From colonial economy on track to a broken economy on tuk-tuk

by Rajan Philips

Last week I called Bangladesh burgeoning and Sri Lanka backsliding. Domestic demand has become the most important driver of Bangladesh’s rapid economic growth. Not that Bangladesh is not facing challenges, but it is in a better position to face them because of domestic demand. Sri Lanka does not have the advantage of size and domestic demand, but it is not the lack of size that has led to today’s broken economy. The hopes that President Wickremesinghe will fix the broken economy, at least will start its basic repairs, are also being broken with the government’s botching of the conduct of local government elections. So, now it is worse than backsliding.

The stunning Supreme Court ruling ordering a total compensation payment of Rs.311 million to the victims of 2019 Easter Sunday bombings should be sending shivers up and down the spines of decision makers in the echelons of power who have gotten accustomed to doing anything or nothing (never some good thing) and getting away with it. The Court has elevated individual responsibility by an astonishing 300 times over state responsibility. The State is ordered to pay Rs. One million for relying on the unreliables. Rs. 310 million will have to be coughed up by Maithripala Sirisena (Rs. 100M), Pujith Jayasundara (Rs 75M), Nilantha Jayawardene (Rs 75M), Hemasiri Fernando (Rs 50M) and Sisira Mendis (Rs. 10M). The Court ruling is in effect an order the government to stop making Nilantha Jayawardene the next IGP.

It remains to be seen if the long arm of the Court will reach Ranil Wickremesinghe when he is no longer President. For now, he is emptying his bag of political tricks to no effect and the IMF is keeping him waiting with no moneybags in sight. For others who made decisions in the Gotabaya Administration, whether on the economy or on security, it could be open season for litigations against them. If the Canadian government sanctions were to infect other governments as well, there will be no place to hide for those hounded by justice. Specific to our discussion involving LRT and tuk-tuk in Sri Lanka, what will be the fallout from the Supreme Court decision for those who made the decision to unilaterally terminate the Colombo LRT project that had been started based on a very favourable bilateral agreement with Japan for a very sensible project?

There is on record an Auditor General report dated 23 November 2022 (Special Audit Report on the Unilateral Termination of the Light Rail System by the Government of Sri Lanka). Will any action flow from it? We have to wait and see. It is now enough to say that the Special Audit Report is scathing in its censure of the government’s decision to unilaterally terminate “without formal, logical and justifiable grounds … a project proved to be environmentally, technically, economically and financially productive after incurring heavy costs on preliminary activities including feasibility studies conducted by foreign experts.” Be that as it may.

Colonial Economy on Track

“The Colonial Economy on Track” is the main title of Dr. Indrani Munasinghe’s pathbreaking historical study of the development of rail and road infrastructure in colonial Ceylon from 1800 to 1905. Roads came first; between 1800 and 1867 2,344 miles of road had been constructed, criss-crossing the island, with a concentrated radial network in the Central Province, the only mountainous region of the island. Rail construction came later beginning in 1858 with the Colombo-Kandy line. By 1905, Colombo was connected by rail to Kandy and Bandarawela upcountry, south to Galle and Matara, and north to Maho, Anuradhapura, Medawachchiya and Jaffna. The lines from Maho to Trincomalee and Batticaloa, and from Medawachchiya to Mannar would be added later.

Dr. Munasinghe calls the 100 year development of the road and rail network under colonial rule “remarkable achievements” for the plantation economy, but a “modest success story” for the large areas of the island left untouched by the new facilities. Yet, for Sri Lanka’s size and compactness, the colonial road and rail networks were relatively extensive compared to larger countries with more challenging geography. The location of the plantations also forced the new infrastructure to be concentrated in the challenging areas of the island.

Both roads and railways were owned by the government and the railways were run profitably to become a significant source of government revenue (29%) that enabled the expansion of social infrastructure in education, health and sanitary services. The tradition of colonial government (not quite public) ownership of transport infrastructure in Sri Lanka and other colonies is in contrast to the role played by private capital in the colonial centres in western countries.

