Change Could Turn Mideast Into an Economic Superstar

Americans looking at news reports might think that little has changed in the Middle East as a result of the Gulf War.

Saddam Hussein, although reduced in power, remains on top in Iraq. The Kuwaitis are back in their homeland, but like the Bourbon kings after the French Revolution, they seem in some ways to have “learned nothing and forgotten nothing.” Israeli Prime Minister Yitzhak Shamir has stated publicly that the war has left the region “unchanged.”

But listen to officials and business people from the Gulf to North Africa and look at what’s happening and you see that the Middle East is on the verge of profound change.

Change is badly needed. The economic output of this region is curiously low.

“The gross national product of all the nations of the Middle East does not equal that of Italy,” says Mohammad Imady, economics minister of Syria. Indeed 200 million people in 15 or so Middle Eastern countries, including Iran, produce fewer goods and services annually than California’s 30 million people, to say nothing of the 60 million people of Italy.

And more output will be needed because this region is undergoing a tremendous baby boom. With birthrates of 3.5% to 4% in every country, population will double within 20 years--meaning that the Middle East will have a larger population than the European Community.

Meanwhile, easy money is drying up.

“One effect of the war is that the financing system based on oil wealth has been destroyed,” says Mirwan Ghandour, deputy director of the central bank of Lebanon. He means that grants from Saudi Arabia and the Gulf states, which for two decades helped finance governments and economies in Jordan, Lebanon, Egypt and other countries, won’t continue in the 1990s.

What does all that mean? Two powerful trends you’ll be hearing about: The spread of Islamic fundamentalism and, less noisy but ultimately more important, a shift everywhere to competitive, free-enterprise industry that could bring about the gradual spread of democracy.

Islamic fundamentalism, seen demonstrating recently in Algeria and in power for over a decade in Iran, is the region’s fastest growing political movement. Islamists hold more seats than any other party in Jordan’s Parliament.

Islamic economics is not incompatible with free markets, although the present fundamentalism may be incompatible with democracy.

“The economics of Islam demand that capital be fully employed, and they are concerned with justice,” explains Prof. Hatem Karanshawy of American University Cairo.

“To have land idle is sinful; even land that can be drained and used must be. Also, idle capital should not earn, so there is no predetermined interest on bank deposits. Instead, both depositor and bank are said to share the return when a loan is made for investment in machinery, or to create housing,” says Karanshawy, who has a doctorate in developmental economics from Oxford University and is a consultant on project financing.

“The emphasis is on abundant production,” he says, “so Islam forbids monopoly in any form, including monopoly by the state.”

Islamic economics, based on religious principles, is an ideal, similar to the “just price” theories of St. Thomas Aquinas in the Middle Ages or the many commentaries on markets and fairness of Talmudic scholars through the centuries.

They call for fair wages and profit sharing for employees. And although the Third World is notorious for exploiting cheap labor, some notable merchants and industrialists run businesses on Islamic principles.

In Syria, Riad Seif, a carpenter’s son who worked as a street vendor to pay for his education, shares profits of his shirts and ladies wear factory with his workers. It is very successful. “And within five years every employee can buy an apartment,” he says.

But Islamic economics does not approve of today’s extremists in the streets, says Karanshawy. “Economic growth (does) not result from instability.”

And politically, Islamists tend to be undemocratic and counterproductive. Islamists headed five ministries in Jordan’s recent government. But they proposed rulings that outraged Jordanians, such as a rule that fathers could not attend field days at their daughters’ schools because girls would be in gym clothes. So King Hussein sacked the government and appointed a new one this month--pointedly excluding Islamists.

Because of the fundamentalists’ intolerance of modern life, most Middle Easterners see fundamentalism as lacking answers to today’s problems.

One problem is that the Middle East remains a series of uneconomic, one-country markets. There is no car production in the Middle East, but imported Mercedes are prominent on every street in Amman and Cairo, Damascus and Riyadh.

To get car production, with its spur to development of jobs and skills and wealth, the region’s countries must cooperate to take advantage of their combined home market of hundreds of millions of people.

But doing so will force a change in today’s state-dominated economies, in which business depends on the favors of a king or a national socialist government. In such patronage economies, monopolies and corruption are inevitable. Business is limited to what it can take from the local pie and so lacks the regional vision necessary for building larger markets, and a more productive Middle East economy.

The antidote is independent, competitive enterprise. And, indeed, that’s the trend. As governments in the region find money tight, there is a general call for the private sector to become the engine of economic growth. State corporations are being privatized; local merchant and engineering companies that had existed on government contracts are being encouraged to invest their own capital and grow.

Ultimately, if enterprise becomes truly private, this historic but underdeveloped region will finally get competitive democratic politics too.

“With U.S. encouragement, within five years this region could open and develop,” says Husain al-Jasem, the thoughtful deputy chairman of Kuwait Petrochemical Industries Co.

What’s in it for Americans? A lot more than recent exaggerated expectations of billion-dollar state contracts to rebuild Kuwait. The trend could produce a Middle East advancing toward the economic output not of Italy alone but all of Europe. The promise is awesome.