Rethinking the Role of the State in our economic model

“Governing is first and foremost a matter of choices. The decision to pursue the cleaning of the Augean stables instead of giving priority to the definition and sharing of the new economic orientation is a decision which may haunt this government for a long time, except if decisive actions are taken now to turn things around…”

The presentation of what is being called the “Economic Mission Statement” tomorrow by the Prime Minister in person is incontestably a sign that the government is very much aware of the general “malaise” in the country in the face of what appears to be a lack of direction in economic policy.

The development of such scepticism less than a year since its formation would be particularly damning for a government which has been elected primarily on the premise of its capacity to deliver what has been popularly dubbed as the “second economic miracle.” The “grand messe” which is scheduled with representatives of the private sector is therefore meant to be a new exercise in communication which should at the very least help in turning around the “sentiment” of “malaise”.

In a socio-economic context marked by years of sluggish growth, high unemployment, stagnant private sector investments and manifestly growing inequality of income and wealth, it was clear that the new government’s task was never going to be an easy one. Add to this the fact that every independent and objective observer agrees that the near obsessive focus on cleaning up the “mess” left by the previous government, whilst necessary and politically rewarding in the short term, has not been conducive to the creation of the right conditions for kick-starting a new growth trajectory.

Governing is first and foremost a matter of choices. The decision to pursue the cleaning of the Augean stables instead of giving priority to the definition and sharing of the new economic orientation is a decision which may haunt this government for a long time, except if decisive actions are taken now to turn things around. At the minimum a change in focus would go a long way towards improving the situation.

This is presumably what the Prime Minister’s presentation is looking to achieve; otherwise it risks being yet another wasted opportunity. The recently published World Bank Group report – ‘Systematic Country Diagnostics’ – could in this context prove to be a very useful working tool for the government. The Report has the appreciable merit of enumerating some of the most glaring weaknesses in our society and economy and the challenges which lie ahead in the light of the deteriorating conditions affecting our principal markets. Some of the solutions proposed though are, as one would expect, likely to be more controversial in nature.

One cannot speculate on the details of what will be announced by the Prime Minister in terms of short-term and medium-term objectives and what immediate measures will be taken to achieve those. Evidently one would expect economic growth, creation of productive and sustainable employment, and the reduction of poverty to figure prominently among these.

In this context there are many issues that need to be clarified so as to rebuild trust among all economic partners. Among these we argue that an urgent one that needs to be resolved even before announcing any policy decisions is that of the role of the State in the proposed strategy for graduating from a middle income to a high income country.

In recent economic history it is the East Asian economies (Japan, South Korea and Singapore) which figure prominently as models of economies which have successfully gone through the transition from middle-income to high-income level economies. Each country has its own specificities and the role of the State has veered from the authoritarian to the more democratic versions depending on their particular historical, cultural and geo-political circumstances. The role of the State as a prime mover of economic development has been one of the common features for all these countries.

A national economy is a system of intertwined institutions with the government and the private sector in a highly interdependent relation/relationship. The actual balance of power between the two “partners” at different points in time is determined by the political process and the strength of institutions such as the press, trade unions and the political awareness of civil society. The public-private partnership which has served Mauritius so well in the past has been historically marked by periods of tension and cooperation but has overall been quite successful in delivering satisfactory economic growth and social-political stability in the country.

However, the model as we have known it up to now has clearly outlived its usefulness, given the radical changes in the global economic regime over the past decades. Following some pressure from the IMF-World Bank, there have already been some attempts to tweak the existing system to accommodate the new global regime – these took the form of “business facilitation” measures in the late 1990s. In an admittedly simplified version of that model, the State is enjoined to reduce red tape and bureaucracy in order to create a business friendly environment by simplifying procedures for the private sector to invest in the country.

Notwithstanding the ideological underpinnings of this approach based on “less government is good government”, the fact is that these measures while necessary are neither sufficient for attracting the kind of investments which the country needs, nor can they be the drivers of the kind of deep changes which are needed to move the county forward. Their limitations lie in the fact that they do not have any effect on the forces that drive economic growth and they do not provide the means of dealing with old and new threats.

Although there are no universal valid models for ensuring economic growth, we can point out to three major policy options which have given traction to economic success and which require strong and coherent action from the State. First are macroeconomic policies which aim to reduce external vulnerabilities; second come policies designed to guarantee a dynamic restructuring of productive structures, and third active social policies. The role of the State is central in the design, formulation and implementation of the above policies in the form of a coherent and sustained development strategy. It is through its smart intervention that economic growth is transformed into economic development.

  • Published in print edition on 21 August 2015

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