Economic integration

The world has become a global village. Economic globalisation is defined as integration of economic activities, via markets, beyond national borders. Where will Mauritius stand in this globalised economy?

Globalisation has been attacked by critics of free market economics for encouraging delocalisation that results in job losses. They may have a point: new technology and foreign capital brought in developing countries tend to displace unskilled workers. Here, a civil and constructive debate is possible. On the other hand, consensus will never be reached with anti-globalists who are opposed not just to globalisation but to the very idea of the market and even of economic growth. They favour deglobalisation, that is market disintegration. This culture of protest, underpinned by a strong collectivist instinct and an aversion to economic freedom, is a fact of life with or without globalisation.

Long-distance commerce is not new. It generated the celebrated Silk Road, an ancient network of trade routes, connecting the West and East from China and India to the Mediterranean Sea. Mauritius was a natural extension of the Silk Road. During the Dutch colonisation in the 17th century, Mauritius was a trading base. In the middle of the 18th century, when the country was a French colony, it became a busy port by way of entrepôt trade. For much of its history, the Mauritian economy has been highly dependent on freedom of trade to grow. Without trade, there would have been no Mauritius.

The country fostered regional economic integration before embracing globalisation. It was among the nine member states that launched, in 2000, a free trade area (FTA) with zero customs tariffs on tradable goods produced within the Common Market for Eastern and Southern Africa. It participated in the launching of the FTA for the Southern African Development Community in 2008. Furthermore, Mauritius has entered into a number of trade agreements that provide duty and quota free access to its goods. Openness will remain the hallmark of the Mauritian economy.

The strategy of opening Mauritius to the winds of international trade has paid off in terms of economic growth, of job creation and of higher purchasing power. With presently no customs duty on 97 per cent of its tariff lines, Mauritius is likely to become a Duty-Free Island in the next few decades, which could sound the death knell for the domestic-oriented manufacturing. The local industry already paints Mauritius as “the champion of economic freedom”, relentlessly asking for protection against imported goods on the ground that its products would be priced out of the market. Some local industrialists approvingly cite the trade war policies of Donald Trump (his now famous tweet, “trade wars are good, and easy to win”). They would be glad to see globalisation fall into disrepute.

It would be naïve to expect business itself to speak up for globalisation. The ultimate objective of businesses is to make profits. This is what they are supposed to do, and it is perfectly legitimate. But it is unacceptable that they act as pressure groups to exercise undue influence over government policy and to dictate its terms such as to obtain subsidies and preferences. Particularly damaging to the economy, policy capture by private interests is not created by globalisation. On the contrary, it thrives on closed economies, and it can only be fought by opening the economy.

Governments themselves are happy with a rent-seeking economy. They present globalisation to voters as an inescapable constraint on their freedom of action when, in fact, they use it as an excuse to help businesses with taxpayers money, to bail out inefficient firms, to slash interest rates, to devalue the currency. Wealth is thus transferred from taxpayers to producers, from importers to exporters, from savers to investors.

Globalisation does not tie the hands of governments. The latter willingly bow down to businessmen as they seek political support from them, granting privileges to them in return. Globalisation is the only force that can break this vicious circle.

Still, economic globalisation is accused of perpetuating inequality. Is it the case of Mauritius? According to Statistics Mauritius, income distribution got fairer between 1980 and 2002 as the Gini coefficient declined from 0.445 to 0.371. However, it increased to 0.413 in 2012, showing a rise in income inequality.

Now correlation is not causation. If there is a cause-effect relationship between globalisation and inequality, it is positive for Mauritius. Contrary to popular thinking, globalisation has retreated in the last decade. If we consider the value of international trade as a proxy measure of the level of economic integration in the world economy, it is noteworthy that Mauritius’ exports and imports of goods and services as a percentage of gross domestic product (GDP) increased from 94% in 1983 to 137% in 1990, but decreased to 97% in 2017. Imports of goods only represented 37% of GDP in 2017, compared to 55% in 1990. In sum, there is not too much globalisation, but there exists too little globalisation.

International commercial relations are not having a good time, being stymied under an increasing amount of regulations, tariffs and restrictions. As the United States and China are waging a trade war, the outlook seems bleak. The world is teetering on the brink of a blanket condemnation of globalisation. But it is important to preserve economic globalisation with free trade being a natural component. This is because international economic integration not only widens individual choices but also makes affordable policies to empower workers, to relieve poverty and to support the Welfare State.