Godfrey Gunatilleke, being the final chapter entitled “Hindsight and Retrospect – A Brief Commentary” in a new book Towards a Sri Lankan Model of Development, 2017 Marga Institute, ISBN 978-955-582-134-6 ….firstname.lastname@example.org
“History has many cunning passages, contrived corridors” This line from Eliot’s Gerontion is a good starting point to begin reflecting on Sri Lanka’s development after independence . Retracing the development path that Sri Lanka took and pausing at every twist and turn to ask “What if we took another turn?” is always a fascinating exercise . How useful it is in guiding us in our future actions is another matter. There are always lessons to be drawn from the successes and failures of the past. But when this is done we need to recognize the inherent limitations of an effort to learn from the past and project past trends to the future. Eliot as a poet and Schumpeter as an economist found knowledge derived from past experience to be of limited worth in predicting how the future would unfold and enabling us to take control of it. Eliot pointed out that the past imposes a pattern and can falsify one’s vision of the emerging future as “the pattern is new in every moment and every moment is a shocking valuation of all that we have been” Schumpeter perceived how innovations and discoveries which were not foreseen led to historic and fundamental changes and based his model of growth on the “creative destruction”of the past . Their insights about the “unpredictability” of the future has important implications and challenges for development policy and planning.
In the discussion that follows I begin by revisiting the preceding chapters and inquiring where my analysis may have been inadequate and where I may have omitted some important aspect of a problem Historians have dealt exhaustively with the fundamental philosophical question as to whether we can ever recreate the past as it really was and, if this is in grave doubt, whether we can talk meaningfully of the lessons to be learnt from history . I do not pursue this line of inquiry . I proceed on the common sense premise that we are inescapably engaged with the past both in our everyday lives as well as in the making of public policy and when we are so engaged our business is to reconstruct the past as best as possible, identify its contemporary relevance and learn the lessons that can be applied to current policy making.
I have orgaised this retrospect in three parts. In the first section , I deal with seven issues in the phases of growth and equity in Sri Lanka’s development. In the second section I deal with some international comparisons that are made when evaluating Sri Lanka’s development and critically examine some of the assumptions and conclusions underlying these comparisons . The third section examines the hazards that beset the process of learning from our own past and the attributes that are required for the task .
- Some Re-evaluations on Hindsight
When I revisited the chapters of this volume and reread them carefully before publication I experienced the concern of a writer who finds that some of the issues he had dealt with would be analysed differently if he were to be writing now. This commentary made with hindsight attempts to find some space to re- examine a few critical issues and supplement the analysis in the chapters.
Sri Lanka’s development journey can be compared to a slow arduous ascent in difficult mountainous terrain. We can consider the different chapters of this volume as perspectives and surveys gained at different stages of the uphill journey . At each stage one can see what lies below and can come to some conclusions. From each vantage point one might be able to see the path that was taken and find that severaL “wrong” turns were taken at different stages of the journey and that thereby the distance to the higher levels became much longer than was necessary. The chapters in this volume can be compared to perspectives that are gained at different points of the uphill climb. What can be seen at the higher elevation could not be perceived when we were making the journey at a lower level. The analysis in the preceding chapters would also suffer from similar limitations
Equity and Growth.
Could we have done much better in managing the balance between equity and growth? The first chapter was written when stagnation of the economy and rising unemployment were the burning issues The critique of Sri Lanka’s development which was widely prevalent at the time suggested that the that the slow economic growth was the result of a misallocation of resources that was heavily biased towards social welfare and consequently led to a major imbalance between economic growth and social development and that the high social indicators were achieved at the cost of economic growth. The analysis in Chapter 1 strongly contests this explanation of the imbalance .It argues that the social expenditures were kept well within reasonable limits and concludes that the slow growth of the economy was due primarily to the mismanagement of the economy and the unsound economic policies that were implemented. The slow economic growth was the outcome of several factors – the lack of continuity in economic policies with changes of government, the vast array of state controls subsidies and administered prices that distorted the market , the exclusive focus on import substitution and failure to diversify into new exports, state owned enterprises that were incurring heavy losses and becoming a heavy burden on the government budget, and a policy environment which , overall, discouraged private investment and enterprise.
Yet, analysts of Sri Lanka’s development experience might argue that the poor economic performance was not altogether independent of the social welfare ideology and that the underlying approach to economic management was strongly influenced by welfare considerations and an overarching welfare ideology. This was reinforced by what I have described as the national consensus on the social welfare programme . The bias towards equity cut across party differences and disagreements on economic policy and imparted a continuity to the social welfare programme which became as it were the bedrock of development in Sri Lanka. I refer to the impact that this bias towards equity had on economic policy in Chapter 1 . However re-reading the chapter I realize that the adverse aspect of this bias on economic policy should have been further emphasized. The import substitution strategy in rice is an example where objectives of poverty alleviation and welfare continuously intervened to provide subsidies, guarantied prices and free delivery of services to support the production programme. Had more attention been given to criteria of efficiency and productivity the returns on the large investment made on domestic agriculture might have been much higher. What we had was a mix of policies that had grown in the democratic polity that had evolved from the time of the Donoughmore Constitution. It had a strong populist element in that it had a propensity to cater to the short-term expectations of the electorate and neglect the essential long term goals .In the keen contest for power no political party developed the capacity to educate the electorate on the disciplines that were needed for sustainable human development.
There has been a long debate on Sri Lanka’s development experience which has engaged economists with opposing points of view – one growth-centred the other with its focus on equity. It is a debate which is still continuing, One of the highlights of that debate was the exchange between Amartya Sen and Surjit Bhalla. in the early 1980’s. Bhalla argued that Sri Lanka’s emphasis on social welfare was misdirected. He produced an elaborate quantitative analysis of Sri Lanka’s social expenditures and the trends in social indicators in an effort to show that the large scale direct investments on social welfare had little impact on the movement of the social indicators. A low level of social expenditures resulted in a high rate of progress in the social indicators while high social expenditures resulted in a lower rate. All of which according to Bhalla indicated that direct policy interventions by the state seldom lead to the intended outcomes – a point of view which relied on the market for the solutions . Sen argued that Bhalla’s methodology was faulty and pointed out that the improvements in human capital have a gestation of a complex character and that Bhalla has not taken this into account. In Chapter 2 of this volume I discuss how the social indicators moved steadily forward even during periods of slow economic growth and attribute it to the way in which improvements in health and education create human capital with a self sustaining capability which demonstrates its resilience even in unfavourable economic conditions. The low rate of infant mortality in very poor households with literate and educated mothers was cited as another example of this capability .
Revisiting the debate today one would need to reframe the main issues. The debate as it was conducted seems to have taken place within a framework in which one is arguing about the relative importance of economic growth and social development , about the choice between growth and equity, and the need to sequence growth and equity in order to have a strong economic foundation before providing a welfare state . What seems to be missing is the recognition that there is no either /or choice between economic growth and social development, and that both the economic and social indicators must progress simultaneously and move progressively towards higher levels of human development. Sri Lanka’s experience demonstrates what would happen when one set of indicators , one facet of development lags behind. In adopting an “either/ or” approach one could, on the one hand, seriously devalue Sri Lanka’s remarkable achievements in social development or on the other fail to recognize that economic growth is a pre-requisite for full human development. The problem in Sri Lanka’s case was that social policies and economic policies did not complement each other simultaneously to take the two sets of indicators forward together . The roles of the state and the market in that process is another matter but evidently both have important roles to play. The challenge for public policy is to determine and maintain the right balance. On hindsight we could say that the failure to ensure that the different sets of development indicators moved together was also due to the failure to maintain the right balance between the state and the market. This became evident in the performance of the state enterprises and the way in which commercial undertakings of the state were managed . That failure in turn was determined by the political processes that were at work . Power alternated at regular intervals between the two major parties – one advocating a state–driven, planned economy and the other a private sector- driven market economy until we reach some resolution of this dichotomy in 1994 .
