“I think there is a great selling job that has to be done for India as a country.”
“How quickly can this India that you want, that you describe, that you think is happening now—how quickly can it deliver meaningful opportunity and growth to the great majority of people who live in the countryside, or the significant majority of people who live in poverty?” I asked.
“Five years,” he said emphatically. He was, he admitted, “an optimist.”
Toward the end of my tour, I would meet the pessimists back in New Delhi. They were usually politicians. The most interesting of them were Congress Party careerists who wanted to believe in the Ambanis and in the brash optimism coursing through Bombay, but who worried that the politics of transition might fail. Suspecting that their fears masked the self-interested nostalgia of a political class confronting its own twilight, I usually played the provocateur, arguing that they did not have enough faith that their own people would succeed at capitalism if given the chance. But the most thoughtful responded with a dispiriting, detailed description of just how problematic reform of the Nehruvian state may turn out to be. Licenses and the bureaucracy’s control of the economy’s commanding heights are the least of it, they said. These are problems that in many cases can be legislated out of existence, and while there may be a bit of scuffling and shouting in the aftermath, the competition to control the new, liberalized economic order will sort itself out and will inject the country with fresh vigor. But what worried them seriously were the sizable sections of the old order that must inevitably be left to crumble.
Nehru’s planners deliberately constructed factories, plants, and industrial infrastructure in places where it did not make economic sense to build such things. The purpose of these programs was to provide employment and growth in areas neglected by the British, such as the interior tribal belts, or to dole out patronage rewards in the complex balancing act of socialist democracy. If these factories and other state enterprises are now to be shut down, essentially on the grounds that they shouldn’t have been built in the first place, then the government had better be prepared to retrain and relocate the victims. Otherwise, the social and political rebound may be nasty indeed. Just ask the Germans what it has been like since the fall of the Berlin Wall, my informants would typically conclude. And the Germans have the money, the developed economy, to give it a try. India does not. For us, the numbers of people who may languish on the wrong side of transition are just too great. And what will happen if we fail, if we divide our society between those who can make it with the Ambanis and those who cannot? For one answer to that, revisit the Sri Lankans.
Whether Sri Lanka’s attempt to shift suddenly toward capitalist liberalization during the late 1970s contributed to its ethnic disintegration beginning in 1983 may be an instructive question in South Asia today, although it cannot be answered with certainty. Direct comparisons between Sri Lanka’s small, island economy, which is heavily dependent on cash crops, and the much larger, more diverse industrialized economies of Pakistan and India would be fallacious. Yet there are obvious similarities. Sri Lanka’s postindependence socialist state, its colonial inheritance, and its ethnic and cultural heritage are comparable to India’s and Pakistan’s. The potential instruction to economic reformers on the subcontinent lies in Sri Lanka’s recent history. In 1977, following a long period of socialist stagnation, Sri Lanka attempted a form of shock therapy capitalism that, in its basic policies very much resembled what India and Pakistan are attempting today. The government abolished many currency-exchange controls, import controls, price controls, and its system of licenses, permits, and quotas. It decreed free trading zones and invited foreign corporations and foreign banks to help open the economy. The policies were backed up by the International Monetary Fund and the World Bank. And initially, they worked remarkably well. Between 1978 and 1983, the growth rate of the Sri Lankan economy nearly tripled, to an average of above 6 percent. In some years the growth rate exceeded 8 percent. Unemployment came down from 26 percent to 12 percent by 1983. Inflation dropped into the low single digits. The island was booming.
But in 1983, with the same degree of energy, the island began to implode. Communal riots between Sinhalese and Tamils turned into full-scale ethnic war dominated by radical youth-based guerrilla groups such as the Liberation Tigers of Tamil Eelam. In the Sinhalese south, the Maoist, genocidal People’s Liberation Front was suddenly transformed from a marginal leftist political party into a violent and plausible revolutionary force. Obviously these developments were complex. But did the way the government pursued its sudden shift to capitalism contribute significantly to the later violence and revolutionary movements? If so, how?
Sri Lankans themselves have spent no small amount of time and effort trying to sort out the answers to these questions, and at one point I traveled to the island to read their papers and analyses and talk to economists, social scientists, writers, and politicians about what lesson the rest of South Asia could learn from their grisly experience. Nearly everybody I talked to, with the exception of the finance minister who actually devised Sri Lanka’s capitalist liberalization, believed that the economic and social changes between 1978 and 1983 had directly shaped the violence that followed. They cited six areas in which Sri Lanka’s liberalization had failed: education, language, technology, caste or class, regional disparity, and the broad political management of popular expectations.
In each case they talked about a loss of balance. The Sri Lankan education system, geared for decades toward the service of an overweening socialist state, produced millions of young men and women with impressive degrees, high expectations, but relatively few capitalist skills or attitudes. This produced an “unemployment at the entry level” that remained throughout the initial economic boom, explained the economist Nilam Goonateleke. “It is not classic unemployment with people laid off and families destitute. It is people coming out of universities saying, ‘I’m ready’ and the country says, ‘For what?’... It is a political problem. These are not destitute people. You have groups of people with expectations and an ability to articulate frustration. What you have is an extended adolescence in all its virulent forms.... The People’s Liberation Front didn’t even have to articulate the frustration. With the imbalanced economy, everyone felt it.”
In attempting to create multicultural pluralism and honor Sri Lanka’s ethnic diversity, the state insisted for decades that students be educated in their own languages—not in the English of the British colonialist. In the Sri Lankan south, for example, “the problem with the opening of the economy was that on the one hand, you had a lot of educated people who spoke Sinhala. On the other hand, the international economy demanded English,” Goonateleke said. “The young man with ideas and money, he would be looking for trading opportunities. You need English to succeed in the private sector. The problem is that access to English is limited. As you develop a liberalized, outward-looking strategy that emphasizes exports and internationalization and foreign capital, English becomes more and more essential. Yet the Sinhalese see that as an impediment. They see people with English getting ahead of them, and they are angry.”
