A Trip Down the Neoliberals’ Reform Lane
By Yusuf Mansur
6 January 2020
The late Dr.
Melvin Greenhut, my dissertation chairman, a distinguished scholar, and
later my colleague, at Texas A&M University, used to quote repeatedly to my
graduate class, "Little knowledge is dangerous knowledge". The
economics he espoused and taught was more in line with that of the neo-liberal
school of the University
of Chicago
Upon my
return to Jordan, almost fresh from academia, I joined the reform drive as an
advocate and analyst, working first in the Ministry of Posts and Telecom in
1995, and then from 1996 to 1999 with some of the best brains in Jordan at the
Ministry of Planning and with representatives of the World Bank and the IMF.
The policy
advice given to Jordan by the World Bank and IMF frequent missions was
dazzling. Their researchers had access to data that local researchers simply did
not have access to, (it wasn't until the late 1990s that economic information
became readily available to and accessible by all). The majority of their
advisers had stellar credentials. Their methodology seemed to follow a well-studied
and framed paradigm. The reform they
promoted was a complete model. The free market to them was the ultimate and only
solution to all our (and later I found out, everybody’s) problems.
Some
Jordanian policymakers memorized the World Bank documents; researchers seeking
funding from government agencies wrote research based on the Washington
Consensus, and why not? Advocates of the reform paradigm, IMF and World Bank
style, could easily answer any question and rebut criticism with a seemingly perfect,
infallible logic that was backed by the thoughts and research of some of the
most credible economic talent in the world. In addition, it was the mainstream philosophy
in Jordan; if you joined in you were competent in the eyes of those that
mattered, if you didn’t, well !!!.
The
majority of those that dabbled in economics adopted the World Bank and IMF
documents as a quick reservoir of knowledge. Basically, we swallowed their
precepts, hook, line, and sinker. We listened intently, and like a very good pupil, we were compliant.
Those who
didn't acquiesce were easily removed. Jordanian trade negotiators that gave the
other side a bit of a hassle were quickly replaced and withered or shelved away
among the non-reformers, the unwanted. And given that the IMF and World Bank
created a ready-made intellectual capital, they dominated the theoretical and
intellectual frameworks of decision-makers. It was a pure case of intellectual
imperialism.
The
intellectual capital was not the only reason that government after the government
was easily swayed by the arguments of the World Bank and IMF. The second and
equally important, if not more so, was: to receive loans and aid from donors, Jordan was first to obtain a bill of clean
health from both the World Bank and the IMF, which worked collaboratively. The
growth achieved during 1992-1995 was attributed to the success of reforms, not
the influx of funds, savings and compensations received by the Jordanian returnees
from Kuwait in the aftermath of the First Gulf War. In a clear demonstration of
the saying that success had many fathers while failure didn't, the reformists
claimed the glory. Later faltering growth rates were blamed on external
factors, the region, conflict, etc. I wonder sometimes if we are experiencing
déjà vu again! And will we ever stop blaming others for failures and not
our successes?
The IMF
and World Bank asked that we reduce the size of government in order not to crowd-out
the private sector and enable it to take an active role in development. We were
to balance the budget by reducing government spending as a percentage of GDP. They
asked that Jordan
Competitiveness
did not improve, a rentier situation continued to persist and even grow. Ailments
that plagued the economy prior to the reforms are ever-present. Industry,
without subsidy and oftentimes quick and faulty decisions, was beginning to
falter under free trade. Government size continued to grow and the economy was still
heavily exposed to oil prices and regional fluctuations—the situation in the
energy market is currently worse.
For me it took
several years of pondering what was missing. In those reformative years,
several voices of dissent became coherent - the worldwide criticism of the
Washington Consensus and the emergence of Noble Laureates such as Joseph
Stiglitz (arguably the best living economist) who dared to criticize the IMF, gave
me and others an eye-opening to alternatives. Also, at the time, renowned
international scholars were still criticizing the role of the IMF in Asia and the adverse impact of its advice on the Asian
Tigers—one writer went as far as calling for the privatization of the IMF.
