Economics of law and order. Does Sri Lanka spend enough to yield? What is the problem?

 

Article's background and purpose

These days, the social media is full of information revealed by responsible authorities on significant delays and defiance of law and order to the general public. It is also stated that the state's monopoly of the supply of law and order is the power of the general public carried out by the state for the benefit of the general public.

Meantime, the brutal incidence reported in the Negombo prison, although not a new to the state prison management being a core pillar of the law and order, exploded the pathetic condition of the law and order provided by the state. This has happened in the time when the state has pronounced its readiness to protect the rule of law in both letter and sprit.

However, underlying stories show the sheer inability of the state to protect lives of both inmates and state officials of the prison system, which is the core of the judiciary system. The state's negligence in stocking of inmates four times the capacity (i.e., 40,000 against the capacity of 10,000) is a real reflection of the poor status of the rule of law prevailing in the country.

Given these allegations and concerns, it is worthwhile to examine whether the cause of the problem is the failure of the state to invest and spend adequately on the law and order, given the need for modern technology and skills to upgrade the systems.

Therefore, this article briefly provides some statistical information to assess the economics of the failed quality and efficiency in maintenance of the law and order.

Law and order in free market economics of Adam Smith

Adam Smith being a great human philosopher in the 18th century advocated free markets as the only system that can maximize the economic welfare of the public as detailed in his philosophical book " The Wealth of Nations" published in 1776. 

His recommendation was that the best the states can do is to keep markets free from state regulations but maintain the law and order financed by adequately taxing the public. Its economic rationale is the freedom of the markets to carry on production activities competitively when the law and order prevails in the civil society.

During Adam Smith's time, money was privately produced commodities and, therefore, the states did not have the money creation power. Therefore, the states had to tax and borrow money to spend on the law and order amongst other spending such as defence, education and infrastructure.

Adam Smith presented that markets free from state regulations would operate on self-interest and competition that would lead to creation of wealth and welfare of the whole nation more than those of the regulated markets. His views are as follows.

• It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.

• By selling products that people want to buy, the butcher, brewer, and baker hope to make money. If they are effective in meeting the needs of their customers, they will enjoy the financial rewards.

• While they are engaging in their enterprises for the purpose of earning money, they are also providing products that people want. 

• Such a system creates wealth not just for the butcher, brewer, and baker, but for the nation as a whole when that nation is populated with citizens working productively to better themselves and address their financial needs.

However, in modern state fiat money systems, states have the money printing monopoly and, therefore, they can produce money sufficiently to provide public services in order of the priority. Therefore, nobody can discount the priority of the states' spending through tax or money printing on the maintenance of the law and order in the civil society if the economies are to prosper and living standards to improve.

The neo-liberal ideology practiced by many states in the present world is the new version of Adam Smith's free market economy philosophy amended to suit modern state or fiat currency economies. Therefore, neo-liberals wish restricted spending of the states (known as fiscal rules) that will allow the private sector to utilize the majority of state money and drive economies largely through markets.

Therefore, it is worthwhile to assess whether the extent of state spending is adequate for deriving the economics of the law and order to promote the public welfare in general. 

Is the quantum of state spending on law and order in Sri Lanka supportive of its quality and efficiency?

Estimates collected from national budgets are summarised below. The information accounts for the core system of law and order. However, there is a wide para system of sectoral regulators with own financials implementing the state's policies on economic and social justice and order where they also eventually ends up as a burden and cost to the core system for problem resolution of the respective sectors. For example, all economic and regulatory failures of the central bank will eventually reach the police and Attorney General for judiciary proceedings despite the wide public regulatory powers and resources of the central bank.

The message driven from statistical information is self-explanatory as to why relevant authorities too have raised serious public concerns over the delay and defiance of the law and order to the general public.

Inhuman incidences reported from the prison system being a core pillar of the law and order and rule of the law of the country are only a part of the proof for the poor quality which is reflective from all operations of the system of the law and order covering all inputs and outputs.

• The state's spending on law and order per day is only about Rs. 695 mn in 2026.

• Such allocation for law and order is only 3.5% of the national budget.

• It is only 0.7% of the country's GDP as compared to 20.5% of GDP on the national budget. 

• It is questionable how a 0.7% of GDP provides a quality and efficient low and order for a just and fair economy to produce a higher level of GDP, employment and living standards.

• Needless to state that the national budget itself is inadequate for the economy confronting all types of structural risks limiting the growth and employment opportunities.

• The monthly spending on law and order is only Rs. 182,000 per employee hired in the law and order sector compared to Rs. 581,468 in the national budget.

• The monthly per capita spending on law and order is only Rs. 951 in the current year (2026) against Rs. 26,686 in the national budget.

• Per capita spending a day is only a low Rs. 32 as compared to Rs. 890 on the national budget.

However, private spending incurred in seeking the justice from the system is considered to be considerable regardless of its quality, given the current status of the law and order.

Concluding Remarks

• At any standards, state's spending on law and order as highlighted above is hardly adequate to support its quality and efficiency in the public interest. 

• Therefore, public concerns and agitations currently being raised over the quality and efficiency of the law and order have valid reasons.

• If the state is to implement the power of the general public for the welfare of the general public, there is no quarrel over the state increasing its spending materially on law and order through the use of the state's money printing monopoly. 

• The issuance of long-term social impact bonds at lower interest rates could also be a source to gain the fiscal space as everyone in the civil society is interested in contributing to the quality law and order. Judicial judgements based of economics of prison capacity and financial fines inflated for inflation from the time of offence (e.g., recovery of the loss at real value at the time of the committal) would also contribute to ease the fiscal side of the law and order. It is also necessary to charge the cost from the para regulatory system when their cases reach the core system of law and order for resolution as a penalty for their regulatory failures. The cut in the use of the law and order for political motives, which is well known at present, will also save a significant amount of cost and scare resources that can be used for quality outputs. In economics, there is no free lunch.

• Therefore, the state and civil society, when electing the next government, should decide whether fiscal rules set externally are strictly adhered or to what extent the quality and efficiency in the law and order are compromised for such restrictive fiscal rules. It is the choice to be made by the voting community.

• Without new spending projects, professional committees to report solutions and ad-hoc tinkering of some problems will only be a futile, political mask like many state projects.

(This article is released in the interest of participating in the professional dialogue to find solutions to present economic crisis confronted by the general public. All contents in the article are based on the author's research and views on the subject which have no intension to personally discredit characters or ideologies of any individuals.)

P Samarasiri

(BA Hons Economics, University of Colombo, MA Economics, University of Kansas)

Former Deputy Governor, First Central Bank of Sri Lanka

(35 years of experience in staff class in the Central Bank, inclusive of Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 13 Economics and Banking Books and a large number of articles published.)