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

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Advantages and disadvantages of a market driven economy

- The general population will work harder, with the constant fluctuations in the marketplace would mean there would be competition for jobs.

- Competition between organizations would result in the increased efficiency as firms would look to increase revenue. E.g. - laying off of employees, to lower costs.

- Foreign investment would be attracted as word gets out about new opportunities for earning profit and openings for new opportunities arise.

- Forces of production involved with the production of goods and services required by customers abroad and home will undergo intense development.

- Economic activity is inspired as money is required to live and to engage in economic activity, through employment and self-employment, to make money

- The disparity in wealth would be a detrimental factor in market economies as wealth tends to create more wealth.

- Decrease or off-hand attitude towards a social safety net such as unemployment insurance, free health care as these programs are supported through taxation.

- Exploitation of employees would be a disadvantage because working conditions and long hours in exchange for less pay and few benefits. Large conglomerates have shifted operations to countries where there are less safety regulations for workers.

- Overproduction would lead to unused industrial capacity where supplies of unsold goods lay in storage and resulting of production machinery laying idle and the needs of people who cannot afford the products, can’t acquire them.

- Degrading ecology would be common, as industries would focus on production rather than sustainable production.

Competitive markets

In a competitive market, a broad amount of producers would compete with each other to cater to and satisfy the needs and wants of an immense number of consumers. In this form of economy no single producer, group of producers, no single consumer or group of consumers can direct how the market could operate. Also, no single entity can determine the prices of goods and services available and how much would circulate the market.

A good example of a competitive market is farming. Thousands of farmers and not any individual farmers can influence the market or the price calculated on the quantity they grow. Farmers can only grow crops and accept the current price set for the product where they don’t get to determine the price they would want to sell for.

Competitive markets would show these characteristics to emerge and thrive-

- Profit

The possibility of profits provides a clear incentive for firms to enter the market. The possibility of earning profits within a given market is a clear invitation for firms to test the waters out.

- Diminishability

The presence of stocks of goods will reduce as they are purchased. For example, the purchase of one phone by a consumer will mean that there is one less phone available for other customers to purchase. Ultimately stocks would diminish to zero and while this occurs, the price would increase in proportion. Higher prices would mean the producer would hike up production.

- Rivalry

The formation of competitive markets would mean that consumers are forced to compete with each other to obtain the benefits of the product or service. Limited number of stocks, in other words, the diminishability of products and services increase rivalry and competition.

- Excludability

For markets to form it is essential that consumers be excluded from gaining the benefit that comes from consumption. For example a market for music can only be formed if the artists perform in a venue where access is limited for people who have purchased tickets or where the songs can be purchased from shops. This is called exclusion where consumers will be barred unless a transaction occurs

- Rejectability

Consumers have the power to reject products or services, for example a supermarket employee cannot place an unwanted product in a consumer’s basket and expect the customer to purchase it. This is called the principle of rejectability.

Developing Sri Lanka into a competitive economy

In light of the recent change of regimes, the Prime Minister of Sri Lanka and Minister of Foreign Policy, Ranil Wickramasinghe proposed changes to policies and economic reforms have been put forward. The main intention is to bring Sri Lanka into becoming a “knowledge based market economy;”

The drive to increase in ‘human capital’ to fuel the global need to innovate, with the need for new products and processes that develop from the research community (i.e., R&D factors, universities, labs, educational institutes) are the intended direction the current regime is pointing towards.

Sri Lanka being a relatively small island in the Indian ocean does offer many remarkable attributes, namely from the population and geography.

Sri Lanka aspires to become a higher middle-income country; it will need to adjust its development model. Growth in the last five years is in substantial part due to a “peace dividend”. Going forward, economic growth will likely require continued structural changes towards greater diversification and productivity increases and a reduction in the role of agricultural employment from its present share of a third of the population. Although Sri Lanka has excelled in overcoming human development challenges typical to a low-income country, its service delivery systems in education, health and other areas must now adjust to face new and changing demands typical of a middle income country.

To accommodate these increasing demands, the government needs to increase fiscal revenues in the medium term, which at present is low face to face with its own historical standards as well as international standards. Imperatives to improve social safety nets will increase owing to an aging population that has passed its demographic peak. Finally, increasing affluence and information will lead to higher expectations for the state to perform in order to facilitate growth, provide a higher level of services, and demonstrate increasing responsiveness to a more demanding