{"id":228355,"date":"2022-07-22T07:17:56","date_gmt":"2022-07-22T01:47:56","guid":{"rendered":"https:\/\/www.colombotelegraph.com\/?p=228355"},"modified":"2022-07-31T04:41:38","modified_gmt":"2022-07-30T23:11:38","slug":"sri-lanka-is-a-neoliberal-failed-state","status":"publish","type":"post","link":"https:\/\/www.colombotelegraph.com\/index.php\/sri-lanka-is-a-neoliberal-failed-state\/","title":{"rendered":"Sri Lanka Is A Neoliberal Failed State"},"content":{"rendered":"

By\u00a0Pitasanna Shanmugathas<\/a>\u00a0\u2013<\/strong><\/span><\/p>\n

\"\"<\/a>

Pitasanna Shanmugathas<\/p><\/div>\n

While the immediate cause of the current public protests are due to the Rajapaksa government\u2019s corruption and mismanagement, exacerbated by the COVID-19 pandemic, it is important to acknowledge that the root cause of the current economic crisis is because of Sri Lanka\u2019s decades long neoliberal programs. And that is what a majority of the Western media won\u2019t cover.<\/p>\n

As noted <\/a><\/span>by political economist Mick Moore, from the 1940s to the mid 1970s, Sri Lanka was actually fairly committed to large-scale spending on social welfare schemes. For instance, initially necessitated by the hardships of World War II, and continuing throughout the post-independence period until the mid 1970s, Sri Lankan governments instituted a very popular rice ration scheme whereby every family was given a weekly quota of rice (or flour) for free or at a very low cost. The program became very popular among the Sri Lankan people so much so that any attempt to repeal it by the government, such as in 1953, was met with quick opposition by the public. During this period, the Sri Lankan government also provided services such as free education and preventative\/curative healthcare programs.<\/p>\n

The government was compelled to institute such programs due to the high rates of voter turnout from a largely politically conscientious citizenry, thanks in part to the early introduction of universal franchise within the nation, and the government was also compelled to institute such programs due to pressure from organized trade unions and Marxist-leaning parties of the 1930s and 40s. In the 1947 election, the leftist and Marxist allied movements obtained a quarter of all the votes cast. In Sri Lanka, as elsewhere, there were fears of a Marxist revolution so perhaps one reason these social welfare programs were instituted by Sri Lankan governments was an attempt to prevent such a revolution from taking place by addressing the demands of a politically conscious citizenry.\u00a0 Political economist Ronald Herring, who has written extensively for decades on South Asia, noted<\/a><\/span> that in the mid-1970s Sri Lanka was designating around 20 to 25 percent of its budget towards social security and welfare expenditures in contrast India and Pakistan designated around 2 to 3 percent.\u00a0 As a result of such welfare programs, Herring pointed out that in the mid 1970s Sri Lanka had a life expectancy near that of some European nations and far greater than any of its neighbors within the subcontinent.<\/p>\n

It is worth mentioning against the backdrop of such decades long spending on social welfare schemes, after Sri Lanka\u2019s independence from the British in 1948; successive majoritarian Sinhalese-Buddhist governments began implementing a series of discriminatory policies against the minority ethnic Tamil community on the basis of language, higher education, access to government employment etc.\u00a0 The consequences of Sri Lanka\u2019s discriminatory policies against the minority ethnic Tamil community would later provide the basis for a thirty year civil war.\u00a0 The rationale on the part of Sinhala Buddhist nationalists to implement discriminatory policies against the minority Tamils had a lot to do with the grievances they had as a result of Britain\u2019s colonization of the nation\u2014something this author has written about previously<\/span>.<\/a>\u00a0 Furthermore, a significant portion of the Indian plantation workers in Sri Lanka\u2014initially brought over to Sri Lanka as indentured laborers under British colonial rule\u2014were made stateless by the Sri Lankan government after independence in 1948 and therefore the Indian plantation workers were not entitled to benefit from the social welfare schemes provided by the Sri Lankan government.<\/p>\n

Development aid from Western nations to the Global South often come with a condition that the country accepting the aid must engage in deregulation, privatization, cutting government- run social programs, and other neoliberal policies. During the Cold War, Sri Lanka was a member of the Non-Aligned Movement and engaged in import substitution policies, often refusing to take development aid from so-called First-World nations.<\/p>\n

