Back in January, I co-wrote a piece with Professor Edmund Phelps in the Financial Times on the Tunisian and Arab economies. The argument of the piece, which is a theme I will revert to frequently, concerns the role of corporatism in the economic systems of Arab countries. People generally think of two opposed economic systems: capitalism and socialism. A third system, which is more prevalent but less discussed, is corporatism. My favorite way of explaining corporatism is that it is an ‘unfree market system’. Unlike socialism, and like capitalism, corporatist systems do have private ownership of capital, as well as markets. But these markets are not free. Transactions are controlled and supervised by the government, which exercises a heavy-hand in planning economic activities, and treats the interest of various stake-holders as being of more importance than the freedom of individuals to transact and produce freely.
The piece is accessible with free registration on the Financial Times’ website, and I excerpt it here briefly:
Bouazizi was selling vegetables in the streets of Sidi Bouzid when police confiscated his stand on the grounds that he lacked the required permits. Unable to afford the permits and a new stand, Bouazizi’s livelihood was destroyed. He had no other way to support himself.
In Mr Ben Ali’s Tunisia, nearly all business activities, not just selling vegetables on city streets, were placed under the supervision of the regime. Permits were sold to poor people to raise the revenue that increases in income and sales taxes might not. Among the middle class, those awarded privileged positions were selected for loyalty to the regime more than for business acumen. Worse, under this system, rulers played a direct part in the control of many big enterprises.
Thus state agencies and state-run corporations had a stranglehold on virtually all the economy.
The losses of inclusion into the market economy suffered by poor people were a grave injustice. Millions of Bouazizis, unable to find a job in a state-controlled labour market and powerless to start a business without the proper connections, found it impossible to be productive members of society. “It was peaceful,” a young woman told a reporter, “but poor people didn’t have any chance to live.”
The protection of sclerotic state-backed enterprises from the entry of new ideas and new people has closed off many better ways to operate. The dearth of innovation, in turn, has had a chilling effect on job creation and the growth of incomes.
Last week, Hillary Clinton, US secretary of state, remarked to a group of Arab leaders that many Arabs had “grown tired of corrupt institutions and a stagnant political order”. She seemed to miss, though, an important lesson of the events in Tunisia when she said: “If leaders don’t offer a positive vision and give young people meaningful ways to contribute, others will fill this vacuum.” Tunisia was failing not because it neglected to “offer” its people opportunities; it was failing because it denied them opportunities, as in the case of Bouazizi. This is the simmering volcano with which many Arab regimes must contend. Regimes that stifle their people’s chances for prosperity and personal development do not deserve to survive, nor should they expect to.