Economic Research Forum (ERF)

Why economists missed the Arab Spring

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Just prior to the Arab Spring, many of the economic and social indicators for the countries of the Middle East and North Africa painted quite a favourable picture of the region. This Project Syndicate column explores why economists failed to anticipate the unrest. One key lesson is that improved economic performance cannot be viewed as an insurance policy against political instability.

In a nutshell

Just prior to the Arab Spring, MENA countries were experiencing improvements in relative prosperity, not economic downturns or stagnation.

This flies in the face of much conventional thinking, which links mass revolts to economic hardship and assumes that periods of relative prosperity are correlated with mass political quiescence.

It is not straightforward economic hardship, but rather frustration with the disparity between expectation and reality that awakens the masses.

The anniversary of the Arab Spring uprisings came and went largely unnoticed. Unlike in previous years, there was no torrent of commentary about the tumultuous events that shook the Arab world and seemed to promise a transformation of its politics.

Of course, novelty wears off over time. But waning interest in the Arab uprisings reflects a deeper shift: hope for new, more representative political systems has given way to despair, as expectant revolutions have morphed into counter-revolution, civil war, failed states, and intensifying religious extremism.

And yet, as disagreeable as the outcomes may have been so far, we must continue to focus on the Arab Spring uprisings, in order to uncover their root causes. Like any landmark event, they have posed new and difficult questions. And one of the most important is why economists failed to anticipate the unrest.

Forecasting political upheaval is no easy feat. Economists have a less-than-impressive record when it comes to predicting even economic crises. But this particular forecasting failure may reflect a deeper problem with economic assumptions and frameworks.

On the eve of their downfall, a few Arab autocrats were actually being lauded by the World Bank and International Monetary Fund for their supposed success in adopting the ‘right’ economic policies. The World Bank’s subsequent mea culpa is a clear indication that there may have been a problem with the policies they had prescribed for the Arab ancien régimes.

This raises a raft of other questions. Were economists focused on the wrong indicators? Were they misled by false inferences? Or were they not paying enough attention to potential pitfalls? In short, was it a problem of data or analysis?

A failure to anticipate political revolutions reflects, at least partly, conceptual inadequacies. Mainstream economics tends to focus on the equilibrium-seeking behaviour of homo economicus, guided by rational choice, when marginal benefits equal marginal costs. That conceptual framework is demonstrably ill equipped to deal with social and political upheavals, which can hardly be described as marginal changes.

There are also empirical dimensions to this forecasting failure. Many of the data painted quite a favourable picture of the economic situation in the Middle East and North Africa (MENA). During the decade before the uprisings erupted, the region’s economies attained respectable real annual GDP growth rates of around 4-5%. These gains were somewhat diluted by the population growth that accompanied them, with real per capita GDP-growth rates hovering around 2-2.5%. Nonetheless, this represented a significant improvement from the 1980s and 1990s, when the MENA economies lagged far behind other regions.

There were also appreciable improvements in human-development indicators in the MENA countries and, judged by conventional criteria, inequality was declining in some of them. For example, the Gini coefficient was declining in Egypt. Moreover, despite the paucity of data, poverty ratios, already among the lowest in the developing world, were falling in some of the countries swept up by the Arab Spring – most notably, in Tunisia. MENA countries had benefited, directly or indirectly, from years of favourable international oil prices – especially from 2002 to 2008, when prices reached a historic peak of about $147 per barrel – and benefited from a recent upswing in the business cycle.

But it was not all good news, of course. When the revolutions erupted, there were plenty of reasons for ordinary people, especially the young and the educated middle classes, to feel politically alienated. Unemployment rates – particularly youth unemployment rates – were very high. And autocrats are not exactly known for placing a high priority on social justice.

Even so, the fact remains that the MENA countries were experiencing improvements in relative prosperity, not economic downturns or stagnation. This flies in the face of much conventional thinking, which links mass revolts to economic hardship and assumes that periods of relative prosperity are correlated with mass political quiescence.

Aristotle’s Politics offers a radically different interpretation of the relationship between economic performance and political stability: ‘In order to secure his power, a tyrant must keep the population in poverty, so that the preoccupation with daily bread leaves them no leisure to conspire against the tyrant.’ This is not to say that revolutions are the privilege of the rich, but rather that growing relative prosperity might enable greater awareness of missing freedoms and stoke resistance against poor governance.

To some extent, history bears this reading out. Iran’s 1979 Revolution, like the Arab Spring uprisings, followed unparalleled economic growth, driven by highly favourable international oil prices (which had quadrupled in 1973-1974).

Even in cases when revolutions have been preceded by economic downturns, prior improvements in prosperity may have played a role. According to the American sociologist James C. Davies’s so-called J-curve theory, revolutions – such as the Russian Revolution of 1917 and Egypt’s revolution of 1952 – occur when periods of prolonged economic and social development are sharply and suddenly reversed. In other words, it is not straightforward economic hardship, but rather frustration with the disparity between expectation and reality that awakens the masses.

The Arab Spring suggests that improved economic performance cannot be viewed as an insurance policy against political instability. Learning that lesson may help us avoid being blindsided by future political upheaval. It might even enable us to avoid the kind of disappointment and despair that the Arab Spring has brought.

This article was originally published by Project Syndicate. Read the original article.

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