The New Global Economy
The Corporatist Threat to the Arab Spring
Edmund S. Phelps
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NEW YORK – 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.
These restrictions resulted in widespread over-qualification, or under-employment, but most of all unemployment. The struggling fruit and vegetable vendor Mohamed Bouazizi in Tunisia set himself on fire – triggering the country’s popular uprising – because he could not get anywhere in this system.
Obviously, some changes in the economic system are needed. An open letter by mostly European economists proposed to G-8 leaders an economic “plan” for Tunisia. Their diagnosis is that Tunisia suffers from a “closed” economy, “authoritarian” governance, and “poor infrastructures.” Their prescription is immediate “food and energy subsidies,” a five-year plan for “investment” in transport infrastructure and the technology sector, and the creation of special “industrial zones.”
This is a terrible diagnosis. The wrong committed by Zine el Abidine Ben Ali’s regime was not that it did not subsidize food or invest in infrastructure (in fact, the regime did both). The wrong was that it deprived masses of citizens of the opportunity to achieve their potential.
The prescription, then, is pointless. Handouts of food and fuel in lieu of jobs, and investments to raise the productivity of work to which only the privileged have access, would do nothing to enable outsiders to compete for good jobs, or to remove the barriers, such as licenses, to self-employment.
In fact, the prescription may even do harm. Prescribing handouts alongside the existing barriers to inclusion yields a noxious mixture that could undermine Tunisians’ work ethic, which is so precious at this crucial time. And the vast investment plan, by offering projects for Tunisia’s elite, might actually widen the gulf between insiders and outsiders – thus worsening oppression.
The needed restructuring in Tunisia and Egypt must begin with two critical steps. The first is to end political control of the business sector by the privileged elite. In Tunisia, they are the relatives and friends of Leila Trabelsi, Ben Ali’s wife; in Egypt, they are the army’s upper echelons, appointed by former President Hosni Mubarak. The second step is to end bureaucratic control of self-employment through licenses and other barriers. Only then could modernization of the economic system proceed.
The system that would be most appropriate for Tunisia and Egypt is basic capitalism – capitalism 1.0 – such as Britain and America developed in the first half of the nineteenth century on their way to having highly successful economies. The bedrock of this system are civil liberties, property rights, secure contracts, courts empowered to uphold the rule of law, local banks linked with local entrepreneurs, financial firms that supply venture capital, ease of market entry by new companies, and so forth.
Unfortunately, Tunisia and Egypt will face serious hazards as they rely on democratic forces and mechanisms to mitigate the oppressive features of the rightist corporatism under which they suffered. One hazard is a leftist corporatism, in which labor unions and well-placed cronies replace the ruling families and army officials, but political control of the economy and bureaucratic control of entrepreneurship are maintained. After all, parts of Europe in the late 1960’s began to construct a leftist corporatism to replace the rightist corporatism that ruled, with some interruption, from the 1880’s to the 1940’s.
This hazard should trouble reformers. Under Ben Ali and Mubarak, a company run by insiders had to worry only that the president might someday demand a cut of their profits or assets. But, in a democracy lacking the safeguards of a strong culture of individual rights and a constitution to protect them, companies might be even more fearful of a predatory state. If so, business investment and job creation will remain quite weak.
Success for these countries will depend on respect for individual rights and the rule of law – including rights to one’s property and one’s profits. It will also depend on a popular willingness to tolerate differences and accept competition – you could lose your job to someone judged more promising.
The religious intolerance that has flared up in Egypt is a warning flag that the spirit of toleration – of “so be it” and “mind your own business” – is underdeveloped in the country. Violence and discrimination against minorities and competitors could distract the region from what should be its main priority: economic rebirth.
It is not clear that Tunisia and Egypt can carry out the economic transformation that they need. For that reason, it is all the more important that foreign help for the region be technical and aimed at removing barriers to jobs and rewarding careers.
Edmund Phelps, the 2006 Nobel laureate in economics, is the founding director of the Center on Capitalism and Society at Columbia University. This article first appeared in Le Monde.
Copyright: Project Syndicate, 2011.
www.project-syndicate.org
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mmeister 07:18 01 Jun 11
Capitalism 1.0 sounds very familiar to what the Chicago school tend to wave pom-poms about. Which is fine, except it never existed in the early 19th century in the idealised form mentioned here - at least in Britain's case. And in the US case involved serious land seizure's from native americans for expansion westward.
The Tunisians and Eygptians will need to find their own solutions based on their own contexts (no powerful army, no frontier to exploit).
Qingdao 07:22 01 Jun 11
britesprite 04:28 03 Jun 11
Surely its just as bad for control of the econonomy to be centered in the hands of a few wealthy banks and financial institutions? Again, the recent experience of the UK and US wil bear this out....
Berlininfo 10:39 05 Jun 11
the biggest mistake at the moment in Praris London and <a href="http://www.berlin-info.de">Berlin</a>. They neglect the Arabspring because they have at home more of their own problems. the revenge we are inthe next few years. It is important to help now to establish good Struck doors and thereis one of them money.
JERRY1COLBURN 02:16 06 Jun 11
I doubt your statement:
“The system that would be most appropriate for Tunisia and Egypt is basic capitalism – capitalism 1.0 – such as Britain and America developed in the first half of the nineteenth century on their way to having highly successful economies.”
With respect, Prof. Phelps, you ignore the roots of American capitalism and society, described similarly by both Max Weber, The Protestant Ethic and the Spirit of Capitalism, and Tocqueville, especially in his opening chapters.
As it happens, I did a Columbia M.A in medieval comparative literature. The coursework presented a clear picture of European capitalist society arising out of the economic and intellectual change brought on by the Plague of the mid-Fourteenth Century.
Grinding through another 150 years of unguided cultural evolution, we find ourselves in history well-covered by Weber and Tocqueville.
For the short term Middle East Spring, I would put aside “capitalism 101” in favor of something like the U.S. Army’s WW2 Civil Affairs Division (CAD). Founded March 1, 1943, the CAD had the mission to plan rebuilding post-war Japan and Germany. In particular, the Occupation had to change our enemies’ cultures, removing the elements that made them militarist.
At the same time, CAD understood cultural change holds only if the people believe life has gotten better.
In Japan we had the benefit of MacArthur’s lifelong study of Asian culture. He immediately gave women the vote, redistributed the land worked by peasants, and wrote rejection of war into the new Constitution.
His staff included a range of CAD experts. One had studied pre-war labor movements; he convinced the leaders to resist Communist infiltration. These older leaders, in quick turn, caused failure of a national strike led by reds.
Another CAD group worked on Japanese epidemiology. By 1947, CAD had saved more lives from the pre-war rates, than the total of Japanese battle deaths in the War.
The CAD results stand before us; yet, America has developed a negative view of this success at “nation-building.” From Vietnam on, our politics has insisted that foreign people can become culturally American on a laissez-faire basis — a doctrinal offshoot of the “free-market” movement that has justified all reasoned government, most conspicuously Glass-Steagall.
KARTIKEYA 04:07 31 May 11
European economists have neglected the reality in Tunisia . Tunisia and Egypt both need to be uplifted from root level . It is a lengthy process.As the author pointed out Tunisia needs only basic level economic plans