One thing that policymakers in Jordan need to ensure, through systems and procedural mechanisms, is that people, and by extension the country, are able to get out of the poverty trap.
To become mobile and get out of the poverty rut, several factors, including education and financial inclusion, have to come into the solution mix.Educational mobility is considered a key component of economic, or income mobility, across generations. Note that the persistence of income from one generation to the next is often the result of inherited endowments and parental preference to invest for the benefit of the children.
Through an enabling educational system that equips trainees with the proper tools to become employed, one can exit intergenerational poverty.
The education system in Jordan is not only lacking in endowments, but it also fails to encourage mobility and fairness. Some of the private schools that offer top-flight education and skill sets (of which some are on par with top schools in the most advanced economies), charge fees that are commensurate with those in the wealthiest countries where the per capita income is 20 times higher than that of Jordan.
On the other hand, public schools resort to rote learning, suffer from overcrowding, are staffed mainly by disgruntled teachers, operate inadequate facilities, and receive little to no maintenance.
In order for the government to close the gap, attempts have been made to further regulate private schools by placing caps on their fees. This is obviously the wrong approach (denigrating the excellent to bring them closer to the inept and thus lessen the gap); the proper and correct action should have been to improve public schooling.
Jordan should work on improving the entire school system, including public schools. Currently, the gap between private and public schools is huge and growing, which means that the poor will not exit the poverty trap inherited from their parents, while the children of the wealthy will become wealthier.
The growing dichotomy between the education standards of the children of the rich and of the poor will bring about social, political, and economic ramifications that would be adverse to the developmental path of Jordan.
But this situation is not unique to Jordan. Developing countries worldwide have fallen way behind the developed economies in intergenerational educational mobility (which also leads to intergenerational income mobility).
Developed economies have understood that not all parents have advantageous endowments to pass on to their children, and therefore have come in to fill the gap with enabling education systems. Countries that do not heed this lesson and follow this example face the dire outcome of being underdeveloped, poor states.
Financial inclusion is defined as enabling businesses to have convenient access and use of affordable and suitable financial products and services that meet needs and help improve livelihoods. It is well established in the literature that increasing financial inclusion has the potential to improve living standards, combat poverty and unemployment, promote equality, and enhance financial stability and integrity.
The distinguished French economist Thomas Piketty said: “If credit markets are imperfect, then dynasties with little initial wealth face limited investment opportunities, and they remain poor.”
According to the “Financial Inclusion Diagnostic Study in Jordan 2017”, financial inclusion in the country needs to be strengthened significantly. Sharing some of the figures that were published in the study: only 33.1 percent of adults have an account at a financial institution (32 percent at a bank), 9.3 percent saved money at a financial institution in the past year, and 4.3 percent borrowed from a bank in the past year.
Furthermore, bank loans are given to those that have endowments and connections (which typically result from legacies or important backers), and not for having demonstrable skills or visions. What about trying to start a small business in Jordan, and approaching a bank for a loan?
According to the World Bank Enterprise Surveys of 2013/2014, only 12.5 percent of small enterprises, 25 percent of medium enterprises, and 34.2 percent of large enterprises had a bank loan.
If Jordan desires, and I am sure it does, to exit the poverty trap, emphasis should be placed on fixing the education and credit systems of the country. Although other factors, such as labor policies and vocational training, may come into play, education and credit are the two most important elephants in the room.
The distinguished French economist Thomas Piketty said: “If credit markets are imperfect, then dynasties with little initial wealth face limited investment opportunities, and they remain poor.”
According to the “Financial Inclusion Diagnostic Study in Jordan 2017”, financial inclusion in the country needs to be strengthened significantly. Sharing some of the figures that were published in the study: only 33.1 percent of adults have an account at a financial institution (32 percent at a bank), 9.3 percent saved money at a financial institution in the past year, and 4.3 percent borrowed from a bank in the past year.
Furthermore, bank loans are given to those that have endowments and connections (which typically result from legacies or important backers), and not for having demonstrable skills or visions. What about trying to start a small business in Jordan, and approaching a bank for a loan?
According to the World Bank Enterprise Surveys of 2013/2014, only 12.5 percent of small enterprises, 25 percent of medium enterprises, and 34.2 percent of large enterprises had a bank loan.
If Jordan desires, and I am sure it does, to exit the poverty trap, emphasis should be placed on fixing the education and credit systems of the country. Although other factors, such as labor policies and vocational training, may come into play, education and credit are the two most important elephants in the room.
Published in Jordan News
https://www.jordannews.jo/Section-36/Opinion/The-poverty-trap-and-intergenerational-mobility-21153
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