By Rajan Philips –
In the two decades before independence, Sri Lanka experienced three socio-seismic forces: The Great Depression, the Second World War, and the malaria epidemic. The first two were worldwide, and the third came to be known to the world as the “Ceylon epidemic.” Donald Snodgrass called them the decades of transition for the island’s economy, from a “classical export economy” towards “an uncertain future.” The dynamics of the colonial export economy were simple: “Export earnings provided the exogenous stimulus;” the stimulus was limited to the ‘modern sector’ of the economy based on the plantations and supporting urban activities; and it hardly touched the ‘traditional sector’ where the vast (85%) rural population lived on subsistence agriculture and was vulnerable to the vagaries of weather and the outbreaks of disease.
Two decades into this new century, Sri Lanka is in the throes of a global pandemic and the Great Lockdown, and to combat both the country is said to be on a war footing. The comparison of the two epidemics really involves two vastly different countries. The population has multiplied from under 6 million to over 20 million, is more urbanized (20%), and the rural population is nearly semi-urban and far more diversified than it was in the 1930s. The island began its experiment with the universal right to vote even while under colonial in 1931. Elections to the newly created State Councils were held in 1931 and 1936. No elections could be held after 1936 as world war broke out in 1939. But the second State Council, elected in 1936, continued until it became defunct with independence and was replaced by Sri Lanka’s first elected parliament in 1947. The same parliament after 73 years is now on the verge of being rendered defunct unless it is rescued by the Supreme Court again, for a second time in two years.
The British colonial rulers did not disparage the role of the elected State Council, but allowed the assembly to continue during the war even though the island was still a colony and a fledgling parliamentary system. The State Councilors were by no means paragons of virtue, not at all, but collectively they gave breath and life to the country’s first elected institution. It was the State Council that moulded the matrix for Sri Lanka’s acclaimed welfare state even before independence. Nonetheless, by 1939, one hundred years after the “estate revolution (that) gripped Ceylon,” as Sutherland describes it, Sri Lanka was still “a very poor country,” even though it fared better among Asian countries in per capita income, literacy and educational enrollments, and health services.
To the point of this tale of two epidemics, it was during these decades that Sri Lanka came to be possessed of a “public health conscience” among comparator countries. A corresponding public health infrastructure was also established quite in advance of much of the physical infrastructure. Together, they brought down the island’s death rate dramatically from 28.9 per 1000 people in the first decade of the century to 16.1 by independence, in spite of the malaria debacle. The public health system was pushed to its limits in the fight against malaria, just as it is playing the lead medical role in the current battle against Covid-19.
The current role of the public health system was highlighted by Dr. Anil Jasinghe, Director General of Health Services, in a recent Asia-Pacific Covid-19 webinar organized by the Sri Lanka Medical Association and moderated by Prof. Indika Karunathilake, President of the Association. Dr. Jasinghe and Dr. Ananda Wijewickrama, Chief Physician at the National Infectious Diseases Institute, displayed admirable confidence in describing their approach to mitigating Covid-19 in Sri Lanka. In their own quiet way, the Sri Lankan Doctors are relying on the country’s public health strengths and medical expertise, and are treating Covid-19 patients with hydroxychloroquine and even convalescent plasma. This is quite remarkable because elsewhere, especially in the US where President Trump tries to play medical expert to the media, these treatments are the subject of much media hype and endless debate.
Despite the recent spikes, the number of Covid-19 cases and deaths are still very low in Sri Lanka. There have been allusions to a weaker strain of the coronavirus that may have gotten into Sri Lanka, as well as potentially higher immunity levels in the community. In the Colombo webinar, Dr Wijewickrama indicated that two-thirds of those who tested positive for Covid-19 in Sri Lanka are asymptomatic. This is a significantly high proportion of asymptomatic people with infection, and if it were to hold in large enough numbers of tests that could be an indication of Sri Lanka being at or near herd immunity levels, at least in theory. Without sufficiently large numbers of testing, however, it will not be possible to objectively validate the subjective confidence of the Doctors who are carrying the medical, and therefore the real, burden of the Covid-19 fight.
The good doctors, their supporting staff and public health professionals at every level deserve everyone’s good wish and support. From the government they should get not only support and resources but also the freedom to go about their professional work without lateral nuisances from the likes of the GMOA. Dr. Anil Jasinghe is a Vice-Chairman of the WHO, and Sri Lanka and its government do not need the GMOA to translate WHO news bulletins and proffer them as expert medical opinion. The medical professionals need broader logistical support for testing and tracing Covid-19 transmission. New York State Governor Andrew Cuomo, the world’s most watched Covid-19 TV persona, often talks about deploying armies of testers and tracers in New York. Sri Lanka has deployed the real army to do part of this work, and the army should play a significantly supportive role to the medical professionals.
