How We Came To This Pass –  Waiting On IMF

- colombotelegraph.com

By Sachithanandam Sathananthan

Dr. Sachithanandam Sathananthan

On economic “development”

The government is seeking refuge in the IMF, by one count, for the 17th time. The country’s economy has gone from bad to worse despite the previous 16 IMF interventions; why would this one be any different? President Ranil Wickremasinghe appears convinced his government must invite the IMF to put the country’s finances in order in the short-term. He may well be correct. However, the larger and long-term issue of salvaging the economy too has to be addressed.

Members of the Sri Lankan intelligentsia – public intellectuals, university academics and media professionals – have struggled, no doubt with great sincerity, to come to grips with all or some of “bridging finance”, “macro-economic stability”, “deficits” in budget and balance of payments and “debt sustainability”. The academics tinker with theories – “export-led development”, “trickle-down”, “re-distributive growth”; they churn out numbers, compute percentages and construct comparative statistics with arithmetical precision; and they strive to divine a path for economic development they seem to assume is implicit in IMF’s intervention. 

However, the IMF is a money lender; very briefly, the Fund makes loans to temporarily improve the current account balance (simply put, ease cash flow), to service past debts and sometimes meet current consumption and recurrent expenditure in cash-strapped economies. 

In return for financial assistance, IMF’s guidelines seek to “get prices right” and, allegedly toward that end, are likely to insist the government cuts back social expenditure primarily for health and education and raises taxes and utility charges to reduce the budget deficit; they could demand production subsidies for paddy be drastically pruned. Mystified as “structural adjustments”, they boil down to squeezing the already impoverished people to pay for the corruption of, and mismanagement by, their political class they regrettably and repeatedly elected to power; and it’s a double squeeze: the government extracts revenue from wage earners overwhelmingly through indirect taxes (VAT, Sales Tax) whilst the business class transfers most of its own tax liability to the people through higher market prices. 

The IMF may recommend Sri Lanka continues its export-led growth based on primary commodities (mainly tea and rubber), labour-intensive garment “manufactures” (actually assembling mostly imported components) and export of labour to manage the balance of payments deficit since they constitute the only viable option the Fund sees for the immediate future. It is very likely to paper over the worsening international terms of trade between the country’s primary products and industrial nations’ value-added manufactures by requiring the Rupee be devalued, once again, to make primary products more price competitive. As in the past, such toying would not arrest the deteriorating terms of trade. Once the loans are exhausted, Colombo will be back knocking on IMF’s door in about three or four years, if not sooner. 

Sensible Sri Lankan economists ought to examine how agricultural countries – such as Australia, New Zealand – have industrialised agriculture to process their own primary products and export only the finished commodities, ready for consumption. They don’t export milk and import back butter! 

In other words, the longer-term effect of IMF’s interventions is to shackle the country more firmly to the agricultural “development” model crafted by C.V.Brayne. 

Development through peasant proprietorship

The colonial regime’s development model prioritised self-sufficiency in rice, the primary wage good for the plantation sub-sector and subsistence commodity in the peasant sub-sector and beyond, in order to smooth out its domestic supply distortions that necessitates compensating, more expensive rice imports. British administrator and Government Agent C.V. Brayne spelt out his strategy in the 1920s to prevent disruptions to paddy cultivation: “the peasant proprietor”, he noted, “is steadily being crushed out of existence”; since his dispossession – the loss of cultivable land – threatened rice supplies, he proposed a “peasant proprietor system” with an inheritable but restricted “paddy cultivation tenure” that forbade the sub-division or sale of paddy lands allotted by the State (Draft Paddy Cultivation (Tenure) Ordinance, 1922. Archives: University of Cambridge Centre for South Asian Studies,). In short, he sought to reverse the process of proletarianization by practically chaining the peasant proprietor to land. 

In 1927 Governor Hugh Clifford backed Brayne’s plan by endorsing the “bringing into existence of a prosperous, self-supporting, and self-respecting multitude of peasant proprietors” (Hugh Clifford, “Some Reflections on the Ceylon Land Question”, Tropical Agriculturist, No. 68). The uncharacteristic infatuation over “self-supporting” and “self-respecting” peasants was to groom them as reliable domestic suppliers of wage goods. A further reason, of course, was to discourage the allure of urban, industrial employment since colonial policy makers recoiled from industrialisation that would consume a substantial proportion of raw materials otherwise destined to foreign markets as well as displace British manufactured exports; their intention was to lock Ceylon as a source of raw materials for British industry and a market for its output. 

