Charles Telfair Centre, July 2023 

The question of electoral reform in Mauritius has been on the political agenda for the last 22 years. Since 2002, various commissions have examined potential implementations, including the Sachs Report (2002), the Select Committee Report (2004), the Carcassonne Report (2011), the Sithanen Report (2012), and the Consultation Paper on Electoral Reform (2014). In 2018, a constitutional amendment bill aimed at enhancing fairness to parties and gender representation was tabled by the government. Despite these efforts, no substantial electoral or constitutional reform has ever been enacted. On the eve of general elections, electoral reform remains a pressing issue for Mauritius.

To address this complex topic, the Charles Telfair Centre convened various stakeholders from both the public and private sectors at its recent workshop, “60 Years On: What Future for Mauritius’ Electoral System?” 

Held on July 3rd at Charles Telfair Education, Moka and moderated by Rabin Bhujun, the event provided a platform for productive discussions on transparency, gender and ethnic representation, and misinformation within the electoral process. Expert insights from Dr Rama Sithanen, GCSK and Electoral Commissioner Irfan Abdool-Rahman, GOSK fuelled the debate and helped identify pathways for successful electoral reform.

This brief highlights the key outcomes of the workshop.

Electoral Process

Mauritius employs a First-Past-the-Post (FPTP) electoral system across 21 constituencies, where the three candidates (and 2 for Rodrigues) with the most votes are elected to the National Assembly, totaling 62 directly elected members. Up to eight more members can be appointed through the Best Loser System (BLS), which aims to correct gaps in ethnic and religious representation. The BLS allocates seats based on community and religion, with the Electoral Supervisory Commission proposing a list of best losers—candidates with the highest number of votes who finished fourth in their constituency. From this list, up to eight are chosen to ensure fair representation of all communities in Mauritius.

This system has served the country since the legislative assembly elections in  1967 and has contributed to political stability. However, nearly 60 years on, some flaws have become apparent, including poor fairness to parties, dismal gender representation in the National Assembly, and the division of the Mauritian population along ethnic lines. The workshop aimed to envision a way forward by addressing these imperfections while building on the system’s strengths.

Strengths of the Current Electoral System

“We might say that a change in the system is overdue, but it is important to take note of what currently works.”

Electoral Commissioner Irfan Abdool-Rahman highlighted the strengths of the current system, particularly the independence of the the Office of the Electoral Commissioner, which has always operated without any interference from the executive branch or prime ministers: “We have worked in total independence”.

Over the years, significant progress has been made in enhancing transparency, including the introduction of vote counting on the wall in 2013, identification requirements for voters in 2014, real-time delivery of results in 2019, and same-day vote counting for the Village Council elections in 2020 and Rodrigues Regional Assembly elections in 2022.

Dr Sithanen emphasised the stability and decisiveness of Mauritius’ electoral process, noting that its effectiveness in decision-making reinforces the country’s political stability. He also commended the system’s ability to avoid single-issue parties and protect voter choice. Despite these strengths, areas for improvement remain, particularly concerning accountability of politicians, socio-demographic representation, and fairness to parties.

Areas of Improvement

Fairness to Parties: One main concern was reconciling stability with fairness. The current system provides political stability but fails to ensure proportional fairness between vote share and allocated seats. This was attributed to the FPTP system and the politico-cultural legacy of the country, which resists change that might challenge the status quo: “People don’t want change if that change could be a challenge to them” shared one participant. A lack of political knowledge among the population of the current plurality voting system, the collective belief that what is best for the party is also best for the country, and politicians vested interest all hinder reforms that would align votes with seat allocation. Finally, the ability of the prime minister to set election date with limited constraints put the ruling party at an advantage.

Accountability of Politicians: Participants identified a lack of accountability among politicians: “What happens before dissolution of parliament in Mauritius is gross misconduct”, one participant claimed. It was recommended that political leaders recognise that free, fair, and credible elections where they are accountable for their promises and actions should apply throughout the entire government term, not just during election periods. The lack of technical skills and competence of appointed ministers was also flagged as a significant flaw of the current system.

