Arab Revolutions of Rising Expectations

Marcus Noland (PIIE) and Howard Pack (Wharton School)
February 1, 2011 11:00 AM

As poor countries go, Egypt is not in the bottom rank even among nations in the Arab world. Measured by such conventional indicators as the percentage of population living on less than $2 a day, Egypt's poverty is not high by international standards. Incomes have steadily risen and progress on life expectancy, infant mortality, years of education, and other indicators there has been impressive. Why then has the lethal mixture of poverty, unemployment, and rising food prices come together to ignite antigovernment protests in its streets?

The answer is not simply that citizens have tired of a repressive regime. It is also that regime's inability to address high unemployment, particularly among educated urban youth.

Though birth rates have been declining, there is a huge population bulge of job seekers in Egypt and elsewhere in the region with few prospects, regardless of education. Youth unemployment in the Middle East is roughly twice the world average, exemplified by Mohamed Bouazizi, the college graduate fruit vendor whose suicide set off the conflagration in Tunisia. In fact, unemployment goes up along with educational attainment. Joblessness among Egyptian college graduates is almost 10 times that of people with primary educations. It is no surprise that many of the leaders of the current unrest are university graduates.

Egypt faces two fundamental imperatives. The first and most obvious is to allow greater freedoms to channel protest and dissent. But the second fundamental imperative is to create jobs, particularly among those who have striven to better themselves through education. Right now, some educated young people defect to the oil rich Gulf and to the West to seek careers. But there are things Egypt and other countries in the region can do to create jobs at home.

Fifty years ago East Asia faced similar demographic circumstances and harnessed it into a boom that continues today. The key task is to penetrate global markets in labor-intensive manufacturing and service sectors, which can rapidly generate large-scale employment. Yet despite proximity to Europe and free trade arrangements with the European Union, manufactured exports have been paltry. Thailand, with a population smaller than that of Egypt, exports 10 times as many manufactured goods.

How could the region's governments foster such a job-creating export boom? Success requires improving productivity, thus lowering costs. Upgrading roads and port facilities—making it easier to both import components needed by export industries and ship out the finished exports—would be a start. Special economic zones to facilitate processing for exporting firms have been used with success in nations as diverse as China and Mauritius, but are relatively rare in the Middle East.

But more fundamentally, increasing productivity requires Egypt and other countries to open their doors to foreign technology, technology licensing agreements, foreign direct investment, and the use of consultants from advanced countries. The widespread use of social media in the Tunisian and Egyptian protests demonstrates that these societies are adapting imported technology. But more could be done, particularly in industrial applications. The Philippines, roughly the size of Egypt, reports more technology royalty payments—an indicator of technology importation—than all Arab countries combined. In the Middle East, however, several Arab Human Development Reports have documented the dearth of incoming knowledge flows, such as translations of books into Arabic and the introduction of modernized school curricula.

Addressing the employment problem alone will not resolve political tensions; the dislocations caused by reform could actually be destabilizing in the short run. And while economic growth may be a short-term palliative, rising incomes in the absence of political liberalization will intensify discontent in the long run. But addressing this issue is a central challenge to the ability of Ben Ali's successors in Tunisia to establish a sustainable basis for governance in a more open political system, as it will be for their eventual counterparts in Egypt and elsewhere in the region. Whoever emerges on top will face the same labor unrest and need to implement changes ranging from education reform to economic policy. Americans should require little reminder of how difficult such changes are.

Marcus Noland is deputy director of the  Peterson Institute for International Economics. Howard Pack is a professor at the Wharton School, University of Pennsylvania. They are the authors of The Arab Economies in a Changing World, the Peterson Institute of International Economics, 2007.

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