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The Economy and Economic
History of Sri Lanka

Sri Lanka, the Resplendent Island at the southeast tip of India, has a population of about 19 million. The vast majority, 74 percent, are Sinhalese, the descendants of 4th century B.C. Buddhist immigrants from northwest India. About 18 percent of the population is Tamil, descendants of either the ancient migration from south India around 100 B.C. or the more recent importation of laborers for the tea plantations by the British in the 19th century. Another 7 percent of the population is Muslim; they are called the Moors. There are a variety of other ethnic groups in Sri Lanka. There are some descendants of the aboriginal tribes, the Veddhas, and some who trace their ancestry to the Portuguese who occupied Sri Lanka in the 16th century or the Dutch who displaced the Portuguese in the 17th century. The British took control of the southwestern Sinhalese coastal area and northern Tamil territory from the Dutch at the beginning of the 19th century and subsequently subdued the interior Sinhalese Kingdom of Kandy. The British tried to reform the administration of the island to reduce the ethnic tensions not only between the Tamils and the Sinhalese but also between the lowland Sinhalese and the highland Kandyan Sinhalese.

The British began experimenting with plantation agriculture in the 1830's. Coffee-growing was introduced into the highlands and was initially a tremendous success that revolutionized the Sri Lankan economy which was hitherto based upon subsistence agriculture. Land tenure was changed also. Previously permission was granted for farming of royal lands but private ownership was not allowed. Under the British crown lands were sold to private buyers.

The burgeoning coffee economy of Sri Lanka was destroyed by a leaf disease that spread throughout the plantations from the mid 1850's to 1870. The coffee industry was also hard hit by falling coffee prices due to economic recessions in Europe. But the plantation owners did not abandon their estates. Instead they looked for other crops suitable for plantation cultivation. Chinchona for quinine was tried but the market was too limited. Tea turned out to be a suitable substitute crop for the coffee plantations.

The tea plantations required a permanent work force and the local Sinhalese were not willing to live as well as work on the tea plantations year around. The British tea growers then sought workers from the Tamil areas of South India. There were Tamils on the island whose ancestors settled in north Sril Lanka nearly a thousand years before. These are called the Sri Lankan Tamils. Presumably the tea plantations could not get enough laborers from these native Sri Lankans either and so Tamils were brought from India in large numbers. This is the source of the Indian Tamils. In contrast to the Sri Lankan Tamils who live predominantly in the north and the eastern coast of the island the Indian Tamils general live in the highlands of the old Kingdom of Kandy. It was in the higher altitudes that the best tea was grown.

Sri Lanka is also known for its gem deposits. These deposits are located in the southern part of the island as shown below.

The ethnic composition of Sri Lanka is shown below.

Ethnic Composition of Sri Lanka
Population GroupProportion
Sri Lankan Tamil12.7%
Indian Tamil5.5%
Sri Lankan Moors7.0%

The geographic distribution is shown on the map below. The area on the east coast is labeled Sri Lankan Tamil and Moor (Muslim) but Tamils vastly outnumber Moors in this area. The map does not indicate the cultural division between the lowland Sinhalese who have been influenced by longer contact with the Portuguese and Dutch as opposed to the highland Kandyan Sinhalese who were subject to several centuries less influence by Europeans.

Near the end of the 19th century rubber plantations were developed as an additional source of export earnings. The other two major crops of Sri Lanka, rice and coconuts were produced primarily for the domestic market. In fact, the domestic production of rice fell short of the domestic demand and rice had to be imported.

Sri Lankans, both Sinhalese and Tamil, were admitted into the lower ranks of the administration created by the British after being educated in the British schools. This created a westernized elite who were in social competition with the traditional Sri Lankan elite based upon caste. The British introduced some elements of self-government in Sri Lanka in 1927 along with universal suffrage. The British goal was a secular democracy but there was strong sentiment among the Sinhalese for giving primacy to Buddhism and Sinhalese language and culture.


Ethnic Divisiveness

The history of Sri Lanka after independence in 1948 is largely a story of a squandered opportunity. One element of the failure was the attempt of the dominant Sinhalese political parties after the death of D.S. Senanayake to deny the Tamil element of the population any cultural autonomy. Sinhala, the language of the Sinhalese, was declared the only official language. Tamils, who under the British had had a greater success in business and administration than the Sinhalese, were discriminated against. For example, admission standards for universities were set higher for Tamils than Sinhalese. The Sinhalese looked upon themselves as being an isolated Aryan Buddhist minority in danger of being swamped by an overwhelming Tamil majority in their region of southern India and that justified the special treatment accorded Sinhalese. When this attitude and treatment prompted a separatist movement in the Jaffna area of Sri Lanka, Sinhalese political leaders made advocacy of separatism a basis for denying political participation. In particular the elected representatives from the Tamil areas were expelled from the legislature on the basis of their refusing to swear an oath against the advocacy of separatism. This effectively denied the Tamils even a minority voice in the government. A tragic consequence of the anti-Tamil policies of the dominant Sinhalese parties was that a rancid Marxist element emerged as the leadership of the Tamil separatist movement. Usually Marxist socialists are people of a feudal mentality pretending to be progressive, but in the case of the Marxist Tamils the mentality was that of a primitive tribal war band. The subsequent guerilla war led to atrocities which escalated the bitterness. For example, in 1983 when 13 Sinhalese soldiers were killed in ambush by Tamil separatists in north Sri Lanka, Sinhalese in the south went on a rampage against Tamil citizens and businesses which resulted in 400 deaths. Voter lists were used to systematically locate the homes of Tamils.

The civil strife drained the government of financial resources which led to creation of money to cover the deficits. The creation of money led to inflation and economic hardship. The strife also led to Tamil from Sri Lanka fleeing to the Tamil Nadu state of India which then made India a party to the problem.

