The Nature of Investment in Jordan

In ‘A Program of Expansion,’ Keynes highlights the three sources that can enable new investment that will provide a net addition to employment. For the purposes of this blog post, I want to examine the first source that can enable new investment, look at it in the context of the Jordanian economy, and then see what these observations can tell us about the specific types of employment and investment that are needed in order to actually create positive new investment that adds to economic growth. 

The first source of “supply comes out of the savings that we are now disbursing to pay the unemployed.”

In Jordan we see an economic situation quite the opposite from the one Keynes was observing and experiencing in Europe. Because Jordan’s economic history is characterized by the labor pool growing more quickly that the labor demand, the Jordanian government, rather than using the country’s savings to support those who are unemployed, is using its savings to support those who are employed. Let me delve into what I mean when saying this. In order to combat the high rates of unemployment in the Kingdom, the Jordanian government creates public sector jobs for people to fill. This phenomenon is also found in the private sector as well; often one will walk into a Starbucks in Jordan and find twice as many people as needed working behind the counter, each having a specific job to perform (one takes the orders, one retrieves coffee, one makes blended drinks, one cleans, etc.). This same unnecessary division of labor is seen in governmental organizations and ministries.

Even though the public and private sector is ‘investing’ its money in employing these individuals as Keynes advocated, these individuals are still consuming more than they are producing simply because their job was not created to satisfy an actual demand for that type for work to be done, but rather to satisfy a societal demand for jobs themselves. In the above Starbucks example, one person could much more efficiently perform all of those jobs, and be vastly more productive than the four or five people actually hired. Just as the value of currency decreases when a government prints the currency without anything to back it up, creating these public sector jobs without having the actual need to back up those jobs limits the productivity of the person performing that job, ultimately decreasing the value of their contribution to the economy.

Jordan proves that, in order for a Keynsian economic boom to actually take place, the nature of investment has to rest on something different than the actual creation of jobs for people to fill. However, as long as the mental approach to economic growth includes inefficiently dividing labor, Keynesian’s recommendation of investing in capital equipment will not have a positive impact (even though building a factory provides the opportunity for new jobs, if the labor demanded is continually divided as in the Starbucks example, the country has even more people that are still consuming more than they are actually producing). Jordan would be better off pursuing economic programs (like fueling entrepreneurship) that work towards economic institution building as well as shifting the general attitude towards combating unemployment/productivity problems.