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This is my Sunday column for the Nation. The new layout is actually nice, you can buy the physical and have some comparative advantage. Anyways. As follows:

Blowing Bubbles

The economy is looking kinda bubbly. I’ve talked to people from the top to the middle and their basic complaint is that some people are making out like bandits while everybody else is getting robbed. That’s kinda definition of a bubble. It’s also a recipe for collapse.

Every civilisation has its elites. As long as resources are growing, they can generally take what they want. As resources decline, that’s when conflict sets in. At that point elites can become a cancer, consuming out of control, killing the body politic. This is a broad paraphrase from a study by Joseph Tainter. I think it’s true.

In this historical context, resources come from wars or discoveries or innovation. In Sri Lanka, the end of war created a huge resource, one which fed a decent boom. Along the way, a new elite of catchers and cronies emerged, with titles and power, making noise without producing much value. As long as there were resources for all, people didn’t much mind. Now that resources have declined, however, they do.

I’m used to unhappy trishaw drivers, though I was surprised to hear one say he could no longer send his daughter to tuition class. I was more surprised to hear a Mahinda voter in Hikkaduwa say that connected incompetents were killing the tourism business and that the government would be voted out. Finally, I was shocked to hear a business player in the government say that dumb people had been appointed and that they were messing things up for big investors like him.

These are the signs of a bursty bubble, or a civilization at the risk of collapse. In a bubble, a few people get rich based on hype and ruin things for everyone else. That now seems to be a broad complaint across Sri Lankan society. People still seem to respect Mahinda Rajapaksa and his family, but the catchers they deal with on a daily basis have lost that trust, or at least that suspension of disbelief.

Thankfully, Tainter’s theory of civilisation offers a few ways out. One is to get more resources. Hence, we could occupy the Maldives or (more realistically) expand our economy through innovation and infrastructure. While Mahinda has invested in infrastructure, he hasn’t reformed the education sector with the same urgency. It’s unclear whether we have the skilled workforce to truly drive innovation and create the jobs that placate a population. That has to be a priority.

Another way out is for the rapacious elites to give something back. These guys have been making millions off dodgy deals and dubious connections and that level of greed cannot be sustained. Them giving back, however, seems unlikely. Another option is for the Rajapaksas to stop appointing incompetents and rewarding them, but that seems unlikely as well.

So where does that leave us? Bubbling over, but not quite at a boil.

Posted on Sunday, March 4th, 2012 in Business, economics, Nation, Politics.