Freedom and Bread Go Together

• Author: Marwan Muasher
• Position: Vice President for Studies in the Middle East Program of the Carnegie Endowment for International Peace.

As Arab countries face dire economic challenges, it is easy to forget that not long ago many of them were in a similar—or worse—position. If the region is to successfully tackle unemployment, encourage foreign investment, and foster economic growth, leaders must take lessons from the recent past.Â

These lessons offer five rules for success. Economic reforms cannot succeed in isolation, but must go hand in hand with political transitions. They must benefit all segments of society and have buy-in from everyone. They should be quantifiable based on a clear goal. Finally, plans for economic reform must be communicated effectively.Â

Nothing new under the sun

This is not the first major economic test for Arab countries in transition, nor the first appearance of crucial economic reforms.Â

Egypt and Jordan, for example, dealt with similar economic crises 20 years ago that were worse in certain respects than those they face today. In the late 1980s, the budget deficit in Egypt was almost 20 percent of GDP and the inflation rate was also 20 percent—both twice what they are today. Egypt’s debt-to-GDP ratio was 76.5 percent, almost identical to today’s 76.4 percent. And Jordan had a staggering debt ratio of 133 percent, compared with an estimated 65 percent today. Both countries’ foreign reserves dropped dramatically in 2011 and 2012, but Jordan’s almost disappeared in 1988.Â

Over the past two decades, Egypt and Jordan have undertaken serious economic reform efforts. Agreements with the IMF were signed, and many state industries were privatized. Egypt joined the World Trade Organization (WTO) in 1995. Jordan became a WTO member in 1999 and signed a free trade agreement with the United States in 2000. Both countries signed partnership agreements with the European Union.Â

As a result, both Egypt and Jordan were able to achieve healthy growth over a sustained period from 2000 until the global financial crisis in 2008. Despite these achievements, average citizens in both countries remained frustrated with a process whose lack of checks and balances left them little control—and with growth they couldn’t see in their everyday lives. What went wrong?

Bread before freedom

Until the uprisings began in 2011, Arab leaders argued that economic reform must precede political reform—the so-called bread before freedom approach. They argued that it was premature and even dangerous to introduce political reform before supplying citizens’ basic needs. Only when those needs had been met could people make responsible political decisions. But that strategy, even when conducted in good faith, did not work as planned.Â

The approach did preserve macroeconomic stability—which helps the poor, who are the first to suffer in an inflationary, low-growth environment—but failed to yield inclusive growth or address corruption, which multiplied in the absence of parallel political reform.Â

Economic liberalization—which included not only privatization and freer trade but also more liberal investment laws and stronger integration with the world economy—more often than not failed to achieve either political or economic reform. Because necessary economic measures were not accompanied by development of a political system of checks and balances, abuses by key economic actors went unchecked, and impunity was the rule.Â

As a result, many economic reform programs benefited only a small elite rather than the general population. The consolidation of benefits in favor of a small group further hamstrung the economic impact of the reform effort. In the absence of strong parliaments able to exercise proper oversight, the privatization of many state industries often took place without complete transparency and led to a perception, often justified, of corruption.Â

It is difficult to encourage foreign investment if there is no independent judicial system to properly...