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Perspectives on International and Multicultural Affairs Volume 1, Issue 1

By Roshan Paul

Sri Lanka is a small island separated from the southern tip of India by the 110 km long shark-infested Palk Straits. Also called the Emerald Isle, on account of its shape, it is roughly the size of West Virginia and has a population of about 19.25 million people.

Among developing countries, Sri Lanka has always had an intriguing role. When the world focused on growth-centric theories of development in the 1950s and 1960s, Sri Lanka concentrated on a basic needs approach. Its subsequent relatively high quality of life levels garnered much coverage in development literature; and is indicated by Sri Lanka’s ranking in the middle range of countries in the UNDP’s Human Development Index,¹ which is unusual considering its weak economy ($2600 GDP per capita).² Other indicators of the fruits of its original basic needs strategy are a population growth rate of 0.89%, a fertility rate of 1.98 children/woman, an average life expectancy of 72 years and 90.2% literacy, all of which are easily on par with the figures of the developed economies and do not readily correspond to its high levels of absolute poverty. ³

Sri Lanka was not always poor, however. For the first two decades after its independence from the British in 1948, its per capita GNP was the highest in Asia, even exceeding Taiwan and South Korea.⁴ Its Achilles Heel was in the areas of production and productivity, which did not expand as fast as other countries. Thus, in 1977, a new government in Sri Lanka opened the economy up for international trade in an attempt to alleviate poverty and raise GNP levels. Interestingly, Sri Lanka’s shift towards growth theory seems to coincide with the world turning away from it and moving towards basic needs. In any case, the Sri Lankan Government has had to deal with the phenomena of globalization and localization in an increasingly liberalized global economy.

Despite the benefits of globalization, Sri Lanka is among the developing nations that most stridently criticize the side effects of globalization, calling it neo-colonialism. In a speech to the General Assembly of the UN, Sri Lankan President Chandrika Kumaratunga said "the maladies that spring from economic globalization require remedies that are global and take into account the ailments of all states, and not be based solely on the prescriptions advanced by those [who] seem to be more secure."⁵

What makes Kumaratunga so vocal about globalization? Historically, external crises that have nothing to do with Sri Lanka (the Korean War, the oil shocks of the 1970s and the Gulf War) caused spiraling inflation and severe adjustment problems domestically.⁶ The Gulf War, in particular, was a disaster as it destroyed two major sources of external finance; Iraq was the largest buyer of Sri Lankan tea and the Middle East was the largest source of employment for migrant workers.⁷ The subsequent unemployment within Sri Lanka as well as out-of-business tea farmers increased civil unrest and was a large reason for the 1994 call for elections. More recently, globalization has weakened the formerly powerful labor tribunal system, resulting in wealthy businessmen and companies exploiting their poor employees.⁸ The tribunals blame this on the global economy, which "does not have a soft spot for workers."⁹ For Kumaratunga, this labor dissatisfaction not only decreases productivity and exacerbates income inequalities but also further weakens the strength of her already shaky coalition government in this time of internal civil strife. Another indication of labor problems is the recent strengthening of the Sri Lanka Thrift and Credit Cooperative Societies (TCCS).¹⁰ This follows from the privatization of state-owned enterprises that resulted in high unemployment and the subsequent encouragement from the government for laborers to become entrepreneurial. Evidence that this is not just government rhetoric seems to lie in the recent inculcation of business and economic education in school curricula and the co-option of the private sector in reducing "the gulf between education and business."¹¹ Similar to the Junior Achievement Program of the USA, this aims at encouraging children to think along entrepreneurial lines. The Sri Lankan government is indeed directly confronting the labor challenges of the open economy.