Although the malaria epidemic flared up between the start of the Great Depression (1929) and the start of the Second World War (1939), the epidemic itself did not create any economic havoc in Sri Lanka, the way Covid-19 and the Great Lockdown it has caused have created the global economic havoc now. So far, in Sri Lanka the pains of the lockdown are on course to becoming far more severe than those of the pandemic itself. The tale of the epidemics is also the tale of two countries and two economies. But there are a quite a few qualitative similarities, as well as instructive differences, between the economic circumstances of malaria and the economic consequences of Covid-19.
Even without the external forces, the classical export model of the island’s export economy had exhausted its expansion potential by the first two decades of the 20th century. The chief constraint was land availability, the only factor of production that was not imported. Plateauing productivity, along with rising labour costs, became permanent problems thereafter, especially for tea. The 1929 depression was a “trying experience.” Export earnings were slashed by as much as 38% at one point from pre-depression levels. That ended the expansion of the plantation sector and the social welfare spinoffs of “roads, schools, hospitals and other public facilities.” It was in the midst of this downturn that malaria struck. The epidemic added to the misery of the people and killed tens of thousands of people, but it did not cause an economic lockdown as Covid-19 is doing.
According to Snodgrass, the depression like the two world wars before and after it, did not create “long-run effects” on the economy and could not prevent “the old economic order” from being re-established after each of the three events. In contrast, the primary challenge now is in re-establishing the pre-Covid-19 economy, let alone restructuring it. During the Second World War, export prices rose by 80% but the colonies were stuck with prewar prices under Britain’s “fair prices” scheme for its bulk imports. Fair prices did not apply to Sri Lanka’s imports, as import prices rose by than 300%, and under colonial economic policy the imports were either terminated or severely rationed.
In the upshot, the people of Sri Lanka on rationed food supplies were “subsidizing British tea drinkers.” Rice imports fell to a quarter of their prewar levels, while import expenditure overall dropped by 60%. Inflation soared by as much as 103% impacting even basic consumption goods. Meanwhile, thanks to import cutbacks, and despite the adverse terms of trade, the colonial government “ ran large trade surpluses throughout the war … (and) piled up external assets, especially sterling balances, in unprecedented quantities,” amounting to over a billion rupees at the time of independence.
The import restrictions during the war led to a spurt of domestic manufacturing activities both by the government and the private sector. Snodgrass attributes the government involvement in this initiative, and the interest more broadly in economic diversification and local banking, to the functioning of the State Council and its Board of Ministers/Executive Committee system in which 50 elected members and eight Crown appointees were grouped into seven Executive Committees, each under a Minister of the Board. There was apparently no need for extracurricular task forces.
Government factories came into being, supplemented by private industries to produce mostly household goods to substitute for the banned imports. The nascent local manufacturing industries for import substitution abruptly ended after the war, when prewar import levels were restored, along with the relaxation of price controls and rationing. The war time trade surpluses were frittered away to cater to the “backlog of consumption demand.” A quarter of the wartime assets were spent in one year alone, 1947, according to Snodgrass. AJ Wilson would later call this early prodigality, “an orgy of unplanned spending,” by the first UNP government.
The economic challenge at the time of independence was “to break out of the classical model, change the structure of the intersectoral flows, increase internal demand, capture the surplus generated by the estate sector and use it for investments in other parts of the economy …” That was Snodgrass’s academic manifesto for a still transitioning classical colonial plantation economy, written midway through the 1960s, even as the country was changing political horses, between the import substituting SLFP (1960-65) and the export promoting and rice centric UNP (1965-70).
After finishing his research in Sri Lanka, Snodgrass took off to Malaysia, as Economic Adviser to Prime Minister Tunku Abdul Rahman. Malaysia would go on to take the open economy route to development and become one of the exemplars for Sri Lanka’s open economy experiment after 1977. Quite a lot of water, even blood, has flowed everywhere after malaria, after independence, and after the relatively recent open economy launch. When Covid-19 hit the country, the country’s economy has quantitatively expanded: its export sector has been diversified far beyond its plantation base; thanks to massive irrigation programs and extensive land openings, there is self-sufficiency in rice production, but not necessarily equitable rice distribution; there are more universities, private international schools, and private hospitals; and finally there is unbridled political enthusiasm for building new highways, harbours, port cities and sports stadia.
