[Joseph E. Stiglitz] Mauritius miracle of social welfare

NEW YORK ― Suppose someone were to describe a small country that provided free education through university for all of its citizens, transportation for school children, and free health care ― including heart surgery ― for all. You might suspect that such a country is either phenomenally rich or on the fast track to fiscal crisis.

After all, rich countries in Europe have increasingly found that they cannot pay for university education, and are asking young people and their families to bear the costs. For its part, the United States has never attempted to give free college for all, and it took a bitter battle just to ensure that America’s poor get access to health care ― a guarantee that the Republican Party is now working hard to repeal, claiming that the country cannot afford it.

But Mauritius, a small island nation off the east coast of Africa, is neither particularly rich nor on its way to budgetary ruin. Nonetheless, it has spent the last decades successfully building a diverse economy, a democratic political system, and a strong social safety net. Many countries, not least the U.S., could learn from its experience.

In a recent visit to this tropical archipelago of 1.3 million people, I had a chance to see some of the leaps Mauritius has taken ― accomplishments that can seem bewildering in light of the debate in the U.S. and elsewhere. Consider home ownership: while American conservatives say that the government’s attempt to extend home ownership to 70 percent of the U.S. population was responsible for the financial meltdown, 87 percent of Mauritians own their own homes ― without fueling a housing bubble.

Now comes the painful number: Mauritius’s GDP has grown faster than 5 percent annually for almost 30 years. Surely, this must be some “trick.” Mauritius must be rich in diamonds, oil, or some other valuable commodity. But Mauritius has no exploitable natural resources. Indeed, so dismal were its prospects as it approached independence from Britain, which came in 1968, that the Nobel Prize-winning economist James Meade wrote in 1961: “It is going to be a great achievement if [the country] can find productive employment for its population without a serious reduction in the existing standard of living….The outlook for peaceful development is weak.”

As if to prove Meade wrong, the Mauritians have increased per capita income from less than $400 around the time of independence to more than $6,700 today. The country has progressed from the sugar-based monoculture of 50 years ago to a diversified economy that includes tourism, finance, textiles, and, if current plans bear fruit, advanced technology.

During my visit, my interest was to understand better what had led to what some have called the Mauritius Miracle, and what others might learn from it. There are, in fact, many lessons, some of which should be borne in mind by politicians in the U.S. and elsewhere as they fight their budget battles.

First, the question is not whether we can afford to provide health care or education for all, or ensure widespread homeownership. If Mauritius can afford these things, America and Europe ― which are several orders of magnitude richer ― can, too. The question, rather, is how to organize society. Mauritians have chosen a path that leads to higher levels of social cohesion, welfare, and economic growth ― and to a lower level of inequality.

Second, unlike many other small countries, Mauritius has decided that most military spending is a waste. The U.S. need not go as far: just a fraction of the money that America spends on weapons that don’t work against enemies that don’t exist would go a long way toward creating a more humane society, including provision of health care and education to those who cannot afford them.

Third, Mauritius recognized that without natural resources, its people were its only asset. Maybe that appreciation for its human resources is also what led Mauritius to realize that, particularly given the country’s potential religious, ethnic, and political differences ― which some tried to exploit in order to induce it to remain a British colony ― education for all was crucial to social unity. So was a strong commitment to democratic institutions and cooperation between workers, government, and employers ― precisely the opposite of the kind of dissension and division being engendered by conservatives in the U.S. today.

This is not to say that Mauritius is without problems. Like many other successful emerging-market countries, Mauritius is confronting a loss of exchange-rate competitiveness. And, as more and more countries intervene to weaken their exchange rates in response to America’s attempt at competitive devaluation through quantitative easing, the problem is becoming worse. Almost surely, Mauritius, too, will have to intervene.

Moreover, like many other countries around the world, Mauritius worries today about imported food and energy inflation. To respond to inflation by increasing interest rates would simply compound the difficulties of high prices with high unemployment and an even less competitive exchange rate. Direct interventions, restrictions on short-term capital inflows, capital-gains taxes, and stabilizing prudential banking regulations will all have to be considered.

The Mauritius Miracle dates to independence. But the country still struggles with some of its colonial legacies: inequality in land and wealth, as well as vulnerability to high-stakes global politics. The U.S. occupies one of Mauritius’s offshore islands, Diego Garcia, as a naval base without compensation, officially leasing it from the United Kingdom, which not only retained the Chagos Islands in violation of the U.N. and international law, but expelled its citizens and refuses to allow them to return.

The U.S. should now do right by this peaceful and democratic country: recognize Mauritius’ rightful ownership of Diego Garcia, renegotiate the lease, and redeem past sins by paying a fair amount for land that it has illegally occupied for decades.

By Joseph E. Stiglitz

Joseph E. Stiglitz is university professor at Columbia University and a Nobel laureate in economics. His latest book, “Freefall: Free Markets and the Sinking of the Global Economy,” is available in French, German, Japanese, and Spanish. ― Ed.

(Project Syndicate)