Successive Sri Lankan governments\u2019 investment into social welfare schemes took a drastic turn in 1977 when JR Jayewardene, the leader of the United National Party hereafter referred to as UNP (one of the two main parties in Sri Lanka) came into power in a landslide victory, with a two-thirds majority in the legislature. JR Jayewardene and his party acolytes felt disillusioned with the welfare-led economic policies of the previous governments which they believed failed to find sources of economic growth to support the nation. Between 1970 to 1977 Sri Lanka experienced a steep decline in trade, with foreign exchange and imports being \u201cunusually scarce\u201d; all of which made it easier for JR Jayewardene to transition Sri Lanka towards adopting market oriented policies.<\/p>\n

JR Jayewardene and his government, upon assuming power in 1977, quickly took an authoritarian turn. JR Jayewardene established himself as the nation\u2019s first Executive President under the nation\u2019s new constitution which he ushered in 1978. Equipped with unconstrained executive rule, JR engaged in policies to suppress oppositional trade unions (imposing legislation in 1979 that would allow the government to prohibit trade union activities in the state sector). JR Jayewardene also weakened the nation\u2019s main rival political party, the Sri Lanka Freedom Party (SLFP). Foreign aid organizations began supporting JR who was increasingly engaging in export oriented industrialization and thus was in good graces with Western-led international financial institutions. Balasingham Skanthakumar, who has done extensive research on poverty in Sri Lanka, noted<\/a><\/span> that \u201cEconomic liberalization drove many import-substituting industries into closure with loss of employment among older male workers\u2026. The reduction of protective tariff walls led to the influx of cheaper substitutes or alternatives\u2026the liberalization of textile imports post-1977, caused the collapse of the domestic handloom sector, in which women predominated, comprising cottage industries and state-owned mills. By 1986 it is estimated that over 120,000 jobs had been lost as a result\u2026..certainly already poor sections of the population were made more vulnerable to poverty through the direct impacts of policy reforms and structural adjustment programmes. During the first decade of the neo-liberal reforms, it is estimated one in four of the population were living in conditions of poverty; and as late as 1995 (almost two decades later), some 46 percent of the population (that is 7.8 million people) were recipients of food stamps\u2026..Economic liberalization did not translate into larger domestic mobilization of resources for state expenditure. Therefore, the government became more reliant on indirect taxation as a source of income. Taxes were increased on consumer staples that dominate the basket of goods consumed by the poor such as sugar, rice, tobacco, alcohol etc. Between 1978\/79 and 1986\/7 alone, the burden of indirect taxes on the poor grew in excess of 100 percent.\u201d<\/p>\n

JR\u2019s economic liberalization policies, as articulated <\/a><\/span>by York University Professor Jennifer Hyndman, \u201cput\u00a0 an end to many of the concessions and patronage relations that had kept the peace between otherwise disparate class and ethnic factions; the glue holding ethnic and class alliances together was effectively removed. While foreign dollars began to pour into Sri Lanka, specific Tamil and Sinhala areas remained largely excluded from investment.\u201d<\/p>\n

With the assistance of the World Bank, under the guise of improving the program, JR severely weakened the nation\u2019s popular rice ration program. In 1953, JR Jayewardene actually played a role in the failed attempt to eliminate the food subsidy program. An ineffective food stamp program was instituted as a replacement. The groups of the 1930s and 40s which had historically rallied around universalistic social welfare programs were severely weakened under JR\u2019s rule.\u00a0 Export processing zones were created in Sri Lanka in 1978 whereby national and multinational corporations were exempt from paying taxes and had access to cheap labor. Unions were banned within the export processing zones. A decline in government spending on healthcare and education ensued.<\/p>\n

By the late 1980s, as noted<\/a><\/span> by Indra Tudawe of the Institute for Policy Studies in Colombo, social spending had been cut in half from its high point in the early to mid 1970s\u2014mostly, however, it was the elimination of the food subsidy and its replacement with ineffective food stamps that comprised the drastic social spending cuts. However, as argued by<\/a><\/span> David Dunham and Sisira Jayasuriya of the Institute of Social Studies, JR Jayewardene\u2019s cuts to welfare expenditure \u201chad no pressing economic rationale\u2026no rigorous study had (or has) ever demonstrated that Sri Lanka\u2019s poor pre-1977 growth performance was due in any significant measure to its food subsidies.\u201d For JR Jaywardene the rationale for cutting food subsidies was purely ideological. To JR Jayewardene, Dunham and Jayasuriya argued, the food subsidies \u201csymbolized the unwarranted political power of the left and the unions. He saw a political opportunity that eluded him for a quarter of a century\u2014not just to cut consumer subsidies, but, perhaps more importantly, to confront and crush the trade unions.\u201d The impact of the drastic policy change to cut food subsidies can clearly be reflected in a 1995 nutritional assessment of Sri Lanka cited by Tudawe which asserted that \u201cthe number of preschool child population suffering from stunting is about 300,000; 210,000 are wasted; and 540,000 are underweight. Furthermore 660,000 children suffer from Vitamin A deficiency whilst 720,000 preschool children are anemic. Nearly one third of adult population in Sri Lanka has been classified as undernourished.\u201d<\/p>\n

