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Link to WDI

Macro-Economic Issues (A) R&W Chapters 5 - pp. 133-142 (Labor), 7-9, and 13 (Defense - postponed) Beinin and Galal readings. Link to Syllabus. Link to WDI. Outline. Labor Markets Real Wages (not much) Poverty and Income Distribution Unions Total Factor Productivity

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Link to WDI

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  1. Macro-Economic Issues (A) R&W Chapters 5 - pp. 133-142 (Labor), 7-9, and 13 (Defense - postponed) Beinin and Galal readings Link to Syllabus Link to WDI

  2. Outline Labor Markets Real Wages (not much) Poverty and Income Distribution Unions Total Factor Productivity State-Led Growth (Chapter 7) Contradictions of State-led Growth (Chapter 8) Influential Economists Reforms: Washington Consensus (Chapter 9) Rodrik’s amendments Inflation and Real Exchange Rates

  3. Real Wages in ManufacturingMixed Bag Source: WB (2008) The Road Not Traveled

  4. Poverty and Income Distribution

  5. Figure 10.4 p. 276. Incidence of Poverty in 2000, by Regions % of Population.

  6. Figure 10.5 P. 277. Poverty Trends in MENA

  7. MENA: Incidence of Poverty (%)

  8. Poverty Trends: Morocco, Tunisia, Egypt. R&W Chapter 10

  9. Rural vs. Urban Poverty Rates Source: World Bank/Farrukh Iqbal (2006) Sustaining Gains in Poverty Reduction…MENA Page 15

  10. Table10.8 p. 279. Distribution of Income, 2005 US 2 5 11 16 22 46 30 In this comparison, Egypt and Jordan have the lowest inequality. The US has above average inequality.

  11. Income Distribution Source: WB (2008) The Road Not Taken

  12. Gini Coefficient of Inequality Source: WDI

  13. Inequality of opportunity is found to account for thirty percent of total earnings inequality... The share of inequality of opportunities is decreasing. A sharp decline is observed in 2006. Source: Nadia BelhajHassine Inequality of Opportunity in Egypt: ERF 2010

  14. Egyptian labor painting Mohammed Hamed Ouwis (1919-) End of Working Hours 1963

  15. Right to work statements p. 32 Source: World Bank (2004) Unlocking the Employment Potential in the MENA page32

  16. Total Factor Productivity

  17. TFP by Regions p. 78 Source: World Bank (2004) Unlocking the Employment Potential in the MENA page78

  18. TFP in MENA p. 80 Source: World Bank (2004) Unlocking the Employment Potential in the MENA page80

  19. The Debate about State Led Growth and Reform

  20. Historical background to state-led growth in MENA (Chapter 7 of R&W) • Ottoman territories had been free trade; due to treaty with UK in 1830s. • Until 1930s, MENA elites espoused liberal projects, modeled after England and France. Reaction to Protectorates led to a rejection of liberalism. Palestinian Arab Revolt of 1936-39 marked a transition. Another was the 1942 incident in Cairo, in which British tanks forced the Wafd to support UK. Also, rejection of French tutelage in Northern Africa • This led to the emergence of the public sector in the 1950s and later, that can be described as an interventionist state [Turkish Paradigm –subsequently replicated elsewhere], thereby differing from the western (classical) liberal tradition of a minimalist state. • Examples: Ataturk. Pahlavi Shahs of Iran, Nasser, Bourguiba (Tunisia). Also Ba’th party, Hafez al-Assad, Saddam Hussein, Ben Balla/ Boumedienne (Algeria). Kadafi (Libya)

  21. Background (ii) • First emphasis on agriculture, then during the Depression, a push for industrialization, ‘etatism’ - ISI - and eventually SOEs. (R&W call this the “Turkish Paradigm”). • Not socialist [‘controls but does not own’] but used ‘5-year plans’ • Hostility towards Foreign Investment • Modernization of tax system; new taxes were progressive • Comment that the Turkish example helped inspire Arab Socialism • Nationalist, and Urban Social Radicalism (Authoritarian Populists) – breaking with liberalism. Was secular. Corporativist, large unions.

  22. Core attributes of State led growth (etatism): • Preference for redistribution and equity • Preference for states over markets in managing economies • ISI & State planning • Encompassing vision of role of the state in provision of welfare • Vision of the political arena as the expression of the organic unity of the nation—rather than site of political contestation or aggregation of conflicting preferences • R&W draw comparisons and contrasts with the ‘Liberal” Monarchies of Iran, Jordan, Morocco, and with the ‘conservative’ monarchies of the Arabian Peninsula.

