4.2%

The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.

John Foster Dulles, Former US Secretary of State

Instead of the 4% that was announced on the day the last World Cup began. That’s what the budgetary deficit would have been if Rama Sithanen had kept the subsidies on rice and flour instead of subjecting us to yet another instalment of Faratanomics, his trademark rendition of the dismal science. For a mere 0.2% difference in that deficit and a string of incoherent measures he has managed to put Mauritius still a bit more out of focus since he was back in office for more than 1 full year now. Naturally the attendant political risks will be borne mostly by Navin Ramgoolam as Mr. Sithanen will always have the possibility of again jumping ship if push came to shove in 2010. Unless of course he tries to convince us that his name should appear on all party lists if ever our electoral system is modified to include a dose of proportional representation. You think that’s exaggerating a little bit? Well, hasn’t he already suggested on TV that the name of party leaders should find their way onto party lists?

Budget process needs to be reformed
Rama Sithanen took about 2½ hours to deliver his budget last June 9th. A lot of what he said then should have been left for the budgetary debates and shifted in one very handy document along the lines of the 310-page Economic and Fiscal Strategy Report and Financial Statement and Budget Report published by Her Majesty’s Treasury. This explains why Gordon Brown’s 2005 budget speech lasted only 45 minutes. The British authorities also publish a Pre-Budget report each December which contains an update on the economy and projections on the fiscal position of the government as well as describing the reforms that are being considered in the following budget. The UK budget and accompanying documents can be accessed here. There are a number of advantages of getting these documents out. The most important one is that it will make a lot of people (this includes analysts at rating agencies) save time by having access to information they need to do their jobs in a handy format which will leave more time to raise the level of debate about economic policies in our country.

Doing things differently
Nobody can argue with the fact that we need to put our fiscal house in order. But probably where a large majority of Mauritians totally disagree with our Finance Minister is the way he’s been going about it. Our Finance Minister wants us to believe that things are really bad out there. So bad, that he has passed up the opportunity of presenting an additional full budget when he produced the half-baked statement that he delivered back in August 2005. He wants us to believe that Adam Smith got it totally wrong and that there is no such thing as an invisible hand. No. There is in its stead something extremely vicious lurking out there: some kind of Bolom Loulou.

A new disease has appeared…

So you need a new prescription and you better follow the doctor’s advice scrupulously, right? Not necessarily. The doctor may have come up with the wrong diagnosis and it would make perfect sense to, at least, seek a second opinion before swallowing in the recommended medicine. In fact, it is clear that the way Rama Sithanen has been managing the economy for the past 15 months is the equivalent of gross medical malpractice. And Navin Ramgoolam as the boss of the ‘medical institution’ should already have done the needful to have Mr. Sithanen seated next to Ashock Jugnauth in the Legislative Assembly because his Finance Minister has misread the situation and has proposed half-baked policy responses.

Misreading the situation
The triple external shock argument
As detailed in the previous edition of this newsletter this argument does not hold any water as recent events have started to confirm. The economic konnetou of the current government has simply confused shock for consolidation in the textile sector. As regards to oil, ask yourself the following question: Does the higher price of oil impact negatively on our budget deficit? Not really because when oil imports shoot up from Rs 11 billion to Rs 17 billion as they’ve done over a recent 12 months period, the government collects an additional billion rupees in VAT receipts. Besides, with the automatic pricing mechanism all of the price increase is passed on to us. For the good of the country, but only if he will stay on as Finance Minister for the next little while, Mr Sithanen should immediately be sent to business school to get some management theory under his belt and provided with a copy of the speech of David Walton, Has oil lost the capacity to shock?[1]

The World owes us a living
Mr. Sithanen wants loans that we don’t qualify for from the World Bank and elsewhere. The pathetic excuse used is that of Mauritius being penalized for its past successes. The AFD (Agence Française de Développement) which closed its local offices many years back when we had migrated into the group of middle-income countries has been begged back into Mauritius. Is the UNHCR going to be called in next year?

Growth and unemployment
According to the somewhat convoluted chain of logic of Rama Sithanen, we need 8% growth otherwise jobs may not be created and we will end up with one of his favourite terms: jobless growth. Well, not if you make job creation the focus of your action. We should go for policies that work in practice irrespective of whether they work in theory.

