Further reflections on post-independence economic underdevelopment and underperformance

Last Sunday’s column on the country’s failure to realise the expectations of economic development at independence and its full economic potential raises the question of why we failed.

Why was it that we could not achieve higher economic growth and sustain it?

Many reasons have been adduced for our below-potential economic performance. These include the inability to forge national unity, ethnic violence, the civil war, communal politics, frequent changes of government that resulted in changes and uncertainty in economic policies, and the preoccupation of the country with politics and religion, rather than serious concerns about economic development.

Pragmatic policies

These factors have not been conducive to the adoption of pragmatic economic policies. Instead, ideological and counterproductive policies have often been adopted.

National unity

Foremost among the reasons for the country’s failure to develop has been, and is, the inability to forge national unity. Although several communities united to obtain independence from Britain, ethnic differences figured prominently in the country’s post-independent politics.

Sinhala only in 1956

Eight years after independence, in 1956, the third parliamentary election was won by appealing to Sinhala-Buddhist communalism.

Soon after, there were widespread ethnic riots in 1958. The country-wide violence was the first huge setback to economic development.

Ethic violence

Communal violence leading to a near-threedecade civil war and continuing ethnic tensions have been severe setbacks to economic development.

Significant cause

Undoubtedly, communalism and ethnic conflict have been important causes of our underdevelopment.

No unity

Apart from the tragedy of lives and property burnt, the animosity of the two main ethnic and religious communities led to a vast exodus of people from the country. It was the first blow to the weakening of the country’s development capacity. Educated Tamils and burghers left the island, weakening many facets of the national economy.

Violence

The continuation of these animosities led to violence from time to time, including the riots of 1983 and the civil war, which was undoubtedly one of the severest setbacks to the country’s economic development.

Not conflict alone

However, the causes of our underdevelopment are not confined to the inability to forge national unity.

Ethnic violence

Communal politics, leading to ethnic violence and nearly three decades of civil war, was a distraction from economic concerns and a huge wasteful expenditure that weakened the economy. Furthermore, the insecure conditions in the country, especially in the North and East, hampered the production of goods and services. It was the biggest disincentive for foreign investment.

Reversal

The riots and the subsequent civil war reversed the high growth that was achieved between 1978 and 1982 with the liberalisation of the economy.

Corruption

Undoubtedly, the widespread corruption, not only in the body politic but also in the administration and civil society, was and is a serious setback to economic development.

The reduction, if not elimination, of corruption is essential for economic growth.

Economic factors

Several economic factors affected the country's trade-dependent economy. Adverse terms of trade, external shocks, such as fuel price hikes and adverse global financial and economic developments, and unfavourable geopolitical developments have also affected the economy adversely during the past 76 years.

Terms of trade

The adverse terms of trade in the 1960s and 1970s in particular were underlying reasons for the country’s trade-dependent economy’s instability and low growth.

External shocks

External shocks have made economic development difficult. The heavy dependence of the economy on trade has made it highly vulnerable to external shocks. External shocks, such as fuel price hikes, depressed demand for exports, adverse global financial developments, and unfavourable geopolitical developments, have also affected the economy adversely during the last 76 years.

Even today, the depressed demand for exports has affected the balance of trade adversely.

Preconditions

The preconditions for rapid economic growth were and are lacking. The sevenand-a-half decades of independence have witnessed a weakening of the values and capacity for development.

Developed countries

These preconditions were developed in Europe and some Asian countries, such as Japan, over a long time. Some countries, like Singapore, South Korea, and Vietnam, have succeeded in cultivating these conditions in a short period. In contrast, Sri Lanka has regressed in establishing these prerequisites for development.

Work ethic

The adoption of wrong policies, a lack of a work ethic, and a political milieu for economic development are among the many reasons for the country’s economic underperformance.

The political culture and milieu that are not concerned with serious economic realities are significant causes of our underdevelopment.

Discipline

The lack of discipline, a work ethic, and law and order have been significant constraints to economic growth.

Capacity erosion

Our developmental capacity and preconditions have been eroded over time. The country’s politics has much to do with this deterioration.

Other reasons

Despite communalism and the civil war being serious setbacks to the economy, other factors also contributed to our underdevelopment. The frequent changes of government and the consequent changes and uncertainty in economic policies, preoccupation with politics and religion rather than a serious concern in economic development, ideological rather than pragmatic economic policies, inability to seize the opportunities to export in a liberalised international economy, and neglect of and underdevelopment of technical skills are among the many reasons for the country’s economic underperformance.

Many other preconditions have to be established to usher in economic prosperity.

The macroeconomic fundamentals have to be strengthened, inflationary pressures must be contained, and institutional and legal reforms that would be favourable to economic investments are necessary. An economic policy framework conducive to development must be put in place.

Summing up

The country’s post-independent economic history has been a tale of poor governance, communal conflict, political deterioration, and social unrest.

Concluding reflection

The country is now at the crossroads of an uncertain political and economic future. Can we live as a united country and eschew narrow communal and religious politics? When can we expect a strong resolve to eradicate corruption, adopt pragmatic economic policies, and work hard towards developing the country? Can we cultivate the preconditions for economic development?

Is there any hope of Sri Lanka becoming a developed, rich country by 2048?