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Archive for January, 2011

In the past I’ve touched on the risk of urban unrest (e.g., here). Over the last two years I’ve seen that risk increasing around the world, even though some central banks asserted that the world is on an economic recovery and that the worst of the dangers have passed. That assertion, to me, felt like a sort of ostrich syndrome, by-product of a type of thinking that focuses most energy on economic growth and marginalizes the importance of politics.

Tunisia, Algeria, and today, Egypt are now examples of what I’ve been forecasting: urban political rebellions fueled by issues neglected by the economic status quo.

Tunisia’s Jasmine Revolution was sparked by a young man, Mohamed Bouazizi. He was unable to find a job in Tunisia’s stratified economy, in which a small elite governed with an iron fist, pursuing the philosophy that the government does not owe all that much economically to poorer citizens. He took to selling fruits and vegetables, and even in that, found himself having to pay bribes to corrupt officials. Enough was enough. He doused himself in gasoline and set himself alight. He also set alight a wave of rebellion–the Jasmine Revolution–that overthrew, within a month, a government that had ruled for more than 23 years.

In streets across Algeria, protests against high food prices, corruption, and unemployment have been gaining strength. The government has calculated that in order to survive it needs to accelerate a large public spending program to reduce popular grievances. It remains to be seen whether this suffices. The IMF has warned that to sustain this, Algeria’s economy would need to grow at least 6.5 percent a year.

In Egypt, economic conditions and Mubarak’s decades of sharp political repression have combined into street rebellions. It’s going on as I write: young protesters throwing stones and setting trucks ablaze, and riot police lobbing tear gas and charging the crowds with batons.

What was once a forecasted risk across the region is turning into reality.

One root of this, obviously, is the existence of repressive governments. The other two roots of the anger are the pursuit of conservative economics and the effects of Western foreign policy.

Neoclassical growth-focused economic policy has always discounted the political risks of globalization. In more places than ever before, national economic policy agendas are influenced primarily by a small segment of the financial community and its interests. In the US, Wall Street’s interest to maximize stockholder value has defined its general stance in favor of a small hands-off government. In conversations I’ve had with adherents of neoclassicalism, I’ve often been surprised to see how fanatically this interest is defended as uncompromisable, sacrificed or de-prioritized only at the peril of bringing down the economy.

In most developing countries, the capital market is not as thoroughly organized, nor able to exert such a continuous level of top-grade lobbying power. But the underlying philosophy recognizes growth as the core value. In this philosophy, globalization replaces development. The role of government is to create the conditions under which internal and external exchanges can take place fluently. It is an interest that serves first and foremost the investors and only then the broader public, if it trickles down at all. (Unless you believe in the grand myth that what’s good for investors in invariably good for the populace.)

The problem is not economic growth per se. Growth certainly is needed. The problem is setting Growth up on a pedestal, such that other national priorities are subsumed under it. And this is a world-scale issue. Never has trickle-down theory been so widely accepted within governments across the world. It is much more entrenched now than it was when Ronald Reagan and Margaret Thatcher pursued monetarism as a goal for Western economies. They had to face more vigorous intellectual and policy opposition than what monetarists face today. Neoclassical economics has become established by now not only in the US, but in emerging markets too as an accepted belief that no longer needs defense. (My book, India’s Open-Economy Policy, demonstrated how this ethic or value got entrenched in India in the last decade and a half.)

Promoting growth as value #1 has resulted in a severe neglect of food, healthcare, education, and social stability as direct policy arenas. Governments have taken a backseat in all, believing increasingly that the markets should take care of these. Surprisingly, the mortgage-securities-led recession did not dampen this sentiment. Government’s role here is restricted to performing a bail-out, and not any wider. Government role in food, healthcare, and education have come under fire as instances of big government, whether you consider the Tea Party rant in the US, or public employment in Algeria, or food and fuel subsidies in Jordan.

The political ramifications are stark. The pace of change in Tunisia, for example, has been breathtakingly rapid. As one stunned newspaper editor in Tunis remarked: “Its like night and day, black and white. The changes of the last week have been so huge and rapid, we think we are dreaming.”

America has chosen the right side with a pro-reform and pro-liberty stance in the region. Two aspects of the wider risk picture, however, remains the same. First, citing its security and energy interests, the US has historically suppored most of the Arab repressive regimes that are now in peril. And second, the US has, in the process, lost credibility on the Arab street. According to a 2010 Brookings Institute poll, only 16 percent of the Arab population is hopeful about America’s Middle East policy. In the past, Arab citizens used to dislike US policy but like Americans as a people. The trend has converged dangerously in recent years. A majority now sees both US policy and Americans unfavorably. It’s this majority that’s on the streets now, revolting.

So, we know that monolithic US-backed Arab states face greater political risk. But so does the United States. And mitigation of this particular risk will require a fundamental shift in US foreign policy. Will US policymakers overlook the profound ramifications here, as some Arab tyrants did, to serve narrower interests? Let’s hope not.

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