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Friday, February 18, 2011




Reform and Die

February 18, 2011

Getting ahead of the Curve


President Obama warned America's autocratic allies in the Arab World that they cannot crush the Middle East's youthful "hunger" for change and should get ahead of the reform curve. This "reform or die" narrative does not square with the obvious fact that political and economic reforms in the Middle East don't travel together. The youthful hunger for jobs and elections and the Arab Street's general hunger for bread don't equal hunger for more of the badly needed free market reforms. An article in Spiegel points to this paradox - the very opposition groups are a hindrance to progress, at least to economic progress.

"Many of them are not market-economy-orientated. They are dependent on religious or left-wing ideologies," says Assaad. Yet, in order to improve the living standard of their populations, these countries have to make an effort to attract investors. "I don't know how the leaders of the opposition can sell that to their base," he says.

Source: No Quick Fix for Arab Youth's Economic Woes

I was making the same point occasionally before. The anger overload that's driving the unrest in the Middle East and elsewhere is in part a result of socio economic conditions created by a demographic explosion. To be more specific, most Arab countries are having right now the biggest youth cohort ever born in the history of the region making landfall on the already stressed labor markets. Many regimes around the region have spent the last two decades reforming their economies and have achieved a significant economic growth. The unemployment and related social ills, however, persist despite these achievements because workforces around the region are growing too fast.

Spengler was ridiculing Thomas Friedman's "Egyptians want to shape their own destiny" in ATimes, arguing that "Unless Egyptian intelligence has secretly mastered weather modification, Egyptians have very little say about their own destiny". In reality, Egyptians and other Arabs have very little say about their destiny because they have no say about their past. It's impossible to retroactively cancel births that happened in the last 30 years. It's this fact, and not the lack of political or economic reforms, that drives populations around the region nuts.

On top of this, the reforms hurt the population. In some countries the reforms even exacerbate unemployment and job insecurity at the beginning. This is particularly true about countries like Egypt and Syria who are moving their economies away from the legacy of the socialist past. Privatizations, trimming of bloated bureaucracies and similar measures are accompanied by massive layoffs. The population obviously does not like it, never mind subsidy cuts, and the reform fatigue accumulated over the previous years seems tremendous. The popular support for the political reform comes in part from the desire to roll back the economic reform of the last decades. The catch22 here is that rolling back the economic reform can only slow down the economic growth and drive the unemployment to new records.

Basically, the political reform, if implemented right now, can only end laying ground for another escalation and instability, even more severe than the current one. With Egypt and Tunisia sinking in a sea of labor unrest and the latter probably already teetering on the brink of economic collapse, this is no minor issue. It's a vicious circle in which many countries around are about to lock themselves when the pain exacerbates the instability and resistance to the economic reform which leads to more pain and the cycle repeats itself. Tunisia may yet escape unscathed due to the more advanced state of its demographic transition, but it's hard to see how other countries can avoid this fate.
Some countries may find themselves driven beyond a pain threshold after which the system can't but disintegrate and collapse into chaos.

Of course, it's perfectly possible that destabilization is exactly what the region needs right now. Basically the Middle East has spent much of its recent history in a tight grip of autocratic regimes that in many places succeeded to literally stop history from marching forward. Many are the wars, civil wars and ethnic conflicts that were delayed for decades by this false stability and they are all still there waiting for their hour. The time may have come for this region to be fast forwarded through its long delayed history and the demise of the regimes is the first step in this direction. For some here, however, catching up with the curve of history should be really about getting ahead of the curve of self destruction.

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