both Social velopment.
The evoluti programmes, i. countries in As gained their m COnditi OinS eXist ed SectOr Of er areas with the alisatiOn gettin Systems Of mut prevelant in hardly eXiSte extent aIMOINS and SO the been in greater forms of SOcial ernments in t turned tO SOCia as a SOlution to
Organi Sed Well as legis makers began t decades the ne Welfare Services ba Sic fOOd ratiC and health Ser ests of the coul Over the years various Social which in tim cash benefits t Organi Sed SectO) SOClal Secu. Lanka, as in n have evolved f prOgrammeS fO] also from those cular Occupatio Western indus these meaSures Order to compel
 

this social security
rotection given by members, or various them, through a ic meaSures,
distress that otherbe caused by the Substantial reducings resulting frOm ernity, employment, plOment, invalidity, death, for providing to these groups in in and also for subilies containing a ildren’.
ng eXperience it has Ogni Sed that SOcial in effective instruOrOgreSS and 2, TOrking people of a is also widespread it social and econoèS ShOuld be ClOSely properly designed y Schemes have an to play as factors 2and eCOnOnmic de
On of Social Security in most developing sia and el SeWhere, lain impetus by the ing in the Organismployment in urban process of industrig under Way. The ual aid that Were rural communities 'd to the Sale urban WOrkers formal Sector has need of alternative protection. Govhis situation have al Security measures
the problem. working groups as latOrS and policy O realise in recent 2ed for provision Of and goods (Such aS ons, free education vices), in the interntry's labour force. there also evolved Security Schemes e of need provided O employees in the
rity Schemes in Sri In OSt Other COuntrieS, rom particular relief ' the indigent and e designed for partinal groups. In the strialised countries Were introduced in nSate Workers for the
frΟΙΩ
I loss of security following general
diSruption in the particular occupations in which they worked. n Sri Lanka the earliest form of social Security was that which provided for protection of Indian immigrant labour in the plantation Sector. This was gradually extended to cover other sections of the organi Sed SectOr following On the grOWing Socio-political pressures. Upto World War I labour legislation mainly regulated conditions of recruitment and employment Of im– migrant labOur On estate:S; while din the 1920's labour legislation Went on to empha Sise the co-Ordination Of labour policy and enforcement and establishment of minimum wage levels for plantation labour. Over the 1930s and 1940s, with the growing political awareness and deHandS Of Organi Sed Workers
groups, there Was a progressive ex
tensiOn Of labour Welfare legislation to other SectOrS and also the beginnings of Social Security lisgislation. Following this phase greater enphasis was given from the 1950s to more labour legislation, industrial conciliation, collective bargaining, labour tribunals and all the more recent forms of social Security affOrded to WOrkers in the Organised Sector.
These services were extended to include security of employment, medical Care and maternity benefits; industrial safety and hygiene, Workmen's compensation; retrement gratuities and death donation schemes; provident fund for employees and Various forms Of Social assistance and relief programmes for the indigent.
These SOcial security programmes came to be increasingly accepted as useful and necessary instruments for the protection and stability of the labour force and at times to even maintain and guarantee the purchasing power of workers. lin, recent years, the Scope of labour legislation has been extended to COver WOrkers in all SectOrS, though enforcement of Such measures and effective coverage of the labour force ha. S not been completely SucceSSful, even in the Organi Sed SectOir. There have been various practical problems in the Operation of these programmes. FOr instance, for industrial Workers minimum Wages and conditions are determlined according to their trades; but there is a marked difference in the amount of Wages determined by the industrial wages boards as opposed to agricultural trades. Minimum
ECONOMIC REVIEW, MARCH 1978

Page 13
wage decisions cover only about one
and a half million workers and have often to be made Without due colusideration for the actual economic needs of the workers concerned. Thus though some industrial Sector coming under the Wages Boards Ordinance are contpensated by changes in the cost of Living ill dex, the index used for measuring these Wages is generally not regarded as realistic.
Also, the effectiveness of social security legislation depends entirely On how Well it is enforced. BԱն ineffective enforcement has been found to affect the coverage of the major social insurance scheme in Sri Lanka, namely, the Employees Provident Fund; for out of 78,766 businesses registered in 1978 only 24,268 or 31 per cent were contributing to the Fund.
On the Whole Such Social Security programmes have not been found to contribute significantly to -income redistribution due to the rather limited coverage and alSO because, as in the more Widespread Schemes such as the Employees Provident Fund, the benefits received are usually proportionate to what the beneficiaries have paid in. The more significant Schemes, from the point of view of their redistributive effects, are those which provide goods and Services (food, health, education Welfare) Since they cover almost the entire population and are financed from a system of general taxation. It, haS even been Suggested that in Order to improve the coverage Of Social Security Schemes in Sri Lanka, the problem of very low and Sporadic incomes will have to be dealt With first.
The regular wage earners in the modern urban and formally organised plantation Sector as We have Seen tend SOmetimes to be comparatively better off in re
gard to Social security than thOSe si in the traditional rural SectOr Where there is season
ality of WOrk, Self employment and a high degree of casual Occupations. The conventional type of Social Security for the Organised formal sector has little meaning for these latter groups. For them the problem Of Social insecurity cannot
be viewed in isolation from the problem of development. The task of transforming the back Ward
nature of their conditions and production Systems and minimising unpredictable IOSSeS through VariOuS circumstances has to be more closely considered. Unlike in the develop
ECONOMIC REVIEW, MARCH 1978
trades in the
ed countries Where
is essentially an ef With frictiOnal UnC marginal insecurity, ilin econOmi Cailly leSS cieties demands a m sive strategy. This to consider policieS and in COne transfe) tification Of the mOrt di Sadvantage grOlup economy, and the p velopment programn help to raise the i and levels of living ple.
FOIr Sri Lanka. approach to SOcial to be far more COm What has been pro the conventional Sc Organised Sector. rity of the active W. Lanka, aS in na Ost ( countries, are engag tion S Which are Out iSed modern SectOr. this WCrk force, the from their Occupati regular and Subject ationS. The appro security for these se( pulation must neces ent. For them to Social Security conce Would have to be pu tegral part Of a to strategy which Woul place to the Satisfa basic needs and the
pOVerty. A propos type Of SOcial Secur tegrated With 2
strategy was effecti at a recent Seminar rity and National Sri Lanka.” Where t gued that “the trus Security in which inc come increasingly Se. tecting their income would then be seen as ment in a Strategy ai faction of basic needs ment of theSe commu gressively self-reliant approach calls for a ning which relies to tent on participation making by the local c selves. It is throug tion that local conn quire the capacity for perceive how Social Sec can contribute to the economic activity. It to envisage a stage mobilised through so grammes could becom

social Security Ort at COping ertainities and
Social Security developed soOre comprehen
Situation needS )f redistribution '; a clear idenvulnerable and
is within the comotion of deles Which Will
income capacity Of the Se pen
therefore, the security needs prehensive tha1 vided through hennes fOr the The large maj OOrk fOrce in Sri, ther developing ged in OccupaSide the OrganFor most of flow of income OnS is often irto Wide fluctubaches to SOcial 2tions of the posarily be differbenefit frOn the 2pt such a goal rSued as an intal development d give a central ction of their 2 elimination. Of all where this ity could be indevelopment
vely put across
on 'Social SecuDevelopment in she Speaker arit towards social
Omne earnerS belf-reliant in proearning capacity S an esSential ellemed at the Satisand the develop(Inities on a probasis. Such an process of plana Substantial ex
and decision ommunities themh such participa(munities Will ac* Self-reliance and rurity programmes viability of their Would be possible where the funds cial security prole SOUIrCeS Of fin
ancing for development programmes at the district level, to benefit the commuinities themselves who participate in these social security programmes. In this manner, the social security programmes could be more closely integrate ed to the overall strategy of development.”
PUBLIC ASSISTANCE AND
RELEF SERVICES
A particular area among the Social Services in Sri Lanka. ha. S been those measures relating to the needs of disadvantaged groups and the general relief of distress. These services include assistance in the form. Of financial grants to the deStitute and those Suffering from diseases which prevent them from earning; relief, resettlement and rehabilitation Of Victims Of disaster; Welfare services for the aged and infirm and promotion of voluntary community participation in Welfare work; and rehabilitation services for the physically and mentally handicapped and socially disadvantaged.
Most of these Social ASSistance Services were mainly started after World War II in the late 1940s, with the emphasis on immediate remedial action. But with the problems of poverty and destitution gaining in proportion these remedial Welfare services catered only to the poorest sections of society and this too in a marginal manner. Furthermore, with the increasing social and economic changes taking place over the years the structures and functions of these State SOcial Services have apparently been outlived. The present structures still tend to be hierarchy Oriented and mOre a bureaucratic Organisational exercise rather than being a pe Ople Oriented and people based developmental oriented welfare programme. With these Social Services continuing to be largely remedial or palliative they have received low priority in overall national planning. In addition the expenditures of the Ministry of Social Services have been considered to be merely consumptive expenditureS.
In Several other developing Countries, On the Other hand, during the last few decades the emphasis in Social Welfare and Assistance Services has shifted from being purely parliative to one of prevention and development. In Sri Lanka, too the need is now being felt and a SSerted for a shift in the emphasis of our services in the same directions. The policies and
11

Page 14
Organizational structures of other state Sectors, notably agriculture and lands, industries, transport, education and housing, have effected changes in Order to gear thenselves to the growing needs and emerging SOcio-economic challenges. It is time therefore that the programmes Of these Assistance ServiCeS received an OVerhaul in the Objectives and Organization, through a comprehensive approach to Social welfare, and adopted a social
policy of concern for all sectors of
the population. This Will also enable the Ministry of Social Services to integrate itself more closely with the mainstream Of the national development efforts.
Though this position was established as far back as 1968 when the United Nations Summoned an International Conference of Ministers Responsible for Social Welfare there has been little impact in Sri Lanka’S Ca,Se. The approaches. Of that time are Still of relevance here. For the immediate purpose of that Conference, it was assumed that “although the Ministers responsible for social welfare may not have to deal directly with such major social sectors as education, health, employment or housing, they had nevertheless a general responsibility to ensure that no one is left behind in the process of development and that no One falls belloW the social standards that are recognized as a right for all. The concern of the Minister responsibile for Social Welfare extended to the population as a whole, with special attention to those individuals or groups who were considered as more vulnerable. It was also part of the responsibility of social Welfare leadership to encourage citizens to play their full part in efforts towards their own and the society's better
ment. . . . ”.
These Ministers also recognized a functiOn, Of SOcial Welfare actiVities, which they called 'supportive' of other sectoral programmes, in that “Social Welfare provided necessary Supportive services to the development of health, housing, education, manpower training and employment as Well as to broad policies related to rural and urban development, industrialization and population'.
Thus, in preventive and developmental social welfare programmes, these Services ceaSe tO be purely charitable and humanitarian but rather aim to “conserve and
12
develop human economic expansi
This form of ance has come as an effective SC the more equita porary, distribu Wealth to benefi Of in COme earne privileged groups tion a Spect in S programneS 1S a ly through the lief, but alsO Wit vices and skilled would help indiV to remain “With of development benefits of d grammes.”
Social Assist a Positive F
When thiS fo ance becomes a Certain basic fur For instance, the tiOn in SC Cial W. nition to the pla velopment. t in the developm Sources including of family life a people, especial yOUth, to emphas and contribution lopment. The of Social Welfare problems and ma vision for such reducing the nee remedial investm
The remedial assistance makes WhOm di Slocation dependent on th these include alba ed children, aged Sons, people depr li WellihOOd and Oil and vulnerable g Si StanCe al SO haS play in the deve through its supp activities for bet of health, housi other developmen importance of S connes Out When poverty is a ma. diSOrganiSation a: velopment in the brings with it i suffering, low pr and apathy an threat to develo assistance prOgro, fore, to play a

resources vital for On'. Welfare and aSSistto be looked upon )cial institution for ble, though temSion of national t the OWe:St le VeliS CS and the underThe redistribuuch Social Welfare chieved not meredistribution of rea. package Of Serintervention which iduals and families (in the mainstream and reap the full evelopment prO
2)ՈCe
O'Ce
rrn of Social assistOsitive force it has ctions to perform. development funcelfare gives recogCe Of main in deis mainly engaged ent Of hUrnan rethe strengthening nd preparation of ly children and Sise their own role to national deveDreventive function anticipates social kes necessary proeventualities, thus di fOr C Urat1Ve Or ent later.
function of Social provision for those or pressures made e community; and Indoned or neglect, and disabled perlived of a means Of her disadvantaged roupS. Social as
a major role to lopment situation Ortive Services and ter implementation ng, education and it programmes. The upportive Services
We realise that Or cause of SOcial nd a barrier to decountry. Poverty ginOrance, di Sea.Se, oductivity, neglect d COnStitutes a pment. If public Immes are therepositive role they
Should provide facilities and Services so that over a limited period of intervention individuals and families can be aSSisted to return to normal functions Within the community. This does not happen for those groups at the very lowest levels of Subsistence and living conditions Who have been described aS the “poorest of the poor'. (See Box).
SOcial Services in the form. Of relief and public assistance Services Or Social security programmes, made available mainly to the Organised formal SectOr, cannot in themselves raise the general economic level; although they can do more than redistribuite SOme Of the ecOnOmic reSources Of the country and in doing SO do more than Only alleviate distress. The foregoing description Of these Services makes it clear that they are sometimes a means of creating wealth, although primarily One Of distributings it indirectly and also Over a long period. They also help production by establishing and maintaining a mentally alert working population, but the Overall problem is far more deep rooted than this.
Sri Lanka's case is peculiar to its own Socio-economic conditions. Although the performance of the Sri Lanka, eCOn Omy is Often sight
ed as an eXamplary caSe Of redis
tribution with growth, the question has also been asked as to how fully the poorest groups share in the benefits of these redistribution poliCieS. Investigations into the distribution pattern of food subsidies and education benefits have shown that these lower income groups do not benefit as much as they should from these services. (See Box). The widespread practice of pawning of ration books to meet their desperate needs, because they lack any purchasing power, often deprives them of the quantity of Subsidised food which they are entitled to. Again, the distribution of educational benefits indicates that while participation at primary level is not affected by very low incomes, at Secondary and tertiary levels the participation of these groups declines and they cannot avail of these opportunities to improve their positions or prospects. The table on page 14 illustrates this more clearly.
The paradox in the situation is that though these social services should reach and help the economically most disadvantaged groups, these groups are unable to derive
ECONOMIC REVIEW, MARCH 1978

