This paper is my reflective reaction on the Arab Human Development Report (AHDR) in relation to the theories of Global Political Economy (GPE). The ideas for this paper are organized as follows: the first part provides the summary of the AHDR and it highlights the major features of the human development report; the second part discusses the different challenges faced by the Arab countries in the GPE; the third part is my evaluation of how GPE theories explain the Arab economic realities; the fourth part is my assessment of the role of the Middle East as a regional economy in the world economy; and the fifth part present some policy recommendations that I deem likely to take roots in Arab countries in the next 22 years, including a discussion of the incentives and obstacles for the implementation of the policy recommendation.
Highlights of the AHDR
The report is about the economic vulnerability of the Arab countries and its consequence on economic security. It particularly emphasized that “policy gaps have consequences for economic security”.
The AHDR examined the facts and issues relating to economic security in the Arab countries in terms of selected yet very important dimensions consisting of real per capita income levels, real per capita income growth patterns, employment, poverty, and social protection. Economic security is qualified as a constituent of freedom from want, which is a major component of human security. Human security is perceived as a situation wherein people are able to exercise their choices freely and safely; also it implies that people have the confidence that the opportunities that they are enjoying at present will still be available in the future.
The report first emphasized the economic vulnerability of the countries in the Arab region. Such vulnerability was associated to the “erratic course of oil-led growth” in the region making its economic security a “hostage of exogenous trends” such as fluctuation in the world oil prices. According to the AHDR, the rising oil exports (particularly fuel) of the region led to the “fitful ups-and-downs in the Arab countries’ growth” that “directly reflects the turbulent cycles of the oil market”.
Second, the per capita economic growth in the Arab region were found to have hardly increased; real GDP per capita rose by less than 0.5% annually from 1980 to 2004, that is, a mere 6.4% growth over the 24 year period.
Third, the report mentioned the structural fragility of the Arab countries. It was stated that the “oil-led growth has created weak structural foundations in Arab economies”, that is, the importation of the Arab countries have significantly increased making the structures of each economies become import-oriented. Also, it has been observed that there were declining trend in sectors like agriculture, manufacturing and industrial production (described as the deindustrialization in the Arab region) because the economy become service based. This increased the fragility of the Arab economies to global downturn.
Fourth, because of the current global recession, the newly adopted patterns of domestic development projects and outward investment and trade by the oil producers have exposed the region to great deal of risk.
Fifth, the oil-led growth adversely affected the labor market which is evident in the highest recorded unemployment rate of 44.4%, surpassing the global average unemployment rate of only 6.3%.
Sixth, the countries in the Arab region were found to have failed in making significant policy to impact poverty that have been observe to increase since the 1990s.
Finally, it was given emphasis in the report that the patterns of economic insecurity, that is, low GDP per capita growth, high unemployment, poverty, and increasing social insecurity are the result of policy gaps that include continuing reliance on volatile oil-led growth, adoption of a growth model that negatively impacts the labor market, no progress in poverty reduction front, and uneven provision and functioning of social safety nets.
Challenges to the Arab Countries in the Global Political Economy
The economy of the Arab region, in general have the potential for strong economic performance primarily because it houses a considerable portion of the world’s oil reserves. Also, the globalization of the financial markets enabled some countries in the region to have access to global investments. Taking the Arab countries as a group, the region can be said to be operating below its potential i.e., most of the Arab economies did not took advantage of the opportunities brought by globalization and trade. In effect, the countries experience slow growth the real per capita GDP despite the boost from the oil exports market. Further, very little private capital had been attracted by the region and most of the investments were made by the state. The growing uncertainty in the world oil prices also made the traditional sources of economic growth for the region to be ineffective in sustaining economic expansion. Hence the present challenges for the economies in the Arab region to ensure economic security is on the improvement on the economic performances of the Arab states while taking advantage of the global economy opportunities to ensure economic lie on improving its economic performance and taking full advantage of the opportunities in the global economy.
