Monday, June 20, 2005


I was going to title this post, “It works!”, but I have so busy that my untimely replies do not constitute an effective system of communication as the title might imply. I am nonetheless pleased with getting some comments, especially as they lead me rather nicely into this post.

I will reply to the comments in reverse order, beginning with Chan’ad. The point being made was that it would be difficult to encourage businessmen to part with their money, which I agree with entirely. It would be an interesting exercise to actually conduct a study to measure the actual number of times that an increase in disposable income would circulate in the economy and who would benefit most from that increase in spending. Unfortunately, I have a day job and unless there are a bunch of over-eager students out there, it will have to remain an academic debate, without statistics to back it up.

My argument is that the same businessmen who sit on the boards of the major companies are the ones who also have substantial interests in retail and service industries. Whereas I agree that there will be some spillage as you transfer from one pocket to the other and that the average businessman might not feel the effect directly, the overall effect on the economy is undeniable. Moreover, there is a feel-good factor here in making your staff more comfortable and loyal to your firm that I am interested in, which I plan to expound upon in my next post entitled the Profit Motive.

Ultimately, the market itself will correct price imperfections, as employees will migrate to the jobs that pay them better. The national interest argument is not a namby pamby one, as I believe the character of our workforce and their application to their jobs is perhaps the most important issue facing our economy today. After all, what are the labour market reforms but an attempt to correct what is percieved as an unwillingness to work hard (well, part of their point, albeit not all of it).

Onto the first comment from Bahrania which I believe provides the basis of the argument for labour market reforms. First off, thanks on the slippery economic eel nudge, I do not deny it in the least.

In defense of the EDB, they have actually announced sweeping reforms, of which the labour market represents only one third. Furthermore, they have recently engaged SOM to prepare a master plan for Bahrain, which is also much needed and another step in the right direction. We do not have a Ministry for Planning in the Kingdom and the EDB is actually trying to fill that role. The true measure of their success will only become apparent much later down the line.

With regard to SME’s, you have made the blanket statement that they represent the ‘main engine of growth and the largest source of employment’ which is simply not true in an economy such as ours. In fact the Government is the largest employer and SME’s are hardly playing the role of driver of economic growth (though it is difficult to assess what percentage of the economy SME’s actually represent – have just had a look at Bahrain’s GDP figures and feel comfortable saying that SME’s would not consitute a large proportion only because the sectors they are most present in are small components of the GDP caculation).

SME’s are the grass-roots of an economy and represent the basic goods and services and are typically owned and run by locals. The vast majority of the labour that SME’s currently use are expats which means that they can offer their services at a low rate. It is this low rate that, in many ways, sustains our economy, and maintains a low cost of living.

The introduction of the labour market reforms should, in fact, make the provision of such services more expensive. The hope here being that as more locals will see the potential to make greater returns from entrepreneurial activities, and more small and medium sized businesses will actually grow to fulfill the role you anticipated for them. Of course, it will come at a cost to the economy as a whole; a much higher rate of inflation and an increase in the cost of living. And if you thought getting a few businessmen to part with their cash was difficult, try explainning to the average joe why he has to pay more for things.

I do not believe this to be a bad thing, as long as there is a recognition of the need for greater regulations, stricter controls and standards, and better training. All of which should raise the level of the goods and services offered in the economy and therefore improve the standard of living in Bahrain.

Not quite sure what your final comment meant, but I would end by saying that we are living in interesting times and decisions we take today will have much more meaningful ramifications for how we live than the cost of getting a dress made or a car fixed. And this goes back to the issue of character, which I keep harping on about.

I am currently reading the Corrosion of Character by Richard Sennet and recommend it highly to anyone in business.

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