Thoughts on Electoral Reform (5)

Elections in Mauritius Are Seldom Referendums

Vote share doesn’t matter that much in Mauritius. We instead have competitions in 21 unequal ridings and the party which grabs anything more than half of the contested seats earns the right to form government. Our first-past-the-post (FPTP) setup is a system which works and has served us really well. And that too for decades. Making it an important part of who we are. Just like progressive taxation and a high savings rates have until 2006. Important matters of the state need to be given the appropriate consideration. It’s definitely not a bad idea that we let ourselves be inspired by examples of profound thinking. Like what Feynman told us about hardware reliability of the Space Shuttle: the necessary redundancy was provided by several independent identical computer systems.

What We Don’t Want

If we want to learn about at a system that doesn’t work we just need to look at what happened in Rodrigues where the wish of the people has been frustrated with a mixed-system – something our electoral system should be immunised against. And where a bigger dose of proportional representation (PR) did not solve anything except perhaps gifting Rodrigues with one of the most ridiculous population/MP ratios in the world. 21 representatives for a population of about 42,000 puts our sister island at the undesirable 187th spot (out of 193). A ministerial committee was setup to look into the matter but it appeared to be doomed from the start.

The Duval Committee Was Going Nowhere

Essentially because of two things: the process and the PR. As far as the process goes it was like that Faugoo Committee we had a couple of years ago. I guess you recall how there was not only way too little dissent in that group but it essentially used a heavily-discredited report as a base. That report was such a complete joke that Ramgoolam took 389 days to publish it disguised as his white paper but gave us only 42 days to comment on it. It was far worse than fer lisyin vey sosis. It was more like lisyin pe eksplike kuma pu vey sosis. They did invite suggestions from the public but these were never shared back with them which is another example of dissent suppression.

Plenty to Learn From US Election Process

Americans know pretty much what to expect from the person they will elect as President of the world's second largest economy today. And that's thanks in no small measure to the candidates thoroughly discussing the main planks of their plans and to several independent groups of people scrutinising them. If it's Trump they are aware that the extreme version of trickle-down economics he's proposing – a flat tax of 15% – would add 5 trillion dollars to the US national debt, make 3.5 million people lose their jobs and potentially throw the economy into a recession. If it's Clinton the economy should keep on growing from the middle out and that too without a Great Wall that Mexico would be made to pay for. The fiscal policies of these candidates are also consistent with the DNA of their parties: Democrats don't believe and rightly so that tax cuts for the wealthy work while the Republicans do.

It has not been different for the Mauritius Labour Party which has quite a bit in common with the Democratic Party. Well at least till 2006 when it started implementing what Trump is planning to do if he wins: go for a 15% flat tax or remove the progressiveness in the tax structure. The worst part of it is that such a dramatic policy change – elections in Germany have been lost and won over the single issue of price stability – wasn't discussed let alone mentioned during the election campaign of 2005. No trace of trickle-down economics in the manifesto entitled "Une ile Maurice pour tous" either. The LP did use the Putting People First slogan though. Funnily enough that was crafted by the Bill Clinton campaign on their way to rescue the American economy as from January 1993 from 12 years of voodoo economics.

Thoughts on Electoral Reform (4)

At 60 miles an hour the loudest noise in this new Rolls-Royce comes from the electric clock.

David Ogilvy headline

We Already Have the Rolls-Royce of Constitutions

Our constitution through its excellent First Past The Post (FPTP) system has enabled voters to proceed with five seamless changes of government since independence. Three of which happened after consecutive elections. And most of our governments have been stable. This has been a key ingredient for our early successes. Our FPTP system has allowed us to focus on solving difficult problems which many back in the 1960s had rightly considered as almost unsurmountable. We also appreciate the quality of our constitution when political alliances break down: new ministers are appointed swiftly. And when we see how the absence of a good enough constitution in other countries hold them back. But it's not perfect. It has a slight clicking sound. Which needs to be corrected soon. In a mindful fashion.

But it Has an Electric Clock

Essentially our electoral setup rewards winners a little too well. And there have been a couple of times when the results have been extreme. Like in 1982 and 1995 when one alliance swept all the seats. These two electoral outcomes have highlighted a problem with our FPTP system: we could have an opposition that's a bit too small. Indeed as Table 1 illustrates we ended up with an opposition of only four best losers in 1982 after one alliance won all the regular seats. In fact this has more to do with the way the current best loser algorithm allocates additional MPs than with the FPTP system per se. So how do we fix this? For sure we know what we don't want.

Une nécessaire réforme de notre système politique: A Note

I have a few comments with respect to the points made in this article which appeared today.

