Wednesday, March 02, 2011

Stifling Entrepreneurship in The Middle East

Here's an excellent economic and  political analysis of the situation in the Middle East, by James Surowiecki writing in the The New Yorker:

"Healthy economies need a thriving and independent private sector, where resources are allocated by markets and competition, and where small and medium-sized businesses can flourish. But in most of the Middle East the state and big business are so tightly intertwined as to be indistinguishable, and competition has been discouraged in favor of central planning and private monopolies. It’s hard for entrepreneurs to start and run a business. Minimum capital requirements tend to be high, so you can’t get started without lots of cash, and getting business licenses and registering property are frequently arduous. Political favoritism is rampant, and byzantine regulations are difficult for outsiders to navigate. It’s instructive that the young man whose self-immolation helped set off the protests in Tunisia had had his fruit cart confiscated for violating some government rule.

The stifling of entrepreneurship shrinks opportunity for the young. The state’s intrusive presence forces much economic activity off the books—in Egypt, eighty-five per cent of small businesses are in the “informal” sector—and this reduces growth, since informal businesses have a hard time getting credit or expanding beyond a certain size. Thus the region’s economies are growing more slowly than they should, and the benefits of economic growth tend to be concentrated in the hands of those lucky enough to work for, or own, companies favored by the state.

Since weak economies eventually give rise to discontent, one might have thought that self-interest would impel autocrats to embrace reform. But, while clinging to the status quo can be dangerous for autocrats, real reform comes with its own risks. After all, in a system of state-controlled capitalism without a large, independent private sector, huge numbers of citizens are dependent on the state for their livelihood in one way or another. In the Arab world, an estimated thirty per cent of the workforce is employed by the state. Strict regulations enable the government to protect its friends in the private sector from competition, and bureaucrats line their own pockets, becoming further indebted to the system. The reliance in most of these countries on food and fuel subsidies likewise increases people’s dependence on the state. The big risk of reforming the system is that it weakens the state’s economic hold over its citizens."

HT: Stuart Anderson

9 Comments:

At 3/02/2011 11:53 PM, Blogger Benjamin said...

I agree with this editorial. So why have we spent trillions supporting such thug states? I won't even mention women's rights.

 
At 3/03/2011 12:26 AM, Blogger NC said...

It is obvious that Obama and the Left's general economic policy is aligned with the middle east status quo. Many of the dependent class cheered when Obama promised to provide provisions and remove risk from their day to day life. You will soon see these same promises proposed in Egypt. Much of the Arab street will cheer, as did Obama's voter base.

 
At 3/03/2011 1:32 AM, Blogger AIG said...

Hmm, thats exactly what they want. Most of the people protesting in the Arab world (with the exception of Libyans, who are in a life and death struggle), are protesting for more handouts and more "government security". No one is protesting for economic freedom. They want economic handouts. Every protest around the world for the past few years has been along the same lines: give us money! Bahrain learned that quickly and gave them money. Game over.

There's only one country in the world where the people...the people...protested for less government, more economic freedom, and less subsidies. Thats America.

As much as we may discuss what the shortcomings of the economic systems in the ME are (and those exact same problems apply to 90% of the countries in the world), the simple fact is that illiterate masses are not going to protest for economic freedom. They are going to protest for more money. This is a drug they are on and they don't know how to live any other way.

Unfortunately I have no hope that the end result will be any different than what we already see in the ME. Look at Pakistan after its "democratization".

"I won't even mention women's rights."

Don't. Thats a cultural issue that is unrelated.

 
At 3/03/2011 6:48 AM, Blogger geoih said...

"The stifling of entrepreneurship shrinks opportunity for the young. The state’s intrusive presence forces much economic activity off the books— ..."

Welcome to the modern nation-state, all 203 of them.

 
At 3/03/2011 9:16 AM, Blogger Paul said...

"There's only one country in the world where the people...the people...protested for less government, more economic freedom, and less subsidies. Thats America."

Well, some of America. The open question is do the parasites outnumber the productive class, and will they in the future?

 
At 3/03/2011 9:50 AM, Blogger bix1951 said...

Rapidly rising populations overcome economic growth in many countries leading to a drop in the standard of living even as the GDP increases.
FAMILY PLANNING is the cure for this.
I rarely read about overpopulation in the mainstream press.
There seems to be a belief that more people are good for economies.
Yes, but only up to a point.

 
At 3/03/2011 10:59 AM, Blogger Cyril Morong said...

Great article. Thanks for posting this.

 
At 3/03/2011 12:37 PM, Blogger Buddy R Pacifico said...

"The big risk of reforming the system is that it weakens the state’s economic hold over its citizens."

Is the overwhelming reason why the state has so much control in the Middle East and Northern Africa, religion? Islamic teachings and law state that man is the care taker of the land for God.

"Islam recognizes the individual’s right of ownership but does not leave him entirely free to use this right in any way he likes. Islam has allowed private ownership in principle but has subjected it to such limitations as would render it absolutely harmless."

Islamic property rights:

Musha or collective land.
Miri or state land.
Waqf or religious land.
Mulk or individual land.

Musha, miri and waqf would seem to put a lot power into the hands of the government.

 
At 3/03/2011 2:57 PM, Blogger Michael Hoff said...

And now you know why the democrats fled Wisconsin.

 

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