The Cairo Consensus

If one travels frequently, as I do, one often finds stereotypes to be rampant, and thus, much of the discourse on certain important issues and regions of our volatile world tends to be biased.  This often leads to intellectual short-cuts (i.e. laziness), misinterpretation, and bad policy advice, most often of the erroneous kind of “one size fits all”. That was the case of East Central Europe a generation ago, when countries as different as Poland, Romania, and Ukraine were poorly advised by the apostles of so-called Washington Consensus.  This is the recent case when a number of countries affected by fiscal crisis, were first suggested by the IMF to execute far going austerity measures, only to be warned by the same organization that they shouldn’t go too far with such endeavors. We paid dearly for these mistakes in the 1980s and 1990s, as the societies of certain West European countries will now have to do as well. One size definitely does not fit all. Neither the post-socialist Europe of over two decades ago, nor the Arab countries now can easily be put on the same shelf.

Following the publication of my book “Truth, Errors, and Lies: Politics and Economics in a Volatile World” (http://www.amazon.com/Truth-Errors-Lies-Politics-Economics/dp/0231150687/ref=sr_1_1?ie=UTF8&qid=1295525437&sr=8-1) in Arabic , under the same title, “Hkaak w Akhtaa w Akazeeb. AL Siasah W AL Ektsad F Aalam Motahawel(http://www.neelwafurat.com/itempage.aspx?id=egb174684-5187051&search=books), I have  just returned from the first part of my Middle East & North Africa Book Tour. During a three week journey I visited various places – not only the capital cities, government palaces, and university seminar rooms – in Egypt, Lebanon, and Jordan. I’m soon going to pay a visit to the Kingdom of Saudi Arabia and Oman, followed by the United Arab Emirates, Libya, Tunisia, Algeria, and Morocco. Not long ago I also paid a visit to Qatar, Bahrain, and Kuwait. All of these countries exhibit certain similarities as they are Arab countries, have Muslim culture, and are part of the Middle East and North Africa. Thus there is a temptation, especially in the West – from Warsaw to Los Angeles – to put them in the same basket. And from here is just one too easy step to draw general, uniform conclusions, one short step to the “concept” of the so-called Arab Spring. A similar, yet mistaken approach was taken in the case of East Central Europe and former Soviet Union in the 1990s.

As for the Middle East and North Africa region of a quarter billion people there are a lot of similarities, yet I think there are even more differences. For the time being, let’s make some observations for Egypt, Lebanon, and Jordan. Each country is important, but by all means the most complex, difficult, and challenging is the situation in Egypt.

In Lebanon, a country with 4.2 million inhabitants, things are not easy either, but it is relatively manageable, despite the negative impact of the ongoing crisis in neighboring Syria. There is much less transit-related business, more refugees and migrants – mainly the Palestinians, which are living in much worse conditions – and, no doubt, growing uncertainty for the future due to the conflicts in the countries across the borders. Lebanon enjoys a relatively higher income, with GDP per capita at about $16,000 (measured at the Purchasing Power Parity, PPP). GDP has jumped in 2009 and 2010 by 7.5 percent and 8.5 percent, respectively, but in 2011 it was a miserable 1.5 percent, and the distribution is very unequal. Although there isn’t any reliable data, just the fact that as many as a quarter of the Lebanese population lives below the poverty line (according to the UN definition), the fact that they are confronted with a vast number of luxury car brands – you bet, Mercedes and BMW – is telling.

However, the Lebanese people are vigorous, energetic, business-oriented and multicultural. They seem to also be much more tolerant and open to various values. It helps. I’ve seen a good part of this beautiful country, and it is indeed much differentiated. The distance between a village in the Beeka Valley, where one can see the influence of Hezbollah – including the positives such as taking care of human capital (education, healthcare) and social cohesion – and the cosmopolitan Beirut seaside Corniche is a whole epoch. I am impressed how much and how fast Lebanon has been able to rebuild the country after the devastating civil war of the 1980s and 1990s. However, if some parts of Beirut are indeed very impressive, reminiscent of Zurich rather than a Middle East metropolitan city, some other districts are lagging far behind and living there is true hardship. And what about “the Arab Spring”? I think one should not expect it to come here; evolution is more likely than revolution. Much of this has to due with the long psychological shadow of the civil war. Even if you can forgive, you cannot forget… Thus the mood is rather to work and make business, not revolution.

What about Jordan, a nation of 6.5 million people? I also think one should not expect a revolt coming there. Although many people have a lot to be dissatisfied with – starting with unemployment (12.3 percent; exactly the same as in Poland) and inequality (Gini coefficient hovering around 40), poverty (at least 15 percent below poverty line) and social exclusion – the economy is growing and the standard of living is improving. GDP per capita is PPP $5,900. The economy is growing and during the crisis years, 2009-11, GDP increased by over 10 percent, without a single year of recession. I think there is also less corruption than in a number of other Middle East countries. All of these deliver: there is only 10 percent illiteracy, the lowest in whole region, and the life expectancy exceeds 80 years,  surprisingly higher than the USA (78.5) or EU (79.8). For the seven billion people on the planet, the average is 67.6 years.

