I couldn’t believe my luck when I read James Surowiecki’s Financial Page in this week’s New Yorker magazine. With my AS level class I am just completing Economic Systems so this article was particularly fitting. Surowiecki alludes to the fact that countries in this part of the world that have authoritarian regimes also have economies that are dangerously unstable. He mentions the following:
* Economic growth and job creation has not kept up with the growing labour force whcih has led to high unemployment – 25% of young workers in Egypt are out of work
* Inflation has been a major problem even before the oil and food price increases
* Corruption is endemic
* The government and big business are tightly woven as to be identical, and competition has been discouraged in favour of central planning and private monopolies.
* Political favouritism is rampant – this forces much activity into the informal sector. 85% of small businesses are not registered with the tax authorities. Growth tends to concentrated with those that work for the state
Although there has been some effort to reform their economies, many Middle Eastern countries failed to introduce genuine free-market competition, the most important feature of a healthy capitalist system. Political scientist Oliver Schlumberger calls these reforms patrimonial capitalism – a system in which the key determinant of success is how close you are to those in power.
Patrimonial capitalism’s legacy is that many people see reform as a substitute for corruption and self-dealing. Government employment is till the easiest way to get a job and subsidies have become of greater importance. What the region needs is less crony capitalism and more competition.