Another problem caused by globalization is its impact of several of Sri Lanka’s traditional industries. Following protests from potato, onion and chili farmers about the influx of cheaper imports from India and Holland, poultry farmers are now embittered about cheaper imports that are driving them out of business.¹² Even the tea industry, once an integral part of Sri Lankan exports is being injured by an influx of cheap imports to the extent that over 500 farmers committed suicide in 1999 as a result of being driven out of business by the high costs of inputs, cheap imports and high taxes.¹³ The farmers’ demand for higher import duties as well as lower local taxes has been met by a firm government policy of liberalization that urges them to be independent of tax breaks or tariffs. The original liberalizing intent of the government was to curb domestic inflation of these products and, hence, allowed these imports to enter totally duty-free.¹⁴ The recent announcement of some protection in the form of a license system and proper pricing formula for imports seems to be government recognition of its earlier misjudgment.¹⁵

In the midst of a civil war that is stunting development, Sri Lanka needs humanitarian assistance. Globalization has provided some necessary aid. Assistance has been largely multilateral, with UNICEF being the biggest donor.¹⁶ However, as Sri Lanka does not feature strongly on donor nations’ radar screens, it seems that UNICEF is finding it very difficult to collect funds and this funding shortfall decreases the efficiency of its programs. UNICEF has so far only managed to provide a total of US$ 947,000 out of an estimated total need of US$ 2.5 million for programming in the areas of education, nutrition, sanitation, health, psycho-social programs, landmine awareness and non-food items in troubled regions.¹⁷ Also in relation to the civil war, globalization provides opportunities for external funding for the separatist Liberation Tigers of Tamil Elam (LTTE) through remittances from expatriate Tamils, who have donated $80 million annually.¹⁸ This is a major setback for the Sri Lankan government as it prevents them from financially squeezing the Tamils into submission and further fuels the separatist flames.

Despite its problems, there have been many positive aspects of globalization. For starters, the pursuit of export-oriented industrialization since 1977 resulted in increased female employment since cheap female labor significantly reduced production costs.¹⁹ One of the industries to benefit from this was the textile industry; garment exports are major sources of revenue for Sri Lanka and, following liberalization, textile MNCs set up factories there to utilize Sri Lanka’s advantage in cheap labor. Another important fact is that the global Multi-Fiber Quota Agreement expires in 2005, which will mean a fierce competition to sell garments to the USA and Europe.²⁰ Both these factors have triggered a desire in Sri Lanka to improve the quality of its textiles. In doing so Sri Lankans would be able to compete with cheaper products from competitors like China and Bangladesh. Also, thanks to recent anti-sweatshop campaigns in America, Western consumers are demanding better labor conditions in addition to better quality and prices.²¹ In this way, globalization of Western values is actually improving the lives of the poor rather than worsening them.

Sri Lanka’s Victoria’s Secret garment factory provides a wonderful example of the benefits of globalization. The textile giant has funded the set-up of state-of-the-art technologies, which Sri Lankan employees operate in air-conditioned comfort.²² Western educated Sri Lankan businessmen run the factory and have borrowed efficiency-increasing production practices from the West and Japan, in pursuit of the goal of achieving world-class quality.²³ At the same time, safety conditions and labor satisfaction have never been better.²⁴ The factory is a meritocracy, which is unusual in Sri Lanka (or anywhere in Asia), and therefore attracts quality laborers. This would explain the ironic situation of Western educated investment bankers, Ph.D.’s and physicists "now making panties."²⁵ As an example for the rest of the private sector in Sri Lanka, there is none better.

Companies like Victoria’s Secret also help by linking local firms to international markets and promoting joint ventures between local entrepreneurs and foreign investors.²⁶ The subsequent rise in exports and improved quality of these exports leads to increased revenues as well as increased global competitiveness of Sri Lankan products. This process is vital since Sri Lankan products were facing declining terms of trade, which implies that local companies were not properly weaned off import substitution policies. ²⁷ Once the economy was liberalized, Sri Lankan producers found that their products were simply not of sufficient quality to meet the demands of global markets.

The integration of the Sri Lankan economy into the global economy has now reached such an irreversible level that the new government is compelled to continue the same policy, despite the anti-globalization sentiment in some of its prime constituents.²⁸ International financial institutions still guide the Sri Lankan economy and it appears that Sri Lanka continues to follow a market-oriented policy, the hallmark of which is a commitment to globalization. Naturally, with a long history of state intervention, many segments of the Sri Lankan population view liberalization with suspicion, and while the government has tried to address this through public information programs, the inevitable questions of transparency and accountability that accompany privatization have surfaced, making things difficult for the government. ²⁹

Besides the afore-mentioned protection policies, entrepreneurial programs and public forum criticisms of globalization, the Sri Lankan government has also responded to globalization by instituting a floating exchange rate (instead of their traditional dual rate), offering credit to investors as well as microcredit to the poor, and expanding financial intermediation and improving interest rates.³⁰ Furthermore, there has also been increased investment in scientific education, especially in the provision of scholarships to respected engineering institutes in India and the USA, as well as the formation of local research and development (R&D) institutes.³¹ Technology improvements are vital for sustained economic growth as they enable a developing nation to break out of the low-level equilibrium trap. As a result, the increase in funding for scientific activities bodes well for the future.

