Background

The concept of equitable growth evolved in response to the perceived inadequacy of the “trickle-down” approach to poverty reduction that gained widespread acceptance in the development literature of the 1950s and 1960s. The expectations inherent in the “trickle-down” strategy was that a growing economy would ease the pressure on competing claims for resources and that distribution would take place over a “growing pie” rather than as a zero-sum game. The success of this approach depended therefore on the size of the economic “pie” as well as on the distributional mechanisms employed.

Until the 1980s, the principal driver of growth and channel of distribution in most developing countries was the state. However, empirical findings from around the world suggest that state-dominated growth and distribution have not had a positive impact in terms of poverty reduction, largely due to political economy factors. The evidence from the decades that followed - where the state-centred model was replaced wholly or partially by one that placed greater emphasis on first, the private-sector and more recently, on public-private partnerships - is mixed.

Research Programme

Given the conceptual background set out above, the principal research question that the Unit aims to explore is as follows:

The following research issues are identified as key to an in-depth empirical exploration of the identified research question:

Privatization has been the principal tool for public enterprise reform in Sri Lanka over the last two decades. However, the recent change in government has seen a re-thinking of the privatization approach, pointing to the need for rigorous policy based research and analysis on the costs and benefits of alternative options – such as performance contracts, leases, management contracts and BOT models – from the perspective of service delivery (access, costs, quality).

The need for regulation of economic and social activities stems from the prevalence of market failures and externalities that lead to an oversupply of social “bads” or an undersupply of social “goods”. Traditionally therefore, regulation has been the preserve of the state. Whilst this modality works effectively in “well-governed” societies, Sri Lanka 's experience with regulation indicates the need to structure variants to the traditional model. Empirical evidence suggests that regulatory inefficacies have the greatest impact on the poor and disadvantaged segments of the population. This research will therefore focus on developing regulatory options that incorporate the principles of good regulatory governance – independence, accountability, legitimacy, credibility, transparency – and that are workable given the patronage and politics of Sri Lanka 's governance structure.

Competition policy (ex-post regulation), if effectively designed and implemented, can be used to safeguard the interests of disadvantaged segments of the population. The incorporation and use of anti-competitive and anti-trust (monopolies and mergers) provisions in domestic competition legislation has been used effectively to protect groups such as consumers and SMEs in countries ranging from India and Nepal to Brazil and South Africa . The challenge lies not merely in the design of the legislation but also in the building of institutional capacity to implement the law. Sri Lanka 's experience in this area has been less than optimal. The research in this area aims to empirically test a set of competition policy indicators developed in-house to: a) get a better grip on the nature of competition in Sri Lanka; b) understand the factors that obstruct an effective design and implementation of competition policy and law in Sri Lanka; and c) to use the findings from a) and b) to provide policy input on the process (independence, transparency, legitimacy, accountability) and output elements (efficiency, effectiveness) that should be built into an effective competition policy.

Whilst the case for an enhanced private sector role in physical infrastructure services has been established to some extent in the literature -based primarily on factors such as public sector resource constraints, the possibility of unbundling such services with areas having a lesser amount of “public goods” characteristics being carved out to the private sector etc.- the extent and intensity of state-private sector involvement in social infrastructure services such as health and education for instance are still being debated even in developed countries. With the objectives of: a) service delivery (access, costs, quality) and b) public sector resource constraints in mind, this research will explore the possibilities for public-private partnerships in this area.