Mauritius: An ‘Extractive State’?

It is time that we took a hard look at the financial irregularities and ills that are ravaging our country, and learn the lessons and insights provided by serious analysts

 ‘Is the US becoming an extractive state?’ – If the question can be asked about the US, there is no reason why we can’t similarly ask it about our own country, given the exposures that have been made in response to PQs and PNQs in the Parliament, and that are about vast sums of money ‘extracted’ by individuals using or abusing of their positions at the head of parastatal or state entities.

All this takes place, obviously, at the expense of the more deserving who are struggling to make ends meet at the middle and lower rungs of the socio-economic ladder. Is a thought spared for such hard-working, law-abiding citizens who duly pay their taxes – and helplessly have to witness the revelations in the temple of democracy (our Parliament) about the wheeling-dealing and brandishing of amounts of money that in their wildest dream they can never even imagine, and that others so glibly brandish about?

In a post by Jason Kottke in October 22, 2012 titled ‘Is the US becoming an extractive state?’ he observes that ‘Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness’ (italics added). Isn’t that – ruling elites whose objective is to extract as much wealth as they can from the rest of society – what seems to have been happening in the country, and that too not from yesterday!

The term comes from an important book, ‘Why Nations Fail: The Origins of Power, Prosperity, and Poverty’, by Daron Acemoglu and James A. Robinson of Harvard University, whose basic postulate, using the story of the decline of Venice, that ‘what separates successful states from failed ones is whether their governing institutions are inclusive or extractive’.

The argument mentioned by Daron Acemoglu and James Robinson in ‘Why Nations Fail’ relating to Venice is:

‘In the early 14th century, Venice was one of the richest cities in Europe. At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.

‘Venice’s elites were the chief beneficiaries. Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing. But if you are on top, mobility also means competition. In 1315, when the Venetian city-state was at the height of its economic powers, the upper class acted to lock in its privileges, putting a formal stop to social mobility with the publication of the Libro d’Oro, or Book of Gold, an official register of the nobility. If you weren’t on it, you couldn’t join the ruling oligarchy.

‘The political shift, which had begun nearly two decades earlier, was so striking a change that the Venetians gave it a name: La Serrata, or the closure. It wasn’t long before the political Serrata became an economic one, too. Under the control of the oligarchs, Venice gradually cut off commercial opportunities for new entrants. Eventually, the colleganza was banned. The reigning elites were acting in their immediate self-interest, but in the longer term, La Serrata was the beginning of the end for them, and for Venetian prosperity more generally. By 1500, Venice’s population was smaller than it had been in 1330. In the 17th and 18th centuries, as the rest of Europe grew, the city continued to shrink.’

In fact, ever since the publication of that book, its framework has been used to analyse several societies around the world, especially those that are deemed failed states, using the authors’ argument that, as a recent issue of The Economist puts it, ‘the key to understanding state failure is “institutions, institutions, institutions”.’

In that article, The Economist takes South Sudan and Afghanistan as examples, where the nexus of tribal leaders, warlords and drug traffickers are the equivalent of elites that drain the country’s coffers and leave the rest of the population in poverty, deprived of basic services and infrastructure that they deserve – and could well be provided for if only the money that comes from their country’s resources – e.g. oil in Sudan – was not diverted to the deep pockets of their rulers and their nexus of acolytes.

If we are not careful, we may well soon be on the way to being classified in the category of an extractive state at the rate we are going. It is time that we took a hard look at the financial irregularities and ills that are ravaging our country, and learn the lessons and insights provided by serious analysts, such as the ones referred to above, so that we may course-correct before it is too late.

All of us collectively owe this to the future generations of our country, and at this stage an appeal to some patriotism is not out of place. We are all in the same boat, and will swim or sink together. Let’s hope that we will stay afloat and prosper rather than sink!

TP Saran