The preference for the politically regressive and socially conservative peasant proprietors in Ceylon was no doubt accelerated by the British elite’s fear of the October Revolution that brought forth the Soviet Union, the increasingly aggressive Communist Party of Great Britain (CPGB) and the rapid spread of the Third International’s influence in the British Indian Empire. 

Members of Ceylon’s semi-feudalist, landed class shared similar forebodings, which mired them in an insoluble contradiction: its members understood the need to industrialise but dreaded the associated expansion of urban workers that could threaten their interests as a class; they ideally preferred industrialisation without its working class. Since that is impossible, they sacrificed industrial development, arrested the growth of industrial workers, pushed the unemployed into peasant-agricultural occupations and thereby retarded development. 

Evidently unnerved by the meteoric rise of the Trotskyite Lanka Sama Samaja Party (LSSP) and the Communist Party’s (CP), Prime Minister Sir John Kotelawela feared the “dangerous…spread of communism” (Hansard, vol.23, col.869, 1955). The CP’s Dr.S.A.Wickremasinghe accused the Minister of Lands and Land Development in 1959 of a counter-revolutionary embourgeoisement of peasants to “prevent…a socialist society” (Hansard, 1959, col, 1495); and Satchi Ponnambalam concluded in 1981 that peasant proprietorship served as “a political buffer” (Dependent Capitalism in Crisis in Sri Lanka, 1948-1980, 1981, p.22).

Having foreclosed industrialisation, peasant land colonisation remained the main avenue to increase employment and raise food supply. The fledgling Don Stephen Senanayake and his class of Ceylonese landlords mimicked and fortified Brayne’s colonial formula – the 1920 Draft Paddy Cultivation (Tenure) Ordinance – in their own 1935 Land Development Ordinance (LDO). Under the LDO State land was parcelled out to “landless” peasants (mostly unemployed agricultural workers) to turn them back into “peasant proprietors”. The land settlements were sugar coated with nationalist flavours. The 1932 Report of the Ministry of Agriculture and Lands harked back to irrigation agriculture that “attained a zenith of prosperity under the wise and possibly benign coercion of Ceylon’s Monarchs” (Sessional Paper No. VIII, p.17). It touted land colonisation under State control as the first step to rebuild the historic Irrigation Civilization, supposedly wiped out in part by the dastardly Chola invaders from what is now Tamil Nadu; the apparent aim is to Make Sinhalese Great Again. 

However, the short-term boost in paddy output was more than offset by several related issues: reclaiming land for cultivation wiped out large tracts of irreplaceable virgin forests, denuded habitats, endangered rare wild life and compounded the colossal environmental degradation the colonial regime inflicted when it cleared ancient forests and catchment areas from the late 19th century to establish the plantation system. 

Consequently, two important conditions for the success of the Irrigation Civilization – demography (low population density) and environment (functioning catchment areas) – hardly existed; population growth and plantation-induced environmental destruction largely obliterated its historical pre-conditions. Senanayake-led miniscule political class slurred over the stark reality especially since the advantage of expanding vote banks, vital in State Council and Parliamentary elections, by distributing public land to allottees was a strong incentive. 

Not much seems to have changed. Minister of Agriculture E.L.Senanayake of the new United National Party (UNP) government explained in 1977: “the policy of this government is to create a nation of peasant landowners and not a nation of labourers” (Ceylon Daily News, 29/dec/77). In 2022 the Ministry of Agriculture’s website claims, since Independence the agricultural sector is “a major economic force in Sri Lanka”; it contributes “to the national economy, food security and employment. At the same time agriculture is the livelihood of the majority in the rural sector and plays a key role in alleviating rural poverty.”. 

Nonetheless, the static approach of focusing investments in peasant agriculture because it satisfies the basic needs of the population is a logical fallacy since it eschewed a structural transformation of the plantation system towards broad based industrialization, which ought to be the main thrust of balanced development.

If Senanayake’s UNP could not grasp the extremely regressive economic consequences of Brayne’s “development” model, the Old Left was at hand to educate its members. The LSSP dismissed peasant proprietorship as the “two acres and a cow” method of development (Hansard, 1957: col.2020). Moreover, Social anthropologist Edmund Leach similarly concluded that State-assisted peasant colonisation schemes are a “solution…of staggering ineptitude” (Transition from group landholding to individual landholding: an example from dry-one Ceylon, 1962. p.13). 

Two refreshing attempts were made to come to grips with colonial underdevelopment: by Satchi Ponnambalam (see above) and Gamani Corea’s The Instability of an Export Economy (1975). However, a critical mass among the intelligentsia that could have followed up the initiatives was sorely lacking.        

