“Today, we have 1.5 million workers abroad. This number is likely to increase in the years to come due to increasing economic pressure and social disorganisation. Labour will become more and more scarce in rural areas making agriculture less and less viable. Will nationalist appeals be strong enough to stem the tide and persuade people to produce food, to face the growing food crisis? Even if we manage with as little food as possible, can we do without transport? Will our parliamentarians give up their luxury vehicles and start riding buses and trains? How about drugs and medical equipment? How about computers for schools?”__________________________________
by S.T. Hettige
(March 07 , Colombo, Sri Lanka Guardian) Introduction of open economic policies in 1977 transformed Sri Lanka’s economy in an irreversible manner. Import substitution industries established over several decades collapsed within a short period of time. An estimated 200,000 handlooms scattered all over the country disappeared within a few years following import liberalisation and the establishment of garment factories in the newly established Free Trade Zones. Garment exports soon replaced tea as the main source of foreign income. Imported goods flooded the local markets, adversely affecting local agriculture and small industries. Steadily depreciating rupee against all the major currencies led to high inflation and increasing cost of living. Rural farmers could not sell their produce at a reasonable price and became increasingly indebted. Many farmers committed suicide as their situation became intolerable. More and more people started leaving the country and the booming Middle East became the most popular destination for Sri Lankan workers, particularly for women who found employment as domestic servants in Middle East homes.
Ever since we liberalised the economy the balance of payment situation has continued to deteriorate. Our exports, mainly garments and tea, do not generate enough foreign exchange to pay for increasing imports. To bridge the widening gap, successive governments had to borrow money from international lending agencies. Today, our foreign debts amount to more than 85% of the country’s GNP. Today’s trade gap which stands around 2.7 billion US dollars is equivalent to the amount of remittances sent by Sri Lankan workers employed abroad. In other words, if these workers are not employed abroad, and do not generate foreign income, we are in serious trouble as we will not be able to import what we badly need to keep the country going and provide the basic services people need by way of transport, electricity, healthcare etc.
We have an estimated 1.5 million workers abroad, nearly 20% of the labour force. These are temporary workers and are not entitled to social security. When they are unable to work or too old, they will have no social security. If they have no savings to draw from, their situation can be precarious. As we all know, migration has weakened social bonds of family and kinship, usual fall back options for a population not covered by pensions, provident funds, etc.
Today, the dominant ideology that governs the world is neo-liberalism that prescribes free trade as the only way to economic prosperity. Most countries have jumped the band wagon. They have signed up with the World Trade Organisation that governs world trade, in collaboration with the World Bank, the IMF, not to mention the large business firms based in the developed countries. Countries with strong governments and competitive advantage such as China and India have recorded unprecedented economic growth. Given the huge market potential, investors have gone to these countries in droves. Today almost all the developed countries have a stake in the Chinese economy. Chinese goods are flowing in all directions and have already flooded markets in many parts of the world, including traditional industrial countries in Europe, America and Japan.
On the other hand, smaller countries with weak governments like Sri Lanka, have simply succumbed to the pressures of global market forces. Sri Lanka’s economy today is dominated by the export processing sector which depends to a great extent on imported raw materials and machinery. The only advantage we have is cheap labour, which is not cheap anymore. Increasing cost of living drives more and more people out of the country, creating labour shortages in all vital sectors such as FTZ’s, plantations and agriculture.
The countries that have faced global market pressure yet remain economically dynamic and robust are those that have strong governments providing the necessary support and protection for infant industries. They have done so by diverting public investment into research and development and maintaining high tariffs on imports at initial stages. The classic case is South Korea. As the Cambridge economist Haa. Joon Chang has pointed out this is what the traditional western industrial countries like the USA, the UK and Japan did.