Page 15
Poorest of the Poor
The term "Poorest of the Poor', describing the economically Worst off groups in the developing countries, has gained currency in recent years. A team of specialists in Social Services, who reported last year
on the state of these services in the Colombo District, found evidence of the existence of such a group who were at the lowest levels of subsistence. The characteristics of this 'Poorest of the poor' group have been described by the team as foll10WS:–
"They have no national identity but are in local pockets of urban and semi-urban areas or in rural areas. They have O means to avail of or to come to know or initiate or pursue the labyrinth of forms, procedures or offCialdon to receive welfare services, For today even obtaining services means time, effort, expenditure. To avail of the free health services, one has to have the where withal, to meet travel expenses for medical treatment purchase of food and extras, after care in the home, frequet visits to clinics, etc. In the case of sick children, employed parents have to forego their daily earnings until medical treatment is conn pletely satisfactory. In the sphere of education, parents have to meet costs of books, clothing, food and transport expenses of school going children. Even to receive public assistance applicants have to incur initial expenditure on travel for purposes of having their applications processed. Recipients of T.B. assistance Who are unable to meet expenses of travel to Medical CliNics for a certificate would have their allowances eventually suspended. Although education is free, attending School and gaining from education implies basic requirements for the child including an adequate stable home life.
In a society which is heavily biased towards the giving and receiving of favours at all levels, the “poorest of the poor' are elbowed out in their progression to receive welfare services. They have to contend with petty bureaucracy, local animosities or political patroImage.
To keep thems “poor est of the pool to a variety of desig socially disapproved diren of School goir of School or have in turn to casual e they are parted f child servants or adoption to better encouraged to swell child beggars scave of food. These C their Wits and con crime, drug abuse, liquor etc.
Basic food and drawn, are Sold off pressing commitmer prices of food and have further depres levels of living so subsidised food giv reasure are not "poorest of the po adding to the lo conditions and resu trition, ill health, d
Another feature of the poor' group numbers of thern debted and readily of their personal ef books, or public as cate. Here again of the welfare prog Subsidies are nullif
The "poorest group do not appea cient political Sup They have to depen voice or that of ci sons, social Workel tions.
Among adults of the poor' group inities for work or h vate sources, welfe
Belovy - 100 f00 - 199 200 - 399 400 - 599 600 - 799 800 n 999 1000 and over
Source: Socio-Econ
EconoMIC REVIEw, MARCH 1978

elves alive, the have to resort erate and often
practices. Chilg age, drop-out c) schooling and mployment; of 'om parents as given away for
of families or the ranks of nging for scraps hildren live on Bribute to other
trade in illicit
other rations if to meet urgent its. The rising other essentials sed their family that even the 2n as a welfare utilized by the or' group thus wering of living lting in malnuisease, etc.
of the "poorest is is that large are heavily intake to pawning fects, rice ration ssistance certifi
the objectives gramme of food ied.
of the poor’’ ur to have Suffiport of voice. d on their own vic minded perrs or organisa
in the "poorest when opportuLelp through priare agency and
the public diminished, frustration sets in and they take to crime, vagrancy, begging and prostitution.
It is also known that in terms of housing and shelter the poorest of the poor' live in over crowded or substandard slums and shantles exposing themselves and families to hardship, ill-health and lowering of the quality of family life.
These conditions can spawn a host of social problems which would involve increasing heavy state expenditure in welfare services. The future indeed is bleak for these families who represent extreme disparity in the social development of our times. The childiren especially have no means of development and growth to become useful citizens of the country or sharing in benefits of progress which have favoured other sectors and sections of the population.
It will have to be determined as to what fraction of the 48.3% of the population who received incomes of less than RS. 100 per month (see table below) includes this "poorest of the pool'. But the severity of their conditions and hardships are not commonly visible. Being committed to social justice, we cannot afford to ignore or put off formulation of social development measures which would strike at the roots of their problems and bring about a meaningful change in their lives in this generation. Can the social cost of continually maintaining an increasing number of this group be ignored?" The "poorest of the poor' pose a serious problem and challenge to all development efforts. The Welfare Services do not adequately reach them. They have been "left behind' in the development and would not be able to get into it unless a massive development thrust is imparted into the social
Voyelfare Services.
Percentage of Income Receivers
brath i A. Urban Rra Estate
said Séಳ್ಳೆಣ್ಣೆ Sectogo Sector
48.3 19.6 4雏。鄞 89.9
2.4 30.8 32.0 暂.6
18.9 33.1 20.0 2.
3.5 9.2 2.9 0.3
0. 3.3 0.6 0.
Q.4 1.1 0.3 0.0
0.5 2.鲁 0.1 0.0
bomic Survey of Sri Lanka 1969-70.

Page 16
TABLE 9.
Participation Rates in Edueation by a
and Household income Groups - 1
neone Groups. Age Groups
5  ை3 19 - 14, 15 - 19 BelloW RS. 100 69 64、7 29.1 Rs... 100 - 199 : 68.9 73.9 28.9 RS. 200 - 399 75.8 83 36.1 487 85.7 79.6 599 سبض 400 RS Rs. 600 - 799 85.6 85.6 57.5 55.3 83.8 76.3 999< حس۔ 800 .ERS Rs. 1000 and over 85.6 8.3 6.5 All Groups 73.8 79.3 38.0
Source: Socio-Economic Survey of Sri Lankca 196:
the fullest benefits from such services because of their very low incomes and negligible means, One answer to this dilemma. Would be to increase subsidy levels further, in order to cover, for example, the additional costs these persons would incur through increasing participation, for students proceeding to higher education or for meeting other emergencies; but at this juncture it may not be economically feasible.
The first priority undoubtedly is an acceleration in the pace of development but this raises another aspect of the issue of growth and redistribution. What has to be guarded against is that the mechani SmiS which growth should not also promote economic concentration, and a worsening of the relative and perhaps even absolute poverty of the lowest income groups. Both relative poverty
and absolute poverty (lesser inequality as well as deprivation) must be a target for elimination.
There is a possibility that development strategies which succeeded in raising the level of per capita income may not have much impact on the poverty problem if they are accompanied by a deterioration in relative income shares. There is little firm empirical basis, however, for the view that higher rates of growth inevitably generate greater inequality. Although this may happen in particular cases it could not be generalised. Taking the argument further it could be maintained that rising levels of output do not necessarily result in rising levels of employment in the less developed countries, just as growth by itself does not connote development. On the other hand, it is equally important to realise that more growth is necessary even if it is not a Sufficient COnditi On fOf solving the problems of unemploy
ment and underemployment.
14
promote economic
The InOW fa strategy'', promo through its World gramme, is dire these p0Orest Sec munity in the This strategy inc for the provision consumer goods; Services; and the capital gOOds pr( plus generation) to provide the goods and public This programme provision of emp
enough to allow
DEVELOPM
“互艺九泷?砲 baldnce bel Sures on th ፲ገፀ,éCLSጌUፕeS O? increase sa lOpment cal I think too Ch՞ed Se 10e such an eact Savings SO cannot be
“The vhich su 2)iCeS ` Shi,( of impor the first fe CO2S are ofte: energy SC then to this mea, 7 ̈eSOጊዜ7 ̇CeS tion of
“The Ces Of 272dy reSt. Dell-bein, bers; bu ፲0?‛OCeSS; " Cilio at:Silig/

ge of Student 969/70
9-70.
miliar “basic needs ted by the ILO l, Employment Pro2cted mainly at :tions of the comdeveloping World. ludes a programme of basic personal access to public infrastructure (for bduction and Surnecessary in Order personal consumer Services required. also includes the loyment productive the output require
EN AND VVE FARE
; there ShOlld be di luveen uvelfare meale. One hand and the Other hold to vingS SO that deven take place. It is ShOrt Sighted to inlfare measures to ent that there is no that consumption in CrediSed.
re Cre COn SideratiOS ggest that Social Serpuld obtain a place tanace im o., Plou"m. Iʼ72,
place, though they 'umer Services, they SO essential that ciety must provide Some ectemt even if ns some diw) ersion of
from the producβαρίίαι goods αηd α
loтg-rит сот Segиетdevelopmental policy tilt in promoting the g of greater numt the developmental unless it is self-cons
utilized, can greatly
ments of all groups to be met and fairly remunerated so that each worker could find his and his family's basic consumption needs from his remuneration.
The need for such a strategy has become more urgent particularly in developing countries such as Sri Lanka, which lack nation wide social Security Schemes and where the traditional extended family SyStem is no longer adequate for distributing income or even meeting people's basic needs. In these circumstances new jobs and the wages they produce are the only way of providing a living for most people. Further, by providing employment the inequalities of income and Wealth could be S.OneWhat reduced.
A significant economic reason, as distinct from the purely ethical, for a more equitable distribution of in COIme C Ould be found in the effects such a distribution WOuld have On the patterns of consumption and growth. Generally, an unequal distributiOrt Stimulates demand On the part of the rich, for more sophisticated goods; often with a relatively high capital and foreign exchange content. Another more general
Points of View
In every country a choice has to be made between present con Sumption and future con
sumption. That is really the point. Therefore, I think some balance is needed.
JOHANNES WITTE VEEN, Managing Director of the IME in an interview in
Colombo. Feb. 1978.
Sloading down of the rate of development. Actually, development itself would have little meaning if the people Dorking for it are denied their essential meeds. No promise of future abundance | can be a compensation for the current denial of basic
Doints.'
The Ten Year Plan,
Sri Lanka, 1959.
accentuate ecisting disparities, create neu) ones, and in a spiralling fashion stage the setting for the articulation of relative deprivation'.
SATISH K. ARORA., “India's Rural Politicians'
ECONOMIC REVIEW, MARCH 1978

Page 17
reason why the relief of the poverty of the unemployed and underprivilleged needs to be given closer consideration and a higher priority than a further growth in the incomes of those already employed is that fuller employment for the former grOup WOuld al SO Serve a S a means of more distribution of incomes and a more widespread participation of the mass Of the people in the effort as well as the fruits of economic development.
In the course of a recent addresS Sri Lanka's President himSelf raised this entire issue when he asked “what are the basic purposes of development'. His answer Was “Providing the minimum services of food, clothing, housing, health and education.
Adopting special measures for the promotion of employment and raising of incomes among the middle and lower income groups in village and town.
Restructuring society, so that ownership of the new development production and distribution patterns and processes belong to the people. They should enjoy the products rather tha. an elitist minority'.
A discuSSiOn Of the rOle Of social Services, however, inevitably raises many issues connected with consumer and capital expenditures, welfare and development or redistribution and growth. Growth, in fact, has become a very relative term and it is now clear that the skepticism about growth itself has two major sources: doubts about its feasibility and doubts about its equity. Both these possibilitieS, unfeasible and inequitable growth, have led to a great deal of interest today in the di Stribution Of incOmie as a policy objective; the intention being to alleviate the condition of the poorest Sections in the absence of growth benefits and also to Serve as a partial determinant of the growth process itself.
Worsening inequalities of personal wealth and income distribution as well as opportunity have become a pronounced feature in both the developed and developing worlds. In the developing countries, however, in the context of underdevelopment and poverty an equality of opportunity for productive employment has become the leading goal for achieving greater equity; though the pre-conditions for achieving this goal often do not
EconoMIC. REVIEw, MARCH 1978
exist sufficiently in - COuntries. The mee mechanisms for red sible conflict betwe Creation and incon thus constantly emp in this context that tinction between in Other categories of relation to the deve social System, becom vestment, as was st start, is necessary f yet judicious develt ditures on health, ec tion etc. have been : returns in far greate the size of these ex
District, Ministers
(Continued from
private philosophies cumulative effect of in the metropolis, to contact with each
official and informal having to cut off to the rural and rustic their lives due to t reSSure Of their
they become very fortunate Victims than its masters.
hand, at the distri is no such alliance attitudes binding th ther. They are fron grounds with very
Catastrophe or New
(Continued from
pre SS ure On availa helping the poOr cOu iy in this Way,
It was shown th 2060 (at which the Were terminated) th be inequalities, exp: nomic indicators, bet of Well-being in the poor countries, pal respect to Asia. To ex ly the significance C ing gap, it ShOuld be that the results of such a long period change considerably Small fluctuations in variables used; a mo in the rate of tech greSS, for example, cC the gap.
Lastly the model the obvious limitatio:
of work, that the fat

nost developing for built-in lcing any poSin employment e growth are hasised. It is the line Of di SWestment and expenditure, in opment of the eS blurred. Inated from the or development pment expenlucation, nutrifound to yield r proportion to penditures. The
creation of social overheads, public works, housing, sanitary and health facilities, transport and communication systems also help to improve the production sectors' abilities to abSOrb inveStment reSOurceS more effectively. There is no doubt that imaginative plans for providing these Services can become a means of creating a large number of employment opportunities. Thus investment and consumption planning as a means for making incomes accrue directly to as great a section of the poor as possible, and providing more equitable economic Opportunities, is a vital need in the present situation.
η ραρε 26)
may be, the having to live be in constant Other both at gatherings, of a great extent elementS frOn he nature and WOrk, is that, much the unof this society On the Other ct level, there Of COIO). le group tOgea mixed backdiffused SOcial
Society
page 32) ble reSources, intries indirect
at in the year COmputer runs Lere Would still reSSed in ecoWeen the le VeliS
developed and ticularly with valuate COrrectif this remain
borne in mind the im Odel, O Ver
of time could With relatively in some of the derate increase hnological pro
uld easily close
shows, within
ns of this type te of man does
contact with each other, and, above all, the dominant political sector of this group is very much more rural and rustic than its counter
part in Colombo. Further, the very nature of the work they are in VO Ved in exposes the decisiOn-making prO CeSS tO a
very high degree, to rural and local influence. This, then is the thesis on which is based the claim that the institution of District Ministers symbolises a process of democratisation. To these apologists Of “eliti Sm” n0 argument, iS offered. It is admitted that this is, indeed a value judgment.
TTO
issue.
N
not depend, in the last instance, on insurmountable physical barriers but on Social and political factors that man must modify. Their solution is not at all easy, because to change the Organization and values of Society, as history has shown, is much more difficult than Overcoming physical limitations. To attempt the task, however, is the only way open to an improved humanity.
It could possibly be Said that this proposal is utopian, and that it would be more realistic to propose Solutions that involve less radical modifications to the sociopolitical structure of the world. Those who hold this position should be reminded of the words. of John Stuart Mill more than a century agO :
“For a great evil, a small remedy does mot produce a small result, it simply does not produce any results at all'.
15
be concluded in or ext

