An extended program for company licenses can boost productivity right away.
The only thing that brings about true change is a crisis, real or imagined. The alternatives to the current policies that are maintained and made available make the impossible, inevitable, and the decisions made during that crisis are based on the ideas that are floating around.
Milton Friedman’s ideas are reflected in all of the policy changes that the UAE implemented during the 2020 Covid crisis. In an era of negative interest rates, consumption has taken center stage in economic discourse, and efforts are being made everywhere to maintain the health of that sector of the economy.
With regard to quantitative easing, Western policymakers overreached themselves, which resulted in a spike in inflation and a return of attention to investment creation and total factor productivity.
While the West continues to struggle to increase total factor productivity, the UAE has been increasing domestic productivity with laser-like focus thanks to nimble moves like the Golden Visa program, privatization, judicial reforms, trade pacts with various countries through CEPAs, and now, potentially extending business licenses.
Not only to take advantage of the excellent physical infrastructure already in place, but also to create a framework that can unleash per capita productivity, particularly for small and medium-sized enterprises. Because the US maintains a dollar peg, it follows that quantitative easing will always be the mainstay of US monetary policy and that monetary inflation cannot be controlled.
The toolset for policy then becomes a means of changing the production options. The “expectations augmented” curve, which loosens and lowers “frictional costs,” is how it shows up in both new and established industries.
Although the objectives seem lofty, it is quite possible to double non-oil GDP growth in the coming ten years by applying the DIGNAR econometric models. A crucial component of this is the capacity to boost foreign direct investments, for which long-term trade licencing liberalization is essential.
Economists believe that for every 10% decrease in FDI restrictiveness, there is an average rise of 2.1% in FDI, based on a survey of 60 emerging economies. It has a multiplier on GDP growth ranging from 1.2 to 1.8 times.
Productivity increases by 0.25 to 0.5% when frictional costs are decreased and a framework for longer-term SME formation is in place.
Golden license programs with extended terms are obviously a component of the broader structure. Even while many of the specifics are still unclear, the general trend is evident: after decades of narratives that were primarily concerned with demand-led economics, there is a definite shift towards enhancing competitiveness by emphasizing the supply side.
The UAE has always demonstrated its guts to take action through its policy initiatives. The Covid crisis is ingrained in the public mind forever, and the consequences of the governmental actions are still being felt globally (whether it be in the form of disrupted supply chains or uncorrupted inflation).
It is evident that economists like Milton Friedman established the foundation for lessening the harmful effects of the inflationary demons back in the 1960s.
Should governments step in to provide a structure for failing individual corporations during major crises, or should they let them collapse on their own? The general framework to lessen the impact of failure by raising total factor productivity is still up for grabs, but the answer to that question is mostly settled.
The UAE is turning things around in terms of productivity, demonstrating that failure rates can be lowered. In lieu of the zigzag method that has been the zeitgeist in the West, allowing extended licensing (just as it did with individuals) is only another step on this road toward increasing the predictability of reforms that allow for improved productivity.
Future generations will discover this continuous variable that rode the lengthy waves of political and economic upheaval when they look back on the period of intensified reforms that the UAE undertook.
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