The rise and fall of industries is a natural part of the market system. Yet, politicians and policy makers focus on identifying villains and economic traitors rather than investigating whether the country can replace the lost industries and processes with alternatives that ultimately can employ the population and form a basis for healthy economic growth.

The decline of manufacturing as a producer of wealth and jobs has changed the world’s economic, social and political landscape. It is making “economic miracles” increasingly difficult for developing countries to achieve. The economic miracles of the second half of the 20th century-Japan, South Korea, Taiwan, Hong Kong, Singapore including Mauritius- were based on exports to the world’s rich countries of manufactured goods that were produced with lower labour costs. Developing countries have often taken the easier route of selling their labour (through wages arbitrage) in the international markets instead of utilizing human capital towards creating assets that could be used to further economic expansion and opportunity. In a sense, human labour was expensed towards production for the present rather than invested towards creating production capabilities through knowledge and human intellect.

The only viable solution therefore comes through productivity growth and innovation. High and rapid growing rates of output per worker are the only ways that relatively high-paid domestic labour can warrant their pay and thereby, compete with the low-cost foreign alternatives.

While human capital increasingly continues to replace other forms of capital and becomes central to the process of economic development in the knowledge intensive twenty-first century, quantum leaps in manufacturing productivity – such as automation, is making manual labor redundant at the same time.

<B>An unprecedent example</B>

Take China. For almost two decades, the entire world has blamed China for taking away their manufacturing jobs. However, the figures from China portray a different picture. For the entire economy between 1995 and 2002, China lost 15 million manufacturing jobs. China is exactly losing manufacturing jobs in the same industries where the other major countries have seen jobs disappear, such as textiles.

Productivity is a key contributor to industrial progress. Yet, relationship between productivity and employment figures is diabolically reverse, devouring jobs, creating labour unrest and uprooting industries from one place to plant them elsewhere, unless significant innovation is introduced.

Writing in “Competing for the Future”, Gary Hamel and CK Prahlad recount the rebuilding of the Swiss watch industry, which was effectively snatched away by the Japanese in the 1980s. People in the original Swatch team dared to ask a crazy question “Why can’t we compete with the Japanese to produce a fashionable watch and sell it at an average price of $40?”

The answer required fundamental innovations in design, manufacturing and distribution. Swatch was a re-conception of the entire Swiss watch making industry. Its highly innovative manufacturing process trimmed labour costs to less than 10% of the manufacturing costs and to just about 1% of the retail price. By 1992, production of over 25 million watches had not only revitalized the watch making industry but also proved that high European wage levels need not be a competitive death warrant.

How can Mauritius deploy its social, political, economic and human resources while leveraging on its historical, cultural and ethnic wealth to create a socio-economic environment that retains dignity of labor, ensures equity of opportunity and delivers magnificent economic growth?

This is one fundamental question that policy makers, politicians and people must take to the forthcoming National Innovation Summit (organized by the National Productivity and Competitiveness Council) and necessarily find an answer.

Massive job losses and the dwindling manufacturing industry is prompting doomsters to predict the collapse of Mauritian economy despite the country’s impeccable record of sustained growth over the last two decades.

Surprisingly, the politicians have also joined their cant instead of recognizing that the positive process of creative destruction is at work. The old must be rebuilt, reorganized, revitalized or buried to give way for the new to be born. The current crisis is therefore an opportune moment for the nation builders to dismantle the past and reconstruct a brand new future. The politicians, policy-makers and people must give themselves a country that does not live on the uncertain privileges, protections and prosperity of the developed world, but is fundamentally strong, highly productive and immensely innovative.

Manufacturing job dislocation will continue even in the best of times. However, steps should be taken to help laid-off manufacturing workers adjust, including introducing schemes such as unemployment insurance system, promoting new economy skills training and effective outplacement services such as the recent Job Fairs organized by the Ministry of Employment.

The Innovation Summit should provide a national forum to re-think the future of Mauritius. It is not only about saving the sugar and textile industry but also about incubating new ones by creating the enabling environment that only political will and policymaking can usher.

<I>“The old must be rebuilt, reorganized, revitalized or buried to give way for the new to be born. The current crisis is therefore an opportune moment for the nation builders to dismantle the past and reconstruct a brand new future.”</I>

<B>Baljinder Sharma</B>