The Food Subsidy
When talking of Sri Lanka’s unusual progress in terms of social indicators, we often tend to down play the serious deficiencies and shortcomings in some of the social policies that were pursued. In re-reading the preceding chapters I asked myself whether I had been guilty of the same error. I found that while attention has been drawn to many of the shortcomings of the social development policies these have to be brought together and their collective impact fully analysed if we are to make a comprehensive assessment of the social policies that were implemented. The analysis of the food subsidy is a striking example. I have dealt briefly and separately with the food subsidy in different chapters – the food subsidy and the government budget, the food subsidy and its impact on poverty and malnutrition , the food subsidy in the political process and the food subsidy in relation to the right to food . But re–reading the analysis I realize that the critical role played by the food subsidy in the polity, economy and society is a subject by itself needing treatment in much greater depth than was possible in the preceding chapters. A full case study of the food subsidy by itself would enable the student or the policy maker to gain a wide range of insights into all aspects of Sri Lanka’s development . It would be a valuable exercise in multi –disciplinary analysis.
In examining the welfare impact of the food subsidy we need to keep in mind that the food subsidy originated as a food rationing scheme that was introduced during the second World war in the early 1940s. It was primarily intended to ensure an equitable distribution of available supplies of rice and other essential food items at controlled prices . The scheme was designed to deal with the acute problems of scarcity arising from the disruption of imported supplies on which Sri Lanka was heavily dependent. At first ,therefore the element of subsidy itself played a secondary role. The food subsidy was a manageable item in the government budget till it escalated rapidly with the increase in the international food prices in 1951 and 1952. In 1952 it rose to an all time high of Rs 217 million from Rs 50 million in 1950. The budgetary surplus on current account which had been maintained at a healthy level between 3% and 3.5% of GDP in the preceding two years shrank to a marginal 0.75%. For the first time after independence the trade balance showed a large deficit in 1953 – approximately 6.35% of GDP and the extrernal assets fell to an all time low of Rs 640 million- the equivalent of about four to five months imports. Examining the the crtical imbalances that had emerged , the economic policy advisors seized on the adjustment which seemed the most readily available – the elimination of the food subsidy The prescription seemed to work in correcting the macro-economic imbalances. At the same time, independent of the policy adjustments international prices of Sri Lanka’s main exports rose and export earnings were restored to their pre-crisis levels. By 1954 ,the favourable conditions in the world market combined with the elimination of the food subsidy to produce substantial surpluses both in the current account of the government budget as well as the balance of payments. But as pointed out in Chapter 1 the social and political costs of the adjustment had irreversible far-reaching consequences on national policy.
From the inception, Sri Lanka’s welfare programme comprising free education , free health care and subsidized food was universal and non-discriminatory in character . The benefits were available in equal measure to all, regardless of income. The universal character of the welfare programme had many positive features . Chapter 4 discusses how these programmes came to be perceived as entitlements and rights of the people and placed well-defined social obligations on the state. However some of these programmes had outcomes which seemed to go against the norms of equity . Studies have shown that the rich benefitted more from free education and the food subsidy than the poor. In the case of the food subsidy this was particularly applicable to subsidies on flour and sugar . When the food subsidy was removed in 1953 policy makers could argue that the costs had to be borne by the entire population. This however disguised the differential impact that the removal of the subsidy had on the different income groups. The subsidies formed a much larger share of household expenditure in the bottom 40% of households than in the rest of the population . This is the hard core of social injustice that is contained in most macro –economic adjustments that impact on the population as a whole. Every effort to reduce the food subsidy until 1978 – the abortive efforts made in 1962 and 1972 , the issue of the free ration in 1967 and the reduction of the food subsidy in 1973 – imposed the reduction uniformly on all the beneficiaries without regard to their income disparities. At this stage no consideration was given to the possibility of targeting the programme to the needy . . Even when the free food ration was given in 1967 the wealthy households were included. Had a food subsidy/food stamp scheme covering the low income households been introduced at this early stage, it would have made the food subsidy more equitable, dealt effectively with the fiscal deficit and significantly strengthened the management of macro-economic fundamentals from the early 1950’s onwards. Such an alternative would have offered scope for enhancing the subsidy to the poor households and provided them with a better resource base to improve their living conditions. . A targeted programme of this nature would have been politically acceptable. It is difficult to explain why policy makers failed to give serious consideration to an alternative of this nature over the entire period from 1948 to 1977. The policy failure probably stemmed from more deep-seated deficiencies in the process of policy formulation itself – a process which did not provide for in-depth study and analysis of development issues and the right type of interaction between public officials and politicians . In such a process the political leadership was driven by a concern for what was most favoured by the electorate and looked for policies which produced short term increases in household consumption. This situation could have been corrected only by an enlightened political leadership and a process of development education in which the electorate learnt to achieve the right balance between their short-term and long term interests. These problems are discussed in the section on participation in Chapter 2.
Reassessing the Periods of Slow Growth
In Chapter 5 I set the development story during the five decades after independence within the framework of economic growth . Table 1 in this chapter highlights the alternation of low and high growth during this period The periods of low and high growth co-incide with the alternation of power between the UNP and the SLFP. The discontinuities in economic policy impeded the process of economic growth, while the broad national consensus on the social welfare programme ensured steady progress in the social indicators. However the treatment of social policies in the preceding chapters do not give sufficient attention to the radical nature of some of the socialist- oriented initiatives that were taken in the 1956-1965 and 1970-1977 periods and the way in which they consolidated the rights-based, equity driven processes in our society.
The nationalization of key economic activities in the private sector – the port, passenger transport, the foreign oil companies, insurance, banking, graphite mining – was designed to give the state a commanding role in the economy. New large scale state enterprises were established to undertake manufacturing activities – textiles , steel, hardware, oil refinery, roofing tiles. Seen in their contemporary international context these policies were not unusual for democratically elected governments with capitalist systems. The post- war labour government in UK , the socialist governments in France , the government under Nehru’s leadership in India had already pursued similar socialist agendas- agendas which enlarged the role of the state, reduced inequalities in income and wealth and gave the public greater control over the economy.
The nationalization programme undertaken in Sri Lanka was directed at the new non-agricultural wealth that had been created in recent times by the local capitalist class. Consequently, these measures had a strong deterrent effect on private enterprise and was clearly a disincentive for new private investments. On the other hand , the SLFP-led government expected that the state enterprise sector it had created would be an effective substitute for the private sector as the main engine of economic growth. We have seen however that the outcome was the opposite of what was expected. The state enterprise sector proved not only incapable of generating the surpluses that were needed for investment and growth; they incurred heavy losses and became a major burden on the government budget. But this need not have been an inevitable outcome . It was argued at the time by proponents of the socialist ideology that the transfer of ownership from private to public would infuse a new energy to the economy and motivate the workforce to achieving higher levels of productivity. The shift away from private profit was expected to promote a new work ethos which would result in greater co-operation between trade unions and the management. However, the Marxist parties which controlled the larger part of the trade union movement did not see much political value in such a strategy and made no systematic effort in that direction. Marxist parties perceived the state as a capitalist state and public enterprises as part of the capitalist state. Regardless of these ideological positions, the strong political dissension and rivalry within and between the Marxist parties themselves prevented any such effort. Furthermore, the Marxist leadership of the trade union movement was soon contested by the two major parties the UNP and the SLFP who formed their own trade unions and as a result the trade union movement itself soon underwent a major transformatio . Meanwhile the SLFP led government was constantly under pressure from the trade unions with strikes and escalating demands. In all these circumstances, it is not surprising that the partnerships between workers and management that had been envisaged under a socialist- oriented government proved to be a non-starter. The socialist experiment to create a public sector which would become the engine of growth turned out to be a dismal failure.
Admiittedly the economic policies of the 1956 socialist oriented government led to the poor performance of the economy and the slow growth during this period. Then, aside from growth, what was there in these policies that we could consider as having some positive value , some features that led to certain desirable outcomes other than economic growth ?
In answer to this question one might say that what was positive lay in the over- arching character of the policy regime. The underlying thrust of the policy regime was equity-oriented if not egalitarian. Apart from the restoration of the food subsidy two other major institutional initiatives help us to define the character of the SLFP-led government as a “pro –underprivileged” regime These were the the Employees Provident Fund and the Paddy Lands Act. Both were significant measures at providing social security and empowering under-privileged sections of the Sri Lankan society. By its other acts of nationalization the 1956 government directly reduced the wealth and power of the capitalist elite and decisively called a halt to the liberal capitalistic direction in which Sri Lanka was moving under the UNP regime. They helped to moderate and contain the processes which were leading to concentrations of wealth and power in private hands. When all these measures are considered as a whole we discern an underlying egalitarian thrust and a concern for the under-privileged in the policy regime of the 1956 government that set the country on a course in which the policy makers were required to balance growth with equity and be constantly attentive to the widening income disparities and inequalities. Whatever changes of government occur these development fundamentals could not be ignored. When inequalities were widening under the liberalised market economy of the UNP in the 1980’s President Premadasa had to correct course with a large scale poverty alleviation programme.
