The Arab Spring: the great misunderstanding
13 June 2012
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12 June 2012
Uncategorized
Government and Institutions
More than a year ago, observers pointed at political authoritarianism in countries such as Tunisia and Egypt as the cause of their popular revolts. For sure, lack of democratic choice, especially with a parody of regular elections, helped explain these uprisings. But most observers, even if they mentioned ‘corruption’, failed to spot the other cause of the Arab spring: the lack of economic freedom. For, in reality, these countries had known for years not only a travesty of democracy, but of capitalism.
A revolution of laissez-faire
In a Wall Street Journal article in February 2011, Peruvian economist Hernando de Soto dubbed the situation in Egypt during the Mubarak era an ‘economic apartheid’. Habib Sayah, a Tunisian activist who has since launched the Kheireddine Institute, has explained how the Tunisian revolt began as a revolution for free trade, a revolution for laissez-faire, a revolution for economic freedom : when Mohammed Bouazizi immolated himself, this was the desparate cry of a small entrepreneur, prevented by the authorities of his country to do business – the small informal business of selling fruits and vegetables to earn enough money to sustain his family. Bouazizi was not a political activist, and in fact did not care about politics. He had no time for it, too busy trying to overcome all the obstacles, both formal and in terms of corruption, that Tunisian authorities erected in the way of small entrepreneurs. On 17 December 2010, on the pretext that he had not paid a fine, the authorities took all his fruits and his scale. At this point, not only did he lose everything he had to support his family, but now, he could not repay his debts.
Policymakers often blame the informal sector as a ‘problem’. But are they not themselves the problem instead? For why was Bouazizi operating in the informal sector? Why did he not have a formal small business? He was a hard-working man after all: how can we explain this paradox? The answer lies of course in the lack of economic freedom in Tunisia. De Soto’s team calculated that, to create a formal business would have required 55 administrative steps that would take up to 142 days and cost the equivalent of $3,233 (about a year of income for Bouazizi). And even if Bouazizi had such resources, it would have been impossible for him to share them with new partners, take advantage of limited liability to protect his and his family’s wealth, or even attract new investors by issuing shares. The Economic Freedom of the World report ranked Tunisia 94th out of 141 countries in 2009 .
Why was such an obvious explanation of the Arab Spring – in terms of lack of economic freedom – omitted?
Pro-business is not pro-market: the illusion of crony capitalism
The first answer probably lies in the fact that it seems that these countries had in fact swapped true democracy for a pro-business model of economic growth, in accordance with the creed of the Bretton Woods institutions. A kind of ‘capitalism in exchange for democracy’ type of development model. There was probably a ‘pro-business’ attitude among decision makers, especially for companies close to government power, but not a ‘pro-market’ attitude. The difference is important.
The determination of an elite to discard competition, in order to monopolise the rents of the country, meant that any serious opposition had to be neutralised: maintaining poverty outside circles of power was thus almost an imperative. But poverty also meant the rise of radical movements, justifying more authoritarianism: and thus the vicious circle between economic and political oppression was closed.
The ‘pro-business’ outlook of these regimes (in fact ‘crony capitalism’) and the confusion of it with ‘pro-market’ economic freedom perhaps explains why observers do not realise that the lack of economic freedom was in fact the main problem.
Indignant?
The second answer to why commentators have not seen the Arab Spring as a revolution for ‘laissez faire’ probably lies in the parallel ‘revolts’ that took place in the USA and Europe: Occupy Wall Street and Indignados. It may have seemed obvious to many that the two ‘Springs’ had a similar cause. Although the crisis of the West was actually that of a dysfunctional democratic model, the mistaken dominant interpretation was that of a crisis of ultra-liberalism, deregulation and, ultimately, economic freedom: on this basis it was then difficult for ordinary observers to detect the real cause of the Arab Spring, seen as “parallel”, in the absence of economic freedom.