Huge investments in R and D gave these countries a massive technological advantage. Rapid productivity increases and superior industrial production enabled them to dominate in world trade. By the time neo-liberal trade regime governed by the newly established WTO came into being, these countries had no difficulty in facing competition in the world market. Take the example of pharmaceuticals. Today, several pharmaceutical giants based in a few developed countries dominate the industry and control most of the patented drugs that the whole world needs. Today private health expenditure has become a killer in Sri Lanka. We have to import expensive life saving drugs whether we like it or not. Where do we stand in terms of R and D in this sector? Can we think of a situation where we produce our own drugs? Switzerland is such a country with just six million people and is home to one of the largest pharmaceutical giants in the world. This is the result of their investment in R and D in that sector over a long period of time. Countries like India are much less dependent on imports of drugs as there are local companies producing generic drugs. This is again due to past investment in R and D, and the protection they enjoyed for many decades prior to liberalisation in the early 1990s.
We boast a lot about the fact that we were the pioneers in economic liberalisation in South Asia, perhaps, even in Asia. Did we have the conditions necessary for us to engage in free trade and survive? Three critical conditions were missing in Sri Lanka - Firstly, a strong competitive industrial sector that could compete with industrial products from other countries. As a result, within a few years, all the industries exposed to foreign competition collapsed like a pack of cards. Secondly, our labour force, which J.R. Jayewardene advertised as skilled and English-speaking was neither skilled nor English-speaking, thanks to poor educational planning and the total abandonment of English within the education system, a blunder that even India did not commit.
Thirdly, the kind of political regime that came into being. Politicians began to abuse power and amass wealth with impunity, leading to rampant corruption at all levels in all sectors, weakening any sense of social solidarity, justice and fairness. This weakened the whole social and political fabric and businessmen became political collaborators, rather than leading in industry with a vision for a better economic future for the country.
On top of all these came 1983. The riots had a massive ripple effect, radiating from Sri Lanka to the rest of the world. Sri Lanka’s internal conflict became internationalised. Hundreds of thousands left the country and sought refuge in other parts of the world.
Their activities have kept the conflict alive, and sustained continued international attention on the issue. What would have happened in Sri Lanka if 1983 did not occur is anybody’s guess. But it is obvious that we would have been probably better off economically, at least due to booming tourism. Our economic situation today, is precarious.
If not for the increasing remittances sent by hapless Sri Lankan workers in the Middle East and continued foreign borrowings, there is absolutely no way of bridging the trade gap. If we do not earn enough foreign exchange, we cannot import vital goods such as transport equipment, fuel, drugs, food and machinery. What would happen then? What are our fall back options in such sectors as transport, energy, health and food?
Successive governments have done everything to promote labour migration, the easiest way to earn foreign exchange. Mass migration of labour has been a humanitarian disaster for families and children. Hundreds of workers return in wheel chairs and coffins. Incest, committed on daughters by fathers left behind has been increasing steadily. Family breakdowns are rampant in villages where relatively stable social networks kept the ordinary villagers going in spite of political excesses in Colombo.
Today, we have 1.5 million workers abroad. This number is likely to increase in the years to come due to increasing economic pressure and social disorganisation. Labour will become more and more scarce in rural areas making agriculture less and less viable. Will nationalist appeals be strong enough to stem the tide and persuade people to produce food, to face the growing food crisis? Even if we manage with as little food as possible, can we do without transport? Will our parliamentarians give up their luxury vehicles and start riding buses and trains? How about drugs and medical equipment? How about computers for schools?
It is obvious that we need to earn foreign currency in order to import vital goods mentioned earlier. In the short run, we need to export garments and borrow money from external lenders. If we promote too much labour migration, labour shortages will affect garment production, tea plantations and agriculture. So our options are very limited.
In other words, we are too dependent on external trade and other external economic relations and therefore, vulnerable as a country. Can nationalist rhetoric alone help Sri Lanka to cope with the above situation? How do we deal with serious structural problems in the economy that has been largely the result of economic policies that we have pursued? Whom should we blame for our present predicament? What has been the role of the state in all this? These are vital questions that we have to find answers to, if we are to face the facts in a rational manner. Reality is not black or white.
There are no simple explanations. We need serious empirical analysis based on facts and figures, not conspiracy theories, to understand our own situation. We are so dependent on external economic relations today that it would be literally suicidal to get ourselves isolated from the rest of the world.