This egalitarian thrust came to the centre of policy-making when the SLFP led coalition responded to the JVP insurrection of 1971. This they did with a radical redistributive policy package which was unprecedented for Sri Lanka. The package included a ceiling on incomes, a ceiling on ownership of housing property and land and compulsory savings. Legislation on termination of employment provided employees in the private sector with security of employment. These measures helped to reduce income inequalities in the short –term and produced far-reaching structural changes in the ownership of housing and land . In 1975 the government proceeded to nationalize the foreign owned plantations These developments were also accompanied by the measures which enlarged the responsibility and power of the public sector as in the 1956-65 period .
It can be argued that the equity oriented policy regimes of the 1956-65 and 1970-77 governments had a long –term favourable impact on the national distribution of income and assets . The structural changes helped to maintain the distribution of income on a relatively even keel over a long period . The Gini ratios based on household incomes recorded for the household surveys over the period 1953 to 2004 confirm this observation. The Gini ratio which was 0.46 in 1953 remained at 0.45 in 1963, fell sharply to 0.36 in 1973,( a drop which probably reflected the short-term impact of the 1971 policy package that followed the youth insurrection ) and then fluctuated between 0.43 and 0.46 during the period 1978/79 to 2003. It is only after 2005 it began climbing to 0.48 and 0.49.
The Bias towards Equity in Government Policies
The overview provided above does not tell us the whole story regarding the bias towards equity in the policies pursued by governments in power . In the periodising of history that I have adopted in the past writings that have are reproduced in this volume, the reader may get the impression of a sharp contrast in policy between the UNP-led governments and the SLFP led governments. The UNP led governments may come out as capitalistic, favouring the private sector and the richer classers and the SLFP with giving a larger place for the custodial role of the state and the goods delivered by the state and a greater concern for the lower classes. This may broadly correspond to the popular perception of the two parties. When we dig deeper into the class composition and social configuration of the two parties the differences are not so sharp There is not much systematic research done on these aspects of the two main parties but from the available evidence it is clear that both appear to have significant components of rhe same social and income classes although the weight in the upper income groups may be greater in the case of the UNP . Both parties have fairly strong trade unions affiliated to them. They are both well established in the rural sector and keenly compete for the rural vote.
When we examine their performance in terms of equity it is not surprising that we find major commonaities in their social and economic policies. This would probably explain why the UNP refrained from reversing some af the radical reforms that the SLFP implemented during their period in office . Important elements which each government contributed got incorporated in the total social and political mix which was taken forward. There were two major development prograsmmes on which there was a an overarching consensus and strong political commitment on the part of both parties – the social welfare programme and the programme for import substitution of rice and the alleviation of rural poverty. The social welfare ideology and the programme of free education, free health care, food security and land for the landless formed part of the agenda of the Ceylon National Congress . The Ceylon National Congress was led by the politicians who later formed the UNP . In its first budget the UNP Finance Minster who later became President claimed that Sri Lanka was “a social service state.” Again, the drive for import substitution in rice and the multi-faceted programme which included land for the landless in new agricultural settlements and village expansion with subsidised housing for the rural poor began with D.S. Senanayake as Minister of Agriculture during the Donougmore period He later led the UNP and became the first Prime Minister. Later in the 1980’s it was Premadasa, the UNP Prime minister and later President who implemented a nation wide rural housing programme, the resettlement of urban shanties and a poverty reduction strategy. The criticism of these programmes was that they were highly politicised , not subjected to the essential disciplines of project evaluation and did not achieve some of their main objectives But underlying the programmes, there were powerful concepts that had a far-reaching impact on the future approaches to poverty reduction. The phrase President Premadasa used to describe the programme – nathi bari aya athi haki aya kirima – ( to transform those who own nothing and are incapable to those who possess assets and have become capable ) encapsulated Sen’s concept of capability in the Sri Lankan setting .The possession of assets and the creation of capability became the centre of the poverty reduction programme. It could be argued that the programmes promoted a major attitudinal change among the poor , enhanced their dignity and self –reliance and raised their sights towards a higher quality of life.
What all this means is that equity and concern for the poor was not the exclusive preserve of the socialist-oriented parties. All parties shared these values to a greater or lesser extent and contributed to a pluralistic strategy of development that was unique to Sri Lanka. This may explain why parties themselves underwent transformations and gravitated towards the democratic centre. The Marxist parties shed their revolutionary ideology in the sixties and joined the democratic mainstream .In 1965 the UNP was ready to form a government in coalition with a Marxist group led by Philip Gunawardene. The SLFP moved away from their hardcore socialism and accepted the market economy as an essential part of economic growth in 1994. Militant groups which had undertaken an armed struggle against the state – the JVP as well as Tamil militant groups were provided with the opportunity of forming democratic parties and consequently found representation in Parliament. Of course all this occurred in a very adversarial political culture which produced ugly forms of post-election violence , vindictive treatment of defeated candidates and various types of discrimination against the political opposition. Admittedly these have been and to a lesser extent continue to be deep flaws in the existing democratic system. However it is important to note that simultaneously there were trends in the opposite direction towards a more inclusive and consensual polity. The concept of a more co-operative form of government which has emerged in recent times fits into this context .
Reassessing the rapid economic growth during 1977-1985
Most economic analysts have been inclined to focus mainly on the positive features of the economic reforms that were introduced in 1977. Re-reading chapter 5 in this volume I realized that I should have gone deeper into the conclusions I have drawn on the shortcomings of policy and mismanagement of the macro-economic fundamentals in the first phase of liberalization. The improvidence that we witnessed in private consumption and government spending during this phase was typical of the responses our policy makers have made during times when resources became available well above the average level. The economic behavior in these situations resembles the behavior which comes with windfall gains. Consumption rises to unsustainable levels and along with it government expenditure and imports. These were the conditions that prevailed in Sri Lanka in the 1952-54 period when commodity prices and with it export incomes rose dramatically in response to the Korean War. Sri Lanka’s economic reforms of 1977 followed a similar upturn when export earnings jumped by about 35% in one year from US$ 556 million in 1976 to US$ 774 in 1977 and rose to US$ 1,063 in 1980. For rhe first time after 1953 the balance of payments recorded a substantial current account surplus equal to 3.5% of GDP.
But by 1980 this favourable situation had been drastically reversed . The deficit in the current account of the balance of payments had risen to 16.5% of GDP. The value of imports at US $ 2051 million had risen to almost double that of exports at US$ 1,064 million. Since then the current account of the balance of payments had never recorded a surplus. The deterioration in the balance of payments stemmed from several factors – the rise in oil prices over which the government had no control and the increase in the imports of consumer goods and capital goods resulting from the expansionary impact of the government budget , the massive increase in government capital expenditure and the unprecedented increases in budget deficits during this period. The overall budget deficit escalated to 12.5 % of GDP in 1978 from 4.5% in 1977 and rose to 19.2% in 1980. Meanwhile both the country’s external debt and the total government debt were progressively increasing in absolute size and as a share of GDP. The external debt which had stood at 20.9 % of GDP in 1977 . had risen to 41.4% in 1980. During the same period, the total government debt had gone up from 58.5 % to 77.2% of GDP. By 1984 it had grown to 108% of GDP. The government foreign debt was equal to 62%. For the first time after independence the rate of inflation jumped to double digit figures increasing steeply from 1% in 1976 and 1977 to 12% in 1978, 11% in 1979 and 26% in 1980. While the government’s economic reforms were dismantling controls, lowering tariffs , devaluing the rupee and enabling the market to operate more freely and efficiently , policy makers were losing control of other critical macro-economic fundamentals .The World Bank in their country report on Sri Lanka for 1981 drew attention to the policy failures that had led to these grave macro-economic imbalances. Some effort was made to reverse these trends in the years that followed but the deficits in the budget and balance of payments continued to remain at a high level..
