4 July, 2022

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Rethinking Sri Lanka’s Industrialisation

By Uditha Devapriya

Uditha Devapriya

Sri Lanka’s problems long predate the arrival of the Rajapaksas. Widely touted as an export-dependent economy, its tendency to import everything, from intermediate capital goods to bathroom ware, has been its distinguishing feature for the last 70 years. The island’s shift to neoliberal globalisation in 1977 served to reinforce this dependency, making it vulnerable to external shocks. The ineptitude of the Rajapaksas is thus a symptom of a bigger malaise, one that is yet to be understood fully by think-tanks and policymakers.

Neoliberal commentators fault the country’s public sector. They contend that it is too bureaucratised, too politicised: a heavy, crushing burden on the economy. To be fair, they aren’t entirely in the wrong. The public sector has long been the preferred destination of unemployed graduates and the politically connected. When Gotabaya Rajapaksa came to power in 2019 he implied that he would end such a culture. About two years later he made a U-turn, recruiting more than 60,000 graduates to the government sector.

Heterodox economists disagree. For them the problems of Sri Lanka’s economy have to do with its failure to industrialise and shift to manufacture. Among the most vocal proponents of the industrialisation line has been Dr Howard Nicholas. Responsible for setting up the only local think-tank that advocated industrialisation, the Institute of Policy Studies (IPS), Dr Nicholas has been tirelessly reminding Sri Lankans of the country’s potential in manufacture, be it in garments or even its traditional sectors, including tea.

The industrialisation discourse has been widely picked up, even by those who otherwise support neoliberal prescriptions. The neoliberal crowd disputes Nicholas’ line for ideological reasons: they think it entails a wider role for the State, which they oppose. Patronised and funded by Colombo’s well-oiled free market think-tanks, they caution against government intervention, pointing at the present regime’s economic policies, like its advocacy of money printing and import restrictions, that supposedly got us into this mess.

I have been a defender of industrialisation and local production. Not because I view greater government intervention necessarily as a good thing, but because more than three decades of untrammelled neoliberalism has not got us anywhere. In the 1980s and 1990s the country extensively resorted to traditional aid programmes. Except for the Ranasinghe Premadasa years, which saw at least some attempts at industrialisation, all other governments in power during this time preferred and implemented a strategy of privatisation and deregulation. To be sure, in itself this is not undesirable. But taken to an extreme, it takes a country nowhere. By the mid-2000s, it had landed us in a middle-income trap.

Sri Lanka’s debt problems don’t have to do with the Chinese, though debt trap narratives suggest otherwise. They have more to do with the island’s dependence on sovereign bonds and hedge funds. These constitute a far greater share of Sri Lanka’s external debt than does China’s, Japan’s, or India’s contribution. We need to ask why we let ourselves run into this mess, and why we didn’t use opportunities, like the reduction of oil prices in 2009 and 2010, to shift to manufacture, local production, and export-oriented growth.

Those who pinned hopes on the Rajapaksas thinking they would take us out clearly forgot that they were in power when these opportunities were in place. In the aftermath of the end of the war we could have linked infrastructure development to industrialisation: we could have, for instance, closed in on the then government’s optimistic hopes of building nuclear power plants by 2020 or 2030. This never came to be. In pinning hopes on Gotabaya Rajapaksa, we chose to forgot their earlier record on industrialisation and production, even though their government was seen as more conducive to these strategies than a neoliberal dispensation, which we associated with the UNP.

We need to admit that industrialisation was never at the top of the list of priorities for the present regime. True, they appointed W. D. Lakshman, who as an academic – a colleague and contemporary of the Indian Marxist economist Prabhat Patnaik – relentlessly critiqued IMF prescriptions. But they were only too willing to discard his policies, to manipulate them to serve their interests, and to finally let him go. His successor, Ajith Nivard Cabral, wasn’t exactly an IMF ideologue, but the policies that the Central Bank undertook in his last few months reeked of an urge to enforce IMF policies without going to the IMF: a line that was not necessarily opposed by Colombo’s neoliberal coterie.

I know people who would say that policies matter and personalities do not. This was the same mistake the Left made in 1964 and 1970. They entered into electoral agreements with a petty bourgeois dispensation in the hopes of fomenting a democratic revolution. To give them credit, they did see through certain important reforms, such as Workers’ Councils. But for every such reform, they faced a setback from the head of their coalition, the SLFP, which they eventually realised, at an exorbitant cost, was neither willing nor able to implement the far-reaching reforms necessary for a radical democratic revolution.

