On getting the history of the economy right

 23 March 2019

Following the end of the war, Sri Lanka’s economy grew at dizzying rates, some of the highest recorded in the region and, quite possibly, the world. The investment and consumption boom in the North and East, which had hitherto been shut from the rest of the country, was lavishly and eagerly fuelled by the private sector and sponsored by the government. This resulted in the economy growing at twice the rate it had grown before: in 2009 it grew by 3.4%, while in 2010 and 2011 it would grow respectively by 8% and 8.4%. 2012 recorded the highest rate yet, at 9.1%, while in the following year net exports of goods and services rose by an unprecedented 20%.   

Sri Lankans never had it so good, and as expected, they went on spending lavishly, with consumption growing by almost 25% from 2012 to 2014. A significant portion of their incomes was diverted to foreign products; it was what the late Saman Kelegama referred to in a speech delivered in 2010 as an “import-intensive growth”, with exports of goods financing around 63% of those imports. But of course, no one took seriously the ramifications of continuing with such a model. The truth was that no one needed or wanted to. Growth and equity were both rebounding to levels unprecedented in our history, except perhaps for the Premadasa years. It was too good to ignore.   

Investments came in (their contribution to the GDP kept on rising, surpassing even consumption growth rates); roads and highways and flyover bridges were built and unveiled here and there; the Tourist Board, predicting massive tourist arrivals, set a five year target of 22,500 rooms; and the government, flushed with what it felt to be a grand economic success story, went on reaping dividend after dividend, buying over MPs from other parties and thus hijacking the Opposition, solidifying the Executive Presidency, and impeaching the Chief Justice outside the parameters of legality and legitimacy. It then changed the country’s tagline, turning into, not “A Small Miracle” (which the then President rejected), but “The Wonder of Asia.”   

Victor Ivan’s diagnosis, in that sense, falls a little off the mark: that the blueprint of nationhood which we inherited from the British was not adjusted to suit the needs of an independent country. There are two questions that need to be asked here: what is an independent country (and more relevantly, were we ever one?), and what were those adjustments we had to effect (but presumably did not) when it came to the economy?

We became delighted, then complacent. Elated, we threw caution to the wind.   

But as Forbes Magazine put it, “a sugar high does not last long.” Beneath the dazzling growth rates, the rising tourist numbers, and the booming metropolis was a bomb waiting to go off. The signs were all there: investments came in, but they were always diverted to the usual projects; the roads and the highways expanded, but motor vehicle registration growth began to surpass population growth; tourist arrivals boomed, but so did stories of molestation, harassment, and (as with Khuram Shaikh) even murder; the government went on reaping dividends, but the impeachment of the Chief Justice and the shooting down of protestors at Weliweriya alienated the intellectuals and the masses who had fawned on Mahinda Rajapaksa until then.   

It had to go downhill somewhere. In the end, it did.   

Sri Lanka has been described, not without reason, as an economic basket case. Victor Ivan is one among many commentators who claim that we inherited nationhood from the British, and watched until all those institutions of statehood and nationhood – from the judiciary to the press – were throttled by successive regimes. There is much to disagree with that view, but I think we can agree on the point that, whether or not the British gave us something we could call a nation, we merely let things go from bad to worse. Sri Lanka’s history after independence has thus been one of not just missed opportunities, but also misinterpreted, misused fortunes.   

I refuse to believe that we can pinpoint one precise, clear-cut reason for the debacle this has resulted in. But commentators continue to do just that, be it the lack of insight among our leaders (Victor Ivan), the myth that government intervention is the answer to our problems (Advocata), the lack of  “the vision thing” in political parties (Asanga Welikala), the Hobson’s choice between “clowns and murderers” the system throws up (Tisaranee Gunasekera), and the prevalence of bigotry, among the Buddhist public predominantly, which dwarfs action under ideology (Professor H. L. Seneviratne in his study, The Work of Kings).   

