Cash transfers versus subsidies 28 09 2022

A recent article on the World Bank blog made the case that in “MENA: Uniform cash transfers are better than subsidies”, citing, among others, the Jordanian subsidy reforms. However, in spite of the overwhelming worldwide agreement about the superiority of cash transfers to subsidies, the proponents of cash transfer seem to forget several concepts, some theoretical and others practical, related to the implementation of the cash transfer mechanism.

One of the basic arguments against subsidies is that even though subsidies are meant to protect the poor, they tend to favor the rich. Take, for example, a blanket fuel or energy subsidy: a rich consumer may receive more than a poor consumer since the former has more and larger assets (car/s, house/s, etc.). Producers, on the other hand, are less incentivized to find better or more advanced means of production since energy is a relatively cheap resource.

The same applies to food subsidies, where the rich are capable of consuming more than the poor and thus the subsidy enables not only waste among the rich and poor, but also misdirection of resources in the economy. A similar argument can be made with water subsidies.

Of course, the worse forms of subsidies are those that guarantee a certain fixed price for the commodity because as commodity prices rise, the size of the fiscal burden on the budget grows.

Cash transfer is therefore considered superior in all respects. Moreover, recent empirical research has shown that cash transfer offers the receiver a greater feeling of control as he or she chooses where best to spend the money. However, there are caveats:

1) The shift from subsidy to cash transfer should be coupled with a private-public sector dialogue, and the pros and cons should be clearly explained. In Jordan, the shift from fuel subsidy to cash transfer was suddenly made in November 2012, and complete liberalization followed shortly afterward, also in an abrupt manner.

2) The government must possess accurate data, and if it does not, it should expand the target group to ensure full coverage, even if waste does occur. Ultimately, the better the database the less the waste. In Jordan, in the case of the fuel subsidy removal, almost 70 percent of the population was included in the coverage.

3) Availability of administrative capacities and efficiency is a basic requirement for implementing the new direction. Otherwise, corruption, incompetence, delays, and other mishaps, which may typically occur in third world countries, more than in advanced economies, could easily degrade the gains from the shift.  

4) Quality health and education facilities should be available, especially when the removal of subsidies may impact these two necessary developmental requirements. Countries where these two basic publicly provided services are not readily available should think twice before shifting from subsidies to cash transfers.

5) Many times the high cost of the subsidy is due to monopolistic practices, which are quite spread in Jordan. Most claims of efficiency loss in literature are based on the supply and demand model, which assumes perfect competition in the market — a completely fictitious, non-existent market. The real world is run by monopolies, monopolistic practices, and imperfect competition, which tend to raise prices when cash transfers occur. Look, for example, what happened in the developed countries after governments pumped trillions of dollars into their economies.

6) Often times the need for a subsidy may arise from government-created inefficiencies, such as not modernizing a refinery or buying food at a spot rate instead of using sophisticated purchasing mechanisms. It is far better to address such government-created shortfalls before delving into whether to give cash or subsidize.

The upshot is that the making of economic policy is never a straightforward exercise. The economy is a highly complex, constantly changing, and evolving organism. Hence, shifting toward a cash transfer system instead of granting subsidies is not, and should not be, a remedy for all.

Published in Jordan News 27 09 2022

https://www.jordannews.jo/Section-36/Opinion/Cash-transfers-versus-subsidies-22369

رأس المال الاجتماعي والثقة المجتمعية 22 9 2022

 

يناقش كتاب فرانسيس فوكوياما لعام 1995 ، "الثقة: الفضائل الاجتماعية وخلق الرخاء" ، مسألة الثقة في الأمة وتأثير الثقة الاجتماعية على ثروتها. يجادل فوكوياما بأن النجاح الاقتصادي يعتمد ، ليس فقط على العمالة ورأس المال والتكنولوجيا والموارد الطبيعية وريادة الأعمال ، ولكن أيضًا على ما يسميه قدرة المجتمع على إنشاء "رأس المال الاجتماعي".

ما هو رأس المال الاجتماعي؟ وفقا لفوكوياما ، هي قدرة الناس في المجتمع على الوثوق بأفراد من خارج الأسرة؛ كأن يثقوا بالغرباء داخل المجتمع. إن قدرة المجتمع على خلق صندوق من رأس المال الاجتماعي (الثقة ببعضهم البعض)  تمكن أعضاء المجتمع من ايجاد مشاريع أكثر قابلية للاستدامة والحياة اقتصاديًا وهو أمر ضروري للنمو والتقدم الاقتصادي، وبالتالي الازدهار. مثل هذه الأطروحة التي تبدو بسيطة في الظاهر تحتوي على رسالة رائعة. كلما ازدادت قدرة افراد المجتمع على الثقة ببعضهم البعض ، ازداد احتمال نموه وتنميته.

ومع الاحترام لأطروحة فوكوياما فإنها ليست جديدة. تم تطوير أطروحة مماثلة من قبل الفيلسوف العربي ووالد علم الاجتماع ابن خلدون في أطروحته "المقدمة" منذ ما يقرب من خمسمائة عام. حدد ابن خلدون الرابطة، أو الثقة، الموجودة بين أعضاء المجموعة على أنها ضرورية لتوحيدهم ليس فقط ضد أعداء مشتركين ولكن أيضًا في إنتاج الحياة اليومية. أطلق على هذه الرابطة اسم "عصبية"، والتي تُترجم إلى "القومية" أو "الوطنية" في الدولة المدنية، وأعلن أنها أهم عنصر لنجاح عمل المجتمع في ممارساته وحياته اليومية.