Page 18
THE ECONOMY
Money Supply increases Continue
into 1978
Sri Lanka's money supply increased by 29 per cent last year; the second successive year of sharp monetary expansion. This increase continued into 1978 and by the end of January had risen nearly 6 per cent more, from Rs. 1,366 million at the beginning of January to Rs. 5,679 million by the end of this month. By the end of March, 1978 it had exceeded Rs. 6000 million and was almost double that of the money supply at the end of 1975.
MONEY
The mOIne all currency . owned by perS mercial bank:S ment, increaSe 3,088 million a Rs. 4,166 milli during 1976, a or by 29 per money supply Seen in the ta gone up almost Over the five a major part C place in the l table at right)
SUPPLY
1965-72 END YEAR FIGURES, 1973 ONWARDS
fM. ONS OF RUPE ES ssie
5ᏅᏅᏬ
4500
4000
306ళి
60
66 குடி '79 72 1973 fig7.
16
TOTA FYDNEY Supply
DEMAND DEPt
CURRENCY
1975 穹
Sourse Central
 
 

y supply, defined as ind demand deposits OnS Other than COm
and the Governfrom a total Of R.S. t, the end of 1975 to on or by 35 per cent ld to Rs. 5,366 million cent in 1977. The of the country; as ble and graph, has , two and a half times years from 1972, with if this increase taking ast two years. (See
3ND MONTH
MÁ E FONS OF RUPES
5. පිළිග්‍රාෆ්
4-5Qරි
4 ᎧᎧᏍ
35ෆිර්
25ᏍᏍ
2ᏅᏬᏍ
í560
56.6
s 1977
Bank of Ceylon.
The major contributing factor for the expansion of the money supply in 1977 was the significant growth in external assets of the Central Bank and commercial banks. In all, the book value of net external assets of the banking system
rose by Rs. 3,597 million during last year. A considerable part of this, amounting to Rs. 1,199 million, Were inCrea. Ses resul
TABLE Money Supply % change over
End Of Year previous
R.S. nil. year. 972 2481 15.垒 1973 2,778 12.0 1974 2,946 6.0 1975 3,088 奎.8 1976 4.166 35.0 1977 5,366 29.0 1978 (March) 6000.8
ting from the revalutation Cf existing asSets following
exchange rate changes. The net external banking assets registered an increase of R.S. 1943 million reflecting the very strong balance of payments position that emerged during the year. This was the second year in Succession that the growth in external banking assets had made a Significant contribution to the increase in money supply. This increase also resulted from high export earnings and aid inflows. The situation in 1976 and 1977 contrasts strongly with that of the 1974 and 1975 position when the external assets of the banking system recorded a decline and exerted a COntractionary influence on the money
- supply.
The other major contributory factor to the expansion of money supply in 1977 was the increase in bank credit. Additional commercial bank credit to Co-operatives amounted to Rs. 614 million; to Government Corporations Rs. 568 million; and Rs. 618 million to the Private Sector.
The overall pattern of monetary expansion in 1977 was characterised by a very sharp in
- crease in the first quarter, with a
in the Second and a further
moderate increase
and third quarters acceleration in the fourth quarter. An analysis of the composition of this monetary expansion shows that the increase in the fnoney Supply was made up of an increase in demand deposits by Rs.
. 489 million and an increase of Rs.
711 million in currency held by the public.
EcoNoc REVIEW, MARC 1978

Page 19
Money Supply in the '70s - an official viewey
The seven-year period ended December 1976 witnessed an unprecedented increase in the money supply, its level rising by - over 120 per cent from Rs. 1,883 million to Rs. 4,166 million. The increase in the previous seven years, by way of contrast, amounted to only Rs. 540 million or 40 per eent. The impact of the sharp increase in the money supply can be discerned, though to a very limited extent, in the increase of 54.0 per cent in the cost
A significant feature of the money supply situation last year was that for the first time since 1970 Government Corporations, Cooperatives and the private sector contributed to a contraction in the || money Supply; mainly as a result of a substantial build up of time and savings deposits by the Government Corporations and other private sector constituents. The rise in time and savings deposits of those private sector eonstituents was most marked in the last quarter of 1977, when these deposits increased by Rs. 422 million. This has largely been attributed to the impact of the interest rate reforms introduced in September last year. It has been Surmised that were it not for these deposits the overall
of living index with an increas in the previous real increase in is Of Course n assumed astron particularly in of the last gove
More than increase in the took place in t
of the period would, therefol to examine the the last two ye the first five y supply rose by the major ex being an increa lion in net bar private sector Government co, co-operatives). (net) of the ba rose by Rs. 4 two expansion however, offset
monetary expansio Would have been ter last year. Des] rable trends the m tinued to register with consequent the problem of n Stability.
The principa
contributed to t ply during Januar are summarised be
Change in Money Supply-End Deeember 1976 to End De
Expansionary Faetors
(a)
assets (net) Increase in the commercial banks credit to the (e) Increase in banks' credit to
the Government Corporations (d) Other faetors Contractionary Factors (a) Increase in time and saving deposits of the private sector Increase in time and savings deposits of the Government Corporations - Decrease in credit to Goverment from the banking system Increase in other liabilities and accounts (net) of Central Bank Increase in other liabilities and accounts (net) of commercial banks
(b)
(b)
(e)
(d)
(e)
Increase in the external banking
private sector
Rs... 194
1,18
6.
96.
29:
5。
39.
8ገ.
(f) Inerease în Government cash balances . . 22.
Change in Money Supply
Source
ECONOMIC REVIEW, MARCH 1978
Central B

which compares e of 22.8 per cent seven years. The the cost of living uch greater - and }mical proportions ;he last two years rnment. 50 per cent of the money supply he last two years under review. It e, be interesting developments in ars seperately. In ears, the money Rs. 1,063 million, pansionary factor Se of RS. 750 milk credit to the (which includes porations and the External assets nking system also 5 million. These ary forces were,
n in the country Very much greapite Such favouaOney Supply cona sharp increase implications on laintaining price
factors that he money Supy December 1977 low.
ember 1977
R 沁7
.3
垦.4
2 + 347.6
.3 -2547.3 -- 1,200.2 tik of Ceylon.
significantly by
a decline of Rs. 204 million in
Government's net borrowing from the banking system. Budgetary operations in the first five years as a whole, thus, had the effect of mitigating the monetary expansion that arose from the operations of the private sector and the external sector.
In the two years 1975 and 1976, Government expenditure exceeded original estimates by substantial margins and the SLFP Government sought the easy way out of financing the increased expenditure by, to put it in common parlance, "printing money'. In these two years together they borrowed, On a net basis, R.S. 813 million from the banking system, a substantial part of it, incidentally, in a devious manner by issuing Government bonds directly to the two State banks, a practice not normally followed but was resorted to in this instance because the Treasury Bill limit sanctioned by the National State Assembly had been exhausted. The expansionary forces emanating from the operations of the private sector and the external sector amounted to only Rs. 201 million and Rs. 256 million respectively. The resultant increase in the money supply in the two years was Rs. 1,220 million as against the increase of Rs. 1,063 million in the previous five years.
The unprecedented monetary expansion in the past seven years has eaten very much into the value of the Rupee, imposing in the process intolerable burdens on the common man. "Rupiyale age adu pela thiyama tharama dda Rupiyale kelivath nehe”. (The value of the Rupee has declined so much that the Rupee is now in tatters.) The money supply has continued to increase rapidly upto the time the present Government took office and our own efforts to ease the burdens of the people will be rendered that much more difficult in the coming months because increases in the money supply react on prices with a time lag.
BUDGET, SPEECH 1978 ROINVIAWIE DE AMEL
- MINISTER OF FINANCE & PLANNWING.
17
ഭ

Page 20
FOREIGN NEWS REVIEW
Compromise on Debt issue
at UNCTAD
A breakthrough seems in sight in the crucial issue of debt repayments following the special session of UNCTAD's Trade and Development Board in early March. This Special session which was presided over by Sri Lanka's Minister of Trade counted, in his opinion, many firsts to its credit; and he described the final Outcome as “a significant breakthrough in the NorthSouth Dialogue and a major millestOne in joint efforts to establish a more equitable and satisfactory International ECOnomic Order”. Sri Lanka's Minister in his opening presidential statement listed many firstS, among them: the first time the Trade and Development Board Was meeting in ministerial Session following the decision taken at the Nairobi Conference of UNCTAD in 1976; the first time the Board Was addressing itself to a single problem, namely the growing external indebtedness of developing countries; the first time since the last meeting Of the Conference on International Economic Co-operation (North-South Dialogue) that this issue was being discussed by the international community. He emphasised" that this was the very area in which the international community had made least progress and this appeared to be perhaps the only available opportunity of negotiating an acceptable and equitable SOłutiOh.
- The enormity of the debt problem has been highlighted in various forms and forums from time to time. From the Sri Lanka Minister’s point of view the problem for the developing world was emphatically summed up thus: On the basis of studies presented to us, the Outstanding and disbursed debt of the majority of the developing countries was estimated at $179 billion at the end of 1976 and was projected to increase to $253 billion by the end of 1978. This must be compared with projected. FOB exports of $137 billion in the same year. In practical terms, it means that debt servicing of developing
18
countries will ab cent of their ean port of goods by
AS a COIn Seque ment prO'SpectS have been Seri Ou most of the poore. tries have fallen target growth rat ternational deve established at the decade.
The popular c. debt problem for is linked to the lik in the view of the a broader definitior It argues that a. s. exists whenever the payments results in pingement on a cc sustain a level of i meet its developme this standard, all veloping countries,
Least Developed a Affected (a total facing serious diffic exporting developir whole, it is estima debt servicing will of earnings from e countries the perc to be much higher. A Critica,
It is evident tical indicators t the debt problem stage for develop is in fact worseni in practical term present remedial not only been ina this growing p) unable to preven In many countri contain economic
Prior to the the Western pre reports that their seriously conside much of the of poorest developing of their aid progr tion is made bet and commercial tion was debated Western capitals tries Wondered
 

orb about 25 per ngs from the ex978. -
nce their developand programmes sly impaired and developing coun
far short of the eS Set by the inopment strategy
beginning of this
oncept today of a leveloping countries elihood of default. UNCTAD Secretariat should be applied. erious debt problem ! servicing of debt n a significant imuntry's ability to imports adequate to nt requirements. By the low-income de
in particular the ind Most Seriously of 45 states) are ulties. For non-oilng countries as a ted that by 1978 absorb 25 per cent xports but in some 2ntage is estimated
Problem
fOn the Se StatiSnat not Only has reached a Critica ing countries but ng further, which S means that the neaSures have dequate to resolve oblem but also 5 it deteriorating. S it does in fact growth. UNCTAD meeting is carried. Several governments were ing writing off cial debts of the countries as part RimmeS (a di StinCteen Official debts ebts). This quesstrongly in many and some counyhether i UNCTAID
was the place to announce their intention. . .
Western governments WθΙΘ. under increasing pressure for a more conciliatory approach to the problem because of the action last year by Sweden, Canada, Holland, and Switzerland in Writing off loans from the poorest countries, and also because of the present impasse in the North-South DialOgue.
The issue which was at the centre of negotiations was the proposal of the Group of 77 (developing countries) to cancel Or convert into grants the Official debt of the least developed and geographically disadvantaged developing countries. In this proposal the rest of the most seriously affected (MSA) countries would receive the same treatment or, at least, have their outstanding debt recomputed on International Development Association (IDA) terms (0.75 per cent interest, 10 years' grace, 50 years' naturity.) This would mean adjusting past lending conditions to present lending rates, which are generally On mOre cOnceSSiOnal termS.
In this respect the Group of 77 pointed to the example of Sweden, Which has Written off $200 million in debts owed to it by the poorest developing countries, and that of Canada, the Netherlands and Switzerland, which have planned Or have already approved Similar meaSGS.
Although the Group B (developed market economy countries) showed some understanding for the problems Of the poorer developing countries, their Group's position was that the indebtedness problem of the developing countries was neither generalized nor un manageable and that the international system had so far reacted positively to attenuate Serious problems of indebtedness. Furthermore, in this Group's view, the problem with which many developing countries were confronted was one of adequate resource transfer and not i a generalized problem of indebted
heSS.
Future Debt Reorganisation
The Second issue dealt with was the proposal by the Group of
77 to establish a set of internatio
nal procedures and norms for speedy, consistent and equitable debt reorganization in the future. In the past, Such debt reorganizations have usually been seen as
ECONOMIC REVIEw, MARCH 1978

