Economic Freedom and the Arab Revolts

From Tunisia to Egypt to Jordan, high unemployment and corruption fuel popular uprisings.

The recent uprisings in Tunisia and Egypt that successfully toppled decade-old dictatorships were largely inspired by a combination of rising food prices and persistent high unemployment among the youth, frustrating an entire educated generation that feared it had no future. The lower middle class, including small businessowners and shopkeepers, were struggling with rampant corruption meanwhile, favoring the members and allies of the ruling party at the expense of entrepreneurship and innovation.

If the lack of opportunity and economic freedom fueled these mass demonstrations, the rest of Arab world should brace for more.

The Tunisian economy is largely dependent on agriculture, including mining, as well as manufacturing and tourism.

Trade agreements with the European Union have helped the north African country create jobs but it continues to discriminate against foreign companies and investors. Foreigners cannot hold major ownership of Tunisian companies without state approval nor own agricultural land.

Bureaucratic procedures are cumbersome and inconsistent moreover while court rulings can be susceptible to political pull. Corruption is widespread and investment decisions are often subject to cronyism.

Some reforms were enacted by President Zine El Abidine Ben Ali in the last decade, including the privatization of state-owned enterprises and the simplification of the tax code. Last year, Tunisia’s economy expanded by 3 percent but unemployment remained high at 14.7 percent, particularly among the young.

In Egypt, President Hosni Mubarak’s regime also reformed trade and financial regulation, encouraging entrepreneurship. Egypt boasted a 4.7 percent growth rate last year but inflation exceeded 16 percent while nearly one of out ten Egyptians is out of work.

Egypt has been moving away from socialist central planning for decades but the government continues to subsidize food and fuel. It can be difficult to set up a business in the country because of excessive licensing requirements. People have often to bribe civil servants to file their necessary paperwork while in many sectors of the economy, military ownership of companies and corruption are pervasive.

In Jordan, where people also took to the streets last week and the king sacked his cabinet, economic freedom is high overall compared to the rest of the region but hampered by corruption and the judicial system’s vulnerability to political influence.

Jordan is open to international trade and taxes are low. Labor regulations are flexible but unemployment stands at nearly 17 percent.

Across the region, Bahrain is leading in economic freedom. The tiny Persian Gulf state’s openness to international commerce has produced a 5.9 percent five year compound annual growth rate and its economy isn’t much smaller than Jordan’s in terms of GDP. The government is still working with the private sector to streamline regulations but business is booming.

Bahrain has no income tax and except for oil companies, no corporate tax either. Corruption is significant however and it affects the judicial protection of property rights as well as the management of scarce water resources.

A constitutional monarchy since 2002, Bahrain has endeavored to improve public-sector transparency and reduce its dependence on oil by diversifying the economy. Unemployment has nevertheless remained high at 15 percent.

As in Yemen, the turmoil in Bahrain has more to do with politics than economics, reflective of a Sunni-Shiite divide and the dominance of the royal family in national politics. Nearly all cabinet members are related to King Hamad bin Isa Al Khalifa who is otherwise regarded as a modernist and a reformer.

The opening of politics in recent years has seen Islamist parties enter parliament to push a more traditionalist social agenda. Liberals, in the minority in the lower chamber, have criticized them for curtailing the personal and economic freedoms recently gained. The upper house, wholly appointed by the king, is composed of more moderate, though mostly Sunni members by contrast and includes women.

Demonstrations in Bahrain continued peacefully on Wednesday after two people were killed in clashes with security forces earlier in the week. The king publicly apologized for the deaths on television and vowed that the authorities would investigate the incidents. As some 3,000 gathered to commemorate the death of one protester in the capital of Manama, police where nowhere to be seen.

Bahrain’s Interior Ministry has stated that the country’s “constitution and laws guarantee the freedom of expression through peaceful means,” noting that “citizens can ask for rights and reforms through available legitimate channels.”

The country is a critical American ally in the region as it hosts the headquarters of the US Navy’s Fifth Fleet.