Arab states must copy Asian tigers

VILE, despicable, inhumane: such words only barely begin to describe Muammar Gaddafi’s savagery as he desperately clings to power, battling a rising tide of popular revulsion. Like all fascists, human life is worthless to him. It is, of course, too soon to tell what will happen in Libya and what sort of regime, liberal or theocratic, will eventually emerge; the same is true of Egypt and Tunisia.

But the fundamental reason why there is such desperation in much of the Middle East and North Africa is that the region – unlike emerging Asia – still lacks the capitalist institutions that fuel prosperity. Without dramatic economic reforms, extremists will gain ground. Decades of mismanagement, stupidity, ignorance and corruption have left a legacy of unemployment, poverty and hopelessness; oil money has been skimmed off by a selfish elite that specialises in corporatism and nepotism and benefits from state-chartered monopolies and restraints to trade.

Scandalously, the fabled oil wealth of the Arab countries has had little effect on the incomes of ordinary folk (Abu Dhabi and Dubai are exceptions). For nearly two and half decades after 1980, the region witnessed hardly any growth in living standards. Real GDP per capita in the Arab countries grew by 6.4 per cent over the entire 24 year period from 1980 to 2004 (less than 0.5 per cent annually), according to the United Nations. The situation has improved a little since but insufficiently to dent unemployment. After growing by just 3.4 per cent a year between 1992 and 2001, the Middle East and North Africa’s GDP started to accelerate from 2003 to 2007, when it underwent a mini-boom and expanded by between 7.5 and 8.7 per cent a year. But the crisis took its toll in 2007-09 – and though higher oil prices fuelled a strong expansion in 2010 and 2011, only statisticians have noticed.

A fifth of Arabs still make under $2 a day. In some places, youth unemployment is over 40 per cent; the UN estimates another 51m jobs are needed by 2020 as a result of demographics. Youthful populations and no jobs: no wonder a spike in food prices has had such an explosive effect on the politics of the region, including in Libya, plagued for so many decades by Gaddafi’s economically illiterate brand of national socialism.

Apart from the likes of Dubai, oil remains far too important. Worryingly, industrial production’s share of GDP has remained constant for the past few decades; in countries such as China, by contrast, it has surged. Arab states account for 20 per cent of world fuel and mining exports, but only one per cent of exports of manufactured goods. In some Gulf countries, oil money has been used to buy off large chunks of the public, with the creation of massive middle class welfare and client states; in others, while living standards have improved, progress has come too little, too late. The creation of sovereign wealth funds has ensured oil money is no longer being entirely squandered, as has some infrastructure spending, but this hasn’t been enough.

It is not, of course, just about economics. But unless new regimes in Egypt, Libya, Tunisia and elsewhere introduce real market and tax reforms, proper property rights and sound money, and embrace free trade, there is no hope for the region. It must emulate the emerging nations of Asia and Latin America, or remain forever mired in despair and decline.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath

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