Introduction:
In a recent essay on how small economies cope with a volatile world economy, Jeffrey Frankel, professor of economics at Harvard University, referenced Costa Rico, in Central America, and Mauritius, in the Indian Ocean, as two nations with interesting growth models. Both nations, he pointed out, had outshone their peers and, noticeably, they had also been innovative and, of some importance, both avoided having a standing army. Those reading these Notes over the years may recall that one of the policy initiatives I have long called for was the return to a volunteer regiment and abandoning the Barbados Defence Force for reasons too long to go in to here. Such a change can be done without any loss of service people’s jobs, with a few gazetted officers remaining in place to run the regiment, and transferring the others to the police and Coastguards.
It is our coastal borders that pose the highest security risk to our nation, which is the responsibility for the Coastguard, and the police, not a standing army, could deal with any internal breakdown in law and order. However, Professor Frankel went on to point out more interesting coincidences between the two nations: “The results in both cases have been a political history devoid of coups, and financial savings that can be used for education, investment, and other good things.” Mauritius gained its constitutional independence from Britain in 1968 and embarked with some difficulty on a process of nation-building. Unlike Barbados, there was no automatic assumption of punching above its weight or of being more British than the British. It was a process of bringing the Muslim, Hindus, Africans, Chinese, creoles, French and British together as a single nation.
Analysis:
One change or innovation that will be key to any economic rebalance of the Barbados economy will be a countercyclical fiscal policy, saving during the good times in preparation for the tough times on the horizon. It is the old Biblical story of the famine, but for reasons best known to themselves, most developing nation prefer to follow the Anglo-Saxon economies with state overspending during the boom years, then imposing painful austerity measures in the tough years.
The other initiative that may be very productive is a fiscal budget balance over the lifetime of a parliament; so governments could overspend in the early years of a new administration, but approaching the end of that parliament the focus should be on balancing the books. This condition could be written in to legislation. These points aside, Mauritius has important lessons for a small semi-open economy such as Barbados in that it has recovered from previous external shocks by diversifying the economy, rather than refocusing on tourism or an over-dependence on sugar. It is this simple, but effective rebalancing tool that for six years has outfoxed the minister of finance, Chris Sinckler, and the governor of the central bank, Dr DeLisle Worrell.
According to Laurent Belsie, of the National Bureau for Economic Research, Mauritius has been successful because it has working institutions. “That this 720-sq mile island is an African success story is borne out in various rankings: first among sub-Saharan African nations in the Rule of Law index from World Governance Indicators; first in the index of African governance; and the highest ranking African nation in the United Nation’s Human Development Index (and 81 our of 182 countries worldwide).” Ignoring for the time being the over-inflated importance of the UN’s Human Development Index, the facts on the ground are very impressive. |Owner-occupation in the US is about 70 per cent, in the UK it is about 65 per cent, but in Mauritius it is 87 per cent, only Singapore, with about 90 per cent, is higher. This is progress. The Mauritian economy, without the advantage of natural resources, has also grown at an annualised five per cent over the last 30 years and per capita income has also grown from about US$400 a year to $6700 at present. The ‘miracle’ is that Mauritian society has settled on a social compact, one based not on crude economics, but on social cohesion and obligations across generations. It is a society that has realised that the US model of militarising all state institutions is one that leads to widespread inequality and a decline in society. Therefore it has re-focused on not spending what little money it has on a standing military and opt to use that budget for the wider social good.
