After COVID-19: Creating employment for the ‘periphery’


By Vagisha Gunasekara

The government-driven effort to manage the spread of COVID-19 in Sri Lanka has highlighted the terrible reality of a large proportion of people in this country who are unable to withstand socio-economic shocks created by the pandemic. With restrictions on movement, a necessary measure given the need of the hour, daily wage workers are without an income. Restriction on market activity is posing difficulties to farmers, fisherfolk and self-employed individuals who struggle to sell their produce or negotiate fair prices. Permanent or contract-based factory workers connected to global supply chains will face job losses as a result of companies around the world closing shops, cancelling orders, and stopping production.

The garment industry is particularly hard-hit because during times of uncertainty and hardship, people do not buy non-essential goods and many of the foreign brands have already cancelled orders from Sri Lanka, Bangladesh and a number of other South- and Southeast Asian countries. Traditionally, working on low wages, rather than living wages, these workers had little savings to begin with and the vulnerability of such workers is unmistakable. The nearly two million migrant workers on whose remittances this country depends, are stranded overseas without an income and a way to return to Sri Lanka. All these groups form the ‘periphery’ of our country. A substantial proportion of them works in the informal sector which absorbs around 68 percent of our labour force. Household debt, which is now nearly 10 percent of Sri Lanka’s nominal Gross Domestic Product (DGP), is pervasive in this segment of the population as a consumption smoothing mechanism. The periphery is the worst hit by the COVID-19 pandemic in Sri Lanka.

Neoliberal globalisation has failed to ensure dignity for labour. The expanding ‘periphery’ of Sri Lanka is evidence for it. The global mobilisation of capital in the quest for new markets and profits, and transformation in production strategies have produced new dynamism in the way work is organised. As a result, labour has to come to terms with the precarious realities of outsourcing, flexibility, erosion of union rights, reduced wages, casualisation and downsizing. Another set of long-term structural issues compound these effects of neoliberal globalisation.

We can start with the decline of rural economies that have squeezed households with falling incomes. This decline has taken place amidst growing ‘surplus populations’ that are landless or land-poor. The concept of surplus populations according to Marx, accounts for groups of people who are left unemployed or underemployed or rendered unproductive because of the structure of capitalist systems of production. Surplus populations work the dark underbelly of capitalism, its backstage operations where cheap and irregular labour is used up in the search for ‘hyper-profit’. The vast majority of workers in Sri Lanka’s ‘periphery’ belongs to the surplus population.

With limited prospects for income generation, debt, either formal or informal, has become a mechanism through which households ‘roll’ their budgets. In some cases, the shrinking availability of formal and informal credit and high demand for it heighten exploitative conditions of borrowing. The mushrooming of private finance companies offering micro-loans at exorbitant interest rates, under other exploitative terms and conditions are in evidence everywhere in the country. These companies are always on the look out for ‘new markets’ to aggressively promote borrowing. These new markets, as it turns out, are areas in which people are more likely to borrow for household consumption smoothing. There are other, more ruthless informal arrangements as well. The ‘day loan’ for construction workers is a case in point.

A dangerous cultural trend that worsens indebtedness is consumer culture. Consumerist lifestyles promoted by mass and social media and businesses expose people to new ‘ways of living’, leading to increased household expenditure, and diminished savings. The trend now is to purchase all ‘needs and wants’ using loans or credit cards. The allure of the consumer culture of which urbanity is the centrepiece, provides an impetus for many young people to move away from rural areas and agricultural work. Young people migrate to cities within or outside the country in search of employment, and the ‘good life’ that has been created by the consumer culture. Urban industrial and service sectors, however, have limited scope to absorb migrant workers from rural areas. Stringent immigration policies all over the world and tightened border control mechanisms have made migration for work, both legal and illegal, increasingly difficult.

Under these circumstances, what strategies do people employ in order to eke out a living? The lack of opportunities in rural and urban economies, push them towards ‘trying everything possible’ to generate an income. We can call it a ‘patchwork of livelihoods’. This patchwork of livelihoods includes primarily four areas: Migrating for work, both within and outside the country; self-employment, either in agriculture, other products or petty trade; agricultural and/or non-agricultural casual waged labour, and living off debt. These cannot be considered as ‘options’; they are categories of work that are available for the people of the ‘periphery’ of Sri Lanka and other countries like ours. People of the periphery move around from one livelihood to another within this patchwork, or engage in more than one of these strategies for income-generation at any given time. It is they who are most affected by the economic impact of COVID-19.

