IMF-CEF holds sym­po­sium on ‘Rais­ing Eco­nomic Growth’

Kuwait Times - - LOCAL -

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.

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