سواء تم تصنيف الثقة المجتمعية على أنها رأس مال اجتماعي أو "قومية" أو "وطنية"، فهي مفهوم سحري يقود الناس إلى الاتحاد معًا لإنشاء مشروع عظيم. ففي الاقتصاد تتداخل جميع أنواع المؤسسات الكبيرة منها والصغيرة، لترتبط ببعضها البعض من خلال الشعور بالوحدة مما يؤازر ويعزز هذه الوحدة أيضا لخلق دورة حميدة للمجموعة. ومع ازدهار الروابط بين العمليات الاقتصادية المختلفة للأمة بسبب، من بين أمور أخرى، الثقة الموجودة في المجتمع، يصبح الاقتصاد بأكمله أكثر قدرة على التمتع باقتصاديات الحجم والنطاق أو التنوع.

فعلى سبيل المثال، إذا كان الشخص يتقاضى خمسمائة دينار أردني شهريًا، سيكون قادرًا على الاستمتاع بأشياء قيمتها أكثر من خمسمائة دينار من السلع والخدمات. كيف؟ في مجتمع الثقة، يميل الناس  أكثر  إلى المشاركة، والتصرف بإيثار تجاه بعضهم البعض، والحصول على مزيد من المتعة من الاستهلاك الجماعي بدلا من الفردية والتفرد أو التعصب لمجموعات صغيرة.

 

وعندما يصبح الناس أكثر أمانًا بشأن المستقبل، فإنهم ينفقون بحرية أكبر مما يؤدي إلى زيادة الدخل وزيادة الإنفاق والادخار، ويثق المشترون بالبائعين على الرغم من أنهم قد لا يعرفونهم، فتقل كلفة ورسوم التعامل والتبادل الاقتصادي بين الناس مع انخفاض الحاجة إلى المحامين والعقود الملزمة. علاوة على ذلك، فإن المجتمع القادر على حشد قدر كبير من رأس المال الاجتماعي ينفق أقل على حماية نفسه من الأفعال السيئة لمواطنيه. فيتم تحويل الاستثمار في حماية الشرطة وأنظمة الإنذار وما إلى ذلك نحو أنواع أخرى أكثر إنتاجية من النفقات التي يمكن الحصول منها على المنافع المباشرة. هناك العديد من الأمثلة على المجتمعات التي يعلو فيها رأس المال الاجتماعي، مثل المورمون في يوتا، والآميش في بنسلفانيا، الذين تمكنوا ، من خلال العمل الجاد وكمية كبيرة من رأس المال الاجتماعي، من خلق مجتمعات مزدهرة في ظل ظروف صعبة للغاية.

كيف يكون هذا النقاش حول رأس المال الاجتماعي بالنسبة للأردن؟ يمتلك الأردن قدرًا كبيرًا من هذا المورد الثمين، لكن يجب أن نكون حريصين على تجنب ضمور رأسمالنا الاجتماعي، وهو ضمور يمكن أن ينجم مباشرة عن بحثنا عن المصلحة الذاتية والتعظيم الشخصي كما يتجلى في الظواهر المتنامية مثل التمييز على أساس الجنس ، والإقليم، والدين، إلخ. وحسب النظرية الاقتصادية، فإن التمييز في المجتمع يستمر حين يكون منه نفع اقتصادي لجهة على حسبا أخرى، ولكن ما يخبرنا به فوكوياما وقبله ابن خلدون، فإن تقليص الثقة وخلق جماعات ثقة صغيرة بدلا من تلك الوطنية يضر بالاقتصاد ككل، ويقلص انتاجيته وكذلك ازدهاره.

نعم، أن نكون مختلفين فإن هذا هو قانون الطبيعة وأحد أسباب جمالها. وإذا رغب المرء في تحديد المجموعات داخل المجموعة على أنها مختلفة، فلا ينبغي اعتبار ذلك أمرا "سيئًا"، ولكن الولاء أو العصبية يجب أن تكون للأردن أولا وأخيرا.

 

ملاحظة: نشر هذا المقال باللغة الإنجليزية في 31 3 1996 

Replacing regulatory bodies 20 09 2022

Jordan started its liberalization program in 1989 at the behest of the World Bank and the IMF, and after an economic collapse that was brought about by ballooning, unsustainable, and bad spending habits. Overspending on unnecessary and low-quality ventures (non-productivity enhancing type of spending), had swelled over a decade and a half prior to 1988, the year that preceded the storm. Thirty-three years later, the average per capita real income in Jordan remains below that of 1988, which indicates, among other things, that government spending remains profligate.  One area of apparent waste is the institutional framework of competition in Jordan.

It is well known in economics that competition legislation is the most important framework for the development of a country. Normally, the competition law applies to all production, commerce, and services in a country, as well as all international economic activities that have an effect(s) on competition in the country.

There was no specific legislation governing competition in Jordan before 2002. After two failed attempts in 1995 and 1998, Jordan enacted the Competition Law No. 33 of 2004, which came into force on September 1, 2004, and replaced the Temporary Competition Law No. 49 of 2002. Revisions, in my view, have weakened the law. Furthermore, according to several studies, the implementation of competition rules and regulations remains weak in Jordan relative to the powers extended to other sector-specific regulatory bodies in the country, which also happen to be more costly.

Let us look at the regulatory agencies in the country, which are bodies tasked with regulating competition in their sectors. Note that their powers may exceed those of the Competition Directorate that is nestled within the Ministry of Industry, Trade, and Supply since the directorate is administratively below them. The individual commissions, which carry out regulations within their respective sectors, tend to maintain large numbers of workers and spend millions per year. In the 2021 Government Budget, four regulatory commissions spent JD32.7 million: the Energy and Minerals Regulatory Commission (JD4.8 million);  the Telecommunications Regulatory Commission (JD8.6 million); the Civil Aviation Regulatory Commission (JD10.2 million); and the Land Transport Regulatory Commission (JD9.1 million). Over JD462 million was spent on these commissions in the period 2011–2022. Moreover, the four commissions employ close to 800 employees. In comparison, the Competition Directorate has a few employees and a budget that is in the hundreds of thousands at best.

