A Look in the Rearview Mirror can be Salutary

Economic Policy — 

The view of historical development based on the concept of the “swing of the pendulum”, according to which socio-political developments nationally and even globally seem to go from one extreme to the other before finally settling somewhere nearer the centre, would certainly not resist any thorough scientific analysis. Yet the general perception that this is a recurrent pattern of historical development is quite strong in many a layman’s view.

The Great Financial Crisis (GFC) of 2008 has created a breach in the quasi-monopoly of intellectual dominance by market fundamentalism for over two decades. Not that this has been followed by a surge in radical leftist thoughts. In fact the response has come broadly from centrist authors and academics who, far from questioning the perennial superiority of the market economy per se, have focused on demonstrating that there are different more or less moderate versions of capitalism that are emerging. ‘Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity’ by WJ Baumol, RE Litan and Carl J Schramm is a good example of such works among so many others.

The point remains, nevertheless, that there is a recognition that the GFC (2008) will no doubt prove to be a turning point in global development, equivalent to 1945, 1971 and 1989. Much of what had become the new “conventional wisdom” about how societies should be subordinated to the “invisible hand of the market” has now been discredited, leading both Pope Francois and the IMF Chief Christine Lagarde to agree that the inequity and unfairness of the existing society were untenable.

The surge of Neo-Liberalism globally has naturally not left Mauritius unaffected, although it would probably be misleading to say that we have been subjected to a regime of “rightist” policies during the corresponding period. It would be nearer to the truth to state that the very liberal strand of our policy-makers – Ali Mansoor, former influential Financial Secretary, would certainly not object to such a categorization – have tried very hard and been partially successful in their endeavours. They also met with lack of support from an ambivalent and weak political establishment as well as organized unions and public opinion. The real damage is that as a result the country seems now stranded in an ocean of contradictions without any sort of beacon to signal the way forward.

The last three decades have been characterized by, to use the famous phrase of John Stuart Mill, “the deep slumber of a decided opinion” — in other words an environment in which the politics of ideas has been absent from public debates. Interestingly enough the preceding decades from the 1970s to the 1990s, especially the earlier days, with the birth of the MMM (1969) which picked up class politics/struggle from where it had been dropped by the Labour Party in late 1950s and early 60s, had witnessed an intellectual ferment which contributed largely to the “socio-economic progress” recorded during that period. It is possible to capture the essence of this phenomenon and hopefully incite a “return to the future” by examining a few concepts which were familiar household terms in those days, and attempt to assess their relevance even today.

Mixed Economy

In the years following independence in 1968, the concept of mixed economy was an accepted concept among the political establishment as well as the private sector. The famous public-private sector partnership was founded on this idea that “collaboration” between the two protagonists of economic development was an essential condition for progress.

Some analysts have suggested that the motivation of the “white plantocracy” was the fact that being a minuscule group they needed the protection of the State for their security and therefore agreed to “sharing the spoils” with the State bureaucracy. Be that as it may, this has been a constitutive part of the economic model and the governance structure which have been successful under the old international regime of quotas, trade preferences and protection.

Globalization having changed the goalposts the question which arises is whether the mixed economy is an irrecoverable casualty or the baby which should not be thrown out with the bathwater?

Commanding Heights of the Economy

In the era of “greed is good” and sacrosanct market fundamentalism, it has become taboo to even invoke the issues related to the concept of “commanding heights of the economy” and the related questions of concentration of wealth and revenue which go with it. In 1974 the Economic Intelligence Unit of the Ministry of Finance produced a document on the concentration of wealth in the economy. Among other things it noted: “In sum economic power is concentrated. This concentration of economic power is accentuated by the recent process of merging in all the sectors – agriculture, finance, services and trade. And such a concentration of economic power naturally implies a concentration of revenue for various sources as well.”

Forty years later, nothing has changed except the general business environment. Recourse to “nationalisations” as a response to such concentration in the present global economic environment and given the vulnerability of Mauritius to international trade is a non-starter. To the extent that such concentration of wealth and revenue represents a constraint on the future growth and efficient utilization of national resources, the State needs to engage with the corporate sector using the carrots and sticks at its disposal.

Only a strengthening of the “capacities” of the State can lead to a productive conversation. A “smart” regulatory framework is the other option which is now more and more acceptable even in advanced capitalist economies.

Planning

For many years the Ministry of Economic Planning and Development was an essential component of governance in the country. The neo-liberal revolution meant that the concept of Planning was suddenly assimilated to the Soviet style of central planning and quickly abandoned. Many of the serious weaknesses, which are presently observed in the design and implementation of policies, can be traced back to the lack of an overarching sense of priorities and direction. Such an environment tends to be dominated by a “silos” mentality in which co-ordination and synchronization among various ministries and departments are either inexistent or become a drag on the process of smooth implementation of policies.

Furthermore, during times of uncertainty and volatility, long range planning becomes an essential tool for dealing with these by anchoring government decision-making in a long-term framework as opposed to permanent crisis management and knee-jerk reactions to events.

Wealth Redistribution

Perhaps the greatest casualty of all has been the very notion of wealth redistribution in society. The quarter century or so of growing prosperity in post-World War II Europe and other developed countries was marked by the rise of Social Democratic parties which were concerned with a fairer distribution of the fruits of such prosperity and more social justice in society. Progressive taxation and nationalization were then the two principal tools used for achieving such objectives. Even the ruling classes subscribed, albeit reluctantly, to the notion of redistribution given the hostile environment of the Cold War era.

Today in the dominant discourse even the moral imperative dictating a pro-redistribution stand has been turned on its head and is castigated as “jealousy and envy” on the part of its proponents. It is no surprise then than “oligarchic” capitalism holds sway with less than 1% of the world’s population holding more that 90% of wealth created globally. Under “oligarchic” capitalism although the system is nominally capitalist, ‘government policies are designed predominantly or exclusively to promote the interests of a very narrow (usually very wealthy) portion of the population, or what may be worse, the interests of the ruling autocrat and his (or her) best friends and family (in this instance, the system is better described as “kleptocracy”).

Do the above concepts, among others of course, still have a place in the tool-kit for the formulation of policies for future growth and development in the present global and national economic environments? A positive answer to this question is certainly more likely today than it would have been even only a few years ago. It remains an eminently political/ideological choice and the extent to which they dictate and influence the policy options is a reflection of the degree of commitment to progressive politics.

Rajiv Servansingh