A Story of Poverty

Most shades of political leadership believe poverty to be an economic problem which can be eradicated through economic development and social welfare, the state being central to both tasks. The initial government’s first priorities were to deal with widespread poverty, the vulnerability of the export economy and to achieve economic independence. Instead of abandoning the existing structure, policymakers sought ways to improve it by expanding the role of the government. As a result, the state came to control the economy and thus became the chief job provider. The two opposing political parties of Sri Lanka, however, had differing views on development strategy and continued to engage in decades of political and economic tug-of-war. Adding to its unstable political climate, Sri Lanka also faced extremely high levels of inequality, especially at the lowest and highest income levels.

The food subsidy is one of the major welfare policies implemented by the Sri Lankan government. It started out in the form of a rice subsidy during the depression and continued during the difficulties of World War II. Even though external historical circumstances such as the war help to explain the increasing commitment to food subsidies, it is also important to recognize the specific circumstances within Sri Lanka that made their made elimination so difficult. By 1950, food and other subsidies were well entrenched in the economy. In the 1960s, these subsidies amounted to almost the entire cost of financing the rice programs, and a substantial portion of the program involved rice imports. Foreign aid did not become an important factor until the 1970s. More important, however, was the fact that the ratio of the subsidized price to the imported price varied widely. This meant that a major portion of the resources available to the government were allocated to the rice rationing program. Since the rice ration was available to everyone irrespective of income, the cost of delivering the rice to the lowest groups was very high.

A question that arises with regard to the food subsidy: why did the government insist on making the rice ration available to everyone? Even if administrative problems were resolved and the rations managed to raise the performance of low income groups through improved nutrition, the subsidy was an extremely costly way of trying to achieve higher productivity. At a time when the world price of major exports such as tea and rubber was falling, it would have been far more efficient for Sri Lanka to channel its funding elsewhere. Efforts to solve the underutilization problem could have been one avenue. Diversifying exports and creating an industry for intermediate goods could also help ease the situation. It would help improve the recurring balance of payments problem and decrease dependence on imports. In efforts to achieve increased productivity along with an improvement and expansion of welfare policies, the government had to allocate more funding to food subsidies. The opportunity cost for this was high, making the food subsidy an illustration of Sri Lanka’s trade-off between economic policies and welfare programs.

Along with its dedication to food rations, the government was also heavily committed to providing free education and health care. Given the extent of inequality in the country, the emphasis on education is explained largely by the widely held view that education was the key to respectable jobs i.e. government jobs, and that inequality in access to education was the fundamental source of other significant disparities. Characterized by a two-tier system, the educational base had an extremely wide reach and provided education to even the lowest income groups in rural areas. Especially in the case of Sri Lanka, a high literacy rate did not necessarily translate into high quality education. Instead of bridging existing inequities, the education system seemed to perpetuate them by producing people who were lower qualified, had fewer skills and were therefore less capable of performing in high level jobs.

The relationship between leaving school and the income level was negative in the early 1980s. To address this issue the government has, in recent years, expanded the lunch and textbook program. Furthermore, foreign aid is generally more readily available for buildings, equipment, and vehicles than for the salaries of teachers and maintenance costs. It is fair to state that the quality of primary and secondary educations declined in these years. The allocation of capital expenditures was clearly favored towards higher education at the expense of primary and secondary schooling. The number of higher education institutions continued to grow, but the quality suffered. Due to the relaxation of exchange controls, education abroad for members of higher-income families became easier and this too disturbed the equality of opportunity principle. In such a situation, perhaps, the best approach is not to act explicitly on education, but rather to create ample job opportunities. Once again, the employment problem emerged and its link with the development strategy followed. Since one of the major objectives of the government was to alleviate unemployment, the system of education interfered with this economic policy and helped reinforce it.

A closer look at these policies has revealed that on several occasions, the economic policies offset the anticipated welfare advances and vice versa. In terms of human development and standard of living, improvement in Sri Lanka has not been proportional to the number and history of welfare programs. Evidence of measured income distributions have shown that there was relatively little change over the entire period from 1950 to 1985, except for the misleading 1973 estimates. The increase in the migration of professionals also highlights the inequalities of income and opportunity. Inequality in the distribution of income rose. Furthermore, public evidence of inequality became more apparent, aggravating tensions within society. There may have even been an increase in poverty; there was certainly no decrease.

Rabia Hashmi holds Bachelors from Bard College in Anthropology and Economics.  She is currently a social researcher with the InterActive Research and Development - a  non-profit research and service organization committed to saving lives through improvements in  global  health.

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