New governments of the Middle East should bury rentier economies once and for all. But how would they do that?
In our previous post, we tried to commence this discussion. We argued that oil economy is not sustainable and undermines the productivity of the resources of a country. It is vulnerable to manipulation and leads to exploitation of resources and causes over-consumption. But there is more than that. Monolithic economies also escalates fragility for supply shocks particularly driven by political turmoils. For instance, Tunisia and Egypt are expected to have a sharp decline in economic growth in 2011. (0.007 percent and 1.2 percent respectively. Source: IMF) This is mainly due to the dramatic fall in tourism revenues and FDIs triggered by the upheavals. (Current Account Deficit Tunisia: 2.8 Billion USD, Egypt: 4.7 Billion USD. -2011 forecasts Source: IMF). That was also the case for Libya in 2008 when oil prices hit bottom due to the global financial crisis. The country’s economy shrank by 2 percent in 2009.
Nevertheless, economy is not always about economics. Troubled economies often built upon decayed political systems. MENA economies were no different. First of all, they were born crippled thanks to the self-seeker dictators. Challenges begin with state’s ownership on energy resources. This usually leads to exclusion of companies without political ties from the market and therefore markets are dominated by companies with strong political connections. These companies again do business with the firms with same characteristics (nepotism). It should also be underlined that these enterprises are often owned officially or informally by dictators, politicians and/or their relatives, causing the market to be packed with pro-government “entrepreneurs” who refrain from economically rational decision making. At the end, nepotism that is believed to be peculiar to government structures, sprouts up in markets too, making efficient production irrelevant. It will be a grave mistake if new governments choose to continue this failed economy. In the short term it will not only revitalize the failed aspects of the economy but also the malignities of the previous authoritarian regimes and create new tyrants no matter how strongly you build the political system. And even perception of a rentier economy’s return leads to political unrest eventually.
Nevertheless, economy is not always about economics. Troubled economies often built upon decayed political systems. MENA economies were no different. First of all, they were born crippled thanks to the self-seeker dictators. Challenges begin with state’s ownership on energy resources. This usually leads to exclusion of companies without political ties from the market and therefore markets are dominated by companies with strong political connections. These companies again do business with the firms with same characteristics (nepotism). It should also be underlined that these enterprises are often owned officially or informally by dictators, politicians and/or their relatives, causing the market to be packed with pro-government “entrepreneurs” who refrain from economically rational decision making. At the end, nepotism that is believed to be peculiar to government structures, sprouts up in markets too, making efficient production irrelevant. It will be a grave mistake if new governments choose to continue this failed economy. In the short term it will not only revitalize the failed aspects of the economy but also the malignities of the previous authoritarian regimes and create new tyrants no matter how strongly you build the political system. And even perception of a rentier economy’s return leads to political unrest eventually.
To Do List
So first things first. Fighting corruption should be the first priority. The new governments of MENA, of all people, should know the perils of a decomposed public services system. New governments strengthen their legitimacy only if they could introduce concrete legislation (constitutional articles, laws, regulations etc.) to eradicate this mess. It is important to pass a full-package legislation for public servants, one that ensures their rights as an employee, introduces decent salaries and punishes the corrupted ones.
Secondly, institutionalize transparency. The immediate action, in this respect, should be to establish a decent government institution that provides periodical and reliable statistical data. MENA countries have deprived from proper statistical organizations so long that, it is almost impossible to make realistic forecasts or evaluations on any matter (be they past or future socio-economic issues). Data collected from the old institutions are worthless. They are false, non-periodical and for propagation. For instance, some of these data claim that the unemployment rate in Libya is 13 percent and Tunisia’s population below poverty line is 2 percent (where as real numbers are around 35 percent and 20 percent respectively). Unlike dictators’ belief, uncertainity does not provide relief for masses, it leads to unrest due to the bright picture presented by government institutions when this is not the case. So no more distorted data. People have a right to know if and when something is wrong.
Thirdly, encourage new national entrepreneurs (not the old ones) to set up legitimize businesses. It is very important to introduce incentives particularly for young investors who are willing to embark on underdeveloped sectors. Most of the sectors in MENA economies were dominated by the inefficient old companies (state-owned mostly) so long that it would be hard to cultivate competitive businesses in the short-term. However, with the help of a result-oriented, sector-specific strategies, it might hopefully be possible. Moreover, liberalizing financial sector and guaranteeing FDIs with substantial laws to provide smarter ways of finance (such as micro-credit) to new investors is also essential.
Furthermore, increasing the quality of public services particularly education and health should be another priority. Privatization and/or pricing these services could be an option. Free service does not come with quality as it is experienced in Bin Ali’s Tunisia and Gaddafi’s Libya. This blog believes that it is equally important to maintain strong social security systems where income per capita is still weak and to restrain private sector from seizing these public services all together. Nonetheless, social security is only sensible if it could provide quality social services; etatism, by itself, could not perform a heart surgery.
Privatizing the Middle East Peace
Privatizing the Middle East Peace
Lastly, the mood is appropriate to bring forth a concrete regional trade bloc. Unlike the GAFTA fiasco (see here), this bloc should aim to work as the Marshall Plan for the Middle East. The organization, at the outset, might envisage protection of certain sectors (infant industries) for a while in order to make them competitive in regional and global markets. Nonetheless, it would eventually lead to stronger commercial ties in the global markets as well as the regional ones.
Now that dictators are all gone, this fora would be a representative and inclusive model that would be poised to teach “cooperation” to the Middle East. It could distribute different roles for the region’s economies and enable specialization and division of labor, making trade among MENA countries possible and profitable. Such close economic relations would also facilitate settlement of political disputes. This could roughly be called as the “privatization of the Middle East peace”.
MENA is entering to a new era. With first elected governments taking the offices, they will find many problems on their hands. The most urgent one is, no doubt, the economy and how they’d deal with it. They should not make the same mistakes as their predecessors did since now they know what the consequences might look like.
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