Page 21
ad hoc emergency operations in the light of crisis situations in debtor countries. .
The ministerial representatives of UK and West Germany, for instance, appeared sympathetic towards the concept of adjusting terms Of Outstanding loans to the poor countries but were prepared to consider individual cases. Even this marked a change of attitude, though delayed action was unlikely.
The pleas that the inter-dependence of the international economy has now come to stay and that economic growth of the developing countries would provide potential for increased trade which can be in the economic interest of both the developed and developing countries do not seem to have the desired impact. The developed market economy countries still don't Se em tO look at it that Way. For Some of them the indebtedness and under development of the Third World countries are still necessary for providing the markets for their capital and manufactured goods.
The final resolution adopted stated that developed donor countries will seek to adopt measures for an adjustment of terms of past bilateral development assistance. Upon undertaking such steps in favour of the poorer developing countries "each developed donor country will determine the distribution and the - net flows involved within the context of its own aid policy'. UNCTAD V to be held in Manila, in 1979, will Treview the meaSures taken folllowing this decision.
In the closing meeting on March 11 the mood was of One of low key satisfaction and cautious
optimi Smi. Though in the final Statement the President Of the ministerial meeting, Sri Lanka's
Minister, described the results as a major milestone and a significant breakthrough in the North-South Dialogue, speakers from Iraq and Tanzania, said it fell short of early action by the rich to ease the growing burden of the external debts of Third World States.
The decision that donor countries would soften the conditions of existing official development loans was not specific in the final communique, but observers said the wording left open the possibility of delaying repayments, lowering interest rates or cancelling debts completely.
EconoMIC REVIEW, MARCH 1978
FISHERIES
Import Delays Production Targ
Shortages of f. Spare partS fOr l{ craft continue to : try's fish productic production target Was Set for the first but actual achieve by over 6,000 ton estimated productio tons during the is arch this year.
The Fisheries M. mance for the first of this year, as repC Implementation au that production in ter haS fallen ShO Several area.S. For Fisheries Departm gramme for the is motors for mechan tiOnal Craft:S in use 17 to 8 foot, fibre delay in the impor gines has resultec motors being issu first quarter as aga 420. Again, it was in board motors for mechanised boats but none Were giv period; the reason fall also being a d port of engines. A tonners were those under the Sri Lank ject and financed b too only 18 boats W. first quarter agains
The Fisheries placing much re mechanisation pї the ADB financed ject for the over catches. This proj Sages the introduct (fibre reinforced ) boats and 30 GRP ed plastic) 38 foot ) to assist in pushin duction by about 1 per year. The ann 38 foot boat is est 185,00 lbs. Up to only 96 of the 200 F and 6 of the 30 G. being iSSued und had been given out ment to giving Out this ADB project t has decided to subs

Hamper ets
shing gear and cal mechani Sed fect the counn. A total fishof 42,750 tons quarter of 1978, ment fell ShOrt , recording an n of only 36,000 eriod January
(inistry's perforthree months rted to the Plan thorities, shows the first quarit of targets in
instance, the ent has a, prOSue Of Outboard isation of tradis , as well as for glass boats. The it of these eni in Only 274 ed during the inst a target of hoped that six " use in 3 ton would be issued ren during this for this shortelay in the imAmong other 3:
being issued a Fisheries Proy the ADB. Here ere issued in the t a target of 30, authorities are liance on the Ogramme and Sri Lanka PrOall increase in ect which enviiOn Of 200 FRP lastic) 28 foot (glass reinforcboats is expected g up local pro0,000-15,000 tons ual catch. On a mated at ab Out he end of 1977 RP 28 foot boats RP 38 foot Craft r this project
As an induceall craft under he Government dise part of the
cost of these boats to private fisher
men and Co-Operative Societies. The ultimate ownership of the 200 FRP 28 foot boatS are
expected to go to the crews who work on these boats and not to the
Society. Of the 30GRP 38 foot boats, each of which is costing about Rs. 800,000, twenty-two of
these have now been Sold tO, a number of private companies. The Se boats have the capacity to fish upto about 50 miles off the coast and bring in at one time nearly 7,000 pounds of fish, excluding ice. The 28 foot boat can average 800 lbs per trip and can do around 20 trips a month.
Many an earlier fisheries plan has been based on building up of a profitable deep-sea fishery with a view to exploiting the geographical advantage and marine resource endownments of the island, but two decades of experience has shown that not much materialised. The experience has also shown what was needed to put matters right. It is clear, in switching over to an intensified programme of mechanisation, that local fishermen must be given a thorough grounding and familiarity with the imported technology. Earlier training facilities were far from adequate and lagged behind the imechanisation process.
Requisite facilities for maintaining mechanised crafts were also not provided resulting in a disruption of fishery operations, lowered production, hardships to fishermen and consequent inability on their part to meet loan commitments. The issue whether our deep-sea. fisheries can be profitable has been debated many times before. One argument has been that deep-sea, fishing on an industrial basis preSupposes a ship building technology and ship maintenance facilities which are virtually absent in Sri Lanka, and until Such time as they are provided deep-sea fishing will not be profitable. There is no doubt that the country must devote its energies to acquire the new technology developed in recent decades; but the greatest need of the moment is to set out our priorities in both the short and long term interests of the industry and clear all bottlenecks impeding the flow of vitally needed inputs for the industry.
19

Page 22
ΤΕΑ
Production Up by 100 million kgs.
World tea production in 1977, as anticipated, recorded an increase Of Over 100 million kilogrammes as compared with poduction in 1976. The ECO7207.72ic Relied forecast in both its July and September issues in 1977 that tea, production for the year would increase by about 100 million kilogrammes. The largest increase in production was recorded by India, where production rose by 48 million kilogrammes in 1977 to record a total of 560.4 m. kg. The most significant increase, however, was recorded in Kenya, where production went up from 62 million
kilogrammes in 1976 to 86.3 million
kilogrammes in 1977, an increase of almost 40 percent. Sri Lanka’’S production was up by only 12 million kilogrammes an increase just over 5 percent. In the light of the price boom in the international tea market Kenya appeared to have gained most from the situation in 977.
CROP FIGURES OF MAJOR PRODUCING COUNTRIES (In million kg.)
Country 196 19 Sri Lanka, 1960 208.6 N.E. India. 400.6 429.6 S. India. 1118 130.8 Kenya 620 86.3 Mia!3Wi 28.3 31.7 Uganda 丑5.每 15.2 Tanzania. 14.量 *重6.7 Indonesia 59.* *63.0 Bangladesh. 33.2 *37.5 Mozambique 10.8 ** 13.2
932.4 *1032.6
* Estimated ** Upto July.
On the local Scene Sri Lanka's tea enjoyed a demand in 1977 that had not been Witnessed before in the Colombo tea trade. The year On the Whole Was One Of the best for tea in all international centres and the trade was of the view that “tea, at long last, had now been placed as the most wanted commodity among consumer beverages'. The erratic supply position and continuing high prices for coffee has over the past two years had a very faourable impact on demand and prices of tea.
by
The total qua Colombo auctions increase apprecia, the previous year ties Of low growns the auctions in quantities of med ed a slight increa the highest incre in the low grow.
percent. The gli crease in prices
Quantities Coorimbo
1976
High 66.1 AHedium 61.1 Low 54.5 Total 1817
RU Price Rise The rising
prices continued
end of February the Colombo Auct al round in Cea. Se compared to the
1977. The heavy
in November a the revaluation O needs to be consi moving up in Feb. lation Over repOr was contemplatin cha Ses of technic bers. The news plan to build up
and also increas ments for March impetus to pri currency fluctuat a favourable in marketS in SOm Centres. In Colo es in February, February 1977 Curly and Shell
CLOSING PS
Grade
RSS No. 1 Latex Crepes Scrap Crepes Sole Crepe Froth & Cutti Curly & Shell No. 1
Average price for all gri
 
 

ntities Sold at the last year did not bly over that of Larger quanti
tea was as high as 74 per cent. The gross turnover, according to data compiled by the trade, increased by as much as Rs. 1,321.3 million in 1977; the heaviest turnover increase being recorded for low growns and high growns. Details in tables.
Averages of Auction Prices Rs/kg
were sold through 1976 1977 1977, while the Gross Gross Percent 111IY). ಆಳ್ವ Sಲ್ಲ: Prices Priees increase : ¥း ့် High 9.53 16.51 1ף s as nuch ဒဲS 82 Mediumn 3,72 14.80 70 y &A - 80 82 ross average in- ΙμΟν 9.2 器 4. for all grades Of Total 9.21 16. Seld at the Gross Turnover - Jan/December
Actions (approx.)
milion ፲976 197ኘ
kilos 重9莺莺 晝重。 Rs, Wm, RS.
65.2 High 636.0 1.093.0 80. Mediurma 532.5 894.0 666 LOW 505.2 1,008.0 1866 Total 1,673.7 2,995.0
鹫聚 per cent increase, and Scrap Crepes
a 64 percent increase. s Continue There was, however, a decrease trend in rubber in quantities of almost all grades
into 1978. By the this year prices at ions had shown an 2 of 35 per cent as Saine month of increase in prices St year, following if the rupee also dered. Prices kept bruary with specutS that the U.S. g Stockpile purally specified rubof South Korea's a rubber stockpile ed Soviet requiregave an added ses. In addition, ions were having bact in the rubber e major auction mbo price increaScompared with were highest for Scrap No. 1 a 65
of rubber offered at the ColonbO auctions in February this year. For instance the 2,243 metric tons of Latex Crepes offered in February 1978 vaS a decrea Se Of 285 metric tons on the previous months total and a decrease of 1,418 metric tons compared with the total in February 1977. So too with Scrap Crepes, Where 479 metric tons Were offered in February 1978. This was a decrease of 75 metric tons over the previous month and a decrease of 51 metric tons compared with that of February 1977. The 175 metric tons of Sole Crepes offered during February 1978 was a decirsea,Se of 40 metric tons compared to January and a decrease of 43 metric tons compared to February 1977.
The closing prices at the end of February for the various grades of rubber are compared with prices for the same period of 1977 in the table bellOW.
XCES PER KILOGRAMME AT END OF MONTH
4.47盐 5.20 3.36 *:00 tags 3.00
Scrap
increase des
February 77 February '78 Pereenat;
acrease
in prices 蚤69 27 - 5.28 6:05 - 6.10 16 - 3.59 5.50 - 5.61. 64 - 10.30 擎.拿0 一 10.47 2 - 3.10 玺.量Q三一三4.75 3.
- 190 2.80 - 8,00 65
_35
ECONOMIC REVIEW, MARCH 1978

Page 23
T R A D E
s
Record Trade Surplus in 1977
Sri Lanka’s mechandise trade in 1977 Showed a favourable balance for the second successive year. The surplus in the balance of trade in 1976, according to Customs records, Was the first in twelve years. Throughout the period of 1966 to 1975 the country had experienced a persistent deficit in its merchandise trade account and in 1975 thiS deficit reached a record figure Of R.S. 1,318 million. On the other hand the surplus of Rs. 631 million in the trade balance in 1977 is also an all time high. Export earnings increased from Rs. 4,815 million in 1976 to Rs. 6,638 million
in 1977; (in most of the tables the
re-export values are not recorded) while payments for imports increa Sed frOn R.S. 4,645 milliOn in 1976 to RS. 6.007 million in 1977. Tea exports were mainly responsible for the record earnings in 1977; while, petroleum and food purchases were largely responsible for the highest ever import bill the country has experienced in any single year.
The pOsition Seen in
country's foreign trade
the table bellOW.
TABLE
FOREIGN TRADE 1964 - 9
(Rs. Million)
Exports: imports Balance Year (f.o.b.) (c.i.f) of Trade 1964 1876 1975 - 99 1965 1948 1474 -- 474 1966 1700 2028 - 328 1967 1960 1738 - 48 1968 2035 2173 - 138 1969 1916 2543 - 627 1970 2035 2313 - 280 1971 1947 1986 - 89 1972 2009 2064 一 55 1973 26.17 2715 -98 * --س 1974 34.72 4554 - 1082 1975 3933 538 - 1318 1976 48且5 4645 +- 170 1977 6638 6007 + 631
* Including re-exports. Source Sri Lankca, CuStOms Returns
It is apparent that the country's terms of trade have kept deteriorating since 1965; and the gap in the trade balance Showed a con
sistent growth from 1971, from R.S.
39 million, till it reached a peak of Rs. 1,138 million in 1975. In, 1976
ECONOMIC REVIEW, MARCH 1978
Over the last 4 years is
however, there W change in the trade surplus of E the terms of tr; per cent imprOV art increase in ex per Cent and a f ces by 12 per ce bellOW.
TABLE 2.
Year
1968 1969 1970 1971. 1972 1973 1974. 1975 1976 1977
SOUII°Ce Central
in 1977 the S 631 million and t improved further Owing to a sharg per cent, in the exports, which in 23 per cent riSe An un precedente
TABLE 3, M.
EPetroleum Rice & Cerea Four Sugar Textiles & Ya Fertilizers Pharmaceutic: Boiller'S - Ma &z Applia] Iron & Steel Motor vehicle
Sub total
Others
Total Imports

