No jobs, no peace?

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Last week the Jordan Times reported that the government has put in place a task force to simplify business regulations, to help stimulate entrepreneurship and jobs. The IFC is supporting this effort, as well as similar exercises in Lebanon - although I guess that one will be on hold for a while. When the fighting has faded from the headlines and diplomacy has taken over - which we hope will be soon - the battle to provide an enabling environment for small businesses to enter the formal sector needs to be engaged in full. See a post last week on how these businesses can aid peacebuilding.

The Doing Business report shows that many Middle East countries rank relatively poorly in the league tables. Although improving the prospects for people to find jobs and start businesses may not be enough to secure lasting peace in the Middle East, it is unlikely that it can be achieved without some improvement in economic opportunities. When the immediate humanitarian needs of dealing with the current crisis are past, the work of improving the business environment will require working closely with local officials and private firms to make lots of little changes which will simplify prospects for legal, formal sector economic activity.

This is the important work of implementing the Doing Business agenda. It doesn't take lots of money or aid; mostly it requires political and administrative commitment by government and local officials, and good dialogue between the private and public sectors. And it makes a huge difference: in the first few months of 2006 the number of businesses newly registered in Lima rose by 7 times compared with the same period last year, after similar reforms.

Postscript. Lessons from St Helena

St Helena was always as aid-dependent as it is today. Between the early 1900s and the mid-1960s the island's major industry was growing flax, or hemp, which was used to make ropes. Although there were ups and downs in the industry as world prices changed, it was the island's largest employer, apart from the government. In 1966 the whole industry suddenly closed down. Legend has it that an official in the British Post Office - which was a major buyer - decided to use synthetic string and thus St Helena's flax industry was killed. The truth is more interesting.

In the mid-1960s some of the flax mills were government-owned and others were private. In 1965, after a government review of wages, a decision was made to nearly double the wages in the government mills. Wages were felt to be too low for workers to live on adequately. The private mills were not able to match these wage increases and closed. Meanwhile, world prices for hemp continued to fall, so the higher production costs of the government-owned mills meant that they were operating at a large loss. Within a few months they too closed. The St Helena Government applied to the British government - its colonial master - for emergency help, to provide employment for all of the former flax workers. The number of "development aid" projects expanded dramatically.

Lesson: government involvement in industries which are price takers on world markets is risky, especially for the private sector. Another lesson: investigating "received facts" can be worthwhile.


Laurence Carter

Senior Director, Public-Private Partnerships Group

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