Sri Lanka’s Course, 1948-2020: Missed Opportunities, ONE

Sugath Kulatunga

At independence we had a stable democracy, a sound economy, and an effective public service and external assets equal to 100 percent of annual import value. We were second to Japan on almost all social indicators and above South Korea as late as in the mid-sixties. Singapore’s per capita income was just a little bit higher than Sri Lanka at that time. It is now over USD 64,000 whereas ours is USD 3852. The immediate looming question is why Sri Lanka with better physical resources failed to advance like Singapore.

What went wrong? Did we have the correct policy mix? What were the unforeseen events which impacted on the destiny of the country?

ONE: My answer is impressionistic and long. As an FB post it will have to be made in several instalments to facilitate comments. The following is the first instalment, which deals with the first six major issue and two key events.

In 1944, the State Council resolved to launch a “State Project of Industrialization in Ceylon.” In the same year there was the Industrial Corporation Bill. The concept of socialist industrialization was keenly advocated by the Marxist parties which believed that full employment could be achieved only through industrialization. In the same year J.R. Jayewardene (JR) moved a motion in the State Council for the “preparation of a complete plan for industrialization”. There was a firm bipartisan consensus on industrialization, albeit [with difference paths regarding the ownership of this line of programme].

However, as Prime Minister, D.S. Senanayake (DS) had a staunch commitment to the development of agriculture through colonization and by establishing a cadre of peasant farmers who would be a strong base for the UNP. The project had both a nationalistic and political flavor and was vigorously pursued in the face of criticism from the Left parties. In my view DS could have focused on both agriculture and industry without any adverse impact on either. This is the most important opportunity missed by independent Sri Lanka for an early start in a manufacture-based economy.

TWO: DS denied SWRD Bandaranayake (SWRD), who was at the time the Leader of the House, his due place and maneuvered to get his son Dudley to succeed him as Prime Minister. This maneuver also kept JR, the best brain in the party, out in the cold. JR believed in planned industrialization and if he succeeded DS, he who could have introduced industries with modern technology with the help of the Japanese who were under obligation to him for his open support to Japan at the war reparation conference at San Francisco in 1951, where he rejected reparations and quoted the Buddhist saying ‘Nahi verena verani’.

This was the next miss.

THREE: The creation of a new party by SWRD resulted in both positive and negative consequences. The split created divisive politics. SWRD believed in planning and development based on nationalism and state ownership. He established a Planning Secretariat which formulated a 10 year plan in consultation with renowned development economists such as Gunnar Myrdal, Joan Robinson, Kenneth Galbraith and Nicholas Kaldor. It is recounted that Myrdal had recommended the invitation of foreign investors on a Build Operate and Transfer basis. The period of foreign operation was to be limited to 20 years. (The Prima investment during the time of JR was on this basis). The assassination of SWRD terminated planned development in the country. These proposals and the 10-year plan were not implemented by subsequent governments.

This was a big miss.

FOUR: On the demise of SWRD, Philp Gunawardhane, the most dynamic and qualified person in the MEP government, was denied the Prime Minister’s position. That prevented the continuation of the 10-year plan.

FIVE: The country lost the opportunity of realizing the best of the Left parties which had the talent and the energy. It was partly due to the misplaced ideological stance of the Left. Left politics had its origins in the Suriya Mal Movement and was politically entrenched in the coastal and Kegalle Districts. But they believed in a permanent revolution achieved with the support of the plantation population and the trade unions and neglected the rural population. They had the opportunity to support SWRD who was getting alienated from the rightist groups in the SLFP. Had they joined SWRD his hand would have been strengthened and his life would have been saved.

SIX: The 1962 military coup attempt and the 1971 JVP adventure saw the emergence of the strong man Felix Dias in the SLFP, who opposed the coalition between the SLFP and the Left. This denied the country of the continuing services of intellectuals like NM and Colvin.

SEVEN: The 1977 JR regime missed many opportunities under fortuitous circumstances and also made more self-inflicted blunders and evaded emerging opportunities. The post-77 regime established new institutions like GCEC and EDB for investment and export development; but introduced a wide-ranging package of neoliberal policies. The government removed all import controls and opened the floodgates to imports. This diverted most of human and financial resources to import related activities. Although the government was keen to encourage exports the sector was starved of finance which went to meet the incessant demand for import and construction finance which carried less risk. The Banks were more than happy to finance these activities which carried low risks. Import finance was recoverable in a short time. Finance for exports and investments carried interest rates as high as 25 percent. The 77-regime went into a frenzy of unjustified privatization of state enterprises. Whilst Singapore adhered to the basic principles of a free market economy, the government never shied away from state planning or state ownership where deemed important’.

The 77 JR regime did not focus on economic restructuring other than dismantling existing institutions like the Marketing Department and the Paddy Marketing Board.’ In 1979, the Singapore Government started a program of economic restructuring. This was achieved by modifying education policies, expanding technology and computer education, offering financial incentives to industrial enterprises and launching a productivity campaign’. Sri Lanka Government had no innovative policies.

