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COMPARATIVE CONSEQUENCES OF INEQUALITY – MAURITIUS

August 1, 2015

COMPARATIVE CONSEQUENCES OF INEQUALITY – MAURITIUS

Joseph E. Stiglitz, renowned Nobel Prize-winning economist and one of my heroes in the arena of economics, goes far beyond my usual complaints in his discussion of wage and wealth inequality in his latest book, “The Great Divide, Unequal Societies and what we can do about them.” Thus, as my followers know, I typically rail against the unequal sharing of our economy’s income and new wealth it creates, its effect on aggregate demand and how it contributes to our long-term economic malaise. It does far more damage to our people and our economy and our future than that.  Stiglitz goes much further in setting out yet more negatives as a result of our adoption of policies that foster wage and wealth inequality and our failure to adopt policies that would ameliorate such impact on the poor and the declining middle class. Indeed our future as a First World nation could be in jeopardy if we continue to, among other things, provide “coolie” wages to international manufacturers (which turns out to be a means of exporting capital to such manufacturers’ home venues at the expense of American labor).

Stiglitz in his book alludes to the economic successes of the Nordic countries and small island nations like Singapore and Mauritius. What have these nation-states done or not done as policy which accounts for their economic successes, and what, if anything, can we learn from how they have structured policy to bring about such positive results? To be sure, such economies are not our economy and their history is not our history, but there are certain numbers and policy effects that are common to all market economies and so variations in result can only be attributed to political control via policy formation and adaptation as each new crisis arises.  Our “policy” since the 1970s has been to reward corporate America with all of the income and new wealth created by our economy (and even the marginal productivity of its corporate workers) as median family wages and aggregate demand have stagnated in tandem on the other side of this equation in greed.

Mauritius, for instance, an island state of 1.3 million in population located east of Africa, has seen its GDP grow more than five percent for almost thirty years in a row! Right wingers in our country, (ridiculously) claimed that our government’s attempt to extend homeownership to 70 percent of the U.S. population was responsible for Bush’s Great Recession and financial meltdown, i.e., it’s all the fault of requiring that a certain percentage of funding housing go to the poor and minorities, and that, but for this requirement, all would have been well (read Wall Street banks had nothing to do with it). Right wingers neglected to tell us that the foreclosure rate among minority homeowners was LESS than that of general homeowners. They also neglected to tell us that in Mauritius 87 percent of their people own their own homes – and without fueling a housing bubble that, along with Wall Street’s reckless investments which required bailouts and with almost total absence of regulatory control comprise the real precipitating factors which brought on the Great Recession – from which we are still suffering.

Mauritius gained its independence from Britain in 1968. Predictions at the time were dour as “experts” said that their per capita income of $400 per year would be reduced and that their already poor standard of living would go down. The experts were wrong. Today per capita income is over $6,700 per year as the island country has progressed from a sugar-based monoculture to a diversified economy which includes tourism, finance, textiles, and soon, technology.

What can we learn from this? First, since Mauritius provides health care and education for all and widespread homeownership (and gaining) is the order of the day, then we can afford these things in this country and Europe since we are far richer than Mauritius. The real question presented here is how we propose to organize American society. The Mauritians have selected a path leading to higher levels of social cohesion, welfare and economic growth – all of which leads to a lower level of inequality. Conversely, we apparently have decided to follow a path leading to lower levels of social cohesion, welfare and economic growth, all policy decisions that lead to higher levels of inequality. Brilliant!

Mauritius has also decided (like Costa Rica) that most military spending is a waste. We in this country spend an enormous amount on the military and their contractors, but (as noted by Stiglitz) even if we were to reduce the budget just for weapons that don’t work against enemies that don’t exist, we would enjoy a more humane society and have billions available for the health care and education of Americans who cannot now afford them. Where are the advocates for using such wasted funds for sick Americans?

Mauritius has recognized (per Stiglitz) that without natural resources people are its biggest asset, so its government has adopted policies which provide for education and health care for all along with a strong commitment to democratic government and cooperation between workers, government and employers –  the exact opposite of the kinds of dissension and division Republicans here disastrously favor today.

Still Mauritius is not Shangri-la, at least not yet. It is confronted with exchange-rate competitiveness and inflation in imported energy and food costs, and still struggles with some of its colonial legacies under the British, like inequality in land and wealth. However, I think its government will do whatever is necessary to extend its current economic success, and I have little doubt that its government will also intervene on behalf of its citizens to prevent another (“hot money”) meltdown in Southeast Asia which occurred some years ago (notably in Thailand) with restrictions on short-term capital inflows and the necessary banking regulations to prevent meltdown of its economies by foreign bankers, who are good at coming in and decimating local economies and then moving on to the next victim(s).

So what can we learn from such thumbnail sketches of small economies which are booming? We can look at why they are booming and see what policies such countries have adopted or rejected in arriving at their economic success. There is no big secret to what works. Successful nation-states such as the Nordics and insular Singapore and Mauritius invest not in their respective “Wall Streets” but in their peoples’ health and education and infrastructure while controlling and regulating their respective banking and financing sectors. The result is prosperity, an educated populace, innovation, social cohesion and a glowing future for all of its citizens.

We here invest in Wall Street, corporations and big bank guaranties with tax breaks, bailout protection for their investments, various forms of corporate welfare and other such unconscionable spending while reducing budgets for education, healthcare and our decaying infrastructure. The result is economic malaise for decades, an undereducated populace, less innovation and an increasingly frayed social cohesion nearing pitchfork potential as our people see how they reduce inequality elsewhere and are increasingly disgusted and angry that our politicians do not adopt and/or reverse policies which could yield similar results here. They have a point. We should take a hard look at success stories.   GERALD    E

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