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Sri Lankas future: A part of flying geese chain or just a sitting duck?

One mans agony is another mans profits-August 12, 2013 At a recent public discourse on the future of Sri Lankas economy held at the Ceylon Chamber of Commerce, an industry leader from the countrys lifeline, the textile and garment industry, expressed confidence in the industrys ability to successfully outcompete the newcomers to the industry from the region. When pointed out that Sri Lanka, with its rising wage levels, may lose the market to low cost labour countries like Bangladesh, Myanmar and Cambodia, the industry leader maintained that the slot created by Chinas departure from the industry is being filled by Sri Lanka and not by those newcomers to the industry. Chinas world market share in textile and garment exports is huge and therefore, what is available to Sri Lanka is in fact beyond the countrys capacity to supply. Hence, according to him, Sri Lankas current reliance on the garment industry will continue to pay dividends to the country even in the future. In other words, the country will not face any risk even if it continues with the present product mix of exports where textiles and garments constitute more than a half of the countrys manufactured exports. Chinas exit from apparel industry is based on sound economic logic The industry leader indeed had a very valid point. China is presently gradually exiting labour-intensive simple products and concentrating on high tech complex products in a bid to avoid getting caught in what economists call the middle income country trap. The textile and garment industry was the starting point for many emerging nations

when they had embarked on transforming their economies from agriculture-based to manufacture and services based economies. This was the pattern of economic development which one can witness in the case of South Korea, Hong Kong, Taiwan and Singapore in early 1960s and 1970s. However, the nature of the labour-intensive industry is such that its productivity improvement does not generate a sufficient output growth on a continuous and sustainable basis without the support of a massive improvement in technology to elevate an economy to a high income level. Hence, a country has to adopt a strategy to shed the labour-intensive products and go for a product mix that will generate a bigger output with lesser number of workers. China is crucially facing this challenge today and naturally, its exit from the textile and garment industry should create opportunities for countries like Sri Lanka that had entered the market a couple of decades ago. Thus, even if the new entrants to the industry pose a threat to Sri Lanka, that threat is not of significance since there is a huge market out there to be shared by all. Kaname Akamatsu: Fly like geese to build regional networks There is another reason why China should exit the textile and garment industry. That is the Flying Geese Paradigm that was put forward by the Japanese economist Kaname Akamatsu in two papers published in 1935 and 1937 in Japanese but became popular only in 1960s when it was presented to the English readers. There were two reasons why this paradigm did not gain popularity among the mainstream economists who wrote on economic development in 1940s and 1950s. First was the presentation of his theory in Japanese and therefore, it was foreign to the mainstream economists who were not conversant in that language. The second was that, as argued by a subsequent writer Shigehisa Kasahara of UNCTAD in a paper published in 2004 under the title The Flying Geese Paradigm: A Critical Study of its Application to East Asian Regional Development, the Japanese military empire used it to justify the Japans invasion of neighbouring countries during the World War II. According to Kasahara, Japan used Akamatsu Paradigm as the intellectual legitimacy for its military exploits during the war that aimed at creating The Great East Asia Coprosperity Sphere as an alternative to the Europe dominated economic development that was taking place in the region. Hence, even a few decades after the World War II, the Flying Geese Paradigm was treated with suspicion by the West which feared about its dangerous political ambitions. One has to change from simple to complex to survive in markets

The Akamatsu Paradigm was very simple based on the observation of the pattern of a flock of flying geese. The flying geese have a leader and the rest of the geese follow the leader in an arrowhead-shaped flying formation when they are up in the sky. Akamatsu argued that the regional integration and network building should take place according to the same flying pattern. Accordingly, Japan plays the role of the lead-goose and the rest of the countries in the region should follow Japan in the pursuit of economic development getting nourished by the technological advancements of that country. This would lead to the build-up of a regional developmental network where economic development will take place one country after the other. Flying geese are everywhere: within as well as across countries Though Akamatsu presented his speculation in 1930s before any of the countries in East Asia became economies of importance in the world, the subsequent economic development in these countries in fact bore evidence to what he speculated at that time. But the network that was developed among these countries was not among themselves but between East Asia and the West. Even Japan got nourished from the Western technological developments and Western markets. So was the experience of the other East Asian countries. However, the economic transformation which these countries underwent took the style of what Akamatsu proposed. For instance, the economic transformation of the Lead Goose Japan was that it started with textiles and then went into more sophisticated products from chemicals to iron and steel to automobiles to electronics and finally to highly sophisticated advanced products. Its transformation into a complex economy in this manner has been vouched by the Harvard-MIT Complexity Index for world nations by ranking it as the number one complex economy in the world in 2010. Hence, in the region, Japan is the leader of technological development that can give leadership to all other countries which form themselves in the goose-flying formation. Countries should make Flying Fish attempts too But the evolution of economic activities within a particular economy has taken the shape of a flying fish where the fish will jump into the sky above the water, remain in air for some time and then fall back to the water again. For it to try flying again, it has to make a new attempt and that attempt, in the case of a country, should be in relation to a completely new economic activity. That was how Japan and its followers switched from one activity to another over time. If a country fails to make this series of flying from one activity to another leaving the

