Euphoria erupted in Tripoli as rebel forces rolled into the Libyan capital, likely bringing an end to the brutal 42-year reign of Muammar Gaddafi. Libya now joins Egypt and Tunisia on the list of Arab states where opposition movements toppled long-standing dictators. Political change seems destined to take place in Yemen as well, while the horrid regime of Bashar al-Assad in Syria is also fighting for its life. The Arab Spring promises to usher in a new era of freedom and prosperity in the Middle East.
But to make that optimistic vision of the future a reality, these movements have a lot more work to do. The rebel soldiers marching into Tripoli may think they’ve won the war, but they’ve only won a battle. Though they may not realize it after months of bitter conflict, taking power will prove to be the easy part. Keeping it is a whole different matter. To ensure the success of the Arab Spring, the new leaders of the Arab world have to resolve serious difficulties – rebuilding political institutions ravaged by decades of authoritarianism, restoring order to societies in disarray and uprooting endemic corruption. But as I pointed out in a recent TIME magazine story, their biggest challenge, in fact, is economic. The future of the Arab Spring could very well depend on its ability to create jobs. Here’s why:
The roots of the Arab Spring are planted in a half-century of poor economic policy. While Asia successfully connected to the world economy, capitalizing on offshoring and outsourcing to create jobs and increase incomes, the Arab world did just the opposite. Governments tended to favor state-heavy economic models, tying up the private sector in knots and cutting off their economies from international trade and finance. Some regimes were outright hostile to the U.S.-led global economic system (Libya and Syria included). With its anti-globalization mindset, the Middle East got left out of the expanding supply chains driving growth in the rest of the developing world. (That’s why iPhones and their parts are made in Japan, China and South Korea, not Egypt, Tunisia or Libya.) Those countries that did manage to get wealthy off oil exports never seriously diversified their economies into anything else. Though there is an occasional bright spot – Dubai in the United Arab Emirates, for example – for the most part the Middle East got stuck behind the rest of the emerging world. In the 1970s, many Arab states enjoyed similar income levels to those in Asia, but ever since, nations like South Korea, Malaysia and China have zipped by.
The frustration over that miserable economic record is manifesting itself on the streets of the Middle East, from Tahrir Square in Cairo to Pearl roundabout in Bahrain. There is a reason why so many young people have marched against their dictatorial rulers – they don’t have much else to do. According to a report by the International Finance Corp. and the Islamic Development Bank, youth unemployment in the Middle East is the highest the world, at 25%. For women, it often tops 30%. What these young people want is real change to bring real improvements in their lives. If they don’t see that change quickly enough, they could turn on the very politicians they’re ushering into power. That raises the possibility that the Arab Spring will degenerate into endless rounds of political instability, as unhappy young people take to the streets again and again demanding faster and faster reform. That’s exactly what we’re seeing take place in Egypt. The Arab Spring could fail on its economic policies.
My sense after a recent visit to Egypt is that the Arab Spring political movements haven’t wrapped their collective minds around this problem yet. No one seems to have a clear idea of what sort of economic policies these new governments will put in place. In Egypt, there is concern among the business community that the Arab Spring is taking on a distinct populist or even anti-capitalist tone. That’s no surprise. The Egyptians’ experience with capitalism has been of the crony kind – only those connected to the old authoritarian regime enjoyed a smooth path to success. Everyone else struggled to earn a living in an economy preyed upon by lazy, corrupt bureaucrats.
But turning away from the global marketplace would prove lethal. The governments of the Arab Spring countries can’t solve their economic problems and create jobs on their own. The best route to success is to follow the Asian model – tap into the global market to generate jobs at home. That won’t be easy. The Arab states have to play catch-up with the rest of the emerging world, and they don’t necessarily have to the tools to do so. The Middle East countries – generally speaking – have higher costs than the poorer nations of Asia (like Bangladesh), making it difficult for them to attract the sort of low-end, labor intensive factories that sparked China’s economic miracle. But their workers also lack the skills necessary to engage in more high-tech manufacturing. They also suffer from feeble infrastructure and inefficient bureaucracies, increasing the costs of doing business in the region The Arab nations have to find a niche in the world economy, and it isn’t clear what that would be. Is there hope? Certainly. Tunisia already has had some success in wooing factories from Europe with its lower costs and close proximity. Egypt has a huge domestic market that could potentially attract investors looking to provide goods and services to Egyptian consumers. But convincing investors to take a chance on the Arab Spring countries, amid all of the upheaval, will be difficult. The road to prosperity is going to be longer and harder than the one that led to political change.
And if anything, the Arab Spring has set the economic prospects for the region backwards. The conflict and turmoil has scared off much-needed investors and tourism. Yemen’s economy is on the brink of complete collapse. The World Bank sharply downgraded its 2011 GDP growth forecast for the Middle East and North Africa. The new leaders are starting out in a hole.
The economic problems facing the Middle East are problems for the rest of the world as well. If the U.S. and Europe want to see stable, friendly, democratic governments take the place of the dictators in Libya and elsewhere, they’ll have to find ways to support their economic development and job creation. From what I can tell, there has not been enough focus on this part of the Middle East problem in Washington, London or Paris. The primary concern has been on getting the Gaddafis and Assads out while ensuring potentially radical or hostile Islamist regimes don’t take their places. Yet the way to achieve that might well be through economic progress – through jobs, not guns.