  23. Contradictions of State Led Growth – R&W Chapter 8 • Protectionism didn’t work: Infant industries didn’t grow up Companies remained dependent on imported inputs • SOEs never became efficient • Failure to generate sufficient new jobs • “Two gaps” – savings/investment, and foreign trade • Agrees with Joel Beininجول بنين an American leftist historian at Stanford, who has taught at AUC. Beinin gives more emphasis to class conflict. There could be a lengthy discussion about the role of politics in this.

  24. SamirAmin, 1931 - SamirAmin is an Egyptian political author, born in 1931. He currently lives in Dakar, Senegal. Amin was trained in Paris, and is one of the region’s best-known Neo-Marxian thinkers, both in development theory as well as in the relativistic-cultural critique of social sciences. He is the director of the Forum du Tiers Monde (Third World Forum), based in Dakar. He is a promoter of the conscious self-reliance of developing countries, particular for the Arab world. His numerous books include Eurocentrism(1988), L'empire du chaos (Empire of Chaos, 1991) and Spectresof Capitalism, 1998.

  25. Two authors, both Egyptian Economists. AUC and ERF HazemBeblawi, 1936 Born Cairo, Ph.D. Paris Head of UN-ESCWA Rentier book Prime Minister until Feb. Ahmed Galal Ph.D. Boston Univ. Worked at World Bank Director of ERF Finance Minister until Feb.

  26. DaniRodrik Born in Istanbul in 1957. Studied at Harvard and Princeton. Recently left the Rafiq Hariri Chair at the Kennedy School at Harvard, for the Institute of Advanced Study at Princeton. Author of many books and articles, focusing on policy-making in emerging markets. Is generally regarded as one of the most influential US-based economists who are critical of globalization. Curiously, his father-in-law was one of the Turkish generals who forced Prime Minister Erbakan (Welfare Party ~Islamist) to resign in 1997, and who was jailed for the Sledgehammer coup plot, whose validity is now (early 2014) being questioned.

  27. TimurKuran Born in 1954 in the US, while his parents studied at Yale U. Spent his early childhood in Ankara, where his father taught. BA from Princeton, Ph.D. from Stanford. For many years held the ‘King Faisal’ Chair at USC, now is a Professor of Islamic Studies at Duke. Argues that the economic and educational institutions of Islam, though well-suited to the era in which they emerged, were poorly suited to a dynamic industrial economy. These institutions fostered social equilibria that reduced the likelihood of modern capitalism emerging from within Islamic civilization. His recent articles have identified obstacles involving inheritance practices, contract law, procedures of the courts, the absence of corporations, the financial system, and the delivery of social services.

  28. KemalDervis Born in Istanbul in 1949. B.A. LSE; Ph.D. Princeton. Minister in various cabinets in Turkey. Also, past head of UNDP, 22 years at World Bank, currently at Brookings. Is described as the chief architect of Turkey’s anti-inflation program in 2001. Was a candidate to be head of the World Bank; that position has always been held by an American. The person selected is an American medical doctor of Korean descent.

  29. Reforms - Chapter 9 of R&W. Washington Consensus – (IIE) (p. 229 of R&W) • Fiscal discipline • Reorientation of public expenditures • Tax reform • Interest rate liberalization • Unified and competitive exchange rates (that means devalue) • Trade Liberalization • Opening to Foreign Direct investment • Privatization • Deregulation • Securing Property Rights

  30. Symptoms of Problems • Inflation (and perhaps “excess” unemployment) • Gov’t deficit • Balance of payments deficit Excessive borrowing; foreign debt Inability to refinance debt mt comments that, viewed from 2012, the R&W book has precious little to say about lack of democracy. Many would say this is not surprising for an economics book. But in the new Middle East of 2014, the new democracies will have to decide what sort of economic policies they wish to pursue. Options are a revised version of statism (Nasserism/Bathism), and neo-liberalism. Will military and Political Islam be fundamentally pro-market?

