Financial Times

Labour unrest troubles the Lankan economy
The strikes that crippled government hospitals and the railway in quick succession and the opposition march from Kandy organised by the Janatha Vimukthi Peramuna are clear danger signals. It shows that there is potential for growing unrest among labour unions and undergraduates that, if unchecked, could create difficulties down the road. Without doubt the Janatha Vimukthi Peramuna has a hand in some of the unrest and this is of concern to the private sector, if we are to learn any lessons from the past.

What is happening is almost reminiscent of the months before the second JVP youth uprising erupted in the aftermath of the Indo-Lanka peace accord in 1987. The unrest among workers and undergraduates at that time virtually crippled the economy, ruined many businesses and tarnished the image of the country in the eyes of foreign investors. Although the country is a little more prosperous now than during that uprising, with the middle class having expanded further and greater acceptance of a consumerist social system, there remains a growing disparity in incomes between the ruling elite and upper class and the vast mass of the working class and rural society.

It is this yawning gap and the expectations generated by the rapid march of a consumerist culture that could spell trouble. The urban and rural youth who are missing out on the benefits of a free market economy would naturally be suspicious of the system and work against it. Although there is some justification in demanding higher wages, especially among government servants whose salary scales have long been inadequate, strikes and unrest of the type we are witnessing could destabilise the system.

The unrest could unnerve investors, particularly foreign ones who have no commitment to Sri Lanka and have plenty of investment opportunities elsewhere. That the unrest should come at a time when the economy is on the mend, with pledges of billions of dollars in aid and foreign investors on the look out for investment opportunities is particularly unfortunate. Even existing enterprises would naturally feel jittery about expanding into new areas if they have no confidence in the system.

It could queer the pitch for government and private sector efforts to attract more investments and ensure that the economic recovery is sustained. Such investments are sorely needed to create the jobs that are urgently required to keep thousands of youth occupied who are churned out by our education system each year.

Among emerging markets, Sri Lanka has an ideal location almost halfway between East and West and is a natural gateway to the huge market on the Indian subcontinent. It also has a good reputation for having the required laws and regulations to protect investments and settle business disputes. But these distinct characteristics alone are not enough to attract and keep foreign investments.

Stability is essential, as we are repeatedly told by aid agencies and investors alike.
The labour unrest and turmoil on the campuses, which are being exploited by the opposition parties, come on top of the existing deep misgivings about the ultimate success of the peace effort, the government's ability to push through unpalatable economic reforms, and the stability of the ruling coalition itself.

These uncertainties would naturally make private investors hesitant about committing large sums of money for long-term investments. The stock marker may be zooming but funds invested in stocks can be pulled out quickly, unlike in the case of project investments.

It would yet be premature to describe what is happening in the government sector and universities as a wave of strikes, but the government would do well to heed the warning signs generated by this ripple of unrest.

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