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Six steps to create a healthy economic future in the Arab world

Public Policy

Arab countries suffer under a legacy of public policies that have crippled their growth and development. In the coming decade, most countries in our region will reach a point where they cannot continue along the same path and will need to implement far-reaching public policy reforms. Six broad classes of reform must be undertaken as soon as possible.

Facilitating the growth of the private sector should be at the top of the policy agenda. This will require new legal frameworks for private-sector firms to give entrepreneurs a clear understanding of the regulatory context and the flexibility they need to establish successful start-up businesses. This requires a delicate balance — ensuring that regulations and enforcement are transparent and protect the interests of the population at large, while eliminating major rigidities in the law that restrict private enterprise.

Regulation of labor is a second area that is particularly important given the need for jobs in the region. To stimulate job creation, labor laws must give private employers the freedom to determine wages and to dismiss workers on the basis of poor performance or economic necessity. This flexibility will encourage start-up firms to take the risk of hiring new employees by alleviating concerns about their ability to dismiss them should they face a downturn in the business cycle.

This means passing labor laws that allow for temporary, renewable employment contracts rather than permanent contracts. It also means not mandating severance packages and minimum wages and limiting mandated payments by employers into social safety nets. At the same time, workers will need certain protections.

Much of the Arab labor force depends on government or other public-sector positions. The attractiveness of public employment — in terms of wages, non-wage benefits and job security — not only leads young people to queue for public positions but also shapes their investment in education. To encourage growth in the private sector, governments should make it a core priority to reduce the size of the civil service, reduce wages and otherwise reduce the disproportionate attractiveness of public-sector work.

The third priority must be reducing or eliminating subsidies. Most Arab governments heavily subsidize electricity, fuel and basic food items, and meeting these costs is increasingly difficult. While such subsidies are important for many families, they do the economy a fundamental disservice. They introduce market inefficiencies that lead to black-market profiteering by distributors. They crowd out essential opportunities to build the private sector. Moreover, because they are not targeted only to those truly in need but are available to all, they lead to waste, subsidizing the rich and diluting the benefits to the poor who need them most.

Fourth, many Arab governments must rethink how they distribute oil revenues. Oil will continue to provide many Arab governments with the bulk of their revenues and be a fundamental component of GDP for the foreseeable future. The challenge to policymakers is determining how this wealth can be shared with the population sustainably while limiting the skewing effects experienced in the past.

Most education systems in the Arab region do not give youths the basic skills to enter the 21st-century labor market and to be competitive in an emerging private-sector economy.

Hafed Al-Ghwell

 

Rather than spending on direct subsidies, policymakers should consider shifting oil revenues toward enablers of future income, in particular, education and health care. As it stands now, most education systems in the Arab region do not give youths the basic skills to enter the 21st-century labor market and to be competitive in an emerging private-sector economy. Oil revenues could provide the basis for significant investment to improve educational opportunities. Similarly, by investing in comprehensive health insurance, governments could encourage private investment in the health sector while ensuring coverage for all citizens. On the whole, oil revenues would be better spent on making sure that people are healthy enough to work and prepared with the skills to succeed in the workforce than on providing them with public-sector jobs and subsidies.

The Alaskan model provides an interesting way for citizens to benefit directly from oil revenues without encouraging dependence on public-sector work or subsidies. Each year, a dividend based on this oil fund portfolio’s performance is sent to each Alaskan household. Establishing such a dividend payment in Arab countries would ensure that everyone feels that he or she benefits from the oil wealth. Moreover, it would provide a supplemental income source to spend on basic household consumption or invest in business.

Fifth, Arab governments need to make a serious effort to decentralize delivery of government services. Decentralization would help to alleviate the concerns of regions beyond the capital about their future and ensure that their voices were heard with regard to the delivery of services they depend on for daily life.

Finally, reorganizing the social safety net is essential to the future. Arab governments must address the skewed incentives that have led to high unemployment rates, which will help new businesses to grow. But efforts to shrink the public sector and to introduce greater flexibility in the hiring and firing decisions of private firms will necessarily expose workers to risk. Consequently, a new social safety net is needed.

Policymakers should consider developing an unemployment insurance scheme, wherein workers and employers would both make regular, affordable contributions towards insurance that would provide partial salary replacement should the worker become unemployed. Other programs must supply the basic needs of poorer families, whether through cash transfers, in-kind transfers, supplementary food programs, or fee waivers for such services as health care, education and utilities. Such benefits should be targeted as closely as possible to economic need, rather than being available to the population at large.

