Apropos the Second Economic Miracle

So the Jugnauth-Lutchmeenaraidoo tandem have come back to power after more than three decades on the promise that they will deliver a second economic miracle for the country, just as they did in the 1980s.

One can always argue that, in its first avatar, the exercise had at least partially benefited from the radical and unpopular economic measures taken by the first Jugnauth government (1982-83), with Paul Berenger as Minister of Finance. Among others was the introduction of the then Sales Tax, subsequent to the Structural Adjustments Programmes imposed on the country by the IMF/World Bank at the end of the Senior Ramgoolam era, including the drastic devaluation of the Rupee on two successive occasions.

Yet it would be intellectually dishonest to even suggest that the “miracle” was not principally driven by the above-named tandem both in terms of the substance of economic policy-making and style.

To be perfectly fair, maybe one should add that Anerood Jugnauth was also surrounded by one hell of a team of ministers including among others the likes of Gaetan Duval, Kishore Deerpalsing and Kader Bhayat; the government also included senior ministers from Labour and the PMSD.

The economic conditions at the time were pretty harsh. The unemployment level was about 25% of the active population while the macroeconomic fundamentals were running havoc with inflation at near 10%, while debt servicing was absorbing a disproportionate fraction of budgetary expenditure on a budget deficit running at 8.3% of GDP.

To cut a long story short, the “economic miracle” was all about a total reversal of this situation over a rather short period of about five years. As an illustration, in 1984 alone 10,000 jobs were created primarily in the manufacturing sector. Before going further, let us try to succinctly summarize the essence of what is described as the first economic miracle.

An arguably simplified but certainly just way of explaining the thrust of the remarkable performance is: the government had the collective intelligence of designing their economic policies so as to adjust local conditions and extract maximum benefit from the prevailing favourable external economic environment.

The hard selling of Mauritius as a manufacturing platform for exports to Europe following the announcement by the UK government that Hong Kong would be handed back to Communist China was one of the catalysts of this new drive. The characteristically footloose textile and garments industry operators came in droves to take advantage of the numerous benefits which this new “Eldorado” offered to them.

Among those benefits was duty-free access to the European Union market as well as very favourable labour laws and employment conditions. Export-driven manufacturing became one key driver of the growth in GDP, together with its attendant multiplier effects on such secondary activities as transport and ports operations. Tourism was the other leg of the miracle. For all the faults and the “excesses” that one may find with Gaetan Duval, he proved to be the “providential” man for the occasion as far as selling Mauritius to the high end of the European tourism market was concerned. leading to a boom in hotel construction and employment over the years.

The final ingredient to this success story was the near obsession of Vishnu Lutchmeenaraidoo, as Minister of Finance, to get the middle classes to participate in the party. Income tax policies, salary reviews in the public service or the introduction of large scale hire purchase for consumer products (the coming of Mammouth on the local retail landscape) were all designed to this end. It was on those premises that GDP growth averaged +5% over the period 85-90 accompanied by near full employment.

It would be rather simplistic to assume that the mere presence of the Anerood Jugnauth-Vishnu Lutchmeenaraidoo pair would be a sufficient condition for repeating this feat of the 1980s. Presumably even the two protagonists would not subscribe to such a proposition.

The first fundamental difference lies in what economists like Walt Whitman Rostow have described as the different “stages” of economic development of a country and the varying challenges posed to policy-makers in each of these. In that view Mauritius was at “take-off” stage in the 1980s. The central economic problem at that stage was to design an economic architecture which would absorb the abundant available resources – which in the case of Mauritius was principally made up of what was then described as a fairly literate and cheap labour force.

In addition Mauritius could boast of some form of institutional capital not usually available in other countries at a similar level of development, such as political stability and respect for property rights and contracts. Although achieving the results that we did in those circumstances cannot by any measure be taken for granted, it was relatively easier to achieve in what was then a rather stable, predictable and well-established neo-colonial regime based on aid, trade preferences and protection of local markets for developing nations.

Configuring the drivers of a second miracle in the midst of a fundamentally overhauled international world order dominated by the standard yardsticks of privatisation, liberalization and other tenets of free market ideology is a far cry from what was witnessed in the first incarnation of our economic miracle.

Excessive deregulation in the financial markets having led to the global economic crisis of 2008, and the subsequent depression in our main export markets have added another layer of complexity to the formulation of the right sets of development policies which could contribute to the realization of the second economic miracle.

The post-2008 crisis situation which the Americans have been quick to describe as the “new normal” defies the sort of one-size-fits-all solutions which used to prevail at the time of a triumphant liberalization and deregulation paradigm under the guise of globalisation at the end of the last century. The adepts of this ideology at the local level were the TINA (There Is No Alternative)-wallas who indiscriminately applied their pet theories to the local situation, failing to grasp the political economy dimension of their actions. The most obvious result of these policies has been a widening gap in income distribution, further concentration of assets ownership with deepening social disparities and marginalisation of large sections of the population.

Achieving the right mix of interplay of market forces and state intervention could therefore be the key factor of success for the realization of this much-flaunted second miracle. Is the new team inclined to depart from the dominant neo-liberal model of the recent past in search of this new paradigm? Only time will tell.

 

* Published in print edition on 23 January  2015

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