July 27, 2005
On IMF, Populism, Yemen & Jordan: Populism as Self Defeat, or why subsidy riots are not wins
A small note in response to a note by our friend, the Father of Aardvark(s) (hmmmm, I believe that I should create an Arabised plural, and for the sheer fun of it, a broken one, so from now on, Abu Aardvark to me is Abu Araadvaraak (abusing grammar and presuming Ardvark is a compound word), or in Maghrebine form Bou Aradvrak). on the 'victory' of the Yemani street in reversing the revision of subsidised petrol prices.
Abu Aradvrak here http://abuaardvark.typepad.com/abuaardvark/2005/07/yemeni_street_g.html calls this "wins for populist defenders of social welfare benefits over advocates of neo-liberal economic reforms"
I call it wins for lying populist scum who pimp unsustainable policies that are actually immiserating, for short term political gain that only makes things more painful later.
Now contrary to my nature, I wish to be fair and cite his follow on statement:
Again, I remain agnostic on the question of who is right on the policy questions - Jordan's finances are unsustainable, as (I suspect) are Yemen's; but the poorer classes and certain regions are getting hurt badly by the economic reforms. But as a statement on shifting balances of political forces, it's an interesting thing.
Fair enough, and worthy of discussion. If economic populism is a new wave, what does it actually mean for the "poorer classes" taking the upfront hit?
Overall the failure of the price hikes strikes me as unambiguously a bad thing. Subsidizing petroleum consumption is not "good" for the population - the subsidies have to be paid for in taxes at some point, and guess who pays them. Meanwhile it encourages inefficient and ultimately immiserating consumption, at the expense of more sustainable and in the longer run, healthier development. See Nigeria.
Ousting Bassam was a good thing, having done business with him indirectly, I felt like I needed a shower every time. I see that as less than economic populism than an expression of regional power struggles and the fall of a guy too openly out there abusing his position.
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I'm with you. Subsidies are overall bad things, especially for the poor. For the same reasons that they are a bad in the US, they are a bad in Yemen or Jordan: http://www.knowledgeproblem.com/archives/001350.html
I've tried to convince the Aarvark that he shouldn't qualify BA as a promoter of "neo-liberal economic policies." Bassam was a subsidies, not a reformer.
Posted by: Fred at July 27, 2005 05:35 PM
Worst offender in the region is of course Iran, which spent $5 billion on imported fuel products in 2004 to feed distorted demand. A good proportion of these imports were, and still are, smuggled right back out again to Iraq, Afghanistan etc...
On the riot front, the Egyptians are probably a little concerned. They're planning deep cuts to fuel subsidies after the elections (presumably because Egypt's recent democratic miracle means that Mubarak and the NDP would lose if they were associated with subsidy cuts), having lifted diesel prices last year. There may be second thoughts on this from members of the Egyptian regime who remember the Sadat bread riots.
Posted by: Simon at July 28, 2005 04:27 AM
I would note that I do not find all subsidies bad. Subsidies aimed at supporting basic food consumption may not be bad at all, supporting as it were a healthier population. Free basic education can be seen as a subsidy as well of course.
The problem is these tend to get extended to non-core products, etc., and end up going to the non-poor more than the poor. E.g. free uni education in the developing world, with most students tracked to market useless subjects like history (I say that as someone who values historical knowledge) and the like, subsidies to sugar (to support the outsized love for sweets among the urban classes), etc.
Clearly fuel subsidies are utterly wrong headed as a general matter (although Morocco and I think Jordan have one fuel subsidy that makes sense, a subsidy to the small natural gas containers that the poor use for cooking and heating. Can't recall if that also goes to larger sizes (probably), but a subsidy to these weeny "bon bons" of natural gas probably makes some degree of sense on a total cost/benefit basis).
Posted by: The Lounsbury at July 28, 2005 06:22 AM