By TU Senan –

TU Senan

The economic crisis in Sri Lanka did not appear suddenly but has been in the making for some time. Covid-led destruction devastated the tourist industry and government policies have further accelerated the crisis. The recent reduction in Value Added Tax and President Gotabaya’s mismanagement is not the sole causes of the current crisis, as the right-wing opposition claims. The economy was in danger well before that, and the crisis was looming even during the so-called ‘fastest growth” period. Sri Lanka was not ‘exempt’ from the world economic crisis nor is it unique in any way. Like many other neo-colonial countries, Sri Lanka has been a debt-driven economy for a long time. If anything, the current crisis can be linked to outright neo-liberal policies that started in the late 1970s. Though the origin of the crisis can be traced back to then, it is wrong to compare the conditions that existed for the masses then and now, as is often done by many right-wing and liberal commentators. Except for the bread queues, no real comparison can be made. It is worth reminding ourselves how Sri Lanka’s economy evolved over the years and the key turning point that took place in the late 70s.

Under British rule, economic activity was dominated by tea plantations. Over 90% of exports were plantation products, and these remained vital even after the end of colonial rule. However, the newly formed right-wing government’s first act following so-called independence in 1948 was to attack the rights of plantation workers as they provided a base for the emerging strong left force, the Lanka Sama Samaja Party (LSSP), which was the official opposition in the first parliament elected in 1947. However, the government could not get its way and was forced to implement many welfare measures. Having excluded most of the plantation workers from citizenship and thereby the right to vote, the United National Party (UNP) secured a landslide win in the 1952 parliamentary election. However, this election did not give the weak capitalist class full power. During this first term, they were forced to spend over 50% of government money on welfare and services. Government subsidies alone stood at 22% of the budget. Every attempt to ‘liberalise’ the economy by then finance minister JR Jayewardene (JRJ) was fought back and defeated.

This struggle resulted in the general strike of 1953 and a decisive defeat for the UNP-led government, thus beginning a new period of reduced imports and investment in local farming and industry. In the following election (1956), the UNP was reduced to 8 seats, the SLFP-led coalition won, and the LSSP came second with 14 seats. The SLFP, founded in 1951, combined left-populist policies and a move towards a “non-aligned” international position with communalist policies, which were reflected in Sinhala replacing English as the official language, a move that alienated the Tamil speaking minority. A newly-established national planning council started to implement a ten-year plan which helped to reduce unemployment. Subsidies for farming increased, resulting in a 27% increase in paddy fields cultivation, for example. The guaranteed price for paddy rice also increased a few times.

Following the landslide victory of the SLFP-led popular front coalition, which included the LSSP and Communist Party in 1970, a new period emerged. The food drive initiated in 1973 accelerated local food production. The land reform bill of 1972 that took over 61% of land into state hands, and made funds and loans made available to farmers, increased local agricultural productivity. Key parts of the economy, including plantations (what they called the ‘commanding heights’ of the economy), were brought under state ownership. From the early 1960s to 1974, living standards, in general, increased, with much better wealth distribution. Welfare measures also helped to reduce income inequality.

However, this was being implemented just as a long upswing in the world capitalist economy was coming to an end. This hit Sri Lanka hard. At the same time, various workers’ groups and societies that emerged in that period demanded more. Democratic control by workers and full implementation of a planned economy were not in place. That could have led to the development of industries and at least a more sustainable situation when the crisis hit in the late 1970s. Lack of planned investment in industries failed to develop the real economy in any substantial way. The establishment of co-operatives (800 multi-purpose co-operative societies that existed across the country) is not an alternative to elected workers and farmers’ committees to oversee production and distribution. Without central planning, the government continued its reliance on capitalist fiscal policies and profits that could be generated by state-owned industries and plantations. While the local market was nowhere near enough, the government also resorted to a so-called ‘wealth tax’ and a 30% tax on luxury items to generate revenue. Prime Minister Sirimavo Bandaranaike’s model of a “self-sufficient” economy, at best a Keynesian measure, was destined to fail, as unemployment and defaults on small business loans continued to rise.

The formation of the left coalition government in Sri Lanka also coincided with the ‘Nixon shock’ – a series of neoliberal policies named after the now-discredited former US president, Richard Nixon. These policies started to be implemented as inflation increased and there was a growing crisis in the world economy. This period marked the emergence of monetarism and neoliberalism. These were to make the working class and poor pay the price for the capitalist economic crisis.

The oil shocks and global recession of 1973–74 also hit Sri Lanka hard. The high cost of imports, such as fertilizers, fuel, and other key commodities, was also a key factor that led to the sudden increase in prices in 1974, during the left coalition government. Trying to work within the capitalist system, Sirimavo’s government response was brutal. While implementing a ‘ration’ system to distribute the limited food and fuel, the government started to implement various austerity measures. Subsidies were cut. This provoked a ferocious reaction among workers and farmers. However, the economy was still growing and previous measures had prevented widespread hunger and famine from developing. The strong mood that existed among the workers and farmers was about improving conditions rather than going back and reversing all the measures that had been taken.

The strength of the worker’s movement, at that time, contributed to the mood and determination to fight back against any attack on conditions. The government moved more to the right. The LSSP ministers were expelled in 1975, although the communist party remained in the government until early 1977.

Both the government and opposition aimed to crush the militancy of the masses as they felt threatened by the increasing activism that culminated in widespread protests and strikes in late 1976 and early 1977. The opposition, then led by JRJ (JR Jayewardene), used the opportunity to step up its reactionary campaign. Their so-called vicious ‘civil disobedience’ campaign highlighted the bread queues and some of the hardships that the population faced. The opposition claimed they wanted to organize one hundred meetings a day. The core of their campaign was also Sinhala Buddhist chauvinism. The militancy that emerged among the Tamils and their demand for self-determination was used by JRJ’s goons to whip up Sinhala nationalism. The government reacted by presenting itself as true Sinhala nationalists, attacked media freedom, declared a curfew, and banned public meetings.

This agitation and fearmongering about the Tamil militancy divided the country and scaremongering about the threat of a Marxist coup to take power, and the hardship felt by the masses led to the landslide victory of the UNP in 1977. JRJ’s government then introduced neo-liberal policies, which earned him the nickname of ‘Yankee Dickie’. He began to reverse the policies of the previous government, so beginning a new period. Sri Lanka became the first Asian country to have a so-called ‘open economy’ – meaning all resources are freely made available for plundering by local and international capitalist vultures. JRJ was able to do this by brutally suppressing the workers’ movement, and trade unions, and declaring war against the Tamils, in general. He infamously declared to the Tamils in the parliament that “If you want war, we will give you war”. The deterioration of ethnic relations and the emergence of armed Tamil militancy, and the emergence of the credit bubble, can all be traced back to this period.

The class collaborative politics of the LSSP (particularly their participation in the 1964 and 1970 popular front governments) was one of the key reasons that led to the historic collapse of the left in Sri Lanka. Seeking a solution to the misery of the masses within the boundaries of capitalism is grave a mistake that the LSSP leaders made, and which the left in Sri Lanka needs to learn from.