"aS a favourable Situation with a R.S. 170 million and ade showed a 35 Tement, Owing to xport prices by 20 'all in impOrt pri
tea export price index by about 80 per cent contributed substantially to the improvement in the terms Of trade.
IMPORTS
Import Values also reached unprecedented levels. A record sum of Rs. 885 million is estimated to have been used by importers under the new liberalised imports Scheme in the last Six Weeks of 1977. The biggest amount Of foreign exchange utilised was for the import of industrial machinery, ancilliary parts
nt. See table 2 and spares, amounting to over R.S. 210 million, While R.S. 159 million FOREIGN TRADE INDECES 1968 - 9
Index Number (1967 = 100)
Volume Prices
Terms of A. A. A. A. Trade Exports Imports Exports imports
103 101. 117 126 93 98 108 117 134 88 102 102 18 140 84 99 90 117 150 78 97 88 118 157 75 98 79 137 209 65 85 56 217 370 58 102 69 199 433 46 97 75 239 383 62 89 97 382 471 81
Bank of Ceylon surplus rose to RS. he terms Of trade by 31 per cent, )er increase, by 60 2 overall price of lore than Offset a in import prices. di inCreaSe Of the
was used for import of raw cotton and COtton yarn.
FOOd imports taken up a major share of Sri Lanka's import bill. Unlike in 1976 when, due to a fall in prices in the international market Of rice and cereals, flour and Sugar, these in
have alwayS
AJOR ITEMS OF IMPORT IN 1975, 1976 AND 1972
Walue Rs. million
Percentage of Imports
1975 1976. 1977 1975 1976 1977
894 1,196 1,490 17.0 25.7 24.8 ls 1,198 743 1,061 22.8 16.0 17.7 1,006 686 930. 19.2 14.8 15.5 250 * 68 199 4.7 1.5 3.3 1. 195 189 459 3.7 4.0 7.6 208 76 18 4.0 1.6 0.3 lS 69 59 87 1.3 1.3 1.4 chinery հCeS 229 292 313 4.3 6.3 5.2 169 183 188 3.2 3.9 3.1. S & parts 94. 150 233 1.8 3.2 3.9
4,312 3,642 4,978 82.1 78.4 82.9 939 1,003 1,029 17.9 21.6 17.1
5,251 4,645 6.007 100.0 100.0 100.0
Source Sri Lankca Customs Returns
21.
کی دسمبر

Page 24
ports registered a sharp drop; in 1977 the total value of the food imports showed an increase of R.S. 693 million. The result was that consumer goods imports recorded a steep increase in value and accounted for 42 per cent of total importS. (See table 4 on imports by categories). The country's dependence on food imports also comes Olt clearly in table 3 which indicates that rice, cereals, flour and Sugar alone accounted for 36.5 per cent Of the entire import bill in 1977 The trade in Vices also Show that there was a 45 per cent rise in Volume of imports of conSU İmler gOOd S On a CCOunt Of a near doubling Of food and drink imports. Prices showed a rise of 16 per cent.
the rupee came to to leave an impre, try's 1977 import
EXP
Sri Lanka’s t ings in 1977 reac highest On record year. Total exp( increased by 38 p. 1,825 million Over phenomenal rise tea being the mai. the quantity of lined by 14 mill the average expor ly from Rs. 10.50 to R.S. 18.86 per k price improvemen bined result of
TABLE 4. EXPENDTURE ON IMPORTS BY CAT Category Value Rs. million Perc 1975 1976 1977 19 Consumer goods 2,651 1,689 2,534 Intermediate goods 1,888 2,259 2,648 Investment goods 653 641 746 Uncia SSified 59 54 79
Το TAI. 5,251 4,645 6,007 t
Source Cemitirdil B
The share of intermediate goods fell from 49 to 44 per cent, despite an increase of petroleum importS. According to the trade indices, the import volume declined by 6 per cent and prices increased by 40 per cent. The Share of investment goods dropped from 14 to 12 per cent in 1977. The volume index ShOWed an increase in imports of 16 per cent, While the price index indicated a marginal rise of about 1 per Cent.
Apart from food imports, petroleum is the most important item of import into Sri Lanka, accounting (Over the last two yearS) for One quarter Of the country's import bill. Another item of significance in the 1977 import bill was textiles and textile articles, particularly cotton yarn, which registered a 200 per cent increase last year. Cotton yarın imports alone mOved up from Rs. 25 million in 1975, to Rs. 145 million in 1976 and Rs. 326 million in 1977. Imports of motor vehicles and parts also increased by R.S. 83 million in 1977. There was a significant drop in fertilizer imports which registered only R.S. 18 million in 1977.
However, the impact of the new trade and payments policy announced with the budget in November 1977 and consequent liberalisation of imports on floating of
22
nal tea prices in
preciation of the
latter part of 19 and COCOnut to for 72 per cent Of nings in 1977, wi Ing a.S mU.Ch. aiS 53 In the Ca,Se Of ru in prices compens: the quantity exp(
TABLE 5. M.
Tea, Rubber COCOn Ult Gems & Jewel Textiles & Tex articles Mineral Fuels Fish & CruSta
Sub total Other exports
Total domestic
Re-exports
Total Export
earnings went u lion Or 5 per cen products exports, ed their decline by Rs. 47 million
 

O late in the year Sion. On the coura
bill.
DERTS
otal export earnned R.S. 6,638, the for any Single rt earnings thus er cent Or RS. that of 1976; the in earnings from in cause. Though ea exported decOn kilogrammes, price rose heaviper kilo in 1976 ilO in 1977. ThiS t Was the COInirmer internatio
EGORES entage of Imports
75 1976 1977 51. 36 42 36 49 44 2 14 12 1. 1.
O 00 100
ink of Ceylon.
1977 and the deRupee during the 77. Tea, rubber gether accounted total export earth tea Contribut3 per cent. bber too the rise ated for a dirOp irl Orted and export
once again because of the heavy drop in the volume of exports. Thus, earnings from coconut oil fell by as much as Rs. 149 million; from R.S. 201 million in 1976 to RS. 52 million in 1977. Earnings from spices and other minor agricultural exports also increased by Rs. 106 million or 46 per cent over that of 1976. Among the other non-traditional export items where significant increases in earnings were recorded are: textiles and readymade garments, an additional R.S. 112 million; gems and jewellery Rs. 38 million; fish and crustaceans R.S. 2sh million.
SOURCES OF SUPPLY
A notable feature in the pattern of our imports over the last two years has been the increasing concentration in Sources of Supplies. Over the last two years five
countries have accounted for near
ly half the value of imports into Sri Lanka. With Sri Lanka's rapidly increasing petroleum import bill tWO Middle Eastern countries, Saudi Arabia and Iran, have supplied over 22 per cent of the total value of the country's imports in each of the last two years. U.S.A. and Japan have maintained their position, as third and fourth respectively, as major sources of our imports, particularly of flour and machinery and vehicle supplies. The United Kingdom has also retained its position among the first five largest sources of supply. How
AJOR ITEMS OF EXPORT IN 1975, 1976 AND 1977
Walue RS. million
Percentage of Exports
1975 1976 1977 1975 1976 1977
1932 2100 3,503 49.2 43.7 53.0 654 890 931 16.7 18.5 14.0 397 382 335 10. 8.0 5.0 lery 182 264 302 4.6 5.5 4.6 Ktile
111 173 285 2.8 3.6 4.3 59 140 149 1.5 2.9 2.2 Cea IS 22 75 95 0.4 1.5 1.4
3,357 4,024 5,600 85.6 83.8 84.
565 777 1,015 14.4 16.2 15.3
Exports 3,922 4,801 Ꮾ,Ꮾ15 100.0 100.0 100.0
11 14 23
S 3,933 4,815 6,638
Source Sri Lankca CutStOmS ReturnS
) by Rs. 41 mil- ever, U.K. has been displaced from
in 1977. Coconut hOWever, continuand earnings fell or 12 per cent,
its fourth position by India, which provided a large range of consulmer and capital goods under variOuS lines Of Credit.
ECONOMIC REVIEW, MARCH 1978

Page 25
IMPoRTs 1975, 1976
TABLE 6 AND 19
Sri Lanka's 25 main suppliers of foreign produ Country - R.S. m. 9% Rs... m. %
1975 1976 Saudi Arabia, 637 12.1 596 12.8 Iran 218 4.l 499 10.7 U.S.A. 337 6.4 379 8.2 Japan 447 8.5 376 8.0 India. 150 2.9 181 3.9 United Kingdom 223 4.3 275 5.9 Australia, 429 8.2 273 5.8 Thailand 356 6.8 172 3.7 China, People's Rep. 662 12.6 56 1.2 PakiStarn 220 4.2 274. 5.9 France 429 8.2 294 6.3 Germany Fed. Rep. 252 4.8 183 3.9 Burma, 121 2.3 231 4.9 Italy 38 G.7 52 1. U.S.S.R. 112 2.1 72 1.5 Singapore 104 2.0 79 1.7 Netherlands 46 0.8 70 1.5 Belgium 17 0.3 56 1.2 Canada, 62 1.2 106 2.3
Bahrein Islands - - - - FRIULIna Inia, 晏3 0.8 13 0.2 South Korea, 18 0.3 37 0.8 Brazil 4 0.1 0.09 Hong Kong 8 0.2 25 0.5 SWediera 36 0.9 59 1.2 SU!bo tOtal 4,969 95.8 4,362 94.0 Others 282 5.2 283 6.0 Total (all countries) 5.251 100.00 4.645 100.00 Source Sri Lankca Customs Returns
- TABLE . China, which was one of the T leading suppliers of imports in the Country 1970s, reaching top position in 1975, was the ninth largest supplier of Pakistan.
importS in 1977. Both Australia, and Thailand Were ahead Of China. Of the nearly 90 Suppliers of Sri Lanka's imports in 1977 the leading 25 accounted for almost 95 per cent of the total value of imports; with the other 65 countries Supplying barely 5 per cent. Pakistan Which has come to Stay as a lead. ing trade partner in recent years retained its position among the first ten Suppliers of Sri Lanka's imports. But more important was its position as an importer of Sri Lanka, produce.
FOREIGN MARKETS
In 1977 Pakistan emerged as the major buyer of Sri Lanka produce, accounting for R.S. 534 million Or 8 per cent of the country’s export earnings. The U.K. and U.S.A. moved up into second and third positions as markets for our exports and accounted for 8 per cent and 7.5 per cent respectively of total exports. A significant trend in Sri Lanka's trade pattern over the last two years is that the U.S.A., U.K. and Japan have become the country's most important
ECONOMIC REVIEw, MARCH 1978
兴
United Kingdo U.S.A. China, People's Iraq
Japan.
U.A.R. Germany, Fed South Africa, Australia, Netherlands Saudi Arabia, Syria, Hong Kong Canada, U.S.S.R.
IŤa:)
Italy
Kuwait Singapore France
Libya
Poland New Zealand Aden
Sub total Others
Total (all cou)
Re-exports of in 1975 are

t;S im 197ʼ7
Rs. Em.
1977
747 586 538 398 377 327 291 287 284 273 231 223 167 139 131 126
33
5,682 325
6,007
%
12.4 9.7 8.9 6.6 6.2 5.4
00.
00
trading partners; and their Overall trade turnOver with Sri Lanka. during 1976 ad 1977 were U.S.A. Rs. 1,751 million, U.K. R.S. 1,595 milllion and Japan Rs. 1,308 million.
COuntries like the U.A.R., Yugoslavia, Rumania, G.D.R. Czechoslovakia and U.S.S.R. With Which Sri Lanka had bilateral payments agreements stepped up their purchases and traded more freely when these agreements were replaced by trade agreements where payments could be made in convertible currencies. The U.A.R., for instance, for the first time moved into seventh position as a market for Sri Lanka produce and recorded purchases to the value of RS. 304 milion. Again Rumania, stepped up its purchases from R.S. 2 milli On ir. 1976 tO ERS. 34 milli On ilin 1977 and Poland's purchases increased from Rs. 42 to Rs. 69 million.
Of the nearly 124 countries to
which Sri Lanka's exports went in 1977 the leading 25 buyers accounted for over 81 per cent; with the 4 major buyers accounting for as much aS 30 per cent of the value of all exports.
EXPORTS 1975, 1976 AND 1977 he 25 main buyers of Sri Lanka's products in 1977
Rep.
Rep.
tries):
Rs... m. % R.S. r. % Rs. m. %
19了5 96 97.
345 8.8 363 7.6 534 8.0 311 了.9 465 9.7 528 8.0 219 5.6 335 6.7 500 7.5 460 11.7 48 10.0 434 6.5 190 4.8 145 3.0 356 5.4 178 4.5 213 4.4 321 4.8 121 3.1 101. 2.1 304 4.6 118 3.0 63 3.4 261. 3.9 121 3. 141 2.9 201 3.0 110 2.8 129 2.7 199 3.0 69 18 116 2.4 186 2.8 94 2.4 122 2.5 175 2.6 65 1.了 79 1.6 168 2.5 59 1.5 121. 2.5 153 2.3 95 2.4 117 2.垒 127 1.9 103 2.6 153 3.1 125 19 117 3.0 100 2.0 123 1.8 68 17 13. 2.7 110 1.6 59 1.5 104 2.2 98 1.5 50 1.3 143 3.0 98 1.5 44 1. 56 1.2 94 1.4 118 3.0 44 0.9 92 14 39 0.9 42 0.8 69 1.0 34 0.9 42 0.8 68 1.0 4 0. 5 0.1 63 0.9
3,191 8.3 3,911 81.5 5,387 81.4 732 18.7 890 18.5 1,228 18.6
3,923 100.0 4,801,100.0 6,615 100.0
RS. 22.7 mln. in, 1977, FR.s. 13.7 min. in. 1976 and R.S. 10.5 mln.
xcluded.
23