  31. Standard Textbook Solutions: • Contractionary fiscal and monetary policy • Devalue exchange rate (or remove exchange controls) • Eliminate controls on the capital account • Borrow from IMF or World Bank • Structural Adjustment Program The term implies something more aggressive than merely devaluation, such as: Eliminate minimum wage. Eliminate subsidies. Break up unions. Privatize State-Owned Enterprises Operationally, the IMF and World Bank have different loan policies for countries undergoing structural adjustment programs.

  32. Further Complications, revealed by recent experiences • Issue of sequencing reforms • Negative Consequences of standard textbook recipes: Some policies worsen inflation (devaluation, indexing) (Is inflation a result of fight over income distribution?) Many examples of worsening of income distribution, and unemployment caused by contractionary policies Evident negative political consequences, both because of domestic effects, and because of foreign effects (appearing to sell out) “Heterodox” Economic Policies – whose success is debated. Price controls. Exchange rate controls (or even dollarization). De-indexation. Limits on short term capital flows (“Tobin tax”). Incorporate an anti-poverty element

  33. Rodrik’s amendments to the Washington Consensus. Also listed on page 229 if R&W • Corporate governance • Anti-corruption • Adherence to WTO • Following international financial codes and standards • Prudent capital account opening • Non-intermediate exchange rate regimes • Independent central bank/ inflation targeting • Social Safety nets • Targeted poverty reduction R&W also mention Stiglitz, Easterly Link to Rodrik’sblog http://rodrik.typepad.com/

  34. Typical review of Reforms

  35. No factories: no problems

  36. World Bank’s Composite Index of Reform MNA - MENA EAP – East Asia LAC – Latin American SAR – Sub-Saharan Africa MENA slow to start, has done less. Source: Dasgupta et al.(2002), Reform and Elusive Growth in the Middle East…

  37. Change in Composite Reform Index Source: Dasgupta et al. (2002), Reform and Elusive Growth in the Middle East…

  38. Impact of Structural Reforms Source: M.K. Nabli and Véganzonès (2004) Reforms and Growth in MENA Countries

  39. World Bank Judges Egypt Top Reformer, 2008 Link to summary

  40. Inflation

  41. Textbook Theory of Inflation Caused by too much demand: Gov’t spending (and monetary policy) or too little supply: inadequate investment, low technology (inefficiency) high wages… Indexing allows inflation to affect the entire economy more rapidly. Possible view of inflation as result of sectoral clashes International effects: (less important in US) exchange rate devaluation raises costs of imported inputs, either raw materials or manufactured products exchange rate devaluation lowers imports, encourages exports and local production Borrowing from foreigners can help finance domestic demand and imports. Paying off foreign debt may be painful.

  42. Inflation, by Regions Source: WDI data

  43. Inflation-CPI MENA Countries Very high in Turkey, Israel; next is Lebanon. Source: WDI data

  44. Inflation Theory for MENA (i) In the 1960s, there was a big debate on inflation in Latin America. Orthodox/Monetarists/los Chicago Boyz/ said inflation was bad, and was caused by excessive Money, caused by gov’t deficits –financed by domestic borrowing, because they couldn’t get foreign loans. Structuralists/ECLA/CEPAL were more accepting of inflation, arguing that it helped break structural bottlenecks (e.g., agriculture). Some also believed that inflation was caused by struggles over the distribution of income (workers vs. bosses). More broadly, the so-called Structuralists were less impressed with market- based models, felt that supply elasticities were very low, pushed land reform and ISI, and generally adopted more populist, nationalist, positions.

  45. Inflation Theory for MENA (ii) There is no MENA school of economics. Certainly there is no special corpus of writing on inflation in the MENA countries. One might think of possible components, derived from textbook economics of such a school, perhaps emphasizing the supply side: Differentiate oil exporters (especially labor importers) from the rest Dutch disease/Sovereign wealth funds 2) Violence – wars – always threaten supply, causing inflation 3) Agriculture is less important in MENA than in other regions 4) Inflation in very open economies should be low, approaching international levels. 5) The informal sector has yet to be incorporated into studies of inflation.

  46. Calculated RERs Calculated as x-rate x PUS/Plocal. Increase in RER should increase exports

  47. Turkey kicks the habit of high inflation Source: IMF Survey, September 20, 2004

  48. Turkey: Real Exchange Rate RER is measured as E*Pfor/Plocal: increases in RER increase local exports Source: Central Bank of Turkey

  49. 100% Inflation in Turkey Turkey: Real Exchange Rate 50% Source: Central Bank of Turkey

  50. Israel: REER Source: Data from WDI

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