Columns - The Sunday Times Economic Analysis

Ethnic Reconciliation and Economic Development

By the Economist

The relationship between economic policies and ethnic conflict is not a clear one. At last week’s well attended conference in Colombo, Reflections 2010: Managing Diversity, Reconciliation and Development organised by FLICT (Facilitating Local Initiatives for Conflict Transformation) differing views emerged.

One viewpoint was that the ethnic conflict was not generated by economic factors. An argument adduced in support of this was that those who led terrorist activities were well-off economically. International experiences were also brought out in support of this contention. An economist pointed out that it was the language issue, admissions to universities on a quota basis and land settlement policies, inter alia that led to dissatisfaction among the minority Tamil community.

Another economist was quick to point out that these were ethnic issues that had economic consequences. Admittedly, the causes for the ethnic problem were complex and as several speakers pointed out, political leadership on both sides of the divide were responsible for fuelling the conflict.

It was further pointed out that while the improvement in economic conditions would help, the fundamental issues and grievances must be addressed together with improvement of economic conditions. Economic growth alone would be insufficient to bring about a durable peaceful condition among the communities.

Conversely, there can be no doubt that the resolution of the ethnic issue and the development of a national consciousness are vital for economic stability and development.

The constant distraction of the country by ethnic violence, terrorism and a costly war of almost thirty years are significant causes for insufficient economic development. Peace offers an opportunity for ethnic reconciliation and the development of an environment conducive for higher economic growth. However, the attainment of peace alone will not ensure a trajectory of fast economic growth. It must be complemented with economic, social and administrative reforms, appropriate economic policies and their effective implementation.

The economic burdens of the war persist even after peace and are serious constraints to development. The massive debt burden, the high debt servicing costs and the costs of reconstruction and rebuilding of the war devastated areas are a serious constraint on the development capacity of the country. The economic benefits of a durable reconciliation, peace and a united nation are much, especially in the long run. An economist emphasized that the current economic gains of peace are only “an interim peace dividend”. He stressed that the full benefits of peace “require measures towards nation building that enables the total participation of all communities and regions of the country.”

In addition, sound economic policies are needed to achieve rapid economic growth. Peace and political stability are necessary conditions for economic development, but they alone are inadequate for economic development. The right economic policies and their effective implementation are vital to achieve the goal of a high trajectory of growth. Economic, educational, health and administrative reforms, among others are vital components of an economic strategy for development.

Several speakers also pointed out that it was not rapid growth that would bring about contentment among the different communities but a process of economic development that would benefit the broad masses irrespective of communities. There was scepticism that the current growth strategy would not assist the poor very much. They were particularly critical of the type of infrastructure development that is being undertaken. Much of these investments, it was argued, will not improve the basic living conditions of the poor. Uneven growth could in fact exacerbate economic discontent and evoke ethnic discontent.

There is a danger in thinking that now that the war is over, economic development could be expected as a matter of course. The initial peace dividend has come from those sectors of the economy that were directly affected by terrorism. Some of that dividend has already been realized. There has been increased agricultural production in the border areas and the North and East. Ocean fisheries that were hampered by prohibition of fishing in the security zone in the fishing areas of the North and East is bringing in a rich harvest. The resumption of commerce between the war-torn areas and the rest of the country would enhance demand for many products. The gain would be in both directions. The South would gain from the increased demand for items produced by industry, especially consumer durables, construction materials and trade in both goods and services.

These benefits could be termed autonomous as they have been brought about by private decision making and not dependent on government actions. The repair and development of infrastructure would enhance the speed and extent of this contribution to growth. With the resumption of transport there has already been a flow of goods in both directions, south to north and north to south.

Goods from the south to the north have improved the availability of essential items and significantly reduced cost and prices. With an increased flow of goods, people in the north would have their essentials at more reasonable prices, the quality of goods would improve and a larger variety of goods would be available. The benefits to the south would be as much, for the enhanced commerce provides new markets for goods. There would be a flow of consumer durables such as sewing machines, refrigerators, fans, air conditioners, television sets, radios or investment goods such as machinery that were prohibitive in price. The rest of the country would also benefit from the availability of several vegetables and fruits grown in the North.

It was stressed that the economy will not prosper simply because the war is over. There are other pre-conditions that have to be put in place to generate rapid economic development. It is more constructive to view the current situation in the country as one where the main obstacle to development has been removed and an opportunity now presented to ensure that the other pre-conditions for development are put in place.

The peace and the control of terrorism would release new energies, draw out new activities and resuscitate the stunted and stultified sectors of the economy that could now perform to their full potential. The new environment of peace would be conducive to foreign and local investment that could drive the economy to a higher level of production.

There could be a proliferation of new activities after the reconstruction and development of social and economic infrastructure in the East and North. In the longer run the economy in this region could be much more expansive than the economy of the past. It could respond to changes in global demand, exploit modern technology and take advantage of new opportunities for economic diversification. This is not a short term possibility but one that could be achieved over a three to five year period.

The emphasis of the conference was on grass roots initiatives that are no doubt essential and important. Yet constitutional measures, the implementation of the three languages policy, the rebuilding of the devastated regions and economic opportunities among other things are vital to achieve peace and economic development. “The peace dividend is not automatic: it requires putting in place a number of pre-requisites for development.”

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