This brief re-appraisal of the phase of rapid growth that accompanied liberalization raises several issues. It was a period when resources became available in adequate or more than adequate measure. It gave the opportunity to manage the macro-economic fundamentals in a manner that would have set the economy on a stable foundation with surpluses in the current accounts of both the budget and the balance of payments and a manageable public debt of moderate proportions. Such a course of action would have enabled the economy to reap the full benefits from the liberalization of the economy which was being accomplished successfully with economic reforms and structural adjustments of a far-reaching nature. Such policies would have laid a strong foundation for sustainable growth over the long term. What is intriguing is that the two processes – the economic reforms and the mismanagement of the macro-economic fundamentals were proceeding alongside each other and government policy was not being co-ordinated to achieve the optimum outcome. It should be mentioned here that the Ministry of Finance did make a valiant effort to rein in some of the excesses in government capital expenditure without much success.
The conflicting processes that were at work in the period of rapid growth appears to be inherent to the institutions that had evolved in Sri Lanka’s democratic system. With the prospect of a large inflow of capital and external resource of more than usual proportions , the populist appeal of large-scale highly visible public projects seem to become irresistible . The Mahaweli project , the Parliamentary complex the Urban development programme the the new administrative capital city which coincidentally bore the President’s name all satisfied the required political criteria. There were also the constituencies which helped the government to come to power who were seeking a dividend from their support; the large -cale public sector programmes provided them with ample opportunity.
However we should not allow any criticism of the macro- economic management during this period to detract from the substantial benefits of the liberalization programme. It is possible to argue that had the government been able to sustain a reasonably high rate of economic growth during the second half of the 1980’s the macro-economic balances could have been corrected and that the massive investments on the infrastructure during the early period would have yielded higher benefits. Such a line of argument would take us in a different direction. The failure to sustain a high growth rate in the second half of the decade stemmed from root causes other than economic. After the outbreak of ethnic violence in 1983 the militant groups in the North were escalating the armed struggle. In the South the JVP insurgency launched a wide spread assault on law and order. Economic activities in all sectors were seriously disrupted and the rate of economic growth took a downward plunge during 1986-89. GDP growth was 1.5% in 1987, 2.7% in 1988 and 2.3% in 1989. The adverse impact on many of the new growth sectors such as tourism was severe.
The experience of the 1986-1989 period confirms the frame of analysis that was presented in the introductory chapter. Human development is indivisible and unless the economic social and political fundamentals are managed successfully together and progress made simultaneously on all three fronts, the whole process of development is likely to suffer. By 1985 we had removed most of the structural impediments to growth and the economy had been set on a path of high growth. But with the incapacity that we demonstrated in managing the political process, the political variables intervened and drastically reversed the anticipated economic outcome.
The Unpredictability of the Future and Development Planning
On hindsight there are many alternative pathways to which we can point that might have taken the country forward on a steadier , quicker pace. But if we apply the analogy of the upward climb in forested mountainous terrain to the development effort , foresight regarding the best path to be taken is an almost impossible task . The best path that could have been taken comes to one’s vision at a higher elevation when there is no longer the opportunity to take that path. One might question the contemporary relevance of this analogy and argue that advances in technology for charting out the path ahead – satellite imagery GPS and smart phones- have dramatically changed the capacities available for determining what lies ahead . But a hard core of the unknowable beneath the impenetrable undergrowth will always remain.
Financial crises that have overtaken the global economy despite the most technologically sophisticated forecasting models seem to demonstrate this unpredictability. Keynes tried to capture this unpredictability when he spoke of the “animal spirits” that underly economic behavior and recognized the uncertainty that is at the heart of the future trends. Using Keynes’ concept, Akerloff and Schiller in a fascinating analysis of the global financial crisis of 2008 in their book “Animal Spirits” deals with what they claim are the root causes of this uncertainty – “the non-economic motives and irrational behavior” that guide much of economic behavior . But the uncertainty arising out of animal spirits – the drunken behavior to which George Bush referred when he described the Wall Street crisis- does not deal with the unknown of which Eliot and Schumpeter speak. In their approach the lesson that can be learnt is that no lessons learnt with reference to the past are sufficient.
This unpredictable element both in human behavior as well as the way in which external events unfold , this element for which statisticians use the term stochastic, this randomness in life – occurs with a frequency which makes it difficult for us to impose an order on it and enable us to foresee the future. The story of Sri Lanka’s development is replete with these unpredictable events – the assassination of political leaders, the insurrection of 1971, global financial crises at different times, natural disasters like the Tsunami of 2004. In each case there had to be a major re-ordering of agendas, plans and policies. These are all variables that are unknown when we started building our plans for the future. At the household level we absorb this unpredictability in our everyday lives – accidents, unforeseen illness, death, unemployment. We try to deal with them as best as we could, laying aside resources for future use, insuring against loss and death , hedging against the unpredictability of the future , acquiring a capability that would not render us powerless in the face of unexpected events. How does this process translate to the community and national level where the unpredictability affect the larger systems? Where does this leave us when we face the challenges of the future? What is the nature of the capability that we must acquire at the collective and national level – the physical and human capital – to deal with the hard core of unpredictability, the surprises that lie in wait as we prepare our plans and attempt to take control of our future? This question brings us back to the issues that were raised at the beginning of this chapter.
The insights that are provided in Eliot’s poetry, Schumpeter’s economics or Keynes’ animal spirits should not lead to us to sweeping conclusions It would be wrong to conclude that the lessons to be learnt from the past are of no value in providing guidance for the future or that national planning for the medium and long term future is a worthless exercise. The insights however compel us to rethink our approaches to planning and predictability . Our experience with both the Ten Year plan for the period 1958-67 and the Five year Plan for 1971 -1975 brought home to us the inherent limitations of the planning methodology that had guided these exercises. In both cases shortly after the publication of the plans the economy faced a serious foreign exchange crisis which rendered the forecasts of external resources made in the plans wholly unrealistic and seriously impaired the feasibility of the plans. In the case of the Five Year Plan the shock that came with the youth insurrection compounded matters further The planners had not paid adequate attention to the element of unpredictability that had special significance in the case of Sri Lanka . The economy was heavily dependent on the exports of a few primary commodities and was exposed to external shocks which made it highly vulnerable. The forecasts in the plans had ignored the variability of the market and its impact on the course of events even though the past had provided ample evidence. As a result, the plans as instruments for decision- making lost their relevance as policy makers became fully pre-occupied with the management of the crises. All these problems that beset the national plans that were prepared in the pre-1977 produced a reactions against the process of national planning itself.
After the economic reforms of 1977 the type of national macro-economic and sectoral planning that was undertaken in the pre-1977 period was virtually abandoned. Even the term “planning” was viewed with disfavor as it had connotations of a state-driven economy; the word “programme” came to be used instead, to describe the short-term investment plans and frameworks that were prepared to guide policy in the post 1977 period. This rejection of planning as understood at the time partly arose from the market-oriented ideology. The market economy demanded a freedom from state controls and national planning which attempted to direct private decision making and enterprise. It called for a more flexible and open process of planning and policy making in response to market conditions, a process in which the market plays the primary role in guiding public policy and planning . In such an approach however a comprehensive overview of development and the long term vision of the future that national planning provided was missing.
Sri Lanka needs to take note of the fact that countries with strong market economies and a remarkable growth performance- Japan , South Korea, Malaysia Singapore- retained a process of planning which provided such a long term perspective and vision to guide their societies. The long term planning in Japan had a major impact on development strategies and policies . Miguel Urrutia who directed a study on “Development Planning in Mixed Economies” states that “Japanese economic plans in the post-war period were basically indicative and they played an important part in forming a national consensus on the restrictions to be overcome and the efforts and sacrifices to be made by certain groups to achieve development for all” . The plans in these economies performed a valuable function in motivating and mobilizing the whole of society for the achievement of development goals, balancing consumption with savings and investment and reconciling the short-term needs and expectations with a long-term vision of what is desired for the future. A Japanese scholar described the Japanese planning process in the following terms . “Japan’s National Income Doubling Plan noted that the economy consisted primarily of two sectors ,the public and the private. The former consisted of collective social facilities provided by government . For this sector, feasible and detailed projections should be provided in a plan to secure a well-balanced formation of social overhead capital in such areas as industrial infrastructure, roads urban construction public housing … ; for the latter sector which depends on the initiative of individual persons and enterprises , a plan should provide only a reliable overall perspective for development.” It should be noted that among the developed economies Japan was subject to frequent natural disasters and perhaps the most vulnerable to the stochastic element in development. Japan’s planning process helped to acquire a capability and a state of preparedness to deal with these challenges .
