It’s too late to be a pessimist

Progressive form of Social Democracy and Stakeholder Capitalism

Stakeholder corporate governance model is not alien to the political and business culture of Mauritius. It represents a real option as a component of the type of socio-economic structure that could serve Mauritius well in the future

Prosperity in a society is the accumulation of solutions to human problems. If prosperity is created by solving human problems then the key question for society is what kind of economic system will solve the most problems for the most people most quickly.

— Eric Beinhocker

Like many other political and economic analysts this column has for a long time spoken about the fact that the economic model which has prevailed over the past 50 years since independence has served us well but is now proving to be increasingly unresponsive to the new challenges of the 21^st century. It does not follow from this quasi unanimity around the need for change that there is necessarily a consensus. There are indeed wide-ranging divergences of views regarding which new model should prevail and what and who should be the drivers of the changing scenario as well as who would be the eventual losers and winners in the deployment of the chosen model.

It is most unfortunate that these important issues of policy matters and strategic options which are essentially political in nature have been totally neglected over the past decades for want of leadership. The mess in which the country finds itself today is the direct consequence of the resulting absence of decision-making and the prevalence of ad-hoc, reactive and unavoidably incoherent policy making by successive governments. Mainstream political parties which were born in the turmoil of class struggles and represented the hopes of the working classes have failed to live up to their mission and been gradually engulfed in the game of petty politics and feckless gossips.

To come back to the issue of preferred socio-economic and political model, it is clear that the guiding principles of transformation should be such that they build on the inherent strengths of the erstwhile increasingly deficient model while integrating new elements which transform it into a more sophisticated, imaginative and responsive model. While the parti pris in the proposed model in favour of a progressive solution with its emphasis on combatting what is viewed as increasingly intolerable income and wealth inequality and an activist role for a developmental State would become obvious to our readers, it must be emphasized that the dominant consideration in our analysis consistently relies on history and context rather than some abstract ideological stand.

We start from the premise that the essence of politics is to constantly manage tensions which oppose different interest groups in society. Given the diversity of the population of Mauritius, the history of working class struggles and the acquis of the Welfare State, the presence of a “national” capitalist class which has favoured local accumulation of capital and the presence of a fairly sophisticated bureaucracy/Civil Service, it is suggested that a prosperous future for Mauritius hinges on the establishment of a two legged Political and Economic foundation: a Progressive form of Social Democracy and Stakeholder Capitalism. In the rest of this article we shall focus on what is understood by Stakeholder Capitalism. And in a future article we shall define the concept of a progressive form of Social Democracy.

Stakeholder Capitalism

In 1951 Frank Abrams, Chairman of Standard Oil of New Jersey proclaimed that “the job of management is to maintain an equitable and working balance among the claims of the various directly interested groups… stockholders, employees, customers, and the public at large.” Johnson and Johnson publicly states that “its first responsibility is to patients, doctors, and nurses and not to investors.” Both of these corporations count among the longest surviving members of the Fortune 500 list of companies.

The core question in the whole debate about stakeholder capitalism is the following: Does the corporation exist for the benefit of shareholders only, or does it have an equally important responsibility towards important stakeholders such as employees, customers and suppliers? The larger picture about what stakeholder capitalism is all about is most succinctly captured in this quote from Paul Polman, former CEO of Unilever: “Business is here to serve society. We need to find a way to do so in a sustainable and more equitable way not only with resources but also with business models that are sustainable and generate reasonable returns.”

In this sense one can safely argue that one of the foundations of the Public Private Partnership which has characterized the successful economic trajectory of Mauritius since independence until now has been a form of stakeholder capitalism. Whether this was the outcome of some degree of generosity from the existing economic operators or the result of a power balancing act between the State and the operators (more likely) is immaterial. The fact remains that the private sector in Mauritius was savvy enough to avoid nationalization of their assets at the time of independence and the Government extracted reasonable resources mainly from the erstwhile sugar industry to run a fairly sophisticated Welfare State. It must be said that that the negotiations of the preferential trade agreements including the Sugar Protocol with Europe and the USA provided a platform for the development of such “collaboration” although the same conditions in other newly independent countries did not necessarily result in the same state of affairs.

Lack of considered trade-offs

No doubt the stakeholder form of corporate governance remains the dominant form of business organization in Mauritius. It remains, however, that since some years now it has come under two serious threats. Firstly the Public-Private Partnership, as we have known it in Mauritius, has regressed (unfortunately one must say largely due to the fault of governments without an agenda to share), and the general trend has been for a resurgence of the shareholder value driven corporations in the wake of the financialization of the global economy. The irony would then be that at a time when this model is being seriously challenged in the developed countries for the devastating consequence of short termism and lack of considered trade-offs between long-term interest and immediate gains in corporate decision-making, it would gradually but surely be gaining grounds in Mauritius. Indeed there are at least two instances in which this kind of behaviour is already causing distress to economic operators/suppliers. It is regularly reported that hypermarkets and the hotels’ procurement impose unsustainable credit terms on their suppliers who are often in a weak bargaining position. In France there is legislation protecting the suppliers in such situations.

The gist of this article is that the stakeholder corporate governance model is not alien to the political and business culture of Mauritius. It represents a real option as a component of the type of socio-economic structure that could serve Mauritius well in the future. Context matters and in the circumstances we believe that both the external environment and local dynamics favour such a development.

* Published in print edition on 13 April 2018