But what
affected my own personal reform into what I believe is a more realistic
economist were two experiences that occurred while working in a wealthy Gulf
country. There, I noted that the same advice given to Jordan, a resource-poor
economy, was also given to the oil-rich state where, at the time, citizens
enjoyed one of the highest per capita incomes in the world. I came to realize
that the reforms advocated by the World Bank/IMF were a cookie-cutter type of
reform, a one-solution fits all prescription. The other experience, occurred while
attending a seminar at the Arab Planning Institute—a top-notch Arab think-tank-
where the research results of Dr. Ali Abdul Gader, an excellent regional economist
whose work was empirically based and echoed a growing regional voice of
discontent, showed that developing countries that followed the advice of the
Washington Consensus became actually worse off. His research showed emphatically
that the Washington Consensus had a positive impact on developed economies, and
a negative one on developing economies. Thus, the dissent was formed,
crystallized and a search into a new paradigm started.
But did we
reform? Not really! The only good advice given by the World Bank was not
adhered to. Government size has grown over the years. Maybe because it was the
most difficult reform to achieve: how could bureaucrats cut their own jobs? The
economy grew due to Jordan 's
political stability and enlightened leadership that steered it away from losing
conflicts, not because of increased competitiveness. Hence, it was vital to
continue to grow and distribute rent, even if the government had to borrow to
meet its growing wage bill. Tax collection was not improved; instead, new taxes
such as the sales tax were introduced. Custom tariffs were reduced in
compliance with the World Bank, IMF, WTO, and bilateral trade agreements. Hence,
outwardly Jordan looked very good in terms of trade liberalization. But, while
lowering tariffs, special taxes were introduced to make up for the budget
shortfalls and, in some cases, even exceeded the customs tariffs. Some very
good legislation that was badly needed was introduced but the by-laws and
regulations that followed them reduced their effectiveness and rendered them
useless, if not dangerous. Privatization took off but we produced additional regulatory
bodies everywhere, stacked them with high budgets, and squandered the proceeds
from privatization on debt buy-back from the Paris Club instead of using such
proceeds to train bureaucrats to join the private sector as initially intended
or to safeguard the economy against economic downturns as later happened. Consequently, in the last several years, Jordan 's world ranking in competitiveness,
business environment and corruption did not improve but regressed. Jordan , which was already subject to
international exposure, became more so with globalization.
Arguably,
the reform we did do well was that of reducing red tape—but we did fail to
improve relative to others, which is more important. In good times we patted
ourselves on the back; in bad times, regional turmoil was to blame. We were
blameless.
What we
didn't do, and should have done, was reduce the size of government, still the greatest obstacle to the growth of the economy along a steady path that
ultimately leads to development. What we should have done, which was not a
piece of IMF advice, was to improve the quality of government spending instead
of simply reducing spending as they advised. While increasing the budget both
in absolute terms and relative to the GDP, we reduced the size of the capital
expenditures component in the budget, the only tranche of government spending that
grants the current and new generations a chance of improved quality of life We
increased the openness of the economy, but we didn't enhance the
competitiveness of industry—the latter was expected to happen, according to the
Washington Consensus, as a result of increasing competition. Later, we
increased the cost of energy, first to industry thus curtailing the aggregate
supply; and years later (after the Arab Spring subsided) to households. As a
result, industry is less capable of competing today and more vulnerable to
external shocks than before; and the Jordanian consumer still feels pessimistic
and worried.
Now I
advocate for a countercyclical fiscal policy: when the economic cycle is in a
trough, the government should increase spending. I also, call for greater
capital expenditures and less operational expenditures: the first enables
greater growth and hence the government can through enhanced growth and
consequent revenues pay back the debt with interest; the latter does not. Furthermore,
the government is to look at the trade-industry-investment nexus; a holy trilogy
that is necessary for developing the economy.
Yes, I
have reformed; have you?????
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