If they really want to achieve sustainable economic growth, Jordan’s public and private sectors need to start seeing each other as allies rather than adversaries.
By Laith Al Qasem
Public–Private Dialogue (PPD) is an increasingly valuable tool that enables public and private sectors to proactively work together in the face of change to improve the prosperity of citizens and to enable the private sector to improve.
In doing so, effective PPD helps sustainably improve the prosperity of a country. One of the most daunting challenges facing PPD is the issue of perspective. Do the public sector and private sector see the same set of problems and challenges? Without an agreed vision, positive reform is unlikely.
For example, in Jordan, the public sector sees the budget deficit as the problem, whereas the private sector sees excessive taxation, cumbersome regulation, legislation and bureaucracy as the problem. In Jordan’s case this has become a zero sum game, as the government’s gain is often the private sector’s loss and vice versa. This leads to a set of economic reforms which ebb and flow around a seemingly unchanging constant. The IMF-led and donor supported economic reforms, which Jordan has implemented or tried to implement since the devaluation of the dinar in 1988, have led to marginal economic improvements with a chronic inability to address change effectively or create a sustainable new prosperous economic reality.
For Jordan to move forward towards prosperity, it’s necessary for the public and private sectors to agree on what needs to be done. Without this, each sector will seek to extract its needs from the other. This is not sustainable. This is what we have witnessed throughout Jordan’s numerous reform programs.
The government suffers from a chronic budget deficit. Government expenses are greater than government revenues (taxes, levies, customs and foreign aid/assistance), and government expenses are predominantly salaries. Currently, the government employs over 42 percent of the labor force. As such, little is spent on upgrading national infrastructure and maintaining competitiveness. Moreover, the government’s favored financial tool is to bolster revenues and reduce the deficit by increasing taxes. Jordan currently has over 200 taxes, levies, duties, charges and tolls, while the government is making little progress in reducing expenses or improving the country’s investment climate.
Functionally, and practically, the government seeks to control the economy more than to facilitate its growth. This is obvious from the government’s stated Key Performance Indicators (KPIs) that revolve around tax receipts. To be economically productive and useful, government performance should be measured by the amount of annual private investment (local and foreign), the net number of new businesses established and sustained, the number of jobs created in the private sector, and the level of exports achieved and sustained by the private sector.
The government works to control the economy because it’s easy. Such policy is increasingly non-productive and we are witnessing diminishing and even negative economic returns by insisting on using these same tools. Control is imposed by following rules (often without thought) with conservative interpretation and little responsibility and accountability by employees. Facilitation in the economy requires thought, effort, assistance, cooperation, and responsibility on the part of government. Without this, we cannot move forward.
The existing social contract is part of the problem. During the country’s formative years, a sense of entitlement was fostered amongst its citizens that exists to this day. This needs to change. The government’s role has to change from being the country’s economic engine and primary employer to a facilitator of economic prosperity. Lessons of the past have little to do with the challenges of today. Jordan needs a new common vision among the private and public sector as well as new skills. The government has become a hostage to a system it created in its preference to opt for short-term tactical solutions to strategic structural problems.
In turn, the private sector continues looking for quick tactical gains. This is to a great extent the result of creative interpretation of the tax code. As such, there’s lack of trust in the “system”. The private sector isn’t shouldering its national responsibility. Instead they seek to minimize investment and maximize revenue. Local added value is generally low, job creation is low, investment is low, and competitiveness and exports remain low. The private sector is hostage to its own perceptions and the reality in which it operates. Like government, the private sector seeks short-term solutions to structural problems.
The government’s role in the economy is too large. It needs to be downsized, which will reduce deficit pressure on reform. Government KPIs should include the size of annual local and foreign investment, number of new companies established per year, number of companies closing per year, private sector employment generated, and the growth of exports. The government needs to start playing the long game.
Equally, the private sector’s role in the economy is too small. In general, private sector added value is too little. As such competitiveness is low as are exports. The private sector is fragmented. Jordan needs to promote and support those sectors that can compete globally, such as health care, pharmaceuticals, ICT, Dead Sea products, and logistics. The Vision 2025 reform program is a good start. There’s also a substantial need for training and certification, particularly in export development.
Both the private and public sectors need to develop the discipline and cooperative spirit to focus on the long-term. Both sectors must agree on the areas of the economy to focus on supporting, to agree on an interpretation of the tax code so that investors can make qualified and calculated investment decisions instead of being continually thrown by how taxes, levies, and duties are calculated which often results in the migration of investment to more defined investment environments.
This is the only way to ensurethat trust is developed which will enable both sectors to cooperatively work together to build a sustainable and prosperous national economy.Both public and private sectors must understand their roles, authorities and limitations for Jordan to sustainably and prosperously move forward.
Laith Al Qassem is the Chairman of Arabian Business Consultants for Development