Colombo, Economy, End of war special edition


On the first anniversary of the end of the war, with the presidential and parliamentary elections behind us, now is the time to start thinking seriously about addressing some of the problems dogging the economy of Sri Lanka, including a massive debt and unsustainable budget deficits. Failure to do this will mean falling living standards and eventual crisis.

What does demilitarisation have to do with the economy? Everything. Military spending produces nothing that contributes to expanding the economy: neither food, clothes nor shelter, neither education nor healthcare, neither infrastructure nor capital goods. On the contrary, by swallowing up taxes, or by creating a public debt which has to be repaid (with interest) out of taxes, it actually constitutes a deduction from a country’s wealth. It is parasitic on the rest of the economy, taking but giving nothing in return, a black hole into which resources disappear without trace. Military overspending was one of the reasons for the collapse of the Soviet Union, and also helped to push the US economy to the brink by 2008.

The only valid argument for military spending would be if a country were threatened from within or without by another military force. Until a year ago, the LTTE’s military and terrorist threat to Sri Lanka might have justified state spending on military hardware and personnel. But with the war behind us, there is absolutely no justification for continuing with a war-time policy, especially given its negative impact on the peacetime economy. It is entirely possible and desirable to slash military spending: cease buying military hardware and demobilise at least half the military personnel, redeploying them as civilian workers to socially useful activities that contribute to the economy, such as rebuilding destroyed infrastructure, homes, schools, hospitals, government offices and factories. High Security Zones (HSZs) no longer need to occupy land belonging to Internally Displaced Persons (IDPs), who should instead be assisted to return to their former habitats and rebuild their lives and homes.

The overwhelming military presence in the North and East is a ruinous drain on the exchequer, apart from giving residents of those provinces the feeling that they are under military occupation by a foreign power. Reducing military spending in the present would not only help to balance the budget, but would also help to reduce the likelihood of conflicts in the future, thus improving stability. This, in turn, would encourage investments which create socially useful jobs that expand the economy and help to balance the budget and reduce the debt.

Human Rights and the Economy

There is an obvious and much-discussed way in which the issue of human rights has an impact on the economy: the EU GSP+ facility, which has boosted exports fromSri Lanka to the EU for many years, is dependent on the government meeting criteria related to human rights and good governance. Its suspension will result in a further deterioration of the economy, and can be avoided by implementing the measures recommended by the EU report as conditions for its renewal.

There is a rationale for linking these trade privileges with human rights and good governance. The governments of importing countries are willing to forego tariffs on imports from developing countries on condition that the benefits of this concession go to all the people of the country. But this depends on the protection of human rights and good governance. For example, if corruption is rampant, the benefits would go to corrupt politicians and government officials rather than ordinary people. If freedom of association and the right of workers to organise unions and bargain collectively is not respected, the benefits would go to exploitative employers and not to the workers. Why should the EU countries give up a source of revenue simply in order to enrich corrupt politicians and exploitative employers?

Far from being an unwarranted interference in the internal affairs of Sri Lanka, this linkage of trade benefits with human rights helps the vast majority of people in Sri Lanka. Further, it also helps to put the economy on a more secure footing. Huge and widening disparities of income between rich and poor was an underlying cause of the global crisis of 2008. Throughout the world, the rich (of the developing as well as developed countries) had got richer and the poor (of the developed as well as developing countries) poorer. This had various adverse consequences for the economies of individual countries as well as the world economy. With the mass of the population getting poorer, aggregate demand fell, and investing in production to satisfy their needs became less profitable. One result was rising unemployment. Another was a massive diversion of investment into financial products that enriched a minuscule elite without contributing anything to socially useful production. It also resulted in working-class families getting heavily indebted in order to maintain their standard of living. This is not a sustainable model of economic growth, and predictably resulted in a meltdown.

Sri Lanka may be only a tiny part of the world economy, but it too suffered from widening disparities of income as well as unemployment. Putting this right requires the implementation of the human rights and governance measures demanded by the EU GSP+ regime. A major obstacle to this is the existence of the executive presidency, which gives absolute power to one person and thereby allows for human rights violations and bad governance so long as this person tolerates or encourages such practices. The 17th Amendment was enacted precisely to prevent such a situation from arising, but it has become clear that such measures cannot work so long as the executive president has the power to override them. Thus we have had rampant disappearances and extrajudicial killings taking place without any credible investigation or punishment for the perpetrators, while corruption has been widespread and unchecked. The main problem here is the executive presidency itself, and unless it is abolished, the economy will continue to go downhill. Mahinda Chintanaya promised that it would be abolished, and it is now time for President Rajapaksa to show whether he is a man of his word or a charlatan who has taken the electorate for a ride.

Development and Democracy
There is much talk of development, especially in the North and East, as being the need of the hour, and this is true. But what do we mean by development? Does it mean the unfettered rule of the state or capital? Both these models have been tried and have failed. Development based on a statist, centralised command economy was tried in the Eastern Bloc, and collapsed at the end of the 1980s. The neoliberal model, in which the market reigns supreme, was tried in the West and most of the rest of the world, and was in deep crisis by the late 2000s. The world has not yet recovered from that crisis. What is lacking in both these models is democracy: the participation and control of the vast majority of the population in planning and implementing development.

In a somewhat diluted form, both these models have been tried in Sri Lanka too. During the Bandaranaike years, a fairly centralised model was tried, and led to so much hardship due to shortages that there was a massive mandate for Jayawardene when he took power. But the neoliberal model that he forced on the country had, if possible, even more dire consequences. The loss of jobs, to take just one of the consequences, sparked off massive youth unrest: first in the North and East, where it fuelled Tamil militancy, and then in the rest of the country, where it created the conditions for the JVP insurrection.

If we want to avoid these mistakes in the future, democratic involvement of the whole population in development is a must. Communities that are currently marginalised, such as IDPs, need to be fully involved in planning and implementation. This makes resettlement and rehabilitation of both recently-displaced people and long-term IDPs, including Northern Muslims, a priority. Non-discrimination and equal rights, the bedrock of democracy, are also essential. If certain sections of the population, such as women or ethnic and religious minorities, are discriminated against, their potential to contribute to development will be wasted, which is something we can ill afford.

It is in this context that devolution, normally seen as a demand of Tamils alone, needs to be considered. An over-centralised state, where power is concentrated not just in parliament, not just in government, but in the hands of one person, will produce lop-sided development, the benefits of which are short-lived. Truly balanced and sustainable devleopment requires grassroots participation, which depends on devolution of power. Devolution is thus a requirement for all communities, not just Tamils.

It may look as if economics and politics are different realms, without much to do with each other. But the wrong political policies can ruin an economy. If Sri Lanka’s economy is to be put back on track, demilitarisation, human rights and democracy are essential.

End of War Special Edition