Economic Freedom and a Healthier Middle East

The violent storms triggered by the Arab Spring continue to batter the Middle East. As regimes fall, wars rage and nations fracture, is there any reason for hope? A new Fraser Institute study—Institutions and Economic, Political and Civil Liberty in the Arab World—says yes and no.

Before we dig into some of the specifics of the report, a brief detour through history may be helpful as we try to make sense of what’s happening (and not happening) in the Middle East. We sometimes forget that the term “Arab Spring”—shorthand for the wave of anti-autocracy revolutions that began in Tunisia in 2010—traces its roots to the 1968 “Prague Spring,” when Czechoslovakia launched a daring experiment in economic reform and political freedom. Soviet strongman Leonid Brezhnev would have none of it, and deployed troops and tanks to reassert control. More than two decades would pass before freedom was allowed to bloom again in Prague.

The lesson: it’s going to take time for the old order of strongmen and the sword to give way to a new order of political pluralism and economic freedom. Of course, the old order in the Middle East was not all that orderly: Coups, counter-coups, regional wars, inter-state wars, sectarian wars, civil wars, Western and Soviet interventions, and chemical-weapons attacks scar the region’s post-World War II history.

As for the Arab Spring, the Fraser report reminds us that it was a denial of economic freedom that spawned this chaotic period. After a police officer confiscated Mohammed Bouazizi’s vegetable cart because he didn’t have a proper permit, the young merchant tried to pay the fine, only to be slapped and spat upon by the officer. When Bouazizi tried to appeal to the officer’s higher-ups for relief, he was denied a hearing and finally had enough of abusive, capricious, intrusive government. The humiliation and hopelessness—caused by government interference in his livelihood—overwhelmed Bouazizi to the point that he set himself on fire. His death sparked a people’s revolution that toppled Tunisia’s dictator and spawned a geopolitical hurricane.

Bouazizi may have never read Hayek or Locke but what he was seeking was economic freedom—the freedom to use and exchange his property as he deemed appropriate. Regrettably, little economic progress has emerged in the wake of the Arab Spring. This is problematic, as global experience has shown that “economic reform is important not just for its own sake but also for promoting and enabling other reforms,” as my Fraser Institute colleague Fred McMahon observes in the study.

Among the obstacles blocking increased economic freedom in the Arab world are: the discrediting of free markets by periods of phony reform; the absence of comprehensive economic-reform strategies; insistence among elites to maintain what McMahon calls the “clientele-ist” system; and subsidy programs and the preference for public-sector jobs.

Many of these obstacles can be traced to the region’s default to statism. “At the time of independence, socialist ideas were in fashion in much of the Western world. They were associated with anti-colonial rhetoric, reinforcing their popularity with the new regimes in Arab states,” the study explains. “Socialist rhetoric was useful in cementing the state’s power and the thus the privilege of the elites, and in preventing other power centers in the private sector from emerging.”

Not surprisingly, the public sector in the Middle East/North Africa region represents some 29 percent of total employment—about double the world average (not including China).

This default preference for the public sector and toward statism has consequences.

For instance, the global average economic freedom score—based on variables that measure a nation-state’s size of government, rule of law, respect for property rights, access to sound money, freedom to trade and level of regulation—is 6.84. The Arab world average is 6.58.

Or compare GDP growth among developing countries in the East Asia/Pacific region (an average of nine percent since 2004) with that of the Middle East/North Africa (an average of 2.5 percent during the same period).

Or look at some of the region’s key countries individually.

Tunisia enjoys newfound levels of political freedom—it is rated “partially free” by Freedom House, the best ranking among the nations examined in the Fraser study—but it still languishes in the cellar of the economic-freedom rankings.

Likewise, Egypt, which experienced a brief period of political freedom after the toppling of Hosni Mubarak, rates poorly on economic freedom. And with the ouster of the democratically-elected Mohamed Morsi and the installation of a military government covered by a veneer of popular support, the Egyptian people enjoy neither political nor economic freedom. As a consequence, they are teetering between economic collapse and a destabilizing cycle of re-revolution.

As for the Gulf monarchies: Bahrain, Qatar, Kuwait and the UAE rate well on economic freedom but poorly on political freedom and civil liberties. Saudi Arabia rates poorly on economic freedom and abominably on political freedom—registering the worst score of any nation reviewed in the Fraser study.

Even so, some view the old guard in Saudi Arabia as a linchpin of stability. For instance, when the Arab Spring threatened the regime in Bahrain, the Saudis dispatched troops and tanks to prop up their neighboring autocrats. Similarly, when Egypt’s army moved against Morsi, Saudi Arabia provided political cover and economic assistance to the generals. But this Saudi version of the Brezhnev Doctrine is not durable. First, the Saudi regime’s contempt for political freedom and civil liberties is not the wave of the future. Second, Saudi Arabia is not safe from the storm. What the Carnegie Endowment’s Frederic Wehrey calls “the forgotten uprising” has triggered a “deadly cycle of demonstrations, shootings and detentions” in eastern Saudi Arabia.

Owing partly to ousted Prime Minister Nouri al-Maliki’s record of tilting toward his fellow Shiites—which drove Iraqi Sunnis out of the political process and toward radicalization—and partly to the unchecked Syrian civil war—which served as a breeding ground for the metastasizing violence of ISIS—Iraq is disintegrating. Iraq’s Sunnis and Shiites are killing each other at rates not seen since before the U.S. surge. Jihadists have seized vast swaths of Iraq and declared an independent state. And Iraq’s Kurdish region will likely leverage its autonomy into full-blown independence. In short, Baghdad has no time to think about political and economic reforms; it’s focused on survival.

However, the Kurdish proto-state in northern Iraq—the Kurdish Regional Government (KRG)—could serve as something of a role model for its neighbors. After all, KRG has embraced democratic governance and seems to be getting the hang of economic freedom. The Kurdish government is committed to building an “economically free area” and pursuing policies that “encourage trade.” Iraq’s Kurds are launching a stock market. A survey conducted by the Economist Intelligence Unit rates KRG’s business environment better than that of Indonesia, Jordan, Russia and India. And while the rest of Iraq hemorrhages, KRG is studded with “high-rises and five-star hotels,” booming businesses, “modern, wide highways” and new oil pipelines, as The Washington Post reports.

Finally, Jordan ranks 13th on the global economic freedom rankings and boasts better ratings for its economic institutions than the global average. However, Jordan still has work to do on political freedom, rating below the world average on civil liberties and poorly on political rights.

The good news amidst all the bad is that there are models within the region pointing the way toward a healthier, freer Middle East. Even so, if the Prague Spring is any indication, it could take decades before the peoples of the Middle East enjoy lasting freedom.