Treaty risk
Mr. Sithanen misreads the Financial Sector as consisting essentially of the offshore sector. There was nothing for Capital Markets in his statement a year ago. Effectively nothing in his recent budget either. And because of this misreading the treaty risk that we face in the offshore sector becomes much larger than it ought to. Hey, but don’t worry. We’ve already sent him along with Minister Boolell abroad with large begging bowls, haven’t we? We really don’t need better management, right? All we need is cheap loans.

Some of the half-baked policy responses
School-feeding program
Who came up with the really smart idea of cancelling this program? Doesn’t that look like one of the typical stinking recommendations on which the International Monetary Fund / World Bank (IMF/WB) has built part of their reputation on? It’s a good thing that the same person(s) back-pedalled.

Subsidy on SC and HSC fees
The targeting of that subsidy has surprised even some of the closest Sithanen supporters. It may unfortunately exclude people who are moonlighting to make ends meet. What an irony when you consider the role that education has played in the life of Hon. Sithanen in getting him to where he is today.

Pension reform: Is Otto back?
Simply extending retirement age by 5 years is like having Chancellor Von Bismarck back to adjust his Ponzi scheme. When are we going to consider better organisational design and paradigmatic shifts? Maybe we are planning to spend another Rs 100 million to have NTan back in a few years when and if another Rs 1 billion is recycled in a parallel conduit?

National Residential Property Tax
Doesn’t it look like a half-pregnant policy to you?

Forex deposits become more attractive
Exports down, imports up. Currency under pressure. What did you expect from the budget? Surprisingly, it made going for foreign currency deposits the reasonable decision. Afterwards, you hear your Finance Minister imploring people to convert their foreign currency positions into rupees. Hmm. That must be the new model he’s talking about. Glory to thee.

Better Options
We could have done better since July 2005 if things had been done differently. Here are a few examples.

There was no need to cry wolf
Rising oil prices surely affect us. But they affect other countries that are not oil-producing too. What we instead expected from our Finance Minister was an intelligent pronouncement as to how we were going to produce each unit of GDP with less oil. In the final analysis, our competitive position could even be improved if our response was smarter than other countries that compete in the same products and markets as we do.

Removal of subsidies on rice and flour
If he couldn’t think of anything better he could have spread this new policy measure over 2-3 years or leave the one on flour because of its cascading effects. This would have given time to the population to adjust and for officials to get the implementation right and would have salvaged the credibility of our monetary policy – whatever remains of it.

Everything is related
Economics cannot be practised in a vacuum. We are being held back by our education system, poor English-speaking skills, quantity and quality of our infrastructure and our leisure policy to name just a few. In India, for instance, the Finance Minister recently estimated that about 200 basis points (2%) are shaved off the annual growth rate because of inadequate infrastructure.

Do not create uncertainty
There is a good deal of uncertainty hanging over our country and a non-negligible part of that sinking feeling can be traced back to the application of Faratanomics by our Finance Minister. More on this below. And the inflation rate is going to exceed the target rate set by the Bank of Mauritius by a significant margin while core inflation is on the rise.
Who likes uncertainty? Rating agencies, for one, don’t. Credible Central Banks neither. Target 2.0 is a publication of the Bank of England named after the targeted rate of inflation that the Old Lady has set to herself. A number of central banks worthy of that name have adopted similar targets: The Federal Reserve and The Bank of Canada. Voters in Belle-Rose/Quatre-Bornes may also wish to learn that in Germany, federal elections, in the past, have been lost over the single issue of the rate of inflation.

How to create uncertainty in 3 easy steps
Start misreading the current situation and remain concentrated so that you misread the past too. Come up with a silly argument such as Triple External Shocks that will speak directly to the spines of the people. Don’t mention Bolom Loulou, at least not in the beginning. And forget that we are a sovereign country.
Get a university buddy who is at least as confused as you are as Financial Secretary. It’s really not a problem if he lives on another planet. It’s even better if he promises to do IMF/WB experiments here. That shouldn’t make it too difficult to make sure this appointment is heralded as another bold move in the history of humanity after man set foot on the moon.
Get another friend as adviser. This friend should ideally be a high-school physics teacher so that he will explain how Newtonian physics can confirm that the first buddy is indeed from outer space and consequently why you shouldn’t expect more cohesion from fellow majority MPs. He may even use cloud dynamics to help your vision stay, uh…, clouded.

