Arpit Gupta reminds me that there is a great deal of disagreement regarding the lessons of the Mauritius model. Clive Crook offers the following counterpoint to Stiglitz:

[Stiglitz] emphasizes the country’s investment in education, universal health care, and limited spending on defense. Oddly enough he fails to comment on its liberal trade policies, open capital market, light-touch business regulation, and low, flat taxes. Mauritius ranks 12th out of 183 in the Heritage Foundation’s Index of Economic Freedom–three places behind the US, and way ahead of the next-highest-ranked country in its region (Botswana). Well, hardly worth mentioning.

This, of course, is fully compatible with Matt Yglesias’s reminder that the social democracies of northern Europe tend to have very open economies, a favorite theme here at the Agenda as well.

Arpit also pointed me to a 2001 IMF working paper by Devesh Roy and Arvind Subramanian that, like Stiglitz and Dani Rodrik, places heavier emphasis on Mauritius’s institutional mix, i.e., its “heterodox opening.” As the authors explain, Mauritius’s trade regime hasn’t been conventionally open, but rather has relied on a mix of active ISI policy in earlier eras and export subsidies. They don’t, however, see this policy mix as the silver bullet for explaining the country’s growth performance. Rather, they tentatively suggest that the country’s strategy for managing ethnic diversity might deserve the credit. Mauritius is home to many a number of ethnic diasporas — Indian, Chinese, and, in smaller numbers, European — and this facilitated integration into global trade networks. Diversity also encouraged a political accommodation of the various minority groups, or rather the non-plurality groups. Property rights as well as civil and political rights were secured by the post-independence government, and this may have improved the quality of governance.

Roy and Subramanian describe Mauritius’s economic performance as unusually impressive, and I have to say that I’m frustrated by the failure to reckon with the counterfactual. How would the country have fared in the absence of commercial preferences under the 1975 Georgetown Agreement, designed to deepen economic integration between the so-called ACP states and the European common market?

All of this assumes that we’re really trying to learn something about Mauritius rather than to make a polemical point about people in the U.S. who believe (rightly, in my view) that it’s not crazy to believe that the public sector should do a better job of spending the money of present and future taxpayers.

P.S. Ali Zafar of the World Bank offers even more context:

A hallmark of economic management in Mauritius in recent decades has been prudent fiscal policy, which has helped both maintain macroeconomic stability and contribute to growth. Fiscal policy in Mauritius has focused on ensuring that spending remains linked to the resource availability. While there have been fiscal imbalances, there is no history of the government borrowing from the central bank or from aid agencies. The strong growth in the 1980s led to a decrease in recourse to foreign financing. The budget deficit which was at 3 percent in 1983, turned into a budget surplus by 1987, as current expenditures shrank from 26 percent of GDP to 21 percent in 1987 while government revenues remained flat, around 24 percent over the same period. On the expenditure side, the government withdrew from subsidies on food items and kept the wage bill under control during that period.
Similarly, in the 2000s, the government built up reserves that allowed it the freedom to expand fiscal policy in the aftermath of the 2008–09 global financial crisis. Moreover, the stock of international and domestic debt has remained well below an unsustainable threshold (total public debt is projected to be 60.4 percent of GDP at the end of 2010). Mauritius’ government expenditures have never much exceeded 20 percent of GDP and have been used mostly for wage policy, with a small amount devoted to food subsidies. Capital expenditures, which averaged less than 5 percent of GDP since independence to the present, but which have been increasing over the long term, have been used productively to invest in infrastructure—especially roads—and provide a necessary operating environment for EPZs. In sum, fiscal policy has helped lay the foundation for management of volatility and robust growth. [Emphasis added.]

Yes, let’s definitely embrace the Mauritius model. I’m sold. Recall that government expenditures around 20 percent of GDP refers to all levels of government. whereas we tend to keep an eye on federal expenditures, leaving out booming state and local expenditures.