Sri Lanka, then Ceylon, was sun-setted by the empire in February 1948: the term used, appropriately, was independence, not freedom. The former crown colony received the challenge of managing its affairs, and the rest were, more or less, already in their places. There was little to gain. The pre-’48 era probably offered people more freedom, more democracy, and better economic choices. Ceylon was the first Asian nation to enjoy a universal franchise in 1931, and in terms of development in Asia, it was only behind Japan.
Wattegamage Appusingho, my paternal grandfather, born in 1896, had absolutely no complaints about the five decades he spent under foreign rule; his grumbles were always about the hardships the family had to face under the Senanayakes and Bandaranaikes. The colony was governed by able administrators who took their orders directly from London. It had a developed economy, ports system, highways and railways system, and a postal and communication system apart from an excellent civil administrative system. While the living conditions, on average, were inferior to those of Europe, the country boasted of schools considered good enough for the children of foreign royalty and dignitaries. The foreign reserves, in 1948, were adequate to support the entire nation for 17 months’ worth of imports.
Fast forward 75 years. What happened to that great island economy that once Lee Kuan Yew thought was worth emulating? Today, we are burdened with a sovereign debt unsustainable according to the IMF, which insists we restructure the same were we provided with a bailout. The country reached the middle-income level nearly 35 years after it opened its economy only to be pushed back to a lower level so that it would be easier to take more loans. We borrow from our neighbours, even ones like Bangladesh with a low per capita income. The country is hardly industrialized. It produces little that can be exported. Our universities once were on par with the best in Europe, now rank with the mediocre ones in many other Asian neighbours.
This isn’t the case with other nations that gained independence during the same period. Malaysia, with far worse economic conditions back then, today exports hightech products for a sum that far exceeds the GDP of Sri Lanka. The country with a population of just 1.5 times that of Sri Lanka captures a high level of foreign direct investment with total external trade of over $0.5 trillion. South Korea, perhaps the poorest Asian nation by the end of WW II is now the eleventh richest in the world. India, a country that lost millions of lives due to the partition and multiple wars, has come on the right path after the economic liberalization in 1991. Now it is the world’s fifth-largest economy, poised to be the second by 2050. Since 2013 it has also been the fastest-growing major economy, with growth rates comparable to or above those of China. India’s next challenge is to convert the country into a manufacturing powerhouse, just like China has been doing for a few decades now. Indonesia is predicted to be the world’s 4th largest economy by 2045. Even Bangladesh, with belated independence, seems to be catching up. Recently the country opened the first 20km of its metro line, built to ease the traffic in its capital Dhaka.
So why is only Sri Lanka in a mess? What did it do to deserve this fate? How did countries with almost the same background perform relatively well while Sri Lanka could not? It would seem the answers are straightforward.
Of course, we could blame the high level of political corruption. Corrupt economies do not thrive as corruption prevents the natural laws of the economy from functioning freely. Corrupt economies are typically characterized by a disproportionately smaller middle class. There is also a significant divergence between the living standards of the upper class and lower class. Because the country’s capital is aggregated at oligarchs or those who back corrupted public officials, created wealth also flows to these individuals. Sri Lanka does show some of these signs. Still, political corruption in Sri Lanka has largely been a post-1977 phenomenon. It did exist before but at negligibly low levels. Whatever other blunders they made, the Senanayakes and Bandaranaikes could not be blamed for abusing their power to create private wealth. So why then did not the country transform itself during the first thirty years of independence.
Internal conflicts? Distrust among different ethnic and religious communities? Yes, one has to be too blind to miss these elephants in the room. From 1983 to the end of the conflict in 2009, Sri Lanka’s political priorities did not include development: they were more concerned about the youth insurgencies led by Rohana Wijeweera and then the secessionist Velupillai Prabhakaran and his suicide bombers than about formulating policies to improve exports and accelerate GDP growth. While exact numbers are not available, we can safely assume, both in the North and South, we lost close to 100,000 rural youth – either as rebels or members of armed forces who fought them. No other country we compare ourselves with had their commercial capitals and key business centres attacked with human and vehicle bombs so catastrophically. No other country had nearly one-sixth of its land governed by rebels, making those areas a country within a country. Not just tourists, but investors were warned not to touch Sri Lanka. When we thought the bad times were behind us, the Easter bombings hit us in 2019, crippling the national economy for another few years. Altogether we lost 30 years out of more than 40 years of the post-liberalization period to conflict. One may say it is a miracle that the economy is where it is today.