New and innovative methods and techniques such as scenario building have been employed by planning agencies at different levels to incorporate the element of unpredictability and surprise that are now available for planning in a market economy. The planning exercise in the post 2005 period – the Mahinda Chintana – displays an imaginative and creative quality that is new to Sri Lankan planning and it should be possible to build on it. These elements are present in the concept of an international hub or the vision of a megapolis. Planning would also then mean envisioning a desirable society , a disciplined effort at imagining the future as it ought to be. However these issues concerning planning in a market economy and dealing with unpredictability cannot be dealt with in all their complexity within the limited scope of this chapter. For the purpose of this volume, I am only flagging them in order to ensure that we do not lose sight of them when we evaluate Sri Lanka’s development experience.
The attitudes to planning which I have examined above bring us to another set of issue concerning the choice between normative and positivistic approaches to development The global discourse on development that evolved with the establishment of the UN system at the end of the second world war contained two broad strands . The initiatives that followed the Universal Declaration of Human Rights and the insitututions and Conventions based on it generally adopted the the normative approach. It sought to uphold the norms and values agreed upon in the declaration and the Conventions, defined goals and objectives that envision the world as it ought to be and charted the path that has to be taken to arrive there . They came up with long term development strategies of development. They strongly advocated methodologies and institutions for the planning of development. The other set of institutions in the global system – the World Bank and the IMF – took a positivistic approach. They examined and analysed past policies and their outcomes and their prescription for the future were based on the base of evidence coming from an analysis of the past . Their “norms” were derived from the outcomes of policies and actions after these had gone through the crucible of the market. The former- the normative had a distinctly moral and ethical dimension that the latter avoided. But it would be incorrect tio conclude that the two approaches were mutually exclusive . In the last six decades they have grown side by side and interacted closely contesting each other where sharp differences emerged in certain policy areas. Structural adjustment was one such area where the UNICEF insisted on a more human-centred approach. In the course of time there has been a slow convergence of these two schools of thought. On the side of the UNDP and UN agencies there is less emphasis on planning as it was advocated in the earlier period. There is a fuller recognition of the role of the market. On the side of the World Bank and IMF there has been an effort to incorporate the system of values based on human rights , more importnance given to the role of the state and eradication of poverty has been brought into the centre of the development agenda . The Povery Reduction Strategies sponsored by the World Bank and the recent focus on income inequality by the IMF are witness to this change. Nevertheless the two approaches- normative and positivistic- derive from fundamental differences in the paradigms of development that underpin them and we must not allow the convergence to blind us to these differences.
The Rights- based Approach to Development
In my Chapter on the Right to Development I look back on Sri Lanka’s development from the normative perspective of Human Rights. The focus in the chapter is on the Right to Development and the rights- based approach . A large part of the analysis is directed at examining how the social welfare programme and the benefits they provided became a process of empowerment and were perceived by the people as entitlements and rights. This was in fact the main purpose of the study. In re-reading the chapter I realize that in concentrating on the rights components of the social welfare programme and its positive aspects I have pushed some of its negative outcomes to the background . Elsewhere, in other chapters in this volume, I have commented on them- particularly in the last part of Chapter 3 . The attitudes that were inculcated by the Social Welfare programme and the adverse effects they had on productivity and growth need to be placed more clearly within the context of the rights based approach. If the social welfare programme encouraged a state of dependence, the rights based approach should have worked in the opposite direction and fostered a spirit of independence and self reliance.
The concept of human rights and rights -based relationships is a secular democratic concept based on relationships between equals. It is grounded on the right to equal treatment . The social welfare programme with its objective of promoting the well-being of all helped to strengthen these foundations of democracy in Sri Lanka . In my analysis of the social welfare programme in Parts 1 and 2 I point to the relationship that grew between the elected representatives and their constituents from the time of the Donoughmore Constitution and how the newly introduced democratic institutions nurtured this relationship. This relationship however had begun in a society which was still highly hierarchical with a pre- democratic social stratification . It had a large element of the patron client-relationship and had roots in the traditional relationships between the “haves” and “have nots”. These were relationships of dominance and subservience in which higher status carried obligations to act benevolently and grant assistance when the need arose and lower status gave rise to what were considered legitimate expectations of such benevolence. Patron-client relations of the feudal pre-modern era are in fact the opposite of the modern rights- based relations. In the case of Sri Lanka, the people’s attitudes to the social welfare programme and their expectations of it had a complex mixture of both. The political elite who gained power in the new democratic dispensation were all members of the upper social strata. The manner in which they related to their mass electorate and the mass electorate related to them was shaped by the interaction of two contradictory sets of values – one based on hierarchy and patronage the other based on democratic representation and equality of citizenship.
One consequence of the patron-client element in this relationship was to make people look on the state as the all-resourceful benefactor and make them overly dependent on the state . People expected the state to take responsibility and provide financing even in matters where self-reliant community-based efforts could have been taken and would have brought more sustainable benefits. Another consequence was that in their expectations of state benevolence the people seldom inquired whether the state had adequate resources to satisfy their demands. They tended to perceive the state as an entity outside of themselves , failing to realize that ultimately the state was their creation and that ensuring that the state had a sound resource base to deliver the public goods and services they enjoyed was part of their civic responsibility. In such a context , policy making became a well-nigh intractable task, an arduous process of negotiation and compromise that led to choices and decisions which are far from optimal.
In my chapter on rights-based development I do not specifically focus on these issues and discuss how the values based on human rights and the right to development will replace the syndrome of dependency that grew with the social welfare system. There is no doubt that the consciousness of rights have reached all parts of the country . This is manifested in how even the remotest communities have learnt to articulate their demands and how the media have given a public voice to them . But to be fully effective the concsciousness of rights must also be able to instill the necessary civic responsibility and create the ethos and diciplines that go with a developmental culture . While I do not examine these aspects in depth in my chapter, I spell out some of the mechanisms and processes for the implementation of social and economic rights that might help to promote this transition. I argue that development plans and policies from national level to the local should be designed as a process in which citizens are entitled to the progressive realization of their social and economic rights .We will then be designing instruments which will enable the people to make the power-holders more accountable to them. The state’s accountability will be firmly linked to targets for achieving states of well –being that can be continuously monitored. The development process will have a transparency, over which the citizens can exercise surveillance. People’s participation and democratic accountability for development will then become a reality.
Learning from International Comparisons
When evaluating Sri Lanka’s developments, analysts are often inclined to make international comparisons and measure the Sri Lankan performance against that of Asian countries which were well below the level of per capita income at the time Sri Lanka became independent. In Chapter 5 I briefly discuss the limitations of such an approach. I am revisiting this issue as I recall one of the co-editors of the book which published my contribution commenting that I have might dealt with some of these issues in greater depth.
The World Bank report on Sri Lanka in 1952 states that Sri Lanka’s per capita income of US 120 dollars was at the time “next to Malaysia, … the highest in Southern Asia”. The oft cited example is that of South Korea whose per capita income was at about the same level of per-capita income as Sri Lanka’s in the beginning of the nineteen sixties. Thailand is another example whose per capita income was lower than that of Sri Lanka in the early 1950’s but which moved well ahead of Sri Lanka when measured both in US dollars as well as PPP dollars. But there are many examples where the reverse also is true; countries which were ahead of Sri Lanka have fallen behind. In the Ten Year Plan The Philippines is shown as having a per-capita income considerably higher than that of Sri Lanka. In terms of human development it was at almost the same level in 1960. By 2014 it has narrowed the gap in per capita incomes in terms of the US $ income ,outstripped the Philippines in terms of the PPP dollar income and progressed much further in human development moving into the high human development category while the Philippines stagnates in the medium human development group. The comparison with Jamaica produces a similar result . Both in terms of per-capita income in US dollars and human development indices, Jamaica ranked four places above Sri Lanka in the Nineteen Nineties . By 2015 it had fallen well behind Sri Lanka – 23 places behind . Another revealing example is Brazil which had been able to sustain very high rates of growth over long periods but which continued to remain several places below Sri Lanka in the human development index for the entire period from 1990, the year the index was introduced, up to now.
