President of the Scientific Committee and coordinator of Femise (Forum Euro-Mediterranean Institute of Economics), Jean-Louis Reiffers discusses the future of relations between Morocco and the European Union. Made a speech at the Royal Institute for Strategic Studies (IRES) in Rabat 24 June 2011.
The current situation requires a clear view of the paradigm shift implied by the Arab spring. What is at issue is the end of a “form of authoritarian capitalism and hunter.” In a more flexible, the literature speaks of the failure of the “Authoritarian Bargain Model” (cf. Gandhi and Przeworski 2006, Desai et al, 2009). I think the parallel is striking with what we saw in the late 80’s with the countries of the Eastern bloc. But here the reasons are almost reversed the situation and probably more easily grasped if we respond at the correct scale. I think we have everything to gain by getting involved in a decisive way in this new world to build. Some points of reference for a vision :
√ To ensure immediate and sustainable basic minimum conditions particularly in food safety (for forty years all the Arab revolt from there. cf. Sadat in particular the rise of the Muslim Brotherhood after the revolt of Cairo, Fire on the road of the pyramids, hotels etc. .. ditto in Rabat and Tunis following the missions of the IMF who wanted to eliminate subsidies on agricultural products – position justified economically but socially absurd)
√ Recognize that economic performance in the context of trade openness expand the social space internally. You need to go to a better compensation of losers, ensuring better access to care, to ensure territorial balance. It is also necessary, failing to promote the necessary scale equality, focusing on the fairness of the model.
√ The lever of this is democracy in all its aspects. This will be the new factor of economic growth. It is very important to say that in the modern world of freedom and transparency are key factors for economic growth.
√ Treat thoroughly a factor of production must focus all attention: youth (instead of the capital!) It will always be the capital but not in the same manner and with the same effects if we accept that we are moving towards a transition from an authoritarian and corrupt capitalism into a democratic capitalism, we have necessarily in countries where the transition is sudden, for a period of 4 / 5 years of great short-term difficulties that will put at risk the entire process.
√ Large decrease in growth due to agents’ expectations. It is surreal to see the European Council to say “you will get out if it if you make the South-South integration.” Similarly, the subject is obviously not short-term recovery of investment. Investment funds are no longer able to do fundraising, entrepreneurs can not take more risks.
√ Very sharp increase in the deficit in countries where the transition has these characteristics (Egypt, Tunisia) because of the decrease receipts of indirect taxes, the hiring of a mass of young employees (which will in five years of drastic adjustment plans), inflation, falling reserves (tourism, transfers), pressure on currencies, increased interest rates …. It will not escape these phenomena, but we must try to prevent them immediately with the commitment of the North
√ It will depend, as in the former Soviet bloc countries of agents’ expectations (our tourists, our investors, youth the south) should immediately strengthen a political vision that will give a perspective and increase financial transfers or guaranteed free from North to South.
The key points of the new political vision:
We have to work on a development model that represents the majority of the population. In most cases, the development model does not represent the majority of the population, but the interests of an elite limited. This development model has had its merits as it has increased significantly the growth, helped to diversify its content, and pushed countries to open up more. It was characterized by an acceleration in domestic and foreign investment in a poorly differentiated, with a growth from market forces (and declining commitment to public affairs officials), private initiative, minimal intervention of states and to go in the direction of this elite, specific agreements on the allocation of land, the establishment of large contracts (energy, large projects …), competition policy and subsidies, often oriented in fact to the interests of businessmen rich and powerful also because holders of political power. He also characterized by a difficulty to make the necessary transfers as a result of competition between countries to attract foreign capital (hence an extremely favorable tax treatment). Social transfers have increasingly been driven by NGOs on the basis of international funding on targeted operations, which was certainly a good thing, but often resulted in not wearing enough attention to major national institutions (“the blind institutions”) responsible for the balance of society. Five specific directions to follow:
√ The first is the democratic necessity that involves (i) a first right information, totally free for the press, depth and available for researchers and intellectuals more generally, (ii ) a better representation of all social categories in the national representation, (iii) greater participation in decision making, including local, (iv) the effective separation of powers between the executive, legislative and judicial branches.
