n s r i l a n k a m Sri Lanka at The Crossroads by2 Razeen Sally o most outsiders Sri streets are not as filthy; people look better Lanka is a far-away tourist fed, clothed and housed; they have better destination, a tropical para- manners; and they are friendlier. T dise that has fallen into a Yet this is also a country that has de- vicious cycle of ethnic con- scended into an inferno. A gathering of flict. To me it is closer to home. It is where seemingly pacific Sinhalese Buddhists can I grew up; and Colombo, the capital city, is sometimes flip into a frenzied mob. Sri Lan- my hometown. I think of Sri Lanka as a ka’s hardy Tamil minority has produced heaven-and-hell country, consumed by its one of the most murderous terrorist move- own extremes and contradictions. These ments in the world. Ethnic conflict has con- play out at today’s crossroads, with the sumed 100,000 lives. Two student-peasant seeming end of a 26-year military conflict. uprisings in the Sinhalese south, one in the Sri Lanka is one of the loveliest places early 1970s and the other in the late 1980s, on the planet, full of exuberant multicul- were brutally prosecuted and brutally tural colour and with warm, welcoming crushed. Several governments have used people. It is green and fertile almost be- paramilitaries and vigilantes to achieve yond imagination, and its natural endow- military and other objectives, in flagrant ments support an average standard of disregard of the law. Sri Lanka’s politics are living that has long been the highest in infested with assassinations, thuggery, mob South Asia (the Maldives aside). It has ser- violence and mafia connections. endipitously beguiled visitors from Marco The Sri Lankan government has com- Polo and Ibn Battuta to Arthur C. Clarke. pleted an emphatic military victory over Flying into Colombo airport, the deep- Tamil Tiger rebels. No one with an ounce dark green of the island, framed by the In- dian Ocean, forms a soft, refreshing n Mr. Sally is director of the European Centre contrast with the harsh, parched land- for International Political Economy in Brussels scapes of much of India. Once on the and is on the faculty of the London School of ground, the contrast is heightened—the Economics. 30 n s r i l a n k a m of humanity will shed a tear at the death waxed lyrically about Ceylon’s conditions of the Tigers’ monstrous leader, Velupillai in the first decade after independence. Prabhakaran, and his chief lieutenants. Decline ever since has its source in a But victory has come at great cost in terms disastrous Sinhalese political elite pander- of combatant and, above all, civilian casu- ing to the worst instincts of the Sinhalese alties. It has been met by a wave of nation- ethnic majority and egged on by a xeno- alist euphoria in the Sinhalese heartland, phobic Buddhist clergy. The elite came despair in the Tamil diaspora, and criti- from a handful of aristocratic landholding cism of human-rights abuses by Western families. Many of these “brown sahibs” governments. All moderate, sensible com- were educated in Britain and imbued with mentators agree that Sri Lanka’s president, Fabian or Marxist ideals. They had the gift Mahinda Rajapakse, must follow up his of the gab, but little inkling of real life out- military victory with a just settlement for side their charmed circles. Sir Ivor Jen- the Tamil minority. If not, terrorism will nings, distinguished constitutional lawyer, go underground and ethnic conflict will first vice-chancellor of the University of continue to fester. But, as important, Sri Ceylon and key adviser in the run-up to Lanka’s economy needs radical change. independence, worried presciently that Without that there will be no development these “schoolboy politicians” would play take-off and broad-based prosperity. A po- cheap populist politics and ruin the coun- litical initiative to end ethnic conflict and try. So it came to pass. economic-reform initiatives are intimate- Sinhalese politicians appealed of course ly related; peace and development go to- to the Sinhalese majority, an agrarian- gether. But will it happen? Or will Sri based society with great laid-back charm, Lanka miss yet another chance to drag it- but one which had not created Ceylon’s self out of the quagmire? plantation-based wealth. That was mainly the creation of colonial administrators and The Post-Independence Record planters, Tamil laborers, and a wider pen- umbra of Tamil and Muslim traders. Like first some historical background. Malaysia, the Ceylonese economy relied Ceylon (the former name for Sri Lanka) on its productive minorities with a work was a model British colony, well prepared and education ethic, not on its majority for independence in 1948, six months after ethnic group. But the latter inevitably took India. Unlike India, not a drop of blood control of