Rethinking Sri Lanka’s Industrialisation

By Uditha Devapriya –JUNE 18, 2022

Uditha Devapriya

Sri Lanka’s problems long predate the arrival of the Rajapaksas. Widely touted as an export-dependent economy, its tendency to import everything, from intermediate capital goods to bathroom ware, has been its distinguishing feature for the last 70 years. The island’s shift to neoliberal globalisation in 1977 served to reinforce this dependency, making it vulnerable to external shocks. The ineptitude of the Rajapaksas is thus a symptom of a bigger malaise, one that is yet to be understood fully by think-tanks and policymakers.

Neoliberal commentators fault the country’s public sector. They contend that it is too bureaucratised, too politicised: a heavy, crushing burden on the economy. To be fair, they aren’t entirely in the wrong. The public sector has long been the preferred destination of unemployed graduates and the politically connected. When Gotabaya Rajapaksa came to power in 2019 he implied that he would end such a culture. About two years later he made a U-turn, recruiting more than 60,000 graduates to the government sector.

Heterodox economists disagree. For them the problems of Sri Lanka’s economy have to do with its failure to industrialise and shift to manufacture. Among the most vocal proponents of the industrialisation line has been Dr Howard Nicholas. Responsible for setting up the only local think-tank that advocated industrialisation, the Institute of Policy Studies (IPS), Dr Nicholas has been tirelessly reminding Sri Lankans of the country’s potential in manufacture, be it in garments or even its traditional sectors, including tea.

The industrialisation discourse has been widely picked up, even by those who otherwise support neoliberal prescriptions. The neoliberal crowd disputes Nicholas’ line for ideological reasons: they think it entails a wider role for the State, which they oppose. Patronised and funded by Colombo’s well-oiled free market think-tanks, they caution against government intervention, pointing at the present regime’s economic policies, like its advocacy of money printing and import restrictions, that supposedly got us into this mess.

I have been a defender of industrialisation and local production. Not because I view greater government intervention necessarily as a good thing, but because more than three decades of untrammelled neoliberalism has not got us anywhere. In the 1980s and 1990s the country extensively resorted to traditional aid programmes. Except for the Ranasinghe Premadasa years, which saw at least some attempts at industrialisation, all other governments in power during this time preferred and implemented a strategy of privatisation and deregulation. To be sure, in itself this is not undesirable. But taken to an extreme, it takes a country nowhere. By the mid-2000s, it had landed us in a middle-income trap.

Sri Lanka’s debt problems don’t have to do with the Chinese, though debt trap narratives suggest otherwise. They have more to do with the island’s dependence on sovereign bonds and hedge funds. These constitute a far greater share of Sri Lanka’s external debt than does China’s, Japan’s, or India’s contribution. We need to ask why we let ourselves run into this mess, and why we didn’t use opportunities, like the reduction of oil prices in 2009 and 2010, to shift to manufacture, local production, and export-oriented growth.

Those who pinned hopes on the Rajapaksas thinking they would take us out clearly forgot that they were in power when these opportunities were in place. In the aftermath of the end of the war we could have linked infrastructure development to industrialisation: we could have, for instance, closed in on the then government’s optimistic hopes of building nuclear power plants by 2020 or 2030. This never came to be. In pinning hopes on Gotabaya Rajapaksa, we chose to forgot their earlier record on industrialisation and production, even though their government was seen as more conducive to these strategies than a neoliberal dispensation, which we associated with the UNP.

We need to admit that industrialisation was never at the top of the list of priorities for the present regime. True, they appointed W. D. Lakshman, who as an academic – a colleague and contemporary of the Indian Marxist economist Prabhat Patnaik – relentlessly critiqued IMF prescriptions. But they were only too willing to discard his policies, to manipulate them to serve their interests, and to finally let him go. His successor, Ajith Nivard Cabral, wasn’t exactly an IMF ideologue, but the policies that the Central Bank undertook in his last few months reeked of an urge to enforce IMF policies without going to the IMF: a line that was not necessarily opposed by Colombo’s neoliberal coterie.

I know people who would say that policies matter and personalities do not. This was the same mistak

e the Left made in 1964 and 1970. They entered into electoral agreements with a petty bourgeois dispensation in the hopes of fomenting a democratic revolution. To give them credit, they did see through certain important reforms, such as Workers’ Councils. But for every such reform, they faced a setback from the head of their coalition, the SLFP, which they eventually realised, at an exorbitant cost, was neither willing nor able to implement the far-reaching reforms necessary for a radical democratic revolution.

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