Bahrain – which is more important: economic growth or gross national happiness?

Can you feel economic growth? Can you touch it? In fact, does it really matter to the average person trying to muddle through a life of uncertainty?

Isn’t it really a matter of the odds changing – the odds that you will keep your job, find a job, make ends meet, succeed or fail in business? And do those odds change so dramatically if your country’s gross domestic product goes up or down by a couple of percentage points over a given period?

And even if they do change significantly for the worse, can’t you mitigate the odds by various means? Saving for a rainy day, being in a growth industry, or simply by making good use of the accident of birth that might give you a more privileged place in society, or perhaps inherited resources unavailable to others?

These are the simple questions that always go through my mind whenever I hear experts talking about economic growth as though our lives depended on it. If Ronald Reagan was a practitioner of “voodoo economics”, then my economic consciousness remains rooted in the Stone Age.

Which is why I do try to become more enlightened every so often.  The other night I went to an event organised by Bahrain’s Economic Development Board and the Bahrain Institute of Banking and Finance. It was entitled Making Sense of Economic Growth: Global Experience and the Bahraini Context. The four speakers were very smart people: The EDB’s Chief Economist, Dr Jarno Kotilaine, the Executive Director for Banking Supervision at the Central Bank of Bahrain, Khalid Hamad, the BIBF’s Head of Research Dr Mohammed Omar Farook and Marwa Al-Eskafi, a research officer at the EDB.

The audience included academics, businesspeople like me, and a rather curious group of women sitting in front of me who appeared to have come to the wrong meeting – stopping long enough to scan the room, blow air kisses to their friends and then disappearing for the rest of the proceedings.

The speakers were intentionally brief, and the floor discussion was lively enough. It ranged through subjects like the importance of the non-oil sector, of focusing on growing existing small and medium-sized enterprises rather than spending resources on new start-ups, of building knowledge-based businesses rather than investing in more labour-intensive heavy industries (usually staffed by foreign labour) and intensifying efforts to prevent corruption, of paying closer attention to other sectors of fundamental importance to the region, such as IT and agriculture.

There was also an interesting observation from Dr Kotilaine about the cyclical nature of regulation: how regulation was increasingly perceived to be stifling enterprise in the decades up to the 70s, only to be dramatically loosened by the likes of Margaret Thatcher and Ronald Reagan. It seems that we are now in an era when – post 2008 – tighter regulation has again become fashionable, especially in the financial sector.

We were treated to an array of statistics from the EDB which I didn’t fully understand. But one stat leapt out: a dramatic increase in the proportion of non-Bahraini workers over the past decade.

There was much talk about building a knowledge-based economy. Though I fully buy into the concept, as a short or even-medium term driver of economic growth I’m sceptical about its relevance. Building an economy that relies on human rather than physical resources takes generations. In recent decades, most of the dramatic turnarounds in growth have been sustained by discovery of natural resources – North Sea oil and gas in the UK, shale gas in the US, minerals in Africa for example – or underpinned by cheap labour – in China, India and other parts of the Far East. Knowledge plays its part, but without other catalysts it is difficult to grow and sustain.

Interesting as the session was, I didn’t hear anything that disturbed my Stone Age economic theory – that barring a dramatic economic collapse, the consequences of minor variances in growth are for most of us a matter of shifting odds, of decreased or increased risk, and that most of us can mitigate a moderate degree of risk. And that ultimately whatever the sober predictions, we are all vulnerable to infectious shifts in sentiment – also known as emotion: Franklin D Roosevelt’s fear (“we have nothing to fear but fear itself”) and Alan Greenspan’s “irrational exuberance”.

As a businessman who has started and grown businesses through recessions, I have always operated on the basis that a shrinking market is still a market – you just have to work harder and smarter to keep growing your share. Very naïve, I know, but it’s worked for me!

But back to Bahrain. Looking out from my neolithic cave, I’m far more interested in the country’s economic development. The majority of country’s economic growth – depending predominantly on oil and gas – is something that we can do little to influence. The bit that all Bahrainis should be concerned about is the 19% of the economy that depends on non-oil revenue. Of that small slice, banking and finance contributes by far the largest proportion.

Diversification is not a tin can to be kicked down the road much further. It’s an urgent issue that will become more urgent even if the impact of US’s dramatic increase in unconventional hydrocarbon extraction has only a minor impact on the income that the Middle East’s oil and gas producers will derive from their product over the next decade.

So economic development is surely far more important than small variants in growth. And I would be really interested to know what the EDB thinks are the most important indicators of that growth. Not just more statistics, but evidence that we can see, hear, smell and taste.

Here are the questions that I would ask if I was an ordinary Bahraini – if there is such a person:

• How much of the economic output of the country is retained in Bahrain?
• How much is retained by Bahrainis?
• How much is spent in Bahrain?
• What proportion of the wealth generated in Bahrain reaches each stratum of society?
• How much is spent on infrastructure to support the growing army of foreign workers that would otherwise not be needed?

And finally there’s that big elephant stomping around the room: what is the cost of not resolving the current political unrest? You’d probably have to resort to voodoo economics to answer that one. Certainly I’m not aware of any published research on the subject, though anecdotal evidence is widely available.

These are some of the statistics that would be useful to know. Then there are the touchy-feely things that are perhaps even more important. Here we’re perhaps straying into the Bhutanese concept of Gross National Happiness, but surely we should be considering visible – and not just statistical –  indicators of health, environment, transport, safety and above all education.

Evidence of poor health, chronic diseases, pollution, traffic accidents and congestion, industrial hazards, quality of housing, education infrastructure is reality that we can see all around us.

The intangible and less measurable factors are around us too. Back to sentiment: to what extent do Bahrainis across the spectrum feel that the country is a good place to bring up children, get a job, start a business, speak freely, influence the future of their country?

Put all these factors into the mix, and then you have a set of evidence that could inform the development of the country in a far more holistic way than the narrow confines of economic growth and even the wider dimensions of economic development.

But having a holistic view is all very well. What counts is creating the consensus that leads to effective action. And it’s clear that creating consensus depends not just on leaders but on leadership – at every level. Not just on the acts of leaders but on sustained, long-term demonstrations of leadership within communities, interest groups and institutions.

Mindsets will have to change, both socially and politically. The elite will need to revisit the concept of ownership and levels of wealth distribution. Society will need to reconcile itself to lower or variable levels of entitlement, perhaps to less subsidies for those who don’t need them. The very scarcity of natural resources will force the country to make painful adjustments sooner rather than later, whereas other states in the region can afford to keep kicking that can down the road.

Consensus is in short supply in Bahrain right now. But I remain convinced that of all the countries in the Gulf Cooperation Council, this one has as good a chance as any in the long term to develop into a contented and prosperous society, even if the process will continue to be painful for some time to come.

You don’t need oil oozing from every hole in the ground, the tallest buildings in the world, the biggest airports and Maserati police patrol cars to achieve a modicum of national happiness.

Other posts on Stone Age Economics:

9steps.wpcomstaging.com/2011/09/22/double-dip-recession-yes-and-so/

9steps.wpcomstaging.com/2011/09/22/double-dip-recession-the-view-from-private-frazer/

9steps.wpcomstaging.com/2011/04/11/britains-financial-squeeze-have-we-forgotten-what-hardship-really-means/