Page 26
F*EATURES
A colonial Administrative System in Somie Reflections on the proposed Π
District Ministers
B. S. Wijeweera
The District Minister'S Scheme iS due tO COme into Operation from about August this year and is eacpected to have a major impact on the country's entire development process. The implications of this proposal upere first discussed in depth by B. S. Wijeu)eera Dho served as GO)ernment Agent in Several districts. Here he takes d. further look at the possible implications of this scheme.
Since Iindependence Sri Lanka’s experience has very markedly been One of transformation of a colonia administration in the face Of demands and needs Of an independent and under-developed country.
TiniS tra SfOrmatiOn haS been deS
Crioed 2S, that “fir Cinn a la V-andOrder bureaucracy to an engine Of Social and economic change.1. The main thrusts of change have been a prO CeSS Of de-burea.U.CratiZatiOn Of the administration and Structural changes in the administrative network introduced with a view to achieving greater rationality in the decision-making and administrative prOCeSSeS.
The de-bureau CratizatiOn' prO
cess can really trace its origin to the appointment Of a EOard. Of Ministers under the Donoughmore COInstitution Of 1931, but it cOntinued at a greatly accelerated pace since 1948, the year of Independence. The abolition of the elitist
Ceylon Civil Service in 1963 and its
replacement by a more broadbased Administrative Service was a direct result of this process of debureaucratization. However, the more significant development has been a steady politicization' Of the administration. What is meant by this is the degree ministrative decisiOns and actiOinS of bureaucracy are conditioned Or influenced by those outside the administration whether they be Members of Parliament, opinionleaders, lobbyists or other interest
to which ad
and pressure g “politicization” h lighted. Often in as SOmething le2 interferenCe' Of t it can count as values a greater the part Of the the Wishes and Clientele.
The structurg Independence h; ajmedi aft, achievi Ordination of Often conflictin agencies and thei situation, that We ed in the WOrdS Perera Commissic
The lack O
ning and 議。 With Olt, a
eSt, OOStacle and develo Significant OVer tWelve ed Since Cey pendent, vel! dOne in the and CO-Ordi This was the Centre - in Co. di Strict S the Situ: ter, Or even W. growth Of specia. after the Donoug to the creation
which performed
functions under Of the Heads Of Colombo. Hence, Independence Wa partmentali Zed a grated administr; Since Indeper
i. Robert N. Kea ASiam Bureaucra Tradition, (ed.) 2. Report of the Sessional Paper I 3. Kearney, op.
4. DOCUlment NO. elt ASSem Submitted ment Age) ernment
 

pointment of
groups. Althougin LaS been higna negative sense ading to 'political
he administration, i
One Of its positive responsiveness Cn.
administration to aspirations Of itS
changes Since ave been mainly ng a greater COthe diverse, and Lg governmental Ir a Ctivitie S. The is, is best describOf the WilmOt A. Din RepOrt:
f adequate plainCO-Ordination is, doubt, the greatto Our progress Dnent and it is that although years have elapsVlOn beCanne IndeEry little haS been Way Of planning nation ............... 2 Situation at the lOmbO. In the 22 atiOn WaS no petiTOrse. The rapid lized departments himore reforms led Of di Strict UnitS their Specialized the direct control Department in what emerged at S "a highly comnd poorly inteative systern.'3 ldence an attempt
has been made to remedy this Situation. The formation of District Agricultural Committees in 1948 to CO-Ordinate agricultural activities at the district level, the formation of District Co-ordinating Committees in 1953 for the administrative co-ordination of all GOvernment programmes at the district level, the formal appointment in 1964. Of Government Agents aS di Strict deputies to all Heads of Departments engaged in the agricultural SectOr and the Subsequent utilization of these appointments to invest the GOvernment Agents with the leadership of the FOOd. Production Drive during the years 19661970 were the main features of this attempt. However, all these reme
dies had certain fundamental drawbacks which reduced to a great extent their effectiveness. .
Firstly, they had the indirect effect of restoring the Government Agent to the position of pre-eminence enjoyed by him during the colonial era. and as such was something Out Of tune with the current mood. Secondly, whole-hearted co-operation for these changes was not forthcoming from the technical and specialist officers in the districts and their bosses in Colombo, who regarded the changes as an U.Surpation of their legitimate powers and responsibilities. Thirdly, and this is a point which is not often realized, due to the “politicization' process mentioned above it was becoming increasingly difficult for a public servant to assume the leadership role Of the di Strict administration Without in turn becoming a semi-politician. Hence by 1970 there were murmurs that the District Administration should be formally invested with a political leadership4. -
It is against this background that there emerged in October, 1973 the institution Of a DiStrict POli
rney, Ceylon:
The Contemporary
Bureaucracy in
tic Systems Emergent from The British Imperial
Braipanti, Duke University Press, 1966, p. 549.
2 Salaries and Cadre Commission,
III, 1961, p. 21. cit., p. 489
13/2/337, Representations
Part I, Ceylon
from . Individuals, Constitu
bly Proceedings. Memorandum dated 20th September 1970 to the Steering and Subjects Committee by the Govern
nt, Badulla. See also Administration Renort of the Gov
Agent, Badulla, District for 69/70, Government Printer, 1971.
ECONOMIC REVIEW, MARCH 1978

Page 27
tical Authority whereby an elected representative of the people (in some districts a Cabinet Minister, in SOme others a senior governInent back-bencher but more often a Deputy Minister) was for the first time placed at the helm of the administration in each of the 22 districts in Order to co-Ordinate the diverse governmental programmes, especially the 'Food Production War'. As one writer put it, what was previously regarded as "indirect interference in administrative matters has now been transformed into direct (political) COntrO) OVel administration at district level’. 5
It is the intention of the present Government to formalize this institution and with this end in view certain amendments to the Constitution were introduced which provided for
(a) the appointment of a District Minister for each administrative district, and
(b) the definition Of the powers and responsibilities Of Such MiniSterS in relation to the administrative hierarchy.
This constitutional provision for the Office Of District Minister has two important advantages Over the informal and Ineoul Ous institution that was created in October 1973 in the form of District Political Authorities. Firstly, it WOuld prO'Wide fOr the fOrmal and authoritative co-Ordination at a di Strict level Of multi-diSCiplinary programmes, such as Food Production, which cut across departmental and ministry boundaries (and jealousies). Secondly, it would fix precisely the position of the District Minister in the administrative hierarchy and its relationship to functional ministries. The lack of a clear Statement on this second
alSpect Wa:S the su
connent at a Wor
by the Academy O. Studies in 1975. 6
Today the ins trict Minister has the context of a constitutional devel taken place simulta the shift to a P of government. TI of “Presidentializa Office Of Prime SOmething new to ing "a Cabinet form It has been the s ment in Britain fO and in recent tir notably under Tru countries it has be SOIMle, aS a IMhealInS administration with charismatic leaders
The Situation slightly different t cited above, there parallels in histic introduction of the trict Ministers (a. distorted name of rity) the developm dential form. Of inevitable Simply Di Strict MiniSter work effectively (f will be explained the COntext Of a pl of government wh Minister is merely pares and no more Office of Prime rather low key tive in policy mak ginal and in this function is to Se between the Head and the real policy the Cabinet and The fact that in are much different nized and the eacd?
5. Wiswa, Warnapala, Sri Lanka, in
ruled ASian Survey,
1973: A test for both the Vol. 14, No.:
2, p. 156.
6. The District Political Authority System, Academy of Adm
dies, May 1975.
7. Richard Crossman in his Introduction to the 1964 editio)
The English Constitution, Humphrey Berkeley, The Power of the Prime Minister, London, 1968.
8. Denis Smith, The Transformation of
A peac of Pouer, Prentice-Hall, 1971.
Canada, in
Parliamentary G
9. Circular No. AB/DC/17 dated 10th December, 1973 issued try of Public Administration, Local Government and
(writer's italics for emphasis).
10. Some reflections on current administration reforms in
istration. Journal of Development Administration, Go
ter. May 1974.
ECONOMIC REVIEW, MARCH 1978

bject of Serious kshop conducted f Administrative
itution Of Disto be viewed in more important opment that has neously, namely residential form he phenomenOn. tiOn’ of the VÍiniSter
ountries followof Government. subject of comr a long time, 7 nes in Canada, deau. 8 In these en regarded, by of investing the the quality Of hip. in Sri Lanka is O the examples being no exact )Iy. With the concept of Dislthough with a Political Authoent Of a Presigovernment WaS because the concept cannot or reasons that later On) in 1re Cabinet fOrm ere the Prime a primus inter 2. In theory the Minister is a One, its initiaing being marfield its main rve as a link Of Government making bodies, the Ministries. practice things is widely recogmple of Britain
e rulers and the
Jinistrative Stu
in of Bagehot's,
overnment in
by the MinisHome Affairs,
district adminvernment Prin
is not
and Canada have been cited above to illustrate the point.
With the introduction of the institution of District Minister One ha S first tO a SSign a prOper MiniStry to it. Admittedly, the institution. Of District Minister cannot be attached to any Ministry without in turn transforming such MiniStry into some sort of a SuperMinistry because of the multidisciplinary functions attached to the post of District Minister. Hence the appropriate place for it is the President's Office Which in fact is a Super-ministry. Under the earlier dispensation, when there Was no Office of President as Head of Government, the Political Authorities were assigned to the Office of the Prime Minister, who then was the Head of Government. This
had vast implications for the Cabinet form of government to which the country subscribed at
that time. With the appointment Of Political Authorities the Prime Minister's Office a SSumed a new dimension and, for the first time, established a direct link with the 22 districts and their administrations. But, more importantly, it opened itself to direct regional (or localized) influences. On matters that were functionally the responsibility of ministers. The Capinet fOrm Of gOvernment Wa:S being aSSailed and the message was clearly conveyed to Government
Agents by Circular Instructions quoted below:-
Every Government Agent,
A.G.A., D.R.O. and other offcers concerned Should act in accordance with the decisions and in StructionS Of the Political AuthOritieS in their District and should extend to them the maximum possible COoperation. Wherever there is a nroblem arising from the fact that Such other rule or regulation, I eaccept such situation to be reported to the Prime MiniSter'S CO-Ordin.0ting Secretariat for clarification and resolution of the problem. Where necessary, the Co-ordinating Secretariat will consult the Ministry conCerned. 9
It is in this context that the present writer predicted, then a shift from a Cabinet form of government towards a more “Presidential' form of government. 10. The fact that today the office of President as a Head of Govern
25

Page 28
ment exists constitutionally augurS well for the institution of District Minister because of the inherent conflict this institution has with a pure Cabinet form of government, and the best potential for this novel institution to develop into a meaningful instrument Of government lies in a climate of Presidential leadership.
There are two important features in the institution of District Minister which if harnessed correctly could provide a key to a development Strategy for Siri Lanka. They are decentralization and democratization.
Decentralization is a key ellement in this in StitutiOn becau Se through its functions not only have the funds for an appreciable and vital range of programmes been decentralized, to be controlled, expanded and accounted for at a district level, but also, the very political decision — making prOcess has been decentralized in Order to preside over this disbursement, authoritatively.
In regard to the claim that the in Sitution of District Minister symbolizes democratization, it. Would have to be looked at in relation to the representative nature of that small group that is invariably involved in any deciSion-making function. From this point of view it is clear that the group associated with the District Minister for decision-making purposes at the district level is far more representative of the people and their aspirations than any COunterpart grOup in Colombo With the exception, of course, of the National State Assembly. a strong claim to make and an attempt will be made to justify it. If One looks at the major decisionmaking bOdies that are in Colombo and their individual members fairly closely, one cannot fail to notice, byl and large, the Social homogeneity that binds them together, whether they come from the political sector, bureaucratic Sector, academic Sector or the private sector. They form a closed corporation - a SOrt Of confraternity in which the members share common attitudes and values. There is certainly no denying that among them especially among the political elite, there are some who either by birth, upbringing or inclination have their roots firmly grounded to the soil. But even in these instances, whatever their (Oοηίίημeά οη ραρε 15)
This is
CATASTR
A Latin AI
Anikar O. Her
The model
not an attempt
Will happen if pr nue but tries to reaching a final a World liberate lopment and mi pretend to be Sense of being V rally understood. ception of the W authors and to
deeply committed hand, it is obj StartS frOm a di view of the pri World and Seeks
the capacity for tivity that huma dem OnStrated SO
A goal. Of th not be totally formalized struct model' will be first, to refer to “ideal' Society, refer tO a maith
The ideal SO against the SChO ticularly preval countries, that h damental problen humanity are limits. According pOnential increa tion and populat exhaust ' the pla Sources, perhaps future. If the p tion are avoided future, growing Would then reSul lapse. The resu Same: a major Sive death rates the Standard Of trial levels.
The solutions Of the most in the developed Summarized in a % the main pro lation growth Third World; % if catastrophe is essential th
* pollution cont
of resources, ondary measu
 

