China’s Economic Reckoning
The Price of Failed Reforms
The violence gripping the Middle East has distracted the world from the seismic changes transforming almost all large Arab societies. These changes will confront the Arab middle classes with difficult choices and shape the future of the region.
This tipping point arises out of a relatively subtle shift in the governments' economic policies. In the past two years, several North African, eastern Mediterranean, and Persian Gulf countries have started to restructure their public sector compensation systems, curtail the welfare programs they introduced in 2011 (the height of the Arab uprisings), impose new direct and indirect taxes, and reduce their energy subsidies.
These changes will bring substantial economic pain to Arab societies. The most vulnerable social group, the poor, will likely try to fight back, through strikes and demonstrations. In response, the region’s regimes might attempt to rally their electorate with nationalistic rhetoric and by painting themselves as saviors pursuing tough but necessary measures. Before too long, many of these regimes will also resort to political repression against activists and groups that challenge their policies.
The resulting upheaval will force the Arab middle classes to take a stance. The more educated and mostly urban members of this group will generally benefit from the new reforms, which will improve their countries’ fiscal and monetary positions. As a result, large sections of the Arab middle classes might be tempted to back the state. They might also see the ruling regimes as necessary bulwarks against the violence and chaos that ensnarl much of the Middle East.
But the middle class can hardly ensure its security and good fortune in the long term by unconditionally casting its lot with the ruling elites. Gradually, the erosion of political and civil rights will breed resentment among key social groups: the poor, the civil society, and young, economically marginalized Arabs. Eventually -- sparked by some new social, economic, or political black swan -- that anger will erupt in a new wave of Arab uprisings. It will sweep seemingly stable Arab countries and unleash yet another cycle of uncertainty and violence.
The Arab middle classes thus face a moral dilemma. With their position of inaction, cowed by their fear of disorder, terrorism, and religious extremism, they have effectively condoned authoritarian renewal in the Arab world. Yet their moral imperative is to stand up for democracy even if it might jeopardize their economic and social standing.
HANGING IN THE BALANCE
To build better futures, the Arab middle classes must confront several challenges. First, excessive concentration of power in most Arab countries, compounded by corruption, will make it extremely difficult for them to ensure a fair design of reforms. Across the region, state institutions are closely tied to the ruling regimes; even if the reforms unlock investment and expand the supply of capital to the private sector, interest groups close to the regimes will benefit vastly more than the middle classes and the poor.
Second, because economic decision-making in most Arab countries is highly centralized, reforms will likely be shortsighted when it comes to fostering broad-based growth in the long term. Governments have a free hand in channeling resources, which will result in substantial investments in infrastructure and potentially manufacturing. This will please the regime’s allies who run these sectors -- and it will lead to some economic growth. But because this growth will come from low-value-added industries, it will be slow and more uneven than progress spurred by research, development, and entrepreneurism, which advances technologies and empowers the private sector.
The Arab middle classes will also have to cope with the fact that they lack clear political objectives, a shortfall that hobbled the Arab Spring. As a point of comparison, in the 1990s and the early 2000s, the middle classes in eastern and central Europe calmly endured the painful economic adjustments necessary for joining the EU -- a goal that inspired citizens to sacrifice. Arab citizens must likewise endure the economic pain that will come from reforms after decades of mismanagement. But there is no greater political mission to make it worth their while -- no expansion of political freedoms or alleviation of the societal ills that triggered the Arab uprisings in the first place. Unless political reforms accompany economic ones, the rationale for sacrifice will remain weak.
Further complicating matters, the tools through which the Arab middle classes could exert leverage on their regimes are increasingly limited. Although Arab uprisings of the past three years started as revolts of the younger generations against corrupt and inept politicians, they swiftly morphed into broader middle-class movements against the ruling elites, who stood as obstacles to development. And then they changed once again, this time opening even deeper social fissures along religious and sectarian lines. As a result of this devastating outcome, the middle classes no longer see uprisings as a viable political option.
The Arab middle classes also lack experience. Groups that today fall under this definition all arose in the past four decades -- a period of undemocratic rule, social inequality, and assaults on civil society across the region. Unlike in countries such as Brazil, India, Portugal, and South Africa, which have undergone admirable political liberalization over the past thirty years, Arab middle classes never developed the expertise and political savvy to match their demographic and economic clout.
Finally, the middle classes will have to answer three questions about their position in today’s global society as well as the role played by their countries in the world. The first is how they behave toward Israel. As their governments warily eye the intractable Arab-Israeli conflict, with no medium-term solution in sight, the middle classes’ stance may determine the chances of peace, or a wider war, in the Middle East. The second question is how they will react to sectarianism. If the Arab middle classes buy into the Sunni-Shiite rivalry fueling the clashes in Iraq, Lebanon, and Syria, much bloodier conflicts may be in store for the eastern Mediterranean. And third, their views toward the United States, a country whose close partnerships with most large Arab countries define the existing regional order, will help determine whether that order stands or falls.
OFF THE SIDELINES
The course chosen by the Arab middle classes will vary based on the austerity measures in each country, the strength of the social safety nets, and the subtleties of individual political systems. The responses of different subgroups within each country’s middle class will also vary. Senior civil servants and successful entrepreneurs, for instance, will support government reforms more strongly than low-level public employees, pensioners, small-business owners, and farmers. But regardless of each country’s unique characteristics, the Arab middle classes will soon need to confront the dilemmas that new economic policies create.
The Arab world is coming to a boil, and its economic woes and lack of political openness are raising the heat. At the moment, the region’s middle classes appear to be passive observers. But their choices in the next few years will carry major consequences for their countries’ economies, governments, and foreign relations -- not to mention the ultimate course of the new wave of chaos sweeping the region.