In praise of the cash economy

<a href="http://www.youngfoundation.org.uk/">Young Foundation</a> Fellow Sean Carey argues that some

Mauritius has changed. Long feted by economists and political scientists as an example to other African states with its open economy and multi-party democracy, the palm-fringed Indian Ocean island which lies some 600 miles east of Madagascar, has become a victim of its own success and is now officially classified as a "Middle Income" country.

With GDP per capita expected soon to reach $6000 Mauritius, with its population of 1.2 million, finds that it is no longer eligible for the sort of aid provided to the world’s poorest countries. And with guaranteed prices from sugar exports to the EU also about to end there is an urgent need to raise revenue.

All sorts of new taxes have been introduced and Prime Minister Navin Ramgoolam has brought in personnel from abroad to beef up the tax and customs services.

Amongst other things this has resulted in a clampdown on tax avoidance. Even the street vendors who sell snacks from the roadside, bus stations, busy market areas and beaches are feeling the pinch.

In Mauritius snacks are something of a cultural institution and bought by locals from all the island’s ethnic groups of diverse origins - north and south Indian Hindus, Gujarati Muslims, Chinese, French and ethnically mixed Creoles - and more adventurous tourists.

They include samosas, pakora, and gateaux piment, the small marble-sized balls of crushed dal, spring onions and herbs including a good amount of fresh, green chilli which are deep fried and have a wonderful, crunchy texture.

But no list of snacks would be complete without the inclusion of the dholl puri, an Indian-inspired soft, flat bread made from wheat flour, crushed yellow lentils, oil and water which is then wrapped around a dollop of chutney or vegetable curry. It is a Mauritian favourite, the country’s original fast-food.

The street vendors, mainly older men, hail predominantly from the Indian Hindu and Muslim communities and they are not happy.

According to one local commentator Saoud Baccus writing in L’Express, however, if expatriate personnel increase the amount of tax revenue and decrease the level of corruption in the customs service then this is an unreservedly good thing.

Furthermore, the considerable salaries of these new recruits are small when compared to the financial benefits, revenues and sound practices they deliver. "They are doing a wonderful job for the country ... for which we should be grateful", he writes.

It all sounds very plausible. If officers demand to be paid extra from private individuals or companies for clearing and checking goods, or bending the rules in some way, it is not advantageous to anyone -except, of course, themselves and the immediate beneficiaries of their activities.

We can all agree that customs regulation in particular should be a clean, honest and transparent endeavour.

And it is especially important in controlling the importation of illegal supplies of drugs and alcohol.

Comparative evidence suggests that the low cost and easy availability of such substances - particularly as part of an illegal trade - has a disproportionately negative effect on the behaviour and attitudes of members of the poorest sections in society.

It also has a massively adverse impact on their take up of educational and mainstream employment opportunities. This pattern is as true of paradise island Mauritius, which has a small but significant hard drug and alcohol problem among its urban and rural poor, as any other country with an open economy.

However, the issue of taxation is slightly different. Some Mauritian commentators argue that all responsible citizens should pay their fair share of taxes but I am not so sure.

Or rather I am in the case of billionaires and millionaires who, in any case, tend to employ a small army of very good accountants and lawyers to exploit the many and varied loopholes in the taxation system. So I don't feel too sorry for them - they are undoubtedly fair game and play their own game very well.

But I am concerned when the state wants to extend the reach of the bureaucrats to the people like street vendors and others like vegetable and egg sellers who have small cottage industries which supplement other forms of income and who are not rich by any stretch of imagination.

Put simply, I want to defend the little people who probably haven't had the social and educational advantages of the government functionaries who are busily pursuing them but wouldn’t mind securing the futures of their children or grandchildren.

In fact, I am a great admirer of the cash economy. Indeed, I have conducted research and seen at first hand its positive effect in certain sections of the catering sector in London.

The posh restaurants at the top end of the booming London market aren't really part of the cash (notes and coins) economy at all.

These include the Michelin-starred restaurants run by famous British restaurateurs including Gordon Ramsay, Gary Rhodes and Marco Pierre White as well as British-based ethnic minority ones like Vineet Bhatia, Atul Kochhar and Alan Yau.

Nearly all the transactions in these businesses are done by credit card and other forms of electronic payment. These enterprises undoubtedly pay their taxes and make a significant contribution to the advanced service sector of the UK and, thus, to the general welfare of society.

The phenomenal success of these restaurant groups led by celebrity chefs has even meant the appearance of gastronomic outposts in the last four or five years at some of the top-end hotels catering for the well-heeled tourists who visit Mauritius (and comparable destinations around the world).

