IMF-CEF holds symposium on ‘Raising Economic Growth’

KUWAIT: The IMF Middle East Center for Economics and Finance (CEF), jointly with the Arab Fund for Economic and Social Development (AFESD), held a symposium on ‘Raising Inclusive Economic Growth in Kuwait and other Arab Countries’ last Wednesday. The event was hosted at the Arab Fund for Economic and Social Development’s headquarters. The panel discussion was moderated by the CEF’s Director Dr Oussama Kanaan, and included Professor James Robinson of the University of Chicago, whose seminal work on the role of institutions in economic development includes the awardwinning book Why Nations Fail, and Professor Adeel Malik of Oxford University, author of highly influential publications on political economy of the Arab world. The symposium discussed ways for successful economic growth strategies for Kuwait and other Arab countries that benefit all segments of society and take on board future generations’ needs.

Economic slowdown

CEF Director Kanaan provided an overview of the roots of the current economic slowdown, and discussed the special features of inequality in Arab countries along several dimensions beyond simple measures of income distribution. “First, a wide geographical disparity has emerged over time within most countries, in income, wealth, and access to public services and infrastructure,” he said. “Indeed, in many Arab countries, widespread protests and demands for inclusiveness have been fanned by discontent in economically neglected, atrophying locations. Second, in most countries the younger groups have been increasingly alienated economically and socially, suffering from much higher rates of unemployment, with skills and overall human capital generally ill-matched to the demands of globalized markets. Finally, income and wealth inequality has increasingly been rooted in differences across social groups in their ability to exercise their civil rights, often emanating from institutionalized discrimination by gender, religion or national origin. Drawing on international country experiences, the panel discussion has aimed at identifying the core ingredients of successful inclusive economic growth strategies, with a view to addressing these different sources and dimensions of inequality.”

Sustained growth

Professor Robinson argued that economists know very well what leads to sustained economic growth and diversification: the accumulation of human and physical capital, the innovation, creation and adoption of new technology. To prosper, a society has to unlock all of its latent talent. To do this it has to create broad based incentives and opportunities. It is the institutions of society the rules, which do this. In his lecture, he emphasized that countries which have grown successfully have done so because they moved their institutions (construed broadly) in a more inclusive direction. This is just as true of China after 1978, or of Ethiopia after the fall of the Derg in 1991, as it is about the contemporary countries of Western Europe or North America. He pointed out however that the difficulty is that moving institutions in a more inclusive direction is not just a technocratic problem; it is a political and social one. Promoting economic change and diversifica- tion challenges many ways of organizing politics and societies in developing countries and thus creates difficult trade-offs for rulers and politicians. It also risks political instability and unleashing forces that are difficult to contain or manage.

Professor Robinson added that institutional transitions therefore take place when a political and social project emerges which can find a way of balancing these tensions. These projects often emerge for quite idiosyncratic reasons, as that of Deng Xiaoping did after 1978, or with President Park in South Korea in the 1960s, or the United Arab Emirates in the 1970s. Importantly, projects that can stimulate growth may not be consistent with the sustainability of that growth and therefore must necessarily adapt and change. In many parts of the world, however, they have never emerged in the first place. Despite these idiosyncrasies Professor Robinson argued that we do know quite a bit about what can promote inclusive institutional change on average and what can be done to foment it in particular contexts. He discussed some of the relevant empirical evidence and the type of lessons that Middle Eastern countries could learn from to help their economies prosper and diversify.

Trade liberalization

In the following part of the symposium, Professor Malik started by discussing the importance of an inclusive growth strategy in the Arab world by examining the domestic and regional dimensions of trade liberalization. He presented a general account of the politics of trade protection in several Arab countries, with a focus on Egypt and Tunisia. Drawing on his recent research on the Egyptian experience, Professor Malik argued that trade liberalization, when it became a policy imperative, was only selectively pursued to suit the interests of politically connected insiders. Such partial liberalization created rents for insiders that were used to sustain the ruling coalition. However, these rents were created at the expense of continued exclusion of unconnected firms facing substantial barriers to entry and growth. The resulting economic repression of firms has huge implications for job creation and prospects for inclusive growth in Egypt.

Professor Malik then argued that regional economic integration is the single most important collective action dilemma facing the Arab world since the fall of the Ottoman Empire. It is the most desirable component of any strategy for diversification and inclusive growth. Yet, it is also the most politically challenging aspect of economic reform, as both domestic political elites as well as geo-political stakeholders might stand to lose, at least in the short-term from a more economically integrated region. He concluded by emphasizing that the emergence of a new economic and political order in the Middle East is inherently connected with solving this collective action dilemma.