Arab States Need Real Economic Reform

By Matthew Cameron

President Obama and other G-8 leaders announced last month that they are planning to offer $20 billion worth of financial assistance to the post-Arab Spring governments of Egypt and Tunisia. Columbia University economist Edmund Phelps notes, however, that those nations need more than just foreign investment and debt relief. They also must reform abusive regulations that allowed previous leaders to distribute economic opportunities as a form of patronage to regime insiders:

“The young protesters of the Jasmine Revolutions of Tunisia and Egypt, many of them university graduates, overthrew the old regime because it impeded or blocked them from careers that would offer engaging work and the chance for personal growth. The protesters did not demand more creature comforts or better infrastructure; they demanded opportunities to make something of themselves.

These young Arabs were being stymied in two ways. To get any good job required connections with insiders, something that ordinary young people could not acquire. And securing some type of self-employment, such as selling fruit and other goods on the street, required licenses, which were limited.”

This is something that donors and Western nations need to keep in mind as they follow through on their aid pledges in coming years. Both Egypt and Tunisia have large numbers of young people and many of those individuals are educated, at least through the secondary level. Although their skill levels may not be on par with those found in Europe and the United States, it certainly seems reasonable to believe they are capable of owning and operating food stands from which they can earn steady incomes. But if arbitrary barriers to entry persist, then no amount of financial aid is going to produce sustainable employment growth among the youth segment of the population. In fact, aid money without attendant economic reforms could make life even more difficult for young job-seekers since it will merely reinforce the strength of entrenched interests. That might be a good way to provide financial security for Egyptian and Tunisian elites, but it’s bad for promoting development among the citizenry as a whole.