However, the aggregate expansion has left unanswered many questions in the mismatch between what is available and where, and what is needed and where for the majority of the people. The mismatch cuts across jobs, university and school placements, hospitals and healthcare, public transport, and a host of other necessities. In addition, the problems that have been chronic since about 1960 – the balance of payments, the debt burden and debt repayment have gotten worse over the last decade. Two relatively new sources of foreign exchange are tourism and foreign remittances from Sri Lankan workers overseas, most of them in the Middle East and most of whom are women.
The Covid-19 lockdown has zeroed out overseas remittances and tourist earnings. The export markets are virtually closed and internal production has been brought to a stand still. Even though the agricultural sector is open for work, it is not clear how much production is going on or can go on. The Tea Exporters Association has drawn attention to the fall in tea production so far this year, and to lowest levels in decades. Directly related to Covid-19, tea exports are also down. While the larger garment manufacturers are able to shift their production lines to making protective gowns and equipment for hospitals local and abroad, the smaller garment firms are stranded helplessly. There has been no public appreciation of these predicaments by anyone in the government.
Again, the only historical precedent for the country’s current economic stress is what happened in the 1930s, during the depression even as the malaria outbreak was getting started. Kumari Jayawardena, in The Rise of the Labour Movement, calls “the economic distress caused by unemployment” as the “most serious social problem” of that era. There was “drastic retrenchment” everywhere – in government, private firms, and the plantations and factories. The unemployment was severe in urban areas, with even households having to dismiss domestic servants. The rural sector was not spared and bore the brunt of the hardships at the bottom of the pile. The government of the day, as Jayawardena points out, tried to fight the effects of the depression using “orthodox pre-Keynesian means”, including retrenchment and cutbacks on public works projects.
In the current situation, even Keynesian measures cannot be undertaken before the people under lockdown can be released to go back to work. If Sri Lanka’s viral infection levels remain as moderate as they have been so far, that will make everyone’s tasks a whole lot more manageable than they would otherwise be. Even in this reasonably optimistic scenario, the government cannot restore the economy to pre-Covid-19 levels so long as the rest of the world, especially Sri Lanka’s trading partners are partially or totally shut down. What is more, the Sri Lankan government, and this is by no means due to any fault of the present Administration, simply does not have the wherewithal to provide financial support to impacted businesses and employees. That is why it is both imperative and practical for the government to formulate its economic response to Covid-19 with a strong employment focus.
Sri Lanka has about eight million people. Ideally, everyone of them should be working soon as they were pre-Covid-19. In the absence of the ideal, it is possible to prioritize different employment categories by their sectoral locations, the most vital among them being food production and foreign exchange earning. Two million (25%) of the workforce are in agriculture, including the plantations. They are the most vital sectoral group, critical for both domestic food production and 22% of export earnings. Supporting them should be the government’s topmost priority. The Deans of Agriculture have presented the government with a policy framework to increase agricultural production. Will their advice be heeded and shouldn’t they be heading a task force on agriculture?
One and a half million (18%) are in manufacturing and they account for virtually the balance 78% of export earnings, 45% of which accrue from textiles and garments and 7.5% from rubber products. They are among the most hurting because of the Covid-19 lockdown locally and globally. Which task force is specifically looking after their interests and their industry? It has been reported that Ministry Secretaries are being directed by the Administration to enable new investments in the economy. Since when did civil servants become capable of generating investments?
Another one and a half million (18%) of the workforce are in government and semi government jobs. This is no time for retrenchment, unlike in the 1930s, and the government can be expected to keep them in their jobs. The three categories, agriculture, manufacturing, and government jobs account for 60%, or nearly five million of the total employment. If all of them can be enabled to resume working, that will activate 60% of the informal workforce, or 2 million (25%) of the total 3.4 million (42%) strong informal sector. So, if 85% of the total workforce can resume working that would virtually eliminate the government’s burden to support the working people during the lockdown.
Covid-19 has upended the premises of urban and infrastructure development that has been the economic hallmark of the last decade. Where would Sri Lanka find investors for the Port City lands in the post-Covid-19 world? How appropriate would it be to undertake highway or other mega infrastructure projects in the current situation, given their high debt and import requirements? They should only be undertaken if they are funded by bilateral grants. Domestic construction resources could be more gainfully utilized to support the agricultural sector, conserve water resources, provide drinking water and sanitation, maintain existing roads and drainage, and for flood control and environmental protection.
*Next Week: Malaria and Covid-19 III – Political Responses, then and now