21 September, 2018

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How The Old Economic Triad Is Becoming The New Cockup

By Rajan Philips

Rajan Philips

Land, exports and infrastructure: How the old economic triad is becoming the new cockup

The process of colonial economic development is common knowledge. Vast stretches of land were consumed by the development of plantation agriculture producing tea. The tea plantations were export oriented, while the plantation labour was immigrant-based. The colonial government used tax revenue from export earnings to build infrastructure – roads, rail, ports, electricity, and water & sanitary services – primarily to service the plantations but extending the infrastructure across the country. The process limped along after independence with inconsistent and ill-executed modifications: land alienation for irrigation and agriculture for internal colonization and food production (under UNP governments); crude attempts at industrialization via state corporations (SLFP governments): and ‘open sesame’ after 1977 (totalitarian presidential governments). But the old economic triad is becoming the new cockup and in unprecedented ways under the stewardship of the Rajapaksa government. How so?

The change from the old triad to the new cockup could be illustrated by the four bottom line considerations of social, economic, financial and environmental impacts. It is fair to say that the articulation of land, exports and infrastructure in colonial times was primarily based on financial considerations. The analyses of social, economic and environmental impacts did not figure as prominently as financial considerations, nor were the methodologies for analyzing and dealing with those impacts available in the 19th and early 20th centuries. But these methodologies and practices are now standard practice in public policy and public investment in most countries. They were standard practices in Sri Lanka too for the first three decades after independence but not anymore.

Economic triad: pluses and minuses

The colonial government planned and built infrastructure well within its financial means. Case studies of how this was accomplished in regard to the building of roads and railways, including the construction of railway tunnels which was quite an engineering feet in the 19th century, and the development of the Colombo Port, are respectively available in the works of Indrani Munasinghe (The Colonial Economy on Track: Roads and Railways in Sri Lanka) and K. Dharmasena (The Port of Colombo).

The motivations and outcomes in regard to the other three considerations during the colonial period were mixed. There were plusses and minuses. The alienation of land contributed to landlessness among the peasantry. But it was not only the colonial plantations who benefited from the appropriation of land at virtually zero prices. The medium of acquiring land also provided the basis for the emergence of new propertied classes within the local population. While the plantation exports contributed to government revenues and infrastructure development, the process was by no means one of organic economic development. It primarily served the interests of colonial planters and benefited the emerging Sri Lankan classes as traders, arrack renters, ancillary producers, professionals and government and mercantile employees. The plantations themselves were in their special enclaves isolated from the rest of society and corresponding to the economy that was also in dual compartments – a traditional and subsistent feudal economy in involuntary coexistence with a rudimentarily modern plantation system.

On the positive side, the colonial government started the process of unifying the island through physical infrastructure and providing the basis for social welfare infrastructure in education and health services. After the introduction of universal franchise the people and their representatives were able to express the need for physical infrastructure and social welfare as political demands – programmatically by the LSSP and in copycat ways by others. On the environmental front, although the vocabulary of sustainability was not available at that time, there was professional responsibility in regard to respecting the sanctity of the island’s flora and fauna and in regard to implementing proper drainage systems and erosion and flood control measures. Indrani Munasinghe’s monograph is fascinating reading on the meticulous attention given to managing drainage in the early road building in Sri Lanka, considering the neglect of drainage in current road construction and other urban developments.

After independence, while there was alternating emphasis on irrigation and hydro-power development, on the one hand, and industrial state corporations on the other, the development of transportation and urban infrastructure received less than step-motherly treatment. The City of Colombo got its water and sanitary services as an extension of the provision of these services to the Colombo Port. This was before independence but unfortunately the model of piggybacking urban infrastructure on other economic activities was not followed through after independence. Opportunities for such coordination could have been found, notably in the irrigation and settlement schemes, in the establishment of industrial corporations, after the nationalization/re-privatization of the plantations, in the development of tourist resorts, and more currently in the garment industry.

Regardless of the political and policy shortcomings, appropriate standards were developed and maintained in regard to quality control and professional practice in almost all the sectors involving engineering activity – irrigation, power, roads and railways and industries. If there was one sector that was neglected, it was the municipal sector. In my view, the fall in standards started after 1977. Local engineering resources were systematically isolated from the implementation of the Accelerated Mahaweli Scheme, with each dam and ancillary works contracted to foreign firms from donor countries. An Urban Development Authority, erroneously modeled on Singapore which is a City-State, was created at the national level in a country where half the population is rural and Colombo is not the only city. Regulations and standards were cast aside by political decrees to sustain disproportionately significant allocation of resources to housing, achieve instant village re-awakenings, and plenty of other white elephants to please the whim and fancy of Executive Presidents. These reversals have now become established as the new dysfunctional standards.

The new cockup

The present government’s self-satisfying mantra is development. It is the mantra used to deflect attention and criticism of the government. Beyond that there is little indication as to what the government means by ‘development’ – is it a concept, initiative, programme, or a basket of activities? There are activities all over the country. Colombo has most of them – from one-way circus on roads, to building cultural centres, bulldozing through people’s properties to build the marine drive, evacuating people from their land and alienating state land for private condominiums built by foreign developers. Hambantota might come second, if not first, with its cost-overrun cricket cathedral, the Chinese-built port where no ship calls, and a new airport to fly the first family home. The rest of the hinterland gets its fair share of roads, bridges and culverts, as well as new tourist destinations. The question is who and what connect these activities to one another and to the broader economy. And what are their financial, social, economic and environmental implications?