These six issues are but a brief overview of the policy decisions that Arab governments must make in defining the economic future of their countries. They reflect elements of a comprehensive strategy for reform over the next decade or two. Moving forward on this transition will be possible only with each government’s commitment to clear and transparent communication with the population, predictable and consistent reforms, and decisions based on careful study and reliable data.

Beyond all these policy reforms, regional economic policy synchronization, cooperation and integration are absolutely essential for the future of the population of the Arab countries as a whole if real and sustained development is the goal.

  • Hafed Al-Ghwell is a former advisor to the board of directors at the World Bank Group. Twitter: @HafedAlGhwell

Arab news



7 Comments on "Six steps to create a healthy economic future in the Arab world"

  1. Free Speech Forum on Sat, 19th May 2018 4:03 pm 

    Now that the US is a police state, there doesn’t seem to be much difference between being in prison or being outside of prison.

  2. Duncan Idaho on Sat, 19th May 2018 5:10 pm 

    “My father rode a camel. I drive a car. My son flies a jet airplane. His son will ride a camel.”
    – Saudi saying

  3. Harquebus on Sat, 19th May 2018 8:27 pm 

    “My grandfather rode a Camel, my father rode a Camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a Camel.” — Rashid bin Saeed Al Maktoum

    What could possibly go wrong with this plan?

    Our modern global society is suffering from decreasing EROEI, diminishing resources and lower income per capita, manifested as stagnant wages, while the banks and financials are having a field day with free fiat currencies conjured at will from nothing.

    The world of banking and finance, with the aid of their science illiterate economonist mouth pieces, are killing not just themselves in this growth at all cost ponzi scheme, we will all be casualties.

    “Neoliberal ideology is so thoroughly embedded in our academic, political, and cultural institutions, and so endemic to discourse today, that the idea of degrowth – probably necessary to avoid collapse – and solidarity economics isn’t even close to discussion, much less realization, and, for self-evident reasons, probably never will be.”
    “What we do know is that, given everything above, we are living through a confluence of events that will shake the foundations of civilization, and jeopardize our capacity to sustain large populations of humans.”
    http://mahb.stanford.edu/blog/extinction-vs-collapse/

  4. DerHundistlos on Sat, 19th May 2018 9:13 pm 

    Swaths of old growth forest along Great Barrier Reef to be bulldozed by landowner previously convicted of illegal land clearance; Over the past four years alone 2.5 million acres of old growth forest has been clear cut in Queensland threatening Great Barrier Reef with coral-die offs.

    Money ALWAYS trumps long-term health:

    https://www.theage.com.au/politics/federal/swaths-of-native-forest-near-great-barrier-reef-set-to-be-bulldozed-20180512-p4zewb.html

  5. Cloggie on Sun, 20th May 2018 2:23 am 

    The problem with Arabs is that they are Muslims in a red hot country, rather than Protestants living in a temperate climate in NW-Europe.

    Protestantism essentially means the reduction of medieval Catholic Christianity from 7/7 to one day per week only. During the other 6/7 days there is work to be done.

    https://en.wikipedia.org/wiki/Protestant_work_ethic

    Muslims are still 7 days per week hardcore medieval theocrats, who take their religion seriously. And then there is that horrible sun.

    Arab work ethic is a non-starter. They prefer to outsource work to Indians, as long as they can pay for it and westerners are willing to pay for oil, rather than take it for free, using guns and navies.

    Nevertheless, there is still the opportunity to escape from a camel/tent-based economy for the post-oil era and that is to exploit the sun scourge to the hilt. The very predictable sun shine can be used to set up endless arrays of solar panels (by Indians) and electrolyzers producing hydrogen, converted into NH3. Nowhere in the world you will have more return-on-investment from your solar panel than in Saudi-Arabia.

    https://deepresource.wordpress.com/2017/12/11/high-temperature-electrolysis/

    Existing pipelines can be used to pump the stuff into NH3 tankers. The beauty is, it all goes automatically, no work needs to be done. Even the cleaning of the panels from dust can be done with small robots, made in China or elsewhere:

    https://www.youtube.com/watch?v=gz8cq5mUHDo

  6. Cloggie on Sun, 20th May 2018 2:48 am 

    More on automatic solar panel array cleaning:

    https://deepresource.wordpress.com/2018/05/20/solar-panel-array-automatic-cleaning/

  7. Sissyfuss on Sun, 20th May 2018 3:50 pm 

    Step 7; learn to eat and drink sand.

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