Saturday, June 25, 2011

Why the Arab world should embrace economic liberalism

Early last year, European politicians were assuring the public that Greece would not require a bailout. One year on, the same cure is seemingly to be prescribed to the sickest man of Europe. For its southern neighborhood, the union is also mulling the same medicine: more aid. While the political uprisings continue to unravel, the economic revolutions must be urgently prepared and pursued. In the Caucasus, Georgia has implemented some of the most radical libertarian-inspired reforms. A few lessons could be learned.
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Faced with a paradigmatic shift in the Arab world, the European Union must now translate its lofty promise of “solidarity to the peoples” into action. A review of its Neighbourhood Policy is currently taking place but the joint declaration on the “Partnership for Democracy and Shared Prosperity with the Southern Mediterranean” provides some clues. The new relation is to be based on the principle of “more for more.” The idea is that in return for more democracy and reforms, states receive more money. If the new external aid euro-buzz sounds like conditionality reloaded, it is because it is.
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The EU principle of ‘more of the same’.
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Momentous times warrant momentous thinking. Unfortunately, whether dealing with internal or external problems, the European leadership is hopelessly stuck in a path dependency of “more of the same.” To most ordinary people it is counterintuitive to address a problem by adding to it. Not to our politicians who cure sovereign debt with more debt, solve failed bailouts with more bailouts.
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For the past 50 years, development policies have followed the same pattern. An estimated $500 billion of international aid has been disbursed in Africa to little effect for the prosperity or freedom of its peoples. Budgets for North Africa and the Middle East have consistently increased without the cycle of poverty and oppression being broken. With more money on offer, there is little incentive for local politicians to think beyond the “foreign aid-ism” box. Old development habits die hard.
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Alleviating the broke European man burden.

Paraphrasing Professor Easterly, the time may have come for Europe to rid itself of its “white man burden” of “feel good” but mostly ineffective and counterproductive development assistance.
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As policy expert Nicu Popescu notes, the ongoing review should prompt a wider debate. The option of less aid should be explored. Why are countries like the BRIC busy shopping for expensive European technology still receiving public money? Does it make sense for bankrupt countries to help others by incurring more debt? The United Kingdom took the radical step to cut its own international development budget to many emerging economies. Development has gone on for the simple reason that aid is not a determinant factor.
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The idea of cutting aid is not new. However, it is controversial in equal measure to international bureaucracies and aid-dependent local state apparatus. Zambian economist Dambisa Moyo has been a vocal advocate of no aid at all in “Dead aid: why aid is not working and why there is a better way for Africa” (2009). To European development luminaries, her radical thinking and proven free-market solutions are pure heresy. Oblivious to the failure of their “softer” often opaque and mostly ineffective top-down approach, “more of the same” is what they continue to advise.
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Radical libertarian reforms work.
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Yet a shock therapy of deregulation, liberalization and rule of law is precisely the medicine the Arab world must urgently take to meet the aspirations of a jobless disgruntled youth. For the economist Guy Sorman, it is imperative for the region to move away from statist economies to free market societies based on property rights, the right to entrepreneurship and competition. Only with this second revolution – not more aid – will the hope of millions to be lifted out of mass poverty will materialize (The City, “Egypt’s unborn revolution,” 18/02/2001).
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Looking east, not north could inspire reformist-minded Arab leaders to be bold.
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In her first book “Why Georgia has succeeded” (2011), Russian economist Larisa Burakova maps the course of the country’s economic revolution. Under the stewardship of Kakha Bendukidze (Minister for Reform coordination, 2004-2008), Georgia has transited from a statist economy stifled by a corrupt state bureaucracy and red tape into one of the most successful post-Soviet economies. The spectacular increase in economic freedoms (12th in 2011 World Bank, “doing business index”) has generated economic growth (6.4 percent, 2011) and more prosperity. A few years only after the 2003 Rose Revolution, this feat is truly remarkable. The author argues that this success bears testimony to the idea that radical liberal economic reforms, if well handled, can work anywhere.
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There is no such thing as an ideal or painless transition model but only fools can ignore what works and what doesn’t. European leaders would be well advised to take a few lessons in “Bendunomics.”