Middle Israel: Who will win Arabia's bread?

Those who took to the streets in quest of cheaper bread will storm palaces in quest of better leaders.

By
February 28, 2008 11:43
amotz asa el 88

amotz asa el 88. (photo credit: )

Guess what: while our gaze was focused, with good reason, on a slain warlord in Damascus and a madding crowd in Gaza, there was some major turbulence elsewhere in the Middle East, as rising food prices led to riots across the Arab world. In Casablanca dozens were arrested, in Beirut and Sana some 20 demonstrators were killed by troops, and in Jordan food prices nearly doubled within days after the government slashed subsidies. Meanwhile, in oil-rich Oman, Bahrain, UAE and Saudi Arabia unofficial inflation has entered double-digit territory. On the face of it this is about bad luck; the Arabs are selling their only merchandise for a weak currency - the dollar. In fact, that thesis is about as valid as Martin Luther's belief that inflation is the devil's work. Inflation is man's work, not the devil's, and it happens when an economy has too much money and too few goods, as happened in Luther's Europe, which Spain swamped with American gold and silver. Today's leading Arab economies have too many dollars - because of growing Chinese and Indian demand for oil - and too few goods, because unlike India and China they don't let foreign investors put their populations to work, and they obstruct imports, by maneuvering local entrepreneurs into the Arab regimes' system of red tape, nepotism, cronyism and bribery. Had the Arab world opened up to Western investments as unequivocally as China, India and Russia have, it would today have stable currencies, thriving labor markets and no bread riots. Instead, the Middle East bears the dubious distinction of the world's most economically stagnant region, with a population larger than Brazil's and a GDP smaller than Spain's. IT'S NOT easy to look economic truth in the eye and drink the bitter potions it prescribes. Arab leaders who are loath to derive inspiration from Israel's successful economic struggles may do well to learn from Japan's handling of the economic crisis it endured last decade. There, after the price of a square meter of real estate in downtown Tokyo had reached $1.5 million in 1987, property prices crashed 90 percent and even more, while the Nikkei Average of Japanese share prices lost 60% of its value in two years, heralding a recession that lasted nearly 15 years and is considered history's worst since the Great Depression. Obviously, by most parameters yesterday's Japanese and today's Arab economies are impossible to compare. Japan remained the world's second largest economy throughout its recession, the Arabs' are among its smallest; the Arab regimes, whether actively or passively, keep much of their population out of work, while the Japanese saw a supreme value in creating maximum employment; Japan was devoid of natural resources, the Arabs are among God's most generously endowed; the Arabs have inflation, the Japanese had deflation; and the Arab populations are among the world's fastest growing, while Japan's was, and still is, fast shrinking. And yet in one respect, incidentally the most crucial, recessionary Japan's leaders failed exactly where contemporary Arab leaders are failing: sensing history. THE MOST incredible thing about Japan's depression was conventional economic medicine's repeated failure to cure it. On the monetary front, an initial interest rate hike (which was meant to offset a rush to take loans in order to buy shares, which in turn further fed the financial bubble) touched off the bad sentiment that crushed consumer confidence. The subsequent monetary U-turn, whereby interest rate were gradually cut so deeply that yen loans became nearly free - was ineffective. People were afraid to buy, prices kept falling, and unemployment rose to postwar highs. On the budgetary front, immense infrastructure projects, and a deliberate expansion of the deficit until it became the developed world's highest (in terms of its share of GDP) also didn't help; Japan's growth rates stubbornly remained near zero. Eventually, the Japanese understood they must part with time-honored social norms. Having crossed this emotional Rubicon, they revamped the lax bank regulations that had initially created a bad-loan crisis; they allowed previously unthinkable flexibilities in their labor markets; they abolished assorted tariffs that had artificially weighed on imports; and they stopped resisting exportation of production lines to cheap-labor markets. TODAY'S ARAB leaders, like those of Japan's last decade, are still deluding themselves that they can avoid triple-bypass surgery by taking aspirin. That is why Gulf economies are responding to their inflation crisis by raising public-sector salaries, whether by 40%, as Oman has, 70% as the UAE has, or by raising food subsidies as Saudi Arabia has. Alas, stuffing bills into people's pockets is the last thing you want to do when facing inflation, because all it does is raise prices further; that's what Juan Peron did in Argentina in the 1950s, and what Yoram Aridor did in Israel in the 1980s, all of which only fanned the flames of hyperinflation. What you want to do is welcome competitive workplaces that will offer people real jobs. Today this is almost banal to say, even in places like China and Russia. Not in the Middle East, where leaders still fear the masses, preferring to keep them caged in slums and shackled to ignorance rather than employ, educate and empower them. In Japan, beyond the pure economic process, there were bigger historic dynamics at play. First, the Japanese population was, and still is, aging so rapidly, and reproducing so minimally, that by the middle of this century every third Japanese citizen is expected to be of retirement age - meaning that fewer and fewer Japanese produce, while more and more consume. Second, Japanese leaders were late to understand the magnitude and immediacy of China's rise to economic prominence, which among other things made it bite deep into Japanese exporters' markets, because of China's much lower labor costs. Though history's challenges to them are very different, Arab leaders are as deaf to them as Japan's were to theirs. If they don't start giving their subjects hope, Arab leaders will find that they can only take that many people for that kind of a ride for that long. Eventually, those who just took to the streets in quest of cheaper bread will storm palaces in quest of better leaders. Sooner or later, some bold Arab will do in 21st-century Arabia what Emperor Meiji did in 19th-century Japan, or at least what Deng Xiaoping did in 20th-century China. Until then, the Arabs will have more of the same: built-in shortages of goods, jobs, enlightenment, transparency, freedom and justice, and chronic surpluses of riots, killings, arrests, desperados, zealots and paper money, too.


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