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Reflections on economic inequality in Sri Lanka
Sunil Bastian
Right at the beginning of his book, ‘The Killing Fields of Inequality’ Göran Therborn says ‘Inequality is a violation of human dignity; it is a denial of the possibility for everybody’s human capabilities to develop. It takes many forms, and it has many effects: premature death, ill-health, humiliation, subjection, discrimination, exclusion from knowledge or from mainstream social life, poverty, powerlessness, stress, insecurity, anxiety, lack of self-confidence and of pride in oneself, and exclusion from opportunities and life -chances.’ These are concerns that motivated me to write this short piece on economic inequality in Sri Lanka.
Economic inequality has to be understood in the context of capitalist transition. Capitalist transition is a process that involves changing institutions or the ‘rules of the game’, so that markets become the primary mechanism for resource allocation. These changes must be legitimised at an ideological level. When institutions to establish markets are successful, they become ideas that seem to be natural and commonsense, thereby creating a hegemony. Since capitalism always benefits those who have access to the resources that can be used to make profits in a market economy, it inevitably leads to economic inequality.
The establishment of the hegemony of markets is not a technocratic process, but a political process. Conflicts and struggles are always a part of this. The economic inequality created by the process of capitalist development provides a foundation for these struggles and conflicts. Some of these struggles are at an ideological level. They can get politicised in a variety of ways, including through ethno-nationalism.
Economic inequality is also behind a major contradiction between liberal democracy and capitalism. A political system that is based on the idea of treating every individual equally, and an economic system that ensures more wealth to those who can benefit from markets, are bound to collide at some point. In the history of capitalist transition, it is not unusual to see the coercive power of the state being used to manage the conflicts and struggles that emerge in the context of economic inequality.
The process of capitalist transition takes place in a particular society with its own history. This means that capitalism is not some sort of a model. It is shaped by political struggles and historical processes in a particular historical context. Finally, it takes place within global capitalism. The history of capitalist transition of developed capitalist countries shows various efforts to manage this contradiction.
Recently economic inequality has become a major area of research even in developed capitalist countries. Thomas Piketty’s seminal work has opened this discussion in many countries. This has extended to developing countries as well. The report on inequality published in November 2025 after the G20 Summit is one example. Another more specific example is the ILO’s focus on the concept of living wages, in contrast to minimum wages. This looks at possible changes on one aspect that contributes to economic inequality.
These thoughts on economic inequality do not mean that we are hoping for some sort of Utopia where everybody is economically equal. What it means is, depending on the concrete historical context, there is a need to identify interventions that can minimise economic inequality. This can happen at the level of the state, social norms or by challenging hegemonic ideologies.
The case of Sri Lanka
In the history of capitalist transition in Sri Lanka, the late colonial period saw the beginning of a serious discussion on social policies. Many factors contributed to this. The ideas that emerged included ensuring a minimum level of food security, state responsibility for education and health, protecting the smallholder peasantry, and ensuring a minimum level of protection for the working class. An ideology of distributive justice underlined these policies. These ideas dominated social policy debates until the inauguration of neoliberal capitalism in 1977.
With the transition to neoliberal capitalism, ideas such as protecting the vulnerable, safety nets, and poverty alleviation began to dominate. The basis of this ideology was economic growth and trickle-down. This meant economic growth became the primary focus. When it happens benefits will trickle down to the poor. Economic growth is elevated to a fundamental condition that needs to be achieved to have a better society.
If we examine closely what is measured by the official poverty line, it is the ability of a household to obtain a certain minimum level of income to survive. This is then projected as a major development achievement. In measuring the level of poverty, the focus is on individual households. There is no analysis of the power relations that the poor household is trapped in. The moment you begin to analyse these power relations you start to understand the close link between poverty and inequality. Power relations that maintain some households at this minimum level of income also ensure a higher level of income to others. It becomes impossible to ignore inequality if you want to understand poverty.
Over four decades of the more liberal form of capitalist transition has brought about major socio-economic changes in Sri Lankan society. With the deepening of capitalist relations of production, there have been significant changes in the agrarian sector. The share of agriculture in the economy has significantly declined. In 1977, 30.7 per cent of the national output was from agriculture – by 2022 it had declined to 8.7 per cent. There has been a gradual deterioration in the viability of smallholder paddy. The 2019 Household Income and Expenditure Survey shows that only 8.6 per cent of income in the rural sector came from agriculture. There have been consistent efforts to promote markets in state-owned land that has been given to the poorer sections under a permit system. This will certainly benefit the bigger landowners.
The other side of this rural transformation is that more people depend on wages. The growing working class is found in many socio-economic formations - organised, informal, sub-contractors, etc. A significant section of this are women. Some sections of the working class sell their labour in other countries. While the working class has grown, institutions that protect their rights and working conditions don’t operate in many sectors. What existed in the past has been gradually dismantled.
With the growth of the working class, education and skills development have become more important for social mobility. But the benefits of education and skills development get distributed unequally. Since the state monopoly on education was broken in the new period of capitalist transition, the role of the private sector in education has expanded. This has become a new avenue, where richer classes can ensure quality education for their children. In addition, the state sector is not an equal system. Therefore, both private sector and state education provide more opportunities for the richer section of the population to provide a quality education for their children.
The overall outcome has been the emergence of a society with a greater degree of economic inequality. Data from the 2019 Household Income and Expenditure Survey show that while the richest 20 per cent of the population acquired 51.4 per cent of national income, the poorest 20 per cent had only 4.6 per cent.
To end this short reflection on economic inequality in Sri Lanka we must remember we are discussing this in a society that has witnessed conflicts and state repression at a significant level. The map shown below (from Bisping Sophie, 2023. Mass Grave Sites in Sri Lanka, Colombo: International Centre for Ethnic Studies) shows the spread of mass graves during the post 1977 period. Seventeen of the thirty-two mass graves covered in the report were due to state repression. Given this tragic recent history of the Sri Lanka, it is necessary to begin a serious discussion on how to tackle economic inequality.
Can democracy be designed?
(2003) Co-editor, Can Democracy be Designed? London: Zed Books.
Devolution and Development in Sri Lanka
(1994) Editor, Devolution and Development. New Delhi: Konark Publishers.
The politics of foreign Aid in Sri Lanka
(2007) Politics of foreign aid in Sri Lanka, Promoting markets and supporting peace. Colombo: International Centre for Ethnic Studies.
Sustaining a state in conflict: Politics of foreign aid in Sri Lanka, Colombo:ICES, (2018)
This study focuses on politics of foreign aid to Sri Lanka from developed countries of the West, Japan and multilateral agencies during the period 1977 to end of the armed conflict in 2009. This period is characterised by economic policies that emphasised liberal economic policies and an armed conflict resulting from the Tamil demand for a separate state. The study looks at politics of foreign aid in this context. Foreign aid played a dual role. It helped to sustain a state engaged in an armed conflict, while at the same time trying to promote a negotiated settlement. Therefore it was neither a do-gooder that liberals tend to believe nor a 'foreign devil that Sinhala nationalists like to see.
Reflections on the politics of foreign aid
Results of LG Election in February 2018 (2018)
(2010) Contradictions of Capitalism.
Copyright @ 2026 Sunil Bastian.