Wednesday, December 21, 2011

Middle East wealth there for the sharing....

Middle East wealth there for the sharing....
By Hossein Askari

In the euphoria of the "Arab Spring", observers began predicting the blooming of Arab economies after a temporary slowdown attributed to demonstrations, shortages, bottlenecks and ensuing dislocations. The overthrow of Hosni Mubarak in Egypt was forecast to bring democratic change, with Islamists as the only roadblock to Nirvana.

The move toward democratic governance was assumed to usher in better institutions, stimulate business confidence, jettison the corrupt policies of the past and introduce enlightened policies that would lead to higher domestic and foreign direct investment (FDI). Higher economic growth and more equitable economic benefits were assumed to follow.

Even the word "tiger" was gingerly bandied about to represent post-regime change in Middle East economies on the move!

Where does wishful thinking end and reality begin? Are these economies crouching tigers, lounging pussycats or smelly skunks waiting for the political curtain to open?

Over the past 25 years or so, the economic record of the Arab Middle East and Iran has been dismal in comparison to other developing countries, to say nothing of the prancing tigers of East Asia. Even though a number of these Mideast countries have enjoyed extraordinary transfers of wealth in the form of unprecedented oil revenues, their per capita income growth has been sub-par, with disgraceful income distributions, backward educational systems, inadequate healthcare, limited diversification of their economies away from oil GDP and oil exports, and a questionable economic future for future generations.

It is wishful thinking to believe that their economic sclerosis will be cured by simple regime change. These countries are prisoners of their past, haunted by two demons - demons that must be first subdued and slain for tigers to emerge.

Demons against progress
One demon guards the interests of those who rule these countries. Unlike their brethren in democratic societies, most Arab rulers and the mullahs in Tehran are autocratic dictators. They have no interest in establishing and nurturing good institutions (rule of law, transparent regulations, and so forth) - the foundation of economic and social progress - as good institutions would only undermine their corrupt rule and eventually throw them out of office.

Their goal is to amass fortunes through all means, legal and illegal, live a life of luxury, and preserve their dynasty in any way that they can (such as pampered intelligence and military services, cadres of corrupt cronies, discriminatory governance to divide the citizenry, and costly foreign support). The result is that these countries have been financially plundered, with an inhospitable business climate, an underdeveloped private sector and little economic and social progress.

The second demon guards the interests of foreign governments, the foreign elite and foreign multinational corporations (oil companies, oil service companies, manufacturers of arms, engineering firms, large financial institutions and so forth). Contrary to their representations, short-run economic gains and gains for the powerful in their own countries are all that matter to the powerful foreign governments of East and West.

They meddle in these Middle East countries and continue to support their favorite dictators before and after the Arab spring: the US supports the al-Sauds, al-Khalifas, al-Thanis, al-Sabahs, al-Nahyans; Europeans more or less tow the US line; Russia supports the mullahs in Tehran; and China supports any and all dictators, even those favored by the US, until the moment when such support becomes a lost cause!

Influential citizens turned lobbyists (former and current senior government officials, corporations, universities and even charitable organizations - all beneficiaries from the largesse of Mideast dictators and their cronies) - put pressure on these powerful governments into supporting Mideast tyrants.

Favored tyrants who are somehow overthrown get a free passage to a life of luxury, enjoying their ill-gotten wealth; un-wanted tyrants are arrested, tried and sentenced at the International Criminal Court (ICC); and aggressors from the powerful countries live where they always have with no worry at all. There is no such thing as consistent and equal international justice. Dictators are not motivated to respect the human, economic and political rights of their citizens.They only guard their own narrow interests and those of their domestic and foreign supporters.

Where are the international institutions? The United Nations masquerades as the guardian of international peace but in reality supports the interests of the powerful and the rich at the expense of the weak and the poor. Iraq was supported in its aggression against Iran but was reprimanded in its invasion of Kuwait; and the US and allies invaded Iraq with hardly a peep from the presumed defender of the weak.

The International Monetary Fund, the guardian of the international payments system and dispenser of good economic and financial policies, says little to criticize Gulf Cooperation Council (GCC) members - countries that have been big lenders to the IMF. The record of the International Criminal Court is patchy at best.

In such a setting, the overthrow of a dictator does little to promote fundamental political and economic change. When a dictator is overthrown, another tyrant steps up and takes his place. His motivation is simple - follow in the deposed rulers footsteps but learn from his mistakes and hold on to power. Rob the country and amass a fortune.

Similarly, foreigners - governments, individuals and corporations - take up where they had left off with the deposed ruler. It's business as usual.