The upshot is the following: the function of regulatory commissions is principally to safeguard competition in their sectors, while that of the Competition Directorate is to protect competition throughout the Kingdom. So why not have one supra regulator of competition instead of the various commissions, and thus save funds and avoid waste? The answer is not so straightforward.

Some detractors would mention the technical expertise that is required to regulate these sectors. The answer is that competition issues are the same (price, quantity, and quality), regardless of sector. When a case arises that requires expertise in a sector, technical experts are brought in to help with the investigative process.

Another question is what to do with all the staff? Most of the employees in these commissions are on contracts; they can be let go once the contracts expire or end. Some can be employed within their respective ministries, and those who were seconded from ministry departments can be returned to their old departments.

The whole concept of creating regulatory bodies followed the example of the Telecommunications Regulatory Commission, established in 1995, which was considered a success story and thus spurred the creation of other regulatory bodies.

Imagine how much money could have been saved had the above suggestion been adopted 10 or 15 years ago.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Replacing-regulatory-bodies-22061

The investment conundrum 13 09 2022

In the coming few days, Jordan is most likely to pass a very important piece of legislation, the investment environment law, which would be a disastrous move. Not only is the draft law encumbered with flaws and shortcomings, but it is also draconian in certain areas, and simply naive (the most polite one can be in this situation) in its incentives.

The draft law went through several revisions, and with every revision, the reader is faced with additional challenges emanating mainly from the fact that it was drafted in haste, and as if Jordan were the only country in the world, as the law ignores the fact that other countries in the region, such as Egypt, Turkey, Saudi Arabia, and UAE, provide extremely sophisticated, generous, and transparent incentives.

These countries, besides offering larger economies than that of Jordan, and promising higher growth rates, offer general incentives, which are published on websites and granted automatically, without the need for committees to meet and decide. Investors from anywhere in the world know what is being offered.

These general incentives are accompanied by special incentives, which are awarded in special zones or mapped locations, according to an investment map that spells the advantages and incentives provided.

Projects that are considered strategic are provided incentives that go far beyond those already on offer. For example, Egypt promises to reimburse the investor 85 percent of the value of the investment should the project qualify as strategic.

The Jordanian draft law does not make such distinctions, and offers very shy general incentives that do not affect the cost of production; moreover, whatever incentives it plans to offer will be specified in a by-law to be drafted later.

This draft law will not cut it for a country that seeks to attract JD41 billion and generate 10 million employment opportunities in the next 10 years. It makes no reference to the sectors of the Economic Modernization Vision that was launched only a few days ago. There is no relevance in the draft to the vision or its driving sectors; in fact, the draft ignores this much-celebrated vision, as if it had never happened or came out from a different country, which is truly strange.

The draft law promised that it would spell things out in by-laws and instructions that will come later. Hence, all that is needed now is to approve this current piece of legislation, and its complements/supporting documents will follow later.

It took several years for a new investment by-law to emerge: in 2005, the by-law of the 1995 Investment Law was still in use for the 2003 Investment Law. Such a separation of law and by-law creates a dilemma for the Parliament as parliamentarians only approve a piece of the puzzle, not the whole.

By-laws are discussed at the Prime Ministry level and are not sent to Parliament for approval. Instructions are drafted at the ministry level and are not subject to discussion at the Prime Ministry or in Parliament. Therefore, approval of the draft law poses a moral dilemma since one is approving what one has no complete information about.

The absence of details regarding incentives also means that foreign investors would be hesitant to invest in a country where the incentives can be easily changed. Would anyone invest in a country where the incentives can change every week?

And why a week? Because it only takes one of the weekly meetings of the Cabinet to change a by-law.

Investors require certainty and stability in the legislative framework and content. Relegating the details of the incentives to committees, by-laws, and instructions is lazy and will do more harm than good. Yet, this is what the current draft law stipulates; and, based on this point alone, the draft should not be passed.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/The-investment-conundrum-21746

خصخصة المنافع العامة في الأردن 07 09 2022

تدعم الطبقة الوسطى في معظم البلدان التنمية الاقتصادية من خلال طلبها على السلع العامة والمطالبة بمساءلة الحكومة لتعزيز مساهمتها في الرفاهية للمواطنين والحد من عدم المساواة والفقر. نجد في الأردن أن الطبقة الوسطى، والتي تضم 30 في المائة من الأردنيين، بدلاً من مطالبة الطبقة المتوسطة الحكومة بإنفاق أفضل على السلع العامة،  قد خصخصت الطلب على السلع العامة لتجعلها سلع فردية أو  خاصة رغم ان الخدمات أو السلع  العامة يتم تمويلها من ضرائب هؤلاء، مما يعني ان الطبقة الوسطى تدفع ثمن هذه الخدمات مرتين وبدلا من أن تتذمر، اختارت الطبقة الوسطى أن تستبدل من خلال دخلها الخدمات العامة التي تقدمها الحكومة بخدمات خاصة.

