Free Market For The Oppressed: Mitt Romney's Economic Recipe For The Mideast

  @LauraMatt on October 06 2012 12:20 PM
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GOP presidential nominee Mitt Romney. Reuters

When Mohammed Bouazizi, a 26-year-old street vendor from Sidi Bouzid, Tunisia, went to work on Dec. 17, 2010, he simply wanted to earn an honest living as the breadwinner for his family.

But that day, a municipal police officer confiscated Bouazizi’s unlicensed vegetable cart, leaving him no means to support himself and family. It wasn’t the first time Bouazizi was the victim of police harassment. But by then, he had had enough, and he set himself on fire outside a local municipal office in protest. Today, we know that his self-immolation and the protests that followed were the start of the Arab Spring, the revolution that ended President Zine El Abidine Ben Ali's 23-year rule and then expanded to other countries, toppling regimes in Egypt and Libya and igniting a civil war in Syria.

The series of protests across the Arab world wasn’t just a movement for political freedom. It was a move toward the transformation of long-closed societies. Discontent with corrupt governments and the lack of economic opportunities, high unemployment, failing public services and no chance to participate in policymaking brought masses to the streets, led by young men with little prospect for advancement.  

That underscored the need for developed countries such as the United States, which has long been involved in the Middle East, to help with the economic problems plaguing the region. One idea for what to do about this phenomenon has come from Mitt Romney.

The Republican presidential hopeful proposes to tweak American foreign policy by overhauling aid programs to stimulate economic growth across the Middle East and other developing nations. To that end, Romney said his administration would offer “Prosperity Pacts” to promote work and free enterprise. The private sector would be brought in to help identify barriers to investment, trade and entrepreneurialism.

Developing countries would get assistance packages from the U.S. to put toward “developing the institutions of liberty, the rule of law, and property rights.” Additionally, greater focus would be placed on small- and medium-size businesses and microfinance. “Work. That must be at the heart of our effort to help people build economies that can create jobs for people, young and old alike,” Romney said during a speech on Sept. 25 at the Clinton Global Initiative in New York City. “Work builds self-esteem. It transforms minds from fantasy and fanaticism to reality and grounding. Work will not long tolerate corruption nor quietly endure the brazen theft by government of the product of hard-working men and women.”

Romney’s plan -- though not entirely novel -- is not an irrational one. The question is, can he implement it in the Middle East, and what will it take for such a plan to work? Some give it the thumbs up due to the lack of investment in small and medium enterprises in developing nations. Others are skeptical about the plan but say there is merit in trying it. They all agree, however, that fixing the problem goes beyond just encouraging public-private partnerships.

No Short-Term Benefit

“Romney’s focus is quite reasonable, but the hard part, as always, and one that he will immediately run into problems with, is implementing it,” said Roger Bate, a resident scholar at the free-market-leaning American Enterprise Institute. “Much of the aid establishment will be opposed since to push this will go against the prevailing direction of most of the 'client' countries, which are moving toward protectionism in one form or another.”

But Bate suspects that Romney’s plan would not show any obvious short-term benefits for America.

“[This is] because nations will agree in principle and then backtrack in practice when their special interests get involved,” he said. “So it will be easy to criticize ... ‘we opened up our markets, and they haven’t opened up theirs.’”

According to Raj Desai, a senior fellow at Brookings Institution and associate professor of International Development at Georgetown University, the region has one chief problem: “Economies of the Middle East aren’t diversified. They depend on a small number of sources for external income -- oil and gas -- but for nonoil and gas countries, it’s tourism, remittances and foreign aid.”

If Arab economies are to compete in the 21st century, they have to move away from solely depending on money from those sources, and they need to open up. Nonoil Arab exports total less than 1 percent of global trade. Its intraregional trade is also among the lowest in the world. That's why Desai thinks the United State's focus in the region should be on four priority areas in the Middle East: expanding opportunities for young people; reforming government institutions to weed out corruption and foster fiscal responsibility; transforming the private sector so there are better opportunities for entrepreneurs; and encouraging regional and global integration through trade, investment and finance.

Lots Of Jobs But No Guarantee Of Lasting Empowerment

More than 340 million people call the Mideast home. Its population, when compared with the United States, is very young. Close to 55 percent of the population is under 24, and two-thirds is under 30, according to figures from “After the Spring: Economic Transitions in the Arab World,” by the Brookings Institution, which Desai co-authored. Between 1998 and 2008, the Arab world’s 3.3 percent employment growth was the fastest of any region in the world. However, it has the second-highest unemployment rate in the world, at 9.7 percent, and a low labor force participation rate of only 50.9 percent.

The region’s youth unemployment rate is staggering: in Egypt, it is approximately 25 percent. Arab youngsters are not fully prepared for the workforce: three quarters of them do not have work experience, and education is not geared towards modern, business-oriented studies. There is "a significant need for education reform -- job training and giving the youth the workforce skills to compete in the 21st century. The education system currently doesn’t provide that,” Desai said.

Jamie Zimmerman, director of the Global Assets Project at the New America Foundation, thinks “Prosperity Pacts” may work to help developing nations, with caveats. "[It’s] certainly catchy -- at surface level,” she said, adding that promoting free enterprise is not exactly an original development idea.

“It's actually rooted in the most traditional, neo-classical economic theory and tends to resonate most with proponents of trickle-down economic theory, such as Gov. Romney,” Zimmerman added. “That said, I like a lot of what Romney said: Investments in small and medium enterprise in the developing world are sorely lacking, and proposals that focus on increased access to economic opportunities are right on the mark.”

But for the idea to truly work, the mix must include something that Romney hasn't really talked about: politics, and its effect on social issues. “Spurring businesses to provide ‘dignity of work’ will not be enough,” she said. “There are larger systemic issues, including generations of social exclusion, marginalization, and discrimination that have pushed large portions of many developing country populations to the periphery and have challenged their ability to demand greater rights."

“Free enterprise may provide some jobs, even a lot of jobs, but it does not guarantee lasting empowerment because it does little to fix the systemic issues that prevent the poor from achieving their potential or taking ownership of their futures.”

Worth The Try

However, the West, not just Mitt Romney, may find itself in no position to lecture Middle Easterners on how to make the market work. According to Desai, the word "reform," when used by the West, tends to mean one thing in the Middle East: more unemployment. For a long time, the wealth of many countries in the region was tied to a small elite supported by Western powers. Furthermore, structural changes to local economies, introduced with the support of the U.S. and the International Monetary Fund, cut subsidies and increased short-term economic pain among the young population.

“Those memories are pretty fresh among the youth,” Desai added. “This is a long-term project. The international community can make a difference, but doing business the old way may not be the best approach.”

In any case, the approach that the West will eventually take toward involvement in the Arab world's renewal may not be dictated by Americans, or Europeans, at all. The Middle East is still unsettled, and its young people are still making their voice heard.

The man who became the symbol of their movement, Mohammed Bouazizi, died last January after months of agony, and his self-immolation is still inspiring many activists in the region, who continue to demand opportunity and equality. The path they have started toward democracy may prove to be their biggest asset when it comes to helping the economy:  "If the leaders of a region face credible challenges to their authority and respect basic rule of law, the chance for reform is higher,” Desai said.

Whether Romney’s "Prosperity Pacts" program would assist that reform is yet to be seen. “I'm highly skeptical it could work," said Roger Bate, the scholar at the American Enterprise Institute. But the other approaches haven't worked so far, and one thing is certain: "This is a decent direction to try.”

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