By Uditha Devapriya
Reviews of Sri Lanka’s history often portray the period from 1947 to 1956 as an Eden before the fall. This was partly due to the way in which independence had been secured. Freedom was seen as granted, not earned; unlike the multi-classical bloc that had prevailed against British rule in India, in Ceylon independence had meant a transition from the colonial bureaucracy to a comprador elite. Independence became a top-down affair, led by those who emphasized cooperation rather than resistance to Britain.
Moreover, unlike India, where ethnic tensions led to the partitioning of the country into Hindu and Muslim sections, in Sri Lanka similar tensions between Sinhalese and Tamil communities did not erupt until a decade later. Until they did, the belief arose that the country had achieved independence without “drawing bloodshed”.
While these sentiments reinforced optimism about the direction the colonial bourgeoisie intended to take in Ceylon, they also symbolized the failure of the bourgeoisie to consolidate a multi-class identity. As multi-ethnic as the composition of the leadership may be, this is not reflected in the country’s population, which oscillates between an English-speaking elite and a majority Sinhalese and Tamil. The elite’s failure to address these concerns ultimately led to previous calls for the replacement of English with two languages replaced by calls to enthrone one, Sinhalese.
Yet writers, politicians and even historians portray the first 10 years of Sri Lanka’s independence as a time of great prosperity. Two reasons are given: the elite’s consolidation of a multi-ethnic identity and favorable economic conditions which, had the UNP-allied elite remained in power, would have propelled Sri Lanka to the top. I touched on the first of these hypotheses above. The second requires more scrutiny and scrutiny.
Commentators who note that things could have been done better argue that the colonial administration handed over a rapidly developing country to the local elites, and that the latter, especially those elected after 1956, missed this opportunity. Implicit in this assumption is the belief that Ceylon’s economy had performed well under British rule.
It goes without saying that this was far from the case. Claims by these commentators that the country had the best road network, the best rail service and the best port in Asia, in addition to being “second only to Japan in terms of per capita income”, under British rule , are therefore suspect: “The fact is”, notes Avocado Collective, “that no one has calculated with any precision the per capita income of Sri Lanka in 1948”.
The UN, World Bank and IMF estimates for Ceylon’s per capita figures in 1950 were 311, 326 and 331 respectively. As the authors of the Avocado Collective rightly point out, these figures could not have been different just two years earlier.
The situation was therefore more complex, and less rosy, than these commentators would have you believe. Sri Lanka’s first five years of independence were dominated by problems of endemic poverty, widespread lack of land, inflationary pressures, trade and fiscal deficits, and declining terms of trade. These reflected the limits of an economy that had turned to the extraction of raw materials to the exclusion of industrial and productive activity. They finally came to limit the potential of the country.
Contrary to those who think otherwise, the country’s plantation sector has done little to improve the situation. In 1950, the Indian economist B. Das Gupta pointed out that with an overall per capita monthly national income of Rs. 30, the development of the tea and rubber sectors had “not necessarily meant the general economic development of the country “. Simply put, the country remained “extremely underdeveloped”. To top it off, “only 10% of the population” earned monthly incomes above Rs. 50, no better than the situation in the 1920s. This in turn opened up a huge savings gap.
The business outlook was even worse. The balance of payments fell from a surplus of Rs. 314 million in 1945 to a deficit of Rs. 196 million two years later. The recession in the United States was partly to blame – US imports accounted for about 45% of the total in the country – but so was Ceylon’s still precarious terms of trade situation.
Sri Lanka’s terms of trade had fallen from 103 to 138 between 1938 and 1947. By 1949 it had fallen to 131. Fluctuations in commodity prices contributed to these declines: a drop in rubber prices from 60 cents per pound in 1948 to 54 cents per pound a year later, for example, contributed to a decline in the terms of trade by around 5% and the balance of payments by more than Rs. 52 million.
Worse still, by independence, the population had been locked into consumption patterns that favored imports. An economist estimated that the country’s propensity to consume in 1956 was 0.8493, with a constant of Rs. 20.03. The marginal propensity to import, on the other hand, stood at 0.2516, with a constant of 11.74.