Economics:
Like most emerging economies, Mauritius faces an enormous challenge from the post-globalisation initiatives of developed economies to devalue their real exchange rates through the process of quantitative easing, or the ‘printing’ of money, in order to drive their exports. Under this new paradigm having an open economy, one in which nations can trade across borders transparently and with minimum hindrance, three key features are necessary: the rule of law, so that there is enforcement of contracts, (just look at the logjam in the courts), the absence of protective import tariffs (the extortionate Barbados second hand car sector operates to my mind like a Mafia), and the absence of export subsidies. From 1970 to 75, exactly when Barbados was suffering from the exogenous shock of the Middle East oil embargo, the Mauritian economy was growing by an average eight per cent, and from 1970 to 2010, when the global banking crisis had mutated in to an historic recession, it averaged 5.4 per cent. The island emerged through the various developmental stages: from an economy dependent on sugar, to one producing basic labour-intensive manufacturing, including textiles and more recently it entered a third stage of tourism, services and technology. Very importantly, Mauritius devalued twice, encouraged by the International Monetary Fund, and has diversified in to new industries, while holding on to its traditional ones.
On the other hand, we have a situation in Barbados where low-cost textiles are imported from China and South Africa, putting indigenous small firms out of business. On the contrary, look at the numerous failed attempts by Barbados governments and businesses to get a viable Sea Island cotton industry off the ground; look at our failure to develop a black belly sheep industry, both in terms of meat and wool. Successive Mauritian governments have also made very interesting interventions in the macroeconomy: a 15 per cent simplified tax universal across individuals and corporations, and the Business Facilitation Act, which removed barriers to investing and hiring. Part of these reforms mean that a business can be started in Mauritius within three days, numerous regulatory conditions have merged in to a single requirement; tourism operators are encouraged to innovate, both products and markets, and new industries include legal and financial services.
All of these Barbados can do to a comparable level, or even better; Mauritius has developed a seafood industry, unlike Barbados which had a viable shrimp industry with 15 trawlers on independence, and not a single one today. Last time I checked people were still eating sea food. There is also a major capital project, a trade zone, funded by the China government and valued at US$700m, which is projected to create 40000 new jobs over five years. The new export-led industries will earn a further over $300m a year. The other major project is a US$3bn new City, which the government expects will ease traffic congestion and pollution. Equally, it has a floating currency, all ideas for the ministry of finance.
Conclusion:
One remarkable feature of this government is its apparent obstinacy and closing its collective mind to new ideas. This is borne out of political partisanship and an ego-driven cultural obsession with the notion that the principals must be seen to be driving any changes or innovative policies. Barbados has an uncompetitive fixed exchange rate, based on the macroeconomic thinking of the early to mid 1970s and not the needs of the post-Great Recession global and local economic climate. What compounds this volatile situation is the importation of energy and food inflation and that driven by local traders doubling and trebling retail prices without any official oversight. The government could have avoided this, and still can, by creating a prices and incomes commission which would take full responsibility for any changes in retail prices and wage increases. Further, at some point it must be realised that although Barbados has not had a riot or other serious social disturbance since 1937, the reluctance of the two dominant political parties to cooperate in the face of stinging economic problems is a symptom of political instability. The situation is even worse since the fact that not a single parliamentarian, many of them with second jobs and businesses, has volunteered to forego a cut in salary to benefit the poor and impoverished in their constituencies, a sure sign of lack of empathy and charitable sensitivity. They should be punished at the polls for this.
One single important difference between Mauritius and Barbados is that one nation is innovative, enterprising, adventurous, while the other rests on its laurels in the vain belief that something must come along. Mauritius has not got all the answers, nor is all its innovations that brilliant; what is important is that they are prepared to try new things, some of which work. In the search for new ideas it is important to remember there are two dominant growth theories: one based on capital and labour and the other on ideas. One approach to ideas-driven growth is skills transfers through foreign direct investments and investing in people, neither of which Barbados is known for. The economic success of Mauritius is a good example of a country that has diversified its economy and, despite its other faults, stands as a good model for other micro-states and small open economies.
Like Trinidad and Guyana, after the abolition of slavery there followed a labour shortage on the plantations and that labour was imported from India; other groups quickly settle and the nation has managed to bring them together as one, certainly compared with any other multi-cultural, multi-ethic, multi-religious nation. In time, a variety of ethnic and religious rivalries and conflicts occurred, but post-independence it appears as if Mauritius has overcome those social and political set backs.
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