Role of Government in a market economy

I was invited to make the Guest Speech on “The role of Government in a market economy” at the 10th Peradeniya International Economic Research Symposium jointly organised by the Department of Economics, University of Peradeniya and the Faculty of Economic Sciences and Business Administration of Transilvania University of Brasov, Romania on 11 September.

- By Chandrasena Maliyadde

Background

This article is based on my presentation at the symposium.

Turning the economy to market-oriented

Since independence, Sri Lanka followed a protected, import-substitution-led, State-command economic model, with variations under different regimes. During the early 1970s, a six-year Development Plan was designed and implemented. It was the only Economic Plan implemented in Sri Lanka over the last 77 years. Several State-owned commercial and manufacturing entities were established to drive the macro economy. Complimentary to the macroeconomic drive, a host of small-scale Government-financed projects were implemented at the Divisional Secretariat level aimed at income and employment generation.

There were restrictions imposed by the Government on the movement of commodities within the island and with the rest of the world. I had to surrender my marriage certificate to buy a suit length for my wedding dress and stand in queues to collect some infant milk food for my one-year old son. Amidst these hardships and restrictions, I believe that the interventions of the Government paved the way for a future manufacturing economy.

In 1977, a new Government was elected. In presenting the maiden Budget, the Minister of Finance declared that there will not be any more Government controls on the availability, movement or, price of commodities. It will be left for the market (the demand and supply) to decide. A market-driven economy replaced the State-ccommand economy, taking a 180-degree turn. The following day, while I was walking down the corridors of the Treasury, I met the then Director, National Planning. He said Chandre, there will not be much work for us anymore. I was puzzled and asked him what had happened. He responded that “the economy will be market-driven; the Government (planning) has no role in it”.

Market optimises resource allocation