Implementing economic stimulus packages on manpower and developing projects
July 15, 2020 0

In any economic crisis, should governments support manpower or developing projects?

As the world evolves, the economy develops with it and becomes more branched and sophisticated. The more sophisticated the economy, the more advanced the sophistication of the solutions presented to end the economic crises that afflict the countries. Consequently, economic stimulus packages implemented by governments require more thought and scrutiny to judge their quality, whether those packages depend on austerity and reducing spending on individuals and development projects or on reducing spending and imposing taxes.

Expenditure on development projects”

Before getting into the debate about the feasibility of reducing or increasing government spending on development projects, we must ask an important question: What is the importance of development projects?

Whatever the forms and types of the projects, it must be recognized that the ultimate goal of governmental implementation of these projects is to raise the standard of living of people who live in the state and serve them and provide them with stability and comfort, and as a natural result of the availability of these advantages, they get the necessary encouragement that motivates them to make effective economic contribution to the state.

Opinions supporting spending on development projects:

Let us consider a simple example of this idea, which is spending on giant road networks and developing the transportation infrastructure. Besides the simple benefit, which is facilitating the movement of people between the regions of the country, which produces a huge economic benefit in the long term. This benefit crystallizes in strengthening the supply chain [1] and increasing its effectiveness.

Let us approach the topic of this discussion, to try to ask the same question that we asked earlier on one of the most important and largest projects in the region, which is: What is the importance of organizing the 2022 World Cup for the State of Qatar?

For all countries that hosted or wanted to host the World Cup, the desire was not limited to developing sports and building stadiums, and Qatar is no exception.

The hosting of this event will help the State of Qatar to enhance its value as a distinctive destination for sports tourism, and will also help it to become a ‘hub’ for international events. As we said, a championship like this is not based on stadiums and sport facilities only, but it’s way more than that, like building road and transportation networks, metro network, advanced infrastructure, hotels, hospitals, public services, research centers and commercial activities that will be carried out to obtain a successful hosting.

Consequently, looking at the full picture, investing in such projects results in a significant number of job opportunities for those who live in this country, and it also helps the manpower to develop as it will push them to try to develop their outcome and scientific capabilities in a manner that is commensurate with the modern model that the state wants to achieve.

Therefore, after learning about the importance of large development projects for countries, we can say that disrupting these projects or reducing expenditures on them disrupts achieving the desired goals in the short and long term.

Opinion opposing spending on development projects:

In countries that do not rely heavily on carrying out projects locally and on the local population or local companies, the benefits mentioned above will not be achieved as required, as the executing parties for these projects are mostly companies from outside the country. Therefore, these companies’ profits from executing projects, will be drained out of the country rather than keeping it and maintaining its circulation inside the state and between its institutions or the major companies owned by its citizens.

These companies are also known to have low employment rates of local citizens, as they depend on bringing low-cost labor from abroad to increase their profit margin, and thus they contribute to not employing a lot of the country’s population. This leads to an increase in the numbers of those who do not get jobs and puts additional pressure on the state’s financial resources.

The importance of these projects cannot be denied for sure, but the delay in seeing its results is one of the most prominent disadvantages, as these projects are characterized by lengthy implementation periods and there is a delay in bringing the profits and benefits required from them. Therefore, they do not give the urgent support that the economy needs in the event of sudden crises.

Expenditure on manpower

If we put (applying policies on individuals to solve economic crises) under the microscope, whether these policies support spending on individuals – like Roosevelt’s policies in 1932 – or oppose it, will show a number of items that must be contemplated before judging them positively or negatively. Thus, by returning to Roosevelt’s policies, we will find that the results were an economic recovery, but on the other side we will find a number of drawbacks to the policies that see reducing spending on individuals by reducing salaries and ending services in order to reduce government expenses.

Opinions supporting spending on manpower:

The policies of US president Franklin Roosevelt in the thirties are a clear example of the view that directs support to individuals to overcome an economic crises. In the first three months of his assumption of the presidency in 1932, he passed a number of legislations that focus on supporting the unemployed and providing them with jobs. Also, he supported farmers and implemented some economic reforms to reduce the effects of the recession that hit the United States at the time. The implementation of similar policies shows the importance of the human being and investing in them as it provides a sense of job security among individuals despite the occurrence of the crisis. This of course instills in them a sense of belonging and a desire to overcome the crisis and motivates them to develop themselves to produce better, which helps to reduce or overcome the effects of the crisis.

One of the prominent benefits of continuing to spend on individuals in general during a crises, and even the tendency of some governments to pay salaries to the unemployed as well are to reduce the problems that they may face due to job loss in particular, such as the inability to provide basic needs and the inability to start over during an economic crisis or after it passes.

The end result of implementing similar policies is the continuation of the circle of spending among members of society, as the economic rule states: “What you spend is income for others, and what others spend is considered your income”, and this helps in mitigating the effects of an economic crises.

Opinions opposing spending on manpower

Reducing spending in this case negatively affects the reputation of the countries that implement them, especially if these countries do not rely heavily on local population in the labor market. The experiences and manpower that the country will lose after reducing spendings on manpower will make the decision to return again and compensate for the loss of manpower a bit risky, especially in a world of rapid economic volatility, and thus losing this manpower will pose a new economic challenge for the country.

But during crises – and let us talk about the current crisis that recently engulfed the world due to the COVID-19 pandemic – the owners of small and medium enterprises are among the groups most affected by the economic downturn accompanying the crisis.

Now, as everything is getting back to order and signs of a return to the normal life appear, compensating for the losses becomes the goal of the owners of these enterprises. Compensation for them depends directly on the purchasing power of individuals, which in turn will be harmed if their services are terminated or their salaries reduced and thus their spending will generally decrease or not return to the way it was before the crisis occurred. If this happens, the mentioned enterprises cannot compensate for their losses. Therefore, as a natural result, the owners of small and medium enterprises will reduce their expenses by reducing the salaries of their employees or ending their services and this will repeat the same cycle again. This will also affect the ability of these enterprises to purchase materials or services from major suppliers or government institutions as they used to do in the past. This in return will reduce the income of these entities, which may lead them to reduce their public spending in the same way.

[1] Supply chain: The network that brings together all individuals, companies, services, technology and raw materials to deliver a product to the end consumer.

The supply chain for a small milk carton consists for example of: the producing company and its employees, the cows, the farm from which the cows’ fodder is purchased, the delivery workers, the manufacturer of the plastic packaging, the manufacturer of the storage and refrigerators etc.

By: Lotfi Barkeh – Debate Instructor at QatarDebate

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