The Stuff “Economic Miracles” Are Made Of

So-called ‘economic miracles’ don’t happen because of the personal charisma of individuals. They happen only because prior work to lay down the foundation for economic overhaul has been done

The present government was elected, amongst others, on the promise that it will produce an ‘economic miracle’. Voters looked with nostalgia on the extraordinary transformation of the economy which took place in the 1980s, just after an extended period of ‘economic austerity’ in preceding years.

After all, they said to themselves, SAJ and Vishnu Lutchmeenaraidoo, who were at the helm of what was called an ‘economic miracle’ in the 1980s, were teamed up together again. They were confident enough therefore that there would be a repeat of that same situation, the more so as Mauritius’ economic growth had refused to snatch itself away from a stagnating growth level of 3- 3.5% pa over past years since 2006 at least.

After the governmental programme and after the first budget speech, there are no signs yet as to which will be the new springheads to spur on the next wave of our economic uptake. This is in sharp contrast to the situation in the 1980s.

The 1980s, a conducive environment for growth

At that time, the textile and apparel manufacturing sector broke off from its previous low growth, as new investors with the necessary know-how and external market connections came over here to produce these on the local market. We had several cost advantages and positive external developments to lean upon.

The Lomé Convention provided duty-free-quota-free access to our exports to Europe. Margaret Thatcher of Britain and Ronald Reagan of the US had just inaugurated in the early 1980s a new era of global economic liberalization. The effect of this was to considerably tone down the aggressive protectionism of markets individual countries had resorted to in the long stretch since WW II. There was a sign of opening up of markets that had remained closed so far.

Locally, there was a pool of easily trainable supply of labour on the domestic market, backed by the necessary training and education to adapt to an industrial environment. Labour unrest, which had characterized the period before, was soon tamed down by the sheer fact that almost everybody was employed soon after. It was thus enough in that context for one relatively new sector – textile manufacturing – to gather speed to change the country’s economic outlook altogether with the resulting catch-on effects on the rest of the economy.

Decision-making was focussed and uncluttered. The rights given to the new export enterprises for duty-free import of their raw materials and capital equipment went unquestioned. Exports continued to be free of any customs or excise duties. In fact, tax holidays enjoyed by the concerned enterprises were extended. Concessionary commercial lending rates to the new export enterprises were maintained and enhanced by even cheaper export bill rediscounting provided by the central bank. The authorities’ focus was on business development.

There was a chain effect on other economic activities as a consequence. The country’s GDP had increased from less than Rs1 billion in 1970 to Rs 7.2 billion by 1980, but by 1990, it had increased to Rs 37.4 billion, a quantum jump. There is little doubt that the prevailing concourse of internal and external circumstances and focus on business-like decision-making in Mauritius became the launching pad for across-the-board economic optimism so that, ‘economic miracle’ or not, our GDP has kept travelling down this road and has now crossed the level of Rs 386 billion in 2014.

Examples of unfounded assumptions about economic miracles

The people’s vote in favour of another ‘economic miracle’ in December 2014 was a statement to the effect that, despite this massive leap of GDP between 1970 and 2014, we had not done enough to set the economy on another path-breaking course as it happened in the 1980s. It was assumed that those who have brought about an ‘economic miracle’ in the past could do so again.

The problem was the assumption that what was made possible in the 1980s should be repeatable in 2015 because of the SAJ-Vishnu combination. This assumption does not hold. Just like the opposite assumption that those who have not performed ‘economic miracles’ – whatever that means — cannot overhaul an economy.

Here are three real-life examples which demonstrate that the assumption is fallacious.

Japan had been spectacularly successful at the economic level in the 1980s. The whole world wondered at the omniscience and omnipotence ascribed in this context to Japanese bureaucrats, the Ministry of International Trade and Industry (MITI) in particular. The late 1990s saw however Japan entering a long phase of economic stagnation from which it has yet to emerge till this day. The magic ceased working, despite the MITI’s continuing presence and decision-making.

Jeb Bush, the aspiring Republican candidate for the next American presidential elections, presided over a giant housing bubble when he was governor of the state of Florida. He was lucky not to be in office when this bubble burst finally with all the economic miseries it unleashed at that stage. But in the current campaign, he is trying to put himself in the garb of an economic miracle maker by virtue of the fact that he was in office when Florida was booming under the housing bubble. Personal fiction can sometimes be carried to unimaginable limits.

The world is aware of China’s spectacular high growth rates of past years the effect of which was to lift it to World economy number 2, just behind America. Now that its growth rate is flattening out, it is being reckoned that the model of high investment allied with the use of its surplus labour on which this success was based has run out of steam.

At this prospect, the Chinese stock markets took fright and plunged in the past week. But the authorities are doing all they can to stop the plunge, blaming it on “external forces”, not on the limits of the economic model they’ve been operating on so far. The fact is that China’s economy can pull up again only if it successfully shifts out to boost domestic consumption (rather than investment) by redistributing incomes in favour of workers. Global economic circumstances have changed. So, the ‘economic miracle’ of its past stellar growth path will not take it too far.

Lessons we can learn

So-called ‘economic miracles’ don’t happen because of the personal charisma of individuals. They happen only because prior work to lay down the foundation for economic overhaul has been done. In the 1980s, we had the labour supply, the external markets to supply our production to and an external environment which matched and favoured our economic expansion.

In the just preceding period, state secondary schools had been constructed in diverse parts of the country to extend education and to provide for those who had been outside the system heretofore. There was all-round optimism in the country. People who had never held bank accounts flocked to the banks. On average, every Mauritian holds more than one bank account today. The money people started earning empowered them enough to embark on a higher economic adventure. Banks and businesses flourished.

As economies the world over have integrated more closely at present than it was the case in the 1980s, we would have thrived again if we had given some thoughts to adapting our whole educational system to the demands of this new situation. We had to generate that driving elite who would have taken the lead despite the changed profile of global markets for goods and services. We kept fighting however on levelling from the bottom, forgetting that both ends count.

A long time ago, we could have cut an edge over others by embarking at an early stage on the post-industrial technologies that have been capturing the markets of late. We are presently absent from such markets which still generate enormous demand. All this should have formed part of an overall national strategy like Vision 2020 that would get modified as and when global market data change or take a new course. We could thus have travelled along a clearly defined plan to make continuous breakthroughs, rather than strike gold all at once due to some miraculous happening.

The gap arising due to the absence of follow-up on such critical issues needs now to be plugged if we want to reach out to a higher economic orbit. It is within the realm of our possibilities provided we put ‘men at work’ and stop betting on ‘miracles’.

  • Published in print edition on 7 August 2015

Add a Comment

Your email address will not be published.