Since 1977, up to the present-day, practically every Sri Lankan government elected into office has promoted neoliberal policies. The SLFP and the UNP have become parties that adopt policies of neoliberalism. For instance, in 1994, when the UNP finally lost its 17-year hold on political power after it was defeated in national elections, the Sri Lankan people voted in a government led by Chandrika Kumaratunga, the daughter of a former prime minister,\u00a0who ran an enormously successful campaign under a People\u2019s Alliance political coalition consisting of the SLFP and other center-left leaning parties. Her election campaign was quite appealing; she presented herself as someone who would be a champion of the Sri Lankan working class and the downtrodden.\u00a0 Kumaratunga, however,\u00a0assured the international business community that she would not deviate from the neoliberal economic policies of the UNP. In fact, as noted by Skanthakumar, during Kumaratunga\u2019s government,\u00a0\u201cthe process of privatization, within a framework of deepening neo-liberal reforms, was accelerated for example through divestment of the national carrier (Air Lanka) and long-term leases on tea and rubber estates. The financial sector was liberalized further with greater penetration of foreign and local banks as well as expansion of finance companies. Therefore, by the early 1990s, there was a convergence across the political spectrum \u2013 between the two main parties of the Right and the Left that have alternated state power in post-colonial Sri Lanka \u2013 on the irresistibility of internal deregulation, external liberalization, and privatization for economic development. Or more precisely, the SLFP shifted to and adopted with fervor the economic policies of the UNP.\u201d<\/p>\n

The joint policies of neoliberalism by the political parties in Sri Lanka after 1977 has resulted in the rich continuing to get richer and the poor continuing to get poorer as income inequality has widened in contrast to decades preceding 1977. Based on 2012 statistics<\/a><\/span> from the Central Bank of Colombo, \u201cthe richest 20 percent of households account for 54.1 percent of income share; whereas the poorest 20 percent have only 4.5 percent and the middle 60 percent have a lower combined income than the richest 20 percent.\u201d While the rich continue to get richer, the government spends less on programs to help working class Sri Lankans. According to\u00a0 2011 World Bank statistics<\/a><\/span>, the Sri Lankan government spent less on education\u00a0 than any other government in the South Asian region\u2014a stark contrast to the situation decades prior.<\/em><\/p>\n

In 2019, Gotabaya Rajapaksa came into office\u2014having previously been Secretary to the Ministry of\u00a0 Defense when his brother (Mahinda) was President from 2005 to 2015. Gotabaya, as Secretary to the Ministry of Defense, engaged in especially horrendous atrocities against Tamil civilians during the final stages of the civil war in 2009 which he oversaw.<\/p>\n

Since the civil war began in 1983, both major parties in Sri Lanka\u2014the UNP and SLFP\u2014increasingly began investing greater amounts of money into expanding its military while welfare spending for its population continued to be neglected. Even after the civil war ended, Sri Lanka continued to expand its military budget. Everybody wanted to know for what purpose is Sri Lanka\u2019s military budget continuing to expand even though the country is no longer at war? The military continued to occupy the Tamil dominated North and East of the country even after the war ended. Meanwhile the welfare needs of a war affected population continued to be inadequately addressed. Even now, according to 2021 statistics, Sri Lanka allocates a greater percentage<\/a><\/span> of its GDP to the military than Germany, Japan, Sweden, Bangladesh, and China.<\/p>\n

