Stagnating Economic Growth: A Systemic Problem

A change from the existing oligarchic model to some other dominant form of economic organization is a precondition for promoting growth

It is quite common these days in the literature on economic organization to come across the idea that there is no single model of capitalism.

In their book ‘Good Capitalism Bad Capitalism’, the authors (William J. Baumol, Robert E. Litan, Prof. Carl J. Schramm) classify the economies of different capitalist countries in four categories:

State guided capitalism, where the State still has a predominant role;

Big firm capitalism characterized by dominance of a few large enterprises;

Entrepreneurial Capitalism in which a significant role is played by small innovative firms, and

Oligarchic capitalism in which the bulk of economic power and wealth is held by a small group of individuals and families.

While none of these categories exist in its pure form in any country at any one time, it is the dominance of one or the other which characterizes the national economic model. The common thread which runs through all the models is that they all recognize the right of private ownership of property.

Another remarkable feature which distinguishes one form of capitalism from another and which cuts across the different models mentioned above is the role of family controlled firms, as opposed to dispersed ownership, within national economies. Interestingly, dispersed ownership seems to be mostly limited to the Anglo-Saxon world. Beyond the UK and the US, on the continent in Europe as well as in Asia and other emerging economies, the trend is for companies (even when they are quoted on the Stock Exchange) to adopt some mechanism which ensures that control does not change hands unless one dominant shareholder so decides.

As all readers would have understood by now, Mauritius would be categorized as an Oligarchic capitalist country dominated by family firms. Although one would intuitively associate these two features, it is worth noting that this needs not necessarily be the case as when a few publicly quoted multinational enterprises dominate a national economy.

Although concentration of wealth and family controlled companies have been highly politicized issues in Mauritius for a long time, it is interesting to note how the regime has survived through thick and thin.

The historically determined distribution of power between what has been sometimes described as a “state bourgeoisie” and those who control the “commanding heights” of the economy offers a partial explanation for the resilience of the system. As with any system, the relationship between the two parts has been characterized by a form of dynamic equilibrium consisting of constant exchanges and give and take. The process was marked sometimes by close collaboration and at other times by outright conflict.

It has been said that the Oligarchy has always been very sensitive to the fact of its vulnerability and therefore willing to make concessions to forceful “political” demands. Politicians in power, on the other hand, have been more or less accommodating of the status quo for as long as they could extract political dividends in terms of economic growth and social stability.

Two other factors have also contributed to the survival of the model. First was the homogeneity of the oligarchy which was all centred on the one core dominant activity of sugar plantation, milling and exports. Second was the secure and stable environment in which the system evolved with its assured protected and preferential access to markets under the Sugar Protocol.

The rate of growth of the Mauritian economy over the past few years, at an average of around 3.2%, can be estimated as satisfactory given the post-2008 turmoil in the global economy, especially in our main markets for goods and services. There is even more merit to this performance if one considers that the country has simultaneously had to face the huge challenge of the end of the Sugar Protocol and the dramatic transition which this has forced on the national socio-economic configuration.

Having said that, however two things must be clear. First, all transitions by definition have to come to an end; second, the present rate of growth for all its merits will not sustain the kind of socio-economic progress to which the average Mauritian aspires.

The authors whom we have quoted earlier profess that “one of the most promising ways to promote growth in an economy that is currently characterized by a slow moving form of capitalism is to adopt reforms that move it toward a type of capitalism with a more powerful growth engine.”

Translated to the local context, this implies that a change from the existing oligarchic model to some other dominant form of economic organization is a precondition for such heightened level of growth. Except if we are imagining that some degree of “nationalization of private property” is still on the agenda, a realistic approach would suggest that there is a need for what can be called an “evolving bargain” among all stakeholders.

To be truthful, one must admit that the “oligarchic stronghold” seems to be a step ahead as one can take cognizance of the various re-structuration, mergers, acquisitions and family holding reorganizations that populate the press almost daily. In addition to these internal manoeuvres, the most progressive sections have also shown definite signs of greater opening and transparency in governance structures as well as recruitment policies.

A note of caution is necessary to point out that contrary to what may sometimes have happened in the past, “progressive” here is not synonymous to “being more charitable or condescending.” It is rather about coming to terms with a new more competitive business environment and to some extent adjusting to the expectations of a new generation.

The other party to the “evolving bargain” is the State. It would be no exaggeration to state that it faces a Herculean task as it endeavours to build the capacity and ability to deal with the demands of the new situation. Liberalization of markets has increased the need for the State to act smartly. Paradoxically the reforms favouring more market-oriented economies have entailed a whole new set of challenges regarding regulatory functions and the need to design and implement policies which are more “business friendly”.

The outcome of the new bargain will determine the course of further socio-economic development in the country. The faster the parties engage with each other on this new platform, the better for the Mauritian nation.


* Published in print edition on 11 April 2014

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