The current tumultuous state of affairs in the Arab world raises questions on the nature of the state system.
The cumulative consequences of bad governance have put the Arab societies on the edge politically and economically.
The Egyptian and Syrian cases manifest governance failure at its most basic levels.
Except for the large majorities of people in the Gulf, most of the Arabs are poor.
The lack of development phenomena in the region is pervasive both horizontally and vertically.
The oil riches did not save most people in Iraq, Libya, and Algeria.
Even those countries that escaped the so-called oil curse managed not to develop like Morocco and Tunisia.
The Foreign Policy magazine ran a piece on Morocco recently proving that far-reaching constitutional reforms failed to bring about improvements in governance, particularly in the economic sphere.
The failure has its roots in political and economic choices prevailing decades earlier. Yet the Arab masses and a significant portion of the elites seem to dwell on the political aspects at the expense of the economic aspects.
In essence, the Arabs made a fateful decision to politicize everything forfeiting any economic responsibilities.
They failed to make choices, and economics is a matter of making choices. This is a mistake of strategic proportion .
Since the advent of the industrial revolution, if not before, the economic thinking and order has been governed by two schools of thought.
As Harvard Professor Dani Rodrik reminds us, economic history is a struggle between these two schools.
The first one is ‘Liberalism’ where the central concern is the consumer need and satisfaction.
In such a model, the public sector is perceived negatively while the private sector and its role in fostering competition is encouraged.
Fiscal and monetary policies are geared to serve the model, including the welfare aspects.
A strong currency is deemed attractive as it dampens imported inflation.
The developed countries of the West and Japan practice such a model.
The second is ‘mercantilism’ whose primary feature is a collaborative effort between the government and the public and private businesses to broaden the productive capacity to export.
The attendant fiscal and monetary policies are deployed to serve the goal of achieving trade surplus via lower exchange rates and control on bank lending.
China and few other developing countries are the best examples for this model.
The duel between the two schools and the timing is a reflection of the level of economic development and the nature of the economic challenges, its absolute and relative positions, and the choice made by its governing elites and their ability to deliver.
The financial and economic crisis is seemingly forcing countries that practice the liberal order to be defensive as exhibited by the looming currency wars attest, while a country like China seems to move grudgingly to the liberal order to satisfy its hungry consumers, stave off international pressure, and embrace natural progression.
This an economic thought-driven duel that the Arabs seem not to be part of.
Key choices have not been made. One can say even proper diagnosis has not been undertaken.
Except for Dubai, the economic order in Arab states is an eclectic free for all where countries seem to practice certain aspects of both schools at the same time and sometime in contradictory terms.
This incoherence creates confusion in the all-important signaling in economic management, fosters waste, and engenders weaknesses in the societies as different groups use politics to operate independent of the whole.
Eventually, it blurs the lines between politics and economics poisoning.
This negative cycle is largely due to inability to make fundamental choices in economic thought and order.
The Arab masses today demands the fruits of liberal economic order.
The new elites came on the back of promises to deliver such fruits while they know they do not exist.
There are no fruits because the societies have not gone through the mercantilist order. Would the new political order allow the elites to galvanize enough social force to make a thoughtful choice and act upon it? That’s the key challenge.
— Fawaz H. Alfawaz is a Riyadh-based economic consultant
