North Africa, West Asia

Arab Spring countries need to think outside the neoliberal box

Arab countries should be wary of applying new neoliberal economic policies, since it may have been adherence to these policies that led to the conditions causing social unrest

Liang Pan
6 May 2014

The Arab Spring just passed its third anniversary. If there was a “spring”, the winter chill is here to stay. Reports by the World Bank indicate that the rate of GDP growth at market price in the Middle East and North Africa dropped from 4.2 percent in 2010, to 1.9 percent in 2013. The economic downturn is accompanied by endless protests, militia attacks, insurrections by Islamic extremists, and divided civil society. Except for a few Persian Gulf oil monarchies, most Arab countries swept up by the 'spring breeze' are now in political anarchy and economic paralysis.

In fact, the trumpet call for democratic change at the beginning of the Arab Spring narrowly channelled international attention and public resentment onto the repressive regimes. This distracted people from seeing that the unequal global economic structure masterminded in accordance with neoliberal doctrines – of which economic liberalisation, free trade, privatisation and deregulation are the hallmarks – was the deeper cause for social unrest in the Arab world in 2010.

Back in the 1980s, eight years of the Iran-Iraq war took its toll on north Africa and the middle east. Decreased oil revenues, debt build-up, and bureaucratic deadlock forced many countries in the region to pursue economic liberalisation, as prescribed by international financial institutions (IFIs) such as the IMF and World Bank. To court development aid in return, these countries hacked state subsidies, privatised public enterprises, lowered tariffs, and transformed paternalistic, welfare-oriented states into regulatory-minimalist ones.

However, there was a political reward for Arab autocrats, such as Hosni Mubarak and Zine El Abidine Ben Ali, for rendering their countries defenceless in the face of foreign economic exploitation: impunity from the political democratisation that should have gone hand in hand with economic liberalisation. In fact, the economic and political laissez-faire endorsed by neoliberalism in these developing countries bred “crony capitalism”, in which the politically and socially privileged were granted access to businesses. Their political and social capital was thus easily converted into economic capital, perpetuating social stratification and inequality. The result in these countries is rampant corruption, poor public services, dysfunctional governance and weak national economies reliant on foreign capital.

On the global stage, in the past 30 years or so, the advocates of neoliberalism have crippled protections for local agriculture through the elimination of grain reserves and cutbacks to government subsidies. Meanwhile, the free-trade zeitgeist drove down tariffs on agricultural imports, and enabled massive consolidation in the agriculture industry. Today, the top four agricultural exporters in the world – ADM, Bunge, Cargill and Louis Dreyfus – dominate 75 percent to 90 percent of the global grain trade.

At the same time, deregulation in the financial services industry broke down the barriers between different industries. Investment banks, like Goldman Sachs, have become importers of physical goods, while traditional agricultural business entities, like Cargill, have financial affiliates that deal with investment, assets management, trade and structured finance.

Deregulation and consolidation opened up the world economy for capital speculation and generated market homogeneity, which is extremely vulnerable to economic shock. When the sub-mortgage crisis hit the US financial market in 2007, traders seeking safer places for investment herded their money into commodities futures. This speculative trading drove up grain prices and exacerbated the food crisis on the global level.

The food crisis pushed millions of people in Arab countries, which had become food-importing countries thanks to their compliance with neoliberal prescriptions, into abject poverty and hunger. But this time, foreign aid had stopped flowing from the developed world, the very epicentre of the global financial crisis. Unfortunately, there was neither social welfare systems nor independent national industries to shield Arab countries from the unprecedented economic impact. Under these circumstances, social unrest seemed inevitable.

Now, US and EU economies are in recovery, and a new round of neoliberal schemes has begun. Because of a lack of financial resources and abysmal current account deficit, Arab countries seem to have no option but to resort to the IMF. Old scripts get new play: in order to get the IMF’s $6.2 billion credit line, the Moroccan government has cancelled its fuel subsidies, substantially reduced budgetary allowances for price subsidies, increased taxes and trimmed down pensions. Many other Arab countries are about to take similarly unpopular social and economic measures to woo the IFIs’ cash rewards.

Lessons should be learnt from the past: the foreign-aid-conjured dismantling of social welfare systems, the demise of national economic self-reliance, and half-hearted political reform were the causes of the problem, and will not now provide solutions to the new crisis. The Arab Spring countries might have a clean slate, but their political leaders and intellectuals need courage and foresight to think outside the neoliberalism box and test new models for development.

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