Diversity of Representation – Ethnic Representation: The “rainbowness” of representation in the National Assembly, mainly afforded by the BLS, was praised but also critiqued: “There has been a significant increase in ethnic representation, but this comes at a price” noted one participant. The BLS requires the division of the Mauritian population into three ethno-religious groups and a fourth residual group (Hindu, Muslim, Sino-Mauritian, and General Population), which risks entrenching ideological and cultural fragmentation. Additionally, this categorisation fails to capture nuances within the groups, raising questions about the extent of minority representation. The discussion unveiled strong controversy about ethnic representation. While some members argued for a new population census, others strongly advised against it: “We need to avoid redoing a population census. We would not be able to stop the list containing more than eight ethnicities.”

Diversity in Parties: A lack of diversity in political parties was noted, with the political landscape dominated by two major families since independence. “In the last campaign, 67 parties presented for the elections. These parties grow like mushroom just around elections times and disappear right after”, one participant noted, “new parties want to get in the race without putting in the effort.” The dearth of commitment from potential new candidates and the rift between the political establishment and the youth were identified as barriers to new party emergence.

Diversity of Representation – Gender Representation: Mauritius ranks last in Africa for women’s participation in politics, a major concern among participants. The low rate of female inclusion was noted as “an absolute disgrace,” attributing it to patriarchal values and the reluctance of male decision-makers to enhance women’s participation. The discussion raised whether gender inclusion should be imposed by law or implemented democratically.

Transparency and Misinformation: The current method of voter registration was seen as lacking transparency. While the Electoral Commissioner reassured that the system captured 98.4 % of people who were eligible to be registered (18 years old and above) in the 2023 voter registration round, concerns were raised about the effectiveness of the door-to-door enrolment due to cultural and lifestyle changes.

Enhancing transparency through same-day vote counting was also suggested, though resistance from trade unions to have civil servants working around the clock poses a challenge.

Misinformation and “fake news” undermine public trust in the electoral system. Social media channels, particularly Facebook, were identified as platforms for propaganda. Participants emphasised the need for political parties and the media to avoid propagating false information.

Recommendations

The workshop identified key pathways for electoral reform, drawing on best practices from around the world and insights from academic literature.

Accountability: To enhance political accountability, participants proposed the establishment of a bicameral system with a senate. This upper house would facilitate more in-depth debates and ensure that ministers are held accountable throughout their tenure. Such a system is successfully employed in countries like France and the United States, where the senate acts as a check on the executive branch.

Additionally, workshop participants advocated for technocratic governance where appointed ministers may not necessarily be elected officials but chosen based on competence rather than loyalty. This would not only enhance the competence, expertise, and efficiency of the executive branch of government, but by having ministers who are not part of the legislative body, the executive branch will be able to function with a degree of separation that might reduce conflicts of interest and enhance overall accountability.

This approach is supported by the literature on good governance, which emphasises the importance of merit-based appointments in enhancing governmental efficiency and public trust.

Ethnic Diversity: The workshop discussions recommended “de-ethnicising” the Constitution to promote nation-building and avoid social fragmentation. This approach aligns with the experiences of countries like South Africa, where the proportional representation (PR) system have effectively subsume the need for a specific ethnic representation system.

However, maintaining ethnic inclusion while de-ethnicising remains complex. Some proposed to retain three-member constituencies to ensure balanced candidate slates and implementing a proportional representation (PR) list to complement subsume the Best Loser System (BLS). The electoral systems, used in countries like Germany and New Zealand, combine FPTP and PR to ensure that the number of seats won by a party properly reflect the number of votes received..

Diversity in Parties: To attract new talent, participants suggested collecting data on youth voting patterns to understand the disconnect between young voters and the political establishment. This approach is mirrored in the practices of countries like Canada, where extensive youth engagement initiatives have been implemented to increase political participation among young people.

Inspired by the Seychelles’ electoral system, a proposal for two-term mandates for appointed governments was discussed. Although challenging to implement, this approach could ensure more frequent accountability and responsiveness of elected officials to the electorate’s needs.

Gender Representation: To address the low rate of female participation in politics, it was recommended to enable legislation to favour gender representation such as restricting funding to political parties that do not meet gender representation standards. Legislative incentives have been effective in countries like Rwanda, where gender quotas have resulted in one of the highest percentages of women in parliament globally.

However, overcoming deep-seated patriarchal values requires significant cultural and structural changes. Comparative studies suggest that educational campaigns and targeted support for female candidates can enhance women’s political participation.

