Tackling Inequalilty is an Economic Imperative

Government failure refers to the failure of political institutions to generate a coherent economic strategy. The acid test for the announced Economic Mission Statement is therefore most likely to be how far it lays down the ground for rapid, stable and sustainable per capita GDP growth; sustained decline in income poverty; sustained improvement in human development indicators, such as health, nutrition, and education…

Conflict is part and parcel of any social combine whether it is a small club or the nation at large. At the national level the democratic system of government is meant to provide the legal, and regulatory and institutional framework within which such conflicts are contained to avoid social conflagration.

In societies where there is little understanding of the connection between political and economic development and a minimum of social cohesion, the chances of finding innovative socio-economic solutions to the challenges of the day are substantially reduced. When social groups feel excluded or threatened in their identities they will react by clinging to the status quo and reject proposals for change even when these are necessary for social progress.

Unfortunately the economic policies adopted over the past decade and more have definitely contributed to a worsening of the socio-economic cohesion, through a deepening of the inequality in income and wealth distribution in the country, including a glaring impoverishment of the middle classes. This is a factor which has been largely underestimated as regards its contribution to the defeat of the Labour Party during the last general elections.

The uncovering of a series of “scandals” and the relentless pursuit of the “cleaning up” of the Augean stables of the previous regime has understandably become a political imperative for the new government given the turn of events since the last general elections. However,, it is becoming abundantly clear that the public mood in the country is changing by the day and a feeling of impatience and exasperation is building up. Should the government continue to ignore these, then the success at the last general elections runs the risk of turning into a Pyrrhic victory.

Having probably sensed this not-so-subtle change in the direction of the winds, the government has announced that it would soon be coming up with an Economic Mission Statement. There is no doubt that this move would most welcome by economic operators and the public at large, as long as it is not perceived to be yet another exercise in public relations based on a reductionist analysis of the situation.

The need for such an event only months after the presentation of the Budget and the reading of the Government Programme does signal that there is awareness in higher quarters of the need to re-focus the government economic agenda around some of the most immediate concerns of the population. As one would expect, on top of the list is of course employment creation. A clear demarcation line needs to be drawn at the outset between government as a direct provider of jobs and the government as an enabler of policies that supports productive and sustainable employment creation.

Any objective observer will concur with the view that there is very little scope, if any, for the first role at the present juncture. Which leaves us with the second option. This does not, of course, mean that government does not have an active role to play in fashioning the future socio-economic development model. As has been demonstrated time and again in other parts of the world as well as in Mauritius, left to its own devices the market economy can often produce GDP growth without creating employment (jobless growth), and exponentially increasing economic and social inequalities through the concentration of wealth in the hands of the very few. In their book ‘Employment and Inclusive Development: Contesting Conventional Wisdom’, Iyanatul and Rizwanul Islam write:

“The notion of inclusive development should have the following attributes (1) rapid, stable and sustainable per capita GDP growth;(2) sustained decline in income poverty; (3) sustained improvement in human development indicators, such as health, nutrition, and education; (4) growth of productive employment that matches or exceeds labour force growth; (5) reduction in inequality; (6) social protection for all.”

Framing an economic policy based on the above premises favours the growth of private firms and increased productivity at the micro levels. It does not exclude, however, the promotion of measures which simultaneously ensure a fairer and more equitable distribution of the increased wealth through fiscal and other more direct transfer of benefits to the more vulnerable sections of society.

Conventional wisdom based on the age-old “trickle down” theory translates into the proposition that one needs to create wealth before it can be distributed. Authors like Picketty, Stiglitz and others have empirically and theoretically demonstrated that transfer of wealth hardly ever works when governments refrain from intervening in the workings of free market forces.

In other words while growth is both necessary and good it is far from sufficient. As a consequence even the head of the International Monetary Fund, Christine Lagarde has been forced to admit that “inequality” in income distribution was proving to be a serious structural hindrance to global economic development.

There is a strong case to be made to the effect that, given the size of the country, the level of economic development (a middle income country), the degree of sophistication of media and communications and the general level of education of its people, Mauritius is liable to suffer from the deleterious effects of the uninhibited market approach. At the same time, though, it also possesses the ingredients for developing a radically different model of development based on the mobilization of its human and intellectual capacities, premised on the objective of creating a fairer and more equitable social model.

It has been said that government failure refers to the failure of political institutions to generate a coherent economic strategy. The acid test for the announced Economic Mission Statement is therefore most likely to be how far it lays down at least some of the premises enumerated in the quote above.

To be fair, it must be mentioned that there is a structural weakness which may take time to redress for it has been caused by decades of neglect if not deliberate sabotage from certain quarters. There seems to be unanimity among most analysts that perhaps the biggest hurdle on the way to design, formulate and execute a proper socio-economic strategy is a lack of capacity at the level of the Civil Service.

This is of course not meant to be a reflection on the level of competence of the cadres in government service but rather an indictment of the successive regimes which have stifled the decision making process and caused a near breakdown of the bureaucratic hierarchy. Witness the roles of the ill-fated civil servants in some of the cases, which are presently being investigated, from the Betamax affair to the Terre Rouge-Verdun road.

A thorough reform of the Civil Service and nothing less than a cultural revolution are needed in the redefinition of the roles and objectives of what constitutes the backbone of any activist government. It is incumbent on the government of the day to devise the innovative solutions which will mitigate the effects of such weaknesses for the immediate needs.

 

Published in print edition on 7 August 2015

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