The Noble Pursuit of Growth!

The Noble Pursuit of Growth!

By: Yusuf Mansur

11 2 2001

His Majesty’s message to the Council of Ministers last week provided a clear set of guidelines to the government. The new thinking must revolve about growth, not about balancing the budget--the motto of the past three years used to bludgeon every development and growth initiative this country ever had. Hence, the government is currently readying itself and ponders a plan and implementation tools for developing this great and noble cause to transform the ordinary everyday occurrences into stimulating environments boosted every day by a sustainable surge of the personal and collective energies of ordinary everyday Jordanian. Notwithstanding, the passage forth although clear is not free. The path, albeit noble and correct, is to be covered with gold, as in spent gold.

Sustainable growth, or economic competitiveness, means that the average Jordanian has more job opportunities has better-paying jobs (at home, not overseas) and receives higher wages. A wealthier Jordanian spends more, consumes more, demands better goods and services and overall leads a better life. Furthermore, for growth to be sustainable it has to be equitable, which means that the poor will also benefit from growth and feel its bless. Also, growth means that the government will be able to collect more revenue in the form of taxes and fees from the increased economic activity, without having to increase taxes. Sustainable growth is a win-win deal for all.

But growth is costly! It requires that spending must focus more on capital (both human and physical) expenditures. Why? Improving the status of labor and infrastructure improves the production conditions of business enterprises and, hence, increases their competitiveness. On the other hand, so far spending has been primarily in the form of current expenditures (85% of the budget) with the majority of it going to pay government wages, which go on feeding the fire of past mistakes and creating greater future burdens on industry—not only do industrialists have to feed those guys through more and more future taxes but they also have to placate them and keep them out of the way—a more efficient economic solution can be achieved by simply paying them salaries to stay at home. Furthermore, as pointed out to me last week by a colleague, spending on paying government wages leads to greater imports as the productive capacity of the rest of the economy remains unaffected by the wages paid to government employees. This further exacerbates the problem as it weakens the impact of spending on the GDP and encourages conspicuous consumption as witnessed in the grandiose houses of West Amman and the luxury items brandished among the affluent simply because they have no idea of how or where to invest their government earned wealth—generated of course not only from wages but also from rent-seeking practices.

Because Jordan has very limited resources, focusing on capital spending is not enough. Even this type of government expenditure must be wisely and accurately spent. Like a clever surgeon moving his scalpel within the sinews of a patient’s body, spending must be carefully inserted, hopefully at no pain to the patient. To do so, both the mind and hands of the surgeon must be focused and steady with a clear unimpeded vision. Furthermore, the patient must be willing. This is the new role of the government as expounded so clearly in His Majesty’s letter to the Council of Ministers and the nation.

So how to go about achieving growth? Here is an economist’s blueprint: Regarding human development, training must first and foremost become demand-driven. Having training centers operating at the whim of the budget and within the normal constraints is not going to work—it did not work in the past, neither was it able to put the graduates to work. Therefore, business and labor must have a saying in the management and operation of these centers. Management and performance should be evaluated objectively and according to independently established benchmarks. Specialized training centers are also important. However, for such centers to remain competitive at least several things must happen: they must be run jointly by the private sector and the centers must be allowed to compete with the private sector in providing training. Having monopoly rights overtraining would simply weaken such centers. Furthermore, certification of plumbers and mechanics, among others, must become a regular practice, whereby certification is renewed annually. To encourage the demand for quality in the market place, a consumer protection law must come into effect immediately so that the consumer becomes an overseer of the quality of the workers’ output, thereby helping internalize quality.

The same applies to universities. Government universities have suffered tremendous brain drain due to the budget management doctrine. The quality of education can be enhanced through flexible dynamic curricula, higher wages to professors, better selection of professors, removal of indentured servitude as professors are forced to serve three times the period of their scholarship--usually a gift from a donor country—in order to allow those who don’t want to teach leave the classroom, review of some of the cantankerous requirements such as the docile point system and focusing instead on publishing in quality international journals for the purpose of promotion, and reducing the teaching load for professors—too high for research institutes. The view that government universities are better than private-sector universities is also outdated. Worldwide privately owned universities such as Harvard and Chicago, among many others, have led the development of the arts and sciences; Jordan should not be the exception.  

