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January 24, 2011, Monday

Democracy and the Arab World

As the discussion continues about which country may be next after Tunisia, it is important to remember that the Arab world is not a monolith. We therefore need to compare apples with apples and oranges with oranges. It is certainly true that there is an Arab exceptionalism to democracy.

Out of the 22 countries in the Arab League, only Lebanon has regular elections. Yet, even there, chronic instability fights the image of a successful democracy. Why is there such an Arab exception to democracy? I don’t think culture or religion is the answer. There are many democracies in the Islamic world, after all. Turkey, Malaysia and Indonesia come to mind.

According to political scientists and political economists, there are structural impediments to democracy in the Arab world. One of them is the resource curse, sometimes also known as the “rentier state” theory. According to this school of analysis, if an underdeveloped country discovers that it has natural resources, its chances of becoming a democracy significantly diminish. The reason is the correlation between taxation and representation.

Let’s take the example of Saudi Arabia and oil. When an economically underdeveloped country discovers that it has oil, the public sector becomes the owner of the newfound wealth. The state owns the land and the energy sector. If the oil sector is large enough to dominate the economy, there is no longer any incentive to develop other sectors of the economy. Therefore, oil wealth comes at the expense of economic diversification and the development of a productive, competitive private sector. The country may get rich, as Saudi Arabia did. But this does not mean that it is productive and successful.

Perhaps more important is the connection between taxation and democracy. Is there any need for a rich state like Saudi Arabia, which owns the largest oil reserves in the world, to tax its people? The answer is “no.” The Saudi state has so much oil revenue that its fiscal balance does not depend on tax income. This is why there is no income tax in Saudi Arabia. And when a state has no need to tax its people, the most important part of the social contract that defines the democratic relationship between state and society is missing.

When citizens don’t pay taxes, they don’t develop a sense of civic consciousness or sense of ownership for their political system. There is no real driver for human and political rights when there is no responsibility. In other words, no taxation often leads to no representation. The Saudi state can safely assume that it can buy the loyalty of its citizens as long as it can economically provide for them.

The same dynamics that apply to Saudi Arabia are valid in most Arab states that have natural resources and use them as economic rent. The Gulf region, Libya and Algeria are all to some extent rentier states. But what about Arab states such as Jordan and Egypt, which do not have significant natural resources?

Most Arab states have strategic importance for the West, and particularly Washington, for two reasons: proximity to energy resources and proximity to Israel. Proximity to oil means revenue from the transportation of oil. Egypt has the Suez Canal, and many other countries such as Jordan have pipelines that produce revenue unrelated to economic productivity. It is the strategic importance of their geographic location that creates income. Most Arab states have workers in the Gulf and depend on the remittances of their citizens for their fiscal balance.

But perhaps most important is their ability to translate their relationship with Israel into cash. It is no coincidence that Egypt and Jordan are big recipients of foreign aid from the United States and Europe. They may not have energy rent but they receive strategic rent because of their strategic importance for peace in the Middle East. In that sense, foreign aid is just like oil. It creates unearned easy income, unrelated to economic productivity. And foreign aid also creates addiction and dependency, just like in the case of oil.

At the end of the day, oil rent and strategic rent explain why major parts of the Arab world did not develop like the West. Simply put, they were able to depend on easy income without genuine economic development, private sector growth, the emergence of an industrial bourgeoisie, a middle class and, most importantly, taxation and representation.

Previous articles of the columnist