Come and do business
That’s the tag line for the world tour that our Finance Minister has been embarking on for the past little while to woo investors into our Motherland. I wonder who is responsible to blurt out such a low-quality tagline although I do remember Rama Sithanen stating a year ago that he would be seeking the help of the World Bank for branding Mauritius.[2] But that will not prevent J. Walter Thomson from turning in his grave. Where can we buy a DVD of these trips to find out what exactly he’s been saying and doing? And who is listening to him?

Attracting talent
We already have more than enough talent here to solve most of our problems. The problem is that a lot of our brains are either planning to move out or are not returning. Before you talk of attracting talent you should first stem the brain drain.
In the financial services sector, for instance, I estimate that about 60 CFA Charterholders could be employed in these following three areas: the Debt Management Unit of the Ministry of Finance, The National Pension Fund (with an appropriate organisational makeup) and the Bank of Mauritius (including managing the country’s reserves portfolios instead of getting the BIS – a club of central banks – to do it for us). This should already have been done back in 1991 if Mr. Sithanen had adopted some of the international best practices the first time he was Finance Minister.
Once you’ve done this kind of basic stuff you may try to see how you compare with Singapore in the stem-cell research race.

Comments: density@intnet.mu.

[1] This speech was delivered on February 23, 2006. Sadly enough, David Walton passed away last June 21 at the age of 43. He was a member of the Monetary Policy Committee of the Bank of England.
[2] Maybe it is inspired from the name of that World Bank ranking called Doing Business. Doing business, Come and do business. You get it? I don’t either.

No. 6 November 2006

© Sanjay Jagatsingh, 2006

The Fallacy of the Triple External Shocks Argument

In science one tries to tell people, in such a way as to be understood by everyone, something that no one ever knew before. But in poetry, it’s the exact opposite.

Paul Dirac

Because most stars are so far away, their light has yet to reach Earth.

Edgar Allan Poe solving Olber’s Paradox in a poem

I don’t know about you but me, I have had an overdose of the so-called Triple External Shocks argument brought forward and used ad nauseam by Rama Sithanen for many months now to paint a very dark picture of our economy. The main problem with this argument is that it stands on shaky grounds at best. Let me tell you why.

1st shock: Price of sugar to fall by 5% this year and up to 36% within a few years
We knew that this was coming for a long time so that there is no element of surprise or shock here. We have been growing sugar for 300 years now and it’s been the commodity that has financed the development of other pillars of our economy – under that famous protocol – which incidentally have now dwarfed the sugar sector itself. Paradoxically, Le Grand Argentier has perhaps failed to realise that by recently announcing that the seafood hub would double in size in a few years’ time it will be yet another sector to dwarf King Sugar.
The share of sugar in the economy will inexorably keep on shrinking from its current 5%. This looks like a textbook example of the Product Life Cycle at work – you can only produce something for a given amount of time before you are outgunned by entrants with a lower cost structure than yours. Yes, the economics of the cane industry looks better than that of the sugar industry but we need to look even beyond. And this year’s price cut of 5% shouldn’t have taken so much of our Finance Minister’s saliva. The €URO has also been surging ahead this year, hasn’t it? Naturally, we should see it to it that we are treated fairly by the European Union.

Michelle

Holy Writ was intended to teach men how to go to Heaven, not how the heavens go.

Galileo Galilei

She went through her late dad’s stuff and assembled an interesting collection of his correspondence into a book with the help of Timothy Ferris. On skimming through it you will learn about how he used to help with her homework including an account of a discussion he had with one of her teachers. Keep on reading and you find out that Michelle’s dad was a member of the California Curriculum Commission. Is the story becoming more interesting? If it’s not, it surely will when I tell you his name: Richard Feynman, considered as one of the 20th century’s most innovative physicists.

According to the ranking compiled by Shanghai’s Jiao Tong University, California was home to 6 of the world’s 20 top universities in 2005 and half of the world’s top 6 (Stanford, ‘The Republic of Berkeley’ and CalTech). In fact apart from Oxbridge there was only one other university that made it in the top 20 that was not from America: Tokyo University.

