Al-Ahram Weekly Online   10 - 16 November 2005
Issue No. 768
Economy
 
Published in Cairo by AL-AHRAM established in 1875

Arab reform in perspective

Sufyan Alissa* examines the challenges of economic reform facing the Arab world

Ever since 11 September 2001, the discourse on reform in the Arab world intensified and took new direction. It now focusses on the democratisation of the Arab states, and the inclusion of more actors in the political process. Unlike in the 1980s and 1990s this debate has underestimated the need for economic transformation in the region and has overlooked the precise complex relationship between political and economic reform. While a consensus is forming among both external forces (Western governments and international financial institutions), and Arab governments, political and economic elites and civil society, that political and economic reform is imperative in the region, there is no common understanding of what this reform means and entails.

There are two schools of thought dominating the debate for economic reform in the Arab world. The first thinks that political reform ought to precede economic reform, since changes in the authoritarian regimes logic is necessary to create an enabling environment that required for undertaking long lasting economic reform. In contrast, the second school argues that authoritarian regimes are better equipped to implement successful economic reform. So what is needed to accelerate the process of substantial economic reform in the Arab world? Is it possible to have economic transformation in the Arab world without real political reform? What lesson, if any can the Arab countries learn from the experience of other developing countries, particularly East Asian countries?

In East Asian countries, the economic transformation during the last 50 years came about while those countries were still suffering from corruption and lack of democratic institutions and practices. However, as the authoritarian political regimes were successful in implementing economic development policies, and bureaucracy was insulated from imperative daily politics, these countries succeeded in transforming their economy and thus improving their position in the international market, sustaining a high level of economic growth and reducing mass poverty.

Unlike the experience of the East Asian countries, the main reason for the failure of economic transformation in the Arab world lies in the convergence of political and governance issues that undermine the reform efforts. If the economic challenges in the region are to be met, these issues should be viewed as a crucial complement to the economic reform programmes.

Since the mid-1980s the Arab world has experienced several waves of economic reforms, mainly as part of the stabilisation and structural adjustment programmes prescribed by the Bretton Woods institutions which followed the principles of market reform in reducing the role of the state in the economy. Despite this reform, whether in response to internal or external forces and pressures, the Arab countries have failed to sustain economic growth, improve their position in the international market and promote foreign investment. At the same time, unemployment and poverty rates have increased sharply. In light of these major problems, Arab states and several international institutions have tried to change the style of reform and focus more closely on governance issues, liberalise the economy, thoroughly privatise public institutions and be more sensitive to the issue of unemployment and poverty. In all cases this reform has been shallow, has reproduced the same economic elites that are often close or part of the political regime, and has therefore failed to yield substantial changes in the standards of living of ordinary people in the region.

Arab countries have not undergone economic transformations or fundamental economic reforms that are based on a clear and well defined vision. Arab countries have relied on oil revenue, remittances from abroad and aid to delay implementing fundamental economic reform. These sources have been used as a tool for easing economic and political pressures, and keeping the social contract intact by purchasing loyalty to the state.

Three main factors make profound economic reform in the Arab world imperative. The first of these is that oil revenue is temporary and there is no guarantee that oil prices will not collapse in the coming years as in the 1980s. Second, the high population growth rate, and the need for creating millions of jobs during the coming 20 years, exacerbate the need for reform. The third factor is that labour migration prospects have diminished and thus remittances from abroad can no longer be considered as one of the main sources of revenue in the case of Lebanon, Egypt, and Jordan. Given this gloomy picture and in direct contradiction with the prevailing approach, Arab countries should seize this opportunity and use these resources to mitigate the negative impact of fundamental reform in the nearest future.

In addition, Arab countries often use the occupation of Palestine and recently the occupation of Iraq as an excuse to maintain the status quo and to avoid implementing fundamental reform. Their argument is that reform under this circumstance has the risk of political instability. While this factor plays an important role in some countries, certainly in the case of Palestine and Iraq, for other countries, it indicates the lack of good governance structure and the lack of real political and legal commitment essential to substantive and expansive reform. Moreover there is a lack of transparency and accountability in implementing existing reform policies and programmes, and a lack of inclusiveness of different parties in the reform debate, particularly civil society and representatives of the private sector.

The current political regime in the Arab world does not permit the advancement of the reform agenda while the institutional structure is incapable of creating the needed environment for implementing successful reform policies. This state of affairs strengthens the resistance capability of the groups benefiting from maintaining the status quo arrangements, and limits the space for greater public participation in policy-making and the shaping of the reform agenda. Economic reform in the Arab world needs to move into a new direction if the economic challenges that have been facing the region are to be addressed. Certainly, it needs to be matched with political reform that is based on domestic agenda, so the hope for better quality of life in the region can be more realistic.

* The writer is an economist specialised on the Middle East based in Nuffield College, Oxford University.

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