السلع العامة (ويقصد بها السلع والخدمات) هو منتج يمكن للفرد أن يستهلكه دون التقليل من توفره للآخرين، ولا يُستثنى من استهلاكه أحد. تشمل أمثلة السلع العامة الطرق، وحماية الشرطة والجيش، والتعليم الأساسي، والهواء، وما إلى ذلك. وعادةً ما يتم توفير السلع العامة من قبل الحكومات من خلال النفقات الرأسمالية، وهي ليست نفقات يقصد منها الربح بل التنمية وتعظيم المنافع لمواطني الدولة. ويعني إضفاء الطابع الفردي على السلع العامة أن الأفراد يختارون تقديم هذه السلع أو الخدمات بأنفسهم.

يتم توفير العديد من الخدمات التي عادة ما تقدمها الحكومة في الأردن من خلال نظام السوق والإنفاق الفردي. على سبيل المثال، يذهب 33 بالمائة من الأطفال في الأردن إلى المدارس الخاصة، بينما يلتحق 67 بالمائة بالمدارس العامة. وبالنسبة للتعليم العالي، تم تسجيل 344,796 طالبًا في الجامعات في الأردن في 2020-2021 ، 27.5٪ منهم مسجلين في  ال17 جامعة الخاصة، والباقي في 10 جامعات حكومية.

أيضا، يُظهر نظام الرعاية الصحية العامة خروجًا آخر عن الإمداد العام للخدمات إلى العرض الخاص. فمن بين 122 مستشفى في الأردن هنالك 72 مستشفى خاص، و33 حكوميًا، و 15 عسكريًا واثنان من المستشفيات الجامعية. من الواضح أن عدد المستشفيات الخاصة يفوق بكثير عدد المستشفيات العامة، وقد تكون الشكاوى المتعلقة بنظام الرعاية الصحية العامة والتهجم على الموظفين والكوادر الطبية في هذه المستشفيات دليلاً إضافياً على مستوى الإحباط العام وانعدام الثقة في ما تقدمه الحكومة من خدمات عامة في مجال الصحة.

وماذا عن مياه الشرب؟ وفقًا لدراسة أجراها برنامج المياه الأردني الألماني، فإن حوالي 80 بالمائة من سكان المنطقة الوسطى في المملكة يشترون المياه المعبأة في زجاجات، والمنتشرة على نطاق واسع، فبحسب وزارة الصحة، هناك 32 مصنعا لتعبئة المياه، و542 محطة محلية لتنقية وتكرير المياه، وخمسة مصانع لتعبئة المياه المعدنية.

وماذا عن المواصلات العامة؟ صحيح أن الحكومة توفر طرقًا مناسبة نوعا ما، لكن النقل العام يتم توفيره على هذه الطرق بشكل أساسي من قبل القطاع الخاص، حيث بلغ عدد المركبات المسجلة بلغ 1،728،144 مركبة في شهر كانون الأول 2020، مما يعني أن هناك سيارة لكل أسرة أردنية. علاوة على ذلك، كانت هناك زيادة في عدد المركبات بنسبة 3.25 في المائة في عام 2020 مقارنة بعدد المركبات في عام 2019 (1،673،759). علماً بأن معدل الزيادة أعلى من معدل النمو السكاني لعام 2020 والذي كان 1٪، لأن معدل الزيادة يتناسب مع معدل دخول الشباب إلى سوق العمل، وليس معدل النمو السكاني. ومن بين الآثار السلبية لتخصيص وسائل النقل العام، الضغط على البيئة من خلال انبعاثات الكربون، وتوسع عجز ميزان المدفوعات (في يونيو 2022 وحده، استورد الأردن 8148 مركبة، بقيمة 105 ملايين دينار، و10 ملايين دينار قطع غيار).

ماذا عن الكهرباء المولدة من الخلايا الشمسية؟ في عام 2019 ، تم تجهيز حوالي 15 بالمائة من جميع الأسر في الأردن بأنظمة تسخين المياه القائمة على الطاقة الشمسية. ولو كانت هناك حوافز أكثر وقيود أقل، لكان الرقم سيرتفع بسهولة إلى أكثر من 30٪.

في كل من هذه السلع العامة أو شبه العامة تقريبًا ، تقترب النسبة من 30 بالمائة، وهي أيضًا النسبة المئوية للطبقة الوسطى. هل يعني هذا أن الطبقة الوسطى في الأردن قد سئمت من مطالبة الحكومة بتحسين خدماتها واختارت بدلاً من ذلك إضفاء الطابع الفردي على هذه المنافع العامة؟ هل يعني ذلك أيضًا أن هناك نقصًا في الرضا أو الثقة في الخدمات الحكومية؟ الأرقام تُدعّم مثل هذه الاستنتاجات.

Individualizing Public Goods in Jordan 06/09/2022

The middle class in most countries supports economic development by organizing the demand for public goods and requiring government accountability to promote an improved welfare state, and thus reduce inequality and poverty. 

In Jordan, instead for demanding better spending by the government on public goods, the middle class, encompassing 30% of Jordanians, seemed to individualize (make private) the demand for public goods. In other words, as the numbers show, the middle class opted to replace the government in the provision of such goods.

A public good is a product that an individual can consume without reducing its availability to others and from which no one is excluded. Examples of public goods include roads, police and army protection, primary education, clean air, etc. Typically public goods are provided by governments through capital expenditures and they are not profit. On the other hand, by individualizing one means that individuals opt to provide these goods or services themselves.

Many of the services that are typically provided by the government in Jordan are being provided by the market system through individual spending. For example, (33 percent) of children go to private schools while 67% are enrolled in public schools. In terms of higher education, 344,796 students were enrolled at universities in Jordan in 2020-2021, 27.5% of tertiary education students are enrolled at 17 private universities, and the remainder at ten public universities.