They want Sam
A little luck or research will reveal that one of the schools that are sending students on a massive scale to those temples of learning is none other than Singapore’s Raffle Junior College. In 2004, it sent more than 300 students to top US universities with about 160 attending Ivy League schools. The government foots the bill for those who sign a 6-year bond to come and work for a government-controlled organization – that’s ½ of those going to America. I suppose you don’t drag your feet too much when you have to go to work for Temasek (that would be Singapore’s equivalent of our State Investment Corporation) after your graduate.

Compared to us, Singapore adopts a more competitive approach to education. There is an extra streaming step after 4 years of secondary education. And that’s not all. They attract talent from other countries in the region to their high schools by offering scholarships to those brilliant kids so that the smartest Singaporeans are in the company of an international cream of the crop. [1]

Marx would have lost it
Obeegadoo’s reform which mistook symptoms for causes adopted a coercive approach to try to prevent households from adapting to the shortage of quality secondary schools in a perfectly rational fashion. Besides, one should not forget that, after all, Obeegadoo’s ‘regionalisation’ is basically a new algorithm for allocating seats – one whose adverse effects could have been analysed in a spreadsheet or simulation model BEFORE its actual implementation.[2] The May 2001 report could probably have been entitled ‘Please bear with us while we gamble with your most precious asset!’

The trade-off households embrace
Mauritian parents are ready to have their kids travel a number of extra kilometres for a better secondary school and several thousand kilometres to attend a good university.[3] Why is that? Well, because they have rightly understood that university education is the Royal Route (Route Royale is something else) to landing a good job in our knowledge-based world and this can possibly happen via a state scholarship to a good university overseas. This is particularly true for the QEC: Obeegadoo’s report mentioned that the 143 seats there were filled by candidates ranked between 1 and 150. That makes perfect sense for anybody who is not a pseudo-marxist for two reasons. The first one is given that in some years the QEC has 12 laureates that works out to about a probability of getting a scholarship of a little over 8% for anybody gaining admittance in Form I there. These are amazingly good odds for snatching a free ticket to a good university if you ask me. The second reason is that it is absolutely normal for kids to want to evolve among peers of equal ability. Talent attracts talent and bean-counters flock together with surprising speed.

School choice
Quality of school is then the most important factor. But parents are also reasonable. They wouldn’t mind sending their kids to the neighbourhood school provided it is of an acceptable quality. With that in mind, they should be provided with more information, in a standardised format, about all the island’s secondary schools. And that should be available via the web.[4] In effect, we should come up with comprehensive descriptors of school quality (pass rate at SC and HSC levels, number of laureates if any, accomplishments in sports, amenities, etc) including a ranking of those schools that would be updated every year. Many households would then decide, for example, whether it is worth for their son or daughter to travel 5 additional kilometres to attend a school that has a HSC pass rate that’s 2% higher than the school next door.[5]

Cleaning up the mess
Minister Gokhool’s introduction of the National College is a step in the right direction and has necessitated the introduction of the A+ grade which gets us closer to the most meritocratic and transparent scheme for the allocation of seats in secondary schools: ranking. It surely is a much better criteria than skin colour, religion, straightness of hair, size of wallet or a combination thereof, right? And I hope that Dharam Gokhool does rapidly away with the retrograde approach for admission to the regional schools namely the combination of grade aggregate and residence. The problem with the grade aggregate is that it is not an unambiguous metric of performance as GPA (grade point average) or ranking are while the criteria of residence clearly tilts the scales in favour of the well-to-do.

What the CPE ranking is, really
It determines what secondary school you get into. That’s all. A better ranking definitely doesn’t mean that you will be ahead of or behind your peers throughout your whole adult life. Neither does the fact of winning a state scholarship a few years later.

CPE failure rate is ultimately a policy decision
When you have a CPE failure rate higher than 30% a number of possible reasons for such an unacceptable situation crosses your mind: the exams are too tough, a third of our kids are dumb, some teachers are not doing their jobs properly, etc. I don’t think that our children are dumb. I rather think that the exams are probably too tough and that some teachers are either unable or unwilling to teach properly. Add to that the fact that some manuals don’t even have an index! That really helps parents to get involved, eh?