Had the Arab Spring been widely interpreted as a revolution for ‘laissez faire’, it would certainly have stimulated more reflection on the central place of the entrepreneur in economic development, and the fundamental role of economic freedom to let this prosperity-generating entrepreneurship flourish. The future of the Arab Spring depends on the capacity of the new democratically elected governments to implement measures to prevent crony capitalism, restore the rule of law and promote economic freedom, in order to ensure general prosperity.
A revolution of laissez-faire
In a Wall Street Journal article in February 2011, Peruvian economist Hernando de Soto dubbed the situation in Egypt during the Mubarak era an ‘economic apartheid’. Habib Sayah, a Tunisian activist who has since launched the Kheireddine Institute, has explained how the Tunisian revolt began as a revolution for free trade, a revolution for laissez-faire, a revolution for economic freedom : when Mohammed Bouazizi immolated himself, this was the desparate cry of a small entrepreneur, prevented by the authorities of his country to do business – the small informal business of selling fruits and vegetables to earn enough money to sustain his family. Bouazizi was not a political activist, and in fact did not care about politics. He had no time for it, too busy trying to overcome all the obstacles, both formal and in terms of corruption, that Tunisian authorities erected in the way of small entrepreneurs. On 17 December 2010, on the pretext that he had not paid a fine, the authorities took all his fruits and his scale. At this point, not only did he lose everything he had to support his family, but now, he could not repay his debts.
Policymakers often blame the informal sector as a ‘problem’. But are they not themselves the problem instead? For why was Bouazizi operating in the informal sector? Why did he not have a formal small business? He was a hard-working man after all: how can we explain this paradox? The answer lies of course in the lack of economic freedom in Tunisia. De Soto’s team calculated that, to create a formal business would have required 55 administrative steps that would take up to 142 days and cost the equivalent of $3,233 (about a year of income for Bouazizi). And even if Bouazizi had such resources, it would have been impossible for him to share them with new partners, take advantage of limited liability to protect his and his family’s wealth, or even attract new investors by issuing shares. The Economic Freedom of the World report ranked Tunisia 94th out of 141 countries in 2009 .
Why was such an obvious explanation of the Arab Spring – in terms of lack of economic freedom – omitted?
Pro-business is not pro-market: the illusion of crony capitalism
The first answer probably lies in the fact that it seems that these countries had in fact swapped true democracy for a pro-business model of economic growth, in accordance with the creed of the Bretton Woods institutions. A kind of ‘capitalism in exchange for democracy’ type of development model. There was probably a ‘pro-business’ attitude among decision makers, especially for companies close to government power, but not a ‘pro-market’ attitude. The difference is important.
The determination of an elite to discard competition, in order to monopolise the rents of the country, meant that any serious opposition had to be neutralised: maintaining poverty outside circles of power was thus almost an imperative. But poverty also meant the rise of radical movements, justifying more authoritarianism: and thus the vicious circle between economic and political oppression was closed.
The ‘pro-business’ outlook of these regimes (in fact ‘crony capitalism’) and the confusion of it with ‘pro-market’ economic freedom perhaps explains why observers do not realise that the lack of economic freedom was in fact the main problem.
Indignant?
The second answer to why commentators have not seen the Arab Spring as a revolution for ‘laissez faire’ probably lies in the parallel ‘revolts’ that took place in the USA and Europe: Occupy Wall Street and Indignados. It may have seemed obvious to many that the two ‘Springs’ had a similar cause. Although the crisis of the West was actually that of a dysfunctional democratic model, the mistaken dominant interpretation was that of a crisis of ultra-liberalism, deregulation and, ultimately, economic freedom: on this basis it was then difficult for ordinary observers to detect the real cause of the Arab Spring, seen as “parallel”, in the absence of economic freedom.
Had the Arab Spring been widely interpreted as a revolution for ‘laissez faire’, it would certainly have stimulated more reflection on the central place of the entrepreneur in economic development, and the fundamental role of economic freedom to let this prosperity-generating entrepreneurship flourish. The future of the Arab Spring depends on the capacity of the new democratically elected governments to implement measures to prevent crony capitalism, restore the rule of law and promote economic freedom, in order to ensure general prosperity.
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