The Time Bomb to Watch Is Economic

The headlines rattle around the world: “Netanyahu Chooses Cabinet,” “Arab Leaders Meet.” But today’s headlines obscure tomorrow’s reality, because it is economics and not politics that will determine the stability of the region.

The Middle East is in a race against time. The race is scored not in hours and minutes, but in the remorseless numbers of the gross domestic product. Weak economic performance coupled with slow political evolution remain the Achilles’ heel of the region’s moderate, pro-Western regimes, such as Egypt, Saudi Arabia and Bahrain. Whether these regimes survive and prosper will depend primarily on their ability to make their economies grow and broaden popular participation in government, and thereby undercut the attraction of extremism.

The expectations of the peoples of Middle Eastern states have outstripped the development and performance of their economies. There have been tremendous gains in educational opportunity and exposure to the international media, but the economic prospects of individuals have generally worsened. Average years of education per worker in the Middle East and North Africa have risen from less than two in 1965 to more than six in 1995 and now stand at levels comparable with South Asia and China. In stark contrast to the emerging economies in Asia, however, per capita GDP of the Middle East declined by an average of nearly 6% in the oil producing states between 1985 and 1993 (and was nearly flat in the others), the worst performance of any region in the world. During the same period, average real wages in the Middle East and North Africa declined by around 30%.

The poorly managed, state-controlled economies of the region have failed to keep pace with the demands of an increasingly competitive global marketplace in the face of significant demographic pressures. The public sector continues to dominate the economies of the region. On average, the region’s states now employ 30% to 45% of the labor force, with the public sector constituting 92% of the economy in Kuwait.

The widespread unemployment and underemployment can only worsen without significant reform. In 1993, average unemployment in the region stood above 15%, two-thirds greater than the average for the Organization for Economic Cooperation and Development. Estimates of disguised unemployment (or employment producing little or no output) paint an even bleaker, but more accurate picture of the region’s economic plight. For example, estimates of disguised unemployment are nearly 50% for indigenous Kuwaiti workers and 30% for state employees in Egypt.

The demographic time bomb is ticking: The region faces net population growth that often exceeds 3%, and 40% of the population is under the age of 15.

Time is the enemy of the stability of governance that the self-interest (indeed, self-preservation) of the region’s moderate forces demands. With the help of friends in the West, the moderate regimes must soon produce tangible gains in economic and political terms. Neither enhanced aid nor links to a stronger economy like Israel is a substitute for home-grown progress. Solid progress will be achieved only through sweeping reform of basic economic institutions and policies, including the withdrawal of state subsidies, privatization, aggressive labor reforms and deregulation. Gains in economic performance cannot benefit only a select elite or even a small middle class. They must be realized in the form of more and better jobs that improve real wages. Multilateral structures bolstering friendly regimes must progress and be accorded high priority. The process of annual regional economic summits and plans to establish a regional development bank should proceed.

Much attention in the United States has been given to the threats to our friends in the Middle East posed by Islamist extremism, Iran, Iraq and the proliferation of weapons of mass destruction. While all of these threats are serious, the greatest threat to the region would be inattention to the deteriorating domestic situations by moderate governments. The task is urgent and the project daunting. As demonstrated in Iran and the Sudan, the takeover of moderate state regimes by extremist forces bred by weak economic performance and slow political evolution inevitably works to undermine stability in the region and would be virulently hostile to Western interests. In no other region are the implications of losing the race against time so fraught with global peril.