QUOTE OF THE WEEK
"Know God, know thyself, help man, protect the right, do without fear or weakness or faltering thy work of battle in the world. Fight and either fall nobly or conquer justice."
  -- Krishna to Arjuna, Bhagwad Gita

In Defence of Street Vendors

– Dr Sean Carey  

Local commentator Saoud Baccus defends the employment of expatriate personnel brought to Mauritius to run the tax and customs services -- in this case, Messrs Lal Cunningham respectively. Much of his argument is convincing. However his comments about the cash economy and taxation of street vendors create a cause for concern.

If Lal and Cunningham increase the amount of tax revenue and decrease the level of corruption in the customs service then this is an unreservedly good thing argues Mr Baccus. Furthermore, their considerable salaries are small when compared to the financial benefits, revenues and sound practices they deliver. "They are doing a wonderful job for the country… for which we should be grateful," he writes.

It all sounds very plausible. If officers demand to be paid extra from private individuals or companies for clearing and checking goods, or bending the rules in some way, it is not advantageous to anyone -- except, of course, themselves and the immediate beneficiaries of their activities. 

We can all agree that customs regulation should be a clean, honest and transparent endeavour.

And the customs service is especially important in controlling the importation of illegal supplies of drugs and alcohol. Comparative evidence from around the world suggests that the low cost and easy availability of such substances -- particularly as part of an illegal trade -- has a disproportionately negative effect on the behaviour and attitudes of members of the poorest sections in society. It also has a massively adverse impact on their take up of educational and mainstream employment opportunities. 

It is right to recognise customs regulation as an activity which is vitally important in a densely connected, global trading system. When performed efficiently, it should enable goods to move freely in and out of the country with minimum bureaucratic restrictions, raise revenue and safeguard the welfare of a country's citizens.

But when Mr Baccus moves on to the subject of taxation and declares:  "All fair-minded and responsible citizens would have no qualms in agreeing that we should all pay our share of taxes on income earned", I am not sure I can agree with him. I can in the case of billionaires and millionaires who, in any case, tend to employ a small army of very good accountants and lawyers to exploit the many and varied loopholes in any taxation system. So I don't feel too sorry for them -- they are undoubtedly fair game and play their own game very well.

I am concerned, however, that Mr Baccus wants to extend the reach of the bureaucrats to the category of "self-employed people like street food merchants, vegetable planters and all those who deal in cash".  In other words, the little people who probably haven't had the social and educational advantages of people like Mr Baccus or those government functionaries who he champions.

Unlike Mr Baccus, I am a great admirer of the cash economy. Indeed, I have conducted research and seen at first hand its positive effect in certain sections of the catering sector in London. 

The posh restaurants at the top end of the booming London market aren't really part of the cash (notes and coins) economy at all. These include the Michelin-starred restaurants run by famous British restaurateurs including Gordon Ramsay, Gary Rhodes and Marco Pierre White as well as British-based ethnic minority ones like Vineet Bhatia, Atul Kochhar and Alan Yau.  Nearly all the transactions in these businesses are done by credit card and other forms of electronic payment.  These businesses undoubtedly pay their taxes and make a significant contribution to the advanced service sector of the UK and, thus, to the general welfare of society.

The phenomenal success of these restaurant groups has even meant gastronomic outposts in top-end hotels catering for the well-heeled tourists who visit Mauritius (and comparable destinations around the world).

A particularly good example is Vineet Bhatia who was head chef at Zaika, the first Indian restaurant to win a Michelin star in London (or anywhere else). He now owns his own Michelin-starred establishment, Rasoi Vineet Bhatia, in London's Sloane Square and also set up the highly acclaimed Safran restaurant (now run by fellow Indian chef, Atul Kocchar) at Le Touessrok, one of Mauritius' finest hotels.

However, the story is quite different at the other end of the catering sector in the UK. For example, it would not be possible to keep open all of the restaurants, cafes and take-aways in the ethnic enclaves of inner London and those that punctuate the high street locations elsewhere in the capital if everything that was done was legitimate and above board. 

These small catering establishments simply couldn’t continue to attract the hungry hordes of locals and tourists who turn up every day if they weren't involved in some creative fiddling, financial and otherwise.  Apart from anything else, the fixed business costs are often too high.  Without cash payments to staff (thus avoiding the constraints of the minimum wage) and tax avoidance, huge numbers of cafes and restaurants in the London area (and across the UK) would be forced out of business. And this would undoubtedly have massive and deleterious effects on members of the diverse local communities in the UK’s capital who often depend on the catering trade for work.

Let me be clear, these people really don’t have a choice of jobs. The vast majority come from poorly educated ethnic minority groups unlike, say, Vineet Bhatia who hails, as he proudly states on his website, from "an educated, middle-class family in Bombay” (although I bet that none of his sons and daughters will be following him into the kitchen).

Don't get me wrong -- I don't think tax avoidance is an ideal situation but I don’t think it’s the end of the world either. The cash economy often creates the social space and momentum for members of migrant and other disadvantaged groups, particularly the younger members, to achieve a degree of upward social mobility that would otherwise be denied to them.

I have long been aware of an interesting social pattern found amongst some relatively poor ethnic minority communities involved in the UK catering trade. Part of the economic surplus, legitimate or otherwise, has traditionally been used to pay for extra educational tuition (secular not religious) for the children of the family. More recently, funds have gone towards the purchase of technologies like the Internet which bring profound educational benefits to the younger (and sometimes to the older) members of the household.  This pattern of behaviour is often absent or radically different in socially and economically comparable white families where a much greater emphasis is placed on the fun and leisure aspects of the technology.

An example of exceptional educational and social progress can be found in a section of the British Chinese community, the poor rice farming families who fled Hong Kong’s rice famine in the 1950s and moved into the catering trade. The parents may still be running restaurants and take-aways but most of their children certainly aren’t. They have done very well at school, gone to university and have taken up senior positions from accountancy to law and medicine and all professions in between.   

London can provide Mauritius with a useful lesson: while some areas of a nation's economy, like customs and excise, need a high degree of regulation, other areas are best left alone or very lightly controlled. Turning a bureaucratic blind eye to financial irregularities in certain areas of the economy is often the smart thing to do and is certainly preferable to some of the possible alternatives -- welfare dependency or livelihoods derived from drug, alcohol and prostitution related crime.

The evidence from the most dynamic contemporary economies including China, India and Singapore, for example suggests that too much of the wrong sort of government interference in the lives of a country's citizens stifles enterprise and may well have serious and unintended consequences not envisaged by those who champion the representatives of the hard-nosed "audit culture".

Of course, another way of addressing these issues would be to reform the tax system so that, instead of focusing on avoidance, it positively encouraged behaviour that tends to generate educational success.  For example, tax relief on computers and fast Internet connections for poor and low income households with direct links to local educational institutions would boost income declaration and promote learning and social mobility in an increasingly information-based, commercial world.

Fleshing out the precise details of such a scheme is another matter and probably best left to financial and educational experts. But the overall direction could certainly be set by politicians -- and that lesson is applicable to both Mauritius and the UK.

Now where can I buy a decent dholl puri? 

Dr Sean Carey is a Fellow of the Young Foundation, a leading UK think-tank