Economic downturn & Mauritius
‘Perfection is finally attained not when there is no longer anything to add but when there is no longer anything to take away.’
— Antoine de St-Exupéry
We are living in a period of turbulence. With the financial crisis, which hit the western world in 2007, a long streak of uninterrupted economic growth which had so far been a defining feature of the global economy came to an end. The impact of the resulting downturn was such that people in the rich countries started losing their jobs, their houses, their social support and even their access to credit that had been flowing so readily from the financial sector taps for not less than a decade. All this upset was, by any standards, so abrupt that different nations struck by the economic crisis refused to believe that they were being wrenched away so brutally from the arms of economic comfort. A great fear of the worst to come, something as terrible as the Great Depression of the 1930s, stalked market places, businesses and people’s private homes.
Nearly six years after, there is no clear visibility on the turn economic events will take and how soon they will become positive across the board. Governments salvaged financial institutions at first by putting handsome stimulus packages at their disposal. This led to an increasing volume of public debt being raised in those developed countries; in its wake came fiscal deficits. Fears about the growing volume of public debt led to the adoption of austerity measures. Social welfare programmes began to shrink despite huge street protests by the 99%. In practice, the austerity measures meant that more was to be taken away from the very same people who were the hardest hit by the prevailing economic disaster. These were the middle classes and those at the lowest level of the economic ladder. This is the kind of social injustice free market economies mete out to their most oppressed classes whenever they run out of gear.
Neither did Europe nor the Emerging Economies live up to expectations
Europe was then looked upon as the saving grace inasmuch as it was supposed to make good the economic distress America was facing at the time. That was without reckoning with the distortions underlying the construction of the Eurozone and the fact that after Ireland, Britain was seen as the next economy to be hard hit by the international economic crisis. Britain had two bouts of recession in the last six years. It was saved from a triple-dip recession by a hair’s breadth thanks to a marginal positive growth in the first quarter of 2013. But there was also the severe economic conditions facing Greece, Portugal, Spain and Italy, with France not far behind. All in all, uncertainty about how Europe will put its act together has increased, not decreased over the past years.
When Europe showed that it will not be the bandwagon that would pull the world economy from its fall, attention turned to the emerging economies. They were seen as the deus ex machina as there appeared to be no clear solutions in view. China was seen in particular as pulling up the world from the global economic slack by stimulating its own domestic demand. However, even the whole lot of BRICS countries, including China, are not currently in a position to fulfil the hopes that were placed upon them. Growth is stalling in those places as well despite some recent positive signs of pickup in China.
In the circumstances, after so many years of fiscal stimulation and quantitative easing by western economies, austerity has come up as a remedy for the deteriorating situation. The question is whether this alternating swing between the two measures consisting of stimulating aggregate demand and holding on austerity, by turns, holds the key to solving the economic problem confronting the world at present. Nothing could be less clear. It is not even clear as to what mix of the two types of measures western countries could adopt to steer out of the mess without bringing about social explosion. It is like treading on a razor’s edge until the light is finally seen at the end of the tunnel.
In this rudderless condition, a daunting global economic condition poses as the next incipient challenge.
Those most affected economically are the younger people. There are more than 5 million unemployed in Spain alone as of today, more than 50% of whom are young. Greece is in similar predicament with a record 27% rate of unemployment. The story is the same across all the affected countries. In the rich OECD countries, 26 million young people in the 15-24 year age bracket are not in employment, education or training. It is estimated that since 2007, the number of young people without a job has increased by 30%. The International Labour Organisation reports that 75 million young people globally are on the lookout for jobs.
World Bank Surveys show that 262 million people in emerging markets alone are economically inactive. This is a by-product of rapid population growth in these countries coupled with dysfunctional labour markets involving a mismatch between education and the labour market. There is a stupendous problem looming on the horizon when we see the sheer scale of the employment problem all over the immensely interconnected world of today. It is estimated that the total number of young people without a job all over the world is nearly equal to the entire population of America (311 million).
We also see the emergence of fragile worked-out governments (coalitions in Greece, Italy, etc.) in the most affected countries who will find it hard to drive an austerity package with a view to tame fiscal largesse of the past that has saddled the affected countries with significant public debts. Even China is having a choppy growth path. India is beset by slow decision-taking. It looks too simplistic to use either the expenditure-cutting austerity policy to address the kind and scale of problems countries are facing all over the world. It is also not clear that the authorities in the low performing economies should go on injecting additional liquidity especially if the liquidity so injected goes in hands that will not necessarily regenerate the growth process.
How can Mauritius cope with this difficult situation?
Mauritius appears to be watching and waiting upon how things will evolve at the international level. It is as if we are waiting for good things to happen in those other countries for us to be able to go back to our previous higher growth path and economic development. Nothing could be as automatic as it is presumed under this scenario. From the problems we see confronting those other countries, we might have to put in a lot of patience until a solid turnaround comes up in those places to pull us along. We will have to do our part if we do not want to be caught on the wrong foot.
We have to be realistic in view of the uncertain time frame before the global economy gathers the speed with which it was operating at the time we were recording high and sustainable rates of economic growth. Already, there are signs that private investment has grown very slowly in Mauritius over the past four years; it has mostly been showing negative, albeit marginal, rates of growth over these past years. Its economic horizon, in terms of replacing or adding up to sectors which are not growing dynamically enough, has in fact receded. This is mirrored in the slowing pace of overall economic growth.
We need to think out what exactly will be the ingredients to launch our next phase of economic growth. A nation builds itself up by attending in earnest, amongst others, to: creating space for jobs, maintaining good health care and a willingness to take on work by the more able members of the population, adopting continuous economic reforms, reviewing constantly the educational system to adapt it to local and international changing market conditions, adopting a sustainable and result-oriented and waste-less welfare system, strengthening the family system by inculcating the pursuit of enduring values, addressing crime before it becomes uncontrollable, tackling fiscal and other deficits commensurately with ability to pay for them, engaging actively in R&D, and paying the highest tribute at the altar of meritocracy and competence. We should ask ourselves how many of these attributes we have made ours so far. If we haven’t, there will still be a serious deficit in our ability to tag on to world economic growth when it resumes.
We are living in an era which requires rapid adjustment and adaptation. We cannot take things for granted. If we don’t care or postpone adjustment when it is called for, we will end up increasing the pains ever more sharply at a later stage. We need to act, to re-position ourselves, as the situation demands. Global competition in today’s context requires us to open up to the mainstream of the global economy ever the more but that can be achieved if we have the necessary preparedness on our side already.
* Published in print edition on 10 May 2013