The public health care system shows another departure from public to private supply. Of the 122 hospitals in Jordan, 72 are private, 33 are government, 15 are military and 2 are university hospitals. Clearly, the number of private hospitals far outweighs the number of public hospitals. Furthermore, complaints regarding the public healthcare system and attacks on staff at these hospitals may be additional evidence of the level of public frustration and lack of trust in the system.

How about drinking water? According to a study conducted by the Jordanian-German Water Programme, around 80% of the central region’s residents buy bottled water. Furthermore, bottled water seems to be widely spread. According to the Ministry of Health, there are 32 bottled water factories, 542 local water purification plants, and five mineral water bottling plants.

What about public transport? It is true that the government provides adequate roads; however, public transport on these roads is mainly provided by the private sector. The number of registered vehicles, as reported in Dec 2020 was 1,728,144 units. Since there are restrictions on vehicle ownership by non-Jordanians, one can surmise that there is a vehicle for every five Jordanians, which is the average household size. Furthermore, year-on-year, there is a 3.25 percent increase in 2020 over the number of vehicles (1,673,759) in 2019. Note that the rate of increase is higher than the population growth rate in 2020 which was 1%. This is simply because the rate of increase is commensurate with the rate of entry of youth into the job market, not the population growth rate. Among the negative impacts of such individualization of public transport is the stress on the environment  through carbon emissions, and the balance of payments deficit-in June 2022 alone, Jordan imported 8,148 vehicles, valued at JD105 million, and JD10 million in spare parts.

What about the replacement of electricity through photovoltaic cells? In 2019, around 15% of all households in Jordan were equipped with solar-based water heating systems. Had there been more incentives and fewer restrictions, this number would have easily risen to more than 30%.

In almost each of these public or semipublic goods, the ratio is close to 30%, which is also the percentage of the middle class. Could this mean that the middle class of Jordan has tired of requesting the government to improve its services and has opted instead to individualize such public goods? Does it also mean that there is a lack of satisfaction or trust in government services? The numbers do support such conclusions.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/The-poverty-trap-and-intergenerational-mobility-21153

The poverty trap and intergenerational mobility 30 08 2020

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.

Published in Jordan News

https://www.jordannews.jo/Section-36/Opinion/The-poverty-trap-and-intergenerational-mobility-21153

لمعالجة التضخم 23 08 2022

 تشير التقارير الأخيرة إلى أن ارتفاع في مؤشر أسعار المستهلك(CPI) ، وهو المقياس المستخدم عادةً لقياس التضخم (زيادة عامة ومستمرة في مستوى الأسعار في اقتصاد  بلد). وقد وصف مؤسس النظرية النقدية في الاقتصاد، ميلتون فريدمان، التضخم بأنه "النوع الوحيد من الضرائب التي يمكن فرضها دون تشريع". وفي الأردن، أثبتت السياسة النقدية (السيطرة على العرض النقدي من خلال عمليات النافذة المفتوحة أو أسعار الفائدة) أنها غير فعالة في مكافحة التضخم. لذلك، ينبغي استخدام السياسات المالية وسياسات الاقتصاد الجزئي لاستهداف التضخم.

من منظور تنموي محض لا يعتبر التضخم ضارًا بالاقتصاد على المدى القصير فقط، بل يعتبر ضارا على المدى المتوسط والبعيد أيضا، فالتضخم يجعل الأغنياء أكثر ثراءً من خلال رفع أسعار ممتلكاتهم، ويزيد من العبء الضريبي على الطبقة الوسطى التي تضطر لدفع المزيد من الضرائب، ويجعل الفقراء أكثر فقراً من خلال رفع تكاليف ما يستهلكونه.

ومن ناحية أخرى، يمكن أن يؤدي التضخم الى تحسين رفاهية ودخل الحكومة لأنه يؤدي  ببساطة إلى جمع الحكومة للمزيد من الضرائب في حال لم يتراجع النشاط الاقتصادي بشكل كبير. قال جون مينارد كينز ذات مرة: "من خلال عملية تضخم مستمرة، يمكن للحكومة أن تصادر، سراً وغير رقيب أو حسيب، جزءًا مهمًا من ثروات مواطنيها".

وبلغ مؤشر أسعار المستهلكين في الأردن، بحسب دائرة الإحصاءات العامة، 107.92 نقطة في تموز 2022 ، مقابل 102.45 في نفس الشهر من عام 2021، مسجلاً بذلك زيادة بنسبة 5.34 في المائة.  وبشكل تراكمي، بلغ متوسط ​​الرقم القياسي لأسعار المستهلك للأشهر السبعة الأولى من عام 2022 105.77 نقطة مقابل 102.06 خلال نفس الفترة من عام 2021؛ وبالتالي، كانت هناك زيادة بنسبة 3.63 في المائة في أسعار المستهلك. لاحظ أن هذه الزيادة تتماشى مع التوقعات بأن عام 2022 سيكون تضخميًا بسبب اضطرابات سلاسل التوريد، والحرب الروسية الأوكرانية، وزيادة الطلب بعد حقبة الإغلاق وحظر التجول التي تسبب فيها وباء الكورونا.

يجب تحسين جودة الإنفاق العام لمواجهة الضغط التضخمي ، الذي سيزيد من العبء على الفقراء، لا سيما في ظل معدلات البطالة المرتفعة، وتزايد الفقر، والإغلاق المكثّف للشركات.

ولقد ساهمت المجموعات السلعية الرئيسية التالية في الزيادة "الوقود والإنارة" (30.56 نقطة مئوية)، "النقل" (6.41 نقطة مئوية)، "الإيجارات" (4.48 نقطة مئوية)، "الثقافة والترفيه" (2.92 نقطة مئوية)، و"الصحة" (6.85 نقطة مئوية).  لاحظ أن 37 نقطة مئوية من التضخم نتجت عن السلع التي تقع ضمن اختصاص وسيطرة الحكومة.

