Lessons from Arab Countries in Transition

Final day policy panel discuss lessons from the experiences of a region in transition

Final day policy panel discuss lessons from the experiences of a region in transition

Chaired by Noha El-Mikawy (Ford Foundation and ERF), the third and final plenary session of the ERF Conference focused on lessons emerging from the experiences of Arab countries in transition. Four speakers, Gouda Abdel-Khalek, George Corm, Paul Salem and Zafiris Tzannatos addressed key issues surrounding the concept of social justice, each offering penetrating insights and unique perspectives on prevalent economic and social conditions in the Arab world and wider MENA region.

Social justice: the cornerstone of equitable development

Gouda Abdel-Khalek (Cairo University), presented on Social Justice: lessons of experience for Egypt. Seeking to elaborate on the meaning behind ‘bread, freedom and social justice’ – a slogan now widely recognised as articulating the desire for change in many Arab countries – Abdel-Khalek’s message was that building foundations for social justice in times of political turbulence is a tricky task; and one beset with challenges. He cited the steady increase in wage related protests before and after 2012 as evidence of the link between social unrest and the poorly performing Egyptian economy.

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Social justice and social protection: an important relationship

In the final plenary,  Georges Corm asked if current economic thinking suitably situates social justice within political economy. Drawing on the experience of late industrialisers like Japan, Corm posed the questions: ‘What happened to the region? Why is the Arab world today totally outside of the emerging markets, and what are the reasons for this failure?’

Corm’s presentation outlined what he sees as the widely unrecognised relationship between political economy and social justice.  He argued that if an economy does not have full mobilisation of its human resources, the likelihood is it will remain industrially and technologically stagnant. He went on to propose that the current trend towards econometrics has pushed social justice out of view. Examining the distribution of national income is now very neglected by researchers and he argued that the link between national income and distribution of wealth is too often ignored.

He pointed out that Japan industrialised half a century after Egypt, and asked why the developmental trajectories of their examples had been so divergent. He attributed Japan’s success to its preparation of the rural workforce to transit progressively to urban towns and become efficient workers in industry. Conglomerates provided total social protection to their employees and their families. In the other example, Prussia, he noted that Bismarck created similar social protection for workers. This social protection was offered up as an essential prerequisite for stimulating increases in social justice.

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Macroeconomics, Iran and Egypt experiences

Hoda Selim was the discussant for two papers falling under the macroeconomic theme at the ERF 20th Annual Conference. The first paper entitled ‘Iran’s inflation Experience: Demand Pressures, External Shocks, and Supply Constraints‘ co-authored by Magda Kandil and Ida Mirzaie, showcased the Iranian inflation experience, pressures, shocks and constraints. Although Iran is an oil producing country, and oil brings in a lot of liquidity and money from outside to the domestic market, inflationary pressures have heightened.

[youtube http://www.youtube.com/watch?v=gyAmE9LPlis]

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The impact of economic and political volatility in the region

What is the impact of economic and political volatility on the economic health of countries in the Arab world generally, and on Foreign Direct Investments specifically? This question was addressed in a parallel session on the second day of the conference.

The first paper presented by Martijn BurgerElena Ianchovichina and Bob Rijkers entitled ‘Risky business: Political instability and Greenfield foreign direct investment in the Arab world, looks at the impact of political instability on Foreign Direct Investment (FDI) inflows into the MENA region.

Based on an analysis of quarterly Greenfield investment flows into MENA countries from 2003 to 2012, the authors explore foreign direct investments that are most affected by political instability. They find that investments in non-resource tradable/manufacturing sectors are very sensitive to political insensitivity but this sensitivity is not found for investments in natural resource sectors and non-tradable activities. In countries experiencing Arab Spring uprisings,  the authors find significant reduction in greenfield investments most starkly in the non-oil manufacturing sector. They argue that political instability is associated with increased reliance on non-tradable sectors and aggravated resource dependence. Political instability, therefore, impedes diversification in the MENA economies while strengthening investment in natural resources and non-tradable sectors.

Focusing on herding behaviours in the region’s stock markets

The second presentation by Mehmet BalcilarRiza Demirer and Shawkat Hammoudeh based on their paper entitled What drives herding in developing stock markets? Relative roles of own volatility and global factors‘,  looked at the influence of economic volatility on herd behavior. In their paper, authors aim to establish the volatility-herding link in the developing stock markets of the oil-rich GCC countries. Unlike the frequent presumption that herding volatility often comes from external factors, the authors argue that there is significant evidence of herding in all Gulf stock markets, with the domestic market volatility being the main trigger for herding behavior.

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The issue of capture and the failure of free public services

Day Two of the ERF 20th Anniversary Conference explored comparative experiences of social justice and provided participants with a highly informative and enriching second plenary session. Chaired by Heba Handoussa (Egyptian Network for Integrated Development and ERF), participants heard presentations by Shantayanan Devarajan (World Bank), Mahmoud El-Gamal (Rice University and ERF) and Carlos Eduardo Vélez (Universidad de Los Andes, Colombia).

The first speaker, Shantayanan Devarajan presents the issue of capture and the failure of free public services.

Around the world, countries establish constitutional rights and conditions governing the welfare of the poor. Those who are rich can get such rights without constraints largely due to increased political advantage and the ability to ‘capture’ the distribution of public goods. Shantayanan Devarajan presented case studies that highlight how the nature of free public services promote elite capture in the developing world – a key cause of breakdown in provision. His presentation focused mainly on African and Asian countries, namely Mali, Gabon, India and Indonesia respectively.

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Social justice, neo-liberalism and Islamic thought

Mahmoud El-Gamal, the second speaker in today’s plenary session, tackled themes at the very heart of this year’s conference. Asking what do we mean by social justice, El-Gamal examined theories of neoliberal economics and concepts of social justice from classical economics and Islamic thought.  Addressing whether or not neo-liberalism is compatible with Islamic law and Islamic thought, El-Gamal challenged the assumed incompatibility between the two. He argued that this was no longer compelling.

El-Gamal proposed that the majority of Muslims view Islam as favouring redistribution as a form of social justice, saying that “if the core theme in Christianity is love, in Islam it is justice”. He enhanced this argument by explaining that this was not simply a call for more equality of income, but rather that the very rich should contribute more and the state should play a greater role in redistribution and provision of public goods.

[youtube http://www.youtube.com/watch?v=ZArfibXY7Oc]

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Income inequality: the Latin American experience

As part of the second plenary looking at ‘Comparative Experiences of Social Justice‘ Carlos Vélez (Universidad de Los Andes, Colombia) presented a case on inequality in Latin America. Despite relatively high levels of income inequality when compared with other regions, data has revealed a fall in levels of inequality in Latin American countries. These improvements have mostly been witnessed in the last decade. In his opinion, the key factors driving inequality are changes in the distribution of human capital and policy variables such as transfers, subsidies and taxes that are not sufficiently ‘progressive’ in Latin America.

[youtube http://www.youtube.com/watch?v=4JLciFKlu70]

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