The wages of envy



The Economist, Aug. 20, 1983

The wages of envy




"The Tamils have dominated the com-

manding heights of everything good in

Sri Lanka", explained the soft-spoken

Cambridge-educated finance minister.

Mr Ronnie de Mel is too sophisticated to

use the term on the tip of many Singa-

lese tongues these days - the need for a

"final solution" to the Tamil problem.

But, even for him, the "only solution" is

to "restore the rights of the Singalese



Restoring Singalese rights is a code

phrase for dislodging the Tamils from

their disproportionate influence over

large sectors of the Sri Lankan economy.

This is what the Singalese mobs set out

to do when they put their torches to

thousands of carefully targeted Tamil

factories and shops. Now the govern-

ment is about to advance this process by

expropriating all damaged properties. Many Tamils will assist them by leaving

the country. The result will be a decisive .

shift in the balance of economic power in

Sri Lanka from Tamils to Singalese.


The stated aim of the government's

takeover of riot-ravaged homes and bus-

inesses is to prevent distress sales and to

promote an orderly reconstruction pro-

granme. Government funds are to be

injected into salvageable industries, with

export-earners a top priority. In ex-

change, the government will take a share

of the equity and appoint directors. In

theory, former owners will be free to

buy back government shares in time.

But ministers do not disguise their redis-

tributive intentions. Many are talking

about following Malaysia's example of

writing preferences for the majority

into commercial law.


The trade minister has already reor-

ganised rice wholesaling to break the

Tamil grip. "It is no longer in my

interest to allow one community to

dominate the wholesale trade in any

commodity", insists Mr Lalith Athulath-

mudali, who doubles as a government

spokesman on Tamil questions. Making

room for the Singalese in trade also has a

literal meaning. Ravaged city centres such as the Pettah commercial district in

Colombo are to be redeveloped; when

prime sites are reallocated, former occu-

pants will not necessarily get them back.

The central bank governor, Mr Rasa-

putram, has another justification for

taking ownership out of Tamil hands:

their companies might otherwise be hos-

tage to another wave of communal at-

tacks. Better to make Tamil family firms

go public and broaden their ownership.


The trouble is that this argument may

well frighten off Singalese investors,

who have also been shaken by the vision

of mob rule. So the main new partners in

Tamil-owned companies are bound to be

the government and the banks.




The state stake in Sri Lanka's injured

industries is meant to be temporary.

But, if the alternative is returning eco-

nomic control to the Tamils, the govern-

ment may decide to hold on, The World

Bank, among others, is worried that this

will mean the expansion of an inefficient

state sector; it would prefer to see the

financing and management of recon-

struction left to the banks. The banks

are anyway Involved because of the high

level of lending to the ruined compan-

ies-how high nobody yet knows.





The loses are still being added up in

the statistical department of the central

bank, which has sent out teams of ac-

countants and surveyors to do an on-site

census of destruction, The preliminary

estimate of $l50m worth of damage to

commercial and residential property -

equivalent to about 4% of Sri Lanka's

gnp - is almost certainly too low, be-

cause it is based on book value; replace-

ment costs might be five to 10 times

higher. It also excludes the value of lost

stocks, lost output and lost export



The destruction of nine coconut mills,

for example, could cost Sri Lanka its

position as the world's second largest

exporter of coconut oil; all oil exports

have been suspended. Although half the

factories making clothing for export

have been put out of action, the net ,

losses in this $150m-a-year trade may be

made up by surplus capacity.

Optimistic ministers are predicting

that recovery will take two to three

years. But this will depend partly on the

government's ability to raise capital at

home and abroad. The International

Monetary Fund is sending a team to

Colombo later this month to reassess its

agreement to provide $IOOm in three

tranches ovcr the next I8 months.


Another key factor in Sri Lanka's

recovery will be the brain-drain of Ta-

mils. Thousands of Tamil professional

people are said to have left the country

since the violence last month.

One Ieading Tamil entrepreneur - and

Sri Lanka's most successful entrepre-

neurs are Tamil - estimates that 90% of

his fellow-industrialists are now contem-

plating emigration. If they go, Sri Lanka

will lose more than their capital assets,

many of which went up in smoke last

month. It will lose commercial instincts

and management skills which have

aroused Singalese envy but not yet imi-

tation. This could prove the most serious

casualty of the conflagration of '83.

[reformatted from original article]