5 Myths in Electoral Manifestos #Intikhabates2011
After the post-referendum silly season, here comes the election season. Parties are gearing up and leaking excerpts of their manifestos.
Myth n°1: A Target Rate of more than 6% GDP Growth.
Much has been promised in 2007 on GDP and GNI growth. And much will be promised, starting from USFP who unveiled part of their manifestoyesterday, on growth. Why focus on GDP growth? The idea behind it (explained further in Myth n°2) is to convince the Moroccan citizens that high growth generates revenues and income for all.
But what is more, a high growth rate puts our economy in the “big league”, i.e. these emerging economies in South-East Asia and Latin America, an economy with such promises that foreign investors will flock to have a slice of this Eldorado cake, fuelling the initial growth until we reach a steady state, and before you know it, we have had caught up with South Korea in no time.
This halcyon scenario ignores an array of exogenous parameters, least of which global cycles and demand. Furthermore, the simplistic assumption that GDP or GNI per capita may grow at a constant rate, or that it can double, or triple over time is ludicrous, because it skips the vital question of growth stability: suppose indeed growth average has been 7%. But what happens when that average growth goes volatile (meaning, a 7% growth with a 3% standard deviation for instance) ? The obvious result is that accumulative gains are going to be lower, and would even be wiped off if the growth trend goes hyper-volatile. So unless a party’s manifesto specifies a commitment to stabilize growth, a growth target is as irrelevant as is the objective to double income per capita or more.
Finally, the proposed growth figures, so far, are unrealistic with regards to the present trend, and the potential output the domestic economy can deliver. Numbers evolving around 6-7 or 8% are unrealistic, in the sense that they are likely, when attained, to kick off inflationary pressure; now, it might be good economic policy for a government to start off their legislation with a modest boost in GDP growth (or equivalently, hold it off until their last year in office before election) to show their commitment for a growth economy, and to catch up the losses in low growth observed in the couple last last years. But to try and maintain high levels of growth to, say, increase employment, will only heat up the economy and lead to inflation, a worsening trade balance and dwindling foreign reserves.
The potential growth rate is, in many respect, a “trade-off” rate: it does not increase inflation, nor does it reduce unemployment. When maintained over a relatively long period of time (5 or 10 years) then inflation is kept on check, and unemployment actually converges to its natural (or structural level). This virtuous state cannot be achieved with growth rates above the potential rate of 5% and an inflation target rate of 2%. Bank Al Maghrib has displayed, in their charts, a piece of advice political parties would do well to heed: don’t overdo it on growth rate. And so, any politician who proposes a benchmark rate of more than 5% does not know what they are talking about. And we don’t want to elect an incompetent, do we?
Myth n°2: GDP or GNI Growth benefits everyone
As pointed out in previously, growth does not bring wealth to everyone, and certainly not to those supposed to be the darling of all political parties: the middle classes.
I have laid out the argument in a previous post, but a brief reminder would do no harm: the evidence shows that so far, growth benefits mainly -if not exclusively- to the top 20% (and I suspect a smaller subset within these 20%). When a manifesto proposes to improve the average income per capita, then one has to be careful to look for actual benefits across households classes. In simple statistical terms, the average might grow, but it brings no additional information on the dispersion of incomes around that average.
If anything, growth has a negative impact on income distribution, in the sense that it only confirms unequal distribution. The same evidence also does not show clear correlation between growth and a fall in unemployment. And that vindicates the third point too.
Myth n°3: Government policy can create 200,000+ jobs per annum
This is one of the few targets all political parties talk about. It seems their strategists believe jobs is the number 1 issue in Moroccan households -may be it is, but since no serious polls can be carried out under the present legislation, no one can tell. And while it is anticipated all manifestos will talk about it, the proposed numbers during the last election have been off-charts to the point of cheap, grotesque electioneering rhetoric: 2 Million new jobs by 2012 for USFP, and 1.1 Million for RNI. The trouble with these ambitious projections is that they do not necessarily benefit the unemployed; and whenever a manifesto pledges to create jobs, or reduce unemployment, it seems there is a lot of confusion in these measures: a net creation of jobs will not result in a significant drop in unemployment rate, as it has been the case since 2006: in absolute terms, the number unemployed did not deviate much from 1 Million. What happens is that there are new workers on the labour markets, and government policy cannot do much to create directly those jobs; in 2010 and 2011, there was a net job creation of around 100,000. Assuming the domestic economy converges to its 5% potential growth, what the economy can do will certainly not go beyond 120,000 job creations per annum. What political parties seem to miss, is that unemployment in Morocco is largely a structural issue, independent from growth and economic activity.
Myth n°4: Generous Increases in Minimum Wage
Increasing minimum wage might be a populist move, but it eventually turn out to be a bust, because it is not endogenous to government policy: unions and businesses shape up the bargaining terms; Furthermore, triumphalist announcements usually mask conservative increases in minimum wage. Much has been made of its potential burden on small business, and the economy as a whole, but in fact, minimum-wage recipients do not observe significant improvements in their purchasing power.
Too bad for those government coalition parties: their increases, past and future, do not result in significant results.
Myth n°5: Pensions Upgrades
There are two aspects to this: first, retired elderly are perhaps the most vulnerable population among households because their income does not evolve over time, and therefore have to bear with lower real income. An upgrade in their pensions is a good policy and can work out for the winning coalition. Unfortunately, it does not solve the problem of pension funds solvency, nor does it insure stable standards of living; a one-shot increase might be aright, but inflation looms ahead, and usually catches up over time. So proposed upgrades are, in essence, a cheap measure to buy votes, and the party’s good conscience on their failure to address the pensions issue.