The diverse results that these comparisons produce must give us a more balanced perspective of Sri Lanka’s performance than what we get when we measure Sri Lanka’s failures against the outstanding
Human Development Index Trends
Very High Human Development
|HDI rank among 188 countries|
|2.||Republic of Korea||0.628||0.731||0.821||0.886||0.898||17|
High Human Development
|HDI rank among 188 countries|
Medium Human Development
|1980||1990||2000||2010||2014||HDI rank among 188 countries|
performance of a few. Such a balanced perspective is essential if we are to draw any lessons from the successes and failures of other countries. At the broadest level it is not difficult to draw some lessons from this diversity. The outstanding successes came from a development strategy that moved all three sets of development indicators forward . Human capital was developed rapidly, growth oriented policies were pursued, a large measure of political stability and continuity was achieved. South Korea is perhaps the best example of this successful combination. As far back as 1974, Irma Addelamn in a contribution to a joint study undetaken by the World Bank and Insitute of Devleopment Studies Sussex on Redistrbution with Growth provided a succinct analysis of South Korea’s success. A radical redistribution of assets with the post war land reforms was followed in quick succession with what she calls “an educational explosion” of major proportions and a labour intensive export-oriented strategy of growth.
In contrast Brazil concentrated almost exclusively on economic growth and achieved unusually high rates of growth sustained over long periods between 1950 and 1980 . Meanwhile income inequality and regional disparities worsened; the rise in life expectancy and level of educational attainment remained quite low. Economic growth itself became unsustainable owing to serious internal inconsistencies in the mix of policies which placed the main emphasis on import substitution and at the same time aimed at increasing exports. Consequently on the economic front Brazil ended with a long period of very low growth, a public debt of unmanageable proportions, large deficits in the balance of payments and the government budget and bursts of hyper- inflation . On the social front it had one of the world’s worst structures of income inequality and one of the world’s highest Gini ratios at O.54. The proportion in poverty according to the national poverty line was in the region of 20% during the period 2000-2012 While Brazil’s per capita income remained well above that of Sri Lanka – 14,275 PPP $ in 2013 compared to 9,250 PPP$ for Sri Lanka – the key social indicators , life expectancy at birth and mean years of schooling, were below those of Sri Lanka
Jamaica is a different case where negative rates of economic growth over a long period led to a steady decline in its comparative status in terms of human development during the period 1980 – 2102. In 1980 it was well ahead of Sri Lanka in economic growth , health and education . By 1990 the gap had narrowe , by 2000 Sri Lanka had overtaken Jamaica and steadily gained on its lead in the period that followed. The average annual rate of GDP growth during the period 2000 -2915 has been estimated at a level below 1% . The low growth stemmed from multiple causes – heavy dependence on one mineral export, an unfavourable external environment, natural disasters , a large outflow of migration mainly from among the skilled and highly educated, internal conditions such as one of the highest crime rates in the world and excessive security costs which act as a disincentive for foreign investment and above all poor macro –economic management in dealing with these problems.
When Sri Lanka’s development is placed in the context of these three cases , Sri Lanka is ahead of Brazil mainly on account of Sri Lanka’s progress in terms of social well –being and equity. It is ahead of Jamaica on account of its higher economic performance and higher rates of economic growth . In general terms, Brazil illustrates the case of high growth without progress in terms of equity, Jamaica the case of a reasonable level of equity without adequate economic growth . It trails well behind South Korea’s exceptional performance because it was unable to achieve the right combination of equity and growth, thereby missing the opportunities for sustained high growth in critical periods of its development. But when we have made these comparisons and drawn these broad generalisations there are three caveats that must be added.
First there is a grave danger that in making these comparisons we may fall victim to one of two extremes — assessments that are at the two opposite ends of the scale – one excessively favourable based on our exceptional performance in terms of the social indicators, the other excessively negative based on the comparison with the spectacular economic growth of South Korea. Sri Lanka’s economic growth itself although lack-lustre when compared with South Korea, Singapore or Thailand showed steady improvement over the last six decades – an average of 3.7% in the 1950- 1977 period , 4.9% in the 1977- 1990 period ; 5.3% in the 1991—2000; 5.5% for the 2000-2009 period despite one year of negative growth (2001) and 6.8% in the 2009 -2014 period . It gains progressively in momentum and appears to reach a trajectory of higher growth at each stage indicative of structural changes that are sustaining the higher growth as it moves from phase to phase. If we exclude the exceptional achievers such as South Korea and compare Sri Lanka with other middle-income countries Sri Lanka s growth performance is impressive and places it among the highest achievers in the middle-income category. On the other hand we often tend to exaggerate Sri Lanka’s social achievements and make excessive claims for the exceptional nature of the achievement. We also tend to imply that the social achievements more than compensate for any shortfall in economic growth. What is to the credit of South Korea, Thailand or Malaysia is that they achieved high social indicators along with high economic growth and this they did without large public outlays on social welfare programmes. This contributed to the sound fiscal policies they were able to pursue.
The second mistake we tend to make is that we assume that we could have replicated the experience and policy mix of the countries which achieved spectacular success and continue to believe that we can do so now. In doing so we ignore the uniqueness and specificity of each country’s developmental experience. We forget the uniqueness and specificity that is an inherent part of life in all its manifestations – like the DNA or finger print of an individual which is unique to that individual. The whorls are very similar in appearance but the pattern is unique. Likewise, in each of these countries to which we refer the pattern is unique. What we can learn from each of their successes or failures has to be reconstituted in our own unique pattern. For instance, South Korea’s success was based on factors which cannot be reproduced elsewhere. The equitable foundation for growth was laid by the Allied powers which carried out sweeping land reforms that created an economy of small owner-operated farms and directed large scale private investment to manufacturing and other non-agricultural sectors. Geo-politically South Korea played a strategic role in the cold war and attracted a large volume of aid, technical assistance and external resource on account of this special position. It was in close proximity to the fastest growing economy of the world at the time – Japan, and found preferred entry to US markets that assisted its export –oriented growth strategy . Its natural resource base was more diversified and richer than that of Sri Lanka. Above all, the propensity to save ,the work ethic and the high productivity of its workforce which contributed to its success was derived from a value system and institutions that were culture specific. South Korea’s policy mix was embedded in these conditions We cannot simply extract the policy mix and expect it to work in the same way as it did in South Korea. Similarly, with the case of Singapore with an economy which was primarily urban without all the complex problems of an economy such as Sri Lanka’s. Sri Lanka had to begin with all the complexity of a dualistic economy consisting of a well developed large scale plantation sector alongside a large backward rural sector at subsistence level. With its city economy Singapore was able to develop a large public housing sector covering almost the entire population. This gave it the leverage to extract an exceptional high rate of “compulsory savings” from its working population and accumulate a capital base which gave it a measure of macro- economic stability which was entirely beyond the reach of Sri Lanka . All of this was possible in the case of Singapore because political power became concentrated in one political party which was able to give unusual continuity and stability to the policy regime. Therefore the lessons to be learnt from other countries must be approached with humility. We need to recognize that the successes or failures of other countries are embedded in the complex histories of those countries and the process of learning from them requires a deep understanding of their history.
This brings us to the political dimension of the development that took place in these countries. If we take account of the political indicators in our comparison , with the exception of Jamiaca none of these countries – South Korea Brazil Thailand Singapore Philippines Malaysia will score in terms of an uninterrupted sustained record of democratic government as Sri Lanka would. We observe in some of these countries periods of high growth went together with the overthrow of democratic regimes and the installation of dictatorship. The outcomes for these dictatorships were different for the different countries. The dictatorship in South Korea implemented successfully a strategy of export-oriented growth with spectacular results building on the foundation of equity already laid, launching the country on a long uninterrupted process of high equitable growth. The transition to democracy occurred in a relatively peaceful manner. The dictatorship of Brazil achieved high growth but on a foundation of high inequality focused mainly on import substitution. The phase of high growth ended with worsening of inequality and major macro-economic imbalances which destabilized the country politically . These stories raise another question regarding the quality of the political goods these societies were able to provide. We have had no conclusive answer to the question that has been often raised regarding political systems and growth; are authoritarian systems more favourable to economic growth than democratic ones? The fact that political regimes in Singapore and Malaysia with their bias towards one –party rule have authoritarian characteristics even while they have representative democratic systems has been frequently cited to support the arguments that authoritarian political systems produce better economic outcomes . As against this there are many examples of dictatorships in which periods of high growth have been followed by renewed political and economic disorder. Pakistan and Brazil are two examples that come the mind. However ,the comparative economic performance of authoritarian versus democratic regimes has now become a non-issue ; we have come to accept that the political freedoms and civil liberties that are best guaranteed by democracy are an indivisible part of human development and have an independent value by themselves. Sen’s thesis on the five freedoms is now part of the conventional wisdom on development. In Sri Lanka’s case the capacity it demonstrated to protect its democratic institutions through several social upheavals and a prolonged civil war has demonstrated the resilience of the country’s democratic system. This must come into any comprehensive assessment of Sri Lanka’s development performance. Even then it should not blind us to the fact the challenges that Sri Lankan democracy faced were themselves due to the failure to find peaceful and democratically negotiated solutions to the issues arising from its ethnic relations and the sharing of power. These failures have had an economic impact of a far-reaching nature. Studies have estimated that the average annual loss to the economy as a result of the nternal armed conflict was in the region of approximately 2% and consequently Sri Lanka might have achieved a rate of economic growth of approximately 7% from the mid-1980s.
