session 4 a ishac diwan

A framework to understand Arab revolutions

Or is it too early to tell?

Ishac Diwan, Harvard University

Many questions

• To offer economic advice, must understand which political constraint released, or added..

• Why did revolutions start in late 2010 – nothing special happened around that time..

• Why Tunisia and Egypt first? why contagion? What system will replace autocrats?

Transitology

• 4 broad trends – Modernization – role of autonomous bourgeoisie and middle classes (Korea?

Spain, Portugal) – Economic shock requiring new forms of social organization (LA, Africa) – Divisions within the ruling elite and peeling off (Indonesia, Philippines,

Mexico)

• MENA exeptionalism?

– Recent MENA literature: autocratic bargain with pressure from below, resulting in evolving rules of the game (spaces of contestation, use of cooptation and repression)

– Economic liberalization: democratic opening of 1980s stalled – Democratic paradox: Islam the problem? who safeguards the democratic

process? – But PI not a historical exception: Europe went over this transition in 1800 (but

with the Pope)

Autocratic bargain (AB)

• Citizens give up political rights for some measure of economic security

• Models usually include a threat of insurrection, with some probability of success.

• Autocrat provides economic and social policies in ways to minimize probability of insurrection

• Models typically based on superior ability of autocrat to manage economy – partly by ensuring some cooperation by using accommodating social policies

• One implication is that when under threat, autocrat makes political concessions

Autocrat

citizens

Economic security against constrained political rights

Revolution as demise of AB?

• Economic rents sharply declined in mid-1980s – No recent cuts in subsidies – Youth bulge nothing new – Unemployment high but not rising

• Should have seen political rights rising over past 2 decades

• Cannot explain regional contagion convincingly • Revolutions a chance events? • Current views on policy implication possibly too

optimistic on role economic reforms

Why not in the early 1990s?

Repression rises!!

Why Tunisia, Egypt first?

Unemployment not rising

Asaad 2007

Modifying the AB model: AB 2.0

• Autocrat core in alliance wt “soft belly” group, but repression of rebellious opposition

• Main players: – Autocrats (A) backed by armies, allied wt elite capital

• Alliance formed in early 1980s post socialism in most republics under the cover of neo-liberal policies and leading to crony capitalism

– “Soft belly” group benefits somewhat from AB and fears take-over by opposition • Social liberals, minorities, merchants. In republics, Liberals central to autocrat’s

legitimacy • Key social policy issue is civic rights • As state decays, subsidies to this group rise • Role of minorities, esp. in Iraq, Syria • Alliance of A wt West strengthens after 911

– Opposition: mostly Political Islam (PI) (plus the old left in some countries) • Repression, no political rights, lead to rebellions and attempts to takeover • Cooptation sometimes, especially Islamization of the State • Over-repression to radicalize PI when bridging with L

A reflection of a divided society

autocrat

Soft belly

Repression and rebellion

bargain

Rising subsidies in Egypt

.. Going to the rich!!

Dynamics – push and pull factors

Economic Non-economic

Push “Corruption” of economic

liberalism (YA falls)

• Foreign relations and dignity

• Policies to radicalize PI backfire

Pull Rise of business-MC (YD

rises, bridges PI&L)

MC bastion of PI –> moderation

of PI on civil rights )

• L has a choice between alliance wt A vs PI -- attractiveness of peeling off changes with time

• Push/pull factors: A less attractive/ PI more attractive • Economic and non-economic factors

• two cross cutting factors: rise of autonomous MC, and politital repression

Middle class – mostly churning

Corruption

Egypt 2011

Economic performance of Arab crony capitalism poor

• High profits due to preferential treatment

• But low investment and job creation

• Wt large capital flight

• why?

– Political instability and high risk?

– Regimes’ inability to regulate?

Most loans go to large firms

• .

But they did not deliver the jobs!

Source: Asaad 2007

“SB” has a choice …

Core autocrat: 10% army, elite capital,

Soft belly: liberals, minorities, MC

Autocratic bargain

Secular opposition: political Islam, left

Democratic option wt peeling”

Revolutionary moment in T & E

• L shifts alliance from AB to a new pact wt PI -- to end repression and foster democratic governance

• A falls when L leaves bargain – all it takes is a credible demonstration (thus no need for L leadership)

• There was no forum to exchange information – street movements as a process of discovery of individual preferences (a foco: Tunisia Egypt fall when key professional unions go to the street)

• Why Tunisia, Egypt first? – Stronger autonomous MC wt bridges to PI. Is dignity a

normal or luxury good?

Regional developments

Contagion

• Not about information relating to position of foreign powers

• Most elements of the matrix regional so equation moves regionally (to some extend)

• Information revealed is about shift in the equation

Countries

• Libya: AB 1.0?

• Yemen: where is the soft belly?

• Syria: started from the outskirt, soft belly still undecided

• A kingdom factor: less division along liberal/PI cleavage

Implications for policies

1. New settlement a “flight of the imagination” and thus fragile – dialogue L/PI a historical premiere – external influences can complicate this relation – Ability of PI to commit and to restrain its radicals needs to be tested

Politics first: – do not allow economics to create divisions during consolidation phase – need to create democratic institutions, foster “recognition” – need to strengthen the Liberal movements

2. Short tem: revolutions a negative shock – how to smooth the short term without taxing the future unduly?

3. Medium term: Economics the main challenge for new republics over next 4-5 years. Two main areas where changing political constraints open opportunities – Public services: reducing subsidies opens up fiscal space – Jobs: improving competition, democratizing credit, supporting SMEs