Transparency and Misinformation:

Voter Registration: Participants recommended establishing an online registration system to improve transparency and accessibility. Continuous voter registration, despite requiring constitutional amendments, was also suggested. Such systems are in place in several democracies, including Sweden and Norway, where continuous registration ensures that voter lists are always up to date and accurate.

Same-Day Counting: To enhance transparency, the workshop participants recommended implementing same-day vote counting. While this method faces resistance from trade unions, it has been implemented in countries like India, where logistical arrangements ensure that results are available in a relatively short time frame, thereby boosting public confidence in the electoral process.

Misinformation: Addressing misinformation, particularly on social media, was identified as crucial. Participants emphasised the responsibility of political parties and traditional media to avoid spreading false information and exercise systematic facts-checking. This approach aligns with practices in countries like Finland, which has implemented comprehensive media literacy programs to combat misinformation and educate the public on identifying fake news.

The current electoral system of Mauritius has contributed significantly to the nation’s political stability and inclusive representation, and as the nation grows, and the global context changes we have the opportunity to consolidate and update our electoral system. By embracing electoral reform, Mauritius stands poised to enhance fairness, accountability, and representation, thereby solidifying its status as a modern, democratic nation-state dedicated to the principles of equity and transparency. This journey towards reform promises not only to strengthen the democratic fabric of the nation but also to inspire confidence and trust in the electoral process among all Mauritians.

Main photo by Charles Telfair Centre

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Tanos Santos, Professor of Finance at the Columbia Business School

Luigi Zingales, Professor of Finance at the University of Chicago

Industrial policy is back in vogue. After decades of eschewing the use of market-shaping policy tools like tariffs and subsidies, many Western governments have embraced them, spurred by the COVID-19 pandemic, which exposed vulnerabilities in global supply chains, and by broader fears about Chinese technological and commercial dominance, which could cost the West countless well-paying jobs. If these efforts are to succeed, however, an emphasis on knowledge is crucial.

Industrial policy has a poor track record in the West. When postwar governments tried it, they usually failed to achieve their goals, because they supported industries with no viable path to profitability. By the 1970s and 1980s, they abandoned industrial policy altogether. But if we view industrial policy as knowledge policy, its comeback can succeed.

An effective knowledge policy would focus less on creation of knowledge than on its diffusion. While innovation is clearly valuable, it is also expensive and challenging, requiring a particular combination of conditions that is often difficult to ensure. Not every country can realistically aspire to be a technological frontier. But a country does not have to produce cutting-edge innovations of its own to be able to reap the benefits (including higher productive capacity, greater wealth, and stronger military capabilities) of new processes, methods, and ideas produced elsewhere.

Knowledge diffusion – which depends on both access to knowledge and the ability to absorb it – is the key to a prosperous society. The German and Japanese economies recovered rapidly after World War II largely because, while their physical infrastructure was in ruins, their stock of knowledge was intact. Both countries had a cohort of engineers, doctors, scientists, and managers capable of absorbing, spreading, applying, and building upon the advanced knowledge brought by occupying American forces.

Recognizing the value of such knowledge transfers, one might ask why the state needs to get involved. The answer is that knowledge diffusion is the quintessential externality. When an individual or a firm invests in knowledge, it typically captures only a fraction of the returns: knowledge acquisition often brings far higher social returns than private gains. This explains why the state has long supported and incentivized knowledge production, such as by creating a patent system and strengthening education.

An effective knowledge policy must include both domestic and international components. On the domestic front, it requires a targeted education policy, subsidies encouraging local actors to import knowledge, and a flexible intellectual property (IP) framework, which strikes the right balance between motivating innovation and encouraging its diffusion. Countries that are far from the technological frontier are better off with lax IP regimes, such as the one that enabled India to build a thriving pharmaceutical industry. (Membership in the World Trade Organization has since driven India to adhere to stricter rules).

In a geopolitically fragmented world, such domestic measures must be complemented by free-trade zones to facilitate knowledge-sharing among partner countries. These zones would allow for specialization in some areas, but not in all. Economists’ obsession with comparative advantage notwithstanding, this is not necessarily a bad thing. After all, a country at the technological frontier – or close enough that it can continue to absorb new knowledge – is likely to be a more productive and prosperous economic partner.

