Arab Democracy Needs More Than Markets

"The only way to help the new republics build free markets is to stimulate private investment. The main magnet is oil."

This advice sounds like it comes from inside Hillary Clinton's State Department, part of a confidential file set aside for the day when the Jasmine Revolution succeeds in the Middle East. Or perhaps from the notes for President Obama's strategic Middle East speech, delivered May 19. Actually the words were written two decades ago, in reference to Russia and Eastern Europe.

You have to wonder what the author, William Safire, the late New York Times columnist, would have said about Russia today. Safire hoped that a democratic Russia would use its resource wealth and the free market to gain stability and raise the standard of living; eventually, civic institutions would take root. That never really happened: Russia today still has the oil, and some of its citizens sure got the wealth, but its capacity to offer opportunity is far less than the happy minds of 1990 had hoped.

The old Russian revolution offers two lessons for the new Arab Spring. First, don't underestimate the damage natural resources can do. A whole range of scholarship suggests that natural resources tend to impede growth and spur conflicts: Marxists have long warned of the dangers of petro giants, while a newer school of economics, public choice theory, cautions that natural resources encourage rent-seeking at the expense of innovation. Second, democracy and markets aren't enough to secure a prosperous future. To help the Middle East transition, policymakers inside and outside the region must focus on building institutions — courts and schools — more than anything else.

Russia's Record

Recall Russia's record. In the early 1990s, the prospects for Russia and some of the new republics around it, oil-rich or not, looked decent. Russians were an educated people who'd been waiting a long time to live independent of dictatorship. Mikhail Gorbachev himself believed that casting off the shackles of "the bureaucratic command system" would permit his society to accumulate wealth sensibly. "We have everything in abundance here: land, oil, gas, coal, precious metals, other natural resources — not to mention the talents and intelligence that God has liberally bestowed on us," he said, expansively.

Foreign governments applauded. Though they liked the idea of privatization, they were more comfortable with the Russians doing the privatizing. Heaven forfend that a Western government or company be accused of colonizing. The same held for Russian courts, schools, politics: The unspoken attitude was that to intrude was to assail Russian sovereignty. But leaving Russians to privatize didn't yield strong democracy or true free markets. Instead, Russians spent most of the next two decades fighting for control of resources, with the government gradually, inexorably, prevailing. The companies the government did not own, it squeezed or seized outright; Gazprom, the natural gas giant, is the prime example.

Democracy Without Disorder

So how to apply Russia's lessons to the emergent Arab democracies? The easy part is to recognize that states need institutions to avoid a Russia-style free-for-all. Schools, property rights and courts are the most important. Stephen Sestanovich, a Russia expert at the Council on Foreign Relations, e-mailed me a related thought: In his view, Russia's big problem was the voters' equation of democracy with disorder. Arabs watching the chaos unfolding in Libya and Yemen would be forgiven for coming to a similar conclusion. "Whether these nations end up with their own kind of Putinism will depend on whether they can also create new institutions that work," Sestanovich wrote.

The next step is more uncomfortable. Those necessary institutions normally take years, even centuries, to build. Middle East democracy doesn't have that much time. The most efficient way to build institutions is to import international — yes, Western — traditions. A U.S. scholarship program for Middle Eastern high school or college students would give them much to take home and build a country with. To recommend Western institutions to Middle Eastern nations runs against the grain even more than recommending them to Eastern Europe. It sounds colonial.

Quietly Westernizing

Yet if dictators go, the new Arab governments may be more interested in the developed world's models than might have been imagined. Some Middle Eastern nations are already quietly westernizing. King Abdullah has created a New England-style boarding school in Jordan to replicate some of what he learned attending Deerfield Academy in Massachusetts. Many Arab reformers have an eye on India, which has prospered since the Cold War precisely because it lacked oil, chose to speak the language of its colonizer and embraced, rather than extirpated, its own colonial institutions.

What's clear is that the old equation of Resources + Free Markets = Institutions won't work. In the Middle East, especially, the institutions have to come first.

(Amity Shlaes is a columnist for Bloomberg View and oversees the Echoes blog. The opinions expressed are her own.)

© Copyright 2011 Bloomberg

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