1. We are prisoners of the two-party system that the FPTP generates. We don't have a two-party system here but most elections have been dominated by two alliances each made up of two or more parties. Our political system has been quite dynamic if we look at the weights of the different parties on the political chessboard over time and in the different alliances at voting time. It has also been renewing itself. Maybe not at the speed we would have wished though.

In fact the problems we're having have more to do with a serious degrading of policy-making than with some imagined flaws of the FPTP. The latter is an excellent system that needs a little tweaking. We definitely don't want what happened in Rodrigues with its PR system. At any rate. More on this soon.

2. We've seen many reports on electoral reform throughout the years. A handful at most as far as I can remember. Besides we haven't seen a lot of good ideas. That come close to the quality of our FPTP system.

Lepep Budget May Miss Boat, Again

Budget Doesn't Address Dominant Issue

Namely the extensive damage caused by the flat tax: 1. a massive GDP gap; 2. a serious impairment of our domestic savings; 3. making Mauritius less competitive and dynamic by keeping local pump prices at unreal levels and 4. generating the smallest increase in real disposable income for the poorest 20% of households of the last twenty-five years. Besides the flat tax was implemented on the basis of spurious claims.

A Trillion Rupees of GDP Missing, Almost

The idea behind the flat tax if you recall was that robust growth would follow the slashing of top tax rates. But as our economy didn't grow at the required 8% in any of the last eleven years Mauritius has sustained a growing GDP shortfall for every single one of them. Adding them together yields the astronomical total of Rs927 billion by the end of 2016 as shown in Chart 1. That's greater than our GDP for 2006, 2007 and 2008 lumped together by almost Rs200 billion. Or a little more than three times our domestic production for 2010. We will be hitting a trillion rupee next year if some very basic common sense does not find its way into the forthcoming Finance Act.

Government Ended Up Doing a Lot Less

Of course the massive GDP gap has translated into a revenue shortfall for our government. The exact size of the shortfall can be estimated using government revenue expressed as a fraction of GDP. That has been around 20%. We need to adjust that number downwards given that the whole purpose of the flat tax was to lower tax rates for corporates and the rich in exchange for higher growth rates. If we assume that the plan was to reduce that share to 15% we're looking at a cumulative shortfall of Rs139 billion. The actual number is larger if the shift from 20% to 15% is done gradually. Now Rs139 billion is quite an interesting number. It's close to the increase in government debt over the same period: Rs129 billion.

Why Poverty is Winning

Because so much of it has been created over the past 10 years. Some people have been getting out of poverty for sure but a lot more have been falling into it. Of the pool of 126,200 poor people in 2012 a staggering 33,000 had joined it over the last decade. That's more than one in every four poor Mauritians. This has happened because our economy has not grown fast enough and whatever wealth was created has not been shared properly.

Massive Policy Failure

Which in turn has mostly been caused by dismal policy-making and the lack of dynamism of our economy. External events have certainly played a role but given that they were beyond our control we shouldn't have spent that much time crying over them. We should also acknowledge the fact that there has been a wide variation in the way poverty has expanded. Chart 1 captures that by looking at how it has progressed over a fifteen-year period. Which coincided roughly with three different governments and in one case with major policy changes.

A Neophyte Freezes Poverty

Period 1 is roughly at the end of the first mandate of Navin Ramgoolam. 500 extra people fell into poverty between two Household Budget Surveys (HBS) bringing the total to 93,200. The tiny 0.5% increase in the number of poor people over a five-year period tells us two things. One is that the combination of progressive taxation, the doubling of pensions and a savings rate worthy of a Tiger provided a good base for progress. Even to a neophyte. By the way it's the government with the best growth and best income distribution of the last twenty years. Bheenick and Bunwaree were Finance Ministers. The other is that given that policy-making wasn't exactly brilliant during Ramgoolam's first term we can safely conclude that it was well within our reach to roll back poverty. At least using that thoughtful base.

Will the Budget Be a Non-event?

"On ne parachute pas au ministère des finances quelqu'un qui ne sait pas calculer la dette publique et qui ne connaît pas l'impact de la fiscalité sur la croissance...."

Rama Sithanen, 2009

Like last year's and most of the budgets since 2006? Well, it doesn't have to. It will essentially depend on a single decision. But first let us understand how we got into a deep mess for ten whole years.

Old Policy Crap in New Bottle

The last part of the quote above – emphasis mine – summarises pretty much the main economic story from Mauritius over the last decade. While tax rates definitely impact growth rates – and both of them drive government revenue – the relationship is far from being linear. And it depends to a great extent on the relative ability of our public and private sectors to create wealth or make things happen. In the 1980s for example, as Paul Krugman reminds us, American top tax rates were cut from 36.5% to 26.7% over nine years but they never got the growth rates that would have financed those cuts. What they did get though is a Federal debt ballooning all the way from less than a trillion dollars to four by 1992. And two decades later US politicians were trying to clinch a deal hours before Uncle Sam was scheduled to go into default. The Economist summed up the situation as essentially the product of two tax-cuts, two wars and one stimulus package.