OPHE OR NEW SOCIETY merican World Model
rera & OtherS
presented here is to discover What eSent trendS COntiindicate a Way Of goal, the goal. Of d from underdeveSery. It does not “objective' in the Falue-free as geneIt portrays a con7Orld Shared by its
Which they are 5. On the other ective in that it
Stilled but realistic oblems facing the Solutions based. On change and Creain Societies have Often in the paSt.
is magnitude canencap Sulated ilin a Ure. Thu S the WOrd used in tWO WayS: the concept of an and Secondly, to ematical model.
ciety is a reaction Ol of thought, parant, in devel Oped Olds that the funnS currently facing those of physical to this view, exSes in COnSumpion will eventually net’S natural reeven in the near problems of deplefor the for Seeable pollution levels t in ecological colIt is always the Collapse with masand a decline in living to pre-indus
s proposed in Some fluential circles in countries can be
few Words:
blem is rapid popu, especially in the
! is to be avoided, it (at this be contained; rol, the rational use
etc., are only secres.
The basic characteristic of this position is that it accepts, in a totally uncritical manner, the central values of Society as it now 1s.
The stance of the present authors is radically different: it is argued that the major problems facing SOciety are not physical but sociopolitical. These problems are based. On the uneven distribution of power, both between nations and
A book which raised a high degree of controversy around the world was the Club of Rome's report “The Limits to Growth’. This book, published in 1972, triggered a heated debate on the future of mankind and the earth's resources; created a new awareness of the interaction of trends and policies in major areas of economic activity; and came to be regarded as the first major serious attempt at understanding the quantitative workings of the complex World system. In a review of this work (published in the Economic Review of May 1976) Dr. Alexander King stated that the developing countries saw the report “as a neocolonialist rearguard, action - the rich countries of the world having, by eacploitation. of the poor, achieved an unprecedented level of affluence.... (and nOU) propose to SlONU) doun or stop grouth. ... which
means abandoning hope for improvement by the poor natiO1nS ... phile, at the same
time, having the effrontery to tell the poor to have feuer Childrem”.
The message of the book ира8 сlearly pessimistic: The earth's interlocking resources - the global System of nature in phich De all live – probably cannot support present rates of
Within nations. The result is oppression and alienation, largely founded on exploitation. The deterioration of the physical environment is not an inevitable consequence of human progress, but the result Of SOcial Organizations baSed largely on destructive values.
Our conceptual model of the “ideal' Society is based on the pre
ECONOMIC REVIEW, MARCH 1978

Page 29
mise that it is only through radical changes in the world’s social and international organization that man can finally be freed from underdevelopment and oppression.
It is not sufficient simply to describe an ideal Society; it is necessary also tO demonstrate its material viability. Thus We must start by showing beyond all reaSonable doubt that, for the foreseeable future, the environment and its natural resources will not impose barriers of absolute physical limits on the attainment of Such a Society. Secondly, it must be demonstrated that different countries and regions of the world (particularly
eC07.07mẩC and populaiіот groupth much beyond the year 2100, if that long, even upith advanced technology.
Then in 1970 Severa Latin American ScientistS Sat d'OWn in Rio de Janeiro, With members of the Club of Rome and discussed their “World Model III” — ”ILimit:S to Growth'. The Latin Americans did not hide their strong feelings from Professor Dennis Meadows and his international team who were responsible for the Club of Rome study. The Latin Americans resented the possible consequences that world flow according to the Meadow's report and decided to make their own model of the world situation using different assumptions from those of Meadows. They decided to look at the future from the view of the Third World. Finally, a 20 strong project team headed by Dr. Amilcar Herrera worked for two years, supported by an IDRC grant, and produced a World Model in 1975. Turning upside down the attitudes that informed the earlier work, it saw the Club of Rome study as being based on the preaching that the world's main problem was rapid population growth in the Third World, and this had to be contained if catastrophe was to be avoided. But, as Amilkar Herrera, put it: “We're living in a catastro
the poorest) could reach the goals We advocate within a reasonable period of time, starting from the current situation as regards the availability of capital, manpower, land, demographic trends, etc.
To attain the first objective - to demonstrate that absolute phySical limits do not exist for the foreseeable future - an analysis
ECONOMIC REVIEW, MARCH 1978
was undertaken Situation in nOnre ces, energy, and pO. matical model Was the second object that all countries' ( World could move Sent SituatiOnS tO goals in a reason: the conceptual mot for a new Society, matical model is through which its ty is explored.
The mathema based. On the pren new Society, the p has the Satisfactior
phe now; it's not waiting 80 years to Club of ROne moc dealt with statistics gates, but took no fact that 25 per cel population (the pe dustrialised countrie more than 85 pe World's nonrenew This was a bigger sions on this glob tion growth.
i The group disa
Vievy that there Was tion between a coul) income and its pop rate. They point whose GNP worke per capita but Wh that of Western EU was increasing mo was the high level lieSt realSO)n for th rity that had long in Uruguay.
Out of this can thesis that the grC rera, set out to test that the only trul, of controlling popu by improving basi tionS.
So they cut fre of projections, thinks anyway soor ingless, since they
needs as a main needs are nutrition cation, and health, faction is a prereql is to take a full ar. his SOcial and c
ment. ThiS iS a ne(
for an egalitarian but it is not in its
The mathemat

of the current ene Waible reSOurIllution. A maithebuilt to handle ve: establishing or regions of the from their prethe postulated able time. Thus del is a propOSal and the mathethe in Strumenti material viabili
|tical nise that, in the roduction Systern Of basic human
Eseia
a question Of See one’. The del for instance, in global aggreaccount of the ht of the World's 'ople in the ines) was using up r cent of the able eSOUTCeS. cause for explobe than popula
agreed with the s a close correlantry's per capita pulation growth ed to Uruguay, d out at $ 600 lose population rope. The likebre slowly than | Of Social Secu is, they argued, been available
he a basic hypoup led by Herin their study: y adequate Way lation growth is c living condi
e of the rigidity which Herrera, become meantend to assume
Objective. These l, housing, eduand their SatiSlisite if a person ld active part in ultural environceSSary condition and free Society elf Sufficient.
ical model was
model is
centred around the Satisfaction of
basic needs. It is essentially an economic model Or, more precisely, a model of the production System Within which five Sectors are differentiated: nutrition, education, housing, capital goods, and, finally, consumer goods and other Services. (this last Sector comprising all that is not in the Other four). The production function used, permits Substitution between capital and labour and reflects improvements in productivity brought about by technological progress.
One major characteristic of the model that distinguishes it from most others built So far is that
that socio-political structures endure unaltered, whereas they are in a constant state of change. And they flew off to a normative vantage-point, declaring that every human being, by the simple fact of his or her existence, had an absolute right to the satisfaction of basic needs in housing, health, food and education.
Their conclusions are cheerful ones. There are no physical barriers illa s Latin America Or Africa that would prevent attainment of these basic needs, by the early 1960s and the year 2008 respectively. The more populous Asia presented a problem, not in housing or education but in food production - if yields were claculated at 4 tons per hectare, but no problem at 6 tons. (If these figures seem high, the team points out they are only about half those achieved in Japan and elsewhere).
The message behind the book is plain. While there are no physical barriers to the elimination of poverty and underdevelopment, there are severe political and social constraints in present systems. Amilcar Herrera, put it clearly in Toronto: “Only with very deep changes in Social and political conditions is there any hope."
We reproduce here extracts from the Latin American Study.
population size is generated endogenously by a submodel that relates demographic variables to SOciopolitical variables. This Submodel permits the exploration of one of the basic hypotheses put forward in this Study, namely, that the Only truly adequate way of controlling population growth is by improving basic living conditions. Both the
27

Page 30
research conducted in constructing the demographic sector and the resultS Of the computer runs show this hypothesis to be essentially correct.
The main function of the economic System is to allocate capital and manpower between the five sectors So as to obtain an Optimum distribution. The question then arises of how to define this Opti
mum and how exhaustive resea. to opt for the mathematical aSSign S reSOurce: sectors so that birth is maximiz during the run.
The model :
tance of altarch ed is to establish
16
O
FG
The world, in which the area of a country
Albania 27.
Puerto Rico 49.
28 صیہ
numbers coincide
1. United Kingdom 50. Paragu 2. German Federal Rep 28. German Democratic Rep. 51. Peru
53. Trinida 3. Australia 29. Rumania
4. Austria, 30. SWiedern 54. Urugua 5. Belgium 31. Switzerland 55. Venezu 6. Bulgaria, 32 USSR 34. Argent 7. Canada 33. Yugoslavia. Region 3 8. Czechoslovakia, Region 2 4. Gautem 9. Denmark 34. Argentina 56. Upper 10. U.S.A. 35. Bolivia, i. Angola 11. Spain 36. Brazil 58. Algeria 37. Chile 59. Burun( 13, France 38. Colombia, 90. Camer 14. Greece 39. COSta Ricg, ($1. Chad 15. Hungary 40. Cuba. 62. Congo 6. Ireland 41. EcuadOf 63. Ivory 17. Israel 42. El Salvador 64. Dah Om 18. Italy 43. Gautemala 85. Egypt
Japan 链4。斑aiti 66. Ethiop Lebafl0n 45. Honduras 67. Ghana Norway 46. Jamaica, 68. Guinea New Zealand 47. Mexico 69. Kenya Low Countries 48. Nicaragua, 70. Liberia Poland 47. Mexico "71. Madag: POrtugal 48. Nicaragua 72. MąiąW:
Panama, 73. Mali
 
 
 

to attain it. After rch, it was decided introduction of a mechani Sm t h a t
ous regions (or nations) can attain the Specified gCeals using, in the main, their own resources. Bearing in mind disparities in land area
s to each of the and in endowments of different life expectancy at countries, it is obvious that regiofed at each point nal economic complementarity plays an essential role in autonostresses the impor- mous development. This applies
hy; What is prOpOSIn Whether the Vari
not only to the complementary elements within each country but
گير
}URE 1
2
༣ o 21 הא
oe}
15
1 OO 98 32
༡༠༧། ] 19
108
111
103
O C3-112
-22
is drawn in proportion to its population. The with the following countries
ay 74. MOrOCC0
75. Mauritania, 99. Korea, North ld and Tobago 76. Mozambique 100. Korea, South
77. Niger 101. Philippines ly 78. Nigeria, 102. Hong Kong ela 79. Libya 103. India ina 80. Central African Rep 104. Indonesia
81. RhOdesia, 105. Iraq alla 82. RWanda, 106. Iran
Volta 83. Senegal 107. Jordan
84. Sierra Leone 104. Iraq 85. Somalia l08. Laos 道 86. South Africa, 109. Malaysia, OOIS 8'I. Sudian 110. Mongolia
88. Tanzania 111. Nepal 89. " Togo 112. New Guinea Coast 90. Tunis l3. FakillStaIn еу 91. Uganda 114. Syria,
92. Zaire 115. Singapore - ia, 93. Zambia, 116. Sri Lanka,
Region 4 117. Thailand
94. Afghanistan 118. Turkey 95. Saudi Arabia, 119. Vietnam, North 96. Burma, 120. Vietnam, South SCa: 97. Cambodia l21. Yemen
98. People's Republic 122. Yemen, Democratic
of China. 123. Bangladesh
ECONOMIC REVIEW, MARCH 1978

Page 31
also, in the wider context, to the pooling of resources by countries with similar problems, a process that is aided by geographic proximity. - -
Another simplification, perhaps of greater importance, is that political and Social diversities between countries within a group are not taken intO account. ThuS no distinction is drawn between capitalist and Socialist countries, be they industrialized or developing.
This is justified by the objective of the model, which is to attempt to demonstrate the material feasibility of the proposed new society, The results presented are based On the assumption that by 1980, pollcies that tend toward the desired SOciety Will begin to be implemented. Thus, the current differences in political systems cease to be significant from then Onward.
This study does not explore the mechanism through which the world may reach the proposed objectives. This is largely because, as history shows, it is very difflcult to predict the processes through which Social change will take place; in any case, this WaS nOt the aim Of the exerciSe.
The main objective is to demonstrate that it is pOSSible to liberate Society from underdevelopment, oppression, and misery. Whether this actually occurs or not will depend upon the Will and actiOnS Of men. If the mOdel COntributes to mobilizing this will in the proposed direction, it will have
fulfilled authorS.
MISERY AND SUMPTIO
The most Out Of the WOrld today nearly two-thirds in a state of pov, While the remainin ginning to feel the consumption result trolled economic g: troys the natural a rOnment. The i. has been increasin ly manifested in t SiOn Of the World and underdeveloped
the ob,
FGR2
O Fxeess of catorias snc protein 酶 No całoribor protein defici grcy Protein deficiency only
calorie deficiency only
Protein and caldiria deficiency
Distribution of food in the world, expressed consumption of calories and protein perpersonpet
ECONOMIC REVIEW, MARCH 1978
 
 
 
 
 
 

The world housing situation by country. The various atchings represen: a portion of an index number that omprises six factors, each having a value of 10, to a maximum f60; crowding availability of running water, electricity, and oilets; houses built each year; and life expectancy,
jective of the
) OVERCONN
Standing feature is the fact that Of humanity live erty and misery, g minority is be2 effectS Of Overing from uncOnrOWith that desInd human envinequality, which g, is most clearhe present divi
into developed i countries; it is
as average, days
FGUBS3
not, however, totally characterized by rigid political boundaries. Pri— vileged minorities in the countries of the Third World have consumption rates that are equivalent to those of the upper classes in developed countries, while a considerable proportiOn Of the population in the underdeveloped countries have not yet fully satisfied their most basic material and cultural needs.
In the maps in Fig. 2-6 the extent of the unequal distribution of Wealth between nations is clearly ShOWn in termS Of itS effectS On the Socioeconomic factors that most directly influence standards of living. On all the maps, the area of the countries is proportional to their populations to indicate clearly the proportion of the world population affected by different deficienC}6.S.
Figure 2 shows the distribution of food in the world, expressed in average consumption of calories and protein per person per day.
Figure 3 uses a combined index to indicate the housing situation. This index includes factors representing each of the following: crowding (percentage of the popu
lation having two or more perSons,
per room) ; percentage of the population without running Water within a radius of 100 metres of their houses; percentage of the population without electricity; percentage of the population without toilets; number of houses built per 100 inhabitants per year; and life expectancy at birth. This last factor is used to estimate the OtherS where there is no published data
29

