FROM THE OFFICE OF PUBLIC AFFAIRS

January 28, 2005
JS-2216

The Private Sector’s Role in
Promoting Economic Growth in the Broader Middle East and North Africa
John B. Taylor
Under Secretary for International Affairs
United States Treasury
Remarks at the World Economic Forum Business Dialogue:
The Arab Business Council and the G-8/BMENA Forum for the Future
Davos, Switzerland
January 28, 2005

I would like to thank the World Economic Forum for inviting me to participate in this distinguished panel.  I would also like to thank Shafik Gabr, Chairman of the Arab Business Council, for moderating this discussion as well as for his able and energetic stewardship of the Council's activities.

Engagement with business leaders, through the Forum for the Future and other venues, underscores the deep link between economic and political reform.  As Secretary Powell said in Rabat on the occasion of the first Forum for the Future, "Political freedom and economic freedom go hand in hand." And economic freedom, our subject for today's discussion, is not achievable without the active participation of independent business voices like that of the Arab Business Council. 

Evidence has shown that increased incomes and poverty reduction can only be achieved via productivity growth.  Productivity is simply the amount of goods and services that can be produced with by workers per unit of time.  Productivity increases as the skills and tools that workers have to work with increase. Higher productivity growth means higher wages and thereby higher incomes.

Unfortunately, the recent trends in productivity growth in the Middle East are not good.  Guido Tabellini, a colleague of mine when I was a Professor at Stanford University, has noted that productivity actually fell in the Middle East in the last 20 years, by 0.7 percent per year.  In contrast, this is a period when productivity was increasing in the United States, Europe and East Asia.  This contrast is particularly strong and worrisome.  And the pressure on increasing productivity and creating jobs will only grow more intense in the years ahead, as the economic and demographic challenges confronting the Middle East and North Africa are significant.  Regional unemployment levels are 15 percent and reach 30 percent among younger workers.  The region will need to generate over 100 million jobs in the next 12 years just to maintain current levels of unemployment. 

In his speech at the National Endowment for Democracy on the greater Middle East last November, President Bush stated, "As we watch and encourage reforms in the region, we are mindful that modernization is not the same as Westernization . . . There are, however, essential principles common to every successful society, in every culture."

The Council's Blueprint for Economic Reform, ratified in this forum one year ago, discusses precisely those universal principles to which President Bush referred - economic reform and liberalization, human resources development and governance reform.  The regional business community is a natural partner and ally for reform minding governments because business people have strong incentives to counter backward looking isolationist tendencies that challenge both the economic and political stability of the region.  They stand to benefit from reforms that can improve the lives of all the region's inhabitants.  They also understand very well the need for reform. 

I am very pleased that the Arab Business Council has turned from the elaboration of principle to the advancement of specific initiatives since the last meeting here at Davos.  Two specific initiatives deserve strong support:

• First, I'd like to applaud the Arab Business Council for taking steps towards establishing a series of national competitiveness councils with the goal of benchmarking major business climate indicators and promoting competitiveness.  It is important to continue to spread this work to more countries in the region.  One aspect of this program that President Bush is firmly committed to is measuring results.  What gets measured gets done. This is, in fact, a core component of the Administration's development strategy.  We have pushed it in the Multilateral Development Banks, and have made it a centerpiece of the approach taken by the Millennium Challenge Account.
• I'd also like to applaud the Council for its work with the OECD to organize a Task Force on Investment.  Productivity, as we know from economic theory and economic history, depends on the amount of capital each person has to work with and the level of technology.  This region, unlike many others, has sufficient capital.  It is reported that $ 1 trillion in local funds are invested abroad.  Improvements in investment environment can help these funds come to rest closer to home, resulting in productivity improvements and, ultimately, jobs and economic growth.

There is a window of opportunity for reform in the broader Middle East today, and the members of the Arab Business Council are among the foremost of those who recognize the importance of acting now.   

We in the United States recognize the importance of promoting the forces of economic advancement and integration. We are pleased that there are many voices in the Arab business community who share this vision.