Moral Grounds of Public Policy Design, Disseminate it!

Fuel products prices have been raised lately in the Qatari market within a range of 25% to 48%. This increase will be reflected in higher transportation cost and higher energy cost for infant industries in the local economy, and will implicitly raise all other prices. The inelastic nature of the demand for such commodities will reflect on higher revenue receipt for the relevant entity, if you fuel your car by spending around 80 QAR before the raise you still be willing to pay 130 QAR, you will not cut short your trips around Doha, Khor or Wakra. But the economy overall net benefit of this raise needs to be measured. We don’t really know the magnitude of the impact of this increase on the local inflation rate. The institutional ownership of measuring and publishing macroeconomic indicators is not defined. Moreover the institutional ownership of economic policy design and the philosophy of such design is  unclear. I had been asked recently by one serious observer of Qatari public policy on the way Qatar will handle its external debt that mount to a figure getting closer to one hundred billion US dollars. As to IMF report, the external borrowing has doubled since 2008. My response was that he should address his question to the ministers or the technocrats who are cooking and preparing recipes in the economic policy kitchen.

A couple of years back I was part of an independent team within the GCC region to study soaring inflation rates: the causes and treatments. This team was set to present the case for GCC officials. I must admit that obtaining an official figure for the inflation rate in Qatar was not an easy task. A report on inflation was prepared by an internal committee, headed by the minister of finance and economy. I needed  official data on inflation to be able to present  Qatar  inflation rate in the GCC study. Available data from media sources would not be acceptable.  After contacting the committe they respoded that this report will not be disclosed even if the use is for an offical study. The relevant people then agreed to provide me with the summary of the report. I discovered later on that the confidential report was in fact based solely on an easily accessible ESCWA report. I could not understand the rationale behind the secrecy. Economic indicators such as inflation, unemployment, or external debt are viewed in Qatar as red flag issues that we should shy away from, whereas such macroeconomic policy indicators are the bread and butter of the average analysts in other countries. The high rate Qatar achieved on the international transparency ladder implies that there are neither secrets nor any technocratic monopolies in important national policies that reflect directly on the citizen both present and future.

A picture is better than a thousand words, and so, in 2008 I designed this image representing the structural long term factors of inflation; it attempts to gather all the forces behind inflation in one picture away from boring economic jargon.

Why were fuel prices raised and how would this reflect on the overall economy? What is the real magnitude of external debt? And how is this debt measured in relation to other indicators such as Qatari foreign investment, local infrastructure investments, the Gross Domestic Product (GDP), and the inter-generational distribution of national wealth? What are the different scenarios of medium and long term hydrocarbon prices, especially gas prices, and how would they reflect on the utilization of LNG production capacity and on other debt related or investment related issues? What is the rate of return on educational spending? Would the philosophy of supply create its own demand in the higher education sector, would it provide a suitable philosophy for our context or do we have to import demand from abroad to satisfy the growth of highly priced foreign universities , and how this would reflect back on other sectors of the economy? And if we follow the same philosophy in other sectors of the economy would this lead us to Qatari societal erosion? What is the real impact on demographics and how would it reflect back by creating more supply bottlenecks? We would need to increase hospitals, schools, roads, etc. What is the environmental impact of growth? If this impact is measured in monetary terms and internalized in project feasibilities would we change some major decisions? What is the magnitude of economic and social opportunities created by the 2022 World Cup hosting? And what are the relevant economic and social costs? Then what are the net benefits?

To answer such questions we do not need a technocrat’s or minister’s over-simplistic narration in media circles. Such narration says half of the truth and in many times it is counterproductive even for sound policy initiatives that seems obscure to the public. What we actually need is macroeconomic formulation and modeling independent of those who execute public policy; an honest and serious study of all the interrelated issues. However, this is not all, a prerequisite of such modeling is the question of the moral behind any policy. Any policy cannot be judged without this knowledge at the beginning of economic and societal policy design.

 Fuels are not the only commodities subsidized in the Qatari market, and such subsidies were created for a reason. One subsidy is free electricity and water for the Qataris and where the non Qataris pay merely the cost of production. Why? We need to go back to 1963, when a group of Qatari youths proposed thirty-five administrative reforms on public policy. The seventeen or so gentlemen were imprisoned at first for these requests that were addressed to the ruler[1]. A couple of months later the ruler responded to the majority of these requests among which was zero pricing of utilities: free electricity and water to all Qataris. The moral behind this request, which was transformed into historical policy, is described by the following statement: "If utilities are to be provided freely to a group of Qatari citizens then equal citizenship requires equal treatment".

Although this policy can be redesigned now in a way to keep Qatari real income intact while avoiding consumption inefficiencies related to the in-kind nature of this subsidy, it is expected that a sudden change of policy that would dramatically affect personal income will not have the necessary public reasoning or the adjusted compensation required to keep the average citizen's real income intact. Such a link would appear to the policy maker only if it was studied in the right framework of other economic data. Yes, there is no need to subsidize Qataris, but only if their income is adjusted to inflation and the average consumption package of family expenditure. Moreover there is no need to subsidize expatriates by imposing at-cost pricing, especially if they have the lion share of the total population and their absolute number is expected to rise over the coming decade, which will increase the bill of such across-the-board subsidy dramatically. Therefore, any policy change must be designed only in relation to multiplicity of economic and social variables, and where the ethical grounds and economic justifications are open and disseminated to those who will be affected.

Policy proposals presented by ministers and technocrats are shortsighted and subjective, as they are based on information relevant to the micro level and not the overall economy and society. To the external observer, the Qatari is the most affluent ever in human history but the gap between the per capita Qatari income that places him in this category and the real personal income for a large group of Qatari citizens will be determined by a Gini coefficient[2]. This coefficient will give us a somewhat clear picture of the number of individuals close to the affluence indicated by the per capita income figure.

There is a gap between socio-economic realities and our perception of those realities.  The image of these realities in the decision maker’s mind should not be reframed by mere narration of ministers and technocrats but verified by figures and numbers of socio-economic credible independent data. Moreover if the morality of any policy is obscure to the public then it will only fire back on the soundness and success of such policy in the long run[3].

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[1]  The young reformists were shortly released except for their leaders; Hamad Bin Abdulla Al-Attya and Nassir Bin Abdulla Al-Misned. The former passed away while in prison while  the latter left Qatar to join his family two years after they, along with the Al-Mahanda tribe, migrated from the country to Kuwait as a protest against the imprisonment of Nassir.

[2] Gini coefficient is a well known indicator in economic literature used to measure income distribution. 

[3] IMF Qatar country report of November 2010 presents many recommendations on the importance of economic data dissemination and the necessary institutional setup to follow and manage important economic variables such is external debt and others.