Demonising the likes of Donald Trump, Nigel Farage, Boris Johnson, and now Theresa May for the problems wrought in their part of the world by the implementation of policies that predate their arrival in the political scene

This, I think, is the easy way out; as easy, in fact, as demonising the likes of Donald Trump, Nigel Farage, Boris Johnson, and now Theresa May for the problems wrought in their part of the world by the implementation of policies that predate their arrival in the political scene. What it eventually results in is a demonisation of the political and the ideological, sustained to such an extent that “civil society” keeps on calling for an alternative system shorn of politics and ideology. Quite apart from the fact that such a utopic system does not exist, it promotes the (undemocratic?) idea of substituting unelected professionals for elected representatives.   

Victor Ivan’s diagnosis, in that sense, falls a little off the mark: that the blueprint of nationhood which we inherited from the British was not adjusted to suit the needs of an independent country. There are two questions that need to be asked here: what is an independent country (and more relevantly, were we ever one?), and what were those adjustments we had to effect (but presumably did not) when it came to the economy? The picture of Sri Lanka that emerges from the answers to these is not the picture that commentators usually paint, and for very good reasons.   

Constitutionally, legally, politically, economically, and culturally, we were not an independent state after 1948, and we continued to be tied to British interests even after the 1956 election and the coming to power of the much vilified Bandaranaikes. The economy of the country centred on the plantations and the estates which, despite the election of populists, continued virtually unscathed. George Beckford in his extensive study, Persistent Poverty, rightly contends that the establishment and consolidation of these plantations in colonial societies led to their social benefits surpassing, or at least equalling, their social costs, while their later maturity led to the reverse, to the extent of promoting “a persistent tendency towards underdevelopment.”   

This was true of Sri Lanka also: the consolidation of the plantation sector led to the fragmentation of the peasantry (especially in the hill country) the emergence of ethnic conflicts, the privileging of metropolitan (urban) interests over rural interests (which explains why 40% to 45% of industrial activity, despite several Board of Investment initiatives in peripheral regions, is concentrated in the Western Province today), and the emergence of a political class that remained neutral towards the plantation sector (despite populist pressures, the government “forbade the fragmentation” of estates in 1958 and “promised not to nationalise” them for at least 10 years in 1961). 

I refuse to believe that we can pinpoint one precise, clear-cut reason for the debacle this has resulted in. But commentators continue to do just that

Industrial development in a country, regardless of the political model, usually follows four stages: development of the agricultural sector, urbanisation fuelled by factories, transfer from the rural (traditional) to the urban (modern) sector, and emergence of a services sector connected to industry. The initial takeoff is important; for instance, it was the agricultural revolution sparked by Jethro Tull’s plough that turned the North West and the Midlands of England into industrial enclaves.  

The problem with Sri Lanka, and most other colonial societies, is that we were forced to jump over and bypass several stages in the development chart. There was never, for one thing, a “takeoff” from the primary to the secondary sector so characteristic of the economic history of the “modern liberal states” that the likes of Victor Ivan speak so warmly of; more importantly, nor was there a class of industrialists whose interests were aligned with the need to transform the economy.   

When James Peiris remarked in 1908 that “the interests of the Ceylonese planters are identical with those of the European planters”, he was stating an economic truth. In fact in the colonial era it was only the petty and rural bourgeoisie, which interestingly never became a force to reckon with or contend against, that clashed with the planters. We are talking about a period in which every conceivable institution – from banks to schools to railway systems to road networks – were built with the aim of making life easier for the planters and their (primitive) model of development.   

The Waste Land Ordinances that the colonial government enacted facilitated this at the cost of a flourishing peasantry. Ivan faults the locals for not combating the feudal practices rampant at the time of colonialism, but as is typical of such generalisations, he fails to account for the bigger picture: we were not given an opportunity to develop an economy that could outgrow those practices. Instead, we got an economy inhabited by a plantation class, with absentee landlordism, unplanned urbanisation, emulation of Western consumption patterns, and cultural imitativeness being the norm.   

So no, we were never really economically free. We still aren’t.