In making international comparisons of this nature we need to bear in mind that we are isolating a process common to all these countries – the proceess of devleopment and then measuring the average well being that they have achieved . The countries themselves to each other in the terms of territorial extent size of population and their relative weight in the world economy . Brazil is now the fifth largest economy and is emerging as a major economic power It is a partner of the powerful alliance of emerging powers – The BRICS. South Korea is more than double Sri Lanka in terms of their population is still facing the trauma of partition. At the other end Jamaica is only about one eighth the size of Sri Lanka in terms of is population. Among these countries we have countries in which the large majority is an immigrant population and settled societies with avery long history in their habitat . These factors surely must have a powerful influence in shaping the consciousness of a society and its development. But we take these differences as given and do not allow them to enter into our development analysis.
One final word of caution about the use of indictors for making international comparisons . I have relied exclusively of the Human Development Indicators for the purpose of evaluating and comparing the state of development of countries. The scholars that have developed these indicators use outcomes of development which are quantitatively verifiable. They avoid using process indicators with a subjective element such as governance indicators which rely on subjective perceptions and valuations of respondents Numerous indices such as the Happiness indices , the Life satisfaction indices are based on perceptions of qualitative valuations of this type . In many of these Sri Lanka’s ranking is different For example in the Social Progress Index of the Economist, Sri Lanka has a lower ranking than Brazil and Jamaica . While each of these Indices undeniably have their uses and give us insights into the quality of development they are less reliable for purposes of comparison. Of all these the HDI emerges as the least controversial and most verifiable in quantitative terms.
Learning from Our Own Past
How then do we learn from our own past or from the comparisions with other countries which, fifty years ago, were near our stage of development at a little higher or lower level ago ? It is always an interesting task to speculate how we could have taken sounder decisions and acted more wisely and where we might have been if we had done so. There is alos always the danger that such an exercise may create a mind-set that is self- deprecatory, immured in past failures and lamenting the futures that we lost. There is a tendency for this to happen frequently in our approach to Sri Lanka’s development after independence. As against this, the process of learning from our own past or from others has to be a healthy robust liberating process. It has to be selective and discriminating. It has to help us to shed our servitude to the past. It has to provide us with a new capability to deal with the future. “History is servitude. History is freedom “
The historical analysis of Sri Lanka’s development is replete with references to what are presented as missed opportunities. For instance, the World Bank mission in its country report in 1981 question the wisdom of Sri Lanka’s emphasis on import substitution in rice and that if the resources had been used for investment in the tea plantations the increased earnings that it would have obtained from additional tea exports would have paid for all the import of rice it needed to feed its population. In this simple choice between import substitution of rice and export of tea, assumptions are far too simplistic, the imponderables are far too many and the most likely outcomes very different from what the World Bank economists have envisaged. During the period 1955-1965 production of tea rose by 25% and export volume of tea rose 36% but export prices for tea fell by about the same amount . With the substantial extra effort and larger output, the tea sector was not making any additional contribution to the balance of payments. The tea sector was running in place. How the international market for tea would have behaved if there was a large scale increase of exports from Sri Lanka is an imponderable on which one cannot come to any reliable conclusions .The World Bank also does not take into account the substantial non-economic benefits that came from the rice production programme — the social and economic advancement of the backward peasant sector , the integration of the economy with the reduction of its dualistic character , the acceleration of the demographic transition and the rural urban balance.
There are also some lessons that we might learn from the timing of policies aimed at major changes and reforms. What Sri Lanka’s development indicates is that big changes have to bide their time . Economists have argued that the 1977 reforms could have been brought forward and implemented during the 1965-70 regime . In fact a package of proposals had been presented at that time by a group of economists working with the then State Minister , J.R.Jayawardene . Dr Gamani Corea opted to go ahead with more cauitios reforms – partial liberalization with a dual exchange rate. The elctions that followed that even thesde rdeforms were unpopular with the electorate. The SLFP led coalitrion with a socialist agenda swept into power . One of the major platforms of their election campaign was a strong critique of World Bank prescriptions. When the economic reforms were introduced in 1977 there was no serious political resistance. The seven year period of economic stagnation, rising unemployment, the hardships imposed on the people by the socialist –oriented regime had intervened . A youth insurrection and a radical set of social reforms had reduced income inequalities and concentrations of private wealth. The flow of aid and the increase in export incomes had offered an unusual opportunity to carry through the market –oriented reforms without any serious cut back on social welfare. The UNP had come back with a commanding majority and the socialist ideology had been firmly rejected. The key political, social and economic variables converged to provide condition which were quite propitious for sweeping reform. Looking back on the way in which economic reforms were implemented in Sri Lanka we realize how a wide range of heterogeneous factors combine to make a decision untimely or timely and policy makers themselves are never fully in control of all of these factors. It is a realization that has a sobering effect on our judgments of past policies and actions.
Drawing lessons from the past is a hazardous task requiring the dispassionate state of mind and the intellectual integrity which enable us to steer clear of any partisan approaches or ideological biases. When we judge past policies we must be careful to place them in the context of the knowledge of development that was available at the time and enter into the contemporary valuations of the choices that were made. For example when Sri Lankan policy makers followed the socialist oriented model in 1956 the policies of the post- war Labour government in UK, the Beveridge plan with its blue print of a welfare state, the nationalization of key private industries , the role of the state in planning and directing the economy for the collective good , all these contributed to the attractiveness of the socialist model. At the time Sri Lanka took a socialist oriented turn the communist countries were performing well; their economies were among the fastest growing economies in the world and they had achieved remarkable progress in raising life expectancy eradicating illiteracy and the worst forms of poverty. In this context, it would be difficult to fault Sri Lankan policy makers for the expectations they held concerning the socialist agenda. However, Sri Lanka’s performance with its mix of representative democracy and a state–driven economy with state owned enterprise fell far below these expectations. What is the lesson that we gain from this part of our past? Is it that we must reject the socialist system and policies associated with it in their entirety? In the section on “reassessing the periods of slow growth” I have drawn attention to the positive contribution that the socialist component and its “egalitarian thrust” made to the total development mix in Sri Lanka.”
Regrettably, as a result of the swings of power that Sri Lanka experienced, the process of learning from the past has often been an unproductive exercise resulting in some sharp discontinuities in policy. I have spoken of the inclusive pluralistic nature of development in Sri Lanka taken as a whole. This must be placed alongside some discontinuities both in programmes and policies that we observe at the sectoral and micro-level . Each succeeding government was inclined to disown specific programmes and policies which the previous government had done, attribute current problems and crises to the policies and actions of the previous government and make a travesty of the process of learning from the past. There are many examples to demonstrate this. The “food drive” in the 1965-70 period was a rare example of successful sectoral /micro-planning and plan implementation. But with the change of government in 1970 it failed to receive the same political leadership and policy drive and was even discredited The co-operative and rural development movements that developed under the post-independence UNP government became two key rural institutions for social mobilization and development of the rural sector . The government that followed was inclined to discard the lessons that were learnt in the 1948-56 period and failed to build upon it. During the 1965-7 period the Ministry of Planning and Economic Affairs put in place the institutional infrastructure and developed the human resources to promote a sound and effective planning and plan implementation process from the national to the divisional level. The government that succeeded virtually rejected the process of national planning in its choice of an open market economy and even refrained from using the term for planning exercises that it undertook.
