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The impact of "Mercantilism and "Capitalism" on the Economy of Sri Lanka

The impact of "Mercantilism and "Capitalism" on the Economy of Sri Lanka

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The impact of "Mercantilism and "Capitalism" on the Economy of Sri Lanka

“Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. The term “mercantile system” is used to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports”1. This system dominated Western European economic thought and policies from the sixteenth to the late eighteenth centuries. The goal of these policies was, supposedly,
The impact of "Mercantilism and "Capitalism" on the Economy of Sri Lanka

“Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state. The term “mercantile system” is used to describe the system of political economy that sought to enrich the country by restraining imports and encouraging exports”1. This system dominated Western European economic thought and policies from the sixteenth to the late eighteenth centuries. The goal of these policies was, supposedly,

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Published by: Jananthan Thavarajah on Sep 07, 2010
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 The impact of "Mercantilism and "Capitalism" on theEconomy of Sri Lanka
“Mercantilism is economic nationalism for the purpose of building awealthy and powerful state. The term “mercantile systemis used todescribe the system of political economy that sought to enrich thecountry by restraining imports and encouraging exports” 
1
. This systemdominated Western European economic thought and policies from thesixteenth to the late eighteenth centuries. The goal of these policies was,supposedly, to achieve a “favourable” balance of trade that would bringgold and silver into the country and also to maintain domesticemployment.With the balance of trade shifting from multinational corporations to largeemerging markets — such as China and India — some nations have beentempted to turn to unfair practices to gain a trade advantage. Thesemercantilist practices are taking over knowledge- and technology-basedindustries.
Capitalism is an economic and social system in which capital, the non-labour factors of production (also known as the means of production), is privately controlled; labour, goods and capital are traded in markets; and  profits distributed to owners or invested in technologies and industries.Capitalist societies encourage competition and personal profit” 
2
.Historically until Portuguese conquered the maritime areas of the countryin 1505, there had been three Kingdoms, which were the Kotte Kingdom inthe south west, the Jaffna Kingdom in the north and the KandyanKingdom in the central highlands. The first two fell victims to foreignconquest by the Portuguese in 1505 and later by the Dutch in 1656 andthe British in 1796.
1.Allen, William R. “Mercantilism.In John Eatwell, Murray Milgate and PeterNewman, eds.,
The New Palgrave: A Dictionary of Economics.
Vol. 3. London:Macmillan, 1987. P. 445-4482.Bacher, Christian (2007)
Capitalism, Ethics and the Paradoxon of Self-exploitation
Grin Verlag. p. 2
 
It was only with the fall of the Kandyan kingdom to the British in 1815 thatthe whole country came under foreign rule for the first time. The politicaland administrative unification of the country by the Colebrookecommission of 1832 may be regarded as the starting point of the modernnational history of Sri Lanka.In the medieval period, economic activity consisted of the cultivation of rice by the people for their own consumption and supplying the surplus tothe King’s court and feudal landowners. Sri Lanka, being at the hub of sea-going traffic in the region, had from very early times establishedoverseas trading relations, firstly with the Arabs and later with tradersfrom other countries in spices, elephants and precious stones in exchangefor silk, porcelain and other articles of aesthetic value. But the scale of this early trade was not extensive. The Portuguese, and later the Dutch, expanded substantially on theseearly trading activities primarily supplying articles of luxury consumptionto the growing commercial centres of Europe. These included pearls,chank shells, arecanut, cinnamon, cloves and nutmeg.With the British conquest of the whole country in 1815, Sri Lanka becameone more addition to the far-flung British Empire. From then on, economicactivity in the country came to be geared principally towards satisfyingthe consumption appetites and production needs of the rapidly expandingWest European markets.
“Subsistence cultivation of food by the peasants declined and was quickly eclipsed by a plantation economy producing for export. ClassicalEconomic theory born of the womb of capitalist production and imperialexpansion, soon imposed its orthodoxy that international trade, based onwhat was called theory of comparative, was beneficial to all participatingnations. The complementary political doctrine of laissez-faire, by advocating that the government is best which governs least, opened thecountry to unrestricted commercial exploitation” 
3
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3.SATCHI PONNAMBALAM, DEPENDENT CAPITALISM IN CRSIS The Sri LankanEconomy 1948-1980 (Zed Press 19800 p. 5
 
“The Colebrooke reforms in 1832, initiated an economic climate opposed to Mercantilism and state monopolies, but steeped in Laissez fairedoctrines of individual enterprise and free trade, all of which helped thegrowth of a prosperous plantation economy” 
4
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The establishment of estatesystem of coffee cultivation for export by foreign capital and managementcreated in Sri Lanka for the first time a new economy vitally dependant onforeign trade, capitalist production, a permanent labour force and lowwages – a structure which was the contrast of the prevailing self sufficientrice growing village economy. By the time coffee collapsed in the 1880s,there a dual economy had emerged in the country. One was highlydeveloped capitalist plantation economy. The other was a tradition-boundprimitive self sufficing economy producing for domestic consumption. Theformer grew under the patronage of the colonial government, while thelatter, being orphaned as it were, continued to decline. This pattern of dualism which w the coffee era continued to be the central characteristicof Sri Lanka’s economy up to the time of Independence in 1948. Even thepost-independence governments have continued to work within theframework of this dualism left by the early British colonial period.During the period of World War II, the war conditions that made thetraditional sector become really dependant on imports. With the war,exports and exports and their prices came under government control. Allexport products had to be sold under bulk purchase contracts to theBritish government at pre war prices, which were considerably below themarket prices of the time. In contrast, prices of import goods trebled andfor the most part became unobtainable. Because the country was gearedto the war effort, local production of rice and other food crops slumped. The dependant economy which colonialism created for extraction of surplus value, the stagnation which is caused in the traditional sector andthe dependence on the imports which the war imposed were not correctedin the post-war years or even after independence. The neo-colonial statepolitical decolonization created was tied hand and foot to its colonialorigins. The country’s role on the periphery of the world capitalist system,as an exporter of raw materials and importer of consumer and luxurygoods, was accepted as natural order of things.
4.
Saman Kelegama, Gamani Corea, Economic policy in Sri Lanka: issues anddebates (SAGE 2004) p. 55

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