Just in case you were feeling optimistic about North Africa and the Middle East…

…Arvind Subramanian wants to bring you down. Writing in the FT:

Even if the people of Libya and Bahrain join those of Egypt and Tunisia in overcoming their cursed political systems, the economic manifestations of their rent curses will remain. Even if they become more democratic, because these countries benefit from substantial rents they will have less need to tax their peoples. This precludes the need to reform state controlled industries to create private sector wealth. It also will stop the development of genuine democratic systems, the usual basis for the legitimate taxation of citizens.

…On this reading the long-term economic prospects for these nascent Middle Eastern democracies remain gloomy. The economic challenge they face is much more fundamental than the often-heard prescription of greater globalisation and more markets. A decisive break with their own national histories is needed, and this means ending their reliance on rents as a first step.

…Venezuelan politician Pérez Alfonzo once said that oil’s effect on development should see it labelled the “devil’s excrement”. This counts double for economic rents in general. Political change in the Middle East is well under way, but the economic clean-up job is barely begun.

He may be glum but he may also be right.

To have me rain on your parade, look back at my post after Mubarak fell.

7 thoughts on “Just in case you were feeling optimistic about North Africa and the Middle East…

  1. I’m no economist, so I’m wondering, maybe on a slightly more positive note, is there any research on the circumstances under which oil revenues (or revenues from other natural resources) are actually conducive to democratic developments? Maybe they never are, but as I said, I’m not economist, so I would be interested in research or comments on this…

  2. I think it is right to be cautious, since leaders can be removed quickly, but broad institutional reform, let alone fundamental social and economic change is a lot more difficult (even when one assumes a sustained will to see these through), and the outcomes are by now way certain. Egypt did not become Canada overnight, nor will Libya be like Switzerland tomorrow.

    However, I also feel that pessimism is misplaced here. No matter what lies ahead, what’s happening now in North Africa remains hugely significant. The demands for democratic institutions and freedom of expression are more than legitimate. If the ‘revolutions’ achieve any progress towards these goals, that’s already a big deal – for the Tunesian, Egyptian, Libyan etc. people themselves as well as the relations between them and the geopolitics of the area and the Middle East.

    Sure, measured against the whole journey, a single step is always going to look insignificant. But it remains a fact that paths now lie open which were closed before. The focus should now be on keeping these paths open – and I don’t think doom and gloom are particularly helpful here. Overall, I think it’s better to now think in terms of what’s possible.

  3. I gee with Aldwin above. Me thinks that the doom and gloom is not only unhelpful but uncalled for. As Australias are know to say for people of Chris’s manic depressive demeanor: “take a chill pill mate”! So, may i join them and also say, Chris, “chill out!”you never know, this could be part of that decisive step that is called for.

  4. There a couple of interesting points to ponder here.

    First, the “resource curse” is real. Creates more inequity than resource-poor developing countries.

    Second, Subramania’s assumption is that the tools used for social change and citizen scrutiny in Tunisia and Egypt will not be used in the post-regime period. There is a general assumption that only hierarchy can overthrow hierarchy. (more at http://www.freebalance.com/blog/?p=1630) And, that only strong civil society institutions can overcome governance failings. And, that new leaders will succumb to the same temptations as the old. These are all valid concerns, but social media is constraining the wiggle room for oligarchy.

  5. I suppose my point is that structural problems, like the ‘resource curse’, do not lead directly to political outcomes: they are mediated by social and political institutions. To say that no meaningful change is likely or possible seems overly deterministic, negating the fact that much will depend on the way in which legal systems and political institutions are redesigned over the next couple of months. There can be positive lock-in effects after that.

    All I’m saying is that the fact that there is now an opportunity to redesign political institutions is hugely significant, and it doesn’t help to shake your head and say ‘it will never work’. The current degree of social mobilization (plus literacy rates, media access, etc.) gives me reason to hope, while admittedly many also remain to fear things may change little, or for the worse. All we Western folk (or non-Western folk, I don’t know who Chris’ other readers are) can do is be supportive of civil society and, when asked, provide technical advice on legal and institutional issues. But mainly we’ll just have to watch and see how others write their own history.

  6. Prediction appears to be a professional sport for economists. Just like baseball is a national past time for Americans. So, it comes as little surprise when economists one after the other use cyber space to foretell what is going to happen in North Africa and the Middle East. This obsession in the art of prediction is surprisingly strong even after three recent events which caught everyone off-guard. Mainstream theories in economics and political science failed utterly to foresee the recent financial meltdown or the rise of China or the on-going political upheaval in the Arab world. Now, the likes of Subramanian and Blattman profess about the improbability of democracy and economic development in the Arab world because of the over-played resource-curse theory! Sometimes, even once in a blue moon, it does not hurt for them to say ‘I have no clue.’

  7. I’m under the impression that both you and Chris are correct in your thoughts. It looks to me like your thoughts are on the present and the near future. If I am correct in this assumption, I agree with you. The democratic door as you put it is “open”, and is wider than these states have seen in quite some time (if ever). Moreover, there is hope for the people of these countries, something to rally behind, something to believe in, and potentially something to spread beyond Libya. Western nations can pressure others with economic incentives and coercion, which in some cases may do more to hurt the cause than anything. However, if the spark comes from within, a flame might be lit that can stay burning for quite some time.

    The pessimism of Chris’s re-post comes more in dealing with the future- specifically with the plausibility of installing a democratic system, not so much with ideology. With this belief and desire for freedom, there are substantial economic barriers that won’t lead them to take full advantage of a democratic society, not necessarily because they don’t want to but because their economic system is set up to hinder private business, obviously a main component of a democracy. Moreover, the extremely high rents that Libya has imposed, in one sense “close” the economic door to open markets or free trade, and as the write points out, could lead to taxation problems that may further hinder a democratic government.