As for sports, in order for Jordanian athletics to emerge into the private sector, intellectual property rights (IPR) must be widely enforced. The rule is simple; athletes have a limited professional life span during which they perform at their peak. If the images of excellence and excitement they conjure during this limited window of opportunity cannot be protected and utilized to generate revenues for them, they will remain poor and are forced to perform at non-competitive levels to guarantee that their meager wages continue. Thus, they usurp opportunities that should have been availed to others, while they themselves are impoverished through the dismal government wages. In other words, to specialize they must reap the value of their product. So, whether the ministry of youth and sports remains or vanishes is inconsequential, IPR is where the problem mainly lies. Of course, athletes must be allowed to sell their products to different TV stations, which also means that competition in TV and radio must be allowed.

As for health services, one must not forget that the sector has suffered for decades from the persistent underfunding of doctors, equipment and facilities. Furthermore, there is a dogged view in the Kingdom that only doctors can manage hospitals properly. Hence, Jordan’s premier doctors are turned to failed unhappy administrators who have no idea about managing cash flows, evaluating financial strategies, empowering and training human resources, preparing budgets, implementing just-in-time warehousing, managing the supply chain, etc; a typical example of the Peter Principle, where a person is promoted to his/her level of incompetence. Furthermore, cost-sharing by patients to limit abuse, together with quality enhancement—again the introduction of a consumer protection law will be vital to the quality upgrading—will also help to greatly enhance the quality of public health care.

And, to improve infrastructure, Jordan must move in two fronts: improve the quality of some infrastructure to levels that help attract investors and in accordance with their specifications—the investors can be asked what would it take for them to choose Jordan for their production facilities; and improve infrastructure overall. Both can be done through public-private partnerships, possibly with foreign or highly advanced local strategic partners. The reason for this conditionality is the need for the efficiency of the private sector, and the importance of infusing international best practices in management and technical skills in the productive psyche of the industry in Jordan.

Attention must be paid to the window of opportunity created by the QIZs, which may be closing in 2005 with the onset of the Multi-Fiber Agreement. A strategy needs to be in place for making those towns of excellence function beyond the demise of the textile advantage. Controlling the supply chain should be encouraged if the Jordanian industry is to flourish. This can only be achieved by creating backward and forward linkages that integrate more and more technology.

Also, opportunities and projects must be evaluated and represented. Among the main projects that should have been introduced by now: the SUNCOR shale oil project (US$4.6 billion) in the south of Jordan, the Hydro-Agri industrial project (US$700 million) also in the south and the Aqaba Railway project; all of which were derailed, excuse the pun, because of delays in a negotiation that were completely unwarranted. A simple review of the logbooks of the negotiation sessions would demonstrate this shortfall. Had the negotiations been accelerated, the contracts would have been signed before the onset of regional disquiet and Jordan would have been better off.  What happened to the Disi Water Conveyor project? The golden rule should be as follows: Jordan is a highly stable country in an unstable region, negotiation must go fast and with a vision to quick conclusions, tarrying means that FDIs may be scared by what goes around us. If there is a lack of professional negotiators or experts, then allowances should be made to hire them without the fear of being lynched by the budget and the constraints placed by those in charge of it.

The key to industrial development as his Majesty’s letter makes clear is through upgrading industry; otherwise all the trade liberalizing agreements will become burdens and threats, not opportunities. The industry must be upgraded through support structures such as funds that help industrialists purchase new equipment or technology, train employees at home or abroad, obtain detailed information about markets, attend specialized fairs, start new businesses with ideas and no or little real estate, access technology. The fund must be large enough and nationally motivated and funded. The Irish model, which the government announced it might adopt, contains all these measures, and if the government is to implement this or the Tunisian model, which is almost identical, then it must not focus only on establishing a new department, that is the easy part which in Jordan we do very well, what is needed is funding for industry.

But caution, this plan is not a panacea for imposing more taxes on an already overburdened private sector and suffering industry. Taxes may be the right move in a few years when the economy recovers, not now. So where should the funds come from? Privatization funds; there is over US$500 million remaining from the US$929 already collected from privatization and over US$600 million expected to come from the sale of four new enterprises, including the phosphate and potash companies. What is a better route for employing these proceeds? Not current expenditures or the repayment of the debt as currently practiced. And please, don’t let anybody tell us that the government can invest these funds properly, the reason they were privatized in the first place was that the government could not manage them properly.

The government, to show the proper commitment to growth must utilize all the privatization proceeds and commits them to industrial development, whether in infrastructure or in upgrading. Little funds and underfunding will not work, worse still may lead to adverse results: a failed experiment because of less of an ingredient will prevent future attempts or remedies.

I have argued time and again, in past columns and even at the two Dead Sea Economic Forums that the fiscal policy of constraint was slowing growth. It is time to fix the situation by managing growth, and then the budget. No more IMF scorecards or passing grades, only the welfare of that Unknown Soldier, His Excellency the great and noble Jordanian citizen.