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The gap between performance and reward in the Arab world

Freedom and order for more justice: social market economy - a model for the Arab world?

This is the latest in a series of commentaries The Daily Star is publishing in association with the Konrad Adenauer Stiftung, a German research foundation.


Few will recall that the greatest challenge facing the Arab world is development. Fewer still would see links between development, social justice and democracy, especially since several economies in the region have achieved tremendous economic growth rates recently with little-to-no advances in development. Rentierism, nepotism, corruption, and wasta, (the abuse of personal influence or position) are primary deterrents to Arab development, which underscores the need for creating greater social justice and democracy.

Economics defines development as a state of sustainable economic growth, whereby an economy grows at sustainable rates for several years. For the growth to be sustainable, it must be based on the enhanced competitiveness of its economic agents. Competitiveness, in its core, means being more productive than other producers; thus, increased competitiveness is enhanced productivity of the economic inputs or factors. In other words, in order for an economy to become competitive, it must improve the conditions that affect the productivity of its economic agents, including workers and capital.

For people to become more productive, their rewards must match their efforts. In other words, the economic system must reward workers for producing goods and services. However, this reward cannot be equitable or fair if the system itself is based on social injustices, especially when rewards are given to non-producers (rentierism), when nepotism is not simply an aberration but a flagrant common practice, when wasta becomes the necessary and acceptable mode for interaction among economic agents.

On the other hand, rent-seeking is a behavior whereby someone extracts rent, benefit or value from others without contributing to productivity. Examples of rent-seeking include gaining control of land and other pre-existing natural resources through government decrees, or by imposing burdensome regulations or other government decisions that may affect consumers or businesses.

Manifestations of rent-seeking include wasta and using non-public information to further one's personal gains. Capturing special monopoly privileges or benefiting from a yet-to-be-disclosed government regulation causes an inefficient redistribution of wealth, whereby those who do not produce become wealthier while being unproductive. Owning large tracts of land and benefiting from the increases in demand by seeking monopoly rent, whereby the seller offers small portions of land at exorbitant prices, is another form of rent-seeking.

From a macroeconomic standpoint, the cost of rent-seeking can be considerable. By simply paying for a favorable regulatory environment instead of competing through the more costly option, such as efficient production and competitiveness through increased research and developmnet, employee training, business processes upgrading, etc., enterprises will seek the bribery option and reap benefits that are completely unrelated to their contribution to the wealth of society.

Furthermore, in such societies where social injustice is rampantly practiced, the result is inequitable distribution of the gains from economic growth and the collapse of the underpinnings of development. Societies that witness large disparities in income are either subject to windfall profits (which do not repeat and are, therefore, not sustainable) or are economies that witness brain drain, social unrest, lack of empowerment of economic agents such a labor (particularly women) and are, consequently, susceptible to setbacks and internal shocks.

The moral hazard in the Arab world is that people have come to condone such practices, accepting and encouraging them, which is probably the primary reason why the Arab world is by no means developed. This is not an assertion but a statement of fact. Even economies that have benefited from the oil boom are not only susceptible to oil price fluctuations which deter long-range planning but also face the same challenges of the underdeveloped. According to the third Arab Human Development Report, more than half the women in the Arab world are unable to read or write. Literacy rates vary from 28.5 per cent in Yemen to 85.9 per cent in Jordan. Many Arab countries failed to provide primary school education for all children, and enrolments in secondary school are worse. Child mortality for children under five is also high, about 60 per 1,000 births, compared with six in industrialized countries.

Nowhere is the message of social justice combined with a market economy more clearly stated and underscored than in the paradigm of the social market economy, where justice, in addition to freedom, presents one of the most important principles of socially responsible democratic systems. Within the social market economy, the individual is viewed as a rational economic agent and, thus, a utility maximizer. Whether this utility arises from income, wealth or profit, maximizing it is the principle that forms the basis of the market economy. However, in a social market economy, this economic rationale is combined with a deep sense that all members of society must partake, based on social justice, in the building of the welfare of the society. This is achieved through a balanced relationship between different types of corresponding types of justice including fair results for fair opportunities.

The worst that can happen to a nation is to lose the desire to invent its own future, which is even worse than losing the will to build it. Corruption is the enemy of performance and meritocracy; the logic and underpinnings of the social market economy paradigm as a relevant model for the region are, thus, unquestionably eminent.


Yusuf Mansur is currently CEO and consultant at Enconsult. His previous positions include United Nations Development Program resident representative in Kuwait, CEO of the Jordan Investment Board and CEO of the Jordan Agency for Enterprise and Investment Development.

Marseille,12 17 2007
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