JEDDAH, 25 October 2004 — If one compares economic conditions in the industrialized nations with those in the Middle East (save for Israel), one cannot help realizing the active involvement of governments’ intervention in their respective economies. There is but one method available to improve the conditions of the whole Arab population, to accelerate the accumulation of capital as against the increase in population. The only method of rendering all people more prosperous is to raise the productivity of the Arab labor, i.e., productivity per man hour, and this can be done only by placing into the hands of the worker more and better tools and machines. What is lacking in the countries of the Middle East is saving and capital accumulation. There is no substitute for the investment of capital.
It has been planted in the culture of most Middle Eastern countries that it is the duty of the government to interfere with the operation of the market whenever the outcome of this operation appears to the government as “socially” or “culturally” undesirable. This means: The individuals in their production activities and in their buying and selling on the market are free as far as they precisely do what the government wants them to do; but they are not permitted to deviate from the course approved by the authorities. One example, is the Arab boycott of Israeli products. It has long been a known fact, that this tiny country has constantly developed the state of the art in high-tech industries, agriculture, medical equipment, etc.. Israeli exports have been significant and sizeable on a global scale, yet Arab countries failed to recognize that fact. Instead of establishing a healthy trade relationship, they chose to boycott all Israeli products.
In all Arab countries, their economies are based on what is known as the “planned economy” which is the most rigid system of enslavement history has ever known. Nobody is free to deviate from the role the plan assigns to him. From the cradle to the coffin all actions of consumers and producers as well as their behavior are exactly prescribed by the authorities.
Arab countries need to wage an “all out war against poverty.” The only method of reducing poverty and of supplying people more amply with consumers’ goods is to produce more, better, and cheaper. This is what profit-seeking business aims at and achieves, provided sufficient capital has been accumulated by saving. What will reduce poverty is making commodities more easily accessible by producing more, better and cheaper, and eliminate altogether the Arab boycott of Israeli products.
A governmental system that spends every year billions of dollars to subsidize local industries will make the products to consumers more expensive should certainly have the decency not to boast of an alleged war against poverty.
In the Middle East, population has been increasing considerably. But the economic policies of these nations are preventing an expansion of the insufficient amount of domestic saving and capital accumulation; sometimes they even directly induce capital de-accumulation. As there is no longer any importation of foreign capital worth mentioning, the per head quota of capital invested decreases. The result is spreading unemployment.
Unaware of the causes of unemployment the governments try to remove it by various measures which are so costly that they by far exceed the public revenue and are financed by the issuance of additional fiat money (printing money by central banks). Inflation still more discourages domestic saving and capital formation.
What the Arab countries must do if they sincerely want to reduce poverty and to improve the economic conditions of their people is to adopt those policies of “rugged individualism” which have created the welfare of Western Europe and the United States. They must resort to laissez faire; they must remove all obstacles in the face of the spirit of enterprise and domestic capital accumulation and the inflow of capital from abroad.
In the early 1960s and 1970s, the Arab people began to contrast the unsatisfactory conditions of their own countries with the prosperity of the West. They could not help realizing that the Europeans and Americans have better succeeded in fighting poverty and starvation than their own peoples. To make their own peoples as prosperous as those of the West became their foremost aim. So they sent the elite of their youth to the universities of Europe and America to study economics, management, finance, engineering etc... and thus to learn the secret of raising the standard of living.
This is what those professors — peacemakers of inflation, deficit spending and taxation — taught those Arab students: Rugged individualism, the policy of laissez faire and private enterprise are the worst evils that ever befell mankind. Instead, The welfare state will bring prosperity and security to everybody. The economics of abundance and plenty will be substituted for the economics of scarcity. Production for use will be substituted for production for profit. There will be freedom from want; i.e., everybody will get all he wants.
Never did those professors mention that there is no means to improve the conditions of any nation or the whole of mankind other than to increase the per head quota of capital invested. On the contrary they indulged in pure “Keynesian economics” that encouraged deficit spending and warned them of the dangers of saving and accumulating capital. As they saw it, the state had inexhaustible funds at its disposal that enabled the government to spend without any limits.
What the industrialized nations must comprehend that it is impossible to improve the economic conditions of the Arab countries by grants in aid. If the Western nations send foodstuffs to fight famines in some Arab countries, they merely relieve their governments from the necessity of abandoning their disastrous agricultural policies.
If they “lend” them dollars, they are virtually paying for the deficits for the excessive government’s spending including their nationalized transportation, communication systems and processing industries. The problem of rendering the Arab nations more prosperous cannot be solved by material aid. It is a social and intellectual problem. Prosperity is not simply a matter of capital investment. It is an ideological issue. What the Arab countries need first is the ideology of economic freedom and private enterprise and initiative that makes for the accumulation and maintenance of capital as well as for the employment of the available capital for the best possible and cheapest satisfaction of the most urgent wants of their consumers. In no other way can the United States contribute to the improvement of the economic conditions of the Arab countries than by transmitting to them the ideas of economic freedom.
(Abdelmenem Jamil Addas ([email protected]) is a professor of financial markets, at the College of Business Administration. He is based in Jeddah.)
