Short term v/s Long Term

By Anil Gujadhur

It is during moments of economic stress that you have the opportunity to think out the future, conceptualise the shape of things to be, bring up the required resources and put them in place

This will disconcert many pundits who claim that Professor J E Meade did us a disservice by pointing out the bleak outlook he saw in the early 1960s for a place like Mauritius.

To be ungrateful is the right of every individual. A right-thinking person has nothing to fear for being grateful to him however for pointing out the severe constraints under which Mauritius was operating in the environment that prevailed in those days. Indeed, his long term thinking of those days may have precipitated the decision of the British to change hands in the management of the country.

In his 1961 article written in ‘The Economic Journal’ after his visit to Mauritius in 1960 on a commission entrusted to him to assess the country’s prospects, when the country was devastated by cyclones Alix and Carol, he had carefully weighed the resources obtaining in Mauritius at that time against the uses to which they could be put to break from the economic stalemate confronting the island. This is, in my view, the kind of stuff true economists handle in real life: how to optimize outcomes when faced with severe constraints. Considering the serious unemployment problem in which the country was irretrievably plunging itself against growing demographic pressure and a monocrop economy, he made a series of propositions about how Mauritius’ economic problem could be tackled.

Those who are interested to know the various alternatives he considered to solve the economic problem facing Mauritius may read his article: Mauritius: A case study in Malthusian economics which appeared in the journal in 1961. This was pioneering work. He jostled with issues as diverse as skilling the population to take on alternative careers to those that the limited scope of the then agricultural economy offered; the use of emigration to deal with the growing unemployment situation; how to cope with labour-saving methods (such as bulk sugar handling which might be introduced later, as, indeed, it was) that would come into play tending to lay off workers who were already employed; how to do manufacturing in Mauritius in the style of Hong Kong (then a British colony operating on the fringes of mainland China) by processing imported inputs; how to incentivize investments by employers who would create incremental employment by diversifying into new activities. He concluded that Mauritius did not have a framework that would support “branching out” into all the suggested avenues. I do not know how exactly but these are the very strategies Mauritius followed when the Lomé Convention gave us access to the markets of Europe in 1974 once Britain joined the EU and Mauritius signed up along with it into Europe. These very policies unlocked our export and economic diversification potential on the strength of a vast pool of cheap unemployed labour.

The merit of Professor Meade lies in the fact of pointing out that in those days, the British administration was not focusing on creating a standalone viability plan for Mauritius, a mere colony. The long term was missing in the equation under British administration; it was restricted to ensuring the continued profitable production of sugar by the sugar estates and generating sufficient revenues for the British administration of the island to fund the social and other expenditures that were being incurred in the context. As an example of this style, as soon as it was found by the owners of freight and passenger trains in those days that it will be unprofitable to continue operating in the 1950s and the 1960s, the capitalist logic dictated that this infrastructure should be dismantled and sold off to other countries. This was done. The vision was limited to the short-term exigencies. They had no plans, for example, about transforming Port Louis into a regional harbour and a geo-strategic regional economic hub, which would have necessitated all the more an intensification of the rail network into the hinterland. They did not elaborate on the path that had to be followed to reach such a goal and how the international competition was to be dealt with or how access and costs to the harbour would have to be kept at levels nobody else might be able to match in a sustainable manner.

We have, as an independent nation, travelled a long way from that style of short-term administration. Governments have realised that it is during moments of economic stress that you have the opportunity to think out the future, conceptualise the shape of things to be, bring up the required resources and put them in place. So that, when comes the time for joining the mainstream of growing world economies, you have the wherewithal to be doing brisk business. Real empowerment is about this future positioning to ward off dangers, have the essentials in place and act as soon as the opportunity knocks at the door.

We have a track record of so doing in the past when economic conditions were difficult. Had this not been the case, we would not have cleared out our way from the jungle of administrative complications and complex tax systems that successive governments had elaborated along the years to make business run shy of our shores. A lot of simplification has been done and needs to be pursued so as not to lose our track into the jungle again. This should run its own course, as short-term adjustments. To build economic substance, however, you need to get beyond short-term considerations while not failing to attend to them as matters of immediate urgency.

If we want to expand the scope of the economy as it was done much along the lines suggested by Professor Meade in the post-independence days, we need to lay down a fresh architecture for penetrating into global markets whose profiles have kept changing and will keep changing in future. We have to be players in global manufacturing, for example, because without a solid manufacturing foothold at home, moving on from textiles to other areas, we cannot sustain ourselves. All economies that have made progress and are keeping themselves above water in the stressful conditions facing the world economy at present have a fallback manufacturing base. We need to think that out. A long term view will evaluate constraints facing Mauritius again after the amount of inroads we have made already, how to get over them, how to make it attractive for foreign partners to make us part of their international production structure, how to eke out the necessary productivity gains to retain external markets and how to sustain them with time. This is by all means not an exhaustive list but it is an indication of how important long term planning is.

It will be recalled that about 2003-2005, when the AGOA and the Multi Fibre Agreement were phasing out the preferences on which we had established the local industrial base, local investors started emigrating to regional countries where those advantages could still be obtained. Short of having contemplated how to cope with such a void, we were caught on the wrong foot and unemployment started rising locally with lots of industries closing down. This situation illustrates perfectly the importance of anticipating in earnest such developments to the extent possible and, hence, acting in a long term planning framework.

There are various national institutions which are entrusted with the task of thinking out our prospects and positioning our economy so that we are not only not caught unawares when things go in the wrong direction. They are also tasked with identifying opportunities that are suited to our conditions. There are others such as institutions of higher learning which are expected to bring together theories, skills and the marketplace to work constructively in unison to advance the workspace of the country. Yet, when things get translated into policies, it is difficult to identify ideas that have come along this path to fruition and have been actually put into practice. On the other hand, a lot of things get done which look more like repair work to deal with emerging short term issues rather than matters which bear the hallmark of deep prior thinking charting new adventures for the economy to embark upon and transcend the day-to-day.

Developed economies are reputed to think out and put into practice their policies well in advance so that they are not arrested on the way by constraints popping up from time to time. One may argue that even they are caught up in a big mess today. But that would be abstracting from decades past of continuous build-up of their economic potential which will help to launch them forward quite easily once all the current mess is behind. It is this type of long term plan that Mauritius is running short of. This work is not insuperable. It has been done in the past when ministers like Sir Kher Jagatsing were in charge of economic planning. There was a lot of forward thinking at the time for all ministries for laying down a solid foundation for the future at a time tough economic conditions prevailed. Nothing has changed in the basics since then for us to carry on targeting a long term perspective. The better now than later, it being given that it is more difficult to break bottlenecks if they grow by too much.

* Published in print edition on 25 November 2011