A particularly good example is provided by Vineet Bhatia who was head chef at Zaika, the first Indian restaurant to win a Michelin star in London (or anywhere else) in 2001. He now owns his own Michelin-starred establishment, Rasoi Vineet Bhatia, in London's Sloane Square and also set up the highly acclaimed Safran restaurant (now run by fellow Indian chef, Atul Kocchar) at Le Touessrok, one of Mauritius' finest hotels.

However, the story is quite different at the other end of the catering sector in London. For example, it would not be possible to keep open all of the restaurants, cafes and take-aways in the ethnic enclaves of inner London and those that punctuate high street locations elsewhere in the capital if everything that was done was legitimate and above board.

These small catering establishments simply couldn’t continue to attract the hungry hordes of locals and tourists who turn up every day if they weren't involved in some creative fiddling, financial and otherwise.

Apart from anything else, the fixed business costs are often too high. Without cash payments to staff (thus avoiding the constraints imposed by the minimum wage) and tax avoidance, huge numbers of cafes and restaurants in the London area (and across the UK) would be forced out of business. And this would undoubtedly have massive and deleterious effects on members of the diverse local communities in the UK’s capital who often depend on the catering trade for work.

Let me be clear, these people really don’t have a choice of jobs. The vast majority come from poorly educated ethnic minority groups who migrated from rural areas unlike, for example, Vineet Bhatia who hails, as he proudly states on his website, from "an educated, middle-class family in Bombay " (although I bet that none of his sons and daughters will be following him into the kitchen).

Don't get me wrong - I don't think tax avoidance is an ideal situation but I don’t think it’s the end of the world either.

The cash economy often creates the social space and momentum for members of migrant and other disadvantaged groups, particularly the younger members, to achieve a degree of upward social mobility that would otherwise be denied to them.

I have long been aware of an interesting social pattern found among some relatively poor ethnic minority communities involved in the UK catering trade whose members have experienced a high level of social mobility.

Part of the economic surplus, legitimate or otherwise, has traditionally been used to pay for extra educational tuition (secular rather than religious) for the children of the family.

More recently, funds have also gone towards the purchase of technologies like the Internet which bring profound educational benefits to the younger (and sometimes to the older) members of the household.

This pattern of consumption is often absent or radically different in socially and economically comparable white families where a much greater emphasis is placed on the fun and leisure aspects of the technology.

An example of exceptional educational and social progress can be found in a section of the British Chinese community, the poor rice farming families who fled Hong Kong’s rice famine in the 1950s and moved into the catering trade.

The parents may still be running the restaurants and take-aways scattered across Britain but most of their children certainly aren’t. They have done very well at school, gone to university and have taken up senior positions from accountancy to law and medicine and all professions in between.

Something similar is beginning to emerge among some of the children in the British Bangladeshi community whose families come from rural Sylhet in the north-east of the country.

The men of the first generation of migrants - fathers and sons - operate around 85 per cent of Britain’s "Indian" restaurants.

Now after a relatively slow start, their children have overtaken Pakistanis in terms of GCSE results and are narrowing the gap with children of Indian origin, the most successful south Asian group whose older members like their Chinese counterparts, are already well represented in the professions.

So the UK can provide Mauritius with a useful lesson: while some areas of a nation's economy, like customs and excise, need a high degree of regulation, other areas are best left alone or very lightly controlled.

Turning a bureaucratic blind eye to financial irregularities in certain areas of the economy is often the smart thing to do and is certainly preferable to some of the possible alternatives - welfare dependency or livelihoods derived from drug, alcohol and prostitution-related crime.

The evidence suggests that too much of the wrong sort of government interference in the lives of a country's citizens stifles enterprise and may well have serious and unintended consequences not envisaged by those who champion the hard-nosed "audit culture".

Of course, another way of addressing these issues would be to reform the tax system so that, instead of focusing on avoidance, it positively encouraged behaviour that tends to generate educational success.

For example, tax relief on computers and fast Internet connections for poor and low income households with direct links to local educational institutions would boost income declaration and promote learning and social mobility in an increasingly information-based, commercial world.

Fleshing out the precise details of such a scheme is another matter and probably best left to financial and educational experts. But the overall direction could certainly be set by politicians - and that lesson is applicable to both Mauritius and the UK.

Now where can I buy a decent dholl puri?

Dr Sean Carey is a Fellow of the Young Foundation

A version of this article first ran in the Mauritius Times