The second windfall

As the price of oil rockets, pouring cash into the region, it is the private sector of business investment that should be bolstered, not monolithic state bureaucracies, writes Abdel-Moneim Said*

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Caliph Haroun Al-Rashid, whose ninth century court was legendary for its splendour, is said to have once looked at a cloud and said, "keep going, for wherever you rain, I get the tithes." The same can be said about Arab oil these days. Whatever the world does, oil will sell. But what will the Arabs do with all this money? We all know what happened back in the oil windfall of the 1970s, and I hope we've learned our lesson. We have the largest reserves of oil and natural gas in the world. Our region is making annually $250 billion in oil sales. And the financial assets we own thanks to oil are close to $1 trillion. Such clout comes with a certain responsibility. The world is waiting to see what we'll do next.

Luckily, the oil boom of this decade is not linked to political action, as was the one following the 1973 War. The boom is partly due to the turmoil in Iraq and Venezuela as well as Hurricane Katrina in the US, but it does not have the connotations of war and boycott that accompanied the oil boom of the 1970s. None of this new wealth was expected. Arab analysts had been predicting doom. Many speculated that the war on Iraq would end up with the Americans controlling the region's oil and bringing down its prices. Luckily, the Arabs may have learned something from the past. The windfall of the 1970s was a missed opportunity, for the Arabs weren't savvy enough to invest wisely. This is no longer the case. The Arabs have a better understanding of the world. To many, this region seems enclosed and paranoid. This is quite unfair. We may have been reluctant to open our door to change, but we have been in touch with the world, even more so after the tragic events of 9/11.

Everyone is waiting to see what the Arabs will do with the oil windfall. The question here is not whether the Arabs could free themselves from the shackles of backwardness. It is about whether they will use their wealth to be integrated in the world or stay outside the world order. The last thing the Arabs should do is repeat the 1970s scenario, when many Arab regimes spent the oil money on the central government while stifling the creativity and initiative of their societies. Unfortunately, this seems to be still our default setting, so to speak. Many Arab countries plan to spend billions on salaries and infrastructure, as well as on some programmes to boost exports, industry and real estate.

I see why such an attitude made sense in the 1970s, when most Arab countries had poor infrastructure and entrepreneurial skills. But this is no longer the case. It is one thing to spend money on boosting government services, and another to dedicate a country's wealth to the strengthening of the state apparatus. Arab countries should focus less on bureaucracies and more on democracy and modernism.

Our powerful bureaucracies have held back economic development. With few exceptions, the state apparatus in oil-rich companies is made up of poorly trained locals, whereas the community at large is run by foreigners. This is a recipe for social tension and even violence. Even in non-oil Arab countries, much of the income is generated through rent, not production, a phenomenon that is neither good for society nor state. Much of the money that went from oil countries to non-oil countries was used to strengthen bureaucracies in the latter. This is not the model we're looking for.

Top-heavy bureaucracy is a recipe for despotism. Centralised governments tend to think in terms of security rather than innovation. Arab countries must admit that the only way to progress is to strengthen society, unleash private initiative, and sponsor science and knowledge. Let's spend more on software than hardware. Let's spend more on training than buildings. Let's focus on making our societies knowledgeable and efficient, and this goes for oil-rich as well as non-oil producing countries in this region.

In the past, public spending was used to close the gap between rich and poor and keep rebellion at bay. I don't think that these are the things we should be worried about now. The only way ahead is through investing and learning. Local money should be used in conjunction with foreign direct investment. We don't need more social funds and grants. We need enterprise, capital-rich economies, and companies with regional reach. Arab bureaucracies have failed to achieve political integration in this region. Perhaps we should try economic integration the capitalist way? Let's unleash the power of private capital while continuing to promote political stability.

* The writer is director of the Al-Ahram Centre for Political and Strategic Studies.