The World Economic Forum (WEF) has always intrigued me. Beginning with the enchanting slogan “Committed to Improving the State of the World”, and ending with a myriad of high profile, high powered, and high-horse mounting participants. One cannot help but get a spine-tingling sense of hope and anticipation that this year will be the year that changes it all. However, the excitement over the potential revolutionary changes that the WEF could bring to Jordan has been waning over the years, and rightly so, since what is happening in reality is far from the glitzy rhetoric and free market proselytizing going on behind closed doors.
This year is no different, despite the awe inspiring title of “Economic Growth and Job Creation in the Arab World”. Some people might accuse me of being unduly negative since the gathering is barely over (at the time of writing) and he has passed a priori judgment on what has/will transpire and what the effects will be. To that I will reply that simply reading the “Arab Competitiveness Report 2011-2012” that is jointly published by the WEF and OECD, and is ostensibly the agenda setter for the gathering, clearly demonstrates the commitment to neoliberal free market ideologies that have failed to achieve and sustain meaningful development.
The report starts off well enough in the executive summary by highlighting the economic causes and effects of the so called Arab spring by stating that:
The recent developments have heightened awareness of key socio-economic challenges, the most important of them being creating gainful, formal employment opportunities for the 2.8 million young people who enter the labor markets every year. Reducing unemployment will have to focus on three groups that are disproportionately affected – the young, the educated and women.
However, this insightful analysis is quickly followed, in the very next paragraph, by a return to the exalted dogma that is free market economics by suggesting that:
Enhancing overall competitiveness should be part of the overall agenda. Particularly needed are measures to support a vibrant and competitive private sector, which currently remains stifled by a business environment that is not conducive to the development of enterprises, healthy competition and entrepreneurship. Competition, a lack of transparency, and trade barriers distort markets, hinder competition and lower efficiency. (emphasis added)
Although the above paragraph seems benign enough and urges political and social reform, both direly needed in the Arab World, the basis of this recommendation remains the part which I have highlighted, namely the efficient operation of markets: also known as free market capitalism. The report goes on to compare the Arab countries’ use of the Global Competitive Index (GCI), highlighting what went wrong over the past ten years; how there was indeed growth, measured by GDP, even though the true potential of development lies in enhancing competitiveness through further removing restrictions and barriers that “distort markets, hinder competition and lower efficiency.”
The report was kind enough to provide the basis for computing the GCI, which was developed by the WEF in 2005, and is worth examining to emphasize my point. The GCI “rests on the belief that the determinants of competitiveness are numerous and interact with each other in a complex manner”, and is based on the weighted contribution of 12 “pillars” to rank countries. The calculation of the average for each country is based on largely subjective judgments with some basic economic indicators sprinkled in for good practice.
What does the GCI tell us? As far as I am concerned, absolutely nothing! Allow me to qualify. The 12 “pillars” are mostly concerned with facilitating free markets ideologies that incorrectly equate growth with development. The concern with socio-economic indicators is largely, if not completely, ignored in computing the GCI, whereby important issues such as income distribution, job security, access to water, and access to healthcare: in general quality of life measures are either explicitly omitted, included due to their effect on the business environment, or are considered a negative indicator and thus lower the overall score. For example, incidence of HIV and Tuberculosis are considered, but only because they are adjudged to directly affect the business environment (required for Africa). On the other hand, labor and wage “flexibility”, i.e. ease of firing and hiring and lack of wage protection, is considered to be positive for competitiveness, clearly placing business needs ahead of social needs.
As I mentioned earlier, the report is basically a marketing tool for free market neoliberal economics to be sold to developing countries in order to create a global environment whereby international capital can pick and choose (arbitrage) between the most appealing and rewarding location. The idea of capital arbitrage and free capital mobility is inherent in the country ranks based on GCI, and is contrary to all recent literature regarding what needs to be done to reduce the risk of further and future economic meltdowns (most notably the Trade and Development Report, 2011, issued by UNCTAD). Financial arbitrage also creates a race to the bottom in terms of establishing and environment with highly flexible wage structures (i.e. low wages and negligible worker rights) for countries to attract foreign direct investment, especially in manufacturing, thus contradicting the ideas of “creating gainful, formal employment opportunities (emphasis added)”. A detailed investigation of the GCI criteria shows even more glaring inconsistencies and theoretical conflicts in the criteria used and how they are scored, however I will not try the reader’s patience any more than I have.
The practical shortcomings of the free market ideologies that are based on supply-side economics and fiscal austerity and consolidation have become increasingly evident over the past few years. The increase in income inequality and decline in socio-economic well being have lain to rest the misguided notions of market efficiency and the distributive attributes of free markets. More importantly, the supply-side based ideologies have utterly failed in creating employment, directly contradicting the message of this year’s WEF. Consensus is being reached world-wide, highlighted in the UNCTAD report, that increasing unemployment is due to a lack in aggregate demand (demand-side economics), which needs to be stimulated through increasing targeted fiscal policy and larger Government deficits (both policies would lower the country ranking in GCI). Governments need to implement a paradigm shift that from focusing on growth, competitiveness and price stability, to focusing on employment, socio-economic development and overall elevation of the quality of life.
As a final note, our newly appointed Prime Minister has confessed to not having a strong understanding of economic theory and policy. While this humble declaration might be cause for alarm, I see it as promising in that he is not bound by certain ideology and dogma that will necessarily create much of the same in terms of economic policy. My suggestion to him (presumptuous as it may be) is to begin by gathering accurate data that reflects the true condition of the Jordanian economy, and includes qualitative as well as quantitative measures of socio-economic conditions, as well making employment that main focus and realigning the national economic policy accordingly.