Friday, June 18, 2004

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What sustains the barriers to globalization in the Middle East?

Marcus Noland and Howard Pack have written a must-read policy brief for the Institute for International Economics on why the Middle East appears to be suffering from relative economic stagnation. They lay out the challenge in stark terms:

[T]he region as a whole will experience labor force growth of more than 3 percent for the next 15 years or so. On current trends, according to an Arab League report, unemployment in the region could rise from 15 million to 50 million over this period. Under plausible assumptions about the rate of productivity growth and required investment levels, the economies of the region will have to maintain investment rates on the order of 30 percent of GDP and income growth of 5 to 6 percent a year to absorb all this labor. This is a very tall order. And recent history is not reassuring....

Yet the implications of not achieving rapid growth to absorb the rising number of entrants to the labor force could be dire. In the Zogby (2002) poll of Arab attitudes, Saudi males stand out as uniquely dissatisfied and pessimistic about their children’s future. Presumably these feelings are rooted in the reality of dwindling employment prospects, the 40 percent decline in per capita income from its peak in 1982, and the lack of political voice. Dissatisfaction and pessimism about the future are mildly correlated with age, education attainment, and internet access. The youngest, most advantaged sections of society have the bleakest appraisal of the future. It goes without saying that 15 of the 19 September 11 hijackers were Saudi males.

The authors dismiss the simple argument that Islam retards receptivity to capitalism. Rather, Noland and Pack's key finding is that "public attitudes toward foreigners and globalization" more generally is the greatest barrier to foreign investment. Their operationalization of this kind of attitude is most intriguing:

Three of the many questions posed in the Pew [Global Attitudes] poll have particularly high correlations with measures of risk in economic exchange, especially FDI that involves a local physical presence. The regional pattern of responses to three issues—the necessity of closing large, inefficient factories; the need to protect their way of life against foreign influence; and the desirability of societal acceptance of homosexuality—are displayed in figures 2 through 4. Relative to most respondents in the rest of the world, the Arabs were less willing to close inefficient factories, more committed to protecting the local way of life, and less tolerant of homosexuality. The picture that emerges from the pattern of responses to the full set of Pew survey questions is of local populations that are relatively averse to change, instead favoring the maintenance of existing economic and social arrangements—especially if the forces of change are regarded as emanating from foreign or nontraditional sources.

Controlling for economic fundamentals such as the level of per capita income, macroeconomic stability,and corporate taxes across a broad sample of countries, these responses have some explanatory power with respect to measures of interest such as the level of inward FDI, sovereign debt ratings, and local entrepreneurship. Although the precise channels of causality are ill defined, it is plausible that the attitudes manifested in the survey responses
are underpinning behaviors and practices that may impede successful globalization. The question about closing of factories could be interpreted as a straightforward question about the priority placed on efficiency. The questions about protecting against foreign influence and accepting homosexuality could be interpreted as capturing the extent of entry barriers to human capital from nontraditional sources. (emphasis added)

From this finding, the authors return somewhat gloomily to the role of Islam and conclude:

Islam may matter—not in the simple sense that belief in Allah dooms one to a low personal saving rate or that Islamic banking systems handicap financial efficiency—but rather in a more subtle way. Today there are Muslim communities in the Middle East that are relatively discomfited by aspects of ongoing social change. To the extent that adherence to Islam is a significant component of personal and communal identity, Islamic teachings will be one prism through which these developments are evaluated. This pattern of apprehension may be reinforced if Islam itself is regarded as being part of this contested terrain.

Read the whole brief.

posted by Dan on 06.18.04 at 11:58 PM


Glad to see you're having as much fun on a Friday night as me.

posted by: Jim on 06.18.04 at 11:58 PM [permalink]

“The authors dismiss the simple argument that Islam retards receptivity to capitalism.”

Where’s my shovel? It’s getting really deep. Oh boy, I’m afraid that I must remain “simple.” I downloaded and read the whole eight page report. These guys are nothing more than well meaning fools. Political correctness blinds them to reality. One should get very suspicious when noting a reference to a study put together by James Zogby. They even went out of their way to emphasize that allegedly “Islam is Not the Issue.” On the contrary, I’m convinced that the Christian world was royally screwed until the Protestant Reformation got rid of the usury laws. The Catholics were essentially hostile to wealth creation. The same holds true for the Muslim world.

