The Levels of Inequality in Sri Lanka

The economic crisis of 2022 has been a tidal wave of pain for Sri Lankans, sweeping aside years if not decades of economic growth and progress (a separate conversation, is whether that was inevitable from the start given the “type” of growth we saw). However, some were unluckier than others, living closer to the edge of the economic sea, and facing far more of the pain of disaster.

The problem — what defines inequality? What does being “poor” actually mean?

Everyone agrees that inequality exists. Many agree that it is a bad thing. But surprisingly, outside of academic definitions that mean little outside of dusty halls and stuffy policy rooms, there is little agreement on how much inequality there is.

To illustrate, lets take 2 definitions of “the middle class” and see how it isn’t consistent.

In the traditional Marxist definitions, it would roughly be those who neither own big business nor those who use physical labour, roughly corresponding to salaried professionals and small business owners. But I’m sure most of us would agree a doctor in Badulla earning Rs. 80,000 a month and one with private practice in Colombo earning Rs. 1,000,000 a month are living very different lives. On the other hand, there are teachers earning Rs. 40,000 (technically middle-class) and machinery-operators earning Rs. 200,000 a month (technically working-class). This is not to say that every teacher, doctor, machinery-operator earns these amounts, but that there are vast discrepancies across professions that make the profession itself, a somewhat useless categorizer in today’s world.

More recent definitions involve income levels. But what would that be? Would it be the middle 60% of income earners, leaving the top 20% and bottom 20% out? In Sri Lanka, that would be households earning between Rs. 28,000 and Rs. 77,000. Once again, we have a huge gulf. Someone earning around Rs. 950 a day and someone earning about Rs. 2,500 a day clearly live very different lives. Even if we take the households right in the middle, earning Rs. 44,500 a month for a family of four might hardly feel “middle class”. But to half of the population, that is a higher income than they get. What then?

The problem goes into far murkier waters when we note that Sri Lanka’s provinces are extremely unequal. The “middle” family in Colombo earns around 2.5 times more than the middle family in Mullativu (~Rs.87, 000 vs ~Rs. 34,000) and Mr. Colombo’s household (yes, the middle household would be male-headed) would likely be among the top 10% richest households in Mullativu.

These issues are incredibly important right now, given that the Sri Lankan state definitely needs to help those that need it, and get as many of those who live near the edge of the sea away before the wave hits them. However if we don’t agree who actually lives near the sea and who doesn’t, how do we decide who gets evacuated first? It’s easy in this environment to end up saying “ah evacuate everyone” and there are plenty who say this too. But we have very limited space and resources. What happens when someone who is barely keeping their head above water has to wait for a rescuer that may never turn up, since the rescuer off helping someone who lives 10 km inland?

How then, can we define inequality in a way that is both easy to measure and is useful for resource allocation?

Proposed solution — Use data on what people own to determine quality of life

The solution I propose here is based off the work of Hans Rosling, who first presented the division of the world’s people into 4 “levels” based on a combined approach of daily income and amenities owned. While Rosling’s purpose was to show that a developed/developing country breakdown didn’t make a lot of sense, we can also adapt this approach to a local understanding of inequality as well.

There’s no need to go into complicated numerical models to figure out income levels at 4 points like Rosling though. We can instead start from a far more bottom-up approach, and take different types of amenities that could affect quality of life, and group populations according to who has access to these amenities. The amenities that Rosling ended up with is given below — we’ll adapt this for Sri Lanka of course.

What we choose as relevant amenities will be quite subjective of course. One person might find solace in the mind-numbing relaxation of the evening teledramas while another might love the fact that a gas cooker means no more singed fingers. But the presence of pretty good data about these amenities means we can choose a breakdown that I hope is relatively widely acceptable.

This approach can help us understand how many people really need to be evacuated. We’ll still need to actually find out who lives near the sea, this doesn’t do much there. But it does help us think about what to look for and where to look first.

The 4 levels of Sri Lankan households — an example

The following is the breakdown that makes most sense to me — though once again, the approach can be used for different breakdowns as well.

This gives a rough idea on what I feel the 4 levels for Sri Lanka would look like. This is not to say that every household that goes into each level would definitely have each amenity, but rather than an overwhelming majority would.

Taking this as an overall look, to determine how much of Sri Lanka would fall into each group I took the following approach.

Having no TV, having access to safe drinking water and not having a toilet within one’s own premises were limited to Level 1. Thereby, I averaged out the percentage of households with these features which came to 11% (12%, 12% and 8% respectively), which got rounded to 10% of households falling into Level 1.

Only Level 4 households had a car which meant it corresponded to the presence of all other amenities as well. Around 10% of households have a car in Sri Lanka, which means that around 10% of households fall into Level 4.

