From “Structural Reforms” to Transformational Change and New Politics

It is becoming increasingly obvious that a necessary condition for breaking away from the present policy morass may be an overhaul in political leadership in the country

As we reach two years of this government’s term in office it should be more than obvious even to their own supporters that their greatest weakness has been their failure to deliver on the economic agenda. Let alone the promised “economic miracle” they have up to now failed to provide the country with a clear map of how they intend to achieve the core objective of returning the country to a high, sustainable growth trajectory.

The fact that we have meanwhile had three successive Finance Ministers and that even the present one looks more and more to be in transit certainly does not provide the requisite assurances to economic operators. We contend in this article that the government needs to look beyond the traditional tools of economic policy if it intends to convince them and the population that the crisis is no reason for the status quo to become the default position.

The term “structural reforms” is probably one of the most common expressions that one comes across when going through the literature on economic development. In its most common literary sense, the uninitiated would equate this to “radical” changes implying fundamental changes in the economic architecture associated with policy driven objectives. This unfortunately is quite deceptive because the concept has in fact been singularly re-defined in the economic literature to describe a particular set of prescriptive measures which are generally recommended by the World Bank and the IMF as part of their programmes for spurring economic growth.

For many of the opponents of the Washington institutions, these measures are the perfect illustration of the key criticism directed at them: that they tend to prescribe “one size fits all” recommendations which ignore ground realities in the national economy concerned.

Since achieving independence in rather dramatic economic circumstances in 1968, Mauritius has been a regular recipient of the IMF/World Bank medicine. From the days of “structural adjustment programmes” accompanied by massive devaluations of the local currency in the 1970s to the present day of the “flat tax” regime and trade liberalization, Mauritius has adhered to those prescriptions with more or less success until around the end of the last century.

The first generation of measures under the structural reform programme aimed theoretically at setting prices right by opening up the economy and unleashing the forces of competition both from within and outside. Over a period of around two decades Mauritius has moved from a protected and closed economy dependent on preferential access for its main products/markets to an open one which needs to thrive in a fiercely competitive global economy.

In spite of the inevitable pain generally associated with this phase, on balance and with the support of the entrenched welfare state, these reforms have been generally beneficial to economic welfare as conomic growth averaged around 5% over the closing decades of the last century.

The second generation of reforms, which consists mostly of the introduction of a host of measures with regard to institutional consolidation and policies classified under the broad heading of “investment climate improvement”, has proven to be more problematic. The three broad components of an improved investment climate are:

1. Macro or country level policies that ensure economic and political stability

2. Regulatory efficiency

3. Improved financial, communications and physical infrastructure

On these three counts there have certainly been some improvements in the provision of physical infrastructure, especially in terms of road networks and in other areas as well. The same cannot be said with regard to macro-economic policies and national politics. There has unfortunately been a marked regression over the past decades as institutions have been trampled and the desiderata of political leaders have taken the ascendency over clearly defined policy options. Finally, as regards regulatory efficiency, the recent series of financial scandals stand testimony to a terribly miserable picture.

While the external environment, especially since the Great Financial Crisis of 2008 has surely been a penalizing factor, it would be disingenuous to pretend that this has been the main culprit for our present sombre plight – investments in the country having declined from an average of around 26% of GDP to a mere 16% more recently. In effect it is more likely that the main reason for this has been a lack of political leadership, vision and coherent economic strategy to match the needs of a new complex environment. Globalization having redefined the ways in which the movement of capital, commodities, information and people is regulated has created a totally novel and competitive environment which challenges the traditional approach to policy formulation and implementation.

Added to this, the twenty years of fairly solid growth until the beginning of the new century have also contributed to the upgrading of Mauritius to the status of a middle-income economy with different sets of internal challenges from those of a low-income economy. The heightened aspirations of the population for improved living standards, the emergence of a large number of unemployed graduates and the improved life expectancy coupled with a dramatic fall in birth rates being the most visible of such trends.

It is postulated here that the principal reason for which Mauritius has suffered from a stagnating growth rate of 3.5% over these past years is explained by the inability of our governing elites to adjust and adapt to this new environment and to deploy the appropriate set of institutions and policies to cope with the new circumstances. Faced with this huge challenge it is now clear that “structural reforms” and other measures to improve the “ease of doing business” while helpful will be largely insufficient to even start making a dent on the situation. Only transformational changes across the larger political economy of the country will provide the kind of platform which can take it to a higher level of socio-economic development.

Politics and policies must change to take into account the new dimensions of the issues with which we are faced. Radical, imaginative policies and approaches are called for in order to break away from the existing ones and create a new paradigm. Because the State will continue to play an active role as a change agent, it is becoming increasingly obvious that a necessary condition for breaking away from the present policy morass may be an overhaul in political leadership in the country.

Indeed in addition to the existing framework of Public-Private sector partnership and the tradition of tripartite consultations with trade unions the State is likely to remain the nexus of negotiations for the transfer of resources from the “productive sectors” to welfare as well as poverty eradication programmes. The issue is whether the radically new approach and vision which is needed to achieve these within the new environment described above can be achieved with the same political leadership and their mindset steeped in the old politics of castes, “community” and “clienteliste” politics?

Rajiv Servansingh

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