When it comes to importing technology, countries should erect barriers only in sectors where catch-up is both achievable and desirable (the same sectors where direct subsidies might also be justified). In this sense, the United States and the European Union have much better reason to invest in strengthening their domestic semiconductor industries than India, which is so far behind in this area that any resources spent on catching up are probably wasted. But even the US risks failing to achieve its semiconductor ambitions, unless it also implements an education policy that encourages the study of engineering. Taiwan leads the world in semiconductor production thanks not only to its vast knowhow, but also to its appropriately educated workforce.

But even for an economy with the right capabilities, if too many of its peers are trying to catch up in the same area, the costs of the strategy will rise, and the probability of success will drop. This brings us to another reason why free-trade zones are useful: they can facilitate policy coordination, at least among allies. India would be far more willing to abandon its semiconductor ambitions if it knew it could rely on a steady supply from a trusted partner.

To be sure, that partner might make demands of its own – say, for India to strengthen its IP enforcement, which would be very costly. But, in today’s tense and divided world, such trade-offs are practically inevitable. A sensible knowledge policy must recognize the constraints under which allies operate.

Western governments are bringing back industrial policy at a particularly fraught moment. Strategic considerations cannot be ignored, as they were during the decades when globalization was progressing rapidly, and Pax Americana remained firmly in place. Instead, leaders must rise to the challenge and devise sophisticated industrial-military strategies – including knowledge policies – that account for a wide range of risks, objectives, and pressures.

Copyright: Project Syndicate, 2024.
www.project-syndicate.org

Main photo by CDC on Unsplash.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Charles Telfair Centre, June 2024

In the wake of the COVID-19 pandemic, several sectors of the Mauritian work landscape have experienced labour shortages and poor rates of talent retention. To better understand the dynamics influencing this phenomenon and explore potential solutions, the Charles Telfair Centre, in partnership with Rogers,  organised the “Beyond Talent Scarcity: Unlocking Mauritius’ Workforce Challenge” workshop on May 22nd at the Voilà Hotel Bagatelle.

Moderated by Manisha Dookhony, Chairperson of MINDEX, the event brought together practitioners from various sectors, including hospitality, IT, finance, health, and education, as well as experts in human resource management, law, and economics. Centred around three main themes: education, work culture, and policy, the discussions highlighted the complexity of the factors influencing labour shortages in Mauritius. This brief highlights the key outcomes of the discussion and the proposed roadmap for action.

Delving into contributing Factors

Data suggests that education, labour retention, and emigration patterns are the main factors contributing to talent scarcity in Mauritius. However, the exact impact of these factors is less clear.

Education

Education plays a crucial role as the producer of an efficient and effective future labour force. Its ability to do so was one the first element addressed: the workshop explored to what extent educational institutions and training programs were able to respond adequately to our economic needs and how it contributed or not to brain drain.

In a context of declining demographics, the historically low number of students registering for the High School Certificate (HSC) examinations raise concerns about the future job-seeking population size: “If Mauritius wants to be a high-income country, the lack of qualified graduates presents a bleak picture for the future,” one participant highlighted. The workshop underlined concerns on the dwindling quality of the public education system resulting in many students struggling to achieve basic qualifications. The ability of the education system to produce the relevant future workforce is challenged by its inadequacies in guiding students towards pertinent career pathways.

The discrepancy between university degrees offered locally and the needs of the labour market was also pointed out as a significant deficiency. Priority sectors such as ICT, finance, and economics suffer the most from this mismatch with an insufficient number of graduates in these disciplines. A such, these sectors face a dire scarcity of qualified human resources.

To compound this gap, factors such as the lack of specialised degree and the strong presence of international recruiters for study abroad contribute to exacerbate the brain drain and hence the local talent shortage. The absence of certain specialised degrees in local universities, give students no choice but to study abroad. Students may also turn to international institutions, if they perceived these as offering more progressive, advanced quality programs. Similarly, the increasing number of recruitment agents from international universities in Mauritius feeds a mindset that international studies are preferable to local training. The lack of oversight on these activities was highlighted as another possible shortfall of the educational landscape.

Throughout the discussion, it emerged that the shortcomings of educational institutions are structural in nature. From decreasing quality education to perceived inconsistencies in the current curriculum, the issues raised suggest that addressing them would likely require systemic reforms and a change of mindset.

