Friday, June 5, 2009

The rule of (f)law

If you share the bury-your-head-in-the-sand syndrome with most of our politicians and their embedded “intellectuals”, it is very likely that the current controversy about the use or abuse increasingly of loudspeakers by the muezzin will trigger yet another wave of “shock” along your spine.

If, alternatively, your observations are rooted in the real world, it is very likely that you will consider the issue a symptom, among others, of a society gradually losing its bearings. Before attempting to search for a solution to the problem, so that there is no perception of “bashing”, we all need to carry out a session of soul-searching.

According to Islamic traditions, the first adhaan, or call to prayer, was delivered by an African named Bilal. He was chosen by the Prophet not only because his voice was powerful, but also because it was soulful and melodious enough to appeal to the senses of the Faithful. Today, it would be hard to admit that the adhaan we have to bear with around the country echoes the same uplifting spirit as the one preserved in Egypt or Turkey, for example.

The drift, nevertheless, is not the monopoly of Muslims. The cacophony from congregations in temples or sects in makeshift chapels that rips our cosy nights is everything but reminiscences of say, Karnatic mantras or Gregorian chants. The tragedy is that zealous followers of different beliefs, which ironically aim at liberating souls from all forms of intoxication, are now waging a contest among themselves.

Even within the same religion there can be a tug-of-war among followers of different spiritual leaders. For instance, if there is a consensus on the timings of the salaat, the Muslim prayer, why should neighbouring mosques air concurrently the adhaan over loudspeakers? Does it sound like soul-elevation or muscle-flexing?

We will certainly not be enlightened by the Catholic priest who confessed over a radio debate that “his” church would relinquish the use of bells should the mosque nearby also relinquish the use of loudspeakers. Two wrongs will not make a right. When people feel insecure, they tend to cling to anything within their reach, no matter how insane.

Mauritius is indeed undergoing an identity crisis which will not be resolved until it is first acknowledged. People of different ethnic and religious backgrounds, social classes or even genders imbue society with sufficient conflicting vibes to make cohabitation “risky”. Since mature human beings, probably the silent majority, are generally endowed with the faculty to discern, they seek to alleviate the negative impacts of those “risks”.

A society organises itself according to a set of common values. There is a correlation between the degree of how “civilised” a society actually is and how its citizens have been groomed. Civic responsibility is the key concept to define the limits and it does not exist in a vacuum. In an ideal world, common sense would be enough to instill the desired norms, but due to subtle or in-your-face complexities, that “common sense” often gets perverted before leading us astray.

Here, the capacity building of our institutions – political, legal, business, educational, familial, media, religious etc. – must be scrutinised to identify the shortcomings. The making and enforcing of rules governing cooperative human behaviour is where social order begins. The principle of the rule of law is intended to be a safeguard against arbitrary governance.

The rule of law does not operate in absolute terms. It depends on how citizens have internalised it. The behaviour of road users – drivers, riders and pedestrians – can provide a microcosm to gauge the strength of the rule of law. For example it varies considerably according to whether you are in Mauritius, India, Italy, United Kingdom or Norway.

When trust is violated, the rule of law is weakened. How do we convince the builder of a beach kovil that her action is detrimental to the general good when a miniature Virgin Mary is replicated in another public area or a hotel is “reserving” some space for its customers on the public beach? Worse, how do we convince a citizen not to ignore a traffic light when she regularly sees a policeman, a minister, a judge, a paragon of “corporate governance” or a freemason “overuling” it?

In any case, citizens must never be offered a moral justification to flout the rule of law. Obviously, noise is not the only form of pollution. Deeply “religious” citizens as well as their “secularised” counterparts can also overlap in the same zone. The incentive for a strong sense of civic responsibility will not come through a one-minute exposure to “in peace, justice and liberty” over a loudspeaker during a national festival, no matter how loud.

Rather when we breathe and live the noble aspiration every second.

Thursday, June 4, 2009

Rupee Depreciation Won't Heal Our Woes

Price stability is not everything, but without price stability everything is nothing”
Otmar Emminger, former President of the Deutsche Bundesbank

Every year, in the run-up to the budget presentation, there is a tug-of-war between representatives of employees, employers and government to agree on a quantum for the annual pay review. Now they sit together in the freshly set up National Pay Council (NPC) with an independent chairperson expected to settle the dispute with the proposal of a quantum after assessing the views of all parties. Nevertheless, the mechanism, however well-meaning, is still unable to meet expectations. Why does the cycle continue ad infinitum and ad nauseam?

On the one hand, trade unionists claim that pay review must solely be concerned by the redress of loss in purchasing power. Alternatively, from the employers' perspective, and indeed the government's, capacity of employers to pay the increment and productivity data must also be considered. Officially, the three parameters – compensation for erosion of purchasing power, capacity to pay and productivity – constitute the basis of the mandate of the NPC.

In practical terms, the parameters, all critical it must be emphasised, cannot be reconciled because they rest on flawed assumptions, among which the rate of inflation computed by the Central Statistical Office is the most notable. The rate actually measures average changes in the prices of a basket of goods and services which itself is an average representation of the spending patterns of the average household. But is there such thing as a typical household?