one which does not pay it any more behind, it will be eternally trapped in a low income, output and prosperity. This is the lesson which Sri Lanka has to learn today from Akamatsus Flying Geese Paradigm. Comparative advantage is shifting Accordingly, as presented by Chi Hung Kwan in a paper published in 2002 under the title The Rise of China and Asias Flying Geese Pattern of Economic Development: An Empirical Analysis based on US Import Statistics, the comparative advantage of production first got shifted from Japan to newly industrialised nations such as South Korea, Taiwan, Hong Kong and Singapore. From this group of countries, it then got shifted to leading ASEAN countries, namely Malaysia, Thailand, Indonesia and the Philippines. From these ASEAN countries, it has now shifted to China and is shifting to the new entrants to the global market, namely India and Vietnam. Hence, Chinas exit from the textiles and garment industry is an evolution that has to be expected. Sri Lankas attempt at taking advantage of this evolution by seeking to fill the slot created by Chinas exit may be a sound strategy for the time being. But the crucial issue is whether the textile and garment industry could deliver the promised prosperity to Sri Lanka in the long run specifically in view of the threat faced by the country of getting trapped in a lower middle income country trap right now before it moves into an upper middle income country proper. In other words, the issue is whether Sri Lanka should join the Flying Geese Chain and make a series of Flying Fish attempts or just remain a Sitting Duck by getting trapped in the new opportunities provided to it by Chinas departure from the textile and garment industry. In the past, Sri Lanka benefited from the garment industry During the last three decades, the textile and garment industry did serve Sri Lanka well. Before 1977, Sri Lanka did not have any garment exports and its exports were mainly composed of the main commercial agricultural products tea, rubber and coconut bringing nearly a three fourth of its total export earnings. However, by 1996, this share fell to 20% and that of textiles and garments increased to 46%. In 2012, the earnings from tea, rubber and coconut amounted to 18% while that from garments still remained a little over 40%. When the unemployment rate was running at around 26% in mid 1970s, it was the textile and the garment sector that came to the countrys rescue by providing productive employment to a large number of job seekers in the country. Hence, the contribution of this sector to Sri Lankas economy in the past should not be underestimated.

Economies cannot be transformed overnight However, will the industry continue to serve Sri Lanka in the same vigour in the future as well? Or will it succumb to the flying fish pattern by rising as an important economic activity, remaining important for some time and finally falling into oblivion with no scope of being rescued once again? Given the emerging trends in the global economy and the need for Sri Lanka to transform its economy from the simple type of products to complex products, it appears that the country cannot rely on this industry to deliver prosperity to its people in the medium to long run. Since the transformation of an economy takes relatively a long period of time, the process has to be initiated right now if the country is to reap its benefits by 2020. 3D print manufacturing: The second industrial revolution The threat to the global textile, garment and apparel industry will come from a totally unexpected source. That threat is the advancements which the world today are experiencing in the 3D print manufacturing technology first developed by MIT in USA but applied widely in the advanced countries in the West. The current application of this technology for production on a commercial basis has been limited to precise parts of the automobile and aviation industry. But the potential for its application to almost all types of manufacturing products has prompted analysts to call it the trigger-point of the second industrial revolution in the world. Just like personal computers have converted computing to a household item and laptops and tablet devices a personal item, 3D print manufacturing is feared to make the manufacturing of industrial products customised private items. To pave way for this, the price of 3D printers has declined from $ 1 million some five years ago to $ 1,000 to 2,000 today, making it affordable to many households. Thus, in future, the manufacture of industrial items of common use will go through a simple process: Software for the manufacture will be downloaded from the internet, raw materials in ready-to-use packages will be home-delivered by super markets and the 3D printer at home will manufacture the items desired. It is similar to printing a book at home by using an advanced but cost-wise affordable printer at home rather than getting a commercial printer to do the job. Download software and stitch the dress at home for the party The textile, garment and apparel industry has so far gone only halfway through the 3D print manufacturing process. Already, fashion designs have been made and some of the textiles have been manufactured by using this technology. But the industry analysts have speculated that pretty soon, even the stitching of garments will be made

by 3D printers. As reported by Holly McQuillan in in an article titled The Death of Cut and Sew and the Birth of 3D, if a lady has been invited to a party in the evening and if she is not happy about the dresses in her wardrobe, instead of running to the store to buy a new dress, she will be able to stitch it by herself at home in half an hours time according to a fashion design which she can download from the internet (available at: This appears to be bizarre and unbelievable but given many of the technological revolutions that have invaded the world in the recent past, it will not be a pipedream of some bizarre people at all. In a parallel situation, nobody would have predicted in early 1980s that a student will meet his college professor on a digital blackboard at his convenience through a mobile device while he is travelling on a train many thousand miles away from the college in the middle of the night. No sitting duck please What this means is that Sri Lanka cannot and should not be complacent about the new opportunity which it might get as a result of Chinas exit from labour-intensive textile and garment industry. It might give the country only a temporary breathing space. China is exiting the industry in order to be a part of the Flying Geese Chain that it has to follow in the normal transformation of its economy into a sophisticated complex one. Sri Lanka benefited immensely from the garment industry in the past but it cannot continue to do so in the future. The threat to industry may come from a totally unexpected source, namely, the advancements in technology in the form of as the analysts have called it doing away with the sewing machine and using the 3D printer for stitching home-made dresses. If Sri Lanka does not change its strategy right now, it will simply be a sitting duck instead of being a part of the flying geese chain that will help the country to attain prosperity on a sustainable basis. (W.A Wijewardena can be reached at )