International development organizations such as the World
Bank and the IMF often claim that Jordanians consume more than they produce,
raising concerns about the economy's sustainability. However, historical data
contradicts this claim, demonstrating that it is not always the case.
اضافة اعلان
Let us examine the historical data using the ratio of final
consumption expenditure (household and government) to GDP, as provided by the
World Bank. From 1976 to 1985, this ratio stood at 113 percent, driven by aid
inflows and rising incomes in the oil-producing Gulf countries. During
1986-1989, the ratio was 100 percent, indicating a balance between expenditures
and income. Toward the end of this period, expenditures were even lower than
income (99 percent and 95 percent in 1988 and 1989, respectively). From 1990 to
1999, consumption relative to GDP was 95 percent, consistently lower than
income. In the period from 2000 to 2019, consumption accounted for 98 percent
of income.
Jordan is not consuming more than it produces
These findings indicate that Jordan is not consuming more
than it produces. However, the country's spending has limited impact on labor
productivity, resulting in a decline in per capita income. Recently, the World
Bank downgraded Jordan's classification from upper middle-income to lower
middle-income, attributing the change to adjustments in population estimates
used to calculate per capita income.
Thus, earning Jordan the dubious honor of being the only
country last year whose classification has been downgraded.
Proves to be harmful
Government consumption expenditure not only fails to enhance
productivity and competitiveness but also proves to be harmful. Why? Because it
is pro-cyclical, increasing during times of high private demand and decreasing
during low private demand, contrary to John Maynard Keynes' counter-cyclical
theory.
The recent 2.8 percent increase in GDP in the first quarter
should not be cause for celebration. It should be compared with the first
quarter of 2022 when growth was 2.5 percent, rather than the fourth quarter.
Additionally, the growth is not attributed to government economic policies,
decrees, strategies, or actions. Instead, it is primarily driven by government
services and the banking sector, which does not indicate a significant recovery.
Government consumption expenditure not only fails to enhance productivity and competitiveness but also proves to be harmful. Why? Because it is pro-cyclical, increasing during times of high private demand and decreasing during low private demand, contrary to John Maynard Keynes' counter-cyclical theory.
So, the famous phrase uttered by the Noble Laureate
economist Milton Friedman “We are all Keynesians now,” which refers to the
government’s involvement in the economy to the spur total demand in times of
low economic activity, does not apply to Jordan. In fact, in Jordan, we are not
Keynesian now, we were never Keynesian and looks like we are not likely to
become Keynesian any time soon.
In conclusion, Jordan does not fit the Keynesian economic
model, which emphasizes government intervention during periods of low economic
activity. The country has never adhered to this model and is unlikely to adopt
it in the future. Can we change this paradigm? I would hope that we could,
instead of the eat, pray, and love version we are going with now.
Yusuf Mansur is
CEO of the Envision Consulting Group and former minister of state for economic
affairs.
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