Figuring out households in Level 2 and 3 was a little more complicated. Around 60% of households use firewood as their primary source of cooking fuel (this doesn’t preclude the use of cooking gas, just that it is not the primary source of fuel). I took an assumption that this would roughly correspond to the bottom 60% of households (which is not a perfect assumption, but sticking to the principle of overwhelming majority). Given then, that Level 1 households would be 10% of households, around 50% of households would fall into Level 2. That leaves Level 3, which by process of elimination ends up meaning that 30% of households fall into Level 3.

The numbers for Level 2 and 4 also roughly correspond to what the energy consumption of the amenities would look like — up to around 80–90 units a month at the upper end of Level 2, which corresponds to about the top 60% (remember, remove 10% for Level 1) — meaning 50% again. Around 10% of consumers use over 180 units a month as well, once again corresponding to the energy usage of a Level 4 household.

These numbers correspond to the following monthly expenditure levels at household and per-capita levels, which once again confirms Level 1 since the border roughly corresponds to the poverty line.

Using the definitions of the Levels (by amenities) also gives us the following breakdown by province (and including Colombo district) — which might be easier for someone in an urban/suburban setting to relate to. However, do note that the regional breakdown would have plenty of errors with it, relating to geography-specific differences in consumption (for example, despite higher levels of poverty, the Eastern province has big chunks of area with little access to firewood.)

A combined look at the national statistics in one graphic.

What do we do with this?

I feel there are 2 main benefits to looking at inequality from this frame.

First, we get a better understanding of how many Sri Lankans are actually poor. Focusing on income or expenditure alone might not give a great idea given vastly different costs across provinces, and the original issue of what defines one as “poor”. Thereby, our discussions on inequality can ideally start from a better frame and a better understanding rather than more anecdotal or “vibe” based understandings of how Sri Lankans live.

For example, if someone in L4 loses some income, they don’t go into poverty. They move from L4 where they’ve “made it” back down to L3. That isn’t a massive QOL loss, but it definitely is a big “psychological” impact. This is very very different to someone at L2 losing income and falling into L1 and basically starving. Especially in a context where huge amounts of the population are NOT L4, I think there’s a prioritization we need to do and yes, even possibly redistribution.

Second and relatedly, it allows to understand relative privilege far better, and thereby, inform our decisions on welfare with a small purse. Given that our purse is limited, I argue that everyone in L1 deserves support and noone in L4 does. However, we must be mindful on the social and psychological costs that a L4 will face if they drop down, and weigh that against the fact that a fall from L2 to L1 involves more tangible loss in QOL.

This then allows us to design social welfare programmes better. For example, using electricity consumption as a proxy for amenity usage allows us to suggest not only a far greater coverage than present for both L1 households (roughly less than 20 units a month) and also for L2 households (roughly less than 80 units a month), but also the amounts that make sense for these households to at least remain at current levels of life quality. Water consumption can also be part of this measure but on the other side, exclusion criteria can also be set — such as whether someone with the ability to own a car, and run a washing machine and a fridge really needs a subsidy GIVEN that a majority of Sri Lankans cannot even think of affording such.

Why no Level 5 or 6?

When applying this framework, a question could be why there is no Level 5 or Level 6 as well, to account for even higher levels of income. There is an argument to be made on a moral perspective that beyond a certain quality of life, it moves into abundance and waste in the context of many people across the world living in scarcity — this article makes this claim.

But for Sri Lanka and this approach, I haven’t taken it for a few reasons. First and most importantly, there’s barely any credible data on how to split into a possible L5 or L6. I’d personally say something like having residential air conditioning would move someone to L5 while having multiple foreign vacations a year would move someone into L6, but there’s no data on this. Which makes that distinction a practically pointless one, and merely an academic nicety.

Secondly, I also feel that the difference in tangible QOL between an L4 and any higher level is much much smaller than the difference between L4 and the lower levels. For example, having an Alto vs a luxury sedan IS a difference, but they’re both vehicles that get you places. The difference is more psychosocial I feel rather than in terms of tangible QOL, and I feel it is a different type of quality. For me, once you’ve come to L4, you’ve reached a level of QOL that is not available for 90% of humanity (only about 10% of the world generally has access to these amenities and other comparable ones, and that is an enormous state of privilege that isn’t something that you should be subsidized for any more, especially when the overwhelming majority of humans live a far worse life).

In any case, since it’s not measurable right now for Sri Lanka, it’s not worth thinking about outside of a moral standpoint.

Conclusion — we can evacuate and rescue some people, but not everyone

The dark waters that will crash down soon will make life unbearable for many families living near the edge of the sea. But we have the tools to think of how to save them. We can try to save everyone everywhere. But if we have to choose between saving someone who will drown and someone who will see their garden flooded by the salt water, I think the choice is clear. A ruined garden is bad too. Having your road flooded is bad too. Not being able to go to work because the sea stalled up your car is bad too. But dying is worse. We must prioritize and use all the tools we can to understand how to.

(Disclaimer: All views mentioned here are my own, and don’t reflect that of any employer or any other third party)