World leaders are calling for Hosni Mubarak to either resign or to institute “political and economic” reform that will meet the demands of the demonstrators. Such calls show a large degree of ignorance about the needed economic reforms and the fact that increasing political participation may pose obstacles to reforms. While the maintenance of deeply unpopular autocratic regimes is undesirable, movement towards an improved economy will be considerably more difficult than the exhortations emanating from many leaders suggest.
The Arab economies, including Egypt and Tunisia, have not been notable underperformers in economic growth nor do they have an unusual amount of income inequality. This is not to say they are rich: Egypt’s per capita income is roughly $5,700 per year, Tunisia’s $8,300, and in both it has gone up by 50 percent since 2003. They exhibit poverty levels lower than many countries not undergoing revolutions, which doesn’t not imply they are egalitarian societies. And both have benefitted from extraordinary growth in many measures of social welfare, such as life expectancy, infant mortality, and education rates. For example, life expectancy in Egypt is 72, Tunisia 76, comparable to that in Latin America. In both, the infant mortality rate is about 18, only slightly higher than that in Washington, DC. Thus they mimic the experience of earlier revolutions from the French to the Russian, which the historian Crane Brinton noted typically occur after considerable growth. What is unusual about these nations, and much of the Middle East, is the autocratic rule that has persisted for very long periods, most under one individual such as Mubarak or some dynastic such as the Assad government in Syria. The lack of political choice, the suppression of views, and an often brutal security state system are clearly major catalysts for the current demonstrations.
But a major factor contributing to the current unrest is the small number of job opportunities for the burgeoning labor force, which stems from historically high birth rates that have recently declined but whose effects will continue for another decade. As in the OECD countries such as Spain, youth unemployment is difficult to address, but for nations like Egypt and Tunisia a relatively straightforward solution lies in the emulation of Asian nations such as Korea and Taiwan that faced similar problems in the 1960s. More recently China and Vietnam have had spectacular success. These nations have used intensive international integration to foster the growth of national income as well as the generation of employment.
International links have taken two forms—exports of labor intensive manufactured goods such as clothing and sportswear to more advanced countries and the tapping of western technological knowledge to lower costs and improve quality. These nations signed foreign technology licensing agreements with firms from advanced countries, which taught them foreign technologies and production methods. Some encouraged multinational corporations to relocate or colocate, which brought investment finance, technical knowledge, managerial abilities, and critically, marketing networks that allowed the products to reach retailers’ shelves. But such “globalization” is typically very unpopular in Arab countries as shown in many surveys of social attitudes. Similarly, the privatization of government-owned enterprises is not welcomed despite their inefficiency, although Egypt has been better than other Arab nations in this respect. The improvement of efficiency of government agencies that supervise transportation, ports, and airports would require firing existing staff and reorganizing production, always a painful process for those affected. Unlike East European nations that underwent revolutions two decades ago and had as their model the liberal economies of the adjacent European Union, the population of the Arab nations is deeply skeptical of globalization.
Thus, any government that emerges from the current turmoil will face a deep conundrum. The steps they need to pursue to increase income levels and employment will inevitably engender popular disapproval. Given the success of the current demonstrations, newly enfranchised leaders may hesitate to undertake necessary reforms. They cannot assume they will receive backing from the international community should there be demonstrations against desirable economic policies that inevitably are disruptive in the short term even if they have benefits in the longer run. Given the recent advice by the West to give in to the popular demonstrations, how can a new government assume Western leaders will have sufficient perceptiveness to distinguish dissatisfaction with new desirable economic policies from unhappiness with the new government? Economic reform can occur under political systems as disparate as India’s and China’s as long as there is strong domestic backing for it. But pronouncements from world leaders that contain the contradictory “enhance democratic transitions and undertake major economic reforms” are not a substitute for a domestic political constituency for deep economic restructuring with its attendant short-term disruptions. There is no evidence of widespread acceptance of this agenda.
Existing leaders may exit, but this may not usher in a new era of comity and growth. There is no iron law that Middle Eastern countries will not undergo the same traumas as many of the nations in the Soviet bloc in the 10 years following the demise of communism. Income per capita declined in some by 20 percent or more, inflation was severe, and life savings were wiped out. Establishing the institutions and policies to preclude such an outcome will require much more effort than calls for a change of regime from Western capitals. And if the East European experience is repeated, much of the blame will be shifted to others. Slower change, not the disastrous “big bang” of Eastern Europe, should be the goal of both the nationals of the countries and the international community.
Howard Pack is Professor of Business and Public Policy at the Wharton School University of Pennsylvania. The evidence for many of the statements is contained in my book, jointly authored with Marcus Noland, The Arab Economies in a Changing World (Peterson Institute of International Economics, 2007).