Labour Retention and Emigration

In the context of an aging population and a declining workforce size, the Mauritian labour market displays various push factors contributing to low retention rates and increased emigration patterns.

Work culture

With the first three to nine months of employment being critical for labour retention, the latter and related brain drain were seen as a direct result of inadequate work culture with perceived limited equity and inclusion within public and private organisations. These unfavourable conditions, it was argued, are driving work emigration from Mauritius.

One participant pointed that “today’s generation seeks a work culture prioritising work-life balance, autonomy, and growth within their work environment”, elements that employees perceive to be lacking in the current labour market. Perceptions of nepotism and systemic inefficiencies across the public and private sectors contribute to local dissatisfaction and the desire to seek employment abroad.

Wage and careers

A core driver of emigration highlighted during the workshop is our inability, in Mauritius, to compete with international wage levels compounded by the more limited career prospects that Mauritian organisations are perceived to offer compared to global organisations. Wage and career prospects were also highlighted as those leading to most dissatisfaction in the Mauritius National Employee Survey. One participant added that “despite companies striving to address these gaps, workers are still deciding to leave”.

Socio-Cultural context

Indeed, the roundtable offered insights into sociocultural factors driving emigration. The lack of adequate human experiences in terms of healthcare, family dynamics, social fulfilment, and security was identified as instrumental in fostering brain drain.

For instance, limited access to efficient healthcare services was raised as a motive. One participant specified that some individuals decide to migrate to ensure better healthcare for their families and aging parents through family reunification procedures.

Local family dynamics, which can be unsupportive of individual independence, and the lack of public spaces for social realisation were also identified as contributors to emigration among the youth.

Diaspora

With limited or ineffective incentives for the return of the diaspora, the country has not yet been able to fully capitalise on its large educated and skilled diaspora.

Participants noted a certain detachment between Mauritians abroad and their country of origin. This phenomenon is evidenced, they argued, by the low rate of remittances being sent to Mauritius compared to other Small Island Developing States (SIDS).

It was also highlighted that those among the diaspora who have returned have done so out of necessity rather than choice, with family needs being a primary reason for return migration. Participants who have migrated back to Mauritius after working overseas mentioned the difficulty of adapting to the local work culture, which, among other things, offers less flexibility and opportunities for challenging careers. They also shared that the reduction in life and cultural experiences upon returning was an additional drawback.

Recommendations

The workshop identified some initial steps for a labour retention roadmap.

Educational Reforms

• Strategic higher education & vocational streams: To address perceived inconsistencies between education and labour market needs, participants recommended comprehensive educational system reforms. Specifically, they suggested that Mauritius draw inspiration from Singapore’s educational strategy, which sets specific quotas to ensure sufficient human resources for priority economic sectors. The workshop proposed that Mauritius could implement similar practices to alleviate labour shortages in key sectors.

• The proposition for a schooling system focused on redressing economic gaps by steering students into sectors most affected by labour shortage was, however, not unanimous. Referring to the high numbers of students choosing to undertake their tertiary education abroad, it was posited that locally producing graduates with a varied skills set could also prove valuable to Mauritius. More so as the absence of more specialised degrees in local universities may well be also contributing to brain drain, as students turn to international universities that offer more progressive degrees.

• Employer partnerships with education providers: Institutions should also strive to equip students with a clear understanding of the career pathways and potential work experiences offered by different courses. This could be achieved through improved partnerships between universities and industry, providing students with more sustained workplace experiences through work-integrated learning programs, such as long-term internships and industry projects. A young-adult participants highlighted that: “while I had little optimism for my future in Mauritius at the start of my studies, my experiences at university through industry projects, industry visits and internships have changed my perceptions: I believe now, that there are interesting career growth prospects for graduates in Mauritius”.

• Work-Study balance: On a more practical side, universities and training institutions and employers need to get better at tailoring student timetables and work planning to allow positive education and work experiences. This is particularly important for international students who can legally work for up to 20 hours per week.

• Communication Bridges: The disconnect between young adults’ perceptions and aspirations and what employers can provide could be addressed by multiplying initiatives to create effective communication channels between the education sector, the industry, and the youth. Such efforts would allow for a better understanding of young people’s professional and personal aspirations, but also for the youth to better understand what Mauritian employers have to offer.