√ The second for improving the functioning of specific institutions to gain the confidence of the population. Fifteen economists including myself have signed an appeal published in the international press that the G8 is considering significant assistance to countries of the Arab spring (he has done to Tunisia and Eypte up to 40 billion dollars). The idea was that in the transition process under way, they necessarily suffer (which is indeed the case) of a J-curve effect that developed countries should take charge just as was done for countries of Eastern Europe. Two days later, E. Phelps wrote a platform criticizing the call to indicate that this transfer would be useless or would be detrimental in the context of “collusion” (or corruption) today. Very summarized his remark that is excessive in terms of financial transfers, but that should be considered could be summarized as: “all this will not help if the youth can not find jobs and dynamism, if the calls of ‘public tenders are not transparent and monitored by independent bodies, if privatization lead to an escalation of commissions from major international groups, though, even worse, because deeper and more insidious, you have to pay or have a relative position to get a job in administration, a building permit, a favorable decision of the Commercial Court, a street vendor permit, registration in a school, farm aid etc. …. ” This is a fundamental issue in the Mediterranean (which is not just the South) because it seems desirable that the Mediterranean keep a sense of emotional closeness in the sibling and are resistant to some of Puritanism forms often hypocritical (benchmarks and other assessments) that develops elsewhere in the world, the social proximity should not lead to collusion or class of networks. And on this point, it’s morality and ethics to be taught at school because the transformation of the legal institutions is generally not effective. They must also be denounced by the press and condemned by the courts regardless of the place in society of those involved. Immediately, this remark implies the creation of an agency completely independent control of public tenders and privatization and a mediation between the citizen and the authorities.
√ The third focus more directly on international openness and the integration into globalization. It is essential, but must be conducted with a clear conscience that the opening, if it still causes net gains in GDP for its winners (people in areas of comparative advantage and those in companies that make economies scale) at the same time it causes difficulties for losers (comparative disadvantages in the areas and protected areas). The explicit consideration of the losers (and transfer that is needed) from the implementation of measures is imperative. I would return to this point when I would approach the issue of advanced partnership with the EU including the opening services. Second, it should not be “naive” and must be accompanied by structural policies to develop new comparative advantages (see Rodrick) what everyone does today.
√ The fourth direction concerns the top out is to say, the penetration of the knowledge economy, the transition from growth to extensive accumulation of capital growth in Total Factor Productivity. This can be summarized in three words: trust-dynamic-mobilization of youth. Ø The fifth direction, finally, is looking for a better territorial balance through decentralization / devolution properly conducted, infrastructure, rural development .
The stakes for Morocco: lead a smooth transition
Morocco is affected by the previous questions, but less than its neighbors and from a more favorable initial conditions. An important point is that the democratic developments to drive have been anticipated and raised particularly in terms of separation of powers and citizen participation. But despite this, a significant change is essential. Would not a statement of the social and economic situation of Morocco that everyone here knows (economic growth around 4%, significant progress in diversifying and opening up, rapid growth model in favor of the PGF, strong territorial imbalances, initial conditions of poverty but steady decline in concern with rising inequality, macroeconomic control, initiation of structural policy (emerging plan). I think, however, that Morocco should specify a readable comprehensive strategy that takes into account The above observations support issues that need a new vision seems to me the following:
√ Go to inclusive growth harmoniously distributed throughout the country. This means to move towards the momentum of the Kuznets curve by reducing the gap between growth around 4% and a Poverty Reduction (2%) which means that inequality increases by 2% per year.
√ Provide basic living conditions (food, health) at all, which implies the question of food security and rural development.
√ Defending a national ethos which means that without progress on equality fast enough, a strengthening of equal opportunities: the fight against illiteracy, remediation drops out (approach skills in addition to the diploma approach, cf. E2C etc..) massive development of learning and alternation, insertion in all courses of a master pack “business” (calculating neutral read balance sheet and operating account, making a business plan, computer driving license through “soft learning” games, seminars, etc..) transparency in all areas relating to employment (see above) ,
√ To develop the knowledge economy based on youth. This involves collecting expectations, to allow him to express and give him the possibility of political participation. This requires an overall improvement the quality of the education system (in this respect Morocco is not in the countries that submit to the PISA tests, impairment to which should be addressed to provide a comparative indicator to the institutions concerned). It also means to live a bold policy development of alternate and vocational training, to develop mechanisms of initiation based on unsecured loans to start businesses, to develop a self-entrepreneurs. The unemployment rate for 15 – 24 years is now close to 20%, the 25-34 years 13%, not counting the under-employment and informal employment is not secure. These are the most affected urban areas, while rural areas are more affected by poverty. The knowledge economy also requires greater social recognition of the research profession and devices encouraging patenting.
√ Promote the development of SME-SMI by encouraging their establishment (and is a banking sector has a central role surliquide to play), to ensure that foreign direct investment have further spillover effects (which may be obtained by creating, with the help of the international community a guarantee fund with contractual terms of FDI on the sub- contracting), set up tax-free funds as is common in Europe (see the FIP). These measures are essential for Morocco to 1% additional growth produces only 0.35% increase in employment ( significantly lower than that of Tunisia 0, 55%). It is important to understand that this objective is not inconsistent with international openness to the extent that it allows PMI-PME, as several studies the have shown, to achieve productivity gains thanks to imported inputs. Added to this is obviously the further opening-up policy and institutional reforms related. But it is not clear that further gains expected from openness are very important as well as the mechanism to finance these developments very effective. This is usually more funds allocated to departments and institutions that modify their regulatory framework to fit without the practices have really changed. However, the clear lack of technological content of Moroccan exports (see report Femise 2010) calls for further steps qualities, especially to get closer to European standards.