The weight of say, food and electricity bills, in monthly expenses of different households varies according to their levels of income. The lower the income, the heavier the burden, especially when there is a surge in global food and fuel prices. Mauritian consumers are even more vulnerable since they live in a country which has failed to commit itself to a reasonable programme of food and energy security and must almost entirely rely on ever-costlier imports – to a large extent the inevitable consequence of the endemic slide of the rupee.

In an interview, Cader Sayed-Hossen, Chairman of the Commission for Democratisation of the Economy, disclosed how, during a meeting with representatives of the Bank of Mauritius, a business tycoon was advocating rupee depreciation to accommodate the fall in sugar revenue, going as far as even suggesting a quantum. Ironically, a closer look at the behaviour of the rupee over the years reveals that, barring seasonal delusion of new-found vigour as recently, the quantum has already integrated the system.

Had their lobby been as mighty, employees would not have to content themselves with a quantum, the one validated by the government, that in most cases hardly mitigates the negative impact of inflation on their income. This is so because employees tend to be allocated the strict minimum in terms of increment as the income targeted for maximum increment is extremely conservative, if it reflects reality at all.

When the most cynical foreign currency earners fret over the international value of the rupee, they contend that a weak rupee is “good” for the Mauritian economy. Such rumination is dubious. Belief in the salutary effects of a depreciating rupee is based partly on the expectation that rising exports of manufacturing production will increase employment and spur economic expansion. Evidence in Mauritius confirms large recurrent swings in both job creation and economic growth despite persistent depreciation.

While the intimate relationship between inflation rate and currency valuation in a highly open economy like Mauritius cannot possibly be challenged, the alleged relationship between currency depreciation and real competitiveness draws its rationale from tunnel vision rather than from contextual thinking. As currency depreciation feeds into the system, it stimulates a vicious cycle. Sooner rather than later the illusion of short-lived relief wakes up to a situation of self-inflicted damage. 

Brain Pain 
Human capital is the key driver in the pursuit of higher competitiveness. Yet, the depreciation bias has dented the morale of citizens whether subtly, when the slide is smooth, or harshly, when the slide is steeper. Productivity cannot be conjured out of thin air by rewarding the few. Real wealth is generated when the system is imbued with the required incentives that energise the majority.

For decades exporters have been blessed with preferential market access and a weak rupee. To some of them, now that the era of preferential access is fading, there is only the depreciation lobby to cling to. Bad habits die hard. When policymakers give in to them, they also lose grip on strategising to keep up with global capitalism. Hence the tremendous lag in national logistics, such as road networks, port and airport facilities, water supply and so on, that strains operations.

The Bank of Mauritius cannot cope with the complexity of an economy alone. It is little wonder then that it is stuck in a role of a fire-fighter spraying the market with erratic moves. The country is at the crossroads, the time is ripe to rid itself of the aberration of rupee depreciation, arguably the most pervasive distorter and disincentive in the system. Jointly with corruption, producer capture and high risk premium due to low predictability, it skews market prices and embitters industrial relations. Contrary to conventional thinking, it is not always conducive to sound economic fundamentals, such as trade balances. Worse, it often destabilises them, when hit by staggering fuel prices for instance.

No doubt, the Federal Reserve, the Bank of England or the European Central Bank can provide the Bank of Mauritius with guiding principles. But when it comes to minimising the risk of rupee volatility, on either side, Mauritius must tailor its policies to its own specificities. Singapore and Hong Kong, two of the stars of globalisation with similar profiles to Mauritius, should instead provide us with the inspiration.

Successive Mauritian governments have earned themselves a reputation of heeding to all sorts of lobbies, no matter how insane, as long as they are loud enough. By adopting such an attitude, governments waste considerable amount of energy and time to manage the resulting distortions, discontents and their domino effect instead of focusing on how to address pressing issues. Under these circumstances, policies tend to be misdirected and eventually backfire. 

Policymakers should get their bearings right regarding the grumblers of the export sector. It is not about profit bashing, but about exposing deception. Policymakers must not lose sight on: firstly, the actual returns which for some brush with the returns of luxury items retailers in terms of percentage; then, the fact that manufacturers import spirited workers to beat the demotivation of local workers; and finally, more pivotally, the high import content in the manufacturing process.

In a newspaper report, Serge Seeneyen, Managing Director of Soniawear, said that “when the rupee appreciates, it is up to businesses to take initiatives to mitigate its impact, reduce their operation costs and become more efficient. We are going through tough times, but I remain upbeat. I trust that in the future I will catch up with today’s losses”. What else but a typical expression of entrepreneurial spirit.

The signal that Mauritius is poised for globalisation will come when, namely, similar gung ho statements tweak self-indulgent headlines and when trade unionists are eager to let go of bonuses that are not performance-based. That is, when according to the gut feelings of the majority of businesses and households, regardless of what anointed statistics may boast, their efforts are being adequately rewarded.

Such transformation cannot be presided over. It can merely happen through an enlightened leadership capable of creating the synergy for long-term and sustainable economic expansion that is inclusive and non-inflationary.