Meet Something A Lot Better Than the Gini Coefficient

It’s called share of income growth. It looks at how the increase in GDP over a given period has been distributed among the different income groups. The clip below shows what happened after a most regressive policy was adopted. 

Riptir, Nuvo Palab Ramgoolam

Ramgoolam pan konvink buku dimun dernye sinq banane ki lin sanze apres sa siro zanana li ti gayne an 2014-la. Li pan tarde pu pas den staz kot li ti pe dir ki lin fer lerer a en lot kot li dir ki elekter pena lespri. An dot mo ki nu ban gopia. Kav li panse ki nu amnezik si parski lin reamen Sithanen, bug kin kas lekonomi, tuy sevings, ek fer en ta lezot kuyonad kuma stimilis pakeg ek depresye rupi. Li anvi tuy nu sistem electoral usi. Devet samem riptir Ramgoolam: kontinye kraz partu kuma ant 2005 ek 2014.

Sithanen trakase ek buku kitsoz i konpri inegalite. Be anu tiek en kut kin arive par gato nasyonal ban diferan klas menaz sak fwa ki li fin minis. 

Simple Tools To Evaluate Political Projects (4)

Let's bring back the income distribution data from the previous post.

Income share in % 1986/7 1991/2 1996/7 2001/2 2006/7 2012
Bottom 20%              5.6      6.4      5.9      6.2     6.1      5.4
Top 20%                  44.2    43.5    46.2    44.8    45.6    47.5
Ratio                         7.9       6.8      7.8      7.2      7.5      8.8

After Bheenick and Bunwaree had reversed some of the damage of policies of Sithanen, Berenger and Pravind Jugnauth reduce slightly the share of the bottom 20% while they increase that for the top 20% by 0.8%. Finally after the first five years of the Sithanen flat tax the weakest 20% households see their share fall to at least a 25-year low while the top 20% hit a record level of 47.5% after they get an increase of 1.9%. There is little surprise then in seeing the share ratio reach a record 8.8X.

So each time Sithanen has been Finance Minister inequality has increased. After his first stint the top 20% saw their share rise by 2.7% of GDP and his flat tax has handed this group another 1.9% in 2012 while the bottom quintile have seen their share fall by 0.5% and 0.7% after his stints or toxic policies were implemented. Lutchmeenaraidoo, Bheenick and Bunwaree on their side have reduced inequality when they were Finance Minister. At this point in time it is useful to have another look at the different cakes that were baked.

We can see that not only the biggest cake was produced by Vishnu in the five years ending in 1992 but the sharing was also the best for the bottom 20% as they grabbed a 6.4% share. Compare this to the smallest share of the bottom 20% and one of the smallest cake produced in the first five and half years of the Sithanen flat tax. There are other interesting conclusions you can draw from combining these two data sets. Have fun. We'll return with a few more tools.

Simple Tools To Evaluate Political Projects (3)

So we've seen the types of cakes that have been cooked over five-year periods for the last 35 years. In this post we look at the second part of our framework to analyse political projects: how the cake is shared. Statmu provides us with a wealth of data to do this. The simplest information is the share of the cake going to the bottom and top 20% households. For example this what happened since 1986/7 (the sexy charts will be for later).

Income share in % 1986/7 1991/2 1996/7 2001/2 2006/7 2012
Bottom 20%              5.6      6.4      5.9      6.2     6.1      5.4
Top 20%                  44.2    43.5    46.2    44.8    45.6    47.5
Ratio                         7.9       6.8      7.8      7.2      7.5      8.8

Clearly this puts the lie to the assertion used by TINAwallahs that there is little we can do about inequality and that it is a phenomenon which is entirely tied to globalisation. As the data shows although it has been increasing -- let's focus on the ratio for now -- since 2001/2 there are also two interesting periods where it actually fell. One is in 1991/2 which coincided with the passing of the baton of Finance Minister between Lutchmeenaraidoo and Sithanen. So the former actually decreased inequality by putting an extra 0.8% of GDP in the hands of the bottom 20% and this was mostly financed by reducing the share of the top 20%. Enter Sithanen and he reverses most of the gains of the bottom 20% while giving the top 20% an extra eye-popping 2.7% -- that's more than three times what the bottom 20% got in the preceding 5 years. This ensured that the top 20% got their biggest share since 1986/7.

And then five years later Bheenick and Bunwaree clawed back three-fifths of the loss the bottom 20% experienced and reduced the share of the top 20% by 1.4% or half of what they gained during the first stint of Dr. TINAnen. We obviously have more to say on this interesting dataset. We'll do this in our next posts.

Simple Tools To Evaluate Political Projects (2)

In this post we look at the size of the cake which is the one of the two parts of the political project as we defined it in the first post in this series. We can have an idea of the economic cake that a government will generate if we analyse what politicians say, have in their electoral manifesto and have said and done before. We can also look at 5-year periods as it is the frequency at which the very interesting household budget survey (HBS) is carried out. This is done in the following chart.

The 8.5% led to the first 60-0. It's an interesting period where one cyclone wiped out two years of progress. Don't think voters were able to separate this from the skill level of the government they had at the time. The years 1982 to 1992 were free of major natural calamities, benefited from the great work done in earlier periods and happened in a very favourable international environment. That gave us the two biggest cakes of the thirty-five-year period.

The cake contracted by about 10 percentage points over the following ten years -- during which the second 60-0 happened -- and another 5 percentage points between 2002-07. The consolidation of our textile industry occurred in the latter period. Finally the last period is the first 5 years of the Sithanen flat tax. Pretty small numbers given the 8% growth that was promised to trickle down. 8% growth over five years is a cake that increases by 46.9%. This has contributed to a GDP gap of Rs269bn by the end of 2012. A cake smaller than expected of course translates into governments that get less done and increases the odds of getting booted out of power.

How Long It Takes To Eradicate Poverty

Back in October 2007 Sithanen, as Minister of Finance, declared that it was possible to eradicate poverty within seven years that is by 2015. This hasn't happened. Last week he made another prediction: that poverty could now be eradicated by 2026 or 2031. Why didn't we make poverty history last year? Is it because Sithanen was not Finance Minister after 2010? Not really. Because the main plank of his reforms -- the flat tax -- was still in place after he had left. And because his other toxic half who was not sacked before October 2013 kept himself quite busy with their agenda of screwing up Mauritius. Besides, some of the damage done by the bean-counting duet will take a lot of time to fix. Just look at our domestic savings. In any case as the above chart shows Statmu reported that an additional 22,000 people became poor over five years of his reforms. That's forty-four times more people than after Navin Ramgoolam's first term.

So how long does it take to eradicate poverty? You can start your stopwatch once you bring back policies that make sense. Income distribution will improve overnight with progressive taxation. We can also look back at our history for clues. Krugman told us that the American middle-class was built in seven years. We should aim to make the economic system dynamic enough so that poor people can move up the social ladder fast. Like it was before 2006.