“Development thinking”

At no point from Independence has “development thinking” seriously challenged the model the landowning Ceylonese elite copied from the British colonial State. In all likelihood the majority of social scientists perched in academia and “think tanks” either belonged to the landowning elite or shared their interests, usually imbibed through marital connections, and emulated their values. Inevitably they either turned a blind eye to the debilitating effects of the colonial model or were careerists cowed down by the elite’s political power. 

Development thinking pursued “rural upliftment” from 1948 onwards through Prime Minister D.S.Senanayake’s Rural Development Societies (RDS), set up by his UNP government. The RDSs also helped to cement political alliances between UNP’s landowning class based in the Western Province with those from rural constituencies. About four decades later UNP President Ranasinghe Premadasa retooled the initiative as Gam Udawa to build his own rural political ballast. The roads, community centres and clock towers they built of course contributed to improved rural life. 

In 1958 the thinking veered towards Sri Lanka Freedom Party (SLFP)-led Mahajana Eksath Peramuna (MEP) coalition and its revolutionary Philip Gunawardena’s “socialism from below” through one ministry, his Ministry of Agriculture, on the backs of Cultivation Committees(CC) his ministry established under the 1958 Paddy Lands Act. He categorically declared: “I am not a believer in peasant proprietorship” (Hansard, 1957, col.2344) and Dr. G.H.Peiris cited Gunawardena’s anticipation that “the Cultivation Committees [would] eventually…blossom out as collective farms”. The unreasoned opposition by landowners gave credence to the imagined radicalism of the legislation: the Paddy Growers’ Association grieved, “this Bill is seeking to corrupt the mind and morals of the rural community”; the Tamil Congress (TC) leader G.G.Ponnambalam thundered it would result in “a propertyless class of wage slaves working state-owned farms run by a cast iron bureaucracy under the whip of totalitarian dictatorship” (Peiris, CJHSS, vol.4:1, 1957); and Ilankai Tamil Arasuk Kadchi’s (ITAK) S.J.V.Chelvanayagam lamented: the law “has the seeds, if not the full grown plant of communism” (Hansard, vol.30, 1957, col.2316).The confusion deepened; R.J.Herring characterised CCs as “a Marxist tenure reform” (Herring, Journal of Peasant Studies, vol.8, no.2, 1981.)

The Traditional Left further muddied development thinking. CP’s Dr. S.A.Wickremasinghe welcomed the legislation as “the first step towards collective forms of agriculture, resulting…in the gradual evolution into a socialist form” (Hansard, 1959, col.1497). He no doubt followed Lenin’s formula of moving from feudalism to socialism leap frogging the capitalist stage in Soviet Union, though Lenin was compelled to reverse the process in his New Economic Policy (NEP). LSSP’s Dr. Colvin R. de Silva explained collectives were set up “to collect and to give” (Hansard, 1957, col. 2344).

Constrained by scarcity of foreign exchange, development thinking meandered towards stimulating import-substitution production (not industrialisation) in the 1960s to economise on costly imports and raise employment. Shaken by the JVP’s 1971 Insurrection, the SLFP-led United Front (UF) coalition lurched back to the colonial model. Lacking both space within settlement schemes and time to construct new ones, the UF nationalised locally-owned plantations in 1972 and parcelled out land to “landless” Sinhalese in a desperate bid to absorb the unemployed – the flotsam largely of the “Sinhala Only” programmatic retrogression – to neutralise the mounting left-radicalism. The SLFP’s semi-feudalist elite aggregated nationalised land parcels into Janawasa Settlements, described as socialist “Collectives”; the leftish rhetoric of course aimed to please the radicalising rebellious Sinhalese youth. Unsurprisingly the Land Commission’s “Collectivisation” failed to contain rural unemployment and arrest radicalism, which culminated in the bloodletting of 1988/89.

The more far-reaching take-over of many foreign-owned estates in 1975 appropriated their export earnings, mainly to bolster the government’s foreign exchange reserves; it also disrupted the otherwise reasonably efficient plantation economy. But the UF dipped the ensuing mess in anti-imperialist shades and purveyed to the public as a long-delayed anti-colonial course-correction, made plausible by the presence of the acquiescing Traditional Left in the UF.

Almost simultaneously the same semi-feudal elite, incapable of launching capitalist industrialisation, conjured up a more ambitious “socialism from above” through the 1972 Agricultural Productivity Committees (APC) in the peasant agricultural sub-sector.