Page 32
FIGURE 4
Percent of illiterates in population aged 15 years and over.
On them. The maximum value for each factor is 10, so that the maximum value of the combined index is 60.
Figure 4 indicates the level of education expressed as the percentage of illiterate people Over the age of 15.
Figure 5 shows life expectancy value:S at birth. ThiS i S the indicator Inost widely used to characterize the state of health of populatiO.
In all the maps, the darkest shading represents the areas with the greatest needs. As can be seen, there are regions where all the indicators take their minimum values; almost two-thirds of the world population are to be found in these regions. The presence of misery and underdevelopment is the main characteristic of these Third World countries.
A WORLD FOR ALL A. CRITIQUE OF CONTEMPORARY SOCIETY
The atmosphere of defeatism and despair alluded to at the beginning and which is paradoxically most prevalent in the rich countries, is accompanied by other changes in attitudes. AS in many previous historical periods, signs of decadence in the Social structure are leading to the appearance of elements that shape the possibility for a new order. Apathy and frustration are being translated into the rejection of the present social and international order, which is
30
Seen aS unjust into the will to an alternative S alternative Socie Only in the mos
Although, th Still new, appeal poor countries, i most in the lat for this are cle victims Of the developed count. tion that forces all pOSSible Optic countries that t in the Social ar. ganization is mc cause of the W
Under 41 voor ?: 3 No data
 
 

present situation hampers the full
und Oppressive, and conceive and build ociety, even if this ty is still described it general terms.
is trend which is is in both rich and it has been debated ter. The reaSOnS ar: being the main system, the underries are in a Situathem to explore bns. It is in these he need for change ld international Orst strongly felt beay in which the
development of humanity.
Although there is less of this critical questioning in the developed COuntries, it is found among Sections of the young and among intellectuals. In rich Societies, alienation haS SuperSeded direct OppreSSiOn and misery as the major problem. There is a convergence between the position of the Third WOrld and that Of the induStrialized countries; an analysis of the underlying cause Of alienation shows it to be essentially the same as that Of exploitation and misery. This is the existence of a System
of social and international organi
Zation that is directed to Ward competitive accumulation of wealth, lacking any spirit of international harmony and goodwill, and which, by reducing people to mere tools of production, precludes any possibility of integrateó human development.
The main reSullt Of this nOnconformist and critical attitude is that, for the first time Since the European powers began their colonial expansion, a movement has appeared that truly begins to unite broad sectors in both the developed and developing countries around common aspirations and objectives. ThiS jS WithOut, doubt, the mOSt, important indication we can find that there is a feeling of international solidarity forming in the world that can be used to bring about a new Social Order.
FIGURE 5
t| -
Life expectancy at birth by country.
EconoMIc REVIEw, MARCH 1978

Page 33
- COIn SeQU en CeS
what are the central elements of the new society that is being
advocated? .
In the first place, there is the aWarene SS that the current Obstacles to harmonious development are essentially Sociopolitical, and that they determine the current distribution of power at both the global and national levels. Secondly, there is the growing understanding that the current crisis is universal because, for the first time in history, technological and political forces tend to integrate the World intO a single unit. In particular, the destiny of the Third World is intimately linked to that of the rest of humanity, and, if its situation continues to deteriorate, there will inevitably be catastrophic for the privileged countries.
Taken in isolation, these ellements provided only a partial view of reality. They acquire their full Significance when placed in the context of Some basic values that. although rooted in history, have been revitalized by the current desire for change. Two of these values are central: the growing acceptance of the fundamental equality of man, and the concept of history as an open-ended prO CeSS, whose direction depends in the final analysis on the desires and acti OinS Of men. The fir St COinStitutes the only valid basis for building a truly harmonious world; the second is a prerequistic for attaining this world.
Starting with the basic elements derived from the above critique, the study presents an outline of a possible world and attempts to describe a new course for the development of mankind. The application of the “ideal' model to a growing number of regions or countries would provide the basic conditions needed for the Creation of a harmonious world Order.
The ultimate objective would be the emergence of some form of organization on a world scale that, although respecting the freedom and individuality of nation states, would promote gradual integration into a cosmopolitan world Society, a world reflecting a united human consciousness. No doubt, this emergence will be a long and difficult process, but any hope of facing the future problems of the world in a rational manner must be based. On its success.
ECONOMIC REVIEW, MARCH 1978
The results of
are very different
for other regions needs are nOllt Satis ed levelS
The problem in food sector. By 2010, is being cultivated. mic effort in the Sec increasing livestock a however, is not enol growing population consumption drops ra minimun needed for
The rapid increa producing food, due ment of 1new land fo] resources from the re causing backwardness ing the satisfaction 4 needs. In summary, reaching adequate le leads to a sustained growth rate, and a lops: increased popūl creased cost of proc it more and more basic needs.
Nevertheless, the
is not a case of absol
the delay in reaching the other regions st panses of uncultivate populations have bec could import food, already explained in this solution is only last resort.
An obvious Solut lem could be to try ral yields, which are the maximum theori test this hypothesis, assuming that Asia agricultural yields to tare, instead of 4 to
Economic growt - maintaining the
North America, South America (mo. South America (les: Western Europe (m Western Europe (l USSR, Eastern Europe Japan Far East and Indi Middle East (oil-pr Africa (more devel Africa (less develo South Africa, Australia and New People's Republic o

the run for Asia, from the results
because ba Sic led to the desir
ASia arises in the all available land Thereafter, econoor is devoted to nd fisheries. This, gh to feed the
adequately, and pidly to below the SUIrvival.
Se in the cost of to the developagriculture, takes st of the economy, and also hinderof the other basic the delay in vels of well-being high population icious circle deveation and the inLucing food make difficult to satisfy
problem of Asia, ute limits, because adequate fisz,
Ill have great exdi land when their Omne stable. Asia, but, for reasons the food sector, acceptable as a
ion to the probto raise agricultuStill Well belloW tical levels. To a MrUn WaS - Ina de manages to raise 6 tonnes per heclines taken in the
previous run. The results indicated that basic needs could be satisfied to the desired levels. Per capita food consumption reaches 3000 calories in 1994, and 6 years later the required consumption of proteins is also achieved. Social registration reaches 98% between 2000 and 2010, but the goal of one house per family is only reached in 2020.
The evolution of the most important economic variable is set out in Table 11. GNP per inhabitant — US $ 89.70 in 1960 - reaches U.S. $ 506.20 in 2020, when all basic needs are satisfied, and is U.S. $ 1516 in 2060 (Table 11).
Inspite of this considerable improvement, food is still a problem for the region. In the mid 2030s the remaining land has all been used although adequate food supplies are maintained until the end of the run.
This is due to the existing reserves; the concentration on livestock and fisheries; and to the low population growth rate. In the last years of the run, however, the capacity to produce food is stretched to its limits, and it is inevitable that some years after 2060 Asia will not be able to feed its inhabitants adequately.
To solve the food problem in the long term, the region could adopt other measures. It could try to increase agricultural yields even further and produce food from non-conventional sources. These measures could be complemented with an effective family planning policy to help close the gap between demographic growth and food production in the long term. There is Sufficient time available before the Cirisis for an effective policy in both directions to be adopted.
rates necessary to satisfy basic needs in the year 2000, current income distribution structure,
Growth rates in the
period 1960-70
2 developed) developed)
re developed)
is developed)
ducing states) ped) ed)
Zealand China,
Growth rates necessary to satisfy basic needs in the year 2000
4.5 5.3 5.3 9.9 5.2 10.5 4.6 5、7 6.7 7.9 7.0 4.1 5.7 3.4 10.6 5.6 5.3 10.5 8.5 10.4 4.1 且重.5 5. 11.8 6.0 12.8 4.9 5.6 4.4 No data
3.

Page 34
To maintain the current income structures would considerably prolonged the time required to Satisfy the basic needs of the population.
In Africa, basic needs are satisfied in the model around the year 2008, with an average income per capita of U.S. $ 558. If it is supposed that the current structure of income is maintained, it can be seen
from the multiplying factor in the
table below that this income should increase to U.S. $ 200 if the Same level of Satisfaction is to be achieved. The value is Only reached in the model in the year 2046, 38 years later than with the first hypothesis. In atin America, basic needs can be satisfied in the year 1992 with an income per capita of U.S. $ 809, but the value of U.S. $ 4045, considered necessary by the second hypothesis, is only reached in 2043approximately 50 years later. Both examples are sufficient to illustrate what would happen in other regions of the World.
To show the magnitude of the problem in another way, the economic growth rates that would be necessary for the population of all the countries in the World to achieve Satisfaction of basic needs have been calculated assuming it were to take approximately the same time periods as the standard run of the model, and maintaining the current Structure of income (see table). As can be seen, the growth rates of the underdeveloped countries should be between 10 and 12 per cent.
In summary, it can be said that economic growth with the pre
| servation of the current income dis
tribution system would, at the very best, delay the goal of a liberated humanity, free from Suffering and misery, by at least two generations. It also implies the need to devote between three and five times more material resources to the achievement, of the desired objective, thus multiplying the pressure on the environment, and all this to maintain the careless consumption of privileged minorities.
CONCLUSION
The results of the model demonstrate that, if the policies proposed here are applied, all of humanity could attain an adequate standard of living within a period a little longer than One generation. The Satisfaction of the most essential physical and cultural needs, Which has been One of the central
32
objectives of ma nings, could be Of the courtries tOWard the end in the first year
The only p. limitation that a Of a lOcal natur of the supply of Asia, in the midd tury. However, t CultiVable land could ea Silly c Since the effect Would only begi years, ASia has fOr itS OWn SOll lem, Such as III Of crops, which to be Well belo pOSSible level S; p nOncOn VentiOnal cation of an eff ning policy that population to Within a shorte dicted by the m
The model is possible to growth to the by raising the g living, particulal basic needs. Thi be achieved on before the earth duce fOOd — t. physical limitati horizon of the exploited, even COntinues to be available technic
The obstac Stand in the W. ous developmen not physical O. strict sense, bu political. In effe With which th are achieved, a normal in the situation. The achieved not by growth, but by essential consu investment; t Socioeconomic a which currently use of land, bo tion and for egalitarian di goods and ser loping countrie tion Of an activ deficitS in inte
The growt) achieve these C can be easily posing intolera
 

from his beginfullfilled fOr. mOS:t -
if the Third World Of the century, Or
Of the next.
oblem of physical ses, and which is is the exhaustion CultiWaible land in Le Of the next CenLe large reserves of in other regions Over this deficit, of this limitation to be felt in 80 nough time to look tions to the probcreasing the yield has been assumed W the theoretically roducing food from Sources; the appliective family plan, Would enable the achieve a balance r period than preOdel; etc.
also shows that it control population Joint of equilibrium eneral standard. Of ly with relation to is equilibrium could a global Scale Well h's capacity to prohe only foreseeable On Within the time model - is fully if food production based on currently logy.
les that currently ay of the harmonit of humanity are * ecOnOmic in the It essentially socioct the growth rates 2 desired objectives re those considered current economic goals are therefore very high economic a reduction in nOnmption; increased he elimination. Of nd political barriers, hinder the rational th for food producrban planning; the tributi On Of baSiC ices; and, in deves, the implementae policy to eliminate rnational trade.
i rates necessary to bjectives, and which ttained Without imble Social Sacrifice,
contrast with those required to satisfy, in approximately the same
period of time, the basic needs Within the
current income structure, or the same socioeconomic Organization. The Se eCOnOmiC growth rates, which for developing countries vary between 10 and nearly 12 per cent, are in fact impossible to attain. To propose this type of "Solution,' therefore, is only to propose a preservation of the current Status quo and to misunderstand the true causes of the crisis currently affecting the world.
One of the most interesting results of the model is the light it sheds on the effect that possible international aid, in particular the transfer of resources from the industrialized countries to the poor countries, would have. Even if a. greater level of international aid than that advised by the United Nations is implemented, it may contribute to raise the level of Wellbeing at the time of transfer, but in no way decisively. What has been seen with regard to income distribution clearly demonstrates that international aid, in the cOnditions currentliy prevailing in most developing countries, would Only contribute to increasing spending by privileged sectors, and would have little or no effect on the living conditions of the majority of the population. The effect of the transfer of capital is only significant for the general well-being if there are conditions of social equality similar to those proposed in the model.
International solidarity can take forms. Other than the net transfer of resources from rich to poor countries. The model shows the recovery that developing countries can achieve in economic growth precisely at the decisive stage of attaining the satisfaction of basic needs, through the elimination of a negative balance of payments. The developed countries can help to bring forward the attainment of this objective by fixing fair prices for the products of underdeveloped countries to replace prices that, rather than representling a just distribution between the factors of production of the two production sectors into which the world is divided, are the consequence of an unequal distribution of economic, political, and military power. Moreover, with a reduction in their growth rates, as proposed in the model, the rich countries could contribute to relieving the
(COncluded. Om page
ECONOMIC REVIEw, MARCH 1978

Page 35
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Page 36
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