This is a good summary of economic developments to watch in 2019 – from Al Jazeera. Some of the key points are:
- Protectionist policies will remain and any truce between the US and China will be short-lived.
- The US is in an unsustainable boom – the fiscal stimulus will fade and this will be followed by two larger deficits – budget and external. The US is consuming far more that it is producing and it mirrors the 1980’s – Reaganomics.
- China is slowing down – as well as the protectionist issues as a result of the US trade policy there are tensions between the economic system of capitalism and the political system of communism. This combination is referred to as ‘Market Socialism’. The problems are associated with: economic growth v environmental problems, rural areas v urban areas, rich v poor. China’s movement away from oil to gas which benefits Qatar but to the detriment of the Saudi economy.
- The Gulf economies are taking a hit from the fall in oil prices and government budgets may have to be cut. Diversification from the dependence on oil is necessary to avoid the resource curse and with a growing youth population job creating is needed. Movement to a more knowledge-based economy and large infrastructure projects are becoming focus areas as a necessity.
I couldn’t believe my luck when I read James Surowiecki’s Financial Page in this week’s New Yorker magazine. With my AS level class I am just completing Economic Systems so this article was particularly fitting. Surowiecki alludes to the fact that countries in this part of the world that have authoritarian regimes also have economies that are dangerously unstable. He mentions the following:
* Economic growth and job creation has not kept up with the growing labour force whcih has led to high unemployment – 25% of young workers in Egypt are out of work
* Inflation has been a major problem even before the oil and food price increases
* Corruption is endemic
* The government and big business are tightly woven as to be identical, and competition has been discouraged in favour of central planning and private monopolies.
* Political favouritism is rampant – this forces much activity into the informal sector. 85% of small businesses are not registered with the tax authorities. Growth tends to concentrated with those that work for the state
Although there has been some effort to reform their economies, many Middle Eastern countries failed to introduce genuine free-market competition, the most important feature of a healthy capitalist system. Political scientist Oliver Schlumberger calls these reforms patrimonial capitalism – a system in which the key determinant of success is how close you are to those in power.
Patrimonial capitalism’s legacy is that many people see reform as a substitute for corruption and self-dealing. Government employment is till the easiest way to get a job and subsidies have become of greater importance. What the region needs is less crony capitalism and more competition.