The 19th century political economy of laissez-faire in Britain, Europe and the US facilitated the development of toll roads run by private trusts, and railways and urban transit operated by private companies. Of course, they depended on huge government subsidies, a feature that was not encouraged by governments in the colonies. Government interventions became necessary and increasingly extensive in the twentieth century to deal with the over-provision of rail lines by private investors, cutthroat competition between service providers, market failures, and the poor levels of service to the travelling public.

The 1930s depression experience and World War II imperatives also strengthened the role of government and the public sector in providing transport services in otherwise free market countries. In contrast, Sri Lanka and some of the other former colonies would seem to have moved in the opposite direction after independence. After inheriting a salutary colonial tradition of government ownership of public transport, Sri Lanka moved backward by privatizing its inheritances. That is a more recent development and there were other developments before we got to the point that has brought us to the pits now.

The Oldsmobile and the Omnibus

The two main transport developments in the early twentieth century were the arrival of motorized vehicles – cars and buses. The first to arrive, in 1902, was a two-seater steam car that ran on kerosene. The motorcycle followed in 1903, and two years later the first petrol car. Englishmen were of course the early importers and improvisers. Ceylonese were not late in joining the exclusive club and soon there were more auto-enthusiasts than auto-owners. E.L.F. de Zoysa of Moratuwa is credited with being the first Sri Lankan to own and drive a car – a black and blue one cylinder Oldsmobile imported from the US. A General Motors brand, Oldsmobile started production in 1897 and within ten years there were buyers in Sri Lanka.

The arrival of the private car on public roads marked the beginning of the private use of public infrastructure with practically little or no direct user-pay. The car was soon joined by private buses used for public transport. The first bus was imported in 1907 and bus services were provided by private owners. There were no regulations and the travelling public who depended on the bus had to survive the chaos of competing bus companies. Government regulations started in 1940 and 18 years later and 10 years after independence came the nationalization of bus transport, on January 1, 1958.

What is commonly known is the politics of nationalization. That the first non-UNP Prime Minister, SWRD Bandaranaike, nationalized the bus industry that had become a bulwark of the UNP. What is not generally known is that there were government commissioned studies (the 1948 Ratnam Survey, the 1954 Sansoni Survey, and the 1956 Jayaratna Perera Survey), all of which had recommended the nationalization of the private bus companies. The 1958 nationalization was certainly a political act but it was also predicated on sound policy. Nationalized bus transport was brought under a single institution, the Ceylon/Sri Lanka Transport Board, and the new system for all its shortcomings provided mobility to those who needed it most and who had no alternative mode of travel. Over time, it proved to be viable and improvable.

Significant improvements were made between 1970 and 1977 under the leadership of Anil Moonesinghe, which some have called the ‘golden age’ of public bus transport in Sri Lanka. Whether golden age or not, public bus transport had certainly come of age by 1977, and Sri Lanka was at a point where it could have focused its energies towards introducing bus-rapid-transit and rail-transit technologies for mass urban transport. There is no single modal solution for urban transport other than vigorously limiting the use of the private car in peak times and peak traffic conditions. And there is no private sector solution to public transport, although there are many areas in which the private sector can make efficient contributions but only as part of a public transport system.

The so called economic liberalization that began in 1977 was not without economic and political justifications. But some of the choices that were made were not motivated by good or bad economics but by corrupt politics. One of the worst choices was the privatization of bus transport beginning in 1979, along with the reckless neglect of rail transport. What was even worse was the manner of implementing bus privatization, later caricatured as ‘peoplization!’ It was an exercise that was bound to crash and its massive crash has been our national experience. World Bank officials were early cheerleaders of the Sri Lankan experiment, but were later forced by the experience to admonish that the bus story in Sri Lanka after 1979 was a model for not what to do, but what not to do in private/public transport. The bus blunder in Sri Lanka was and is unique among other Asian and South Asian countries. Burgeoning Bangladesh is its resounding proof.