Most members of the intelligentsia across the country hardly questioned the absurd notion that a socialist economy could be gradually built by a dependent capitalist State run by “liberal-feudalistas” (the moniker a perceptive Sinhalese friend – we go back to our school days – applied to the elite). The intelligentsia have been either politically challenged or frozen at the invertebrate stage in biological evolution.

In fact, a former Secretary of the Ministry of Agriculture and Lands confided in us that the CCs and APCs were inspired by the County Agricultural Executive Committees (CAEC) established under the 1947 British Agriculture Act, enacted to revitalise capitalist agriculture in post-War Britain. However, the Traditional Left appears not to have noticed the “borrowing” nor recognised the SLFP’s “petty-bourgeois socialism” that Marx and Engels cautioned would “ruin of the petty-bourgeoisie and peasant” (“Manifesto of the Communist Party”, Selected Works, 1968, p. 55-56). 

The absurd socialist façade crumbled swiftly. The CCs and APCs became the logical extensions of the rural landed class steeped in the pre-capitalist milieu. The allottees soon saw through the “socialist image”, that they are not co-owners but labourers of the Land Reform Commission. 

Rather than interrogate the inchoate and even chaotic “socialist thinking” that was hardly more than demagogy, the leftish Sinhalese intelligentsia instead dignified it as “populism”. Shorn of the obfuscating jargon of a “cross-class alliance”, the “third path” and “people-centric” development, populism is an apology by the propertied classes and their political representatives for their incapacity to formulate concrete economic programs to raise the country out of its dependency morass.

The J.R.Jayawardene’s UNP government put an end to the deception in 1977. However, his government too resisted broad-based industrialisation and continued the colonial regime’s regressive peasant colonisation under the 1979 Mahaweli (Accelerated) Development Scheme, again to extend principally paddy cultivation with the long shadow of reclaiming the Irrigation Civilisation close behind. Though boomed as a major departure, the Scheme was in essence similar to D.S.Senanayake’s 1940s Gal Oya Valley Scheme. 

A redeeming feature of the Mahaweli Scheme is the construction of hydro-electric projects to supply electricity, not for across-the-board industrialisation but mainly for urban consumption.

Waiting for IMF

Is the “development thinking” of the intelligentsia’s present generation just as uninformed and at sea as the past ones?

The IMF may alleviate the government’s immediate cash flow constraints. Perhaps it’s not too late for progressives to simultaneously repair the enormous damage done by the semi-feudalist elite who dodged industrialisation to protect the economic interests of its class whilst toying with decrepit petty-bourgeoisie socialism. If Sri Lanka’s economy is to get back on its feet in the long run, and it can, the country has no alternative but to launch broad-based industrialisation utilising its abundant hydro-electric energy; that requires above all technological advancement. As small, resource-poor Singapore’s and large, resource-rich India’s stunning economic successes have convincingly demonstrated, technological advancements and not static natural endowments mainly determine economic growth, producing manufactures that enjoy rising comparative advantage. But industrial development is not IMF’s remit nor its interest.

Boosting the services sector and flamboyant talk of turning the Island into the “regional hub” of this or that economic sector are interesting but only as supplements. Industrialisation riding the Fourth Industrial Revolution must be the main platform; the IMF is unlikely to be of much assistance here. 

Policy statements on industrial development churned out by well-meaning specialists, for example, in the Institute of Policy Studies (IPS) are gathering dust since the semi-feudalist elite resist industrialisation and continue to be averse to the growth of a modern entrepreneurial class and the concomitant expansion of the working class. Those claiming to pursue development studies, policy studies, policy alternatives and so on must grasp the centrality of a political transformation to dislodge the liberal feudalistas from power. 

The member of The Struggle (Aragalaya) instinctively sensed the task at hand.

*Dr Sachithanandam Sathananthan is an independent researcher who received the Ph.D. degree from the University of Cambridge. He was Assistant Director, International Studies in the Marga Institute, Visiting Research Scholar at the Jawaharlal Nehru University School of International Studies and has taught World History at Karachi University’s Institute of Business Administration. He is an award-winning filmmaker and may be reached at: commentaries.ss@gmail.com

(Concluded)

Previous posts

How we came to this pass – I 

How we came to this pass – II 

How we came to this pass – III 

How we came to this pass – IV 

How we came to this pass – V
How we came to this pass – VI 

How we came to this pass – VII 

How we came to this pass – VIII 

How we came to this pass – IX

The post How We Came To This Pass –  Waiting On IMF appeared first on Colombo Telegraph.

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