Arab Economies in the Twenty-First Century (review)

Prior to 1950, Middle Eastern countries experienced some of the lowest levels of socioeconomic development in the world. However, in the 1960s and 1970s the region experienced nearly universal robust economic growth. While many anticipated that the higher oil prices of the 1970s would sustain this momentum, gross domestic product (GDP) growth per worker in the Middle East decelerated in that decade. In the 1980s and 1990s, GDP growth per worker was less than 1% per year. While growth picked up somewhat with the oil boom in the first decade of the 21^st century, the growing income gap with Asia and other parts of the developing world has persisted. The region's chronic unemployment, the highest in the world, has shown little tendency to abate, even during the recent period of high oil prices.

The Middle East's strategic and economic importance has helped spawn numerous volumes in recent years devoted to identifying the factors responsible for the region's economic struggles. A wide range of explanations for the region's economic underperformance have been advanced, including structural economic imbalances, the so-called "curse" of natural resource abundance, deficient political systems, war and conflict, and even culture and religion. Paul Rivlin's Arab Economies in the Twenty-First Century represents an important addition to this literature.

Rivlin asks two central and closely related questions. Why did governments act so slowly in response to the problem of unemployment, given the danger that it poses for social and political stability? And, perhaps more importantly, why has the policy response been similar in very different economies?

In his attempt to answer these questions, Rivlin provides a comprehensive survey not only of the various explanations for the region's poor economic performance but also those put forth to explain the persistence of certain ineffective polices despite the seriousness of the economic situation. The answer to both lies in the way in which these countries have developed —in particular the patterns between demographic growth and economic development. Of critical importance is opportunities missed, especially the Industrial Revolution that has spread through much of the world since the 19^th century. In turn, the lack of industrial jobs in the face of rapidly growing populations has contributed to the region's chronically high unemployment.

Rivlin's case studies of Egypt, Iraq, Jordan, Morocco, the Palestinian Territories, Saudi Arabia, Syria, and Tunisia all present strikingly similar patterns —despite a slow-down in demographic growth throughout the region, the labor force is increasing rapidly because of the change in the age structure of the population. While in other parts of the world similar demographic patterns have often enhanced economic growth, Rivlin finds rigid policies in the Middle East have stifled growth. Underachievement combined with demographic pressure combine to pose serious threats to the political stability of the region.

Of course, these patterns are no secret, and the question immediately arises as to why country after country has allowed them to perpetuate. Rivlin finds a useful concept, and one that is favored by many economists, for understanding the political economy of Arab —equilibrium. Following Hahn, he uses this concept in a broad sense to describe a situation in which self-seeking agents learn nothing new and their behavior becomes routine. "The economy generates messages that do not cause agents to change the theories that they hold or the policies that they follow. Equilibrium implies continuity and this is precisely the point to be made about the Arab economies. Despite changes in policy, ownership and control, ideology and even political rule, there have been strong elements of continuity in their performance" (p. 295).

While this explanation comes close to being a tautology —the major Arab economies are caught in a policy trap because the conditions for escaping the trap are not present —it does provide a fresh approach towards understanding the region's long-standing governance deficiencies and lagging economic...