The economic order is shaken by uncertainty

Sunday 31/07/2016

I have just spent three months in Jordan and Lebanon. Watching the spectacle of the US presi­dential politics from a distance has had a sobering effect on my usual quick retorts to questions about US politics even though I have been at it for several decades in this part of the world.

Arabs of all political stripes are alarmed by both presidential candidates, one because she is well-known and carries a great deal of negative baggage and the other because his posturing is both alarming and invigorating as there is still a mystical glow around hard-charging leaders in this part of the world, as else­where.

It shouldn’t be surprising, I suppose. The chaos that engulfs the Middle East and North Africa has much of its origins in the upheaval of autocratic regimes that once provided stability so prized by international investors and Western leadership. The irony is that today, many in these societies long for the law and order days of the old regimes, as long as they are not the targets of repression and human rights violations. There is symmetry in their yearning in the populist rumblings across Europe and the United States.

It does not matter where you are in the region, from Marrakech to Muscat, there is a tangible feeling of uncertainty that has not abated since the Arab uprisings five years ago. Then, the differences between rich and those not, whether in terms of economic disparity or political empower­ment, were brought sharply into focus. These disparities have not changed and, in conflict-ridden countries such as Syria and Yemen, the notion of a “national” consensus has all but collapsed for the majority of people.

Even those in Morocco, Jordan and Gulf Arab countries are not immune to feeling that the stable world order has not delivered promised benefits of prosperity and advancement that once seemed so close at hand.

Indicative of the seismic shifts that are going on are challenges to the “economic order” that has guided free market policies since the 1980s. Rick Rowden recently wrote in Foreign Policy about an article in which an International Monetary Fund (IMF) economist questioned the efficacy two cherished principles of its Washington Consensus for countries in financial crisis: fiscal austerity during economic slowdowns and the deregulation of financial markets.

Commonly referred to by its critics as “neoliberalism”, the author challenges several of these tenets for not achieving higher growth rates as promised. In fact, “fiscal austerity and increased financial openness have often exacerbated economic inequality, which itself could become a drag on future economic growth rates”.

While noting that other IMF principles have been more successful in addressing issues of growth, stability and capital fluctuations, “Most strikingly, the article infers that three policy prescriptions long advocated by the IMF’s critics — regulation of some capital flows, Keynesian fiscal stimulus policies, and effective economic redistribution — all have more merit than the IMF has long contended.”

The 2008 financial crisis demonstrated the weaknesses of the IMF’s prescriptions for economic inequality, stabilising financial markets and reviving economic growth. Most levels of gross domestic product (GDP) growth are failing to measure up to levels before the crisis, hence the continued populist angst and anger feeding the unease that benefits non-traditional political candidates such as Donald Trump.

As Rowden concludes: “Today, in a time when Thomas Piketty’s critique of worsening economic inequality is a best-seller, leading US presidential candidates rail against free trade deals, right-wing anti-immigrant parties win elections across Europe, and even the Organisation for Economic Cooperation and Development calls on its members to put the brakes on austerity, it’s clear that the political centre, which has favoured neoliberal policies for the last 30 years, is no longer hold­ing.”

The challenges of addressing economic inequality, lower growth rates and the resulting depression in job quality and compensation, are not going to recede in the MENA region for some time. Its prospects are directly tied to world markets in slow to marginal recovery.

The IMF is a convenient target for critics looking for both a hand up and to avoid responsibility for decades of mismanagement. There are few public spaces in the Arab world for logical economic discussions in this age of turbu­lence where loud voices in Britain and the United States offer to damn trade deals, erect barriers, punish corporations and target immigrants. These are not a basis for sustainable policies, especially in an integrated world economy that is more rather than less integrated.

Yet, this has not deterred those who want to avoid either their national responsibilities or roles in the larger global family. As Rowden noted in Foreign Policy: “The cynics who provide comfort for those delusions are as danger­ous as the extremists.” It is a rough road ahead that will not be repaired easily.