What’s more troubling is that apparently a large number of students coming out of primary school don’t even know how to read. How can that possibly be? For sure, some of our kids need special attention and I sincerely hope that we are being inspired by what other countries are doing or have done in that domain.[6]

For one, the American ‘No Child Left Behind’ policy has reduced the time spent on subjects other than math and reading for some of the lowest performing schools. In some schools, children do only these two subjects and physical education until such time that they are ready to go back into the mainstream through some kind of standardized testing procedure.

The proportion of our kids that join the academic track should be determined by the pool of skills we need to ensure the kind of competitive advantage that works for a maximum of our citizens. Maybe not more than 5% to 10% of primary school-leavers should go into vocational schools. Let's hear what the data has to say. This is something we could have done before going to the polls this year if we had thought harder during the past few years. Or is it decades?[7]

The school system of today and tomorrow
It is important to note that 9/10 of every scientist who ever lived is alive today which partly explains why codified knowledge is expanding at an exponential rate. This should cause us to reassess the relative importance of the 3 or 4 major knowledge-acquisition techniques that are known to humanity.

Our education system should also have a great deal of flexibility to allow many opportunities for our citizens to increase their human capital throughout their lives. That should include ample options to change streams or to add skills from either one. Also, that system should make getting an university degree as easy as buying a soap.

We also need one or more mega-universities in the next couple of years and the provision of adequate financing and scholarships to students.[8]

The easy access to quality tertiary education in adequate quantity will have a positive effect on the behaviour of parents at the primary and secondary level. I bet you that they would then see a much smaller need for private tuition and instead load on extra-curricular activities which the system would have to provide on a much larger scale.

Oh yeah, one very bizarre characteristic of our current set-up is that girls and boys are always together from kindergarten to university except at the secondary level. Is there a good reason for that? I don’t think so.

The gross tertiary enrolment ratio can also be boosted by allowing SC holders aged 23+ to get university education as mature students once they get through a couple of math classes delivered in the evening in a number of our secondary schools.

Furthermore, we should participate in major international surveys of student performance like OECD’s PISA (Programme for International Student Assessment) and other prestigious competitions.[9]

Education policy, just like any other policy for that matter, should be backed by solid research. Our CSO, MES, MRC should be beefed up with all the necessary tools to improve the measurement of the drivers of economic well-being and their findings should be widely disseminated.[10]

For most of us, probably the last time we started to learn our third or fourth language we were about 5-6 years old. This paradox should be corrected given that we will live to 80 or more years. Our extraordinary ability to take up at least a couple of additional foreign languages remains pretty much unexploited.

Last but not least, we should place a premium on the importance of great teachers. Of all the awards that Richard Feynman won (that includes a Nobel), the one he treasured most was the Oersted Medal for Teaching.

Comments, as usual, are welcomed at density@intnet.mu.

[1] See The Wall Street Journal, May 6, 2004.
[2] The electoral reform debate about proportional representation should also go through a similar analysis.
[3] Last July, the ex-rector of RCPL, J. Gopaul, reported that in the 90s he had noted that more than 25% of the 900 students in his college came from rural areas especially from the north of the island. And God forbid no Mauritian parent finds out about a university in some distant galaxy.
[4] That should become even easier with the project to be headed by Dr. Appu Kuttan.
[5] Given that we’ve been so great at planning things in our country over the last quarter of a century or so the trade-off is in fact between quality of school and travelling time. It can only be hoped that the purchase of specialised transportation software authorised in one of the very first cabinet meetings of the current government has already yielded solutions that will be implemented Godspeed.
[6] It is interesting to note that special needs are also recognised at the tertiary level elsewhere. Indeed, some universities like McGill University have an Office for Students with Disabilities which make sure that such students get as much as twice the time indicated on their exams to complete them.
[7] It would be interesting to enlist the help of psychometricians and unbiased psychologists to have another angle on how the difficulty level of the CPE exams has varied over its history.
[8] These student loans could be subsidised by government.
[9] The next PISA survey is in 2009. We better not miss it.
[10] The computers of the MES have barely told us what they know.

No. 4 April 2006

© Sanjay Jagatsingh, 2006