GPE Theories and the Realities in the Arab Countries
The rise of the Arab region as producer and supplier of oil in the global oil market illustrated some key dimensions of the GPE:
First, it showed the power and influences of economic tools in foreign policy. For instance, the Organization of Petroleum Exporting Countries (OPEC) is comprised of oil producing countries in the Arab region and with the establishment of this organization, almost all political policy of every nation takes into consideration the potential foreign economic reaction. Also, the Arab countries established that Arab oil policy upon which the oil producing members of the Arab region take responsibility in ensuring steady supply of oil in the global market. The policy is created to suffice the meet two objectives, namely the Arab countries international interest, and the self-interest of the producing countries of prolonging the oil age).
Second, the interdependence between and among domestic politics, domestic economics, global politics and global economics is evident in the exchanges in global trading the Arab region and the rest of the world. For instance, fluctuations in oil exports have impacted the macroeconomic fundamentals of the Arab countries especially the oil producing economies. At the same time, the increase reliance on imports have affected the external stability of its macro-fundamentals. Moreover, the migration of cheap labors from Asia contributed to the increasing problem in the labor market of the Arab countries.
Generally, the global exchange of goods, services, and factors of production (like labor) between the Arab region and the rest of the world has significance since it raises relevant political questions that of national interest. Concerns on the military and economic security of a country are just some of the widening global concerns. The political analysis of international trade is complex. On one side, the desirability of exports is justified by the increase in the monetary reserves of the economy and creation of jobs; the avoidance of imports is to eliminate dependency, and such reduce the level of the countries monetary reserves as well as a threat to both the labor and domestic interests. The creation of jobs through exports is also viewed by political economists to have impact on the security of the nation and this is determined by what is being exported and the terms of trade. In particular, the exportation of a technology that has significant and critical economic or military applications may tend to weaken the security of the state. Hence it is not surprising the nation-states use export controls for military and economic reasons. Moreover, the exportation of primary goods under unfavorable terms of trade in terms of technology and manufactured goods might give a wrong signal and create fear of economic independence. Though a trade surplus is found to increase national reserves, a political problem is created when there is an excessive large bilateral surplus of exports over imports. This is because excessive surplus implies high export penetration that is often viewed by the importing country as a very aggressive policy. The export-recipient nation-state may use the situation as a signal that the national security is at risks and so may react to defend the security interests of his/her country. The above analysis suggests that a country’s interest is on managing its exportation to other countries as well as monitoring the trading relationship established with other economies in the global market. Nevertheless, it is not only the exports that may create security concerns but also imports. Importation has several implications to a nation-state such as it reduces the monetary reserves of the country, creates external dependency, and threatens (if not reduces) local employment. Yet it is believed to have important role in attaining economic and military security. This is particularly true with importation of sophisticated military equipment from the rest of the world.
Third, the changes in the flows of the international payments due to global trading (oil, labor, goods and services) stimulated the start of the movement towards a global financial system, and economic globalization in general. As a result, economic and political problems would be seen as global, and beyond the control of individual country.
The Role of Middle East as a Regional Economy
The Middle East as a regional economy will continue to play a significant role in the global economy as the oil-producing region have signified its responsibility of ensuring the sustainability and stability in the supply of oil in the world market. In particular, the Arab oil-producing countries will remain to have significant power in the politics and economics of global trading through the OPEC.
Policy Recommendations
- The need to reevaluate and reassess the government’s role is on the top of the list. Most economists believed (excluding Keynesians and Neo-Keynesians) that private sector-led economic strategies are effective relative to public sector-led programs. Also, there are sufficient evidences showing that government tend to misallocate funds that often crowd out private investment.
- The need to implement monetary and fiscal policies on the part of the government. For instance, deficits of the government can be minimized without undertaking policies that have inflationary or crowding out effects or that way that will drain the foreign reserves of the economy.
- The government and the leaders in the private sector has the role of building agreement with regard to economic reform. This is to convince the citizens that the development of a market economy that is efficient is the only solution to ensure economic security by creating jobs and improving the standard of living. And if such agreement will be in place, the government will be effective in implementing policies to stabilize the macroeconomy as well as structural reform.
- Moreover, the effectiveness of the reform and macro-policies can be enhanced by promoting well-functioning banking systems. The banking systems provide a channel for monetary policy signals.
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