The High Cost of Incompetent Governance

BEIRUT -- As the scale of the global financial crisis becomes clearer, and its repercussions are felt in every corner of the world, the extent to which entire societies will suffer will depend partly on the quality of their governance systems. Those countries with governments that enjoy the respect and confidence of their citizens are likely to weather the stresses more easily than countries where politicians are viewed with disdain.

I suspect the Middle East, and its Arab countries in particular, will be hard hit by the crisis, for several reasons. The main one is that during the past 35 years since the oil boom of the early 1970s, most Arab countries have not risen to the challenge of responsible governance by developing economies based on productive industries and other economic sectors.

The energy producers have enjoyed using their vast income to develop their countries in a speedy and impressive manner, but without shifting dependence away from oil and gas exports or imported labor. The non-oil producers who account for three-quarters of the Arab population have similarly failed the economic governance test. They neglected to exploit the oil-fueled regional boom and the several hundred billion dollars in worker remittances and Arab and foreign aid they received, and thus did not move towards economies based on productive human resources, creativity, and efficiency.

The net result has been that the Arab world today comprises a sharply polarized population, with about ten percent super-wealthy people (whose global investments are dropping fast) and the rest living modestly at best, and in expanding poverty at worst.

The price of oil has dropped sharply in the recent months, by nearly 40 percent, from almost $150 to under $90 a barrel. Combined with the retreat of global stock markets where so much Arab money is invested, this means that both current income and investment income are dropping fast. This is likely to freeze one of the most promising trends in the region in the past three decades -- the flow of educated young Arab men and women to assume jobs in the oil-based economies.

At the same time, regional and foreign investments in Arab countries aiming to sell to world markets through the mechanisms of trade and financial globalization are likely to slow down. This will add another constraint to the creation of new jobs for the millions of educated but unemployed young people. If the price of oil were to start rising again, that would also make life more difficult for the majority of people in the region, through the price increases that are passed on in every sector of the economy. So the Middle East today is in the vulnerable and unenviable situation in which the majority of its people will suffer economically, for different reasons, if the price of oil goes either up or down.

The problem reflects the cumulative consequences of decades of bad economic management that was camouflaged by oil income and the thrill of globalization. When the bubble burst and reality reared its head, we woke up recently to find ourselves reeling from the double hit of the global financial crisis and a thin domestic economy in the Arab region. The stresses ahead will be felt to varying degrees throughout the region, in the form of lower remittances, stagnant foreign aid, rising unemployment and weaker trade and tourism. These are the prices we pay for developing economies based heavily on oil income, foreign aid, real estate investments, and non-productive commercial trade.

This may also be an opportunity, however, if all the Arab countries -- oil producers and importers alike -- learn from this moment of pain that they have much more to gain from working to develop their productive economic resources through interlocking investments in industry, agriculture, information technology and education than they do by simply riding the global financial bandwagon to wherever it may be heading.

Well, it is headed to a crash currently, and we in the Arab world find ourselves particularly weak and vulnerable, given our lack of economic and financial sovereignty. This is not a problem we can blame on anyone else, other than ourselves. It is an economic management problem at one level, but deep down it is a failure of political governance. Not surprisingly, the major movements of our time in the Middle East -- Islamists, tribalists, militias, populists, ageing nationalists and others -- do not have answers to this problem, either.

This is a moment of potentially historic change for courageous and honest leaders who will stand up and tell the Arab people the truth about their failures, and suggest a more rational path to national revival, security and well-being. The current global crisis will hurt, but what will hurt more is to respond to it with the same combination of technical incompetence and political irresponsibility that have guided Arab national development for many decades now.

Rami G. Khouri is Editor-at-large of The Daily Star, and Director of the Issam Fares Institute for Public Policy and International Affairs at the American University of Beirut, in Beirut, Lebanon.