“We have in Sri Lanka an entire generation that is monolingual and monocultural,” said Neelan Tiruchelvam, the director of Colombo’s Law and Society Trust. “You can imagine what it’s like in engineering and technical areas. You have thousands of university students who can’t read anything but lecture notes. You gave these rural Sinhala and Tamil students the impression that they not only could gain an educational experience, but could achieve upward social mobility. This, in fact, was not true. Plus, the children of the elite continued to learn English while the other Sinhalas and Tamils didn’t. So the children of the elite faced huge opportunities after 1978. You had a middle class grasping the opportunities in the liberalized economy and the other part of that generation left behind. The liberalization distorted and accentuated these problems.
“The intelligentsia failed to acknowledge the demands of ethnic groups or to understand how the benefits of development had to be distributed,” he continued. “You have to enthrone the people.”
A monolingual education was often sufficient in the long period of state domination after independence because government business in the bowels of the bureaucracy—and thus access to government jobs—involved only the local language. After 1977, “it wasn’t that there was less mobility, it was that the pattern of mobility changed,” said Sunil Bastian, of Colombo’s Center for Ethnic Studies. “What really happened after 1977 was a changing pattern of opportunity that diminished the power of the state economy. Liberalized economic policies came in conflict with the interests of those who benefited from the old patterns of mobility. In this case, it was the schoolmaster who depended on access to the state against the Tamil businessman or the Sinhalese shopkeeper who did not depend on that access. The battle between the schoolmaster and the shopkeeper was part of the People’s Liberation Front conflict.” Indeed, when you drove through the southern jungles at the height of the Liberation Front’s attempted revolution, it was striking how many of the revolutionary cadres seemed to be schoolteachers.
When it inaugurated capitalist reform, the Sri Lankan state made no attempt to ensure that the shift to free markets was accompanied by a shift in training and educational emphasis. “We misinterpreted the Asian models,” said a Tamil economist in Colombo who was writing a doctoral thesis in England about how the mistakes were made. “Taiwan is really the model. But we failed to develop skills behind the [free market] frontiers. You need electronic skills, not just industrial engineering, all this construction and chemical engineering. We needed applied sciences and technological institutes in this country. This technical capacity is the key framework. That’s the industrial strategy. At the same time, you need a poverty strategy because even if you do it right, it takes time—twenty-five years at a minimum. In our development, the small entrepreneurs were left out—people with twenty-five employees or less. The banking system in this country is very conservative. All the bank capital goes to the corporations and all the big corporations are controlled by the same families. They’re just giving money to the same people—the English speakers. We should be going directly to the Sinhala and Tamil shanty entrepreneurs, not just with capital but with skills.... We were caught up in a euphoria by 1983. We never had it so good. There was no attempt to acquire technological skills to make the growth sustainable. These guys [the new Sri Lankan industrialists] thought they were entrepreneurs, but they were really just traders.”
On the grounds of capitalist egalitarianism, Sri Lanka also abandoned efforts to promote caste- or class-based affirmative action programs. Compared with the rest of South Asia, Sri Lanka is unusual in that the historically dominant caste group is in the numerical majority—the reverse of the situation in India. So even the best-intentioned programs of socialist democracy after independence did not promote a rise of lower castes, as in India. Instead, it reinforced the grip of dominant castes. More broadly, the Sri Lankan government rejected affirmative action during the capitalist boom because “we thought we were a much more enlightened society and ought not to acknowledge caste distinctions,” as Tiruchelvam put it. “This is essentially an upper-caste illusion.... The whole liberalization approach had very little conceptualization about caste or equity. It was growth-oriented, concentrating on sustainable growth. There was no explicit attempt to acknowledge the disparities of caste.”
Yet the disparities were obvious to every Sri Lankan. As Ronnie De Mel, the currently exiled finance minister who was the architect of Sri Lankan capitalist reform, acknowledged, “There were aspects of this development strategy that we could have avoided. There was, for example, no reason for the elaborate duty-free complex in downtown Colombo, which led to flooding the country with luxury and consumer goods. That led to a certain frustration among classes that, even if they were employed, could not have afforded these things. We needn’t have made certain frustrations so visible. The grandiose schemes, the extravagant and ostentatious and very high levels of consumption in certain sectors of the government also created political and social resentment of a very high order.
“With education and with liberalization, rising expectations come,” he continued. “It is very difficult for Third World countries to meet all of those expectations, particularly among the youth. But is that a reason to keep our people backward? I don’t think so. You have to take that risk.”
But the question that faced Sri Lanka then—and that faces India and Pakistan today—was not whether or not to take the risk at all. In the struggle to create prosperity and national strength, risk is unavoidable. But there are choices to be made about whether and how to manage the risks. This is what dozens and dozens of formerly socialist or Bolshevik states are wrestling with in the 1990s. And this is what Sri Lanka botched in the late 1970s and early 1980s.
One thing the Colombo government failed to do was to persuade the country that some form of capitalism, broadly defined, would provide the basis for unified, equitable Sri Lankan nationalism. Instead, capitalism was decreed, but the nominally socialist political class, hungry for votes, went straight on preaching the old, manipulative sermons. This is exactly what is happening in India, where traditional politicians express even less public enthusiasm about capitalist nationalism than their nominally Communist counterparts in China. Yet at the same time, Indian politicians are vigorously implementing full-blooded free market programs, raising broad expectations in the process.