How Favoritism Affects the Business Climate: Empirical Evidence from Jordan

Abstract

This article discusses how favoritism affects the business climate. It is based on research conducted in Jordan. Jordan’s business climate is mediocre in international and regional comparison, which is not sufficient in light of the country’s small domestic market. Business people consider the complexity of administrative procedures a main problem for investors – along with a lack of fairness and predictability in administrative decisions. Favoritism, which is referred to as “using wasta”, contributes substantially to both problems. Investors with good wasta (connections) can speed up procedures and get exclusive access to services and information. They can even influence legislation to their advantage. Perhaps even more problematic, entrepreneurs tend to invest their time and money in social relations rather than productive capital, because their success depends on their wasta rather than the quality of their products. Many Jordanians are aware of these problems. Nevertheless they keep using wasta for at least four reasons. First, they do not see any alternative for achieving their goals. Second, people go on using their wasta as long as everybody else does the same. Third, many Jordanians associate the use of wasta with cherished values, such as solidarity or loyalty, i.e. they believe that the use of wasta is part of their culture. Fourth, Jordan’s administrative and political system lacks transparency and accountability on all levels.