The bottom line, in a nutshell, is that the present crisis would not have come to pass if the government was sincerely committed to production and industrialisation. But the problem doesn’t end there. It also has to do with how the Rajapaksas’ electoral base views such complex issues as industrialisation. After all, even the Jathika Chintanaya advocates a production economy. But as one commentator told me, the Chintanites are interested in local production only insofar as it benefits their ethnic group. They espouse anti-imperialist rhetoric, the sort one can link to industrialisation discourses, but they do not, by any means, pursue anti-imperialist ends. Petty bourgeois ideologues hardly ever do.

What does this leave us with? The same lesson we learnt in 1965 and 1975: relying on petty bourgeois formations takes us nowhere and leads us to a shift to the right. In 1970 no one would have imagined that the SLFP would end up advocating Free Trade Zones. Five or so years later the Finance Minister, Felix Dias Bandaranaike, proposed them. In 2019 no one would have imagined the SLPP recommending the IMF line. Now the President has emerged as its biggest supporter. Those who batted for industrialisation and production, meanwhile, are left in the dark. This is sad. It should not happen again.

*The writer is an international relations analyst, independent researcher, and columnist based in Sri Lanka who can be reached at udakdev1@gmail.com

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Latest comments

  • 4
    2

    “Industrialization” is hardly what I would prescribe for a nation with a population with an average IQ of 79 and which is now reaping the rewards of its twin policies of 1) genocidaly marginalizing minority populations in order to increase economic opportunities for the majority and 2) providing a subsidized physical quality of life based on borrowing and on printing money based on the premise that productivity could be increased through the attracting of Foreign Direct Investment in order to enable the paying back of borrowings and gradually increasing exports and Gross Domestic Produce. The progressive realization of Policy 1. with its violation of human rights continues to prevent the realization of policy 2.and instead led to global isolation and ostracization and to the current backlash.

    • 3
      2

      Industry in its classic form is not an option for Sri Lankans, particularly in the South, where the population over time accustomed itself to a higher standard of living based on ME remittances and the efforts of Upcountry Tamils. One has only to look at the million tuk drivers and the 300,000 strutting round in fancy uniforms. Does the author really think these people will take jobs in factories with strict work norms? If, bysome miracle, they do, we can look forward to cars that cost 500 million rupees, phones that cost 500,000, or sugar that costs 500. We have already seen how Dhammika Perera tripled his ceramics prices after the import ban. Also how local milk powder has followed the price hikes in the imported stuff.
      We should only produce what can be exported, and use the earnings to import what cannot be economically produced here. We also should limit tuk driving as an occupation, and reduce the forces, at least by attrition. The minority share of the economy is already way out of proportion to their numbers, and would improve even further if they weren’t discriminated against.
      The open economy itself is not the problem. India too had a closed economy till it almost went bankrupt in the early 90’s. At the time, 1 LKR was 2 INR. The Indians (and the Chinese) managed their transition much better than we did.

      • 3
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        old codger

        “The Indians (and the Chinese) managed their transition much better than we did.”

        Did the Chinese manage the transition better than Indians?
        There are a few tempting to claim it,

        Those who take offence to the mere mention of “Free Market, Neo Liberalism, ….) really understand those Economic Terms?

        Why are those parochial economists, graying Marxists, disappointed Maoist, Members of JVP, ….. afraid of free market?

        Do you think Uditha Devapriya is sufficiently equipped to deal with “Rethinking Sri Lanka’s Industrialisation”? I thought another Dayan is in the making.

        • 0
          1

          Native,
          “Did the Chinese manage the transition better than Indians?”
          Yes, they did. That’s why some Usha fans come from China nowadays.

          • 1
            1

            old codger

            “Yes, they did. That’s why some Usha fans come from China nowadays.”

            Brilliant.
            Do we have any Gota/Mahinda fans in China, except Palitha Kohona?
            By the way do you think Shavendra Silva (Surgeon General) is readying himself to contest presidential elections? Recently he appeared at a Vihare in white and white, surrounded by members of Saffron Brigade.

            In a recent NDTV interview Shavendra and Kamala could only talk about winning the war. After the war it appears they have not learned anything in the past 13 years.

  • 2
    1

    Rethinking Sri Lanka’s Industrialization

    How the Industrialization will Friday is holiday and all are requested to go abroad then the young will go broad and the old will stay and no one will accompany the old parents for their basic needs.
    This means there is no mechanism for Industrialization the people need sustenance help to grow as a person or they can restrict the growth, thinking of survival.

  • 0
    0

    Udith Devapriya had failed to discuss adequately the industrialization policy followed by the closed economy regime of Mrs Bandaranaike when an attempt was made to open government owned enterprises with the assistance of the Soviet bloc – A mixed economy regime.

