Thursday, December 1, 2016

Youth and the Economic Future of Arab States

"Most recent statistics indicate that two-thirds of the Arab region’s population is below thirty years
of age, half of which falling within the 15 - 29-year age bracket. This age category defines “youth”
according to the report, which estimates the number of young people in the region at over one hundred million. This unprecedented demographic mass of young people at the prime of their working and productive abilities constitutes a huge potential for advancing economic and social development if given the opportunity. ... The report asserts that today’s generation of young people is more educated, active and connected to the outside world, and hence have a greater awareness of their realities and higher aspirations for a better future. However, young people’s awareness of their capabilities and rights collides with a reality that marginalises them and blocks their pathways to express their opinions, actively participate or earn a living. As a result, instead of being a massive potential for building the future, youth can become an overwhelming power for destruction."

This comment comes from a report just published by the  United Nations Development Programme, the Arab Human Development Report 2016, which is subtitled "Youth and the Prospects for
Human Development in a Changing Reality." The report ranges over a wide array of issues, including gender, health, armed conflict, the role of religion, and others. Here, I'll focus on the economic challenge. The most visible problem is a need for job creation to reduce sky-high levels of youth unemployment in the region. But the solutions require confronting what this United Nations report calls the "failure of the Arab development model." Here's the unemployment problem in Arab countries (footnotes omitted for readability):
Unemployment among youth in Arab countries is the highest in the world, 29 percent in 2013, versus 13 percent worldwide. First-time job seekers account for around half the unemployed, also the highest rate in the world. Youth unemployment is hugely costly to the region’s societies and requires a major turnaround in policy thinking about jobs. The region needs to create more than 60 million new jobs in the next decade to absorb the large number of workforce entrants and stabilize youth unemployment. ... 
Job creation, particularly decent and sustainable job creation, is the most challenging issue facing the region. If the workforce continues to grow at current or similar rates, 60 million new jobs will need to be created in the next decade to absorb the large number of workforce entrants. Informality is one of the characteristics of employment in the region, and a large number of youth work in the informal sector where jobs are unstable and offer low wages and poor working conditions. For instance, over 2000–2005, 75 percent of new labour market entrants in Egypt were employed in the informal sector, a startling jump from only 20 percent in the early 1970s. Similarly, during 2001–2007, 69 percent of new jobs in Syria were in the informal sector.18 In 2011, vulnerable employment across the Arab region accounted for almost 30 percent of all jobs. The problem is even serious among low-income youth, who are more likely to settle for informal or unpaid family work.

The report argues that the underlying problem here is a development model which has placed too much reliance on government favoritism and government employment, in a way which has strangled the private sector. But the government isn't going to be able to pay for the 60 million new jobs that are needed. For a UN report, the language describing these issues is unsparing, even harsh. Here's a sample (again, footnotes omitted, along with references to figures):
"Countries in the Arab region share much more than a common language and social and cultural traditions. They have long pursued a model of development that is dominated by the public sector and turns governments into providers of first and last resort. This flawed Arab model of development depends on inefficient forms of intervention and redistribution that, for financing, count heavily on external windfalls, including aid, remittances and rents from oil revenues. The reliance on unearned income is sometimes dubbed the original sin of Arab economies.
"Since independence, most countries have seen little change in economic structure. Manufacturing—the primary vehicle for job creation in emerging economies—has registered painfully slow and sometimes negative growth. The public sector has either crowded out and manipulated the private sector or forged uncompetitive and monopolistic alliances, while inhibiting the development of viable systems of public finance. With few exceptions, the private sector is weak and dependent on state patronage, and the business environment hampers the rise of young and independent entrepreneurs. Because of their limited size and scope, the investments of the private sector have not been able to pick up the slack created by the more recent rollback in state employment. The sustainability of this system has been increasingly eroded by the rising costs of repression and redistribution.
"The state-led development model has created contradictions. It has expanded access to key entitlements, whether public employment or food subsidies, thereby raising some levels of human development. Thus, partly because of the entitlements, societies have been able to lower the incidence of poverty and income inequality, shielding disadvantaged groups from some of the worst economic pressures of our times. However, these ostensibly favourable outcomes have entailed a deeper trade-off in the long run. ...
"While the model has created an adverse legacy of entitlement that aims to sustain some individuals from conception to coffin, it has also fostered political marginalization, economic deprivation and social exclusion. Thus, the associated trade frictions push firms without political or social connections to the margins of the economy, and opportunities for absorbing young entrants to the workforce are lost. The model thereby hobbles promising enterprises, discourages economic efficiency and deters young talents because its goal is not to promote innovation or competition, but solely to preserve access to wealth and power among a few. The result is a top-down model that is based on hand-outs, undermines individual agency and encourages short-term consumption at the expense of long-term investment in human capabilities and competitive production.
The contribution of private investment to growth in the region is among the lowest in the world. This is especially the case because entrepreneurs consistently face anticompetitive and discretionary practices that favour incumbent or large firms at the expense of new entrants, small businesses and young entrepreneurs. These practices go beyond opportunistic corruption; they reflect a deep structural alliance between political and economic elites to secure economic interests. ... Resource rents in the region have been channelled into lavish and conspicuous real estate projects,  unproductive public sector spending and military expenditures, but the spending benefits a tiny slice of society." 
Conflict across the Middle East has many causes. But the combination of an interconnected world in which young people can see and hear how others around the world are living, combined with a system of political and economic governance that makes it extremely difficult for many of them to attain even a modestly secure middle-class economic future, is a recipe for social turmoil.