Rundheersing Bheenick: What legacy for the future of Mauritius?
Address by Mr Rundheersing Bheenick, Governor of the Bank of Mauritius, at the Annual
Dinner in honour of Economic Operators, Pailles, 17 November 2014.
* * *
"At this stage of the development of our country, the best contribution that
the Central Bank can make is to keep inflation low, stable, and predictable
as the foundation for a fairer and more equal society."
In the heat of the election
1. The Annual Dinner in honour of Economic Operators has become a linchpin in the
Bank's calendar of events as it gives me the occasion to share with you my current thoughts
and concerns as well as my vision for a better Mauritius from my vantage point as Governor. In
the heat of election fever now gripping the country, I thought it timely to reflect on times ahead
and the legacy of the economic operators for the future of this small island state of Mauritius.
They say that a country gets the leaders it deserves. Happily for us, we have had some of the
best in both business and politics. Although not all now running for office may prove to be so.
Time will tell.
2. I am here reminded of that quip in Bernard Shaw's Major Barbara1, assessing a young
man's employment prospects:
He knows nothing and thinks he knows everything. That points clearly to a
political career.
3. But in this small island developing state of ours, as we all know, we are economically
and environmentally vulnerable, and that demands continual decisive leadership. Perhaps, not
so decisive as that of the Duke of Wellington. He was famed for his brilliant military record
against Napoleon. Less well-known is that he actually was Prime Minister of Britain, twice.
Thirteen years after defeating Napoleon, the bold Iron Duke conducted his first cabinet
meeting. The experience must have jolted him as he confided to a friend afterwards:
An extraordinary affair. I gave them their orders, (and damn it) they wanted to
stay and discuss them.2
4. I know the feeling after meetings of the Monetary Policy Committee here. And, I dare
say, so do many of you heroes and veterans of boardroom battles where unwary captains of
industry and corporate honchos meet their Waterloos.
The future
5. Tonight, I want us to look into the future and ask how we are facing up to the
prospects ahead. Do we have the resilience to survive as a nation, or indeed as a civilisation?
Resilience is the capacity for bouncing back after shocks. Despite our small size and our
isolation, resilience or anti-fragility has become our badge of honour. But is that enough?
6. We survived the 1960's prediction of inevitable catastrophe of a future Economics
Nobel prize-winner. We exorcised the ghost of Malthus, just as we have seen off the plague of
malaria, that used to kill 2,000 of us a year up to the late 1940's. We have developed
remarkable defences against cyclones that are a regular occurrence in this part of the world.
We have fought off dengue fever and chikungunya. And, now we are busy preparing our
defences against the dreaded Ebola. We escaped the geopolitical risks of war. But more than
this, we have come through in pretty good shape from the global financial and economic crises
of recent years. Hardly a month goes by without the country garnering some new accolades
from the likes of the World Economic Forum, the Heritage Foundation, the Mo Ibrahim
Foundation and so on. Well done Mauritius! Well done our policy-makers! Well done you
economic operators! To say nothing of you bankers: well done bankers, indeed! We are sitting
pretty, aren't we?
7. But, as we give ourselves a collective pat on the back, can we spare a thought to the
risks to the future fortunes of this land? What steps are we taking to move towards a more
inclusive society that leaves no-one behind? How far will our current plans and policies
mitigate the worst economic and environmental ravages to come? How will they promote the
job-rich and inclusive growth that the head of the IMF, Christine Lagarde, has recently been
calling for?
8. So let me try my hand at prophesy. Did I hear a sharp intake of breath? I know that,
sometimes, it is said, I have a slight streak of arrogance, though I trust not as much as the
notorious Alfonso the Wise, King of Castile. Surveying the state of the world in 1252, he
observed:
Had I been present at the Creation, I would have given some useful hints for the
better ordering of the universe.3
9. Let me polish up my crystal ball and look forward to 2035, as I once did to 2020, in the
sadly defunct Ministry of Economic Planning and Development, our long-term think tank of
times past. What do I see, twenty or so years ahead?
