Foreign Policy

Economic Growth and Equality: the Seven Pillars of the Arab Future

Blog Post by: Michael Wahid Hanna , on March 25, 2013

This post is excerpted from “The Seven Pillars of the Arab Future.” The full version is available at Democracy, and is reprinted here with permission.

The early days of the Arab uprisings were uncomplicated and inspiring, as they reaffirmed many Westerners’ long-held beliefs regarding universal values, human rights, and democratization. With the fall of long-standing dictators and the spread of unrest and protest, historical parallels were quickly drawn to the transformative events of 1989, which witnessed the fall of the Communist dictatorships of Eastern Europe and the acceleration of events that soon thereafter led to the dissolution of the Soviet Union.

The ultimate success of the Arab uprisings will depend heavily on the development of seven core areas. This post discusses the first of those seven pillars: Economic Growth and Equality. Last week, I provided an introduction to the series, which offers an overview of the Arab uprising and its recent aftermath, and provides a high-level sketch of the seven pillars.

First Pillar: Economic Growth and Equality

If transitioning states fail in retooling their economies, the prospects for reform in other areas are dim. Virtually all the nations of the region have a long, long way to go. With the exceptions of the petro-rich Gulf states, which post impressive economic numbers for obvious and anomalous reasons, the region is in terrible economic shape.

Per capita GDPs are low. According to the CIA World Factbook, the highest per capita GDP in the region (outside of the petro-monarchies) is Lebanon’s $15,500 per year, which ranks it just 78th in the world. Egypt, at $6,500, comes in at number 137. Syria, at $5,100, is 152nd. GDP growth is also meager. According to World Bank data for 2011, Jordan’s GDP grew at 2.6 percent, Egypt’s at 1.8 percent; Tunisia’s “grew” at -1.8 percent; Libya’s was not even calculated. In terms of income inequality, the region has just one country in the world’s top 50 least unequal countries, as measured by the Gini coefficient: Egypt sneaks in at number 50. (The United States has nothing to boast about here, ranking 97th.)

These lagging indicators are exacerbated by the region’s demographic youth bulge and, according to the World Bank, the highest levels of youth unemployment on earth. Youth under age 25 represent 60 percent of the region’s population. The 2009 Arab Human Development Report, one of a series of controversial reports sponsored by the United Nations Development Programme and independently authored by intellectuals and scholars from Arab countries (and attacked by nationalists and Islamists alike as serving Western interests), estimated that the region would need to create approximately 51 million jobs by 2020 to keep pace with new entrants; some more current estimates for needed employment gains range as high as 80 million new jobs in the coming decade.

Unemployment is also high among the most educated of the region. The 2011-2012 Arab World Competitiveness Report notes that among those with a college education in states for which statistics were available, 43 percent are unemployed in Saudi Arabia, 22 percent in Morocco and the United Arab Emirates, and 14 percent in Tunisia.

Of course, the economic challenges vary from country to country. The World Bank recently described the region as having a “two-track growth path” between nations that export oil and gas and those that either import or produce small quantities (which include Egypt, Jordan, Lebanon, Morocco, and Tunisia). This divergence is illustrated succinctly by a comparison of the 2010 per capita GDP of two Gulf countries: Qatar, which is one of the world’s fastest-growing economies and registered at $72,398, and Yemen, which reached a paltry $1,291. The bank’s current forecast for economic growth in oil and gas exporting countries is 4.8 percent in 2012, and just 2.2 percent for importing countries.

Such disparities and stagnation have meant the basic economic questions that have been largely resolved in the West are now once again a feature of open political discourse, particularly in the region’s transitioning states. These questions tap into long-dormant notions of social justice rooted in the region’s twentieth-century history, when Arab nationalism was often coupled with a state-dominated economic model. However, expectations for economic change are incredibly high, bordering on the fantastical, and managing them will be essential for the region’s leaders. It is nearly inevitable that they will be judged harshly if they fail to improve the material conditions of citizens. A lack of progress runs a real risk of sparking popular backlash against the uprisings, alienating people from the electoral process, and raising the specter of authoritarian relapse.

In light of these expectations and the current economic dilemmas, five priorities emerge. First, governments must recognize that the main prerequisite for economic reform in transitioning countries is a firm political foundation upon which they can make difficult decisions that might entail some degree of social dislocation. Western policy-makers and local technocrats have often disaggregated economic reform from the politics that undergird it. But that’s a grave error. The importance of some semblance of consensus politics is heightened by the current polarization in the region’s transitioning countries, most notably Egypt, where the botched transition and disastrous constitutional drafting process have created the prospect of institutionalized crisis and political dysfunction.

Second, the region’s leaders must deal with their citizens transparently. Economic decision-making has often been opaque. This has led to the belief, heightened by recent history, that reforms will inevitably entail distortion and corruption.

Third, regional governments will have to work to ensure that macroeconomic gains have a tangible impact on unemployment and social mobility. The gap between GDP growth and per capita GDP growth for the region is among the world’s highest (meaning that population growth has outstripped economic growth). The disconnect represented by long-term structural unemployment is at the root of disenchantment, particularly among the young; coupled with the flagrant corruption associated with crony capitalism, past performance has hindered current efforts and tarnished perceptions of economic policy.

Growth will inevitably require some level of fiscal discipline to manage debt. However, austerity cannot form the crux of economic policy or provide the roadmap toward inclusive growth. As such, more progressive taxation to create a broader revenue base is essential, as is support for small and medium enterprises, including assistance to bring many of these businesses out of the underground economy. This will necessitate reforms to ensure greater transparency, reduced bureaucracy, and a predictable legal framework. It will also require that the international community eschew ideology and lend its support for big public-works projects that can employ large numbers in the near term and improve dilapidated infrastructure.

Fourth, economic policy will also face challenges with respect to gender. According to the Global Gender Gap Report 2011, in Egypt and Yemen, for example, the labor force participation for women is a meager 24 percent and 21 percent respectively. Remedying such gender gaps and providing expanded opportunities would enhance productivity and increase economic security.

Finally, regional economies will have to implement economic-diversification and investment policies focused on high-growth and labor-intensive economic sectors, such as clothing and textiles. This type of diversification can contribute to more stable, higher rates of growth. For non-oil-producing countries, this will require investments in infrastructure and technology.

Tags: seven pillars, hanna, democracy, arab spring,

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