Putting The Economy First

According to newspaper reports the Ministry of Finance and Economic Development has expressed its displeasure to the authors of the latest report published by the Mauritius Commercial Bank-MCB Focus. The bone of contention seems to be the fact that the Report states that the Mauritius economy is not about to attain a “high income level” status until at least 2025. The controversial point is that such a conclusion is reached when relying on an assumption of “no change in policy” which, to the authors of the Report, seem to be the most likely scenario.

The officials of the Ministry of Finance on their part insist that this assumption is gratuitous given that they are actively working on a number of economic measures that would presumably be announced at latest in the next budget. They are confident that the adoption of these policies will provide the kind of impetus that will, at least, kick-start the economy on the path of improved economic growth.

For those in the know, the good faith of both parties engaged in this issue is not in question. Purely anecdotal evidence would suggest that the Report would have been written at the height of the political drama, which has dominated news in Mauritius for the past two months nearly. Add to this the fact that there is heightened expectation that the country is most likely to witness the holding of new elections in the coming months, and one can appreciate why a “no change in policy” scenario could have seemed a credible assumption in the circumstances.

However, having said all this it is also true that even if these assumptions about the political developments were to materialize, an election generally offers an opportunity to make a fresh start and redefine priorities. Everything said and done, it would be fair to state that making an assumption of “no change in policy” in these circumstances is, to say the least, a most pessimistic if not hazardous one.

The most interesting take away from this episode remains that it highlights the crying need for economic policy to be brought back to the centre stage. Coming on the heels of the announcement of the Mauritius Chamber of Commerce and Industry about the economic perception by operators, it provides an opportunity for the Prime Minister (who has recently taken over the portfolio of Minister of Finance and Economic Development) to signal a new start. It does not necessarily have to be in terms of announcement of grand economic policy changes at this stage (given that general elections are due at latest in May next year).

The new policy mindset could start with the hypothesis, so dear to Harvard University Professor Dani Rodrik, that very often where there is a great deal of “slack” in the economy a number of simple changes could be enough to bring about significant improvements. Rodrik describes this approach thus – “This new approach is suspicious of universal remedies. Instead it searches for policy innovations that provide a shortcut around economic and political complications. This approach is greatly influenced by China’s experimental gradualism since 1978 – the most spectacular episode of economic growth and poverty reduction the world has ever seen.”

Obvious practical examples in the local context could be a decision backed by strong political will to improve the governance of existing State Owned Enterprises or to formally recognize that one of the constraints on our socio-economic development is lack of capacity in the public bureaucracy for implementation of major policy decisions.

As regards the wider issues which will have to be addressed in a more or less near future, it may be interesting to start by taking stock of the many changes which have radically changed the economic structure of the country ever since the end of the Sugar Protocol-based regime and the opening up of the economy. What was once a celebrated strength of the institutional fabric of Mauritius – the Public-Private sector Partnership – seems to have lost some of its lustre over the past years largely due to an inability to give new substance to the process after the demise of King Sugar. Designing an exercise to create a shared vision around our country’s aspirations and ambitions in the new global and regional environment provides an opportunity to revive the partnership as a key competitive advantage of Mauritius.

Some of the questions which will need to be answered during that exercise are:

– What kind of country do we want (socio-economic model including role of the State in the economy and the future of the Welfare State)?

– What would be the essential characteristics of the nation we aspire to build (unity in diversity, culture, innovation, knowledge based, services driven)?

– What is the place we wish to occupy in the community of nations/region?

In spite of inevitable differences in underlying beliefs, a consensus view would need to be worked out. Once there is agreement on the goals and the principles which will guide the solutions, discussions may start on the preferred options and their implementation.

Minister of Finance Navin Ramgoolam has framed some of the issues by directing the officials of the Ministry of Finance to be guided by the following while they engage in the next budgetary exercise: High Income, Sustainability and Inclusiveness. These guidelines provide a good starting point in the kind of exercise which we are suggesting here. Making sense of these broad ends while developing new policy initiatives is a challenge for all stakeholders.

One of the underlying issues, which will have to be explicitly debated, is the role of policy and the extent of market liberalization which best suits our context. In this connection it might be very relevant to quote Dani Rodrik again: “There are different varieties of capitalism as the experience of developed and developing countries alike indicates. This is fortunate, as it implies that democracy has a role to play, and that ownership of development policies has a positive meaning.”

The clear implication here is that there needs to be a constant and deliberate choice of balancing the role of market forces and policy-making in achieving the above broad objectives. Some of the lessons which can be drawn from the 2008 financial/economic crisis is that the pre-crisis credo of “There is No Alternative” (TINA) has been debunked, as governments all over the world, including in the US, engaged in massive “stimulus packages” to salvage their national economies when it was not simply to rescue enterprises.

* Published in print edition on 11 July 2014