The Jordanian people truly do respect their King and the royal family. Just take a look at the enthusiastic reactions to the post (http://www.facebook.com/kolodko#!/notes/grzegorz-w-kolodko/meeting-with-his-royal-highness-prince-el-hassan-bin-talal/323413024371358) about my meeting with His Royal Highness, Prince El Hassan Bin Talal. Jordan is reaping the fruits of a well-performing constitutional monarchy. It is one of the most democratic countries in the region. The recent progressive structural and institutional changes implemented in Morocco have been inspired by the positive experience in Jordan. With that said, one must be aware that the unpredictable situation in Syria is of great concern to Jordan as well. Whatever the outcome there, it will be a kind of second best solution. The tourism industry – so vital for the Jordanian people – is already negatively affected. You may be able to enjoy gorgeous Wadi Rum without a crowd of tourists, yet for the local businesses it’s devastating. The transit sector of the economy feels the effects of falling trade activities too.

Critical for the whole region is Egypt, a country with 84 million people and a fast growing population. Soon after Vietnam, Egypt will join the club of countries with over 100 million people. There is a forecast that by 2050 there can be as many as 130 million Egyptians. In what kind of country will they be living? What type of economy and society will be established by this time? To this end there are high expectations, and to be sure, they are overwhelmingly exaggerated. Some people, even the professionals, naively believe that Egypt can catch up with Turkey, with GDP per capita PPP $15,000, in a matter of seven years… Turkey, across the Mediterranean Sea, is also a fast growing economy (GDP rate of growth 7.7 percent, on average, in 2009-11) and the distance between Egypt and Turkey in 2012 is larger, not smaller, than it was couple of years ago. So, to catch up with it calls for at least twenty years of very fast growth. Not impossible, but quite challenging. When I was interviewed by a journalist from “Alyoum Alsabe7” (see http://www.facebook.com/kolodko#!/notes/grzegorz-w-kolodko/interview-on-the-world-affairs-and-the-arab-spring-in-the-arabic-language/323431221036205) she asked me how long it will take to see thee economic results of “the Egyptian Spring” (it’s been already one year) and how soon will the people feel improvement in their quality of life? My answer was: a generation and it depends on complex conditionality. She seemed to be shocked. By the way, there were many naive expectations in Poland twenty years ago vis-à-vis the possibility to catch-up with Germany, and in Hungary to get to the level of Austria’s income.

Where is Egypt now as far as the economy is concerned? GDP per capita stands low, at around PPP $6,500 – similar to Jordan, three times less than in Poland, ca. 60 percent of the world average. Over the last three years of the global crisis it grew altogether by 11.4 percent, although last year by a meager 1.2 percent. As a consequence, unemployment is growing again and stands officially at 11.2 percent, but in reality it is much higher and among people of ages 16-35 is firmly over 20 percent, and in some regions over 40 percent. For women it is still higher. It goes without saying that unemployment, especially among the younger generation, was the single most important factor causing the revolution. It’s a pity that the UN doesn’t quote the Gini coefficient for recent years. A decade ago, in 2001, it was evaluated at a high, yet still acceptable 34.1, but I’m afraid that ten years later it is close to 40. It is likely that every fifth citizen lives below the poverty line.

The problem is that thus far the Egyptian revolution has not at all contributed to the improvement of capital accumulation and investment allocation, business efficiency, and labor productivity. To go from the Tahrir Square demonstrations to better institutions and sound economic policy, to raising entrepreneurship and professional management, to growing competitiveness and higher working culture takes time. Here the experience from post-socialist transformation in East Central Europe – what works and why and what doesn’t work and why – can be useful, if only applied intelligently. I’ve been sharing my knowledge on these matters with the politicians, business and intellectual leaders, and the media. I have sent my book, with a cover letter, to each new member of the parliament, just elected by democratic procedure for the first time. Learning by drawing the proper conclusions from the achievements of others, as well from the mistakes committed elsewhere, is proof of political and managerial intelligence. Hopefully, there will not be a deficit of such.

A year ago, before the term “Arab Spring” became famous, I  re-coined the phrase “The Spring of Nations”, addressing it towards the developments in the Middle East and North Africa, but stressing too that it won’t be limited only to countries in this region of the world, since it will unavoidably spread elsewhere too: to sub-Saharan Africa or Central Asia (see my essay “The Spring of Nations” on RGE’s EconoMonitor http://www.economonitor.com/blog/2011/04/the-spring-of-nations/). This time, while being with the Egyptians at Tahrir Square on the very special day of the first anniversary of the revolution, I’ve coined the term “The Cairo Consensus” (see http://www.facebook.com/kolodko#!/editnote.php?draft&note_id=323431221036205&id=164187983627307). I have written: “A year ago The Spring of Nations has come to Cairo. At that time people gathering here, at Tahrir Square – now world famous – were against. Against a non-democratic regime, against corruption, against poverty, inequality, unemployment, and exclusion. Now, here at the same but different Tahrir Square, they are in favor. Of what? In favor of a better future. To this end, there is a consensus; let’s call it the Cairo Consensus. Yet how to move to a better future from here, there are as many views as people crowding over here.”

Indeed, a long way to go. A challenge comparable with building a new pyramid. It takes even more than a generation. However, this time, hopefully, it will happen within the framework of democracy and pro publico bono, on behalf of the people. They do deserve it. But they have to accomplish it themselves.