Labour Force Reforms

The workshop participants advocated for policy reforms regarding wages, labour retention, and attracting the diaspora back to Mauritius as well as aligning company culture with workers’ expectations.;

• More competitive remuneration packages: Participants suggested that strategic incentives, such as competitive remuneration and benefit packages, could not only encourage Mauritians to stay in the local labour market but also attract highly skilled migrants to the island. According to theory and evidence higher pay leads to improved employee productivity, turnover and recruitment.

• Connecting the diaspora: To engage the diaspora in the island’s development, it was suggested to create a platform where Mauritians abroad can register and stay updated on local opportunities. Such platform could be managed by stakeholders such as the Economic Development Board and Business Mauritius.

• Extending the Retirement age: Extending the retirement age was argued to be effective in retaining experienced professionals in the workforce, thereby mitigating the current scarcity of qualified talent.

• Organisational Culture Shifts: Rethinking organisational culture by developing more inclusive, flexible and empowering work cultures would help attract and retain talent. They suggested implementing strategies to improve workplace engagement by promoting better work-life balance, transparency, employee autonomy and living the company’s stated missions and values with authenticity.  Employers should enhance their talent management systems with clear and transparent communication around pay structures and potential career growth opportunities within the organisations. Such initiatives would not only help attract and retain talent, it would also improve company performance.

Diversifying the Workforce

• Structural Planning: More generally, a lack of structural planning was identified at the national level. To address this deficiency, participants called for less diversification of focus areas and recommended building expertise in key sectors such as finance, ICT and tourism. They argued that such a strategy would create a viable economic structure, reflecting a more positive image of the island and attracting both local and international talent. This could be achieved through better communication and partnership between the public and private sectors, working together to design creative ways to build expertise on the island.

• Tapping into the African Talent pool: While retaining local labour and encouraging return migration were central recommendations, it was also highlighted that tapping into the African talent pool could help remedy the labour shortage. Migration from Africa to Mauritius can be enhanced through improved education, work opportunities, and legislation to facilitate labour movement. To attract professionals, the workshop recommended implementing cultural integration strategies along with better wages. Additionally, participants advocated for Mauritius to further explore development opportunities in collaboration with African countries.

• Tapping into the female labour pool: Using the feminisation of the textile industry in the 80s & 90s as an example, participants urged for the design of strategies to further attract female workers into the labour market, given the current low level of female labour force engagement. Beyond greater government incentives, current organisations are shaped and moulded with a male employee as its typical worker, a bias reflected in workplace design and function. To address this gender gap, companies can develop strategies to better accommodate the specific needs of women.

As Mauritius faces an unprecedented shortage of labour, endangering its competitiveness and productive capacity, the workshop provided valuable insights into the multifaceted nature of talent scarcity. While the challenges are significant, the solutions discussed offer a roadmap for building a sustainable diversified pool of available talent. By reforming the educational system, implementing strategic policy changes, enhancing corporate contributions, and leveraging the country’s unique advantages, Mauritius can unlock its workforce potential and build a sustainable future. The engagement of all stakeholders, from government and educational institutions to businesses and the diaspora, will be crucial in making this vision a reality.

The Centre wishes to thank Manish Bundhun, Chief People executive at Rogers and Manisha Dookhony, Chairperson of Mindex for giving their time by joining the organisation committee of the workshop and for their invaluable insights in structuring the discussions.

Main photo by pch.vector on Freepik

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).

Bertand Badré, former managing direct of the World Bank and CEO and Founder of Blue like an Orange Sustainable Capital.

Yves Tiberghien, Professor of Political Science and Director Emeritus of the Institute of Asian Research at the University of British Columbia.

Today’s economic outlook is strangely contradictory. While global markets, led by technology and energy, have been ebullient over high short-term profits, the mood at the Spring Meetings of the World Bank and the International Monetary Fund last month was decidedly somber. Two global institutions that normally speak in banalities issued strong warnings about the growing risks of economic fragmentation.

The idea that an interdependent global economy can work within a geopolitical system based on the national sovereignty of nearly 200 states has always reflected a certain amount of idealism. Or perhaps it was more like hubris. This strange marriage did, after all, collapse in the 1930s, with the division lasting through the end of World War II.

