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An Economic Ultimatum for the Arab World

WASHINGTON, DC – If Middle Eastern countries do not start making real progress on fundamental political and economic reforms, further regional turmoil is inevitable. With the rentier systems that governments have maintained for decades now at a breaking point, policymakers must begin the difficult, but not impossible, process of establishing new social contracts.

That contract in Arab countries started to erode at the turn of the century, when governments with inflated budgets and bloated bureaucracies could no longer provide an adequate supply of basic services such as health care and education, create a sufficient number of jobs, or sustain food and fuel subsidies. But, despite diminished state benefits, most leaders have continued to insist that their countries’ people uphold their end of the contract by not participating meaningfully in public life.

Arab governments were able to sustain inefficient economies for decades because they were propped up by oil revenues. In recent decades, most Arab countries have benefited in some way from the Middle East’s abundant oil and gas reserves. Hydrocarbon-producing countries used their profits to buy their citizens’ loyalty and establish what were effectively welfare states; and non-oil producers enjoyed the benefits of aid, capital inflows, and remittances sent back by their nationals working in resource-rich countries.

Because the governments of oil-producing countries used revenues to provide for most of their people’s needs – including jobs, services, and favors – these governments fostered a culture of dependency, rather than encouraging self-reliance and entrepreneurship to expand the private sector. What’s more, because they did not need to tax their citizens to generate revenues, people had little recourse to challenge authoritarianism. The political culture reflected a simple principle: “no taxation, no representation.”