يجب تحسين جودة الإنفاق العام لمعالجة ومواجهة هذا الضغط التضخمي، الذي سيزيد من العبء على الفقراء، لا سيما في ظل معدلات البطالة المرتفعة، وتزايد الفقر، والإغلاق المكثف للشركات. حيث تشكل النفقات الحكومية على الأجور والمعاشات وخدمة الدين العام حاليًا أكثر من الإيرادات المحلية (الضرائب والرسوم)، مما يدفع الحكومة للاقتراض لدفع الأجور. وعلى الرغم من ضعف القدرة على المناورة في ميزانية الحكومة، يمكن أن يصبح الإنفاق العام مبنيا على الأداء، ويمكن تحسين إدارة الدين العام. كما يجب على الحكومة أن تحاول زيادة معدل النمو الاقتصادي لتقليل نسبة الدين إلى الناتج المحلي الإجمالي وتسديد بعض الديون في نفس الوقت مع ارتفاع دخلها نتيجة تحسن الاقتصاد. كما يجب تجنب السياسات العامة السيئة والمفاجئة والمتسرعة بأي ثمن.

 على مستوى الاقتصاد الجزئي ، وبما أن الغذاء يشكل جزءًا كبيرًا من ميزانية الفقراء، ينبغي تخفيض الضرائب والجمارك على المواد الغذائية وتعزيز شبكات الأمان الاجتماعي. كما أن هناك حديث عن أن الحكومة ستخفض أسعار الوقود (وهو ما قد يكون مجرد إشاعة) بعد أن رفعتها خمس مرات هذا العام. ستكون هذه خطوة مرحب بها، لأنها ستقلل من ارتفاع تكلفة النقل في الأردن، الأمر الذي يؤثر كثيرا على ذوي الدخل المتدني والمحدود. علاوة على ذلك، ينبغي مراقبة ومعالجة أي ممارسات احتكارية تقوم برفع الأسعار أو تحد من الكميات من خلال الاتفاقات التواطئية أو التركز المتزايد أو إساءة استخدام القوة الاحتكارية أو الهيمنة.

لا تستعجلوا بتفتيت وزارة العمل 16 8 2022

اقترحت الحكومة مؤخرا حل وزارة العمل وتوزيع مهامها على الوزارات المختلفة معتمدة في هذا التوجه مبدأ تعزيز الكفاءة وتقليل التكاليف. ورغم ذلك فلقد قوبل الاقتراح برد فعل سلبي جارف من عامة الناس ومن قبل المحللين على حد سواء.

وجدت وزارات العمل عالميا منذ أكثر من 100 عام، أي قبل تأسيس الأردن الحديث. وكان الشكل الأول لوزارات العمل عبارة عن مراكز إحصائية وبحثية تزود صانعي السياسات ببيانات عن سوق العمل والوضع الاجتماعي لدعم وضع تشريعات العمل والتشريعات ذات الصلة اجتماعياً. ومن الأمثلة على ذلك اللجنة الألمانية لإحصاءات العمل (تأسست عام 1882)، والمكتب الإحصائي البريطاني (1887)، والمكتب الفرنسي (1891)، من بين آخرين. ومع ذلك، بحلول عام 1910، كان لدى 22 دولة أوروبية مثل هذه الكيانات التي أصبحت فيما بعد وزارات.

أدت الأزمات وتبعات الكساد الاقتصادي وارتفاع معدلات البطالة والصراع الاجتماعي إلى ترقية إدارات العمل إلى وزارات عمل، بحيث أصبح لدى 23 دولة وزارات عمل بحلول عام 1938. ، يوجد حاليا وزارات عمل في معظم بلدان العالم. ورغم أن إدارة العمل يشارك فيها وزارات ودوائر حكومية أخرى، غير أن وزارات العمل تلعب دورًا محوريًا في إدارة العمل من حيث التأثير على الحوكمة في مكان العمل، وأسواق العمل المختلفة، وسوق العمل الوطني. حيث يتأرجح دور الوزارة بين القيادة والتنسيق الى مجرد المتابعة والمشاركة حسب الأهداف التنموية للبلد وقوة وزارة العمل فيها.

بناء على ما سبق، هل يستدعي معدل البطالة في الأردن حل وزارة العمل وتشتت مهامها بين وزارات التربية والصناعة والداخلية وغيرها؟ يعتبر معدل البطالة في الأردن (23.2 في المائة) المعدل الأعلى منذ أكثر من ثلاثة عقود، كما تبلغ نسبة البطالة بين النساء 30.8 في المائة، ومشاركة المرأة في سوق العمل (14 في المائة) مما يضع الأردن في المرتبة 179 من أصل 181 دولة، متقدما فقط على دولتين تعانيان من اضطرابات سياسية (العراق واليمن). علاوة على ذلك، تبلغ نسبة البطالة بين الشباب 49 في المائة، أي أن شابًا من كل اثنين متعطل عن العمل. لذا، وبناءً على بيانات العمل الحالية، وهي كارثية حسب أي معيار، يجب تعزيز دور وزارة العمل كجهة واضعة لسياسة العمل، وليس تقليصها أو تفتيتها.

