A few years ago

A few years ago, as a civil servant, I pointed out that government spending in Jordan is pro-cyclical; that is, the government spends more when the economy is doing well, and spends less when the economy is in the trough, or downward, section of the business cycle, a policy that negates proper economic prescriptions. I asserted at the time that government spending should be countercyclical — the government spends more to spur demand and, consequently, supply, when the economy is in a slump, and less when the economy is in the booming phase of the business cycle, in order to avoid creating hyperinflation or unwanted inflation. However, such is a purely Keynesian view, and it is in direct contrast to the view espoused by the IMF, to which the government of Jordan kowtows. Needless to say, my words were not heeded. So let’s try again.

Simply put, the government should seek to expand expenditures and avoid raising taxes and fees. In fact, it should quickly adopt necessary infrastructural projects such as the Red-Dead Canal (not its shrunken version of a pipeline), and a national passenger and goods transport railway network. Both can be done in partnership with the private sector as we already have a Public Private Partnership (PPP) Law and a PPP Unit at the Prime Ministry. The two projects will cost around $8 billion, and will create around $15 billion in additional investment. Furthermore, both projects will reduce our carbon print and thus can benefit from the global funding available for environmental projects. Moreover, such announcements willusher, if coupled with credible actions, an era of optimism, positive expectations, renewed vigor and a rapid return to higher consumption and investment levels throughout the economy. 

Such a policy (countercyclical spending) would be sufficient if applied in a developed country; in the case of Jordan, however, the situation warrants additional action. Infrastructure projects alone will not do it. There needs to be a focus on innovation, along with and beyond the short term fixes of infrastructure development. Before I expound on this claim, let’s recall that according to Joseph Schumpeter, innovation is the underpinning of the capitalist system and market economy. It is through innovation that the market develops and expands, and with the market, the economy. 

According to the Global Innovation Index (GII), which provides detailed metrics about the innovation performance of 129 countries and economies around the globe, Jordan was ranked 41 in 2011, and is currently ranked at 81. Note that the lower the rank the higher the level of innovation of a country. The areas that Jordan is considered weak at are: Human Capital and Research (78), Infrastructure (95), Business sophistication (94), Knowledge and Technology Output (82), and Creative outputs (84). Generally speaking, the ranking in these categories has become worse over the past three years, according to the GII. Furthermore, according to UNESCO, Jordan spends 0.4 per cent of its GDP on R&D, a very low percentage for a country that seeks to develop its economy. 

Let’s go back to Schumpeter and innovation: the government must do more to encourage investment in R&D. In fact, it must have an investment fund to create innovations that businesses develop into winning business opportunities and ventures. Given the riskiness of investing in research and the lack of financing by banks to such endeavors, the nascent or little interest of business in investing in such long term investment such as research, it stands to reason that the government should overtake such a function starting with a National Science Fund that is similar to those in many developed economies.

It is really not that difficult, all that is needed is to try it; 30 years of the IMF reforms have not worked, and will not work. In other words, the economic managers must be Keynesians and Schumpeterian. Let’s not wait too long.