I see three major interrelated strands ahead:
• First, there will be an inescapable and massive transformation of all aspects of
society, underpinned by inexorable globalisation.
• Second, this will be driven by transformational technologies, policy changes and
international agreements. These will lead to greater availability and rapidly declining
cost of communication, transport, health care, education and food.
• Third, I see a complete make-over of banking, business, industry and social life.
In short, in the next two decades to 2035, I see a substantial transformation of the world as we
know it.
10. Think on it. How many of you here tonight, how many businesses that you run, will
continue exactly as they are, or indeed survive twenty years? Not all: not many, I guess. So we
must give a thought to our legacy. What will we leave behind? Prosperity? Or the decline and
fall of the wannabe tiger of the Indian Ocean?
11. Global warming and sea level rise - that's firmly on the cards: but that's nothing
compared to what else may be out there. For I see the driving forces of cheaper, faster and
more reliable transport and communication running rough-shod over our present amiable
tranquillity, unless we act now.
Banking will be transformed:
• Mobile may become the main delivery channel for banking and payment services.
• We shall have bankless banking, no counters, no backrooms, no paper, no sky- high
buildings.
• There will be more common currencies and digital currencies, with corresponding
declines in fewer exchange transactions.
• In short banking will be cash-lite, with fewer staff, and still fewer bankers.
12. This is not a scenario of a distant future. Some of it is present reality. It is already
happening. Just a couple of weeks ago, Lloyds Banking Group, a British bank announced
plans to axe 9,000 jobs and close 200 branches as it "digitises" its business. Technology is
already reaping barren harvest on jobs.
Beyond banking, business will be transformed:
• Not capital- or labour-intensive but knowledge-intensive.
• Big offices going: big companies gone.
• Weightless companies with minimal capital and staff.
Malls will re-invent themselves, becoming more a gathering place for socialising than
•
shopping.
Shops going, internet sales with drop-off delivery.
•
• Private on-line matching of buyers and sellers of goods and services.
• More niche markets: applications markets, e-entrepreneurs.
• Computer-controlled, driverless, electric transport: the internal combustion engine is
history.
• Pilotless drone airplanes, railways, shipping.
• New businesses become small, agile, short life-span, not butterflies but impalas with
many predators.
Our life will be transformed:
• Towns and Cities turn into integrated regions. Beau Bassin runs into Rose Hill and
runs into Quatre Bornes. The Port Louis/Curepipe corridor, energised by the Light Rail
Transit Systems, spills over neighbouring agglomerations. The likes of Flacq in the
east, Rose Belle in the south and Goodlands and Triolet in the north will blur the
rural/urban divide. The country will be well on its way to become a city-state.
• Nation-states fading away with free movement of labour and capital.
• Laws harmonised, lawyers going.
Education transformed:
• Massive Open Online Courses: teachers redundant.
• Life-long learning becomes the norm.
But, despite this rosy scenario, there are also some ominous clouds on the horizon.
Without concerted action, the worse-case scenario is bleak:
• Massive unemployment and underemployment.
• Rising inequality: super-rich amidst a sea of poverty, and the collapse of the middle-
and lower-middle class.
• Gated luxury estates: sprawling slums.
• Social unrest, strikes, crime increasing.
• Decline and fall of urban civilised life: extremist terrorist barbarians at the gates.
13. In case your worry levels are rising, let me hasten to add that this dystopian nightmare
is not a fatality. It is certainly not beyond human ingenuity to envisage pre-emptive measures
to temper the worst excesses that can push us in that direction. Tonight, I shall focus my
remarks on inequality, not because I have a ready-made solution - nobody has - but to
stimulate debate on what is often seen as a taboo subject in polite society.
