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It’s the Tamil Economy, Stupid

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Following World War II, economic competition is increasingly viewed as the preferred alternative to war.  For example, Japan and Germany sought military dominance in the mid-forties, but a demilitarised post-war Japan and Germany achieved global dominance through trade.


Today, India and China are aggressive, current contenders for global dominance. They expect to achieve this through trade, not war.  


The debate on economic competition between nations focuses centres on fair and unfair competition. It is unfair competition to protect local markets from foreign manufactured goods. But it is “fair competition” for governments to subsidise local industries that have “strategic significance”: defence or nuclear energy for example.


Genocide is the ultimate form of unfair competition: as Black July 1983 illustrates. In fact, each stage of the slow genocide of the Tamil people in Sri Lanka has also been an economic project.


Eliminating the Tamil industrial base


The Economist of August 6th 2003 summarised the genocide of Black July 1983 thus: “Two weeks ago Tamils owned 80% of the retail trade and 60% of the wholesale trade in the capital Colombo. Today that trade is gone. Food shortages and inflated prices are one result. The Tamil industrial base, built up over generations, is no more.”


To start with, the 6th, 20th August 1983 editions of the Economist are worth reading in full for the paper’s comprehensive grasp of the economic motivation of the Black July Pogrom of 1983.


In an article entitled “The wages of envy”, the Economist said: “[Cambridge-educated finance minister] Mr Ronnie de Mel is too sophisticated to use the term on the tip of many Sinhalese 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 majority’. 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 government is about to advance this process by expropriating all damaged properties. Many Tamils will assist them by leaving the country. The result will be 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 businesses is to prevent distress sales and to promote an orderly reconstruction programme. ..In theory, former owners will be free to buy back government shares in time. But ministers do not disguise their redistributive intentions. Many are talking about following Malaysia’s example of writing preferences for the majority community into commercial law.

“The trade minister has already reorganized 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 Athulathmudali, who doubles as a government spokesman on Tamil questions...


“The state stake in Sri Lanka’s injured industries is meant to be temporary. But, if the alternative is returning economic control to the Tamils, the government may decide to hold on. ..


“The losses are still being added up in the statistical department of the central bank, which has sent out teams of accountants and surveyors to do an on-site census of destruction. The preliminary estimate of $150m worth of damage to commercial and residential property – equivalent to about 4% of Sri Lanka’s GNP – is almost certainly too low, because it is based on book value; replacement costs might be five to 10 times higher. It also excludes the value of lost stocks, lost output and lost export orders…”

There is considerable evidence that the genocide of 1983 was committed with the specific intent of acquiring Tamil businesses and private property: often by murdering the owners and their families.


It is now widely accepted that the 1983 pogrom was state orchestrated and government ministers were complicit.


The parallels to the Jewish Holocost are unmistakeable: it was firstly Jewish economic success that provoked Nazi envy in pre-war Germany.


Nazi documents and memos following Kristallnacht - the Nazi pogrom where almost 7,500 Jewish businesses were destroyed - evidence the economic nature of the issue.


Robert Conot, Justice at Nuremberg, provides a transcript of Goering addressing a high-level Nazi meeting the days immediately following Kristallnacht.


Goering concludes “I implore competent agencies to take all measures for the elimination of the Jew from the German economy.”


As to the elimination of the Tamils from Sri Lankan economy, the 1983 pogrom, spectacularly achieved its objective. The observations of the Economist in 1983 remain true today: “The Tamil industrial base, built over generations, is no more”, having never recovered from 1983.


Impact of ‘The Open Economy’


In a previous article we cited Michael Mann’s hypothesis that “murderous ethnic cleansing, which in extreme forms can become genocidal, is the “dark side of democracy”.  


Similarly, an open, egalitarian competitive economy leads to genocide when a minority ethnic group is disproportionately economically successful and when the state is fundamentally racist.


In a seminal article in 1984, Newton Gunesinghe argued that the open economy was a key factor in the July 1983 genocide.


Gunesinghe argued that in the period before 1977, the socialist Sri Lankan government had favoured heavy state regulation and intervention: licenses were needed for most activities, including exports and imports. Government-owned cooperative stores displaced small retailers. The economy was fuelled by Government infrastructure spending.


Tamil entrepreneurs found it impossible to compete since licenses and supply contracts to large government monopolies were awarded via political patronage to affiliates of the major Sinhala Parties. Small Tamil business owners lost out to their Sinhala counterparts.


But with the introduction of Jeyawardene’s open economic policies in 1977 and globalisation, an (unintended) consequence was a levelling out of the ethnic playing field. Sinhala businesses built on political patronage could no longer compete effectively. Middle level businesses were adversely impacted by economies of scale and markets open to international competition.


In contrast to many Sinhalese businesses, Tamil entrepreneurs were better equipped for open economic conditions having faced an adverse state for many years. The larger industrial groups – where Tamil ownership was disproportionately well-represented – were quick to form foreign joint ventures and to compete internationally on price and quality.


Both Gunesinghe and Richardson attempt to explain why anti-Tamil violence spiked many-fold in the golden period of Sri Lanka’s market economy, during the markedly pro-globalisation, capitalist, market-driven government of President Jeyawardene.