We, as a country are partly responsible for our present predicament. Our failure to implement sound, evidence-based policies and almost total disregard on the part of the leaders for the principles of good governance in recent years have hampered socio- economic development, leading to the problems mentioned above. Whom should we blame for this state of affairs?
(The Writer is Professor of Sociology at University of Colombo)
by S.T. Hettige
(March 07 , Colombo, Sri Lanka Guardian) Introduction of open economic policies in 1977 transformed Sri Lanka’s economy in an irreversible manner. Import substitution industries established over several decades collapsed within a short period of time. An estimated 200,000 handlooms scattered all over the country disappeared within a few years following import liberalisation and the establishment of garment factories in the newly established Free Trade Zones. Garment exports soon replaced tea as the main source of foreign income. Imported goods flooded the local markets, adversely affecting local agriculture and small industries. Steadily depreciating rupee against all the major currencies led to high inflation and increasing cost of living. Rural farmers could not sell their produce at a reasonable price and became increasingly indebted. Many farmers committed suicide as their situation became intolerable. More and more people started leaving the country and the booming Middle East became the most popular destination for Sri Lankan workers, particularly for women who found employment as domestic servants in Middle East homes.
Ever since we liberalised the economy the balance of payment situation has continued to deteriorate. Our exports, mainly garments and tea, do not generate enough foreign exchange to pay for increasing imports. To bridge the widening gap, successive governments had to borrow money from international lending agencies. Today, our foreign debts amount to more than 85% of the country’s GNP. Today’s trade gap which stands around 2.7 billion US dollars is equivalent to the amount of remittances sent by Sri Lankan workers employed abroad. In other words, if these workers are not employed abroad, and do not generate foreign income, we are in serious trouble as we will not be able to import what we badly need to keep the country going and provide the basic services people need by way of transport, electricity, healthcare etc.
We have an estimated 1.5 million workers abroad, nearly 20% of the labour force. These are temporary workers and are not entitled to social security. When they are unable to work or too old, they will have no social security. If they have no savings to draw from, their situation can be precarious. As we all know, migration has weakened social bonds of family and kinship, usual fall back options for a population not covered by pensions, provident funds, etc.
Today, the dominant ideology that governs the world is neo-liberalism that prescribes free trade as the only way to economic prosperity. Most countries have jumped the band wagon. They have signed up with the World Trade Organisation that governs world trade, in collaboration with the World Bank, the IMF, not to mention the large business firms based in the developed countries. Countries with strong governments and competitive advantage such as China and India have recorded unprecedented economic growth. Given the huge market potential, investors have gone to these countries in droves. Today almost all the developed countries have a stake in the Chinese economy. Chinese goods are flowing in all directions and have already flooded markets in many parts of the world, including traditional industrial countries in Europe, America and Japan.
On the other hand, smaller countries with weak governments like Sri Lanka, have simply succumbed to the pressures of global market forces. Sri Lanka’s economy today is dominated by the export processing sector which depends to a great extent on imported raw materials and machinery. The only advantage we have is cheap labour, which is not cheap anymore. Increasing cost of living drives more and more people out of the country, creating labour shortages in all vital sectors such as FTZ’s, plantations and agriculture.
The countries that have faced global market pressure yet remain economically dynamic and robust are those that have strong governments providing the necessary support and protection for infant industries. They have done so by diverting public investment into research and development and maintaining high tariffs on imports at initial stages. The classic case is South Korea. As the Cambridge economist Haa. Joon Chang has pointed out this is what the traditional western industrial countries like the USA, the UK and Japan did.
Huge investments in R and D gave these countries a massive technological advantage. Rapid productivity increases and superior industrial production enabled them to dominate in world trade. By the time neo-liberal trade regime governed by the newly established WTO came into being, these countries had no difficulty in facing competition in the world market. Take the example of pharmaceuticals. Today, several pharmaceutical giants based in a few developed countries dominate the industry and control most of the patented drugs that the whole world needs. Today private health expenditure has become a killer in Sri Lanka. We have to import expensive life saving drugs whether we like it or not. Where do we stand in terms of R and D in this sector? Can we think of a situation where we produce our own drugs? Switzerland is such a country with just six million people and is home to one of the largest pharmaceutical giants in the world. This is the result of their investment in R and D in that sector over a long period of time. Countries like India are much less dependent on imports of drugs as there are local companies producing generic drugs. This is again due to past investment in R and D, and the protection they enjoyed for many decades prior to liberalisation in the early 1990s.
