Investing in Human Capital: The Base of a New Social Contract in Jordan?

Investment in human development is vital for Jordan’s survival, yet global economic policy has not given it enough consideration. Can the neoliberal economic model advanced by international financial institutions such as the IMF make room for the simultaneous development of the social sectors?

The International Monetary Fund (IMF) was founded in 1944 to foster global economic and financial cooperation post-WWII. It has provided economic, financial, and technical assistance to developing countries around the world since. Its mission is legitimised by the belief in a global economic chain, in which the collapse of one economy could have a domino-effect on others.

The IMF provides financing to developing countries in exchange for neoliberal policy reforms, which favour privatisation, labour market deregulation, and fiscal austerity to strengthen a global economic interconnectedness that transcends the government’s oversight.

The problem with the neoliberal economic model is that it is geared towards medium-term fiscal objectives rather than long-term social objectives. The assumption that economic success depends on free market competition and minimal government interference promotes the transfer of power to the corporate elite, leaving the socioeconomically vulnerable without the safety nets typically provided by governments.

Building a global economic system on these grounds is dangerous and ignores the immense value of human capital, and the detrimental impact on recipient countries, such as Jordan, is evident. 

The IMF and Neoliberalism in Jordan

Jordan’s engagement with the IMF has spanned 30 years in the form of guided economic liberalisation programmes. The government extended its first formal invitation to the IMF in 1989 in response to an acute balance of payments crisis and structural macroeconomic problems. In return for financial support, Jordan agreed to a tighter credit policy, drastic reductions in government spending, and fiscal reforms.

This programme, which lasted from 1989-2004, was succeeded by another programme between 2012-2015 and by the current Extended Fund Facility Program (2016-2019), both adopted to assist in recovery from exogenous shocks and restore economic stability.

These programmes have had a negative effect on the overall quality of life for Jordanians. Protests against IMF-backed economic policies have been ongoing since 1989 in reaction to austerity measures and the erosion of Jordan’s welfare system, which included the subsidisation of basic goods and support for fragile sectors of development (agriculture, infrastructure—mainly electricity and water).

This anger has manifested most recently in protests in early December 2018 after parliament approved a new tax reform law, which includes lowering the threshold for taxable salaried employees already struggling with Jordan’s high living costs. The new law is similar to one that was set to be passed earlier this year, which contributed, alongside fuel and electricity price hikes, to a week of protests in May-June 2018 and the subsequent resignation of PM Hani Mulki.  

Efforts to shield lower-income groups from the effects of fiscal adjustment by setting an indicative floor on social spending have been noted in the terms of the current Extended Fund Facility Program. However, this awareness has not been translated into action, nor has it reflected an adequate understanding of Jordan’s historical socioeconomic structure.

In Search of a New Social Contract

Modern Jordan was built on a strong social contract between the state and the people. To consolidate power and solidify the Transjordan border, HM King Abdullah invested heavily in social welfare. In exchange for their allegiance, Abdullah offered East Bank tribes employment in Transjordan’s military and later in government, as well as educational opportunities for employees and their families, medical and welfare services.

He then turned to the merchant-industrial elite to cover part of the mounting public deficit resulting from this system in exchange for tax concessions and preferential trading arrangements. This ‘coalition’ of the tribes and merchant-industrial elite formed the basis of support for the Hashemite regime.

In the face of neoliberal developments, investment in economic infrastructure, and reduced government spending, this citizen-centric system of governance has slowly been disassembled. The social contract has been weakened, fracturing the people’s trust in the state.

In response, Jordan’s recently appointed Prime Minister, Omar Razzaz, has called for the forging of a new social contract, better suited to the modern globalised climate. Despite neoliberal pressures, he has prioritised the need to establish “a system where the individual is the centre of development plans, one that guarantees people their rights to bread and freedom.”

Human Capital Index Brings Hope for Jordan’s Future

In October, the World Bank introduced the first Human Capital Index, which ranks countries according to their level of investment in human capital based on five health and education indicators directly correlated with productivity — child survival, school enrolment, quality of learning, healthy growth, and adult survival.

The index was developed following the World Bank’s research finding that human capital contributes to one third of the world’s wealth, undercutting the previous belief that a nation’s productive assets were limited to physical, natural, and institutional capital.

World Bank CEO, Kristalina Georgieva, remarked at the October 2018 World Bank Annual Meeting that “this is maybe the most significant mark the meetings in Bali would leave in development history: to recognise the criticality of investing in people [and] that government expenditures in health, education, social protection are not consumption expenditures – they are really prime-time investment.”

Because the World Bank and the IMF’s work to foster the global market is so closely linked, the creation of this index signals a promising shift for both institutions and brings hope that the IMF will consider human development, in addition to market-oriented policies, a top priority in future decision-making.

This index aligns with the government of Jordan’s new agenda, which emphasises the central role that human development must play in order to ensure the country’s stability and economic success. This crucial advance in the outlook of international financial institutions provides hope for Jordan’s future.