Just look at Iran. The mullahs and their supporters are robbing their people and amassing their fortunes. They have not been supported by the US but have until recently enjoyed European backing and have the backing of the Chinese and the Russians.

Look at Iraq. Yes, there is more freedom with regime change, but the economy is no tiger. A new group is robbing the country with no incentive to establish good institutions - corruption and economic mismanagement with widespread foreign acquiescence and support rules the day.

Egypt seems to be going down a similar path. It is not Islamists but the same old story over again in different clothes. Would regime changes in the GCC - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates - yield better results? No. It would be the same story all over the region.

Steps for real change
How can the tiger behind the curtain emerge? Opening the curtain and introducing new rulers is not enough. A number of simultaneous initiatives, in addition to regime change, are called for. What are these?

First and foremost, all Mideast rulers must be reminded and shamed into accepting and acknowledging one simple truth. The oil and gas is not theirs to plunder but is the inheritance of all generations, current and future citizens. Rulers must not enjoy any special access to oil revenues. There can be no exception to this simple truth.

Yes, rulers in Abu Dhabi and Qatar have more resources to keep their populace content. But for how long? What about all the generations to come? The acceptance and implementation of this truth would not only remove the biggest impediment to better economic programs and policies in the Middle East but also would reduce resentment and conflict in the region.

All international institutions - especially the IMF and the World Bank - must support this fact. These institutions must not be allowed to hide behind their economic mandate by labeling this as a political matter. It is in fact the central economic issue in these countries. What economic issue could be more important than the management of oil resources in these countries?

This has to begin by settling the central economic question? Whose oil is it? As long the obvious fact is not admitted - that it belongs to citizens of this and future generations - the emerging economies of these countries are not even pussycats. They will continue to be awful smelling skunks.

Oil revenues must not be used to buy citizens, finance consumption, buy weapons, suppress citizens, wage armed-conflict and fill the bank accounts of rulers and their cronies. They must be used in a way to benefit all citizens and all generations equitably.

The recommended policy to achieve this is simple.
i. Over a period of say 10 years, oil revenues must be taken away from the governments (and immediately from rulers);
ii Oil revenues should be placed in a fund and invested in a diversified portfolio;
iii Every citizen should be issued an annual check of equal purchasing power;
iv The size of this check (of equal purchasing power) to be the same for all present and future generations of citizens (this calculation is standard and would be updated continuously); and
v The government to initiate a process of financing its expenditures from taxation, with all expenditures financed from taxation within 10 years.

While arresting the ongoing plunder by rulers in the Middle East is of overriding importance, a number of complementary policies are also required before the tiger can emerge.

First among these is to establish and nurture independent and efficient institutions, such as an independent judicial system, a transparent regulatory regime with business friendly rules and regulations andeffective enforcement, an equitable tax regime, an independent central bank, and so forth.

Governments should adopt long-term and consistent economic programs and policies to lay the foundation for encouraging private sector activity as the basis for sustainable economic growth. An enhanced modern education system is critical for increased entrepreneurial activity and private sector growth. All of this should be accompanied by a gradual reduction in the economic role of the public sector (orderly privatization and subsidy reduction as citizens begin to receive transfer checks) and an increase in private sector activity.

To encourage a process of economic renaissance in the region, foreigners could be supportive in a number of ways. In the quest to discourage foreign rulers from robbing their own countries and adopting policies that are harmful to business development and growth:
  • They could develop laws that limit and more readily expose lobbying on behalf of foreign rulers and governments;
  • They could adopt laws that expose the wealth of foreign rulers and officials in the same fashion as Americans running for office in the United States;
  • They could enforce the new asset disclosure regulations in the Dodd-Frank Financial Reform Bill to foreigners with a lower trigger limit (say $50 million instead of $150 million);
  • They could pledge that all wealth illegally acquired by rulers and their cronies would be subject to confiscation and return to the country of origin. The global community has adopted protocols to limit money laundering but has done nothing to reduce the ongoing plunder in these countries, arguably the mother of all money launderings.

    All of this would signal an important fact to tyrants. They will not get the support of foreign powers, their influential citizens and corporations and of international courts to rob their countries.

    Our message should be clear. The Arab Spring will not become an Arab summer and economic progress will not follow unless a number of associated policies are adopted and implemented simultaneously. Changing regimes and hoping that it will in time lead to economic resurgence is a pipedream.

    There is a tiger behind the curtain, but if regime change is all that is envisaged, it, along with the pussycat, will run for the exit and leave the stage to the skunk.

    Hossein Askari is Professor of International Business and International Affairs at the George Washington University.
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