"Ruptur", "sanzma", devlopma", you must be kidding!

The purpose of this article is not to impute motives to the running government, but to attempt to detect in its decision-making and its actions, the least indication of coherence in its mission to “democratise the economy”. Assuming, of course, that such a policy - expressed in less pompous terms - fulfils a twofold need: more freedom for enterprise and the pursuit of economic goals, and better distribution of the wealth generated.

Following the ritual change of government in our “electocracy”, with the measures of “the first hundred days” as a bonus, one could feel an almost palpable enthusiasm among the Mauritian population. Instead of taking advantage of that renewed surge of energy to propel Mauritius on the road to change - which would have made strategic sense - some budgetary measures have not only undermined the trust of the population, but also revived their cynicism.

The targeting of subsidies on flour, the distribution of bread to school children or even examination fees could probably be justified, provided that, before applying such measures, some equitable methodology had been devised to ensure that the beneficiaries are clearly identified, so that the new subsidies could take effect simultaneously with the suppression of the old ones.

As for the tax on housing, even if one considers that the surface area of Mauritius is too small for the rural/urban dichotomy to persist, it would have been better, first, to draw up a complete cadastre and to make sure that the services offered by the local authorities are of the same standard, before applying such measures. Failing to anticipate the furore caused by such misguided actions reveals an embarrassing lack of realism.

After so many years of self-indulgence, the entire population must have been relieved to hear the government speak of breaking with the past – even if this change is due to the world economic situation – with a development plan based on preferential trade agreements. It is still clear, however, that the stated objective of “modernisation” has not been defined after hard thinking, leading to an action plan deprived of local privileges and spread over several years.

There are many alternatives

The solution to a complex economic situation cannot be found in an a one-off “structural adjustment” along the lines of the “Washington Consensus”, taking into account only the “economic fundamentals” and a few dogmas. That is a view shared by many observers, such as Michael Porter, the competitiveness guru from Harvard University and Bill Lewis, the productivity guru from of McKinsey & Co, neither of whom could be considered “neoliberal’ or “antiglobalisation”.

Mauritius must be comprehensively reformed; there is no contention about that, but not for reform’s sake. When faced with tremendous challenges, one does not gullibly apply doctrines, but searches for innovative solutions. John Kenneth Galbraith, author of “The Affluent Society”, famously said that mainstream economists “are economical, among other things, of ideas”. Obviously, to those equipped with a similar mindset, there can only be one alternative for transforming the country.

In contrast, iconoclastic economists such as Steven Levitt, author of that must-read “Freakonomics”, Gary Becker and Edmund Phelps provide us with so much more stimulating analysis. As a matter of fact, the latter has recently been awarded the Nobel Prize in economics, for having shown how absurd it is to bet on a trade-off between inflation and job creation to devise economic policy, without any thought for the behaviour of market participants.

The last government lost the elections, so it said, because communication regarding its performance, which it qualified as “extraordinary”, failed to convince. So, guess why Mauritians now turn their backs on the resolutely “reformist” policies of the present government? Poor communication, of course! It’s so much easier to attribute the lack of vision in government actions to the supposedly “irrational” behaviour of those who do not accept them. Yet, as long as the Mauritian people are not convinced that a real project for a future society has been designed for their benefit, they are not going to “tighten their belts” in the hope that the situation will eventually improve.

As the government finds it more and more difficult to make ends meet, taxpayers have been exhorted to sacrifice the social benefits awarded by the Welfare State, and which are already much below their expectations in sectors such as housing, education and health. Moreover, the so-called benefits do not include a decent minimum wage or an unemployment benefit or insurance as in more developed economies.

It is not the Welfare State, as such, but the incompetence of each successive government that must be held responsible for this fiscal fiasco. Reducing wastage in government spending would require a measure of decency and something like a “cost killer” a la Carlos Ghosn, the emblematic leader of Nissan’s renaissance, to track any misuse of public funds in the allocation of contracts, for instance. Talking about the reality of market prices does not mean condoning a mercantile mentality.

This casual approach lies behind the proposal for a toll at the entrance of Port Louis, in order to relieve traffic congestion. Assuming that the proposed bus lane coming from the south could possibly offer a choice to motorists, what about commuters from the north where no bus lane is on the agenda, for example? An action derives its nature from context and timing that determine whether it is perceived as progressive or arbitrary.

The same applies to the additional pressure upon our rupee, in which a lot of people seem to have already lost confidence anyway, since the introduction of a tax on interest at source, and the abolition of deductions from taxes payable by individuals. As for the appeal to foreign currency holders to convert their money in order to stabilise the market in the name of “patriotism”, it is part of the emergency calls our successive governments shamelessly impose on us after their blunders.