In a Hurry to Mess Up the Economy

In Mauritius top tax rates were reduced from their sustainable levels by 10 percentage points for corporates, from 25%, and by 7.5 percentage points for individuals, from 22.5%. But the tax-cuts were done a lot faster: a couple of years. With a promise of 8% growth. Year in. Year out. Of course we never got these robust rates and this has caused our economy to end up being a lot smaller. How much smaller? We're looking at a Rs213 billion gap for 2016 alone as illustrated in Chart 1. How big a number is that? Well, it's how big our economy was in 2006. Which gives you a good idea of the size of the multiplier of the FDI that have poured in since then.

Why Mauritius Need Not Worry About Brexit

Because we got far more important issues here to worry about. Here are a few.

1. A Minister wants to sell the CWA because he's not happy with its hotline. Now, if this is not a cause for worry and a reason for ministerial resignation, an urgent Cabinet reshuffle, a referendum or all three I wonder what is. Another Minister wants to sell the CHCL. That's totally inappropriate. Talks with DP World have to be immediately called off. We can keep on nicely developing our port by ourselves -- CHCL has invested nearly Rs2 billion over the last ten years. We've got the people and tons of unemployed graduates who should be given many opportunities to push Mauritius forward. For sure we could have done a lot better had Sithanen not messed up our savings rate and economy so badly with the impressive string of failed policies which have accompanied the worst form of trickle-down economics: a flat tax. See, he promised robust growth rates of 8% back in 2005 if we lowered top taxes. As the chart illustrates we not only never got anything higher than 6% during the past 10 years but 60% of those rates were under 4%. This has, as expected, caused our government to run out of money for capital projects -- which Badhain keeps repeating -- and pile up a lot of debt. Making us a lot more vulnerable at the same time.

Naturally this leaves Pravind Jugnauth with a wonderful opportunity -- just like he did in 2010 -- to bring some sanity back to tax rates when he reads the budget in a few weeks. Which can help avoid a near 60-0 defeat in about two years.

Vishnu Will Not Deliver A 'Second' Miracle

Because he is now Minister of Foreign Affairs. He was unable to deliver it in 15 months which by the way is exactly how long Pravind Jugnauth was FM in the third Bleu-Blanc-Rouge government. And just like Mr. Lutchmeenaraidoo the leader of the MSM had promised a second economic miracle. Vishnu's departure from the Ministry which made him a legend will be a personal setback for many people who voted for Lepep because they associated the first 'miracle' with him. And had wanted to witness the making of another. Live and direct.

But we don't have to worry because SAJ has taken over the portfolio and as everyone knows the 'miracle' happened on his watch. When he was thirty years younger. The snag is that he was PM for like two-thirds of a term between 2000 and 2005 during which more than 22,000 people in export-oriented industries lost their jobs in a four-year period. It's that famous period Cuttaree called economic urgency cum dramatic situation blah blah blah.

But it's true that SAJ didn't promise a miracle the last time he was PM. It's quite unfair to blame a guy for not delivering something he never promised. Besides he might not have been in the mood for one. In any case he's in the mood now and has about two years to turn that economic miracle switch on.

Ramgoolam Vague About Labour DNA

A week ago he said it's made up of unity, development and social justice. For sure these are important values but they are a bit too vague. But first let's see how he did according to these values.

Pretty average in the unity department if the end result of three mandates (especially the last two) has been to bring Mauritius closer to an overcrowded barracoon. Granted that Manou Bheenick -- picked by Ramgoolam after 18 long months -- made us quite proud and united as far as the external value of our currency goes while he was calling the shots at the Central Bank.

Navin didn't do well on the second criteria either: what started on his watch in 2005 and which continued even after December 2014 has produced our worst growth rates ever. Indeed 2016 is likely to be the 6th consecutive year we'll be clipping a growth rate of under 4% (this has never happened before and that too after we were promised robust growth rates by a bean-counter and now a miracle by his zinku).

The story of how Navin Ramgoolam stacks up in terms of social justice is kind of simple: about 500 more people were thrown into poverty during his first mandate but that number increased to roughly 22,000 (HBS have little respect for when Prime Ministers dissolve Parliament) in his second. That's growing social injustice 44X faster. No gato-pima effect to report here if you ask me. And something that's almost impossible for a bunch of Bretton Woods clowns to pick up. Ex-ante.