The Economic Chronicles of the Kingdom, 1955-2011 Part.1
It’s been a long time I did not show up on twitter, and I am the better for it. I wouldn’t pretend I’d missed the impassioned twitto-debates I have been involved in, but in matters of economics -as much as in other areas- complex issues cannot be boiled down to 140 characters.
Summertime and with it comes time for self-assessment. A lull to reflect on the past year.and I would like to devote part of my time to a dear project of mine, one that I would like to devote my professional life to: a comprehensive chronicle of Moroccan economics, from the mid-1950s up to date. This I would like to do because the mainstream documentation on that subject and other contiguous ones is not, to my opinion, satisfactory. This is by no mean unfair criticism of their authors, often reputable scholars that however fell victim to trivia and the politically correct. But the fact remains, there are very few papers I can lay my hands on that resemble anything close to, say whatever Lucas, Sargent, Prescott, Kydland, Blanchard, Krugman (to name but a few über-heavyweights) produced in macroeconomics. I am sorry the Cinquantenaire report and the paper commissioned by the Abderrahim Bouabid Foundation did not rise up to the challenge. At least I will not disappoint as a pseudo-amateurish academic blogger, will I?
I suppose it is extraordinarily pretentious of me to even assume I can write up Morocco’s economic history. And surely it is. But my amibition is otherwise: I wouldn’t like to merely report on economic facts and statistics – for that and many other useful comments, please refer to the never boring Annuaire d’Afrique du Nord. As a matter of fact, it is because I had the pleasure of reading some of their earlier issues on electoral results from the 1963 general election, that I though I can take a look at data circa 1950s-1960s and confort it to mainstream macroeconomic models: what went wrong, what went right. You see, the Moroccan economy as a whole tends to exhibit steady properties. That says a lot about some policies and their effect on the economy, but still. What an orthodox Marxist sees as the inevitable dynamic of History (capital H, as in Hegel) I would suggest measurable economic forces have been at work.
What development means: a simple case study.
The problem at hand as far as the Moroccan economy goes is how it fares relative to the rest of the world, and more precisely, how it does relative to advanced economies. I had the opportunity to present the reader with some blogposts on the matter, but back then I lacked the adequate skills to put a convincing argument to my claim. I don’t implying I fully master these skills, but the analysis is definitely getting better.
Development in its crudest definition means simply the (accelerated) accumulation of physical goods, or capital. One may disagree with it (if anyone is interested, Joe Stiglitz, Amartya Sen and JP Fitoussi produced an interesting report on Gross National Happiness) but as long as no credible alternative analysis to the theory of capital accumulation, we should go with the existing. So the faster an economy cumulates capital (in real terms) the better it is, and the more developed it eventually turns out to be.
But, in order to do so, one needs a yardstick to measure that progress. I would like to consider reusing the comparison to the United States, to which I would like to add South Korea in the mix, and start off with a graph depicting real GDP per Capita in these three countries from 1955 to 2000. Morocco’s GDP is supplemented with a fitted estimation of its annual growth with pre-19777 levels (and variance)
The graph shows compelling evidence as to how Morocco does with respect to that convergence theory: Morocco had, up to 1977, levels of growth fit to carry us to significantly higher levels of income, aggregate and per capita. Indeed, between 1955 and 1977, average real GDP per capita growth was around 7.4%, and decreases to 6.4% from 1977 to 2000, a full percentage point lost in 23 years.
This is so-called Beta-convergence: because Morocco was a poor country in 1955 and 1977 by any measure, it is assumed it will grow at a faster pace, so as to catch up to more advanced economies; by comparison, the US economy (per capita) grew 6.4% between 1955 and 1977, and the South Korean economy, 7.1%. If anything, up to 1977, Morocco was doing pretty well. This begs the question: what did go wrong? Why didn’t Morocco maintain its average growth pre-1977, and does it really matter?
Perhaps it is not all about higher levels of growth. Professor Najib Akesbi, an eminent contributor in both reports mentioned earlier, did confirm his preference for the Beta-convergence theory: He believes -correctly- the economy needs an annual rate around 8% to achieve levels of income observed in big emerging economies; actually, when demographic growth is taken into account (around 1%) the level of growth to which Prof. Akesbi refers is the magic, pre-1977 growth per capita.
Let us test that hypothesis: let us assume that indeed, Morocco has been growing at annual level of 7% between 1955 and 2000 at around 3.8%. We then look at the gap between synthetic and empirical data. Results seem to contradict Professor Akesbi’s claim: for Morocco to achieve an annual 7% since 1955 results in a net real gain of 17.1Bn dirhams, and real GDP per capita would only increase 60%. So the Beta-converge does not explain Morocco’s failure to establish itself as a promising and dynamic emerging market; it is not enough to achieve high levels of growth. Sure, it definitely provides a higher GDP per capita, but not up to levels worth supporting the case for unconditional high growth. Something is definitely wrong with that crude theory of capital accumulation. And I would like to read some paper from mainstream economists here on the virtues of the other way to achieve higher levels of output per capita: the Sigma-convergence, or steady reduction in output volatility.
In statistics, standard deviation provides a measure of how far apart individual observations are from the mean. If standard deviation is high, that mean… means nothing. In our particular case, a high level of output tends to lose some of the accumulated effects of high growth rate: doing 6% on a row for two years yields 6%. doing 0% and then 12% yields a real growth of 5.8%, since:
The standard definition of a geometric mean suits growth levels better because it is just another application of compounding interest rates. Besides, it also captures precisely the cost of an unconditional Beta-convergence, in our particular case, the 7% with historical volatility (standard deviation) advocated earlier turns out to be 6.6%, and .4% is not a marginal quantity, it amounts to about 2.4Bn dirhams, in real terms. These are lost because the economy cannot sustain itself at 7% over a long period of time.
This, in my opinion, is Morocco’s conundrum: it needs higher levels of growth than those observed during the last decade (and that explains why I restrained my comparisons to 1955-2000) so as to boost its GDP per capita. On the other hand, it cannot achieve it without high levels of volatility that would ultimately take away substantial amounts of that high growth. The balanced growth path needs to be found elsewhere: in each aggregate contribution to growth, among others.