The Arab Economic Challenge

The Middle East has been shortchanged in economic studies. Historians have marveled at the growth of Western Europe and North America; they have praised the miracle economies in Asia, first Japan, then the Asian tigers, and later China and India; they have been mesmerized by Latin America's persistent economic swings, its chronic populism and its 'lost decade'; and they have been puzzled by Africa and its inability to generate sustained economic growth after independence.

The Middle Eastern economies have not attracted such attention. It is true that the region's economies have been described masterfully in books such as Charles Issawi's An Economic History of the Middle East and North Africa, Alan Richards and John Waterbury's A Political Economy of the Middle East, and Roger Owen's The Middle East in the World Economy and A History of the Middle Eastern Economies in the Twentieth Century (with Sevket Pamuk). But the reader who looks for a comprehensive and updated survey of the Arab economies will be hard pressed to find a single volume which covers the regional picture in sufficient detail.

The Arab Economies in a Changing World, a new book by Marcus Noland and Howard Pack, intends to fill this gap. Noland and Pack argue that Arab economies face a major challenge: to create employment by integrating into the global economy, and to do so amidst authoritarianism and political uncertainty. As the authors put it, the region faces "a demographic imperative, a globalization challenge, and a deep uncertainty surrounding its politics."¹ Noland and Pack have put together a readable amalgam of statistics, surveys of scholarly research, and illustrative comparisons with other regions such as East Asia and Eastern Europe to make their case. Their intention is to both underline the history of the Arab economies in the last half century and to elucidate their challenge moving forward.

"Not the Worst, Not the Best"

It was the oil boom that brought the image of the Arab sheikh to the forefront of Western images of the Arab world. But the Arab economies, especially the non-oil states, had fared well before the 1970s, especially compared to the stagnation of the 1980s and 1990s. GDP per capita grew in Egypt, for example, by 2.9 percent a year between 1960 and 1970; in Tunisia, the number was 3.2 percent and in Syria and Morocco 2 percent—modest but impressive growth given the sustained population increases experienced in the region at that time.

Noland and Pack write that, "The economic performance of the Arab countries of the Middle East has been middling over the past four decades. It has been worse than East Asia, better than sub-Saharan Africa—the other region most profoundly marked by arbitrary borders and weak states—and about the same as Latin America and South Asia: in a nutshell, not the worst, not the best, falling behind the West."² Growth has been uneven in the region; as the authors point out, "the achievements of the non-oil dominated Arab economies are not systematically worse than countries in other regions except for the East Asian countries."³

Living conditions improved as well: life expectancy has grown considerably and infant mortality has decreased. Inequality for the non-oil producers is comparable to other developing countries. Absolute poverty is low, making Arab countries "among the best in the developing world, comparable to some of the super-successful Asian countries."⁴ Arab youths are spending more time in school than they used to, and this is increasingly true for women as well.

The authors pause to consider the paradox: income has increased slowly and often irregularly, yet social indicators have continued a regular upward trend. After surveying competing hypotheses, Noland and Pack point to two explanations. First is a generous public sector—they cite a study that claims the Middle East and North Africa "is the only region where the average public-sector wage exceeds that in the private sector."⁵ The...