وماذا عن أداء وزارة العمل؟ هل يمكن للمرء، بناءً على البيانات المتوفرة، التأكيد على أن الوزارة لا تعمل بشكل جيد لذا لا ضرر من التخلص منها؟ الجواب لا! حيث يتأثر وضع العمل في الأردن، كما في أي مكان آخر في العالم، بالعوامل الاجتماعية والاقتصادية والسياسية. ولقد أكدت الحكومة مرارًا وتكرارًا أن الاقتصاد قد تأثر سلبًا بالاضطرابات الإقليمية. إذا كان هذا القول صحيحا، فإن وزارة العمل، مثلها كغيرها من الوزارات، لا تلام على سوء أو تراجع الأداء. علاوة على ذلك، هناك عوامل أخرى تساهم في خلق البطالة رغم دور وزارة العمل مثل رفع أسعار الطاقة أو زيادة الضرائب، وهي جميعها متغيرات تؤثر سلبيا في سوق العمل مما ينفي حجة الأداء أو قياسه كذريعة لتمزيق الوزارة.

ماذا لو أدى تفكك الوظائف ودمجها في الوزارات الأخرى إلى مزيد من الفعالية والكفاءة وهو أحد المسببات للتوجه الحالي؟ بعد التفتيت لا بد من التنسيق على شكل عال لكي تنجم الكفاءة. ولكن بالنظر إلى أنه، حسب الدستور الأردني، تعمل كل وزارة بشكل عامودي وبطريقة مستقلة عن الوزارات الأخرى، لم يُعرف عن هذه الوزارات بشكل عام حسن التنسيق. بل إنها تعمل غالبا بمقولة "أنا أهتم بدكانتي وأنت اهتم بدكانك". وعليه، فإن من غير المرجح أن تحدث زيادة في الكفاءة والفعالية بعد توزيع مهام الوزارة بين الوزارات المختلفة. بل قد تحدث حالات من تراجع الكفاءة لأن عمليات الدمج عادة ما تتجاهل الاختلافات في ثقافة العمل بين مؤسسة وأخرى. وقدرت شركة ماكينزي للاستشارات أن هذا التجاهل لثقافات العمل يؤدي عادة إلى انخفاض كفاءة الأداء بنسبة 14 في المائة. بالإضافة إلى ذلك، فإن جداول الرواتب المختلفة التي تطبقها المؤسسات المدمجة ستلحق الفوضى بإدارات الموارد البشرية في الوزارات.

دعونا لا نتسرع في تفتيت أي وزارة قبل الدراسة والتحليل الدقيقين. الأردن ليس فريدًا في العالم. يجب استخدام تجارب وأبحاث البلدان الأخرى لتجنب الأخطاء الفادحة التي ارتكبتها، ولنتذكر أن الأردن ليس أول من اخترع العجلة.

No need to rush to dismantle the Ministry of Labor 15/08/2022

 The government recently proposed the dissolution of the Ministry of Labor and dispersing its functions among various ministries. The government’s argument for such a directive is that it would enhance efficiency and reduce costs. The proposal has been met with an overwhelmingly negative response from laypeople and pundits alike.

 
Labor ministries have been around for over 100 years. The first form of labor ministries was statistical and research centers that provided policymakers with data on the labor market and social situation to support the making of labor and socially relevant legislation. Examples are the German Commission for Labor Statistics (established in 1882), the British Statistical Office (1887), and French Office (1891), among others. However, by 1910, 22 European countries had such entities, which later became ministries.

Crises, economic depressions, high unemployment rates, and social conflict have led to the promotion of labor departments to ministries of labor, such that 23 countries had ministries of labor by 1938. Currently, most countries have labor ministries.

Ministries of labor have a pivotal role in terms of influencing governance at the workplace, specific labor markets, and the national labor market. This does not negate the fact that other ministries and government departments may have a role in labor administration.

Depending upon the development goals of the country and the strength of the ministry of labor, the role of the ministry itself can fluctuate between leadership and coordination to simply following and participating.

Given that high unemployment rates have brought about ministries of labor, does the unemployment rate in Jordan warrant the dissolution of the Ministry of Labor and the scattering of its functions among the ministries of education, industry, and others?

The unemployment rate in Jordan, at 23.2 percent, is the highest it has been in over three decades. Unemployment among women stands at 30.8 percent, and women’s labor participation at 14 percent places Jordan at a rank of 179 out of 181 countries, ahead only of two countries that suffer from political turmoil: Iraq and Yemen. Moreover, unemployment among youth is 49 percent; that is, one out of two youths is unemployed.

 

Based on the current labor data, the role of the Ministry of Labor as a labor policy setter should be enhanced, not diminished.

How about the performance of the Ministry of Labor? Can one, based on the data, assert that the ministry is not performing well and warrants doing away with it?

The answer is no! The labor situation in Jordan, as elsewhere, is affected by social, economic, and political factors. The government has been repeatedly stating that the economy has been adversely affected by regional turmoil. If this statement is true, then the Ministry of Labor, like the other ministries, should be blameless. Moreover, raising energy prices leads to higher unemployment; raising taxes contributes to stagnation and economic downturns; etc. Therefore, the performance measure cannot be used as an excuse for fragmenting the ministry.

What if the breakup of the functions and their integration into other ministries leads to greater effectiveness and efficiency? Actually, for greater effectiveness and efficiency to occur, the government would have to demonstrate great coordination among the various ministries and departments. Given that each ministry operates vertically and in a seemingly independent manner from other ministries (I mind my shop and you mind yours), Jordanian Cabinets have not been known to be coordinated. As such, increased efficiency and effectiveness are not likely to happen.

In fact, inefficiencies may occur as mergers typically ignore the differences in the working culture of various organizations. Such disregard for working cultures had been estimated by McKinsey to lower performance by 14 percent. In addition, the various salary scales applied by the merged institutions will play havoc with the human resources departments.

