The Arab Spring Outcome Will Be Decided by Economic Reforms That Will Spur Growth

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by Paolo von Schirach

May 1, 2011

WASHINGTON– The Arab Spring is still unfolding –and not neatly. And I am not talking about the unresolved political fights in Syria, Libya, (with NATO military involvement), or Yemen. Even assuming victory for the revolutionaries in all three and beyond, there are layers of almost impossible tasks ahead. First and foremost, Arab countries will have to create viable democratic institutions. And then, through these untested institutions, they will have to forge a consensus that will open up oligarchic, economies, expanding opportunity for millions. All this is unbelievably complicated. But this –real economic development leading to more inclusive societies– is precisely what will determine the success of this revolution.

Mixing up political revolution and economic goals

In the immediate, the greatest danger lays in the fact that many revolutionaries mixed together kicking out dictators and the creation of jobs and prosperity, thinking that the first would necessarily lead to the second. Likewise, probably many of the old elites may mistakenly believe that, even with the old political regimes out, they shall continue indefinitely with business as usual, excluding millions from the prosperity they accumulated through the old political ties. But the truth is that, even if the old power structures let go, there are just not enough resources to offer rapid economic improvements to all.

Demonstrations will not get you jobs

The tens of thousands of young Egyptians who demonstrated in Tahrir Square wanted Mubarak out. But they also wanted and want better prospects for themselves, in a country with very high youth unemployment. Now that they got the first goal, they will have to realize that the second, improved economic prospects, is much more difficult to attain. Will they understand that no one can fix the problem of millions of young unemployed in Egypt –or elsewhere? Will they understand that another occupation of Tahrir Square will not make jobs appear overnight? Will they have the patience to wait, who knows for how long? And will they have confidence that a new political process will not shortchange them –again?

Credible economic reforms are needed

Simply stated, while the beginnings of these revolutions as political uprisings are promising, the truly difficult part –the part that will in the end determine whether all this effort was a success– is what has to come next. And that is the reorganization, in fact re-invention, of semi-feudal societies so that they will have modern, or at least viable, institutions that will allow them to create a credible path to broad based economic development.

Real challenge for resource poor Arab countries

For the North African and Middle Eastern countries that have little or no oil reserves that would provide capital for financing development, there is a desperate need to devise economic development strategies that will increase growth levels. And the list of these underesourced countries is long: Egypt, Tunisia, Morocco, Jordan, Syria, Bahrain. (The oil countries will have the challenge of directing oil revenue towards productive investments. Their own past record as well as that of other countries, if you exclude Norway and very few others, is pretty bad on this score. Oil wealth breeds a lot of corruption and very little development).

Asia showed that growth is possible

Elsewhere in the world, we know that resource poor countries, especially in Asia, managed to grow by opening up the economic environment, by improving infrastructure and public services delivery, and by developing human capital –the precursor to enterprise. The rise of Asia in the last 40 years shows that resource poor countries from Korea to Thailand do not have to stay poor forever. Improvement is possible.

Can the Middle East learn from Asia?

But, while this road to growth is open to all as a matter of principle, how long will it take for, say, Jordan to become a new Vietnam in the Middle East? A long time. And, if we look at the whole Region, so far, the prospects for rapid transformation are not so good, and the challenges truly daunting. A Tunisian participant in the early phases of the revolt was recently quoted in The Wall Street Journal saying: “This uprising was for what? The people who have money and the heritage of the old regime aren’t giving up control“.

This pretty much sums it up. The autocrat is gone. But in Tunisia the old, entrenched socio-economic structures, the class divisions, the oligopolies represented by just a few families controlling most of the resources and the capital are still there. And changing all that in a productive way, while at the same time experimenting with new political freedoms, without any tradition on how to run a functioning democracy, is an incredible challenge.

Oligarchies in Egypt

And in Egypt its is not that different, with the added complication that the Egyptian Army, reasonably well behaved in engineering the first steps of the post-Mubarak transition, is also deeply vested in the old Egyptian economic set up. A true economic opening of the Egyptian society should include the Army giving up control of important assets. It is doubtful that they will do it.

Given all these road blocks that need to be eliminated, try as they may, these Arab societies cannot realistically catch up in a couple of years. Beyond dictators, a combination of cultural conservatism and economic control by a few families close to the regimes smothered vitality at every level: economic, artistic, cultural and social. We will have to wait perhaps a decade to have a sense of how all this played out.

What will happen in Saudi Arabia?

And let us add that we still have no idea as to how Saudi Arabia, a really key actor in this drama, will adjust. So, far all is quiet. It would appear that Saudi Arabia managed to avoid the “freedom bug” contagion. And this is largely due to a combination of repression and blandishments via public money thrown at the masses so that they will stay quiet. But these tactics may not work in the long run. Can the Saudi royal family keep a lid on any aspiration coming from below indefinitely?

Besides, let us not forget that any major domestic upheaval within Saudi Arabia would hardly be an internal matter only. Saudi Arabia is by far the most significant OPEC oil exporter. If trouble in Libya (oil production about 1.6 million barrels a day) caused oil prices to shoot up way beyond $ 100 a barrel, imagine what even far lesser troubles in Saudi Arabia would do to oil prices and thus to the entire world economy. Saudi Arabia’s production is now about 9 million barrels a day. Its capacity is to pump up to 12.5 million.

In the end Arab uprisings will depend on economic reforms

In a somewhat simplistic fashion, Western media portrayed the beginnings of the Arab Uprising as an easy to understand fight for freedom against tyranny. Confronted with massive upheavals, the tyrants eventually will let go. It seemed a good fight and it made good TV: geriatric or loony dictators doomed in a fight against virtuous young people on Facebook. Well, it turns out that even though some of these struggles for political power are still underway, (Yemen, Libya, Syria), this Arab story is really a lot more complicated than getting rid of old Hosni Mubarak, Assad or Gaddafi.

Later on, covering slow economic change will be a lot less glamorous than reporting on massive youth demonstrations or on the fight for Misrata in Libya. But the ability to engineer real economic change is what will really decide the future outcome of what started as the Arab Spring.

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