The short reason was the ethnic backlash against Tamil prosperity: the Economist’s “wages of envy”. The 1983 Genocide was the ultimate form of unfair competition.


Reparation to Tamils unaffordable


It follows that the prosperity of the present Sri Lankan economy is built on the proceeds of genocide.


Successive Sinhala governments have entrenched the reversal of relative Sinhala-Tamil economic power on the island. And they have used military force to achieve this.


For while Sri Lanka was in recent years South Asia’s wealthiest country on a per capita basis, there are enormous regional differences. The Sinhala Western province near the capital Colombo has almost four times the per capita annual income ($2118) of the Tamil North ($610) according to the World.


Over 50% of people live below the poverty level in the Northern region.


Over a third of all Tamils in Sri Lanka have no sustainable livelihood, living in camps as internal refugees, many having held this status for decades.


Sinhala human rights activists in the capital Colombo claim that Sri Lanka has moved beyond the racism of 1983. They cite that 21 years later the government of Sri Lanka had apologised to the Tamil victims of 1983 – and offered 937 victims 600 pounds (sterling) in compensation.


It follows that not even one Sinhala human rights activist in Sri Lanka has acknowledged the requirement for just reparation in line with commercial law. Instead they paper over the cracks to claim their country has “moved on”. It hasn’t.


For the Sinhala nation simply cannot afford to make the commercial reparation that is owed.


Let us think about what this means for the Black July 1983 anti-Tamil pogrom alone. Commercial reparation would be, for example, include reparation for the 80% of Colombo’s retail trade and 60% of its commercial trade destroyed in 1983. One would use well understood business valuation principles – net present value (NPV) in 1983 of all future  earnings, which NPV is then  projected forward to today using realised growth rates (since we know with hindsight the growth rate between 1983 and today). This would still not account for the fact that had the original owners retained control and developed their already considerable entrepreneurial and management skills, greater growth may have been achieved.


Having engineered the appropriation of enormous quantities of Tamil assets, the difficulty for the Sinhala Nation is how to deal with the consequences.


Even if the Sinhala nation could afford reparation, the truth is they do not wish it. For the Sinhalese do not accept that commercial reparation is required for the genocide in 1983 and since.


Even the most liberal Colombo-based peace activists remain content to deal in the realm of rhetoric on 1983: art exhibitions, letters in state-owned media, inadequately couched phrases of regret by professional human rights spokes people.


No one gets down to the bottom line and talks about money.


Breach of contract with Tamil taxpayers


The modern state is financed by enterprise, by the private sector. In return it provides services for the common good – including policing and security – using the money generated by business, a portion of which is given to the state as taxes.


The state is hence the modern equivalent of the medieval mercenary knight one could hire to guard ones farm or one’s home: the Japanese roving Samurai, or the Tamil soldier caste who carried out “Kaval” (guard) duties.


The Tamil businesses that represented 80% of Colombo’s retail trade and 60% of its commercial trade in 1983, had, for decades been financing a good proportion of the Sri Lankan state through taxes. They paid a good proportion of the salaries of all those Colombo soldiers and policemen who stood by – or as in many cases participated – while the mobs torched Tamil homes, shops and cars.


Not only did the Tamil business owners of 1983 lose the value of the businesses destroyed in the pogrom, they also discovered that they had been paying taxes for decades on a false assumption: that the police, army, judiciary and government bureaucracy that they financed through taxes would protect them in times of crisis. 


Even if reparation were made for the loss of the businesses and lives in 1983, can there be reparation for the breach of contract by the state to the people whose taxes had paid for it all those years?


But the breach of contract continues. Every Tamil taxpayer in Sri Lanka today – including all the abducted business persons in Colombo - understands that they are being defrauded of the benefits of their taxes: the State has no intention of providing them with the security they have paid for. The police, army, judiciary do not work for them.


As the pogrom demonstrated, economic assets require defence – both from physical destruction by mobs and from expropriation by hostile governments (and their international allies).


The Tamil people instinctively understand that it is not possible to rebuild that “Tamil industrial base, built over generations” without first hiring a reliable Kavalar to protect it.


In modern terms, this translates to a State with a defence and judiciary that is accountable to the Tamil people that finance it. A State that will not turn against its people. In short, the free state of Eelam.


The Federal solution amounts to ignoring all previous breaches of contract and re-hiring the SinhalaState – including its present army – for the Kavalar role. This would require a huge leap of faith by the Tamils, but to date there have been no grounds on which such a leap can be based. On the contrary, all the actions of the Sinhala state to date suggest that such a leap of faith would be naive in the extreme and stupid at best.


 In the SinhalaState the Tamils will always be hostage to the “wages of envy”, (to use the terminology of the Economist): as the Jewish people were in Europe in the 1940s, as the Tutsis were in Rwanda, both minorities that had been disproportionately successful in their countries. Envy does not have a sell-by date.


It follows that the separatist project is also an economic project. If the Tamil industrial base took generations to build before it was destroyed by a 1-week pogrom, then the 25 years or more to be spent building the pre-requisite state, that will lay the foundation for the next generation of industrial base is not unacceptable.

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