postindependence politics. was shed in the transition to indepen- Successive Sinhalese-dominated gov- dence. Ceylon was at peace, had a stable ernments played the populist ethnic card, parliamentary democracy and was Asia’s especially after 1956 when Sinhalese be- second-wealthiest nation. Per-capita in- came the official language at the expense come was a fifth higher than the South- of Tamil and English. Affirmative-action Asian average. Ceylon had a prospering policies for the Sinhalese were rolled out, plantation economy and, by developing- and discrimination against the Tamil mi- country standards, a well-developed infra- nority increased. Opportunities for ad- structure, an efficient public administration vancement were closed off, petty and judiciary, and significant achieve- discrimination increased and human-rights ments in health and education. Its pros- abuses (especially by the police) prolifer- pects were golden. Visitors, including the ated. This sowed the seeds of the Tamil Ti- economists Joan Robinson and Sir John ger terrorist movement, culminating in an Hicks, as well as the young Lee Kuan Yew, all-out violent conflict in 1983. Sri Lanka at the Crossroads 31 www.feer.com But disastrous economic policies played better off than they were a generation ago. their part as well. Benign postindepen- Key to this success has been industrialisa- dence conditions bred a redistributive tion and a more diversified services econ- rather than growth-maximizing mentali- omy. Employment in the formal ty, directed to expanding the welfare state manufacturing sector has more than dou- for the Sinhalese majority. Especially after bled since 1980 and the share of manufac- 1956, Ceylon followed the Indian path of turing in total merchandise trade has rampant government intervention and increased from 5% to close to 70% of GDP. trade protectionism, in addition to chron- The star in the firmament is a strong, la- ic macroeconomic profligacy. This became bor-intensive garments industry—a direct extreme after 1970, when Sri Lanka had its product of liberalization. The industry version of India’s “license raj.” emerged in the early 1980s, now accounts By the mid-1970s, the economy was for about 50% of total export earnings and close to ruin. Growth had come to a halt, employs about one million people. real incomes were stagnant, public-sector Still, Sri Lanka is a sad tale of what- subsidies were out of control, welfare ex- might-have-been. As of 1960, Ceylon’s liv- penditures were still increasing, unem- ing standards were higher than those of ployment rose to 25% of the labor force, South Korea and Thailand. As of 1970, there were balance-of-payments crises Ceylon and Malaysia had similar living and acute shortages and rationing of con- standards. With peace and East-Asian- sumer goods. Crucially, welfarist policies style policies of macroeconomic prudence, churned out educated youth from a fast- openness to the world economy and better increasing population, but they had no job government at home, Sri Lanka would be prospects in a stagnant economy. Disaffec- where Malaysia is today (with an average tion led many to extremism and violence, real income of over $15,000 at purchasing not just in the Tamil north but also in the power parity). Absolute poverty would Sinhalese south. have been eradicated, average living stan- The one bright spot was the major lib- dards would be four times what they are eralization of the economy in the late now, clusters of multinational enterprises 1970s, followed by liberalization bursts in would link the economy to global supply later decades. Sri Lanka led the way in chains, tourism would be flourishing, ser- South Asia in switching from “import sub- vices would be hitched to the Indian out- stitution” to “export-orientation,” and sourcing juggernaut, and infrastructure more generally in market reforms that would be much better, as would education (re)opened the economy to the world. But and health care. Above all, Sri Lankans reform has proceeded in stop-go fashion. outside the elites would have life-chances Its glaring weakness has been macroeco- they can only dream about today. nomic incontinence. Public spending, bud- get deficits and inflation have not been The State of Play brought under control. Nevertheless, de- spite civil war, macroeconomic instability fast-forward to the present. Start and misgovernment, Sri Lanka has grown with politics. Power has been centralized at about 6% annually. Average real incomes in the presidency since 1978. The present ($1,540 at market prices and $4,200 at incumbent, Mahinda Rajapakse, is riding purchasing power parity) are 50% higher the crest of popular support for his single- than they are in India. Outside the fighting minded prosecution of the war in the zones, ordinary people are significantly north.