The advanced status of Morocco as part of the Neighbourhood Policy of the EU
The advanced status enjoyed by Morocco in its relations with the EU on the top spot of the Mediterranean countries (about € 180 million in 2010 to free transfers and 388 million in EIB loans for the period 2007-2013). This development is welcome considering the interdependence that exists with the EU (two thirds of Morocco’s trade is with the EU) and centrally on the deepening of free trade zone and developments institutional (especially the approximation of the legal framework and standards that allow access to the European market). These include, the adoption of EU rules on agriculture services and intellectual property and the ability to fit in some major European programs. There are also some specific actions more limited in rural development, gender equality, the fight against illiteracy and so on. The first question concerns the political strategy. Morocco, is right to deepen its foothold in the EU in the current period, given what has been said before? The answer is clearly positive since the gravity model runs rampant because of the interdependence that binds the two together. This view is supported by the fact that the EU is likely to have held all the speeches since 1995 the most consistent and strongest in favor of democracy, liberation of women, human rights and institutional transformation. The reference to the EU is a powerful way to launch internal reforms. The only regret is that the membership perspective is absent and that “everything but institutions” is the best open perspective. Note also that full membership to the European market means to include some 3,000 directives in the Moroccan law which is a cost and a considerable burden. The second question concerns the size of the financial commitment. The figures mentioned above, although significant compared to that of other Mediterranean countries, are low in relation to the reality of the transfer equation presented below. In view of its figures is clear that the EU represents 2 / 3 amounts:
1) makes a transfer “made by” that can not be completed by FDI and bank loans. The system of interdependence is clearly material to the benefit of the EU which was predictable in 1995 and we had the opportunity to stress at the time. Indeed, the Mediterranean countries had free access to European market for industrial products as part of the Mediterranean policy. Barcelona and its FTA forced them to liberalize their markets for industrial goods from the EU unless it does make significant progress in agriculture. This shift in comparative advantages reversed nevertheless produced a shock effect that has boosted growth in the PM but the long term balance transfer equation. It has been calculated in% of trade, the EU obtained the performance of markets that do not get PM anywhere else in the world.
2) That this system of interdependence, Morocco is in a fragile situation because its huge trade deficit will loop through tourism, “remittances” of migrants and FDI which implies that these three components should not decline, 3) That the situation is deteriorating because of the increasing trade deficit, the crisis period and the relative weakness of domestic demand European naturally resulted in a greater increase in imports and exports
4) appears to Morocco a new phenomenon observed all over the world: when the IDE transfers grow of capital income in the opposite direction and increase the output stream eventually offset the new FDI inflows. .
Therefore, Europe must understand that the development of partnership is made, essentially, to their advantage and we are very far from a Marshall Plan whose aim, recall it, was to balance the equation for the transfer of U.S. with European countries.
The third question is whether the partnership with the EU must evolve to meet the need mentioned above to set up a new development model that I would venture to call of “democratic capitalism based on a majority of citizens and more inclusive.” On this point, it seems clear that the system must evolve if it wants to participate in this great cause. The reason is that the liberalization of trade in goods and services that tomorrow was the pivot of the partnership so far is not enough to build the new development expected by the population. Although necessary, its future potential is limited and must be based on structural policies active large as mentioned above. It is on these that the partnership now needs to focus on. In this regard, the possible adoption by Morocco of the European directives on competition seems highly questionable. Finally, the issue of services can not be treated in an undifferentiated way. Services “factors” transport, ports, insurance, finance, telecommunications, the opening will improve the competitiveness (noting, however, one major European bank can buy almost all banks Mediterranean and it will always be very difficult to consider the privatization of Royal Air Morocco). For distribution service that is more “societal” this would obviously be a big mistake now open to excessively large companies in the world because the adjustment would be significant. What would become of the little shops of Medina?
It seems clear that to be fully effective in the current partnership with the EU should focus less on free trade and in any case to do with technique and understanding, increase its financial base and be more involved in issues that are raised structures.
Photo Econostrum: Jean-Louis Reiffers, FEMISE co-coordinator et President du comite scientifique
Article by Frederic Dubessy, Econostrum. It belongs to a series of articles published in the context of the partnership between Econostrum and Femise for the year 2010. These articles also feed the “Grand Angle” part of the Econostrum Website. You can find this topic and all information at the following address: www.econostrum.info. Registration for the Econostrum newsletter is available here:http://www.econostrum.info/subscription/