Although Sri Lanka criticizes some of the outcomes of globalization, it also recognizes it as inevitable. However, to prevent the filling of Western pockets at the expense of Asian ones, Sri Lanka calls for preferential trade agreements within Asian countries. At a special session of the Nepali Parliament, Kumaratunga announced that Sri Lanka strongly believes that "developing nations should act in unison in facing the challenges of globalization."³² Proposed by Sri Lanka, the South Asian Association for Regional Cooperation (SAARC) - with other member states India, Pakistan, Nepal, Bhutan, Bangladesh and Maldives – formulated a SAARC preferential trade agreement (SAPTA) in 1995 to crystallize the practice of preferential trade amongst members.³³ Recently, Kumaratunga called for increased cooperation between SAARC members in order to present a unified front to globalization and has led the way by unilaterally liberalizing tariffs on imports from SAARC member-states.³⁴ Kumaratunga’s representative to the UNCTAD conference in Sri Lanka backed her up by advocating for developing nations to jump on the e-commerce bandwagon for, if not, they "will be marginalized from the developed world" as internet commerce in Asia will explode from $500 million currently to $30 billion by 2001.³⁵

The Sri Lankan government has succeeded in laying a reasonably solid foundation to consolidate and strengthen the country’s economy. The communications network is solid, institutions to attract and keep capital as well as carefully select the type of capital are all in place, financial intermediation is easily available and Colombo is now a major Asian seaport.³⁶ As Sri Lanka moves into the highly globalized 21^st century, everything it needs to enhance its international economic position seems to be in place. Or, rather, everything except the small matter of a civil war.

In terms of localization, the role of the Sri Lankan government at the moment is largely authoritarian – and understandably so for the nation is in the grip of a horrific 17-year-old separatist civil war that has claimed over 60,000 lives.³⁷ Separatism in Sri Lanka may not be localization per se but it is the "growing desire of people for a greater say in their government" and it certainly "manifests itself in the assertion of regional identities," which accords with the World Bank’s definition of localization.³⁸

The two primary ethnic groups in Sri Lanka are the Sinhalese (74%) and the Tamils (18%).³⁹ The history of the conflict between the Sinhalese government and the Tamil minority is complicated and dates back to the 1940s. For the first 30 years, the conflict was confined to political parties and peaceful rallies. However, as the situation deteriorated, the Tamil movement became a nationalist one and finally, in a 1976 convention, the Tamils adopted a resolution calling for a separate, sovereign Tamil state known as "Tamil Eelam;" the new state would comprise the 2 Tamil-speaking provinces in the north and east.⁴⁰ In the 1980s, Tamil nationalism became increasingly militant as the brutal LTTE guerrilla movement gained more followers than the more placid Tamil political parties. The Sinhalese, on the other hand, themselves have a "minority complex" because of their proximity to the southernmost Indian state of Tamil Nadu, whose population of 80 million Tamils is over four times that of Sri Lanka.⁴¹ Thus, they unhesitatingly label the LTTE as a terrorist movement and are committed to a military solution to the conflict.⁴² Today, peace in Sri Lanka depends wholly on the status of relations between the LTTE and the central government, as all other parties have been sidelined. Unfortunately, according to Sri Lankan political scientists, at no time since independence has the gulf between the Sinhalese and the Tamils been as wide as it is today.⁴³

The LTTE’s quest for Eelam – which is practically the only localization of any kind occurring in a country plagued by civil strife - has terribly hampered development in Sri Lanka. The Institute of Policy Studies in Colombo estimates that "foregone investment, lost tourism, military spending, emigration, lives lost and other costs of war amount to 200% of 1999’s GDP."⁴⁴ The Sri Lankan government has responded to LTTE violence by denying large numbers of Tamils access to higher education and employment, arbitrarily detaining them on the slightest grounds and generally isolating them from urban Sri Lanka.⁴⁵ Thus, many Tamils view migration – primarily to India, Europe or Canada – as an attractive solution. Over 500,000 Tamil youth have migrated since 1981, and this exodus has mostly been of students, intellectuals, professionals, and moderate Tamils.⁴⁶ It follows that this loss of intellectual capital has severely weakened not just the economic potential of the Tamils but also the possibility of moderate Tamils, ironing out a political solution with the Sinhalese government.

