Why not Price Control and Protectionist Tariffs?

Change in Repo rate and subsidy on dollar

This is a clear case of strong lobbies, absence of strong policy and a crisis mode of operation which seems to have taken roots at Government House

“It is the role of governments to secure socio-economic rights. People believe that they have a right to live in healthy communities, hold stable occupations and earn a decent income that rises over time. These rights do not stem naturally from property rights and claims to scarce resources, coins of the neo-liberal realm.”

— Karl Polanyi, Austro-Hungarian economic historian

 The quote above comes from someone who was anything but a revolutionary. Yet it would be anathema to the supporters of neo-liberalism who consider that businesses should be given maximum freedom to use scarce and non-renewable resources and fix the salaries of workers to ensure the maximization of wealth creation. The increased wealth thus created, it is postulated, will then “trickle down” to the most deserving members of society, implying that the poor, excluded and vulnerable communities only bring such misfortunes upon themselves by being unproductive and “lazy”. State intervention to change this “natural” order of things is therefore considered to be an intolerable and ineffective interference in the workings of the market forces.

The debate between free-marketers and believers in State interventionism as the ideal form of economic organization at a national and global level is probably as old as the idea of “economics” itself even in its earliest days. In its modern form, however, it can probably be traced back to the early industrial revolution which was defined by a rapid concentration of means of production (land and capital) in the hands of a small minority while the development of the productive forces meant that a “surplus” production needed to be allocated to various stakeholders including the wages of workers employed in their production.

The battle between the “progressive” forces for greater state intervention and the “reactionary” forces of conservatism has been the defining characteristic of the “political” struggles in most advanced countries during the 19th and 20th centuries. Although these have been marked by highs and lows for both parties (progressives and Conservatives), it is clear that the Progressives, basically through the rise of trade unions and other workers’ organizations, have extracted substantial gains over that time period. All this culminated with what the French call the “trente glorieuses” — the roughly 30 years following World War II.

The Mauritian context

Things have changed drastically since the demise of the USSR and the end of the Cold War in the latter decades of the last century. The hegemony of neo-liberal ideology accompanying the rise of globalization and the emergence of financial capitalism as the dominant form of economic governance in the global economy have unfortunately not spared Mauritius. Over the past decades and most distinctively so since the beginning of this century, the neo-liberal ideology has been the guiding inspiration for “economic reforms” and structural adjustments of the national economy.

The country has introduced a raft of measures which were meant to “free” the enterprising spirit of the private sector and increase wealth creation: deregulation of employment and labour laws, liberalization of international trade and investment, drastic reductions in corporate and individual taxes with the total relinquishment of the notion of progressive taxation to boot, attempts to limit the role of the Welfare State, and since more recently serious threats of privatization of public utilities.

As all this were happening, the representatives of the “State” led model of development — social democratic and erstwhile socialist mainstream political parties such as the Labour Party and the MMM — either meekly watched on in silent desperation or worse squarely surrendered to the onslaught of the overwhelming armada of this right wing ideology. The most common form of this total surrender was the new TINA school of thought founded on the notion that “There Is No Alternative” policy regimes.

What actually happened to the economy, as they say, is history. Economic growth has stagnated at less than 4%, income and wealth distribution as measured by the Gini Coefficient has been fast deteriorating, huge swaths of the population are marginalized and blatant manifestations of socially dysfunctional behaviour have become the order of the day. The paradox is that, amidst all this macro-economic gloom and doom, the most recent figures published by the Stock Exchange of Mauritius for the first quarter of this year point to substantial increases in revenues and profitability for the largest conglomerates which control the economy of the island…

Coming to the subject matter of reduction of the Repo rate by 50 basis points to historically low levels and the subsidy on the dollar for the textiles and garments sector, it is a fact that the US dollar has been weakening against the Mauritian Rupee (MUR) over the past months. This is due to reasons intrinsic to the US economy suffering from the inconsistencies of the political leadership of Donald Trump, the destabilizing effects of his immigration policies on labour supply and mounting disillusionment with the administration’s ability to implement its “pro-business” fiscal policies. As regards the “strength” of the MUR, this is largely influenced by the huge inflow of forex mostly directed to “unproductive” investments into real estate projects.

Our purpose here is not to discuss the merits of these measures. We dare say however that there is little if any chance that they will contribute to spur exports and employment or additional investments over the coming months. This is a clear case of strong lobbies from restricted vested interests winning the day through strong and, one must concede, intelligent lobbying. It is also the result of absence of strong policy and a crisis mode of operation which seems to have taken roots at Government House.

Beyond the power play and mechanics of such decision making, the real issue of concern is about how the private sector lobbies in Mauritius can so openly and cynically adopt a posture of “heads we win, tails you lose” in total opposition to the basic principles which they so cherish when these are in their interest.

How can one support subsidies on the dollar for a particular sector and at the same time cry for liberalization of rents in the name of free market?

How does one reconcile demands for labour market deregulation and simultaneously lobby for interference in the forex market?

Why would it be wrong for the local producers to ask for protectionist measures in a country where exporters are being subsidized? Why would it be wrong for consumers to clamour for price control? Where are the famous “level playing fields”? Or should others do what the stronger lobbies say and not what they do…

 

  • Published in print edition on 15 September 2017

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