By any measure, disappointment — and, in too many places, anarchy and violence — today describe the Arab world. What is it that sets this group of countries apart, that makes the future so unchartable for the Arab region?
Begin with what differentiates the countries, said Hedi Larbi, former Minister of Economic Infrastructure and Sustainable Development and economic advisor to the Prime Minister of Tunisia. In a recent talk co-sponsored by the Chazen Institute, he outlined the Arab region’s striking diversity across almost all indicators that define countries: income levels and economies, governments, population size, religion, climates, and resource endowment.
But what most Arab countries share is a development model, built from the late 1950s through the 1980s, that created a sweeping social contract. Monarchies, military leaders, and theocracies throughout the region established the state as the “shareholder, manager, employer,” said Larbi. As countries invested in infrastructure, “people gave up their voice in exchange for safety, healthcare, and welfare.”
What Happened to Spring?
All that was supposed to change in 2011, as the Arab Spring swept in hopes not just for political reform, but for better economic days as well. But Libya, Syria, and Yemen have spiraled into state collapse and civil war. Egypt’s authoritarian regime has checked civil liberties. Extremist groups such as ISIS have thrown the Arab world into chaos.
Only Tunisia has moved toward democratic reform, but even there economic prospects are discouraging. Larbi puts the annual GDP growth rate of the Arab countries at 2.0–2.2 percent, “the lowest of any region in the world except Africa.” This economic lethargy comes from counties that rivaled Asia's 6 percent to 8 percent growth rate in the 1970s when oil boomed, and averaged 5 percent growth between 2000 and 2010.
Larbi said Arab nations still have a way out, although his vision calls for an unprecedented, selfless approach that the world has rarely seen. Not least, it involves upending the social contract that has formed the basis of Arab economies for the past 50 years.
Corruption aside, what populations got for their social contract depended more on the price of oil than internal investment. As oil prices declined from $60 a barrel to $10 in the 1980s, the IMF and World Bank stepped in with “structural adjustment money,” meant to build financial systems that would lead to more diversified, healthier market economies. “The plan called for a dramatic withdrawal of the state,” said Larbi, and countries without oil, like Morocco — and later Turkey — implemented some reforms.
Political Economies Are Not Legitimate
“But the social contract had created serious interest groups that made privatizations or reduction of subsidies unpopular,” said Larbi. Reforms, he explained, at least initially threaten jobs, including those of politicians who are in danger of losing their positions if the populace believes the social contract has been broken. So not much changed and market economies remained as distant as ever. “Political economies,” said Larbi, “are not legitimate.”
The next round of NGO bailouts in the 1990s attached more strings, but Larbi said they were the wrong strings. “Rather than be told what course to set, these countries need to find their own identities and guide their own destinies,” he said. “Otherwise reform just fails.”
The Arab Spring set the stage by ousting the state elite, but failed to provide the leadership and vision needed for true reform. What’s needed, said Larbi, is a true dialog to discuss what kind of society the various interest groups really want. And the discussion has to begin with the philosophical underpinnings of society rather than the specifics. “For example, does labor want not just jobs and higher salaries and benefits, but also the kind of socialism that Sweden provides? Or would it prefer the private-motivation model of the United States?” he asked, warning that “a market economy is far from a given.”
A Generational Evolution
The dialog needs to encompass all interest groups, he said, including religious groups, unions, academics, etc. It also needs to represent young and old, educated and those without schooling, and comfortable as well as poor. The debate needs to set economic and social priorities and talk about what implications new directions hold.
Once discussion determines what type of society is preferable, more dialog is needed to determine how to pay for reforms, including what taxes citizens are willing to bear. Only then does planning for the practical steps of achieving reform begin.
What’s crucial, Larbi added, is strong leadership to launch the dialog, keep discussions on track, and implement reforms. “If people don't have trust in their leaders, this approach won't work,’ he warned.
Larbi also noted that not just Arab countries, but the entire world “suffers from a deep dearth of charismatic leaders willing to generate this kind of selfless dialog.” The leaders may be able to set agendas and lobby for certain reforms, but their points of view may not win the day. Also, reform is generally painful, and the government that first sets change into play will likely not remain to enjoy the rewards.
Larbi indicated the approach he outlined is long-term, with meaningful change occurring only after many years have passed. As a pragmatist, he is not convinced that such patience will be the norm in the Arab world. But he also said some precedents exist, particularly among smaller, economically comfortable states. Dubai and the United Arab Emirates have diversified out of oil into services. Singapore created a private sector over time, designing social programs to minimize costs. South Africa embraced the wisdom and leadership of Nelson Mandela to become a united nation.
“Reality is tough,” said Larbi. “Our first steps should be to create a holding environment so the serious debate can begin.”