Jordan as a driven economy

The decade-old twin economic policy of borrowing to meet current fiscal obligations, and the sacrifice of capital spending in the process does not work. Why? They do not, have not and will not lead to economic growth. Hence, the future may hold more of the same, literally. Obviously, an economic paradigm shift is needed. The following paradigm provides an alternative modus operandus. The ideas presented herein are gleaned from the writings of many prominent economists, particularly Mariana Mazzucato. 

First and foremost, the overseers of the economy must fully understand and believe that the economy is a complex system whose framework, configuration and direction are driven by constant change, evolvements and dynamical feedbacks. Every small change can lead to many ramifications, reactions and changes that are by their very nature complex and dynamic. Once the idea sets in, economy impacting decisions cannot be simple (unidirectional and fly-by-night types), dichotomous (I mind my shop/ministry and you mind yours), or unstudied (there are many examples of those). Instead, they must drive innovation and growth, and lead to socially advantageous transformations. 

Second, policy makers should ignore the now mundane terms and analytical tools of the past such as absolute advantage (I have the resources to produce more efficiently than the other so I will produce X), comparative advantage (I have less of an opportunity cost relative to the other so I will produce product X), and the ever so naïve tool of cost-benefit analysis (a passenger and cargo railway network costs more than it would generate in direct revenues, thus forget it). Mariana Mazzucato recently pointed out: Had South Korea relied on its absolute advantage it would have specialised in rice production instead of becoming the most innovative country worldwide for the past six years. Instead, think competitive advantage (the will and drive of nation, regardless of current resource limitations, enable it to become competitive in the future and produce X). Even competitive advantage will not really work if not coupled with and focused upon a vision of innovation and product complexity.  

Third, policy makers should give less attention to the liberal diatribe whereby the government is simply a lame observer of the market. They must focus instead on making the public sector more effective in driving the change. Sounds like a strange precept? Not really, development history shows that the government is the partner that leads the change; it is the first investor (not the investor of last resort) that creates the space for the private sector to forge through with innovations and inventions; and it is the promoter of positive changes that lead to beneficial consequences and greater product complexities. In other words, the government role must be recast to be more like that of the governments of mission-driven economies: South Korea, Germany, Finland and Switzerland. Direction-setting choices are vital for today’s economies that want to move ahead, and small visionary changes have had throughout history lasting consequences. 

Let’s share some examples of governments causing positive change. Apple, worth over $2 trillion in 2020, would not have become what it is had it not been for three inventions (Internet, touch screen and GPS) that were funded by the US government. Samsung would have been a textile company if it had not been for the South Korean government funding, low interest loans, and subsidies. Huawei, the communication giant, started with a capitalisation of $5000, and would not have become what it is today (in 2020 its smart phones outsold Apple and Samsung) if the Chinese government contract had not provided it with a $10 million government contract to start it off. The US government, currently ranked 11 among the most innovative economies, has been, through its funding of research, behind many of the commercial products we use today; to mention a few: LED lights, smart phones, MRI, microchips, Internet, computer simulation software, Siri, Moderna vaccine, modern wind energy, and, yes, enriched infant formula. These governments spent on research (the R in R&D) and availed the findings to the private sector to develop (the D in R&D) into commercial products. 

Fourth, prioritise (instead of sacrifice) capital expenditures in the budget to set the direction of change and use all the tools available to government to drive the economy into greater productivity, innovation, R&D, value added, and resilience.  Yes, the government budget is shackled by current commitments and obligations such as salaries, pensions, and debt servicing. Bar a positive external shock, these outlays will continue to grow faster than the GDP under the current thinking and direction. So, what is the solution? Borrow and assume more debt to grow product complexity in a mission-driven approach. Use all tools, fiscal and monetary to drive and cause the change.  Use different plans, the economy is complex, and there is no one solution that fits all. Do not pick winners and losers; instead, choose directions for change and use the full power of government instruments to create projects that prompt solutions from diverse willing actors.

Let’s start the change!