Six years earlier, HA de S. Gunasekara had pointed out that three quarters of total national expenditure was devoted to imports. Very little was diverted to gross capital formation: while this figure stood at 7% in most developing countries, in Sri Lanka it stood at a meager 4% even in 1948. This meant that the country lacked investment capacity, without which growth simply could not be sustained.
Industrialization is the only feasible and viable response, and that obviously requires strong state intervention, as is the case in Southeast Asia. But the three UNP regimes from 1947 to 1956 rejected such an idea. Prime Minister of Finance JR Jayewardene had been fascinated by Keynesian prescriptions, but his high regard for Keynes blinded him to the fact that aggregate demand policies were, as HA de S. Gunasekara noted in a criticism of government policies relevant to industrialized countries. countries suffering from overcapacity. In Sri Lanka, by contrast, the problem was not excess capacity, but lack of capacity.
To give credence to the first two UNP regimes, however, they differed from the laissez-faire, hands-off stance that Jayewardene’s successor, Oliver Goonetilleke, would adopt. Moreover, until the abolition of food subsidies in 1953, which triggered the Hartal, the government continued the welfare policies it had inherited at independence. The latter, in particular, has become a sine qua non of democratic governance in Sri Lanka, a legacy of Donoughmore’s reforms: thus, while social welfare expenditures had absorbed 16% in the 1920s, in 1947 they absorbed a more impressive figure of 56%.
As generous as these plans would have been, however, the government’s economic plans were considered less than stellar, needing much improvement.
In a critique of the 1950 budget, GVS de Silva accused the UNP of shifting wealth to the wealthy while expanding social welfare measures. The government’s attitude towards the issue of local industry, which then became a priority throughout South-East Asia, was also criticized: according to one observer, the tariff structure favored filling the coffers “at the cost of an irrational treatment of domestic industries. The situation was such that while the tariffs on areca nuts amounted to 100%, those on brushes and rat traps did not exceed 50%, although the latter items could be produced locally.
Historians like K. M. de Silva dismiss the opposition’s view of industrialization as a greatly exaggerated panacea for all ills. Yet it is industrialization, led by the state in conjunction with private actors, that has spurred growth in Southeast Asia. Unfortunately, the Sri Lankan elites did not pursue such a strategy, even in the long term.
Instead, the first three UNP governments prioritized full employment, which meant focusing on aggregate demand. On the one hand, they oversaw huge land resettlement programs, which Tamil politicians claimed was a cover for the mass settlement of Sinhalese. On the other hand, they embarked on large-scale projects like the Gal Oya project, which the left lucidly criticized: SA Wickramasinghe, for example, described Gal Oya as a white elephant who benefited American experts and local elites rather than the people.
The government’s emphasis on demand-side policies has diverted it from other considerations. It has also forced him to promote, even entrench unproductive sectors, rather than reform them through taxation or nationalization. Indeed, as HA de S. Gunasekara rightly observed, demand-side policies could not work in a context where land and labor were channeled into such sectors, foremost among which were estates. . As SBD de Silva noted in The Political Economy of Underdevelopment, for more than a century these sectors had been driven neither by science nor technology, but rather by labor exploitation, repatriation of profits and absent land ownership. It was hardly a productive combination.
Unsurprisingly, the UNP tried to appease these interests. Ignoring Marxist demands for the nationalization of properties, the government began imposing higher taxes on them. Yet this did little to endear the UNP to landowners: Das Gupta noted that the latter began to repatriate their property soon after independence, fearing that the state would “reduce their prospect of profit”. Later, Finance Minister JR Jayewardene realised, sadly enough, that the planters did not necessarily prefer his solution of taxation to the Marxist alternative of outright nationalization. They dreaded both options and wanted out. In its own way, it was as much a tribute to the regime’s failures as it was to its economic ideology, which reflected the elite’s preference for cooperating with British interests rather than antagonizing them.
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