Sociopolitical Causes For Economic Growth And Inflation In Sri Lanka

This study has been interested in this topic by seeing rapid economic growth with lower inflation in China and Asian tigers under the peaceful environment that achieved internally and externally during their economic development. Central idea of this study is to build up a foundation to formulate new growth theory in future which incorporates sociopolitical stability (peace) as a key determinant of economic growth. This study demonstrates that sociopolitical instability, caused by sociopolitical and economic causes such as political system, non-visionary constitution and leaderships, ethnic discrimination, regional discrimination, historical myths, influencing of religion on politics, social democracy, ethnic motivated economic development policies, language conflicts, ethnic riots and terrorism adversely affect economic growth and inflation in developing countries, particularly in Sri Lanka. With theoretical determinants of growth and inflation such as physical capital accumulation, human capital accumulation and money supply, this study has found by using qualitative and quantitative methods that sociopolitical instability have been affecting economic growth and inflation as well as theoretical sources of growth and inflation adversely and significantly in Sri Lanka.Before seeing Sri Lanka's case study, this study analyzes the role of sociopolitical stability, measured by scores of peace building capacity in determination of economic growth and inflation in 70 developing countries by using simple cross country econometrics analysis. Sociopolitical instability adversely affects economic growth and inflation in developing countries, but liberal democracy which is to be said by western scholars as foundation for sociopolitical stability generates conflicts, violence and unstable government in developing counties. Such instability negatively affects economic growth. Lower and higher level of democracy at initial stage of development has been challenge for economic development.This study explains the various sociopolitical and economic causes for sociopolitical instability in Sri Lanka qualitatively. It illustrates major causes for sociopolitical instability in Sri Lanka such as ethnic biased constitution, social democracy with non visionary leadership, various forms of ethnic and regional discriminations, historical legends, role of Buddhism in politics, language policy, internal colonization on Tamil's home land, free social services, ethnic riots, terrorism, civil war between and within communities and non- implementation or broken down of political agreement due to the majority's oppositions in democratic politics. Because of the unavailability, accountability, censorship of violence and war related data, researcher's personal security in declaring war related data and occupational limitations, this study uses the annual growth rate of tourist arrivals as proxy measure quantitatively to measure the degree of annual peace environment made by all the sociopolitical causes in Sri Lanka.Quantitative analytical results show that Sri Lanka had lost average 5.23 percent annual growth rate due to sociopolitical instability, generated by both conflicts between and within communities during 1978-2005. It is more than two times of its achieved growth rate. Sri Lanka would have been attained average 9.62 percent growth rate of real GDP during 1960-2005 and 10.06 percent during 1978-2005, if it had avoided the conflict and war. It would be more than average 7.1 percent growth rate of Singapore and 9.18 percent of growth rate of China, achieved without conflicts and war during the 1978-2005. Direct loss of sociopolitical instability on growth in long run during 1960 -2005 is average 2.52 percent per years. Indirect loss by way of human capital accumulation and physical capital accumulation are average 1.5 and 1.02 percent respectively.Sociopolitical instability is negatively related with budget deficit and money supply in Sri Lanka. Sociopolitical instability has been more powerful determinants of inflation than output and money supply. Even sociopolitical instability in Sri Lanka has been related positively with economic growth and negatively with inflation in some years, the macroeconomic stability has been affected by war adversely and severely since policy makers substitute other macroeconomic goals to show that economy has been high growth with lower inflation despite of war. Like some westernized scholar's findings, even democratic regime has been affecting economic growth positively in some countries; the macroeconomic stability has been strong in authoritarian regime under the visionary leadership without ethnic discrimination than democratic regime. Sri Lanka has failed to achieve macroeconomic stability based on rapid growth despite of its partial authoritarian regime after 1978 since authoritarian power had been applied by non-visionary leaderships to eliminate minority's identities from Sri Lanka via military chauvinism in the name of the war against terrorism without legitimate political solution for ethnic conflict. Sociopolitical stability should be included into the growth model as determinant of growth. Sociopolitical stability at initial level of development can be attained under the one party political system with visionary group of leaderships rather than multi- party democratic political system in developing counties. Like Singapore, Malaysia (moderate democracy), South Korea and China have achieved both sociopolitical and macroeconomic stability, suppression of people's narrow desires which comes through liberal democracy without ethnic discrimination for maintaining peace to achieve rapid growth at low stage of economic development is foundation for economic development. Unlike these Asian countries, Sri Lanka has enjoyed higher social democracy with ethnic discrimination during pre 1978 and used authoritarianism against ethnic minority directly to eradicate their identities from Sri Lanka without accepted political solution under the non- visionary leaderships during post 1978. It has failed to achieve sociopolitical stability, hence economic stability. Both democracy and partial authoritarianism in Sri Lanka has not led to rapid economic growth and macroeconomic stability since both have suppressed minority's fundamental political and civil rights. Policy recommendation is that Sri Lanka should establish one party political system to suppress oppositions arise from majority who have been against political devolution of power to minority and those who have been pertaining on traditional mindset of Mahavamsa for making and implementation of permanent political solution which guarantee Tamil's political enthusiasms and non-ethnic discrimination in future. This approach will make permanent peace and new path for economic development in Sri Lanka rather than suppression of democracy targeted ethnic minority.