President Mahinda Rajapaksa, after the end of the three decade civil war in 2009, began massive infrastructure projects for which he sought commercial loans which came with high interest rates. These loans were taken with the belief that the infrastructure projects will help modernize Sri Lanka and generate revenue. The projects were a failure. The Sri Lankan government was already plagued with declining tax revenue and this was worsened when the recently resigned President Gotabaya Rajapaksa pursued the neoliberal policy in 2019 of instituting tax cuts for corporations<\/a><\/span> and thereby bringing in less revenue for the government. Due to tax policy changes instituted by the government, tax revenue declined<\/a><\/span> from 11.8% of GDP in 2019 to 8.1% of GDP in 2020. Mick Moore, a political economist who has been a specialist on Sri Lanka for nearly fifty years, said<\/span> <\/a>that the current economic crisis in Sri Lanka is \u201cthe most man-made crisis that I know of.\u201d In an interview Moore gave in May 2022, he stated, \u201cfollowing the 2019 tax cuts, creditors became worried about whether they would get repaid. The rates at which the Sri Lankan government could borrow money naturally increased. Instead of just reducing its investment and borrowing less, the government insisted on continuing to borrow heavily and repaying at higher and higher rates of interest. When the situation became so dire about a year ago, the government should have just gone to its creditors and said \u2018Sorry, we can\u2019t repay; let us reschedule the debts. Instead, they insisted in a macho fashion that they could repay in full. They went along this way until about six weeks ago when they had basically given away virtually all the foreign exchange they had.\u201d<\/p>\n

Moore has previously attributed the \u201cinstitutionalized pressure for tax exemptions\u201d as contributing to the \u201chollowing out of Sri Lanka\u2019s revenue base\u201d which he noted played a role in creating a fiscal crisis within the nation\u2014and this practice has clearly contributed to the economic crisis Sri Lanka is facing presently.<\/p>\n

Since 1977, the Sri Lankan government has been inept in effectively collecting direct taxes from its citizenry and this is because that is what is in the best interests of the wealthy class of Sri Lanka. The wealthy class of Sri Lankans, Moore asserts, comprise of \u201cthose who pay little or no direct tax on their (fast-growing) income, property values and other wealth, and are not directly impacted by the degeneration of under-funded public education, health and social protection systems.\u201d<\/p>\n

On July 20th 2022, the Members of Parliament voted Ranil Wickremesinghe<\/a><\/span> as the President of Sri Lanka thereby willfully ignoring the demands of the overwhelming majority of Sri Lankans they were elected to represent who have consistently called on Ranil to resign, viewing him being in office as a continuation of the Rajapaksa-style politics. Wickremesinghe has been voted to serve out the remainder of Gota\u2019s term which lasts until 2024.<\/p>\n

The current President of Sri Lanka, Ranil Wickremesinghe, is the nephew of JR Jayewardene. Ranil Wickremesinghe, like his uncle,\u00a0is a staunch proponent of neoliberalism. For instance, when Ranil was Prime Minister in the early 2000s, and had control of the Sri Lankan legislature, in 2002 his party introduced a poverty reduction strategy paper. The poverty reduction strategy paper, Skanthakumar noted, fondly reminisced about the late 1970s neoliberal reforms referring to them as having \u201cproduced good results\u201d but claiming that since that time \u201cwe have lost momentum.\u201d With the stated goal of achieving an annual growth rate of 10 percent, the strategy paper advocated for a wave of privatization schemes such as transferring the state owned Ceylon Electricity Board and the Ceylon Petroleum Corporation from state ownership into private ownership. Furthermore, the strategy paper advocated public services such as healthcare or education be transferred to private ownership or a public-private ownership. The strategy paper advocated for provisions that would allow international companies to monopolize profits as well as \u2018labor market flexibility\u2019 that would strip workers of protections. The strategy paper advocated for the creation of additional export processing zones and lowering taxes on corporations. One cri<\/span>tic<\/a> of the strategy paper noted that \u201cthe recommended policies appear to be designed to bring the country more into conformity with the IMF and World Bank\u2019s traditional recipes, without offering evidence that this formula will produce better results than the current and past policies of the country.\u201d<\/p>\n

If Ranil remains as President, these are the types of neoliberal policies Sri Lankans will likely live with, and of course, it will surely be welcomed by the Western international financial institutions.<\/p>\n

Evidently, any meaningful resolution of this crisis is clearly far from over. So long as Colombo politicians continue to undermine the democratic will of the people in exchange for maintaining or consolidating political power in service to the interests of the wealthy, Sri Lanka will continue to be a neoliberal failed state.<\/p>\n","protected":false},"excerpt":{"rendered":"

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