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Sunday October 2nd, 2022

Sri Lanka’s economic nationalism on tiles backfires on tea: Bellwether

ECONOMYNEXT – Classical liberal economists have long argued that free trade leads to peace and economic nationalism and protectionism (which usually also involves minority oppression and ethno religions fascism) leads to soured international relations and war.

Russian tactics to block imports Sri Lanka’s tea over dubious allegations of ‘beetles’ is a case in point.

Pressing Buttons

Soon after President Maithripala Sirisena came to office, various lobbies began to persuade him to block imports, institute bans, or intervene in the lives of people through the coercive powers of the state with various motives.

President Sirisena is particularly vulnerable to making well-meaning interventions due to his being a former health minister, which may backfire. This administration’s interventions in sugar and beer, has been questioned.

As a former health minister, who is praised frequently by the World Health Organization for his interventions, President Sirisena is vulnerable to various lobby groups on health grounds.

Most people believe that asbestos was banned on health grounds, but that was not the whole story.
Tile Nationalism

Even though the asbestos was banned ostensibly out of health concerns, there was also an underlying force of protectionism and economic nationalism behind the move.

Officials of Sri Lanka Ceramics and Glass Council, an archetypical protectionist lobby which built monopolies in ceramic tiles and sanitary-ware, claimed a big success in influencing President Sirisena to ban asbestos after it was made.

Ceramics and Glass Council which had seen its members gain massive profits from protectionist duties to rob the economic freedoms of homeless people and force them to use high priced sanitary ware and tiles, wanted to force people to use roofing tiles, an industry that was in decline.

In 2015 for example, the then head of the Ceramics and Glass Council Mahendra Jayasekera "expressed his satisfaction over the government’s move to ban the use of asbestos roofing sheets in the country by 2018," Daily News, a state-run newspaper reported.

"He said the ban will help revive the red clay roof tile manufacturing industry to a greater level," the report said.

With Donald Trumps and Steve Bannons of this world, with open tribalist nationalism like in Sri Lanka (based on white people rather than Sinhalese who believe they own the country), there is now a greater focus on economic nationalism, the harm it does to consumers, to innovation and most importantly the freedom of all people.

Alien Concept

Economic nationalism is not an Asian or Sri Lankan concept followed by ancient monarchs, but a false doctrine based on tribalism and dehumanization that emerged in Eastern Europe with the popular vote and the breakdown of monarchies and empires.

It has elements of classical Mercantilism but it is much more damaging to freedoms and human values.

The idea behind the asbestos ban was to use the state and its law making power and customs (inherited from British rule) to bring greater profits and market share to clay tile manufacturers by ending the use of roofing sheets made with imported asbestos.

Protectionism is the bedrock false economic philosophies such as the German Historical Economics that led to interventionism and National Socialism (Nazism).

Economic Nationalism

"It is the aim of nationalism to promote the well-being of the whole nation or of some groups of its citizens by inflicting harm on foreigners," Ludwig von Mises, an economic philosopher who had studied Eastern Europe extensively wrote in his book Omnipotent Government The Rise of the Total State and Total War."

"The outstanding method of modern nationalism is discrimination against foreigners in the economic sphere.

"Foreign goods are excluded from the domestic market or admitted only after the payment of an import duty. Foreign labour is barred from competition in the domestic labour market.

"Foreign capital is liable to confiscation.

"This economic nationalism must result in war whenever those injured believe that they are strong enough to brush away by armed violent action the measures detrimental to their own welfare."

The injured party, Russia, believed it was strong enough to take retaliatory action, not through military warfare but through economic warfare on Ceylon Tea.

Russia is hardly a free trading nation, with rule of law. Putin has his own brand of nationalist-authoritarianism. Its institutions are not transparent and independent.

Health Concerns

Leaving aside the question of Russia and nationalism, there is a question of health concerns.

There are strong claims that asbestos causes cancer such as Mesothelioma and other types in people working with asbestos, those living near factories or with asbestos workers.

Factory or construction workers who may inhale dust while producing or cutting asbestos sheets without adequate protection are at risk. Using grinders to cut asbestos is particularly dangerous. No education campaign has been carried out among carpenters and roofing workers to educate them on using grinders to cut tiles.

Some types of asbestos are already banned in many countries. In Sri Lanka chrysotile asbestos had been allowed, mainly for roofing sheets. Some countries like Russia and Canada are big exporters and users of this material.

Flawed Public Policy

The whole affair shows that there is a deep flaw in policy formulation in Sri Lanka.

The government did give a few years before the ban came into effect, which was a good move, but clearly the time period was not enough.

In the case of asbestos there had been no studies done domestically to find out or whether asbestos was increasing the risk of cancer in residents near factories or among workers, which would have helped strengthen the case to ban asbestos.

There has been no policy process or public consultations, on asbestos use, before making the decision. 

Sri Lanka no longer has evidenced based policy-making process, involving green papers or white papers, making the country vulnerable to ad hoc decisions by Presidential decree such as in the case of the glyphosate ban.

To improve health grounds a broad-ranging study is needed with solutions. The phase-out period for asbestos can be made longer.

In the meantime, a study must be done to find whether there is increase in prevalence of asbestos related cancer near factories.

Carpenters and workers need to be educated urgently not to use grinders to cut asbestos sheet.

 Manufactures should also produce shorter lengths of sheets (5 feet etc.) so that the need to cut sheets can be reduced or eliminated.

It will be easier to first phase out asbestos ceiling sheets first, where economical substitutes are now available.

Free trade can also bring in alternative roofing material. A broad study can also identify alternative roofing material.

At the moment many materials are subject to excessive taxes due to import protection.

Taxes on steel beams or Malaysian timber may need to be re-examined. Tile roofs require more timber than asbestos.

Foreign Policy

Free trade and evidenced based policy will also have other impacts on foreign policy. When there is free trade, a foreign producer has to offer the cheapest and best product to win customers in a foreign country.

The customer alone decides. There is nothing to be won that cannot be won by a better product, eliminating the need for war or intervention. This is why free trading nations like Singapore or Canada, find it easy to have good foreign relations.
It is important to have free trade with India for example. Sri Lankan nationalism will always lead to Indian interventions.

"A nation’s policy forms an integral whole," explains Mises. "Foreign policy and domestic policy are closely linked together; they are but one system; they condition each other.

"Economic nationalism is the corollary of the present-day domestic policies of government interference with business and of national planning, as free trade was the complement of domestic economic freedom."

This column is based on ‘The Price Signal by Bellwetherpublished in the January 2018 issue of the Echelon Magazine. To read Bellwether columns as soon as they are published, subscribe to Echelon Magazine at this link. The i-tunes app can be downloaded from here.

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