Headline news that a major group in the hotel sector is going into administration and rumours that a project which was meant to be a landmark achievement in the real estate/housing sector is facing huge financial constraints seem somewhat surprising at a time of emerging optimism among economic operators for 2014.
Such happenings bring in their sway considerable amounts of suffering and personal grief as people lose their life savings or their jobs and means of livelihood. It is said that a country’s success is measured in terms of how it treats the most vulnerable sections of its population. Similarly the level of civilization of a society may be judged by how it treats the weakest victims of such traumatic experiences.
Having said that it may seem cynical to state that this sort of demise of enterprises and failures are a “normal” part of the economic cycle. Actually a market oriented economy sees virtues in such failures which “liberate” resources that were presumably being underutilized and which the invisible hand of the market will soon enough redirect to optimum utilization. This proposition has been famously theorised by the proponents of what has been described as creative destruction.
Arguably this kind of proposition which replicates the inevitable cycle of life – birth, living and death – to socially created phenomena may make sense. In a dynamic environment change is inevitable and even desirable. The question which we want to consider here is what set of circumstances actually determines the kind of treatment which is meted out to victims of such events in a society.
The supporters of free-market capitalism in fact find no real issue there, convinced as they are that, left to its own devices, the “market” would soon take care of the problem. Any policy intervention, they will contend, only distort the market and make things worse. Such abstract reasoning is of course what drove the politics of leaders like Margaret Thatcher and Ronald Reagan. Although they may be successful in creating wealth it is always at exceedingly high social costs.
Left leaning governments would argue, on the other hand, that these issues are not at all abstract. They involve the livelihoods of weaker sections of the population who do not benefit from any of the instruments available to more privileged sections of the population to protect themselves from such occurrences.
Furthermore there are underlying issues related to who bear the responsibility and how are they accountable for such failures and how to share the burden. The now well publicized case of the motor industry bosses in the US flying to Washington in their private jets at the height of the financial crisis, begging bowls in hand, is a magnified demonstration of what hapless employees often witness as their factories or other workplaces close down and bosses disappear in thin air more often than not none the poorer. Not to say anything about bosses of failed companies who are “dismissed” with huge bonuses as part of their parting package.
In this context, the extent to which institutions of our hitherto successful governance system – based on Public-Private Partnership – has been a casualty of the wind of liberalization over the recent years has not been fully appreciated. As an illustration related to the above, the World Bank-inspired introduction of further market dynamics into employer-employee relations at the expense of institutional/legal recourse, has been particularly pervasive. The end result is a weakening of trade unions and the voice of workers in decisions which are crucial for their livelihood. It constitutes a classic case of partisan myopia that characterizes the approach of such institutions. Failing to understand this, explains why many commentators, including trade union leaders fail to grasp the real reason for which annual tripartite negotiations are quickly fading into irrelevance.
This column is fully committed to the need for radical institutional change as a necessary condition for socio-economic progress in the country. If anything, we take a view that this is much overdue. Changing the status quo, however, always create losers and winners. This is why at the macroeconomic level all change is eventually about politics, that is, it always involves choices and preferred solutions.
The greatest mystification created by right wing politicians or bureaucrats embedded in the Washington Consensus has been to force a definition of change as a sort of inevitable consequence of forces beyond the control of elected representatives or policy-makers whose role is then reduced to that of “creating the right environment for it to happen.”
An alternative view is to consider change to be a consequence of decisions which are determined by a mix of inevitable structural constraints and the will of policy-makers to achieve clearly defined socio-economic objectives. The extent to which these objectives are supported by the population at large constitutes a measure of the degree of success of the democratic system.
In Mauritius there is a strong case to be made to the effect that, just like the rule of law and the respect of property rights, our historically determined Public-Private Partnership and tripartite system of consultations is a critical factor of our institutional setting which has contributed to our past success as a nation. Taking our nation to a higher level of socio economic development – from a middle-income economy to a high-income one — is all about giving deeper meaning to those institutions, not about abandoning any of them.
It can be argued that some of the dysfunctions which we are witnessing in society today can be traced back to our failure to adjust the internal dynamics of these three pillars of our system to the demands of the new global environment.
In Davos at the meeting of heads of states and CEOs as well as academia, which is being held these days, one main theme will be the rising inequality in society today and the challenge that it poses to future growth and peace in the world. It can be safely argued that this issue is at the heart of our efforts to reach a new level of development. This is why understanding the politics of change is so critical to the process.
* Published in print edition on 24 January 2014