But idealism was not dead, and the global system was subsequently rebuilt on a foundation of agreed rules, shared international institutions, a degree of mutual forbearance, and crisis management. From the start, security considerations were kept as separate as possible from the economy, but this became especially important in the 1990s, when countries with radically different regimes began integrating into the global economy.

Today, however, the foundations of this system are eroding fast, and global economic integration has seemingly gone into reverse. As Gita Gopinath, the IMF’s first deputy managing director, recently explained, economic fragmentation could have far-reaching implications for trade, such as reduced efficiency gains, and increase the risk of macro-financial volatility. Fragmentation could also reduce capital flows to the Global South and undermine the provision of global public goods, including climate action.

Five key factors are driving this trend toward fragmentation. First, rising geopolitical risks have fueled mistrust and reduced systemically important countries’ will to cooperate. Though policymakers rarely acknowledge it, a crisis over Taiwan – a flashpoint in the Sino-American rivalry – could well bring down the global economic system.

Second, key countries are increasingly allowing security considerations to shape economic policy, with some taking expansive action to secure access to inputs, infrastructure, and technologies. While this is understandable, countries must exercise restraint. Whereas globalization happened gradually, a deglobalization process driven by security-motivated measures (which are almost guaranteed to trigger escalation by rivals and partners) would probably be fast and unwieldy, posing severe systemic risks.

The third factor underlying economic fragmentation is a deepening rift between the Global North and Global South. Public and private support for developing economies has collapsed at a time when many are wrestling with the legacy of the COVID-19 pandemic and confronting climate change. The decades-long trend toward convergence with developed economies has seemingly been interrupted, and resentment is building in the Global South. Net financial flows to developing countries have turned negative in 2023, and the trend is worsening in 2024. This partly explains the reluctance or refusal of many Global South countries to back the West on key geopolitical issues, such as sanctions against Russia in response to its war of aggression in Ukraine.

Fragmentation also reflects the rapid escalation of climate risks and disasters. With “once-a-lifetime” floods, mega-fires, and droughts proliferating, many countries are at risk of destabilization within the next few years, and there is no global “safety net” in place. Meanwhile, as Harvard’s Dani Rodrik has pointed out, countries are competing for dominance in green technologies, rather than working together to accelerate progress.

Lastly, the exponential growth of artificial intelligence is fueling national competition, rather than the global cooperation that is required. As MIT’s Daron Acemoglu and Simon Johnson have noted, regulations, policies, and institutions will be essential to ensure that AI creates jobs, rather than only destroying them. Global South countries need a voice in AI regulatory efforts.

To be sure, the global economic system still has many sources of resilience. As the recent Indonesian, Indian, and Brazilian G20 presidencies have shown, most of the Global South remains committed to both interdependence and global governance. Furthermore, the private sector is still characterized by interdependence. We still have dedicated international organizations, global education networks, and a global civil society.

But we must not underestimate the dangers ahead. There is good reason to think that the coming months and years will bring a series of shocks and crises. If leaders respond with tit-for-tat policies aimed at securing advantages over rivals, the integrated global economy could unravel. The speed of that process could overwhelm policymakers, and the path from economic pain to social upheaval to the abandonment of shared global rules may well prove to be short.

As it stands, leaders are so preoccupied with wars, power struggles, social tensions, and political polarization that they appear largely unwilling to invest in saving the integrated global economy, let alone strengthening its capacity to deal with the existential risks we face. But history, economic theory, and current empirical trends indicate that this is a mistake.

Even a partial collapse of our interdependent global economic and financial systems would be catastrophic, not least because it would undermine investment in global public goods. For politicians worried about migration’s effect on their countries, it is worth noting that, without massive investments in combating climate change, reversing desertification, and reducing poverty, millions could be attempting to cross the Mediterranean by 2050.

National security must be a priority for policymakers. But measures to “secure” the economy must be combined with efforts to improve communication with rivals and invest in global public goods. To this end, world leaders should use the G20 and other plurilateral bodies to elevate working groups and institutions that support collective governance, with a focus on managing AI risks, addressing climate change, and averting the collapse of the global economic system on which we depend.

Copyright: Project Syndicate, 2024.
www.project-syndicate.org

Main photo by energepic.com on Pexels

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).