    The main policy of the closed economy was import control and export promotion.

    Was it economically a failed initiative?

    Look both systems in hindsight, which is preferable?, could a midway be desirable?

    When we talk about industrialization, consider the mix, agriculture, Industrial/manufacturing and service sectors and all industrialized countries have vibrant service sector with marginal agriculture primary products.

    Industrialization is risky for a small country like Sri Lanka with a small market.
    Remember Sri Lanka is a small country with a small market unless economy is geared for export market, it is not realistic.

    Industrialization is possible only with foreign direct investment which is risky with a tiny defenseless country when sovereignty of the country is considered.

    Why not consider service sector like Singapore?

  • 1
    0

    I have a thought here. for a country with only 20 ish million people and not having a large amount of consumption due to a small population it is going to be difficult to sustain an export-based economy. I think it will be far better to try to pivot to a service-based economy. like India. I work with offshore Indian engineers all the time and honestly, they have taken over the world. while there is some competition from Eastern Europe Mexico and places like Argentina the Indian service industry really dominates. Sri Lanka should try to entice entities like Wipro Infosys KPIT Tata HCL to come and set up shop here and also while setting up their own companies.

  • 3
    1

    srikrish

    “Industrialization is possible only with foreign direct investment which is risky with a tiny defenseless country when sovereignty of the country is considered.”

    Please tell us what you mean by sovereignty of the country.


    Please note Singapore’s Manufacturing Sector forms 22% of total economy. Therefore there to no evidence to suggest

    Structure of the Economy By Sector
    Business Services (14%)
    Commerce (18%)
    Financial Services (12%)
    Others (17%)
    Transport & Comm. (11%)
    Manufacturing (22%)
    Construction (6%)
    The twin pillars of the Singapore economy are the manufacturing and services related industries.
    The manufacturing sector contributes to about a quarter of the economy, and its share has been broadly unchanged over the past two decades.
    The services sectors make up about 67% of GDP, with strong contributions from the fin and bus services sectors.
    Key Services Sectors = 67%
    https://slideplayer.com/slide/4785678/

    • 0
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      Thanks Veda for value input

    • 0
      1

      Singapore’s remaining manufacturing is mostly high-tech manufacturing that is mostly robotic. They phased out regular manufacturing a long time ago to countries like Malaysia Thailand and Indonesia a long time ago. it is definitely not the type of manufacturing that Sri Lanka is likely to implement. and is super capital intensive?

    • 3
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      Vedda and Codger I am impressed by your knowledge of industries and global issues. I was beginning to think only Ranil knew all this !

      At least we have three people who are super intelligent and not shy to show that off ! .

  • 2
    2

    Srikish,

    “Industrialization is possible only with foreign direct investment which is risky with a tiny defenseless country when sovereignty of the country is considered.”

    This is correct to some extent. A massive technology transfer is needed. Similar to South Korea when it was occupied by Japan. Or China, which experienced double-digit economic growth as Western companies took advantage of its cheap labor pool. A JV is essential for any company trying to do business in China. Now that more and more companies are leaving China, Sri Lanka could be a prime destination for them to relocate their factories. Sri Lanka is secular, the government is stable, and the literacy rate is high or higher than in places like Vietnam. India has too many tariffs; it’s only good for call centers. That’s why Tesla refuses to build a factory there. Bangladesh and Pakistan are not secular. Unfortunately, I don’t think Moda Minister Ranil understands how to attract FDI. This will be another lost opportunity.

  • 0
    0

    Yes Lester, but Sri Lanka is not the only girl in the beach.

    Labor productivity is very low and labor laws are stringent.

    Cheap skilled labor is attractive to investors.

    What is the advantage in Sri Lanka compared to rivals?

    • 0
      1

      Srikish,

      Good question. I have personally visited India, China, Maldives, Japan, South Korea, Vietnam, and Thailand. In addition to doing extensive consulting work for East Asian clients. The business climate in Sri Lanka (at least the South) is much closer to East Asia than South Asia. India is simply dirty, polluted, corrupt, and unhygienic. That is why companies relocating from China are choosing Vietnam and Cambodia instead of India, even though India has a significantly larger labor pool. Sri Lanka is clean, secular and has a stable government. The workforce, at least in the South, speaks better English than your typical East Asian worker. Countries like China have invested billions into English language learning, but the outcome is still poor. Sri Lanka also has a nice climate and better roads/infrastructure than India. Finally, Sri Lanka is free of religious extremism, with a few exceptions. Bangladesh and Pakistan are slums, not even worth considering.

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