Around 400-500 years ago the followers of Islam embraced reactionary, anti-intellectual “stop the world, I want to get off” luddite views. I strongly recommend Bernard Lewis’ fantastic “ The Muslim Discovery of Europe.” He convincingly shows how indifferent the Arab Muslims were toward advances of any type. One might even be accused of witch craft by displaying a clock. These people had little interest whatsoever in improving their economic situation. Am I exaggerating? OK, can anyone point to to even one significant achievement by the Arabs since the Middle Ages? They consistently lie to themselves. That’s why the Arabs make a big deal about Israel. In one way or another, the Arab Muslims prefer to scapegoat and blame others for the mistakes of their own ancestors. Ataturk was one of the few Arab thinkers and politicians who had the maturity to get away from this nonsense.

posted by: David Thomson on 06.18.04 at 11:58 PM [permalink]


I agree with a lot of what you say, but wouldn't that apply to democracy as well? If Islam is not receptive to capitalism, maybe it's not receptive to democracy either. I don't necessarily equate capitalism with democracy, but wouldn't that suggest that bringing democracy to the Middle East is futile?

posted by: MWS on 06.18.04 at 11:58 PM [permalink]

“I agree with a lot of what you say, but wouldn't that apply to democracy as well? If Islam is not receptive to capitalism, maybe it's not receptive to democracy either. I don't necessarily equate capitalism with democracy, but wouldn't that suggest that bringing democracy to the Middle East is futile?”

Islam is inherently hostile towards both democracy and capitalism. It is also disrespectful of women and theological outsiders. Inclusiveness of any sort is an alien value. We can only hope that a peaceful religious reformation is taking place. Is it futile? No, but the task is overwhelmingly difficult. We have no choice but to assist the Arab Muslim world to embrace the necessary changes. Altruism has little to do with it. I’m talking about self preservation. There is no realistic way that millions of raging and embittered followers of Islam can be isolated on this very small planet. Iraq is merely the first domino that must fall. Saudi Arabia looks like the next one. What should we look for regarding the latter situation? The legal right to permit women to drive automobiles.

Marcus Noland and Howard Pack irritate me with their mealy mouth academic style writing. Brutal frankness---with a dash of added politeness--- is far more suitable. 400-500 years have essentially been wasted. The Arab world can no longer be permitted to indulge in self deception. These people must begin behaving like adults. Their ancestors screwed them and not the “Zionist conspiracy.” The Western world must cease treating them differently because of their lacking blue eyes and blond hair.

posted by: David Thomson on 06.18.04 at 11:58 PM [permalink]

As usual, people are incorrectly using Muslim and Arab interchangeably. Culture includes more than religion. There are many examples of Muslim countries that are relatively successful economically (at least relative to the pathalogical state of most Middle Easterm muslim countries). These include Malaysia, Indonesia and Turkey. Of course, none of these are in the Middle East. Iran's an interesting case in that I think that Iranians are generally pretty entrepeneurial and forward looking economically. Iran's been retarded by the mullahs for the last 25 years but in the long term, that's an a-historical blip that will be reversed when the mullahs' inevitable end comes.

Islam sort of did have a "reformation" of its own but it happened under the Abassid caliphs about 1200 years ago. The caliph al-Ma'mun favoured a view of the Koran as a text created by man rather than an eternal truth (the Mu'tazili theology). Mutazilites believed that the Koran should be interpreted with logic based on reality and the surrounding world. They were heavily influenced by Greek rationalism and al-Ma'mun founded the House of Wisdom (ironically in Bagdhad, the seat of the Abassid caliphate), where many ancient Greek texts were translated into Arabic. The Arab (or possibly Persian) mathematician al-Khawarizmi worked in Baghdad at this time. Unfortunately, the Mutazilite theology never took hold and dwindled away as Abassid power waned.

However, one thing to keep in mind is that the current ascendance of Wahabbi theology is highly aberrant based on Islamic history. As recently as a hundred years ago, it was considered heresy in mainstream Islamic theology but it has spread like a cancer driven by Saudi $$$$$.

All this is a bit of a digression from the topic but it's worth considering when drawing broad conclusions on Arab and the larger Muslim world. Even within Arab countries, consider Morocco, which isn't exactly an economic superstar but is at least less bad than other Arab countries. Another point is that oil (and natural resources in general) have always been a curse for developping countries without existing practices of good governance.

posted by: ramster on 06.18.04 at 11:58 PM [permalink]

“Mutazilites believed that the Koran should be interpreted with logic based on reality and the surrounding world.”

This group obviously lost the battle. They are similar to the Protestants before Luther. I’m sorry but the irrefutable evidence proves that the Islamic world opted for a reactionary ideology contemptible of the modern world. I will concede that it’s sometimes difficult to distinguish between the Arabs and the overall Muslim world. That’s because the Arabs have always been the dominant player. Let’s be blunt: Islam will be better off when the Arab influence decreases.

posted by: David Thomson on 06.18.04 at 11:58 PM [permalink]

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