Addressing inequality

The latest Asia-Pacific Labour Market Update of the International Labour Organization (ILO) has mixed signals for Sri Lanka. On the one hand, of the countries in the region, Sri Lanka's real Gross Domestic Product (GDP) growth in the second half of 2011 was 8.3 percent (second only to China's) and unemployment had come down to 4.2 percent (about the median for the region).

On the other hand, youth unemployment, at 19 percent (second highest after Indonesia) was at an unacceptable level and the income inequality gap had widened: the GINI coefficient at 40.3 had shown a drastic increase of 7.8 points (second only to China) over the level of the 1990s.

The GINI coefficient for incomes measures the deviation from a straight diagonal of a graph of cumulative income plotted against income; it indicates greater equality the closer it is to nought, greater inequality the closer it is to one.

So, while the per capita GDP has been increasing, to US $ 2,370 in 2010 and to US $ 2,804 last year, the share of the poorer half of the population has been decreasing.

Capitalist economies

Ironically, the rapid growth of the economy has the effect of intensifying the effects of income inequality - levels of expectation are enhanced, sometimes to far higher heights than should be expected. The spread of television and the concomitant extension of the reach of advertising has aggravated the problem of raised expectations.

Increased inequality is to be expected from rapidly-growing capitalist economies - speedy expansion necessitates greater accumulation of capital amongst the wealthy. In Sri Lanka's case, the widening gap is added to by the fact that so many of our workers are employed abroad.

Our nearly two million migrant workers are almost 10 percent of the population and account for a fifth of the economically active population of Sri Lanka. Their remittances are over US $ 5 billion annually, possibly much higher when remittances sent though Informal Money Transfer Schemes are considered.

Migrant workers

The approximately 40 percent of the population in the families supported by these migrant workers are considerably better off than the rest of the population. The problem is aggravated by the concentration of migrant workers in certain areas, especially along the West coast of the island. The poor tend to be those in rural areas.

Migration has also accounted for much of reduction in unemployment, since actual production has not increased sufficiently to provide jobs. Unfortunately, since 1977 our economy has become more and more post-industrial, without in fact passing through the industrial phase, and what jobs are available tend to be in the services sector. Increased growth translates to higher consumption, but not to greater employment, since so many of our consumption goods are imported.

Furthermore, the ILO update highlights the fact that the proportion of workers classified as own-account and contributing family workers stagnated at about 42 percent. This, it says, is illustrative of the persistence in the economy of low quality jobs, showing that improvements in quality of employment and working conditions are needed.

The over-rapid opening of the economy in the late 1970s and early 1980s caused similar problems of aggravated inequality, especially because of the discontinuation of the free rice ration. The hardship caused to the youth in particular played no little part in the anti-government youth uprising of the late 1980s, which was so bloodily put down.

Poverty alleviation

It was in recognition of the problems of increased relative poverty that successive governments introduced schemes aimed at better-targeted poverty alleviation, such as the Samurdhi scheme. Such passive methods are not sufficient, as pro-active measures need to be put in place to address the issue.

This May Day, leaders of the Socialist People's Front (a combination of left-wing member parties of the governing United People's Freedom Alliance, which had a separate May Day rally at Kirillapone), including senior ministers Tissa Vitarana and DEW Gunasekera, stressed that the rising cost of living was burdening ordinary people. Their warning is timely. The increasing inequality in our society is exacerbated by effects of rising prices.

Of course inflation, as measured by the Colombo Consumers' Price Index (CCPI) computed by the Department of Census and Statistics, remains relatively steady at around a relatively low 6 percent. Indeed at the rate at which Sri Lanka's economy is growing it is commendable that the government has managed to keep inflation so low. Nevertheless, while price rises are relatively minor, certain costs, such as fuel, electricity and transport expenditure, have risen sufficiently to cause hardship to poorer people, especially those with fixed incomes.

Economic growth

The government is aware of these problems and has articulated proposals to address increased inequality and youth unemployment. The 'Divi Neguma' programme has the joint targets of reducing the cost of living and of creating income-generation opportunities, mainly aimed at lower-income families.

It is also intended to encourage enterprise development at the village level and to support local production for local consumption - so that the benefits of economic growth go to the rural areas rather than overseas. There are also programmes for youth education and training to international standards, as well as to encourage youth entrepreneurship and to promote of investment in sectors that generate jobs for youth.

ILO Country Director Sri Lanka and Maldives, Donglin Li said recently that creating jobs for youth is a crucial issue in Sri Lanka. Speaking at a seminar, jointly organized by his establishment and the Ministry of Youth Affairs, he said that the ILO has initiated programmes to support youth employment with the government and other stakeholders. Forward-looking policies for job growth and productivity in all sectors were being formulated in accordance with the National Human Resource and Development Policy.

The government needs to accelerate its programmes to banish poverty and to even out income inequality. Otherwise it risks the creation of a monster of social dysfunction which will drag down the country as a whole.