We boast a lot about the fact that we were the pioneers in economic liberalisation in South Asia, perhaps, even in Asia. Did we have the conditions necessary for us to engage in free trade and survive? Three critical conditions were missing in Sri Lanka - Firstly, a strong competitive industrial sector that could compete with industrial products from other countries. As a result, within a few years, all the industries exposed to foreign competition collapsed like a pack of cards. Secondly, our labour force, which J.R. Jayewardene advertised as skilled and English-speaking was neither skilled nor English-speaking, thanks to poor educational planning and the total abandonment of English within the education system, a blunder that even India did not commit.
Thirdly, the kind of political regime that came into being. Politicians began to abuse power and amass wealth with impunity, leading to rampant corruption at all levels in all sectors, weakening any sense of social solidarity, justice and fairness. This weakened the whole social and political fabric and businessmen became political collaborators, rather than leading in industry with a vision for a better economic future for the country.
On top of all these came 1983. The riots had a massive ripple effect, radiating from Sri Lanka to the rest of the world. Sri Lanka’s internal conflict became internationalised. Hundreds of thousands left the country and sought refuge in other parts of the world.
Their activities have kept the conflict alive, and sustained continued international attention on the issue. What would have happened in Sri Lanka if 1983 did not occur is anybody’s guess. But it is obvious that we would have been probably better off economically, at least due to booming tourism. Our economic situation today, is precarious.
If not for the increasing remittances sent by hapless Sri Lankan workers in the Middle East and continued foreign borrowings, there is absolutely no way of bridging the trade gap. If we do not earn enough foreign exchange, we cannot import vital goods such as transport equipment, fuel, drugs, food and machinery. What would happen then? What are our fall back options in such sectors as transport, energy, health and food?
Successive governments have done everything to promote labour migration, the easiest way to earn foreign exchange. Mass migration of labour has been a humanitarian disaster for families and children. Hundreds of workers return in wheel chairs and coffins. Incest, committed on daughters by fathers left behind has been increasing steadily. Family breakdowns are rampant in villages where relatively stable social networks kept the ordinary villagers going in spite of political excesses in Colombo.
Today, we have 1.5 million workers abroad. This number is likely to increase in the years to come due to increasing economic pressure and social disorganisation. Labour will become more and more scarce in rural areas making agriculture less and less viable. Will nationalist appeals be strong enough to stem the tide and persuade people to produce food, to face the growing food crisis? Even if we manage with as little food as possible, can we do without transport? Will our parliamentarians give up their luxury vehicles and start riding buses and trains? How about drugs and medical equipment? How about computers for schools?
It is obvious that we need to earn foreign currency in order to import vital goods mentioned earlier. In the short run, we need to export garments and borrow money from external lenders. If we promote too much labour migration, labour shortages will affect garment production, tea plantations and agriculture. So our options are very limited.
In other words, we are too dependent on external trade and other external economic relations and therefore, vulnerable as a country. Can nationalist rhetoric alone help Sri Lanka to cope with the above situation? How do we deal with serious structural problems in the economy that has been largely the result of economic policies that we have pursued? Whom should we blame for our present predicament? What has been the role of the state in all this? These are vital questions that we have to find answers to, if we are to face the facts in a rational manner. Reality is not black or white.
There are no simple explanations. We need serious empirical analysis based on facts and figures, not conspiracy theories, to understand our own situation. We are so dependent on external economic relations today that it would be literally suicidal to get ourselves isolated from the rest of the world.
We, as a country are partly responsible for our present predicament. Our failure to implement sound, evidence-based policies and almost total disregard on the part of the leaders for the principles of good governance in recent years have hampered socio- economic development, leading to the problems mentioned above. Whom should we blame for this state of affairs?
(The Writer is Professor of Sociology at University of Colombo)
- Sri Lanka Guardian
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