The World Bank Lets the Cat Out of the Bag

Rising Social Inequality
No amount of tinkering, muddling through or piecemeal reforms will stop this trend. Only a radical reversal of policy and an active role of the State in partnership with the private sector stand a chance of avoiding the bleak future lying ahead

Between 2001 and 2015 the gap between the income of the poorest 10% of the population and the richest has increased by 37%. 10% of the poorest section has seen an increase of their average income from Rs 1201 to Rs 2422 over the period while the richest 10% has witnessed an increase from Rs 16,939 to Rs 27, 303.
— ‘Mauritius: Addressing Inequality Through More Equitable Labour Markets’, World Bank Working paper 2018

In this recently published Working Paper on the Mauritius economy, the World Bank under the signature of Marco Ranzani, Pierella Paci, and Giuseppe Grasso, has delivered what is indeed a scathing criticism of the economic policies which have been applied in our country over the past 15 years leading to the kind of results described above. This should not be a surprise to readers of this paper for we have consistently made the point here that inequality of income and wealth had reached such levels since the beginning of this century that it had become systemically dysfunctional.

It is not far-fetched to state that the root cause of many of the most evident social problems which afflict our nation today can be traced to this rapidly widening inequality between the richest and the poorest — not to mention the decline of the middle classes. In fact, in an earlier report which came out in February, this year, the World Bank had already pointed out that whilst absolute poverty had declined between 2007 and 2012, relative poverty had increased substantially from 8.5% to 9.8%. The Gini Coefficient had gone from 0.36 to 0.39 over the same period. (The Gini Coefficient is a measure of inequality in which 0 stands for perfect equality and 1 for total inequality). In that same report, the authors pointed out that the reduction in absolute poverty would have been two times more had it not been for the policies which further increased the unequal distribution of income and wealth.

Before proceeding any further, it is perhaps opportune to point out that none of our political parties have cared to comment on these official reports. This could probably be explained by the fact that they have all been in power at some time or the other during the period covered by the studies and have therefore been party to the development of this deplorable trend in spite of their hypocritical rhetoric.

To come back to the central hypothesis of this article, which is that the despairing level of inequality in Mauritius is for a large part the cause of the most visible social dysfunctions which besiege our social fabric, we take the liberty of quoting from the book, ‘The Spirit Level’ by Richard G. Wilkinson and Kate Pickett (2010). Wilkinson and Pickett “make a comprehensive case, supported by statistical evidence that the root cause of the majority of society’s health and welfare problems is social inequality – the degree of differences in income, and thus status, between the richest and poorest citizens in the land. They conclude that social metrics cannot be improved using piecemeal efforts that target specific problem; improvement requires comprehensive policies designed to reduce inequality.”

Interestingly enough, for reasons which readers will surely understand, the list of social ills which are quoted in the book include drug abuse, mental illness, homicide rates, obesity, school dropout rates, incarceration, and recidivism. The authors go on to suggest that the causal dynamics between social inequality and the recurrence of the above social pathologies could be that people living in unequal societies are insecure about their status and therefore tend to engage in all kinds of dysfunctional behaviour – which leaves one wondering whether, among all other things, the rate of road accidents (especially involving young people) in Mauritius could not actually be an illustration of such causal links?

What this all leads to is that economic growth is no longer sufficient (if it ever were as some liberals of the “trickle down” effects school would have us believe) to ensure that we are progressing towards a more humane and fair society. There are powerful forces of fundamental structural change, mostly technology driven, in economies around the globe that have profoundly modified what some have called the “jobs-productivity-income” distribution triangle in favour of capital against labour. Leading these trends is the change in the nature of work. New technology and intelligent machines are displacing many types of low skilled workers in both manufacturing and service sectors. Unfortunately the political class has been generally unresponsive to these phenomena leading to the despairing situations which we are now witnessing.

 

“Economic growth is no longer sufficient (if it ever were as some liberals of the “trickle down” effects school would have us believe) to ensure that we are progressing towards a more humane and fair society. There are powerful forces of fundamental structural change, mostly technology driven, in economies around the globe that have profoundly modified what some have called the “jobs-productivity-income” distribution triangle in favour of capital against labour. Leading these trends is the change in the nature of work…”

 

In the days of the Cold War, the elites and capitalist class in Western democracies were restrained in their inclination to capture a maximum of the wealth created in their respective nations or from overseas. They feared the radicalization of the working classes and the rise of socialist or communist parties that would challenge the capitalist system. Under these conditions, social-democratic governments supported by strong trade unions managed to extract substantial benefits for the workers of these countries during the 30 years or so following the Second World War, albeit with the help of massive transfers of resources from the “colonies”.

With the implosion of the USSR and the end of the Cold War in the 1980s, these constraints all but disappeared. Big corporations and the global financial elites “captured” policy making and had a total grip on the political classes. Followed two decades of liberalization, privatization and deregulation leading to the reign of unrestrained greed by business elites as illustrated by all sorts of large-scale and massive frauds in large often global corporations.

The greatest fallacy underlying the neo-liberal thesis is that the withdrawal of the State from its regulatory functions and interventions for a fairer and more just society (taxation policy, regulations, social benefits) is substituted by some abstract “self-regulating market forces” which in turn ensure the rise of the “good society”. The truth of the matter is that the world is now reeling under several traumatic and interconnected crises, notably: climate change, political upheavals and the rise of extremist, xenophobic and neo-Nazi political parties and intolerable levels of inequality in income and wealth. In 2016 eight families in the world possessed 50% of global wealth.

Since the same causes tend to lead to the same results, Mauritius has not been spared from some of the worst of these trends among which the rapidly rising social inequality as reported by the World Bank. No amount of tinkering, muddling through or piecemeal reforms will stop this trend. Only a radical reversal of policy and an active role of the State in partnership with the private sector leading to a fundamental redesign of economic policy stand a chance of avoiding the bleak future lying ahead if the present trends are not halted.

 

* Published in print edition on 30 March 2018

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