Revisiting the developmental state 7: understanding the Mauritius ‘miracle’

What do the high levels of development and economic upgrading achieved by a small Indian Ocean island country tell us about the notion of the developmental state?

Mauritius’ growth trajectory from a monocrop economy at its independence in 1968 to an upper-middle income and highly diversified economy today is frequently considered a miracle and has been described as ‘one of the most remarkable – and improbable – economic success stories of the post-war period’.  Its achievements are all the more impressive coming after the Meade Report of 1961 predicted a gloomy and dismal future for the country and have been frequently attributed at least in part to its democratic developmental state.

The admiration and scholarly attention of political economists and development specialists toward Mauritius, and the inclination to see mechanisms of its growth process as containing lessons for other developing economies, is entirely understandable: the country experienced average annual real GDP growth of 5.3 per cent between 1961 and 2013 while lacking exploitable resources.  It continues to out-perform many other economies, including some highly resource-endowed ones.  Indeed, despite a number of economic setbacks following the 2008 global financial crisis, Mauritius has continued to grow at a rate of at least 3.2 per cent yearly since 2009.  This represents a slowdown for the country, but is higher than the growth rate of the majority of other ‘Small Island Developing States’ (SIDS) even during periods of global economic growth.

In this post I consider whether Mauritius is actually a developmental state, what distinguishes it from the East Asian Tigers and whether other SIDS can develop developmental states themselves.

Mauritius is considered a developmental state by a number of scholars (e.g. Bunwaree, Sandbrook, Meisenhelder).  This is because the state operates using core elements of the state-led macro-economic national development planning regime famously defined by Johnson and later articulated lucidly by Öniş.  Mauritius has: (i) a close, cooperative relationship between the bureaucracy and a strong private sector represented by the umbrella organisation, the Joint Economic Commission (JEC), which has privileged access to the state; (ii) an autonomous, qualified and continuously trained bureaucracy, insulated from interest groups, which directs, supports and oversees – in a proactive and deliberate fashion – the country’s export-oriented industrial policies and continuing economic transformation; and (iii) maintains the use of subsidies and incentives to attract and channel capital, investment and other support for infant industries into marked industrial areas.

Yet even developmental states are not identical.  Mauritius has deployed a developmental strategy that marks it out from the prototypical East Asian developmental state.  Three features distinguish its performance.

First, from the outset, Mauritius has been a social democratic state with no recourse to authoritarian policies. Although for a very brief period the state curbed labour union activities in the interest of developing its Export Processing Zones (EPZ), it has always allowed for an active civil society. Second, while growth, productivity and competitiveness have been state priorities, social welfare was simultaneously a core feature of its developmental state regime; the latter did not take a back seat to the former to allow development to occur, and that is arguably a key reason why development actually did occur.  Third, Mauritius has never used harsh market-distorting industrial policies.  In each wave of industrial transformation, from sugar to textiles and manufacturing, then to financial services, and now to the so-called ‘ocean economy’ and Information Communication and Technology (ICT), it has used subsidies and incentives to induce private capital to enter into new industries, but has avoided measures such as capital controls to restrict repatriation, local content requirements or export performance.  Subsidies have also tended to be industry-wide, granted in effect to all businesses operating in a particular sector, not just to specific companies.  Winners have therefore not been picked, but rather pick themselves.

Moreover, whilst it has been questioned whether the developmental states of East Asia are still developmental in character, recent studies have indicated that Mauritius continues to provide directional thrust by using various state incentives to target investors, as well as still offering numerous subsidies to infant and exporting firms that fit the criteria of the current national export-oriented growth strategy.

For example, in its latest industrial drive to boost manufacturing and increase manufactured exports to Africa, the government plans to to invest US$16 million in private equity in over 40 firms attempting to export to the continent, with a 25 per cent subsidy on shipment containers of manufactured and agricultural products and a 50 per cent subsidy on the cost of Credit Guarantee Insurance.  There is also state-supported linking of finance institutions with the private sector, with the government acting as guarantor for loans for small businesses and collaborating with the central bank to allow for special interest rates for larger firms.  In other words, although the state does not control the financial system, something that Öniş suggested was a core characteristic of the developmental state in fostering government-business cooperation for strategic industrial policy, it does actively extend itself into financial areas in order to drive industrial development.

The case of Mauritius in effect shows that the developmental state is possible within a neoliberal international trade context, is conducive to democracy, and does not have to be built or maintained on the basis of a repressive regime.  Rwanda, considered by some to be the latest emerging developmental state, and by the media as an authoritarian, repressive police state, has led some scholars to note that the ‘prioritization of growth and political control go hand in hand’. But this does not have to be so, as Mauritius illustrates perfectly.

Granted, the country has unique institutions not found in many other countries.  These can be said to include: recurring coalition governments which benefits political agreement and policy continuity and sustainability; historical institutions which continue to determine each group’s relationship to each other and thereby facilitate class compromise; and a longstanding dedication to social welfare which means that all groups have a mainly positive relationship with the state. All these factors work to create an impressive level of social and political stability that is remarkable in such an ethnically and religiously diverse context.  They help Mauritius develop and maintain an enabling political settlement that both grants consensual autonomy to the bureaucracy and generates political and ideological support for the government.  No matter which political parties hold office, the boat continues to be rowed in the same direction.

Moreover, the uniqueness of Mauritius also does not mean that a developmental state approach cannot be followed by other – especially small – developing countries that are relatively ethnically homogenous and can forge decent political settlements.  This is especially so because they tend to share the one underlying problem that most developmental states initially faced and which actually caused them to move onto the developmental path: namely, a sense of urgency.  Just as impending upheaval from the threat of invasion faced South Korea just as the doom and gloom of the Meade Report and potential ethnic conflicts distressed the Mauritius state, and just as the need to prevent another genocide spurred Rwanda to action, so many other small states face existential threats today that similarly necessitate urgent action.  These threats can be used as fuel with which to reformat the political settlement, gain adequate buy-in for economic transformation from the populace and change the mind-set of various groups in order to unite them behind policies geared toward their common interests.  What is needed is no more but also no less than a new social contract.

As and when this is in place, governments can then seek to set in place, in whole or in part, the features of what Booth has termed a ‘developmental regime’.  The most important of these are: (i) the political protection of a strong bureaucracy to coordinate the interest of the different groups, generate confidence in the state and maintain policy continuity; (ii) the pursuit of a deliberate industrial policy using whatever means are available in respect of incentives and subsidies; and (iii) the promotion of such policies with expediency, rather than necessarily always adopting the ‘best practice’ called for within the increasingly questionable ideologies of international finance institutions.   After all, Mauritius has shown the SIDS what can be done.

This article is the seventh in a new SPERI Comment series on revisiting the developmental state. Read all of the articles in the series so far here