As the LTTE incurs mounting losses against the Sri Lankan army, it is beginning to recruit children to bolster its depleted ranks. Both male and female children are recruited once they reach seven, given basic training in guerrilla warfare and also given cyanide capsules to swallow if the army ever catches them.⁴⁷ This is a serious problem for human development as it is depleting the ranks of Sri Lanka’s future generations. Children of war, if they survive, will undoubtedly face severe psychological problems and development retardation, thanks to the horrors they have witnessed and the difficult lifestyle of war. This doesn’t bode well for the future of the Tamils or for that of Sri Lanka.

The ethnic conflict has also deterred MNC investment, as most MNCs are notoriously wary of politically unstable nations. For example, because of the high risk factor, both Motorola and the Harris Corporation located in Malaysia rather than Sri Lanka, despite the latter’s comparative superiority in all other criterion.⁴⁸ Another area of economic activity affected by the ethnic conflict has been tourism. News stories of bomb blasts in hotels in downtown Colombo as well as the LTTE policy of targeting foreign sports teams and tourists (in an attempt to garner international sympathy for their cause) has reduced the numbers of tourists to Sri Lanka.

The lack of development also causes increased unemployment, especially amongst Tamils, and this leads to more volunteers for the war, thereby perpetuating it and continuing to hinder development in a vicious cycle. Hence, resolution of this conflict is vital in order for Sri Lanka to fully reap the benefits of its neo-liberal policies.

The Sri Lankan government has only recently begun to consider non-military options to end the violence. As of now, Kumaratunga is pursuing a two-pronged strategy: trying to militarily defeat the LTTE while "wooing moderate Tamils" by devolving some power to Tamil regions.⁴⁹ Thus, the movement towards decentralization is still in its infancy in Sri Lanka. Her attempt to win over the Tamils came in the form of a constitution-reforming devolution package, the crafting of which she personally supervised. This bill would give the Tamils a great deal of autonomy over their claimed land and Sri Lanka a federal system of government, since each of the nine provinces would be run by a "regional council" comprised of Presidential appointees from recognized political parties.⁵⁰ The bill however failed to accomplish any of its goals. Though some moderate Tamil groups tentatively approved it, the LTTE rejected it outright, demanding nothing less than independence; others claimed that the real purpose of the bill was to partition the country.⁵⁰ But the biggest resistance came from Buddhist monks, who organized street protests to prevent the passing of the bill, arguing that giving the Tamils any sort of control was a recipe for disaster, given the small size of the country and its proximity to India’s Tamil Nadu state.⁵²

Earlier trends towards localization in the form of devolution rhetoric and tentative proposals had also met with fierce resistance from Sri Lankan intellectuals, both within and from abroad, who predicted a massive influx of Indian Tamils into Sri Lanka if the Tamils were given their own region.⁵³ They also argued that it was dangerous to cede control of any part of national borders to anyone, let alone the Tamils.⁵⁴ Their argument is driven by the theory that the conflict is not an ethnic problem but a separatist problem.⁵⁵ Thus, by misdiagnosing the root of the problem, devolution will accomplish neither a sharing of power nor peace.

So, can two potent nationalisms exist within a single state? After 17 years of violent conflict, the question remains unanswered. In fact, it’s quite possible that the solution, if one exists, may eventually depend on the leadership qualities displayed by both sides.

Another form of localization in Sri Lanka, though it is not yet fully developed, has been the implementation of village-based microcredit. Run by World Vision Sri Lanka, a grass-roots local NGO, this program is similar to most microcredit programs except for the fact that it is run entirely by village personnel.⁵⁶ Loan defaulters are dealt with strictly at the village level with peer pressure being the main tool used in generating fiscal discipline.⁵⁷ Though over 700 villages have benefited in some ways from this program, its success has been limited primarily because of the civil war.⁵⁸ However, the precedent has been set and the initial achievements of the program indicate that there is hope for a successful future implementation of it.

