Sunday, October 22,  2017

Economy

Will the Arab Spring Give Rise to a New Economic Equilibrium?

By Ibrahim Saif

Rather than economic growth serving as stabilizing factor, it gave rise to tensions, deepening divisions and increasing frustration levels amongst those who had been deprived of the fruits of growth.


The revolutions and protests being witnessed in a number of Arab countries are partly an expression of   anger and a sign of dissatisfaction with the economic situation and the prevalent imbalances in these countries. This is accompanied by a state of political tension resulting from the absence of broad-based participation in the decision-making process.  


With regard to these countries, we must distinguish between two groups: non-oil producing countries, which suffer from budget deficits and growing internal pressures demanding a restoration of government intervention in the economy in order to achieve a new economic equilibrium; and oil-producing countries in the Arabian Gulf which do not suffer from anywhere near the same level of economic problems.


What is meant here by a new economic equilibrium is the achievement of new relationships in society between economic and social players on the one hand and politicians on the other. The effort to accomplish this equilibrium is common to most Arab countries, notwithstanding that the elements of the new balance differ according to the economic and social composition of each individual country.  

The financial crisis forced a retreat from free market policies which had often ignored and undermined the strengthening of regulatory oversight institutions and ignored the concept of social justice and the disparity in income levels and the inadequate levels of job creation.
The focus will primarily be on countries undergoing radical transformations such as Egypt and Tunisia, and other countries which are still weighing their economic options like Morocco and Jordan. But there is no question that the current and dominant trend of relationships between the state on the one hand and the private sector and other players - including paid labor and small and medium enterprises - on the other is no longer acceptable and is in critical need of review.  Some of the issues relating to this equilibrium are for example salary and wage rates, working conditions, market structure and price setting.   


Prior to the eruption of revolutions and social and political protests, the growth achieved over the past decade was high by any measure and some countries such as Tunisia and Jordan were portrayed as success stories.  What these growth estimates did not convey were the social repercussions and impact of these high growth rates on general welfare levels, and the degree of effectiveness of social spending and basic services in these countries.     


Since the early 1990s when economic reform programs were first set in motion in numerous Arab countries such as Egypt, Tunisia, Morocco and Jordan (Syria also witnessed economic transformations although the relevant policies went into effect belatedly compared to the aforementioned countries); an imbalance arose between the very admirable growth which only benefitted a small segment of the population, and education and basic services which were becoming less effective - exacerbating the lack of equilibrium in those societies. Rather than economic growth serving as stabilizing factor, it gave rise to tensions, deepening divisions and increasing frustration levels amongst those who had been deprived of the fruits of growth.   


So what might the Arab Spring change? 

For starters, one cannot underestimate the importance of the ideologies which were dominant over a many years, led by influential international institutions such as the World Bank, the International Monetary Fund and the World Trade Organization. These institutions concentrated on factors of stability and growth, disregarding the collateral issues that growth was supposed to address and remedy. This ideological framework lost its appeal with the onset of the global financial crisis in the second half of 2008, when economic policies applied in Western countries were linked to the global financial meltdown, thereby driving many countries that previously considered growth models in the West as the optimal means for boosting welfare rates, to review their policies. This applies to countries that adopted economic reform programs out of necessity in addition to oil-rich Arabian Gulf states which subscribed to these ideas out of admiration for the achievements of the European countries and the United States.  Blaming the financial crisis on these policies forced a retreat from free market policies which had often ignored and undermined the strengthening of regulatory oversight institutions and ignored the concept of social justice and the disparity in income levels and the inadequate levels of job creation. It is likely that these variables will be incorporated in the new equation, instead of being perceived as side effects of the economic transformation process. In order to achieve this new equilibrium, drafting of economic decisions, assimilating marginalized segments, and giving an opportunity for active economic players to take part in decision-making becomes a necessity in what is referred to as ‘inclusive growth’ which has emerged as an acceptable term and framework in decision-making circles in the Arab countries.      

Reform programs focused on the large enterprises of the private sector, represented by chambers’ of commerce and industry and large-scale corporations in sectors such as banking, telecommunications and services, whilst ignoring the interests of small and medium-scale establishments
The second factor relates to the political order which was set up and responsible for the implementation of economic reform programs that did not take into account the interests of smaller segments such as SMEs (small and medium enterprises) or workers in the unofficial sector (who represent - in Egypt for instance - roughly half of the workforce). Moreover, the agricultural sector was neglected and unsurprisingly its contribution to gross domestic product declined in Morocco, Tunisia, Jordan and Egypt during the past decade.  The fact is, reform programs focused on the large enterprises of the private sector, represented by chambers’ of commerce and industry and large-scale corporations in sectors such as banking, telecommunications and services, whilst ignoring the interests of small and medium-scale establishments - except with respect to what benefited the interests of major corporations. Country-specific assessments, by some international institutions like the World Economic Forum or the ‘Doing Business’ report issued by the World Bank began to base their findings on the degree of satisfaction of the private sector vis-à-vis the status quo, or in other words, the private sector’s degree of satisfaction with the government.       