Rising inequality is a time bomb ticking away across the world and indeed here in
Mauritius
14. Growing inequality is rapidly developing into a fault line that we ignore at our peril.
Last month, addressing a conference on The Challenges of Job-Rich and Inclusive Growth on
the eve of the IMF-World Bank Annual Meetings, Christine Lagarde, the IMF Managing
Director, echoed recent OXFAM research findings:4
...the world's richest 85 individuals control as much wealth as the world's poorest
3.5 billion people.5
the
15. Thomas Piketty, in his massive tome, Capital in the Twenty-First Century6,
21st century sequel to Karl Marx's great work, adds to the large body of evidence on rising
concentration of income and wealth. Piketty argues that generally wealth grows faster than
economic output. Slower economic growth has increased the weight of wealth in society,
leading to higher inequality, which could pose risks to economic and political stability. We are
living in an increasingly divided world where many Africans risk their lives on shaky boats to
escape poverty and conflict while the super-rich chase their next billion to improve their ranking
in the Forbes list7. Even here in Mauritius, some of our top income-earners are being paid over
two hundred times the wage of their office cleaners, and ten times more than the surgeons in
our hospitals. Is that the society we want to perpetuate? Is that a society that is just and
sustainable? The time bomb of growing inequality is ticking away.
16. We are a country trying hard to escape from the middle income trap. But we have no
chance of doing that if we do not focus on the risks inherent in jobless growth, persistent high
unemployment, and the widening divide between the haves and the have-nots.
17. Over the last decade, the Gini coefficient points to growing inequality, worsening from
0.371 in 2001/02 to 0.413 in 2012. Just over the last five years, households in relative poverty,
defined as half the median household income per adult equivalent, increased from just below
8% of the total in 2006/07 to 9.4% in 2012. The distribution of income by quintile paints an
even starker picture: the bottom 20% of households witnessed a fall in their share of total
income of a full percentage point, from 6.4% in 2001/2 to 5.4% in 2012; this went hand-in-hand
with a rise of more than three percentage points (3.4%) in the share of the topmost 20%,
bringing it to 47.4%, not far from half the total income. Put differently, in still starker terms,
between 2001/2 and 2012, the richest 20% of Mauritian households enjoyed an eight per cent
increase in their incomes while the poorest 20% suffered a steep decline of twice as much.
And, again, the same question arises: is this our idea of a just society?
18. There is much talk of faster economic growth paving the way to a higher-income
status for the country. There has been learned, if often uninformed, debate about giving a
monetary stimulus to push growth from its current 3.5% to the 5% of pre-crisis years. There
has been much less concern over the quality of growth. This is dangerous. In a small country,
with a heritage of skewed asset ownership, such myopia can turn out to be very costly. A
headlong rush for growth can be the royal road to social instability and economic breakdown.
What we need above all is growth that provides for all, a decent house, quality education,
health, transport, food, leisure and respite from debt.
19. Growth is good; sustainable growth is better; sustainable and inclusive growth is best
of all - absolute nirvana. Is it attainable? Here in Mauritius, with our population of only
1.3 million, and a policy environment never trailing too far behind best practice, we could have
a stab at it. This is not a goal too far - not for us who have made a habit of punching above our
weight. But we must work for it and encourage our policy-makers to press ahead with the
reform agenda. And, while they are fixing the policy environment, we must accelerate our
corporate social responsibility (CSR) drive. Since January 2012, profitable companies have
been required to pay 2% of their book profit into a CSR Fund to finance social and
environmental activities. This is no doubt a good basis to build on. But isn't there a better way
for corporates to carry and demonstrate their social responsibility?
20. Let us draw some inspiration from James Wolfensohn, former World Bank President.
Ten years ago, at a function of the World Savings Bank Institute, he remarked:
...I want to salute these banks [WSBI's members] and encourage them to
continue in their theme of a double bottom line: to think not just of profit, but to
think also of social responsibility which savings banks carry so well.8
21. Double bottom line reporting seeks to extend the conventional bottom line, measuring
financial profit or loss, with which we are all familiar, by adding a second bottom line to
measure their performance in terms of positive social impact. Indeed, to address our
sustainability concerns, so well encapsulated in the overarching Maurice Ile Durable9 concept,
we can go one better and embrace triple bottom line reporting. This will include the valuation
and protection of the rich resources of our beautiful natural environment.
