Please find below some relevant extracts from a very interesting recent article in "The Guardian" which claims that alongside the new variants of the virus there has been a new variant of global capitalism.
The Keynesian variant of the 1970s that was being undermined by the problems of inflation, weak corporate profitability, and a loss of business dynamism was replaced by the Austrian variant- a more free-market approach with a small state, non-interventionist, trickle-down, free-trade and low-tax model.
The Austrian variant which was quite dominant for so many years started being questioned . There was a growing sense that globalisation has served the interests of multinational corporations and the elite while destroying communities and reducing the standard of living of the working class and exacerbated the growing inequalities. .“Corporate and personal taxes were cut, and the rich got richer. The big tech giants, minnows themselves in their early days, used their market power to prevent new start-ups from posing a threat. Voters started to get the impression that the system only really worked for those at the top: and they were right. The populist backlash as aimed primarily at governments, but the real problem was that capitalism was starting to eat itself. …. The upshot was weak growth, low investment, stagnating living standards and a backlash from voters”
The 2008-9 financial crisis and the pandemic sounded the death-knell of the Austrian variant. “Governments of left, right and centre have intervened in their economies in ways that would have been unthinkable two years ago: paying wages for furloughed workers; keeping businesses afloat through grants and loans; preventing landlords from evicting tenants; and generally throwing financial caution to the wind. The world has been fighting a war against Covid, and in wartime the power of the state always increases.”
“Fiscal policy has taken centre stage for the first time since the Keynesian model ran into trouble in the mid-1970s. Central banks have become bit-players, and are having to fend off the accusation that their prime role is to print the money needed to cover the vast sums finance ministries are spending.”
The tax-centric model could not be justified any longer. The new tax system - a minimum global corporate tax rate of 15% expected to take effect in 2023 - has been agreed to by 132 countries after meetings in July last held by the G20 and the Organization for Economic Co-operation and Development. The building blocks of the new-variant of capitalism are already there. Governments are going to tax and spend more, and they will use regulatory powers to weaken monopolies. ….Industrial and regional policies will be back in vogue. The idea is to harness the power of the state with the dynamism of the private sector and, as was the case with Keynes, to save capitalism from itself.
Meanwhile the Bretton Woods institutions were waking up to the new reality of the “need to tackle the entrenched power wielded by a small number of dominant companies – or risk stifling innovation and investment….the market disruptors that displaced incumbents two decades ago have become increasingly dominant players and they do not face the same competitive pressures from today’s would-be disruptors”.
The Mauritian variant:
Some years back we had written that the most striking feature of business today is not the overturning of the established order. It is the entrenchment of the oligarchy-dominated private sector corporates or big companies at the heart of the local economy. The hold of the conglomerates on economic power and wealth has been consolidated over the past fifty years- a legacy of successive regimes. A handful of top companies are generating wealth for a small number of people and have thwarted the level playing field by exercising greater control over new opportunities in the economy. Such that today we have a lopsided dual economy with two different visions of the economy. Indeed, the consolidation of the inherent historic advantages of this economic elite has created a lopsided dual economy ‘à deux vitesses’…
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We had also argued that “What is intrinsically wrong with this model of the oligarchy-dominated private sector of conglomerates ? They are squashing competition, and they are using the tricks and arts of management to stay ahead. They are gaining control of entire markets and finding new ways to entrench themselves. Many of the large firms have acquired or setting up their own start-ups diminishing the opportunities in the long term for other SMEs in promising sectors……. Most of the conglomerates also reflect their excellence at less productive activities. The policies that rely on the speculative and unproductive use of our country’s strategic land assets by selling them to foreigners (which has accounted so far for around more than 60% of the FDI inflows during the past five years) will surely generate wealth and some periods of reasonable growth but it will neither be sustainable nor inclusive in the long run. Should we be surprised then that the private sector is not forthcoming with investment in new sectors/pillars ? Why ? Because this model of growth is providing them with a more than reasonable rate of return on the low hanging fruits.”
Now we note with satisfaction (which appears to have been missed out totally by some of our mainstream media closely linked to the corporates/oligarchs) that the recent WB report “Mauritius: Through the eye of a perfect storm” spins out a new narrative which tends to espouse the need to see the emergence of the new capitalist variant in the Mauritian context –“A relatively few conglomerates are active across sectors in the Mauritian economy and are also vertically integrated across value chains. While this level of integration can provide benefits, such as reductions in transaction costs, security of supply and quality assurance, it can also have negative consequences. High levels of cross-directorships and multimarket contact facilitate collusion and thwart price competition. Furthermore, the purchasing of products and services within groups reduces the extent to which independent competitors in the economy are able to compete as they may not be able to enter value chains or reach a minimum efficient scale based on the remainder of the non-integrated market. SMEs also struggle to access markets due to complex trading arrangements that may stem from buyer power, including lengthy payment terms (for example, hotels often take 60-90 days to pay suppliers), fees (supermarkets charge fees of up to one third of the selling price of a product) and limited or expensive access to finance and factoring from commercial banks.”
Our competition watchdog, the CCM- a competition regulator which is a proud custodian of such an important role of making the economy work better for all – cannot thus continue to restrict itself to its present low key and toothless role. Competition policy should be made a political priority and more resources allocated for policing competition and to systematically open up the markets that appear to be closed or rigged. We need more of dynamism and openness from the CCM - in terms of close monitoring and effective enforcement and regular reports on the state of competition in the economy. We want to see more cases being investigated and brought to courts, actions against cartels, policing of mergers and dealing with dominant firms that abuse their position. In short, A CCM that not only barks but bites and makes a difference to consumers and small producers in terms of a more competitive environment. The WB report recommends that “the Mauritius Competition Commission should move beyond a focus on consumer protection and give more emphasis to concentrated markets where anti-competitive behaviour may deter entry or impose upstream costs that undermine competitiveness.”
Surprisingly, this time the WB report went further than its traditional business facilitation prescriptions and remedies by questioning the concentration of private sector investment in real estate – “the unproductive FDI that are unlikely to generate new export opportunities, which are more pronounced in sectors such as high-skilled services and manufacturing that currently account for small fractions of FDI attracted by Mauritius.”
It seems that the Bretton Woods institutions are one step ahead of our local policy makers in developing a more workable Mauritian variant and they have been recommending a more comprehensive FDI strategy that could maximize the transformational power of FDI to develop competitive new exports and a revised industrial policy model that focuses on removing barriers to productive new investment.
Are our policymakers and institutions, including the EDB and the CCM, tuning up to the new realities to craft out a more workable version of our variant ?
