It has not been difficult to sense recently that around the world, other than the US, a certain doubt is growing about economic prospects and policy methods, several years on from the outbreak of the global financial crisis.
Indeed, perhaps it was only an outbreak, and a war of policy attrition continues, against the lingering threats of growth dependent on easy money, persisting debt overloads and the possibility still of a further, potentially even more shocking credit disorder.
It’s an unavoidable context that now frames most business projects in most locations. Even in the Gulf, the bedrock beneath the region’s rebound, namely firmly-situated oil prices, is being shaken, quite possibly in a crucial contest for market share, as a structural pendulum appears to shift in favour of the US, while global demand cyclically suffers.
Stock and bond markets globally have shown themselves hooked on the largesse of central banks and their injections of liquidity, which may yet be amplified in Europe and Japan, while the US and China try to wean themselves off this now routinely-employed panacea.
While some warn that the somewhat surreal environment of endlessly low interest rates is just re-inflating a nastier bubble, others argue that government stimulus even yet has been inadequate for the scale of the task.
Either way, it’s fairly obvious that economies cannot rely exclusively on the perpetual reinvention of pump-priming policies, or indeed elevated commodity receipts, to secure their futures.
Whatever the state of demand, it’s the supply side that determines relative fortunes at very least in claiming a stake on prosperity. Printing more cash can only go so far to cushion the weaknesses of an imbalanced, overextended or otherwise dysfunctional economy. Enduring strength will depend on the recurrent creation of value rather than, unreconstructedly, mere volume.
That’s verging on a homily, admittedly. But it’s one that imbues those efforts that seek to overturn any unsustainable economic status quo in favour of promoting such self-advancement programmes as the knowledge-based economy (KBE), as adopted across the GCC. It hardly needs saying that promoting genuine skills that can be profitably utilised in a productive workplace can only ease the burden on welfare-oriented, government provision in its various forms.
While the KBE concept is well-established, though, it still has to deliver and keep delivering, turning financial inputs into outputs that genuinely meet either domestic needs with innovative efficiency or the competitive challenges encountered in international trade and project investment.
As a research note by Standard and Poor’s seemed to suggest this month, an ongoing commitment to infrastructure development is one thing, but for it to lever the type of economic growth whose benefits can be reverberative it needs to be complemented by labour skills building upon the sheer capital outlay. In terms of structural challenges, these may represent the “more persistent hurdles”, the report advised.
Just how much progress is needed on this front was discussed in a memo last week by Oxford Analytica, a global affairs consultancy. While centres of learning and industry-university collaboration have been created, it says, systemic reforms to connect these enclaves with the rest of society should be pursued to create better traction.
In particular, a closer link between educational attainment and professional success needs developing, overcoming issues such as a lack of transparency in the presence of personalized networks, as well as the public sector’s continued, heavy absorption of labour market entrants, the report claims.
That said, a top-down approach by the state towards motivating stakeholders across society and initiating momentum in collaboration with the private sector is a valid strategy, it says. That formulation has featured among the East Asian countries “frequently cited as models of emulation”, alongside European examples such as Finland.
Alison Baily, senior Middle East analyst at Oxford Analytica, told me that for lasting effect “it is essential to create the conditions required to facilitate the spread of the knowledge economy, both horizontally across the economic spectrum and vertically in human capital development.”
As to the state’s fiscal burden and pervasive influence, official reaction to the Arab uprisings have only complicated the issue, it seems. “Once you get into a cycle of providing benefits and privileges, it’s quite difficult to reverse them,” such as would be recommended in terms of subsidy reform. “There needs to be a slimming down of the public sector, and a change of culture, on a holistic basis,” she added.
A ripple effect not only of learning but of participation and motivation is evidently what’s being invited.
Of course, it might yet be that the lower oil prices of today lead to the higher prices of tomorrow, reviving revenues for Gulf producers, as investment in marginal production elsewhere is sidelined.
Yet, making strides towards upgrading other factor endowments -- a classification amongst which economists include the labour force -- can only be helpful in case that doesn’t sufficiently happen.
