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Continued Cronyism Is the Arab Spring's Worst Enemy

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With violence flaring in the Middle East, the Arab Spring seems like a distant wilted dream. Yet, some green shoots have sprouted.

The violence that spun out of the Arab Spring in Egypt, Libya, Yemen, and Syria (and has metastasized into Iraq) grabbed the headlines but the real problem received little attention -- lack of opportunity. This lack of opportunity for the people of the Middle East is an issue the West largely ignored and partly caused.

Due to a fraud perpetrated by local elites and international institutions, many Arabs believe the region tried free market reform in the first decade of this century and that it failed. This has left a big hole in the popular imagination where a new economic vision should be.

Back in the early 2000s, international institutions, like the International Monetary Fund, fell over themselves praising neoliberal reform in nations like Tunisia and Egypt. It was nothing of the sort. Instead, the elites were re-asserting their power, wealth and privilege through other means.

Privatization was a cover for shifting resources from elite control through the government to elite control through crony transactions. The Mubarak family in Egypt and the Ben Ali family in Tunisia ransacked state resources -- much like the oligarchs did in Russia.

But the old deal between the elites and the rest was failing.

Under this deal, the elites looted, the sub-elites eased into quasi-guaranteed government jobs, and the poor received food and fuel subsidies, plus support payments from state, tribal, or clan patronage webs.

This clientelist deal emerged in much of the post-colonial world as greedy elites plundered their nations' wealth, but oil, aid and remittances kept the deal alive long past its best-before date in the Arab world.

A massive youth bulge smashed the deal. Governments could no longer fund the handouts and easy government jobs. Polling evidence shows that economic issues were forefront for Arab Spring demonstrators who typically came from the middle and lower middle class. They expected no-longer-available government jobs.

Official youth unemployment was around 30 per cent but perhaps three-quarters of young people lack full-time jobs, with many giving up searching for a job, resigned instead to piecemeal work. This is devastating in a region where young men need a job to be respectable and start a family.

This frustration and anger built and spilt out in the Arab Spring. Regimes were shaken or overthrown.

When communism fell, central and eastern Europeans understood communism had failed and they needed free markets. But many Arabs now believe Arab states tried free markets and they failed. Most in the region have lived under only clientelism, and can imagine no other economic system. The only economic vision that emerged is that the "outs" now want to be the "ins."

That's a source of violence. Tribal, ethnic, sectarian, and extended family lines divide the "ins" and "outs." To be an "in" you have to be part of the "in-crowd." That means battling other groups for power and influence. The group in control hands out the jobs and perks.

As the Arab Spring unraveled, this dynamic led to bloody conflict. The minority Alawites strive to maintain control in Syria. The long-excluded Iraqi Shia majority seeks to exclude the once dominant Sunni minority. In Egypt, a new Islamic elite gains power, and, just like the old elite, attempts to subvert all state institutions until the old elite storms back. In Libya, a bewildering mix of tribes and ethnic groups compete for power and wealth.

The Arab world needs true reform. The power of elites must be limited, corruption curbed, markets opened, regulations made sensible, and economic distortions -- like subsidies and guaranteed government jobs -- eliminated to allow competition to flourish, unleashing innovation, job creation and consumer benefits. This formula has produced growth and prosperity wherever it has been tried.

So where are the signs of hope? First is Tunisia, where the Arab Spring began. Tunisia, like Egypt, elected an Islamic party, Ennahda, which was inspired by Egypt's Muslim Brotherhood. The murder of two secular opposition leaders brought many thousands onto the street in sometimes-violent demonstrations, blaming the Islamic government for complicity in the murders.

Then, the similarity to Egypt ended. Ennahda preferred consensus to confrontation. The Prime Minister resigned in favor of a technocrat. The National Assembly passed a relatively liberal constitution supporting women's rights and religious freedoms (though with some internal contradictions) by a margin of 200 to 12, with four abstentions. The new government has started economic reform but cautiously in light of the fragile political situation.

The non-Gulf monarchies, Jordan and Morocco, have also begun sensible reforms. Morocco has moved up 27 places in the World Bank's Doing Business Report since 2011. Jordan is a top-20 nation in the Fraser Institute's Economic Freedom report, which provides a good measure of free market policies. Many of the Gulf States, like Oman, have built a strong rule of law and sensible regulation.

The region suffers other problems: the second-class status of women, violence, and the conflict that recently flamed in Gaza, all immense and all beyond the scope of a single column.

But true reform is not the work of one "spring" or even one generation. A handful of Arab nations are moving in the right direction. Just one successful model, producing prosperity and peace, could offer the region long-term hope.

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