There have been reports recently about an increase in the number of unemployed in Mauritius.
Even though people parade the figures of unemployment, depending on whether they want to paint a bright or grim image, the real consideration is the trauma facing individuals and families which go out of jobs or see a drastic reduction in the income they derive. This is the reality.
Many Economic Challenges to address
Economic indicators are generally not that bad for the past few years, but what has been lacking is a good direction about how we will face the challenges in front of us. What are those challenges? The economy has not evolved enough to cope with the emerging situation both inside and outside the country. We’ve contented ourselves to tinker at the edges when the global situation was asking us to go deeper and re-engineer our production base.
For example, it has been reported recently that, according to a study by the World Bank, Mauritius has witnessed a shrinking of the share of national income going to its middle class. It means that this group of the population has had to content itself with lower take-away home pay. This group among the population has been responsible in part to keep activities in shopping malls, for instance, up and running. If their purchasing power shrinks, there will be consequences for wholesale and retail trade which is one of our major contributors to economic growth and employment. The need to look at the bigger picture is imperative.
Several Growing Imbalances
But there are deeper issues. Mauritius has been recording a trade deficit (goods exports minus goods imports) in the range of Rs 75 to 80 billion per annum in the past few years. In other words, we have not been earning enough from our exports to pay up for our imports by a lot. How then have we footed the difference in the goods trade bill?
We’ve been selling services (e.g., financial services, such as offshore) to the rest of the world. Thus, we exported services amounting to Rs 108.0 billion in 2012, Rs 110.7 billion in 2013 and Rs 112.1 billion in 2014. This would have sufficed to bridge the huge gap in the goods trade.
But when we net it off against payment for services we import, we end up with deficits for our exports of both goods and services. This combined deficit amounted to Rs 44.7 billion in 2013 and Rs 36.5 billion in 2014. This has been going on for several years and we’ve bridged the gap with FDI inflows and external borrowings. We are of course not in a Greece situation but we ought to have rectified things by increasing our exports of both goods and services. This situation has been calling for export promotion efforts since a number of years. It’s a major task.
Figures show that both our domestic saving and investment rates have been on a downtrend from 2009 at least. Saving is around 10-11% of GDP, which means we’ve been high on consumption of whatever we earn. This low level of saving has been the springhead of household indebtedness that has gone on increasing. The reason for this is the increasingly skewed distribution of income and wealth, as it has been the case in several capitalist economies, in favour of those higher up in the business hierarchy.
On its part, national investment declined by 6% in real terms in 2014, with private sector investment – compensated for partly by hike in public sector investment — going down by 8.4%. This kind of situation has been with us for some time now and someone should have been in charge to reverse this trend that may end up contracting the economy. Our leaders focussed instead on other things.
Is the so-called “meritocracy” all there is to social and economic evolution?
It was observed, over the past decade at least, that even when corporations, especially banks, were artificially inflating their profits or making little or no profits, the top executives were walking away with huge bonuses as per their contracts of employment. When people expressed outrage at this situation, they were told that the bonuses had to be paid on grounds of merit. No matter those at the bottom were being laid off on account of “cost-cutting”. Despite the continuing low economic growth rates – the IMF has just brought down its 2015 forecast of global economic growth from 3.5% to 3.3% — this culture of “rewarding meritocracy” outrageously has carried on.
We’ve just been informed about the indecently excessive pay-outs the SBM has been making to its top executive. Nothing in a country like Mauritius would justify such a level of exaggeration. Yet, the same spirit of giving ever more to the few at the top in key enterprises of the country has resulted in a distorting mal-distribution of incomes and wealth, which might perhaps explain why, faced with increasing costs imposed by enterprises, our middle class would be shrinking, as reported by the World Bank.
Increase in flexible labour contracts – in favour of those at the top and against those lower down — not only in Mauritius but across almost the entire spectrum of free market economies, has led to this sort of distortion between the elite “meritocrats” and the “others” on the labour market. Thus, CEOs in the food industry in the US earn 300 times what the average worker earns. It appears we don’t have to go that far now to find examples. Laws have been enacted which make it easier to fire workers and curtail drastically their bargaining power.
Striking the good balance
The current situation shows how much we have tilted away from the original political inspiration which released the feudal society from the extreme servitudes to which people were reduced in the pre-modern societies. There was a trend towards fairer sharing of the fruits of work.
We had to strike a balance. We chose to adopt instead the liberal labour laws of other countries to rise in international indices of being well seen as business friendly. It was necessary to go part of the way but wasn’t it necessary to temper the excesses of the so-called “meritocratic” elitism and power concentration, without hurting the springs of the economy’s international competitiveness? Why did politicians choose to play along with businesses which give them large sums from time to time, as it is increasingly coming out in public these days?
In certain capitalist societies, the elite, being at the commanding heights of the economy, bends rules to perpetuate the tiny handful they constitute at the cost of the masses. Public institutions are made to serve particular interests of the so-called “meritorious” persons, rather than serve the general good; many of these have thus been diverted from the balancing role for which they were designed originally. The result of all this is that social mobility – the philosophy of enlightened governments after WW II – ceases to operate, spelling the end of the road for such as those who have elevated themselves to become leaders in business and administration, including political administration of the country.
If we carry on down this road, we risk locking ourselves in a situation in which we will have to provide ever increasing amounts of social support to all those who will be thrown out at the fringes of society. As Greece and others have demonstrated, there are limits to this approach. Finally, you end up taxing the country so heavily that economic levers stop responding correctly.
One would have thought that, while still drawing the best of all we have from the “smartest” in our society to advance the economy competitively, governments would have collected themselves on time, without inflating the welfare bill of the budget, not to let the balance tilt too much to one side. The current state of affairs shows that there’s a lot to do to put the economy back on a sound track and that the government has so much work to attend to that it would barely have enough time on its hands to attend to otherwise useless and secondary issues. Wake up, Mauritius!
- Published in print edition on 17 July 2015