22. Laying down more concrete, like guzzling fuel in traffic jams, increases our GDP;
protecting our social and physical environment is better captured by the double and triple
bottom lines in quality accounting. Rising inequality worldwide, and here in Mauritius, raises
key issues on the role of monetary policy and its redistributive role. We need bold policies to
reverse inequality.
Planning ahead
23. So what are we to do? We certainly can't ignore these threats which are already upon
us. How best to wage war against poverty and inequality? As I cast about for possible
answers, I am reminded of US President Eisenhower, who was a much-decorated US General
and who knew a thing or two about wars. He declared:
In preparing for battle I have always found that plans are useless, but planning
indispensable.10
24. I agree with Ike that we must have a battle plan. We must put our minds to the task of
planning for both resilience and inclusive and sustainable growth, and audit the results on the
triple bottom line. I can only reiterate my forlorn call for a strong and well-resourced strategic
planning capacity at the heart of the policy-making establishment. For me there are seven
essentials.
First, become a learning country, not just adapting to change, but anticipating it, and thriving on
it;
Second, harness knowledge transfer, learning, and investment whether foreign or domestic, to
increase our productive potential;
Third, ensure life cycle education for all, as we adapt and re-adapt to a rapidly-changing
environment;
Fourth, transform our universities into centres for R&D and innovation, and put undergraduate
teaching online;
Fifth, attract and retain our best talents offering international rates for the job, for them and for
our migrant diaspora;
Sixth, build a strong targeted social safety net, with business incubators, incentives for
startups and skills development;
Seventh, shift the employer of last resort from the public to the private sector, and harness
technology for your business and for national welfare.
25. Christine Lagarde at the IMF has called for more targeted subsidies and welfare
schemes, with the savings put into education, training and improved infrastructure. There is
one thing that we definitely must not do: and that is to increase the fiscal burden. We must
obviously redouble efforts to extract greater efficiency from all public expenditure, whether
recurrent or capital.
26. At this stage of the development of our country, the best contribution that the Central
Bank can make is to keep inflation low, stable, and predictable as the foundation for a fairer
and more equal society. Inflation is the worst form of taxation. It is regressive and enemy of the
poor. Price stability promotes inclusive as well as sustainable growth. Exchange rate stability
operates through the import channel to support price stability. Regular calls for what is
euphemistically called "a competitive rupee" are an invitation to depreciate the currency. It is
difficult to see how an unequal society, with an import-dependent economy, can depreciate its
way to development.
27. The Central Bank is rightly concerned with the distributional effects of monetary
policy. Borrowers have been subsidized for too long by savers. Savers have responded to
persistent low interest rates by halving the savings effort over the last two decades. In parallel,
low interest rates have boosted the wealth of asset holders and increased inequality. As the
US ends Quantitative Easing and normalises interest rates, we must prepare for greater
currency volatility and changing market sentiment. The Central Bank will have its hands full in
combating these pressures to ensure continued stability. We must always bear in mind that
price stability and exchange rate stability engender social stability - and that is the public good
we should all be working for.
The end
28. Without foresight, and concerted action now, we will leave a poor legacy for our
children to live in a socially and environmentally degraded and deeply divided society. Change
we must. For as the political philosopher Edmond Burke once declared:
A state without the means of change is without the means of its conservation.11
We should all be in the business of change. Change for the better is the order of the day.
29. After these weighty ponderings, let us turn to lighter things for a change. As we
prepare to tuck into the delightful fare awaiting us, may I invite your attention to the First Law
of Dietetics, as proclaimed by best-selling science fiction writer and noted biochemist, Isaac
Asimov12. When I tell you what this law says, you will understand why it must be taken with a
pinch of salt, preferably a large one:
If it tastes good, it's bad for you.
Salt or no salt, this First Law of Dietetics is suspended tonight. Dinner will be served and I
prophesy it will be good, and taste good too.
Thank you!