As discussed previously, Sri Lanka has great economic potential. However, some of the measures it could undertake to better respond to globalization and localization include:

• Sri Lanka’s liberalizing urge needs to be properly channeled and controlled as domestic agrarian producers are being severely hurt by it. In addition to SAPTA, it must only open up selectively to mobile capital and only according to its own national interests. Caution here too is important because international capital flows are inherently destabilizing, as evinced by the Asian economic crisis a few years ago. However, despite accusations of Western exploitation, it must continue to invite FDI; as some academics believe, "it is better to be exploited by FDI than not be exploited at all." ⁵⁹
• Simultaneously, it must intervene in the distribution of the benefits of liberalization so that the low-income groups benefit as well. This will allow the poor to make greater contributions to production. Furthermore, the increase in income levels will allow them to save more and eventually transform the "vicious circle of poverty" into a virtuous circle of equitable and sustained economic growth
• Despite using Green Revolution techniques, food production in Sri Lanka lags behind other Asian countries. Government intervention in terms of rural investment and agriculture research may be necessary in order for Sri Lankan farmers to increase production and thereby combat the competition from cheap imports.⁶⁰

Localization

• With regard to the conflict, Sri Lanka must begin a dialogue with the LTTE. An intermediate solution is the opposition party’s offer of an "interim council, run by the LTTE, that would govern the north-east while a final solution is worked out."⁶¹ Unfortunately, at present, both sides believe they have more to gain from war.⁶² After 17 years of conflict, a political solution might well be impossible, but this shouldn’t happen through a lack of trying.
• If the Sri Lankan government does craft another devolution package, it must ensure firstly that no political party can summarily dismiss a regional government without support from the opposition parties. Furthermore, the minimum areas of Tamil autonomy must be taxation, law making and law enforcement.⁶³ While fears that devolution might lead to partition of the country are understandable, in fact, "there is no causal relationship between devolution and secession."⁶⁴
• To achieve peace in Sri Lanka, the first goal of the Sinhalese government should be to regain the trust of the Tamil moderates, for even they now feel betrayed by the "broken promises of successive governments and the inability of political parties to stitch together a credible devolution proposal."⁶⁵

Sri Lanka today has over 90% literacy, compulsory education for all, universal health care, affordable rail and bus transportation, electricity in most rural homes, widespread land ownership, full representation of women and minorities in labor force and government, labor laws acknowledged to be a model for developing countries, and the highest per capita income and the lowest birth rate in South Asia."⁶⁶ Furthermore, Sri Lanka was clever enough to first attain all of these before moving towards growth-oriented policies. With all of these, why has the country failed to develop?

There are several reasons for this but by far the most important one is the ethnic conflict that has racked and ravaged all of the country except for the westernmost regions. Instead of focusing on development, the Sri Lankan government has had to direct its time, attention and valuable resources towards solving this problem. The opportunity cost of this has been incredibly high, and therein lays the tragedy of wasted chances that may never reappear.

The World Bank sees globalization and localization as "phenomena that no development agenda can afford to ignore."⁶⁷ Governments must engage in "institution building" on both the domestic and international planes in order to reap the harvests of these twin forces.⁶⁸ Sri Lanka has most of these institutions in place and, with a comparative advantage in natural resources and cheap labor; it is an attractive place for both foreign and domestic investment. Total integration into the global economy is not too far off, though this depends on a dramatic decrease in civil strife. Although dark clouds of frustration loom on the Sri Lankan development horizon (as there seems to be no end to the conflict in sight), there are also several bright rays of light. And this should provide a great sense of optimism as the Emerald Isle moves into the 21^st century.

¹ Lakshman, Weligamage & Tisdell, Clement. "Introduction to Sri Lanka’s Development Since Independence." Sri Lanka’s Development Since Independence. Lakshman (Ed.). Huntington, NY: Nova Science Publishers, 2000, p 9.

¹⁰ World Council of Credit Unions. "Institutional Strengthening Activity" http://www.woccu.org/cudev/sri_ppr.htm (10/23/00).

⁶⁸ Ibid.

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