Declining oil prices have curtailed the GCC governments’ abilities to employ citizens in the public sector. This trend, combined with a growing youth population, poses a challenge to the GCC’s capacity to create sufficient job opportunities – a novel problem for wealthy economies. What solutions can economists offer?
The voluminous research on unemployment has yielded a list of empirically supported policies. These include the deregulation of labour markets and reduction in unemployment benefits. For example, in Italy, it is almost impossible to legally fire employees. As with many other poorly formulated regulations, the policy backfires – rather than helping reduce unemployment, it arguably increases it by making employers reluctant to hire in the first place, for fear of getting saddled with an ineffective worker. (Imagine how reluctant people would be to marry if divorce were banned.) In the United States, in contrast, employers can lay off employees, lowering the riskiness of hiring and thereby encouraging it in net terms, experts say.
To some extent, however, traditional anti-unemployment policies are a red herring, as they focus on labour markets, which are of second-order importance. Economies are now inherently dynamic phenomena because of the breathless pace of technological change. Like fallow land, or empty office buildings, unemployed workers represent idle resources and it is the job of private entrepreneurs to formulate ways of using them.
The Austrian economist Friedrich Hayek won the 1974 Nobel Prize in economics for emphasising the role of entrepreneurs in driving the economy forward, and, as a corollary, in creating jobs. They innovate and invent, and sense opportunities for deploying society’s resources more effectively. Thus, in a very fundamental sense, the best anti-unemployment measure is creating the conditions for vibrant entrepreneurship.
Civil servants, however, are typically terrible entrepreneurs, and so society has to look to its private entrepreneurs for job creation. The reason is incentives: functionaries lack the specialised – and sometimes visionary – knowledge of private entrepreneurs, and they also lack the motivation to expend effort acquiring such knowledge, since any returns accrue to the state rather than to the individual, as does the cost of any misstep. Pick up the autobiography of any business revolutionary such as Bill Gates, and in addition to commercial genius, the most common trait is the willingness to work insane hours in the pursuit of success, including the financial rewards it entails. Richard Branson did not turn Virgin into a global major airline by clocking 9-to-5.
Admittedly, poor countries are sometimes so deficient in elementary investment such as infrastructure that an efficient state bureaucracy can operate as an effective entrepreneur until the country reaches middle income by implementing a checklist of investments, creating millions of jobs along the way. However, economies eventually require cutting-edge, commercially relevant technology to create jobs, which is where most governments throughout human history have scored an “F” grade. China has recently been through this cycle – government entrepreneurship has gone from being a quick source of jobs and growth to being the primary cause of the current recession, as white-elephant investments have raised the spectre of unemployment.
Fortunately, the GCC economies are advanced enough for state entrepreneurship to be a poor substitute for its private cousin, but the governments have been inadvertently stifling private enterprise through the generous conditions they offers their citizens for public-sector work. Many GCC citizens equipped to be the next Steve Jobs end up as government employees, understandably drawn in by the high salaries and short hours. In contrast, in western economies, one can scarcely imagine anyone working in the public sector because of the salary.
Therefore, if the GCC economies wish to accelerate the rate of job creation, they need to create the conditions whereby the latently most capable entrepreneurs actually enter the business domain, instead of languishing in the middle echelons of civil service.
In a quote that captures the essence of entrepreneurship, the French author Antoine de Saint-Exupery once said: “If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.” For GCC citizens, the bad news is creating that “yearning” requires clamping down on generous public-sector jobs.
There is a role for civil society in easing the transition. The Youth Pioneer Society, a Bahraini non-profit organisation, has a programme called Chance, which aims to improve entrepreneurship by addressing some of the less-salient barriers such as a lack of awareness on the nature of commercial risk-taking and insufficient mentoring. The programme director, Amira Mahmood, says many prospective entrepreneurs are put off by the erroneous belief that they will have to self-finance, or rely on family and friends for capital, when in fact external sources of capital offering reasonable terms are available. The programme has made progress in tackling these issues, as well as in helping to raise the esteem in which entrepreneurs are held in society. Appropriately enough, the programme and the society are themselves the result of private enterprise.
In conventional economies, labour market policies play second fiddle to the strength of private entrepreneurship as a countermeasure to unemployment. In the highly idiosyncratic economies of the GCC, huge levels of public sector employment have effectively bulldozed the role of standard anti-unemployment policies, but the situation is changing as governments have had to freeze hiring. As GCC citizens are organically ushered towards entrepreneurship by the changing financial incentives, it is important for social attitudes to keep pace and for society to be reminded that its entrepreneurs are to be cherished and nurtured.
“To escape your fear,” the business guru Richie Norton said, “you have to go through it, not around.”
Omar Al Ubaydli is the programme director for international and geopolitical studies at the Bahrain Centre for Strategic, International and Energy Studies, and an affiliated associate professor of economics at George Mason University.
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