THE BLOG
10/17/2006 11:40 am ET | Updated May 25, 2011

The Middle East: Lots of Violence, Not Much Economic Reform

Fifty years ago, the world was plunged into crisis when Egypt's President Gemal Abd al-Nasser nationalized the Suez Canal in an act of defiance against France and England and an assertion of Egyptian independence in the face of the economic and military strength of the West. The resulting Suez crisis saw the humbling of England and France, the isolation of Israel, and the firm determination of U.S President Dwight Eisenhower not to allow the old powers of Europe to retain their hold over their former colonies in the Middle East.

But five decades later, the dreams of Nasser and the Arabs seem as distant as ever. America proved not to be the ally that many had hoped and instead became the replacement for the British empire. Missiles flying this summer in Israel and Lebanon, and the daily violence In Iraq, have demonstrated once again that the Middle East has a remarkable ability to draw political, military and religious attention far out of proportion to the number of its inhabitants. But while no other region of the world comes close to rivaling it as the mother of all flashpoints, the Middle East is just as notable for its disturbingly low profile in matters of economics and globalization.

This is not a coincidence. In fact, the Middle East - or to be more precise, the Arab world - as locus of international tension is directly connected to its lack of integration into the global economy, a problem that has actually worse in the past fifty years. The two are intimately, and inversely, linked. More of one means less of the other.

When people speak of the Middle East, they are usually thinking of the Arab world plus Israel. That means the twenty or so countries stretching between Morocco and Iraq, whose inhabitants (with the exception of Israel) are predominantly Muslim and Arabic-speaking. Sudan is sometimes included, and sometimes is not, and Turkey and Iran are often lumped in.

Leaving out Turkey (which is not Arab and in any event really leans toward Europe), Iran (whose people are also not Arab and speak a different language) and Israel (for obvious reasons), the region comprises less than 350 million people, and the combined economic output is approximately $1.5 billion - below the output of France or Italy alone. Per capita income is about $4000 a year, which is neither bad nor particularly good by global standards.

But even that presents a misleadingly positive picture. Dig deeper, and you find oil, specifically those that have and those that don't. Take out petronations such as Saudi Arabia, Kuwait, and the United Arab Emirates, and you take out nearly half the GDP and only a fraction of the population. That means that the rest of the Arab world has nearly 300 million people with a GDP of less than $900 billion a year, growing at a respectable 5% a year, but nowhere in the league of India or China, saddled with a burgeoning young population that has astonishingly high rates of unemployment.

Now let's say you're Global Corporation X, and you are looking around the world for growth opportunities, some new market to open up, or a new product to develop for an established market. And in the game of globalization, regions have to compete with each other for resources. That was made clear at the World Economic Forum in Sharm el-Sheikh in Egypt earlier this year, when one divisional head of a multinational beverage company basically said, "Look, if you're the Arab world and you want us to pay attention, you're up against China, India, Europe and the United States for our time and capital." Unspoken, but inferred was that the region is losing that competition.

The Middle East may be treated as one, undivided unit in popular imagination, dangerous and unstable, but the view from the global boardroom is radically different. In the amoral world of globalization, the issue isn't Hizbollah or Hamas; it's that the region as a whole is painfully beyond the curve. Beirut thirty years ago was more integrated into the global economy than it is today, even before Israeli missiles started flying. The best one can say about the Middle East and the Arab world is that it isn't sub-Saharan Africa. It covers substantial area spread across thousands of miles of arid land with few navigable waterways, insufficient roads, barely enough ports, almost no rail lines, poor urban infrastructure, difficult-to-access female consumers, and aside from the fantastically wealthy Gulf states, not a whole lot of purchasing power. In short, it may be the first choice for global conflict, but it is an afterthought for global capital.

The spike in oil prices in 2005-2006 has been good for the region in at least one respect: people in the region seem to be realizing that unless they get their economic house in order, the political and religious chaos is likely to get worse. They have looked west at the United States and Europe and east to China and India and are beginning to take steps to make sure that the world doesn't pass them by. In the 1970s, the last time there was an oil boom, most of the petrodollars left the region and were invested in things like Citigroup, Harrods, and mansions in Marbella. Today, that money is increasing being invested in the region. That is one reason for the sharp rise in stock markets in the region, and for the real-estate frenzy in the Dubai, but it reflects a sense that the oil boom is a temporary, unexpected gift and that this time, it should not be squandered but instead invested in the region to build institutions and infrastructure to make the Middle East a central destination for business and capital.

There is also a quiet urgency here. The Egyptian government recently announced that "Egypt is open for business." (Sadly, so did Lebanon). Egypt is decidedly not open to political dissent, but Hosni Mubarak along with other regional strongmen seem to have gotten the clue from China that you can have political reform or economic reform but you cannot have neither. That is, not unless you want to have an angry, disillusionmed population of young people who have the clarion call of religious messianism and extremism to fill their lives with some thread of meaning when all else fails. Mubarak and others are finally recognizing that it is better to have these young aspire to a better life in this world than in the next.

In the West, we may morally prefer political freedoms to economic, but we also chronically underestimate the importance of economic and personal security as necessary preconditions (and not recognizing that is one of the most severe, and underemphasized, failures of the US in Iraq). In the Middle East, people are acutely aware of globalization, China, and India, and they know that except for oil, they are on the outskirts of the global economy. There is a fast-dawning realization that the best antidote to religious extremism and internal tensions isn't a tighter police state or more government welfare but genuine economic evolution - more private enterprise, less cronyism and corruption, easier access to markets. This is something that unites left and right in the region because it creates a sphere of personal autonomy that has until now been available only to the very wealthy or the very religious.

The outcome here is still in doubt. The surge in oil prices has changed the tone in the Arab world, and for the time being, it is for the better. But there is still too much wealth in the hands of too few people.

It is easier to want to destroy when you feel you have nothing to lose and everything to gain. Judging from that spring conclave in Egypt, governments and elites realize that. Whether they will take the cue from China and change quickly enough to satisfy the hunger of their people is an open question, but it is one we all have a stake in. Whether one likes or loathes the disruptive effects of economic globalization, this is not a world that allows any region to thrive for long in isolation. Those with power in the Arab world have three choices: political reform, economic reform, or watching their citizens kill and dies in the name of God. We have expended far too much energy pushing ineffectively for the first; the middle option may not be a panacea, but it beats the last one any day of the week.