Let us not rush to fragment any ministry before careful study and analysis. Jordan is not unique in the world. Other countries’ experiences and research should be used to avoid the blunders they made. Jordan is not inventing the wheel.

Published on Jordan News

https://www.jordannews.jo/Section-36/Opinion/No-need-to-rush-to-dismantle-Ministry-of-Labor-20542

Economic theory and analysis does apply to Jordan 08/08/2022

Economic debate in Jordan, conducted mostly by non-economists, is devoid of solid economics as if the work of thousands of economists over 300 years has suddenly become irrelevant here.

Non-economists keep asserting that economic theory does not apply to the country, as if Jordan had been cut off from another planet. Such an assertion clearly comes from ignorance and suits the pseudo-analysts of economic policy well.

Such flippant heresies are not surprising or uncommon; they have circulated for years, and in many other places, too.

The father of modern economics, John Maynard Keynes, frustrated by the claims of ignoramuses that economic theory does not work or apply, once said in the first quarter of the 20th century: “Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

He elucidated further, just in case some had missed the point: “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

There are many such people around who spout loudly such claims because it is easier for them to talk than to listen, and, being lazy, find it easier to dismiss and shun learning than absorb knowledge and adapt.

Any observer of the current policy debate will attest that it is devoid of depth and, consequently, merit. Individuals who do not know even the basics of supply and demand, the simplest economic model ever and one that is viewed by economists as a point of departure, make economic policies, and statements related to the present and future of Jordan’s economy that to trained economists who spent years learning at some of the best institutes in the world represent total and utter economic heresies.

An Arabic saying goes like this: “A fool may throw a stone down a well, but it would take a million wise men to pull it out.” It applies in our case too: once ignorant statements are made by the “all-knowing” mediocre pundits, it is very hard to push back, as the errors are serious and could take a long time to counter.

Given the current institutional setup, Jordan does not seem to be in need of trained economists since it already has over 10 million economists and thousands of experts who gained their “expertise” from non-economic training.

Let us stop the onslaught of these “practical” men who are leading the country into a dark tunnel. The writing is on the wall and should be heeded, with the help of true economists, not self-professed experts.

Economic theory and analysis does apply to Jordan and its institutions; that has to be understood even by those who think they know better, but who, instead, should stay humble, admit ignorance, and learn.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Economic-theory-and-analysis-does-apply-to-Jordan-20242

Jordan’s orange economy 02/08/2022

The Jordanian economy has long suffered from jobless growth rates, where the economy grows while high unemployment rates are hardly ever affected. More absurdly, in certain years, the economy grew and with it the unemployment rate. Furthermore, the high unemployment rates among women and youth have placed these two significant groups among the most economically vulnerable in Jordan.

One solution may lie in the promotion and development of the orange economy in Jordan. The term is used interchangeably with cultural industries, leisure industries, entertainment industries, cultural economies, and creative economies.

According to UNESCO, the creative economy includes 18 sectors: advertising, books, newspapers, visual arts, film, magazines, architecture, gaming, music, radio, TV, dance, crafts, fashion, cultural tourism, design, software, and photography. A distinguishing feature of these sectors is that their products rely on talent, creativity, and intellectual assets as key inputs. Globally, these industries contribute about 30 million jobs, with visual arts being top employer, followed by music and books.

In the Middle East and Africa, creative industries employ about 2.4 million people. Statistical research reveals that the lower the income of the country the more youth and women are involved in creative industries. Hence, in countries, such as Jordan, where there are high unemployment rates among women and youths, the orange economy would be a viable driver for additional jobs, better-paying jobs, and more sustainable jobs.

According to the recent World Bank study “Orange Economy: As a Driver of Jobs for Youth”, in order for a country to develop its creative industries, it has to have many interventions in several areas: nurture human capital; provide access to finance; expand access to markets; harness digital technology; and build networks and clusters. Under each of these categories, there is a set of specific interventions. For example, regarding the provision of access to finance, the following is entailed: provision of grants, early-stage loan/venture capital fund, microloans, guarantees, crowdfunding, and tax subsidies.

One nascent component of the creative economy that has shown real promise in Jordan so far is the film industry. In addition to several globally successful movies being shot in Jordan (which also provided Jordan with millions of dollars in free advertising), there are many Jordanian films that were recently produced, directed, and shot in the country that have gained fame and accolade, to Jordan as well, in international film festivals and ceremonies.

However, many facets of the film industry require support if this industry is to become globally competitive and a major source of employment and revenue generation in Jordan.

A foremost component of this support is financing. While a film may receive some financial support from the Royal Film Commission, it is difficult for producers to secure financing from a private bank. Moreover, because of the movie admission ticket price, attendance at movie theatres in Jordan is dismal. The price of an admission ticket to a movie theater in Jordan (around $10 per ticket) is extremely high relative to income. It is equivalent to $214 per ticket in the US; were this the case in the US, no one would go to watch a movie in a movie theatre.

Also, the price of a ticket is almost identical at all movie theatres, which prevents price competition. But these are only two challenges the sector faces; others include training of lawyers on contracts for films, and completing the infrastructure for film production.

Moreover, the film industry is facing increasing competition from the Gulf economies, which, being flush with cash, can provide many more incentives to foreign and domestic film productions there. Therefore, Jordan should strategize and move with a valid and applicable intent to grow this and other sectors in the creative economy.

Other sectors of the orange economy need a significant amount of support as well if we are to address unemployment among women and youth.

Jordan enjoyed periods of unprecedented growth in the past that did not decrease unemployment in a sustainable manner. The orange economy can be a vehicle for better paying and more sustainable jobs.

Published in Jordan News:

https://www.jordannews.jo/Section-36/Opinion/Jordan-s-orange-economy-19936