Had Britain not conquered the Kingdom of Jaffna in the 19th century most likely there would have been an independent Tamil state on the island. In a number of places around the world the British created administrative units made up of incompatible ethnic elements. As long as the British as outsiders were administering these political Frankensteins the incompatibilities were not important. When independence neared there was even some cooperation among the incompatible elements in their mutual desire to end British control. But these administrative units were turned over to dominant ethnic groups who became the local imperialist who replaced the British imperialists. This was the case in Nigeria and India as well as Sri Lanka. To some extent it is the case of Canada as well.

The Turmoil of Sri Lankan Politics

Although Sri Lanka achieved independence with a relatively high level of education and literacy there was a negative side to the educational achievement of the British in Sri Lanka. It is clear that the British spread to the Sri Lankan that notion that education was a sufficient qualification to run the country. The socialism of the British Labour Party that failed in post-WW II Britain failed as well in Sri Lanka. Government bureaucrats are generally not qualified to run anything, anywhere. The record around the world is clear on this point. It is not a matter of education or intelligence. Probably the average I.Q. of bureaucrats is above that of successful people in business, but organizational ability is different from academic ability. Furthermore the market system has an intelligence that is superior and independent of the intelligence of the people who operate in the market.

It is no surprise that the Sri Lankan government in taking properties away from private individuals and putting them under the control of bureaucrats produced an economic disaster. Sri Lankan politics added the additional touch that led to Trotskyite communists getting into the Sri Lankan government to try to create so-called Welfare Socialism. This took the form of the government giving a free rice ration to all families. As a result those who produced rice had no incentive to go to the effort of growing rice for themselves if it was available from the government free. The domestic production of rice declined and the government had to use more and more of its scarce foreign exchange credits from the export crops like tea to buy rice. By the mid 1970's the Sri Lankan economy was a shambles, a virtual basket-case.

The political party responsible for this disaster was the Sri Lankan Freedom Party (SLFP) under the leadership of the Bandaranaikes, usband and wife. Although the SLFP was perceived as more leftists than the United National Party (UNP) and it was, the crucial difference between the two parties was that the SLFP was more militantly chauvinistic Sinhalese. The race-baiting of the SLFP often forced the UNP to adopt similar stands to the SLFP to avoid losing all support among the rural Sinhalese.

Solomon W.R.D. Bandaranaike created the SLFP as a splinter party from the United National Party that was the party that led Sri Lanka after independence. The SLFP defeated the UNP in the election of 1956 and Solomon Bandaranaike became Prime Minister of Sri Lanka.

Mr. Bandaranaike was assassinated by a Buddhist monk in 1959. There had been a previous assassination attempt involving a glass of milk laced with cobra venom but Mr. Bandaranaike did not take heed. After his death there was some chaos in the SLFP and his widow, Sirimavo Bandaranaike, emerged as the leader. She became the Prime Minister of Sri Lanka in 1960, the first female head of a parliamentary government. It was Mrs. Bandaranaike who was responsible for the ill-conceived welfare socialism policies of the party. In order to gain control of the government Mrs. Bandaranaike had to form a coalition with a Trotskyite socialist party and that is how these policies, which were characterized as "practical socialism", became part of her administration's program.

Among socialists the Trotskyites are considered not sufficiently militant. There occurred during Mrs. Bandaranaike rule an attempted Maoist rebellion which if it had not been so tragic would have been amusing for its leaders' ineptness. It was put down harshly by the Sri Lankan military with a death toll in the thousands.

In 1977 Mrs. Bandaranaike's party lost the election to the United National Party (UNP) led by J.R. Jayewardene. Jayewardene wanted to get the economy going again and he turned to a water development project that was originally scheduled to be built over a thirty year period and called for its construction to be accelerated so as to complete it in six years. This was the Mahaweli Ganga (River) Development Project which channels water from the Mahaweli River to irrigation projects in the Dry Zone.

Sirmavo Bandaranaike came back into the prime ministership in 1994 but the constitution had changed the role of the prime minister to a position of little power. Instead the real power was in the office of president. Her daughter, Chandrika Bandaranaike Kumaratunga, had won the presidency and did not want to share power even with her own mother.

The Mahaweli Ganga Project

The geography of Sri Lanka is dominated by the mountains and highlands that block the rainfall from the winds from the southwest and make north central Sri Lanka relatively dry. The southwest portion of the island is well watered and agriculture quite productive, two to three crops per year being harvested.

So the extensive water development project, the Mahaweli Ganga Project, was built to provide irrigation water to the drier north central parts of the island. The success of this project depended not only upon the construction of the water facilities but also upon relocating families from their traditional homelands into a frontier-type environment in the dry interior.

The Geographic Distribution
of Agricultural Production

The most important crop historically for Sri Lanka has been rice. While rice is grown wherever there is sufficient water the major rice-growing area, as shown on the map below, are in the coastal areas and the interior of the west above Colombo where coconuts are also grown. Coconuts are also grown in many areas, particularly near urban markets. One major area of coconut production is the west coast of the island. As mentioned previously, rice and coconut production is primarily for the domestic market.

The top export crop is tea, which is grown in the highlands. To the west of the tea production area there are rubber-tree plantations. Cotton is grown on the southeast and northeast coasts.

The GDP of Sri Lanka

Major Exports
of Sri Lanka in 1986
Export SectorExports
of rupees
Other Agric.1,500
Total Agric.15,764
Oil Products2,358
Other Ind.3,891
Total Ind.15,878
Other Minerals427
Total Minerals1,182
Source: Sri Lanka: A Country Study, 1990

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