The adversarial approaches that have pervaded our political culture prevent our gaining full knowledge of the context in which policies have been made and obstruct the process of learning from each other .I shall conclude with two other examples of how the learning process is distorted in the contemporary discourse on development in Sri Lanka.- the public debt and government taxation. The Table below gives the data on the growth of the external debt the public debt and the decline of revenue for the period 1977-2015 when the two major parties were in power. As stated earlier the total external debt jumped form 20.9% of GDP in 1977 to 40.8 % of GDP in 1978 after the UNP assumed power and embarked on a high growth strategy. The total public debt increased from 68% to 72% of which the government foreign debt had increased from 16.4% in 1976 to 34.8% in 1978 . In 1989 the external debt had reached an all time high of 73.6% of GDP and the total public debt an all-time high of 108.7% of
TABLE : EXTERNAL DEBT, GOVERNMENT DEBT AND GOVERNMENTB REVENUE
|Year||External Debt as% of GDP||Government Debt as % of GDP||Revenue as% of GDP|
GDP. During this entire period however the UNP government maintained government revenue at a reasonable level above 20% of GDP. In 1989 it was about 24% . By maintaining the share of revenue in GDP at about the same level it was keeping pace with GDP and growing at the same rate as GDP. In 1994 when the SLFP- led government assumed office The total public debt had declined slightly to 95% of GDP and the external debt to 70.8 %. The total debt fell to 85% of GDP in 1997 and then began climbing to a high of 105.6% in 2002 and then began to decline steadily to 68 in 2012. In 2015 it has risen to 76.0 The total external debt had dropped to 54.4% in 1976. Alongside the decline in the public debt as a share of GDP, government revenue as a share of GDP began declining at an alarming rate after the SLFP led government took over. After having maintained the share at a little above 20% in 1994 and 1995 the government allowed the share to decline steadily by about 1% of GDP each year till it declined to about 11% in 2014. Inexplicably this process went on for nearly two decades without any serious effort to reverse it . The decline apparently commenced with the replacement of the Business Turnover Tax with VAT and the problems of coverage and collection associated with the VAT . There was no close watch kept on the medium and long term impact this steep decline in revenue would have on the servicing of public debt as well as the other impacts it would have on the performance of the economy. While revenue was declining the government was still able to reduce the fiscal deficit for a variety of reasons including foreign borrowing at lower interest rates than prevalent in the domestic market. The decline in revenue was around 9% of GDP down from 20.1% in 1996 to 11% in 2014. Compared to this decline in revenue the overall fiscal deficit during the period 2010 to 2015 ranged from a high of 7.4% of GDP to a low of 5.4%. The ratio of Indirect taxes to direct taxes was in the region of 60:40 A tax system which was already regressive moved steadily in favour of the rich under a government which was avowedly socialist- oriented .
The current discourse on the public debt focuses on the heavy foreign borrowing by the previous government. It does not attempt to go into the history of the problem and the way in which both governments have contributed to it . It does not take into account the way in which the problem of managing the public debt is compounded by the decline in revenue . Also ,In the adversarial political system in which the discourse takes place there is little effort to understand the full rationale of the opponent’s policies . The problem of the public debt itself gets magnified out of proportion. The past policy makers expected the momentum of high growth to be maintained and in the process the management of the public debt to be kept well under control. The size of the public debt by itself need not therefore be a cause for panic if it is a part of a strategy which expands the economy and promotes adequate growth. In any case an impartial historical review of the public debt demonstrates that the SLFP led governments were successful in reducing the public debt as a share of GDP from the high levels it had reached under the UNP government. On the other hand the SLFP-led governments were primarily responsible for the disastrous decline in revenue. Commenting on Greece’s financial crisis Amartya Sen makes some insightful observations recalling the experience of post war Britain in a critique of the policies advocating austerity in times of crisis. Here he refers specifically to the panic reaction concerning the size of the public debt. These comments have relevance for the Sri Lankan discourse on public debt and add to our knowledge and understanding of the issues involved .
“When Britain went for pioneering the welfare state and established the National Health Service, among other ways of expanding the public services, …..the ratio of debt to GDP was larger than 200 per cent, much more than twice what it has been at any point in recent years. Had the British public been as successfully frightened about the debt ratio in those days, the NHS would never have been born, and the great experiment of having a welfare state in Europe (from which the whole world from China, Korea and Singapore to Brazil and Mexico would learn) would not have found a foothold. A decade later, when Harold Macmillan, as a buoyant new prime minister, told the British people in July 1957 that they had “never had it so good”, the size of government debt was more than 120 per cent of GDP – immensely higher than the ratio of roughly 70 per cent in 2010 when Gordon Brown was accused of mortgaging Britain’s future by profligacy.
The scare was not there from the late 1940s through the 1960s, with Labour as well as Conservative governments in office, perhaps because the scares were more scarce then. And armed with good public services and a flourishing market economy, Britain steadily reduced its debt-to-GDP ratio through economic growth, while establishing the welfare state and a huge array of new public services.”
A close analysis of the historical roots and origins of a problem should form a critical part of the knowledge base on which policies are made. But if such an approach is to provide the right lessons it must steer clear of the partisan adversarial bias that for the most part has characterised the Sri Lankan discourse on past development policy. When we take adversarial positions we avoid asking the right questions about the past and tend to ask questions which are partial. We focus on the large size of the public debt without asking more fundamental questions about the desirable size of the public debt and how it should fit into the overall strategy of public investment and development or about the choices we should make between foreign borrowing and foreign direct investment. When it comes to taxation we focus on the present increases in a specific tax like VAT ignoring the fact that it was higher a few years ago and even then government revenue was woefully inadequate to finance public expenditures to serve the needs of the people . The pertinent question would be: “what is the desirable structure of revenue to meet the present and future needs of the people and how should the taxes be distributed more equitably” . Our inquiry into how the problem evolved in the past must be defined in a manner which brings all stakeholders together in a constructive effort to find effective solutions to the present problem .
In this commentary I have attempted to elicit a set of lessons that would temper our understanding of Sri Lanka’s past development and provide a perspective that is more inclusive , that attempts to steer clear of deeply ingrained adversarial and ideological biases. In looking back and trying to draw lessons from the past what I have emphasized is not so much the specific action to be taken or policy to be followed but the attributes and capability we must acquire to deal with similar situations in the present and future.
In the first section where I revisit the preceding chapters, I try to make good some of the omissions in the preceding chapters and give greater emphasis to certain aspects which have been left in the backgroun . In the process what might have been perceived as an unmixed failure or success comes to be seen in a different light. Other contrary elements emerge giving it a new configuration , a new mix of positive and negative aspects . When we place the policies in their historical context within the complex constraints and the unpredictable future in which the policy makers operated in their time, our judgment of mistakes committed and our efforts to learn lessons from the past gets tempered with a new sense of humility; we gain a new understanding for which he had not looked when we began our search . Such a relationship with the past equips us better to deal with the future. It can have a liberating impact, a healing effect and steer us away from the aggressive adversarial biases that distort our understanding of the past and have a divisive impact on the whole of our society..
The commentary argues for an approach to development in which learning from the developmental experience of other countries remains constantly attentive to the uniqueness of Sri Lanka’s own development. It places the emphasis on the specific nature and unique character of Sri Lanka’s development experience (or for that matter any country’s experience such as Jamaica South Korea or Brazil with which Sri Lanka is compared). The process of learning that looks for the successes we can emulate or the failures we can avoid assumes a similarity in the situations we are comparing and an easy transference of the policies that dealt with these situations. What I have tried to argue is that we can best learn from similarities when we are constantly attentive to the differences which make each pattern of development country- specific and we are constantly able to relate the similarities we observe to the uniqueness of our own development experience. The learning outcomes from such a process then are grounded on our own experience and becomes an organic part of it.
In the supplementary analysis I have provided in this commentary I have also indicated that one of Sri Lanka’s special strengths in managing development has been a strategy which had been inclusive and pluralistic in the midst of all the sharp political rivalries and ideological differences. This enabled Sri Lanka to bring an unusual resilience to its management of crises and demonstrated a strong capacity to sustain its development process and its democratic institutions. At the end of the subsection on “The bias towards equity” I draw some conclusions concerning the inclusive character of the political process in Sri Lanka and the pluralistic nature of our development strategy.
At the end of this retrospect, there is one conclusion at which we can safely arrive: no assessment or judgement of the past can be final or complete. The actions of the past will continue to bear fruit, sometimes in outcomes that may not have been intended or envisaged and therefore quite unexpected. We will continue to learn lessons from the past as we move into the future. For the present as we take stock of all our successes and failures, our assets and liabilities and draw up a balance sheet for our development, we can take some satisfaction at having arrived where we are — a middle income country enjoying a state of high human development with an economy which is among the fastest growing economies in the world ,a multi-party democracy which has been sustained without interruption from the time of independence, and a clear prospect of advancing into the state of very high human development during the next two decades .