Nearly two million Sri Lankans are migrant workers in other countries, and the majority of them are female domestic workers. Their remittances make up eight percent of our country’s GDP, nearly 65 percent of foreign reserves, and around 50 percent of imports. By the end of March 2020, the majority of the main destinations of Sri Lankan migrant workers came under lockdown. While some migrant workers continue to remain in the host countries on no-pay leave, most others were laid off from their jobs. Although the number of migrant workers that will return to Sri Lanka without jobs in the next couple of months is uncertain, their return indicates that the country’s surplus population is about to increase significantly.

On home turf, workers in manufacturing industries such as garments, roughly 300,000-600,000 direct and indirect employment, and construction, and services such as travel and hospitality too are facing the threat of losing jobs. Then there are casual, contract and daily wage labourers, domestic workers, plantation workers, and self-employed individuals that have not been able to generate any income for the past two months. The likelihood of them earning a steady income by doing what they were doing prior to the pandemic is rather slim, at least for another six months. Managing this sudden increase in the ‘surplus population’ and ensuring their basic needs has already become a serious challenge for the government.

To be sure, there are longstanding structural political-economic factors that have produced and expanded the proportion of workers in the ‘periphery’ and a constellation of risk factors they face not just on a daily basis, but over generations. But, what are some immediate correctives to the issue of increasing unemployment in the periphery, which in turn can lead to a host of other social problems? On March 24, the Central Bank of Sri Lanka announced relief measures to assist COVID-19 affected businesses and individuals (Circular No.4 of 2020), which included a debt moratorium, on capital and interest, for firms and individuals and working capital up to 25 million (at for percent interest rate). These measures are intended to keep businesses afloat and prevent worker layoffs. Such measures however, may not be able to counter the adverse effects triggered by international buyers’ decisions, such as order cancellations for example, which may eventually lead to worker layoffs in Sri Lanka’s manufacturing sector.

In the Asian region, governments have used four main instruments to alleviate issues arising from unemployment: Unemployment benefits, wage subsidies, expansion or introduction of partial unemployment benefits to compensate for crisis-induced reductions in working hours, and employment services to complement income support to unemployed workers. The Government of Sri Lanka may consider an unemployment social insurance scheme as an immediate and temporary measure to support workers who have lost their jobs. China, Thailand, and the Philippines have already introduced such schemes for the next three to six months. The problem, however, is that these benefits are typically paid to permanent workers and may exclude a large number of casual, temporary and contract workers in the economy. China has introduced another unemployment social insurance package, at a much lower rate, for this category of workers, and it is an idea that Sri Lanka could consider as well.

Another possible measure is to introduce a retraining programme for workers in industries that are unlikely to improve within the next year. For example, the Government of Indonesia established a new scheme called ‘Pre-employment Card programme’ to up-skill young workers by paying a lump-sum allowance to cover accommodation and transportation costs during the training or retraining programmes. The training or retraining of workers must be part of a medium-to-long-term strategy of reorienting the manufacturing sector of Sri Lanka. If the business in sectors such as garments is unlikely to improve in the next year or so, we must find other export-oriented sectors in which to invest our labour and other resources. Increasing exports in value-added marine products, agricultural products, light medical equipment, children’s clothing and items, strollers and such for example, and indigenous and other medicines are some suggestions.

An important point in reconfiguring Sri Lanka’s manufacturing sector is to focus on ‘connectibility’ between manufacturing enterprises of all sizes. It is now well understood that the issue of horizontal (clustering, networks) and vertical (subcontracting) connections within the local manufacturing sector is a crucial determinant of a local economy’s ultimate sustainability through industrial development. Currently, larger manufacturing firms are unable to purchase raw material or technology locally due to issues of quality, consistency and other reasons. As a result, they end up importing most inputs of production, which has a bearing on foreign exchange reserves. Localizing the production of at least 70 percent of the inputs of production may help create employment for the workers of the ‘periphery’ and manage foreign exchange reserves as well. The success of both the Italian and Japanese microenterprises, SME and large industrial sectors since 1945 is a case in point. The new national initiative ‘Restart Sri Lanka’ may consider some of these ideas in mentoring small and medium enterprises.

In thinking about correctives for the COVID-19 induced increase in the ‘surplus population’, the government must steer clear of age-old development interventions such as microfinance-driven self-employment and micro-entrepreneurship that have been proven failures. Sri Lanka has generated enough evidence to support that self-employment as a subsistence activity cannot generate a steady income for the poor. A separate article will be dedicated to this topic, but briefly, the finance-driven micro-entrepreneurship is set up for failure by its very design, and it eventually de-industrialises and infantilises the local economy. This method is in many ways the ‘easy way out’ and many international donors would support it too. But this is not a time for short cuts. We must find a solution to the employment problem that is effective in the long run, whilst ensuring economic recovery, and safeguarding foreign exchange reserves.

animated gif
Processing Request
Please Wait...