Is the Arab Authoritarian Bargain Collapsing?

Last week, we saw several Arab rulers embark on limited political reforms in order to “preserve and not to overthrow” their rule. After days of protests, Egypt’s Hosni Mubarak announced he would step down at the end of his term, as did Ali Saleh of Yemen. In Jordan, King Abdullah fired his cabinet and appointed a new prime minister. Even Syria’s Bashar al-Assad agreed to allow local elections in order to pre-empt similar events.

However, dictators cannot stay in power by repression alone. In the Middle East and North Africa, governments have relied on an “authoritarian bargain”—an implicit contract between ruling elites and citizens whereby citizens relinquished political influence in exchange for economic benefits. But, this contract has been under stress for over two decades and is now collapsing.

Middle Eastern economies have historically allowed rulers to secure the loyalty of their subjects because of two reasons: government jobs and a generous welfare state. In return for these things, Arab citizens were willing to tolerate political restrictions on civic associations, access and representation in government, and the ability to participate in democratic life.

In times of distress and inability to fulfill the economic side of the bargain, Middle Eastern rulers have occasionally turned to partial political liberalization. Facing falling oil prices in the 1990s, for example, several countries permitted greater freedom in electioneering, and took steps to allow opposition figures to campaign freely, as long as they did not threaten the regime itself. At the same time, they attempted to increase salaries or subsidies for key constituencies, like the military.

For decades, citizens willingly accepted this bargain. It is hard to imagine now, but in the 1960s and 1970s Middle East economies were among the fastest growing in the world—alongside the East Asian “tigers.” Unemployment was low and household incomes were expanding rapidly. Middle Easterners easily found high-wage work, both at home and especially in the booming Gulf oil fields. University-educated citizens were guaranteed jobs in the public sector.

Oil revenues played a pivotal role in sustaining the social contract in the Arab states. For oil-producing countries, oil revenues permitted the creation of vast welfare states. For non-oil producers, remittances boosted household consumption, especially in rural areas. Loans and other forms of assistance from oil-producing states to non-oil producers boosted government revenues and sustained redistributive commitments. At the peak of the oil boom in the early 1980s, some 3.5 million Arab migrant workers were employed in Saudi Arabia and the Gulf states. Job opportunities grew so fast that Egypt, Tunisia and Algeria were reporting labor shortages. However, today in these same countries jobs have disappeared, particularly for young people. These economies now suffer some of the highest unemployment rates in the world and standards of living are now declining and in some cases stagnant.

How did the Arab economies fall so far? First, Middle Eastern governments failed to reform their economies after oil prices fell in the 1980s. Declining oil prices forced drastic reductions in welfare, while many of these governments accumulated debt in order to meet their public wage bills. At the same time—particularly in North Africa—business environments influenced by Arab-socialist policies discouraged private investment, reduced opportunities for trade and impeded the development of competitive industry. While most governments launched some form of economic adjustment program in response, these reforms tended to be tentative, incomplete or uneven.

Second, failure to reform after the oil bust left the region ill-equipped to deal with the large-scale entrance of youth into the job market in the 2000s. Rapid fertility increases between the 1960s and 1990s, combined with plummeting mortality rates, left the countries with some of the highest percentages of youth populations in the world. While earlier generations of youth benefited from free education, job guarantees and other entitlements, those born after 1980 were no longer guaranteed these same institutions and high living standards. As a result, frustrations from the new generation of Middle East youth have been building for over a decade. Images of well-educated but unemployed youth have defined the Middle East and North Africa for many years now. The 5 percent growth rates that some economies, such as Egypt and Tunisia, have been posting cannot absorb all the young people entering the workplace. In fact, Gallup has reported that feelings of “well-being” in the Middle East have been plummeting even as GDP has been rising.

Arab leaders now face more difficult choices. They must revive their countries’ non-oil private sectors, which have been paralyzed by trade barriers, red tape, bribes and nepotism. Arab states need to reform their educational systems to emphasize greater decentralization, expanded access, higher achievement, and the development of skills to be a globally competitive. Finally, Arab states must restructure the top-down, rigid and centralized institutions of their governments. These countries remain saddled with institutions designed to support interventionist policies and face enormous difficulties in adapting to new tasks, policy demands and regulatory environments. Such instruments are necessary to promote socially equitable, market-oriented job growth.

In the past, when economic pressures mounted, Middle Eastern regimes have opened some limited political “breathing room” to buy time. But the scenes from Tunis to Cairo to Sana’a suggest that the strategies used by Arab leaders to maintain power may have run their course. Partial political liberalization may not be enough at this point to make up for the current inability to deliver economic security and prosperity, spelling the final demise of Arab authoritarian bargain.