The Road to the Future
As the future beckons us, we should know for certain the wagon into which to jump at the risk of being left behind on the platform
— ANIL GUJADHUR
An International Advisory Board comprising some eminent economists was hosted this week by the Board of Investment in Port Louis. The objective is to gather views on how Mauritius could make a transition from its current status as a middle-income economy to that of a high-income economy. This no doubt is an ambitious enterprise although there may be differences of opinion as to whether it is the level of the income that should have formed the cornerstone of those discussions. Or, addressing more fundamental structural issues capable of launching the economy into sustainable new economic adventures.
A lot depends, of course, on what basic facts and information we put in front of the panel about our state of affairs and the constraints we have been facing on the way forward. The greater the clarity with which such facts are assembled and put forward, the more the chance that the panel would come up with a concrete and reasonable plan on how we should circumvent present difficulties and make up for a sustainable future growth path. The level of income achieved in comparison with other countries is irrelevant in such an exercise; a lot depends on the specific sustainable and strategic economic architecture that one can put in place to veer the course of economic progress towards relevant modern goals in the changing international economic landscape.
Let us consider for a moment the difficulties facing some other economies.
Greece, as we know, is so much steeped in debt that it is now uncertain whether it can hold on to the Euro or not. There is a risk that its next elections, coming in the footsteps of an inconclusive one just past, looks like a referendum as to whether it will have to opt out of the Euro Zone very soon. If you look for the reasons behind this state of affairs, an unsustainable public debt and depressed economic growth come out as the main culprits. Past governments of Greece have spent enormous sums on infrastructure by incurring heavy government debt. According to a recent BBC report, the Greek government borrowed as much as $12 billion to build up infrastructure in connection with the Athens Olympic Games of 2004 alone. Most of this infrastructure is lying idle and, hence, producing no income. But the sums borrowed have to be reimbursed at the cost of unbearable austerity programs handed out to it by Europe and the IMF.
In the case of China as well, the Olympic stadiums constructed in 2008 have commanded huge sums but the promise that the people would see prosperity coming in the way of those games have not materialized as much as expected. China is able to face the situation nevertheless because it has been in a prolonged high growth phase over several years. To sustain itself in future, it has been moving on to heretofore unsuspected economic partners the world over, who will provide it the materials needed to carry on growing and not to be hurt by wasted expenditures of the past. Its rate of growth has slowed down but it has not hurt itself structurally by indulging in wasteful capital expenditures on a scale as high.
In contrast to Greece, which did not pay much attention as to how it will expand production to pay up for debts incurred, China has converted itself into what some have called “the factory of the world”. It has been using its spending on infrastructure to supply not only to its expanding internal economy; it aims to grow its scope ever more as supplier to the wider world. It is busy shifting gear to serve upcoming economies in the emerging world. Its trade with India, its next door neighbour, amount to $100 billion annually, but it is also foreseeing the growing prosperity of Africa as the fallback venue of its future production should the developed economies stall their demand.
The examples show that one has to undertake capital expenditure which will serve a purpose even when circumstances change at a later stage. An intelligent forward plan can even make a country a game changer at the international level to its own advantage. We are not there. The fact remains that it is not the making of all and sundry expenditure (and the debt incurred in so doing) on infrastructure that makes a difference in terms of sustainable future growth; it is rational expenditure directed at facilitating the growth of future production. Prestige projects can in fact lay a tough burden on governments for repaying debts incurred and for maintaining what might at best become an underutilized appendage in time to come. The economics should go along. Mere engineering is not enough. You must connect locations with a productive purpose at the back of the mind.
Going after one craze of the moment after another has left behind a number of rough edges which, unless smoothed out in time, could make irreversible some unwanted directions the economy may have taken. For example, we may not have planned an optimal land use program, or, if we have, it must have remained in abeyance for having been overtaken by wild unforeseen developments. Food sufficiency may come back with a revenge if the world economy were to take longer to emerge from the current crisis. Look at the roads. Over 3000 new cars have made it to our roads during the first quarter of 2012; this adds up to the huge population of vehicles we already have on our roads. At this pace, whatever road infrastructure is built up to cope with the density of the traffic will soon be overwhelmed while the root cause of the problem, bad transport planning, is not being addressed.
Unless shortcomings such as these are brought before the panel of the international advisory board, the recommendations they make for the future can only be general in nature and these may be easily overtaken by yet unforeseen international developments. Other countries may be eyeing the same opportunities and, may God help us, they don’t prove to be more fleet-footed than us. We should not limp up our way to catch the opportunities in front of us; we can take part in the race if we are first and foremost in a good state of health.
Real Economics is a hands-on approach. It looks at the details which need to be set right in the first place. It prioritizes the agenda. You cannot build anything sound and enduring on a flawed base. So, you need to know where you’ve gone wrong and list them all out unabashedly, take up those (such as skill deficits) by adopting the quickest routes. In the first place, you need to know how long it will take to set right whatever has not gone in the right direction; what are the expenditures involved to set them right and the amount of real production those repairs will add eventually to existing production. For, it is this added production that will help to pay up for the debt incurred in setting those things right.
The government must be commended to be looking out for things to do to improve the state of the economy in the current unpredictable international environment. This will raise the awareness that crutches on which we have depended in the past to sustain economic production for markets giving us privileges and preferences no longer obtain and we will therefore be forced to get into binding regional blocs not without acquiring a local edge. Patterns of production are changing globally and we have to join this mainstream, at the earliest, with the right baggage of skills and preparedness in our hands for global markets. The associated period of transition will be critical. As the future beckons us, we should know for certain the wagon into which to jump at the risk of being left behind on the platform.