Blind Faith

The relative stability of the rupee over a short period is attributed to the fact that “the former government used monetary policy for political purposes.” This means that the massive depreciation of the rupee was what the present government wanted. Not at all surprising when we know that a “competitive currency”, a euphemism for “painless” depreciation, is one of the ingredients of the universal remedy every star pupil of the World Bank or of the International Monetary Fund has been taught to concoct, regardless of the vicious circle it creates and perpetuates.

Stephen Roach, an analyst from Morgan Stanley, accuses his colleagues of behaving more like “data junkies”, hooked on a few macroeconomic data. The figures provided by the CSO (Central Statistical Office) cannot be interpreted in absolute terms because they are influenced by the countless distortions in the economy, and the model used in their calculation. The more so because, when they are not translated into constant rupees, they tend to create an enduring illusion of progress.

Ending a crisis cannot in itself be defined as an objective without an intuitive grasp of the interactions among all stakeholders, which, in turn, means going down to grassroots level. There is not the slightest possibility that data will emerge by themselves, unless the relevance of microeconomic research has first been recognized. One could start by measuring the pass through of the endemic depreciation of the rupee, which is undoubtedly the cause of most of the distortions.

This deliberate choice of policy affects practically the entire system. First, it has a perverse effect on market prices directly (goods and services, whether imported or locally produced, the latter being still dependent upon imported inputs, etc.) and indirectly (interest on loans, property, wages, etc.). Then, less obviously, it is an incitement to xenophobia, because of the great gap between the salaries of local personnel and those of expatriates.

Lastly, it has an even more dangerous consequence, in that it discourages expansion through productivity and innovation. A stable currency and increased productivity re-enforce each other. A strong currency, on the other hand, can only be sustained by a constant and significant progress in overall productivity. Besides, a microeconomic perspective allows an evaluation of the fiscal burden of businesses as a whole, because a mere reduction of corporate taxes, by itself, will not attract investors.

Collecting taxes and, especially, the growth of “national’ wealth, however essential, should not become an obsession. The GDP (Gross Domestic Product) is not a reliable indication of the quality of life in a country, because it does not take into account parameters such as inequalities, purchasing power, environment and leisure activities. There are so many inadequacies between what our system is able to generate and what is essential to a competitive nation. Up to now, unlike the largest countries on the African continent, Mauritius has been spared a brutal confrontation with its grassroots problems, probably because of its resilience, which it owes much to its small size and its "soft" population.

A societal crisis, a flourishing underground economy, the extent to which the economy is “dollarised”, anarchy on the road, crime rate and brain drain are some of the symptoms of a gradual loss of trust in the system. It is up to the government to interpret those symptoms and to adapt its policies to a world that keeps changing, with fiscal incentives and new laws to contain any excesses, should the need arise. It is essential to keep a balance between prevention and repression, in order to ensure that our attitudes always evolve in harmony with public interest.

Shining Mauritius

Opening up our skies for more connectivity, seats and price reduction, making the most of our oceanic resources and the milk farms project all indicate that the government has a reasonably thought out diversification plan. However the caveat is that, overall, government is still “pro-business” in its endeavours; in other words, government policies are still dictated by lobbies from dominant players, instead of being adamantly “pro-market”. This attitude is clearly indicated by the delay in achieving the (real) liberalization of telecommunications and the proliferation of projects under the IRS (Integrated Resorts Scheme). The government would do well to ponder the “Shining India” syndrome.

The “shock” caused by the drop in the agreed price of Mauritian sugar on the European market, which did not come without warning, tells us a good deal more about the gap that still exists between the facts and the alarmist declarations of spin doctors. The impact on the “country’’ is not as devastating as they would have us believe. The trickle down of the profits is negligible, when compared with the revenue. Besides, our economy today is much less dependent on sugar, and the expected loss of revenue has already been largely compensated by the persistent depreciation of the rupee as well as by other “accompanying measures” over many years.

The business climate should favour healthy competition and a level playing field. Otherwise, it promotes a rent-seeking culture. The “country” can surely go through another period of high exuberance any time, brought about by another economic “bubble”, which is all part of the boom and bust cycle. The question is whether we have the desired entrepreneurial spirit to cope with it through a “creative destruction’.

Innovation is the driver of change. Yet, our successive governments create reaction to change. Currently, the government is proposing an accounting exercise in lieu of a strategy. In any case, even if the official inflation figure of about 10% does not reflect the reality of the situation, the next pre-budget session on the compensation of our purchasing power, whatever the appellation, is likely to be explosive.

Our long-term prosperity depends on the capacity of the government to satisfy the aspirations of all stakeholders. As long as this capacity remains strong, our standard of living will progress, even when higher returns in domestic production, or outsourcing to countries where wages are lower cause job “losses”.

Should that capacity deteriorate, there is no issue, neither through the sullen choice of protectionism, nor through the more glamorous alternative of free trade. It is time to set aside the tunnel vision of semantics, performance relativism and party politics and adopt a holistic as well as critical approach, based on a permanent quest for excellence.

Mauritius is desperately waiting for such a major change.