During the abovementioned economic transformations, and in the absence of a political climate capable of implementing a new system of governance, implementation was accompanied by a high degree of corruption and the weakening of regulatory and legislative institutions. This resulted in two things:  the first pertained to the implementation of privatization programs and the transfer of public sector property to the private sector, led by a group of influential people from both the public and private sectors working together to serve their own narrow self interests; and the second was related to the systematic weakening of the role of institutions. Successive Egyptian parliaments for example were weakened to such a degree that they did not participate in devising policies or conducting the necessary discussions regarding the legislation governing economic affairs. Privatization simply came to mean the provision of a legal framework for moving assets from the public to the private sector.        


So How Did This Happen? 

During this period of economic transformation, the issue of “security” dominated political life under the pretext of preserving stability and out of fear of the extremist “Islamist alternative.”  


The reality of the matter was that the security institutions were not subject to any form of oversight from regulatory/monitoring institutions, such as the legislative council and anti-corruption agencies, which  allowed the security institutions to expand beyond the borders of their supposed security role. These security institutions became partners in numerous businesses in the communications sector and on occasion in service sectors like health and education.      


Accordingly, an undeclared alliance was established between the security services and their institutions and a certain category of businessmen, in order to facilitate the execution of policies that were imposed on Egypt by international institutions. Agencies lobbying for labor rights or consumer protection were weakened, and the ratio of wages to GDP decreased in Arab countries beginning in the 1990s and continuing through the new millennium, meaning that the bulk of growth achieved accrued to and enhanced the opportunities of owners of assets. Given a blend of weak institutions, coordination between security services and money, and weak oversight; it was only natural for corruption to run rampant, for economic diversification to not occur, for economic competitiveness to be prevented – all factors resulting in increasing the income gap between the rich and the poor.    


But the Arab Spring carries within its fold the promise that this trend and picture will change. The shrinking role of the security institutions means the alliance between them and the business sector is beginning to dissolve. Furthermore, the loosening of the “security grip” provides the possibility of unleashing civil liberties - even if only partially - during this transitional period, allowing room for the rise of unions and syndicates which can defend the groups that have previously been marginalized.   

One of the solutions offered by countries undergoing transformations is to broaden the scope of political participation and conduct public dialogues that bring a wide spectrum of groups and sectors of society together; this is one of the few options available to these countries to preserve their stability and safeguard their future.   
There is consensus that institutions which used to claim that they were defending labor and consumer rights were in fact facades for polishing the image of political regimes.  Let us hope the syndicate and unionist movements active in Tunisia and Egypt reflects the future of how union activity can and should become. In Egypt for example, a new union was elected for the Worker syndicates and the old one was cancelled along with its modus operandi. Egyptian doctors and teachers also organized protests and strikes after the downfall of Mubarak, demanding the improvement of their working conditions. In Tunisia, the General Labor Union became a potent political player during the transformation period witnessed by the country in 2011 and 2012.   


One of the solutions offered by countries undergoing transformations is to broaden the scope of political participation and conduct public dialogues that bring a wide spectrum of groups and sectors of society together; this is one of the few options available to these countries to preserve their stability and safeguard their future.   


Practically speaking, the experience of Egypt and Tunisia has provided a positive model thus far. In Tunisia, some civil society institutions are regaining the true roles they were supposed to play in society - as indicated by the frequency of social and group-specific protests - and the new movements are raising slogans calling for a new social/economic equilibrium, while at the same time not rejecting the prevalent system of income, profit and wage distribution, although they do not accept the concept of corruption and covering up corruption, which has governed and affected economic decisions for decades.      


Political movements, such as the Sixth of April in Egypt and the Social Left in Jordan, are raising the slogan of social justice. If these groups become part of the legislative institutions, they will be put to the test to determine if they will keep up their slogans and to what degree they will continue to defend them.  It is common knowledge that the economic programs of the Islamic movements that succeeded in Morocco and Tunisia espouse slogans that are different from the prevalent slogans and policies in those countries. It remains to be seen how these slogans will be translated into reality.     


If legislative elections were to be carried out, a new equilibrium would occur by default – reflecting the interests of broad segments of the population via the ballot box -this is the crucial new factor upon which many pin their hopes. Perhaps the elections in Tunisia and Egypt and the capturing of a majority of the parliamentary seats by Islamist movements are the best expression of the new equilibriums that we have mentioned.       


As for countries which are still weighing their options such as Morocco and Jordan, the picture appears less bright and it is unclear how the new equilibrium will develop, given that most of the popular demands are being met by boosting public spending, and not via drafting policies that are radically different from the prevalent ones.  As for the Arab Gulf countries, they have also resorted thus far to increasing public spending - as is the case in Saudi Arabia and Qatar. In Bahrain, the kingdom resorted to a security solution to handle protesters, whilst in other Gulf countries demands for change are still developing and evolving.


The indisputable truth is that a new equilibrium that is more representative of the interests of the various strata of society is in the making, either because events on the ground forced the change - like in the case of Egypt and Tunisia, or for reasons related to the adoption of a new economic model as is the case in the Arabian Gulf. There are many parties trying to improve their position in society while the traditional powers are striving to maintain the status quo. The challenge is as follows:  How can the new arrivals on the decision-making scene form an alliance, establish a new equilibrium and achieve the economic growth that can help solve the problems affecting the countries concerned?