Having said that, I want to make two observations. Firstly, the conflict was of our own making; we cannot blame anyone else for it was we, as a community, that created the inter-ethnic mistrust that finally ended in a devastating war. My second observation: it was not just the conflict that created the mess. There were other factors. A notable aspect common to all developed Asian nations is the turning point the country made from the third world to the first, under charismatic leadership. Singapore’s story cannot be told without Lee Kuan Yew. Malaysia and China stories have respectively Mahathir Mohamad and Deng Xiaoping at the centre. However, my favourite, as I always say, is the South Korean story.
What changed South Korea’s future was the heavy-chemical industrial (or HCI) drive that commenced in 1973 under President Park’s guidance. The outcome was spectacular. By 1977, steel production was over 4 million tons a year, up from 1 million in 1972. Machinery production, within six years to 1978 averaged an annual growth rate of 45%. Transport equipment output grew annually at a rate of more than 50%. Electronic machinery also took off in the mid-1970s, starting with the production of colour television sets and other electronic items, with a growth of more than 50% a year. The boom in shipbuilding was equally dramatic. In 1974, South Korea, for the first time, also started refining ethylene, Polyethylene, and polyvinyl chlorides. The non-ferrous metal sector production increased fourfold between 1972 and 1978. By 1979 per capita GDP in Korea had risen to nearly $1,700 – a fourfold increase within six years. Other developments followed, but a strong foundation was laid by President Park by the time he died in 1979.
INDISCIPLINE: THE SCOURGE
Sri Lanka’s problem was not just not having a leader of that calibre. In the corporate lingo, it appears that Sri Lanka never did a SWOT analysis. We never knew our strengths, and more importantly, our critical weaknesses. We were blind to the opportunities and threats of the international markets outside. We were either recklessly doing what we always did or adopted IMF guidelines whenever we faced economic pressures (conveniently forgetting all that once the pressure was off!). It would have been a miracle if such weak strategic moves had taken us anywhere!
Just one example. By the time of political independence, Ceylon had a well-developed plantation sector that had evolved over nearly a century. Under British rule, Ceylon was the first country to cultivate coffee as a commercial crop, with exports reaching more than 2 million kilos during its prime. Tea replaced coffee after the 1880s. Experiments with other crops like Cinchona and Cocoa in the hill country met with only limited success. Rubber, first experimented at Henaratgoda gardens, soon crowned the Southwestern parts of the low country. By 1948, the plantation sector output contributed 37% to the GDP, accounting for 90% of all export earnings. The sector also employed 29% of the workforce. Ceylon Tea has been identified as the finest tea in the world. If properly managed after independence, the plantation economy per se could have made Sri Lanka a developed nation. However, what did happen to the plantation sector?
Lee Kuan Yew, who visited the country just 18 years after independence writes: “Prime Minister Dudley Senanayake sent me by train to Nuwara Eliya, their once beautiful hill station. It was a most instructive lesson on what had happened after independence. The tea plantations were in deplorable condition. The locals who had been promoted were not as good supervisors as their British predecessors. Without strict discipline, the tea pluckers were plucking not only young shoots but also full-grown leaves which would not brew good tea. Their coconut plantations have also suffered. It was the price people had to pay to learn how to run the country.
Lee Kuan Yew saw only the beginning of the fall. The Land Reform Act No. 1 of 1972 restricts entities from owning more than 20ha (50 acres) of land. By 1976 of all plantation land, 62% was owned by public sector agencies. The damage this move did to the plantation sector was immense. The Central Bank of Sri Lanka identifies political considerations in decision-making, wage increases unrelated to productivity, high maintenance costs, low income, and deterioration of management efficiency as key negative outcomes. By 1996, the GDP contribution from the plantation sector dropped to 4%. While many attempts were made by successive governments, Sri Lanka could never gain its lost glory.
With this backdrop, it is easy to answer the question, of why only we have failed. Others too blundered in their policy-making, but after a certain point, they steered the economy in the right direction. India, for instance, once, just like Sri Lanka, believed in running a controlled closed economy. It realized the mistake in the face of a serious crisis in 1991 and took a u-turn by a fully-pledged liberalization. That was India’s turning point. Sri Lanka, on the other hand, never reached such a turning point. We thought we did in 1977, but even after 40 years of partially opening up the economy, we were experimenting with closed economy tactics. This is a lesson for the present. It is high time we reach that turning point or otherwise, we would be the same lost paradise by the time we reach the centenary of independence.