The biggest social impact is created by the government’s land grab in the name of development. The Courts seem to be starting to play a new role in facilitating acquiescence by the victims of land grab to their loss of property. Acquisition is literally going through the roof. The government is reportedly spending just under Rs 4 billion yearly to take over more than 3000 acres of land. The ministries of Irrigation, Forestry, Highways and even Defence are all in the take. From an environmental standpoint, only expanding forestry lands could be readily justified. For other initiatives such as infrastructure, urban development, and tourism environmental considerations are not given the weightage they ought to be given. Sensitive forestry areas, wetlands and coastal areas are being sacrificed for building roads and tourist resorts. Due process is only on paper and means nothing on the ground. In a climatically challenged world, loss of tree cover, draining of wetlands and coastal encroachment will take a toll on the country not only in the long term but also in the short term

Unlike in the case of the colonial plantations, the land assembly and alienation that is going on now is not going to generate any significant revenue stream for the government. On the contrary, the land deals will leave the government and its successors saddled with debt and recurrent new expenditures, particularly when land deals involve urban property development. For example, intensified land development in Colombo will require significant infrastructure expansion and there is no indication how such an expansion will be paid for and by whom. There has been a flurry of reports in recent months about the grand condo-mania plans for Colombo, as well as plans for upgrading the City’s infrastructure. But we have seen plans come and go.

About half a dozen mega projects involving luxury condos, hotels and other urban uses are reportedly planned to be built on prime city properties mainly by Indian and Chinese companies. Who needs them and why by foreign developers are questions that have not been asked and answered. The proposed JKH redevelopment of its and adjacent properties is a different and supportable matter. On the infrastructure side, it has been reported that the Transport Ministry will be developing an Urban Transport Master Plan for Colombo under a US$ 5 million technical cooperation program funded and supported by the Japan International Cooperation Agency.

Dwarfing this is the World Bank funded and US$ 223 million Metro Colombo Urban Development Project (MCUDP) for Colombo reportedly to address flood control, local infrastructure, solid waste management, urban settlements and municipal government capacity enhancement. The MCUDP apparently includes 16 sub-projects that also include transport infrastructure. Apart from the obvious overlapping, if not duplication, between the different initiatives, the bigger question is how many government cooks have been assigned to spoil Colombo’s soup? Urban development is now part of the Ministry of Defence, bringing it directly under the President and his Secretary brother. The two agencies that should be more directly responsible for land and infrastructure development in Colombo, namely, the Western Provincial Council and the Municipal Council are nowhere in the frame. Urban governance involves matters close to the people and properties and should appropriately be assigned to elected and unelected (professional) officials of municipal government. But the chance of that happening in Presidential Sri Lanka is next to nil.

In comparing with the original triad, the one part that has totally fallen off is the export sector. Sri Lanka’s export composition is very different now and is more diversified than the earlier reliance on tea, rubber and to a lesser extent coconuts. Worrisomely, however, as outlined by Dr. Saman Kelegama to the National Chamber of Sri Lankan Exporters, the country’s exports are in decline and lack innovation and new market penetration. The export performance has not been “satisfactory” after 2000 and has fallen as a proportion of the GDP. Absolute exports earnings also fell in 2012 and Sri Lanka’s export growth rate in the last two years are significantly lower than our neighbouring and other comparable countries, viz., India, Bangladesh, Pakistan, Mauritius, Vietnam, Thailand, and the Philippines. In particular, even Vietnam and Bangladesh have surpassed Sri Lanka in export performance.

Dr. Kelegama’s thesis is that Sri Lanka’s depressing export performance cannot be blamed on the global economic downturn considering good performances by other South Asian and Southeast Asian countries. I would argue that the government’s neglect of the export sector and lack of policy responses are largely to blame. Falling export earnings are also part of the reason for the widening trade deficit and the recent balance of payment crisis. The rising import costs were also a contributory factor and as has been pointed earlier the government’s emphasis on infrastructure development, with the resulting need for importing equipment and materials, is a significant contributor to the import bill.

So the old triad of land, exports and infrastructure supporting one another is now broken. What is in place of the old nexus is the allocation of land for uses that are not revenue generating, an export sector that is in crisis and cannot support infrastructure expansion in the country, and an ill-advised commitment to infrastructure overdrive without knowing how the expansion is going to be paid and how it is going to serve the needs of the economy and the needs of the people. The old triad has given way to the new cockup.

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Latest comments

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    Govt is focussing on tourism and selling land to foreigners. The new bills trying to get through parliment identifies casinos as strategic development and rewards them with tax holidays and other benefits. The vision seems to make Sri Lanka a land of croupiers, bell boys and tourist guides. Also I dont want to mention the other evils that accompany such ‘Strategic Development’. This seems to be the new political ‘Lamborghini / Kudu’ culture with all the chinese mafia and black money in attendence.

    Traditional agriculture and industry which are the backbone of the rural economy are being neglected. All efforts are being made to sell ‘Hambantota’. New flights to hambantota at Rs 2,500? Can this be profitable with the plane taking off and landing in less than 15 mts? These donkeys or buffaloes dont really know what they are doing.

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      Economic prosperity cannot be achieved without social harmony, rule of law, multi lingual education, governance without corruption. Sri Lanka is a debt based economy. Borrows from Peter to pay Paul and when the crisis deepens they mortgage the country’s sovereignty to Banksters. Will not be surprised if they grab a few percentage from the regular savers just as Cyrus did. Decently dressed ‘Tourists’ will stay away for safety reasons.

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