Wrecking of opportunities was more problematic in the field of politics. After lengthy negotiations the TULF had agreed to a scheme of decentralization of government at the District level and a law was introduced in 1980 for the establishment of Development Councils. It is well known that government circles sabotaged the election of the DC in Jaffna. It is also alleged that the Jaffna library was set on fire during the same time. These episodes led to the TULF getting disillusioned with the DC scheme and finally withdrawing from the agreement to work within the DC scheme. The final outcome is the imposition of an unwanted and divisive white elephant in the country in the form of Provincial Councils.

On the plus side the Accelerated Multi-Purpose Mahaveli Project was launched during this time.

EIGHT: 1982 JR-Regime: The next criminal blunder was the alleged instigation and evading the control of the riots of July 83. This single event provided the LTTE with the manpower and motivation to fast-track their separatist movement against Sri Lanka and resulted in the commencement of a civil war backed by India. In June 87 the UNP government made a firm decision to wipe out the LTTE menace from the Jaffna peninsula and bring an end to the terrorist menace. The SL army launched a full-scale operation in May/June 87 in Jaffna peninsula named the Vadamarachchi operation using over 8000 troops. When our troops were about to capture the LTTE leadership India intervened with a show of force and JR backed downt. If that did not happen there would not have been an India/SL Accord, IPKF intrusion and 13th Amendment. The war would have been over 30 years before Nandikadal. With this development opportunities were stymied for over three long decades.

The JVP was also responsible for the IPKF intervention because JR had to invite the IPKF as he did not have the resources and the confidence to fight on two fronts. At this time (1987) JVP was preparing for a major uprising in the South. Even with the SL troops moved to the South the country lost over 60,000 youth killed by the JVP and state agencies.’ By November 1988, Sri Lanka experienced near total anarchy.The oil refineries remained closed due to JVP instigated strikes. Public and private transport was reduced to such low levels that food shortages threatened’. The economic damage committed by JVP sabotage was colossal.

NINE: Lost opportunities during 1989 Premadasa Regime. The1989 election witnessed one of the the lowest percentages of voting in Lanka’s history due to the  JVP threat. Premadasa won the Presidential election with a narrow margin. His first blunder thereafter was not in not considering the two most talented and senior members of the party, Lalith Athulathmudali and Gamini Dissanayake for the post of Prime Minister which led to an attempted vote of no confidence on the President and a split in the party. This mistake had a damaging effect on the development process. Premadasa’s main emphasis was on poverty reduction and housing. These did not make much of an impact on the overall development of the country in comparison with rapid development which took place in other Asian countries during the same time.

His contribution to export development was the 200 garment factories project. This too was directed towards boosting rural employment. The concept has been extolled by many economists. The writer holds a different view. This was a time when there was no lack of demand in the market. But there was fierce price competition from other developing countries. There were also issues of quality assurance and tight delivery schedules. To meet these constraints the existing manufacturing exporters had developed an efficient subcontract production system. Other than the spreading garment factories all over the Island and forcing exporters to go into rural areas, the same objective of increasing employment while maintaining quality and delivery schedules could have been achieved by supporting the subcontract system. It also must be noted that locating production in rural areas did not give any cost advantage to the exporters. On the contrary starting in a new rural factory increased costs in new investment, transport of raw materials and finished goods and training of new workers.

It should be noted that many of the new factories (185) started under this program have now closed down. It is also revealed that TODAY 65% of all garment factories are located in the Colombo and Gampaha Districts and that the top ten per cent of exporters accounted for more than 70 per cent of total garments. Out of this ten per cent 39 exporters (the top 3.9 per cent) supplied 50 per cent of the total garments exports. The bitter truth is that the original project has not realized its objectives.

The Project had been conceived without the identification of the real needs of the sector. An urgent requirement was for the industry to go up-market which required investment in modern equipment and technology. The factories that were able to do that have survived and prospered.

From the point of grasping opportunities, the energy and the funds directed at the 200 garment factories could have been used better in encouraging and supporting a few business leaders and entrepreneurs to venture into high technology industries. Most of the big garment factories were owned by large business houses which could have been given this option. This was the successful strategy adopted by Asian Tigers like South Korea. This was an opportunity lost.

TEN: Ranil Wickremasinghe regime: a story of falling into traps rather than grasping opportunities.

* Ranil Wickremasinghe signed the Ceasefire Agreement with the LTTE in February 2002 with Norwegian assistance. The result was that the LTTE used the pact to build up its own strength, with massive importation of weapons. In five years, LTTE was guilty of 3,830 violations of the Agreement, while the Government was responsible for only 351.

* Ranil even advocated the de-proscription of the LTTE which was opposed by Lakshman Kadirgamar. The situation was becoming so unacceptable that the President sacked the UNP government in February 2004.

* In 2005 Chandrika signed the PTOMS agreement in June 2005 which came with liberal financial support of the Tokyo Donor Forum which brokered a joint mechanism (SIHRN)2 to provide post-conflict reconstruction funding into the Tamil Tiger-controlled areas –  a project which was fortunately rejected by the Supreme Court.

***  TO BE CONTD ****