The Economics of Arab Politics

Revolution-Fructification

The Arab spring has unleashed a rich, healthy and long-time needed process of rethinking the very nature of politics in the Middle East. The same is not true for the socio-economic aspects of these uprisings.

Widespread economic hardship, pervasive corruption and the lack of opportunities played a decisive role in the outbreak of the Arab uprisings. These same factors could very well disrupt the democratic transition processes if not properly addressed from the onset.

Even the unlikely establishment of the most ideal democratic order would not suffice to fulfill people’s aspirations to a better life and to a system based on justice and equality. “The factors that drove the Arab spring in the first place remain: the states’ inability to continue to provide jobs and subsidized living for their fast-growing populations.”[1]

In order to appease popular anger, the governments of the region are widely resorting to quick economic fixes such as minimum wage increases, hiring of more public servants and extension of public subsidies (some call it the “fiscal pacification”).

But the problem is that, at a time of serious fiscal constraints and global economic downturn, these short-sighted measures entail long term opportunity costs; they actually mortgage the collective future of the countries by hampering badly needed social policies to fight record-high unemployment, poverty and inequalities. In other words, the public money pouring today for fuel subsidies[2] represents as much resource not spent on employment, education, or the fight against poverty.

Energy Subsidies[3]

% of GDP US  bn
Iraq 13.8 11.31
Saudi Arabia 9.8 43.52
Egypt 9.3 20.28

Faced with these temporal inconsistencies – a situation when current decisions reduce future available options – political leaders tend to systematically opt for short term gains. There are no incentives to do otherwise, especially when socially painful reforms are closely associated with liberalization policies of the previous order, marred with massive corruption and cronyism.

In this context, NGC believes that a massive effort is needed now to contribute to addressing these difficult questions. A multidisciplinary seminar bringing together researchers, economists, sociologists, political leaders and young entrepreneurs from the region would be of great value to discuss how to reconcile politics and economics on pressing issues such as distribution of resources and youth unemployment (according to Booz & Company the Arab world will need to create 75 million jobs in the next ten years – an increase of 40 per cent).

Such a regional event should entail inter alia three key modules:

I.            An analysis of the socio-economic genesis of the revolutions

II.            A discussion of the dark economic scenarios for the Arab transitions

III.            An examination of potential solutions and recommendations

The first module would look back at the economic history of Arab authoritarianism and deconstruct the “social and economic pacts” that underpinned the regimes together with repression and fear.

The second module would examine the political cost of a socio-economic failure of the Arab spring. The worsening of the economic conditions leads to social unrest that in return prevents economic recovery. Beyond this evident short term vicious circle, serious inter-temporal inconsistencies might endanger the foundation of the new democratic order and lead to a “lost decade “of democratic disenchantment, as in the case of South America.

The last and final module should focus on short term policy answers compatible with long term inclusive growth policies, addressing the following questions:

  • How to phase out smoothly from universal subsidies to focused pro-poor cash-transfer policies.
  • What about discussing seriously a more progressive tax system?
  • Why don’t we start raising the issue of environment and sustainable development as an opportunity and not only a constraint for the region?
  • What are the main steps towards a growth-oriented policy to fight youth unemployment? Young entrepreneurs from the region would bring their personal testimony about barriers to entry and propose concrete solutions.

Those are only a few of the daunting challenges the Arab economies and societies are faced with. We are looking forward to continuing this reflection with others and have many more ideas and suggestions to bring on the table. It is high time we join forces, break the silos and try to sort out together some of these questions, or at least formulate the problems.


[1] “The Arab Spring Tide”, The Economist Intelligent Unit Special report

[3] IEA 2010

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